Florida Takes Aim At CVS Caremark: Why The Sunshine State’s Investigation Could Be A Turning Point For PBM Oversight

For the past several years, independent pharmacies have watched state legislatures introduce increasingly aggressive pharmacy benefit manager reform measures.

Arkansas led the way. Tennessee recently followed with legislation restricting PBM ownership of pharmacies. Congress, CMS, the FTC and state attorneys general have continued to examine PBM reimbursement practices, patient steering, rebate arrangements, pharmacy network design and the competitive effects of vertical integration.

Rather than simply passing another PBM reform bill, Florida Attorney General James Uthmeier has opened a formal investigation into CVS Health and its pharmacy benefit manager, Caremark. The investigation seeks to determine whether CVS Caremark’s vertically integrated business model has harmed competition, limited patient choice and disadvantaged independent pharmacies.

Legislation changes the rules going forward. An investigation looks backward and asks what actually happened. It can require documents. It can require sworn testimony. It can test whether the business practices independent pharmacies have been complaining about for years are isolated problems or part of a broader competitive pattern.

Whether the Florida CVS Caremark investigation ultimately results in litigation, a settlement, policy changes or no enforcement action at all, one thing is already clear: state regulators are becoming increasingly willing to use their existing enforcement authority, i.e., to scrutinize pharmacy benefit manager business practices.

An Investigation Focused on PBM Vertical Integration

The Florida Attorney General’s Office has issued a Civil Investigative Demand requiring CVS Health to produce documents and sworn testimony regarding the operations of both CVS pharmacies and Caremark.

Among other things, Florida is seeking information concerning:

• pharmacy reimbursement methodologies;
• contracts with network pharmacies;
• patient steering practices;
• audit procedures and clawbacks;
• rebate arrangements;
• treatment of CVS-owned pharmacies compared to independent pharmacies; and
• future expansion plans.

Florida does not appear to be focused on a single disputed claim, a single pharmacy contract or a single reimbursement issue. Instead, the state appears to be examining how PBM vertical integration may affect competition across the pharmacy marketplace.

When a PBM controls access to patients, sets network terms, determines reimbursement, manages audits, processes claims, administers formularies and is affiliated with pharmacies that compete against independent pharmacies, the competitive concerns are obvious.

The question is whether the structure itself creates incentives to favor affiliated pharmacies, disadvantage independent competitors and push patients into pharmacy channels owned or controlled by the same corporate family.

The Allegations Mirror What Independent Pharmacies Have Been Saying for Years

The issues identified by the Florida Attorney General are familiar to independent pharmacy owners across the country.

According to the Attorney General, the investigation will examine whether Caremark has:

• steered patients toward CVS-owned pharmacies;
• reimbursed affiliated pharmacies differently than independent pharmacies for the same prescriptions;
• imposed audit practices that result in payment clawbacks;
• used contract terms that place disproportionate pressure on smaller community pharmacies; and
• engaged in business practices that limit patient choice or reduce competition.

Importantly, the issuance of a Civil Investigative Demand does not mean Florida has concluded that any of these allegations are true. A CID is an investigative tool. It is used to gather evidence before deciding whether additional legal action is warranted.

No enforcement action has been filed. No court has found wrongdoing. CVS Health and Caremark will have the opportunity to respond.

That said, the issues under review closely resemble concerns that independent pharmacies have raised in legislative hearings, administrative proceedings, arbitration matters, contract disputes and litigation throughout the country.

For years, independent pharmacies have argued that PBM steering does not always happen through a blunt instruction telling a patient to leave a community pharmacy. Sometimes it happens through preferred network design, mail-order requirements, specialty pharmacy restrictions, cost-sharing differences, call-center communications, refill messaging, prior authorization workflows or plan materials that make the independent pharmacy appear less convenient, more expensive or unavailable.

The same is true with reimbursement.

Independent pharmacies often do not see the full economic picture from one claim at the point of sale. The financial impact may come later through MAC pricing, effective-rate reconciliations, GER adjustments, audit recoupments, post-adjudication fees or contract terms that are difficult to evaluate in real time.

If the state obtains internal documents, communications, reimbursement data, audit policies, network standards, and affiliated-pharmacy comparisons, the investigation may shed light on business practices that are usually hidden from public view.

Why This Is Different From Another PBM Reform Bill

State PBM legislation remains important. There is no question about that.

Arkansas and Tennessee have pushed the PBM reform debate forward by targeting PBM ownership of pharmacies and challenging the role of vertically integrated pharmacy benefit managers. Other states continue to focus on reimbursement reform, pharmacy network access, patient steering restrictions, audit protections and transparency requirements. But legislation has limits.

New PBM laws are often challenged almost immediately. The litigation usually involves ERISA preemption, Medicare Part D, constitutional arguments, administrative authority and claims that state regulation will interfere with plan design or patient access.

Florida is not starting with a new ownership ban. It is starting with an investigation. The state is using existing authority to obtain facts, examine conduct and determine whether the evidence supports further action.

A developed factual record can influence future legislation, support enforcement theories, inform plan sponsor decisions and shape private litigation. It can also help policymakers understand how PBM practices work in the real world—not just how they are described in talking points.

For independent pharmacies, that is critical. Many pharmacy owners already know what the market feels like. They know what it is like to dispense prescriptions at unsustainable rates. They know what it is like to lose patients to affiliated mail-order or specialty pharmacies. They know what it is like to face audits that recoup payment over technical issues. They know what it is like to sign contracts they have no practical ability to negotiate.

But regulators need evidence. Florida’s CVS Caremark investigation may be one way to get it.

A National Trend Is Becoming Difficult to Ignore

Viewed in isolation, Florida’s investigation is significant.

Viewed alongside recent state and federal developments, it may represent something larger.

Across the country, PBM oversight is moving from a narrow pricing debate to a broader examination of market power, vertical integration, patient access and competition.

State legislatures are looking at PBM ownership of pharmacies. State attorneys general are investigating pharmacy benefit manager practices. Federal agencies are examining PBM compensation models, rebate arrangements, data reporting and conflicts of interest. Plan sponsors are asking harder questions about whether their PBM contracts actually serve the plan and its members.

The common theme is transparency.

For years, PBMs have operated in a system where key financial terms, reimbursement methodologies, rebate arrangements, pharmacy spread, affiliate payments and audit practices were difficult for pharmacies, patients, employers and even plan sponsors to fully evaluate.

That era appears to be changing.

Florida’s investigation adds another dimension to the national PBM reform landscape. Rather than waiting for additional legislation, the state is testing whether existing consumer protection and competition laws provide sufficient authority to investigate alleged anticompetitive PBM conduct.

That approach could become increasingly common.

Why Independent Pharmacies Should Be Paying Attention

For pharmacy owners, this investigation is about much more than one company.

If regulators begin requesting internal documents concerning reimbursement methodologies, audit policies, network participation standards, patient communications, rebate treatment and differential treatment of affiliated pharmacies, those materials could shape PBM reform efforts well beyond Florida.

The investigation may also provide policymakers with information that has historically been available only in confidential litigation, arbitration, government investigations or heavily restricted discovery.

That matters because PBM disputes often turn on documents and data that independent pharmacies cannot access on their own.

A pharmacy may suspect it is being reimbursed less favorably than an affiliated pharmacy. It may suspect patients are being steered away. It may suspect audit practices are being used in an unfair or disproportionate manner. But proving those claims requires records, comparisons, communications and internal policies that are usually controlled by the PBM.

A state attorney general has tools that individual pharmacies often do not.

That is why this investigation deserves close attention from independent pharmacies, pharmacy services administrative organizations, wholesalers, plan sponsors, healthcare providers and policymakers.

The facts developed in Florida could influence how regulators and courts evaluate PBM conduct in other states.

What Plan Sponsors Should Take From This

The Florida CVS Caremark investigation is not only relevant to pharmacies.

Plan sponsors should also be paying attention.

Employers, unions, governmental plans, and other health plan fiduciaries are under increasing pressure to understand how their PBM arrangements actually work. That includes reimbursement terms, rebate treatment, administrative fees, spread-related compensation, specialty pharmacy requirements, mail-order incentives, audit rights, data access and affiliate relationships.

A plan sponsor cannot meaningfully evaluate its pharmacy benefit if it does not understand where the money goes.

Nor can it fully assess patient access if the PBM’s network design, formulary structure or affiliated pharmacy relationships may influence where patients obtain their medications.

PBM oversight is no longer just a pharmacy issue. It is a plan sponsor issue, a patient access issue, a fiduciary issue and a competition issue.

Florida’s investigation reinforces that point.

What Happens Next?

CVS Health has stated that it intends to cooperate with the investigation while disputing the underlying allegations. The company maintains that pharmaceutical manufacturers—not PBMs—are primarily responsible for high prescription drug costs. CVS also emphasizes that independent pharmacies remain an important part of Caremark’s pharmacy networks.

The Civil Investigative Demand requires the production of documents and testimony by late July. After that, the Florida Attorney General’s Office will determine whether additional action is appropriate.

At this stage, no enforcement action has been filed, and no findings of wrongdoing have been made.

That should not be overlooked.

But neither should the significance of the investigation itself.

State attorneys general are no longer content to watch the PBM debate unfold solely through legislation. Increasingly, they appear willing to use investigative powers to examine whether vertically integrated PBMs are engaging in practices that reduce competition, limit patient choice, or place independent pharmacies at a competitive disadvantage.

Looking Ahead

The momentum surrounding PBM reform continues to accelerate.

Independent pharmacies should expect increased scrutiny of patient steering, reimbursement practices, audit programs, vertical integration, rebate arrangements, pharmacy network design and affiliated pharmacy treatment—not only in Florida, but across the country.

For pharmacies, providers, plan sponsors and healthcare organizations, the question is no longer whether additional PBM oversight is coming.

The question is where regulators will focus next.

Florida’s investigation into CVS Health and Caremark may become an important test of whether existing state enforcement authority can be used to examine the competitive effects of PBM vertical integration.

For independent pharmacies, that could be a turning point.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.