A federal judge has ordered CVS Health’s (CVS) Caremark unit to pay nearly $290 million after finding that it overcharged Medicare for prescription drugs. Indeed, Chief Judge Mitchell Goldberg in Philadelphia increased the original damages from $95 million to $285 million under the False Claims Act and added a $4.87 million civil penalty. Unsurprisingly, the healthcare company had asked for a lower amount by arguing that only two years of billing were involved. However, the judge ruled that the fraud was clearly driven by financial motives, not by accident or misunderstanding.
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Notably, the case came from a whistleblower lawsuit filed by Sarah Behnke, a former Medicare Part D actuary at Aetna, who claimed that CVS Caremark caused insurers like Aetna to submit inflated drug prices to Medicare while paying less to pharmacies. The judge noted that this misconduct didn’t just harm the government financially, but it also damaged public trust. He emphasized that Medicare relies on accurate pricing data from companies like Caremark and that this breach hurt the credibility of the program.
It is also worth noting that this is not the only legal issue that CVS is facing. In fact, just last month, the company’s Omnicare division was ordered to pay nearly $949 million in a separate whistleblower case that involved fraudulent billing as well. CVS has said that it plans to appeal both rulings. Interestingly, these lawsuits fall under the False Claims Act, which allows whistleblowers to sue on behalf of the government and receive a share (typically between 15% and 30%) of any recovered funds.
Is CVS Stock a Good Buy?
Turning to Wall Street, analysts have a Strong Buy consensus rating on CVS stock based on 14 Buys, one Hold, and zero Sells assigned in the past three months, as indicated by the graphic below. Furthermore, the average CVS price target of $83.13 per share implies 17% upside potential.
