CVS To Pay $36.7 Million For Improperly Switching Medications

CVS has settled a lawsuit that alleges the pharmacy giant improperly switched customers to a more expensive form of their medication in order to collect more money from Medicaid.

A lawsuit alleging fraud by the chain-drugstore company was brought by an Illinois pharmacist and joined by the federal government and 23 states that paid for the medication.

The complaint, filed in 2003 in U.S. District Court for Northern Illinois, alleges that CVS pharmacies switched Medicaid patients taking the generic form of stomach medication Zantac to capsules from tablets. Medicaid sets maximum reimbursement prices for the tablet form of the drug but not for capsules, which are more expensive but prescribed less frequently by doctors.

The suit alleges that the switch cost taxpayers as much as 400% more than what would have been paid for tablets. The pill-switching allegedly took place from April 1, 1999, through Dec. 31, 2006.

The case was brought by Bernard Lisitza, who worked as a pharmacist processing CVS prescriptions. Mr. Lisitza previously filed a suit against pharmacy company Omnicare Inc. that settled in 2006 for $50 million. Both suits were filed under the False Claims Act, which allows people to file claims alleging fraud against the government and lets them recover a share of any payments.

Mr. Lisitza’s share of the settlement will be $4.3 million. Sort of makes you wish you knew about fraud against the government, doesn’t it?

CVS denied wrongdoing.

CVS to Pay $36.7 Million Over Claim Of Improper Switch of Medications [Wall Street Journal]


Edit Your Comment

  1. scoobydoo says:

    I love it when a company “denies wrongdoing” yet forks over this much cash.

    If they really didn’t do anything wrong they would fight this till the end and pay nothing.

    You don’t pay $36.7 million and claim you are innocent.

  2. randombob says:

    How could they deny it, exactly? It happened, right? They did that? So….

    Walks, quacks, similar to…..

  3. uberbucket says:

    Why is the nice Mr. Lisitza getting $4.3 million exactly?

  4. homerjay says:

    Okay, I know its unrelated, but someone answer me this-
    When a pharmacy is being built and they signs are installed on the side of the building, why do they cover up the “Pharmacy” sign until the store opens and not any of the other signs?
    Every pharmacy I’ve ever seen being built does this. I think its some sort of regulation.

  5. teh says:

    @uberbucket: You get a reward if you report fraud against the government.

  6. failurate says:

    @homerjay: probably has to do with urgent care situations, don’t want to advertise a potentially semi-emergency service unless you are really ready to provide it.

  7. SadSam says:


    Its called qui tam, you bring a law suit in the name of the government the gov generally swoops in and continues the case and you basically get a finder’s fee.

  8. dude8604 says:

    It seems like there should be criminal charges against the person or people who made this decision (fraud/conspiracy to commit fraud).

  9. Phexerian says:

    CVS is a horrid company to work for and get your prescriptions from. I will never work for them again nor will I ever recommend that anyone go to them for any reason.

    Homerjay I dont know the real answer to your question, but my guess would be that because they are stocking the store with expensive drugs, including controlled drugs and narcotics, they do not want to advertise to everyone that there is an empty pharmacy sitting there with no one in it waiting to be robbed.

    It is too bad you can’t sue the insurance companies like the Caremark portion of CVS for fixing prices. Pharmacie are told what they are to get paid for drug reimbursement. We don’t get a say really.

    What angers me the most, is that CVS was robbing the tax payers money. I don’t think they should have settled out of court. But I am sure the pharmacist wanted that 4.3 million. Can’t blame her.

    -2nd Year PharmD Candidate

  10. homerjay says:

    @failurate: See, I thought about that, but really how is it any different than the store simply being closed?

  11. valarmorghulis says:

    @homerjay: it could have something to do with the Rx having to be liscensed by some agency as meeting medication storage standards or something. if that’s the case, then it makes sense that they can’t show the Rx sign until the inspection has occured. could also be that an inspection cannot occur until a place is open for business.

  12. DeliBoy says:

    You might have thought that they’d learn from their ancestors.

  13. TheSpatulaOfLove says:

    @DeliBoy: …Or maybe those that ran the show at Arbor Drugs injected the idea to do the same with some modification to the scheme…

  14. vex says:

    I wonder if CVS made far more than 36 million from the scam.

  15. bohemian says:

    “through Dec. 31, 2006”

    Ahem. They were doing this at the same time Zantac was available as a generic OVER THE COUNTER. A bottle of about 100 pills generic was about $20 retail or less in 2006.

    I’m sure CVS made more than they paid out so this scam was profitable for them over-all.

  16. Hambriq says:


    Yes, but most patients on Medicaid cannot afford (or choose not to spend their money on) the over the counter version. They can get it for free on their state Medicaid plan, but only if a doctor writes a prescription for it.

    It’s great for the pharmacies, great for the drug companies, great for the Medicaid beneficiaries, and absolutely terrible for the taxpayers because we are paying about $80 for a 100-count bottle of prescription Ranitidine when it costs about $20 on the open market.

  17. Ghede says:

    I say make CVS foot the bill for the NEXT tax rebate. That will teach them.

  18. ShadowFalls says:

    I think everyone is reading into it wrong. CVS denied any wrongdoing, not that it actually happened. I guess it figured it was ok to go and do something like that. Must have taken a page out of the books of many other companies.

  19. mac-phisto says:

    ahhh…the wonders of privatization. everyone talks about how corrupt & inefficient the government is & yet time & time again we are presented with evidence like this.

    privatization was supposed to reduce medicare fraud – instead it’s like we handed the wolves the keys to the chicken coop. before you just had to worry about small-time dirty doctors overbilling – now we’ve got multi-billion corps pulling illegal subsidies.


  20. Hambriq says:


    Ummm… I’m not sure if you understand how the system works here. These abuses would not be possible if the Medicaid system was not inefficient, poorly run, and hampered with administrative red tape. The system should not be set up so that such overcharges and abuses are possible. Every day I see the potential to abuse the Medicaid system system either for either the company’s, the patient’s, or even personal benefit. Some of them are obviously illegal, but the majority of them are well within the confines of the law.

    Does that justify the system being abused? Of course not. To me, this issue is an indictment of both sides of the equation. CVS for perpetrating this fraud, and the Medicaid program for being structured in such a way to allow this to happen unchecked.

  21. mac-phisto says:

    @Hambriq: i think i have a pretty good handle on it. my information is 2nd hand (i don’t work in the industry), but i understand how it works. the government has very little direct interaction with the program. it’s all subcontracted: billers, payers – even the fraud units (which are paid per claim processed, so their incentive is not to discover fraud as it will reduce no. of claims processed).

    i’d imagine even private companies are deciding which drugs are covered & at what limits, with the government acting as no more than a rubber stamp – to be honest, that is the only part of the pyramid i don’t know about. perhaps you can enlighten.

    the point is that top to bottom, hardly anybody cares whether our money is being spent wisely or wasted. on the contrary, in cases such as these, cvs would much rather receive full compensation for their prescriptions than dispense them at a reduced fee. that’s just good business, right?

    on a side note, i have a relative working for a software company that has the market cornered on “rules-based” medicare/medicaid billing software. basically, it disallows the billing of products that aren’t covered based on your condition. as far as i know, it’s the first (& only) private software package that works in this manner. cool stuff.

  22. Elvisisdead says:

    @mac-phisto: I did work in the industry. The thing here is that both forms of medication are valid for the diagnosis. It’s not Medicaid’s fault that it happened. The breakdown is at the pharmacy – when the paper script comes in and the Pharmacy tech enters it as something else, only an audit can turn it up. The solution is an open network of e-prescriptions that would get rid of stupid paper script pads.

    It’s Medicare fraud to deviate from the script intentionally. Again, usually an audit that catches it. The amount that CVS paid is most likely a CMP (civil monetary penalty). It’s an administrative enforcement tool, rather than a “court settlement”, but court settlement is an easy way to present it. There can be criminal charges filed against those who made the decision to substitute the pill, but it’s highly unlikely. Criminal cases are investigated by the OIG, and then turned over to DoJ for prosecution. It’s much more likely that it would be handled by a CMP to reclaim the money, as the beneficiaries weren’t injured – they got the medicine- just in a different form.

    The amount of the CMP isn’t decided arbitrarily. You can guarantee that the gov will be paid back 100% for any loss + extra (hence the penalty).

  23. mac-phisto says:

    @Elvisisdead: i think that’s kind of what i was getting at. correct me if i’m wrong, but aren’t the audits also conducted by government contractors?

    i guess my point is that “the private sector is more efficient than the public sector” sentiment is rubbish. there’s just as much (if not more) incentive to bilk the system.

    & completely o/t, but gogol bordello is f-ing awesome.

  24. Hambriq says:

    @mac-phisto: You are thinking about Medicare with the subcontracts. A very different story than Medicaid. With Medicaid, the individual state comes up with its formulary to decide what drugs are covered and at what limits. And this is precisely what causes the system to be open to such abuses.

    A prime example: Up until about December of last year, Medicaid in my state would not pay for Cefdinir suspension or Amlodipine tablets (the generics of Omnicef and Norvasc, respectively). Rather, they would only cover the brand name medication, which was about $60 more expensive per prescription dispensed.

    Why? Because no one had updated the formulary to include the generics which had just come out. Administrative lag time and laziness was costing our tax payers $60 per prescription for a good six months or so. I can’t even begin to estimate the number of Medicaid covered Omnicef and Norvasc that came through my pharmacy in that time period.

    And in this case, when the extremely expensive capsules are covered alongside the modestly priced tablets, again it is the fault of Medicaid for covering the more expensive medication.

    Ultimately, what you said is the perfect summary of the situation: “[H]ardly anybody cares whether our money is being spent wisely or wasted.” Because there is no oversight, no accountability, money literally gets flushed down the toilet in situations such as these. At least with privatization, holes such as these would get plugged as fast as you could say “Money”.

    P.S. Now, I don’t support full privatization, for the same reason that I don’t support full socialization. I believe there is a balance that needs to be struck between efficiency, accessibility and quality. A privatized system sacrifices accessibility for extreme efficiency, and a socialized system sacrifices efficiency for extreme accessibility (as we see in this example). And in both cases, quality falls by the wayside, for different reasons. Neither system is ideal.

  25. Hambriq says:

    @Elvisisdead: I do work in the industry, and I agree that an open network of e-prescriptions would do wonders to make the system more efficient. However, I think your blame is misplaced, because it implies an error on behalf of the technician or the employees of the pharmacy.

    If a doctor writes a prescription for Zantac 10mg, both Ranitidine 10mg capsules and Rantidine 10mg tablets are valid for dispensing, as you said. A technician could choose between dispensing the tablet or the capsule form of the medication. However, in most retail pharmacies, specific price data is either obscured or inaccessible, so most technicians and pharmacists would not know whether or not one form of the medication is more or less expensive.

    Furthermore, if only one specific form of the product is commonly stocked, then naturally that will be the form of the product that you most commonly dispense. Again, with most retail pharmacies, the routine stock is managed at a corporate level and typically not changeable by retail-level employees.

    So, if CVS corporate is automatically stocking the pharmacies’ shelves with Ranitidine capsules rather than tablets, the employees will have little reason to dispense the tablets. And if the pricing data is obscured or inaccessible, the employees will have little reason to question the specific form of Rantidine that CVS chooses to dispense.

    Thus, I would say the blame lies with the pharmacy, but at a corporate level, not at an employee level.

  26. cadet526 says:

    Your quote:
    “It is too bad you can’t sue the insurance companies like the Caremark portion of CVS for fixing prices.”

    You got it totally backwards. It was Medicaid’s LACK of “fixing” the price that was letting CVS bill way too for it. I’m not in any way condoning it. It was a huge loophole in their claims system that allowed this to happen and CVS took advantage. Also, insurance companies don’t “fix” pricing, they negotiate a rate with the pharmacy as to what to reimburse. Make sure you sign up for healthcare economics before you graduate.

  27. cadet526 says:


    From one person who works in the industry to another. Zantac capsules are not AB rated to the tablets which makes it against FDA regulations to substitute. I find it shocking that no one came out with this sooner. I can’t see every CVS pharmacist in Illinois doing this. But, then again, its CVS.