The healthcare industry is once again under scrutiny as Rite Aid Corporation and its subsidiaries, Elixir Insurance Company, RX Options LLC, and RX Solutions LLC, have agreed to a substantial settlement of $101 million. This settlement addresses allegations that the retail pharmacy chain, its related Medicare drug plan sponsor, and its affiliated pharmacy benefit managers (PBM) falsely reported drug rebates under the Medicare Part D program. A former employee of one of the PBMs blew the whistle on this pharmaceutical fraud scheme. While the whistleblower’s share of the settlement has yet to be determined, generally qui tam whistleblowers under the False Claims Act are entitled to 15-25% of the government’s recovery.

Understanding the Settlement

The main allegation was that these entities failed to accurately report drug rebates to the Medicare Program from 2014-2020, which resulted in the submission of false claims to the Centers for Medicare and Medicaid Services (CMS) and financial gain to the defendants. According to the allegations, Rite Aid and its pharmacy services line of business conspired to hide the rebates they received from pharmaceutical companies for certain prescription drugs, concealing them as “bona fide service fees.” Moreover, Elixir Insurance allegedly knew of the service fees deception.

Medicare Part D and the Role of Part D Sponsors

Medicare Part D Plan Sponsors are private insurance companies and other organizations that contract with Medicare to offer prescription drug plans (PDPs) and Medicare Advantage plans (Part C) that include drug coverage. These sponsors are responsible for designing and administering the plans, which includes creating formularies (the list of covered drugs), setting premiums, deductibles, and copayment or coinsurance amounts. They manage the enrollment process, provide customer service, and ensure compliance with Medicare regulations. Additionally, plan sponsors negotiate prices with pharmacies and pharmaceutical companies to manage costs, and they handle claims processing and reimbursement for beneficiaries’ prescription drug expenses. Some drug manufacturers offer discount or rebate programs. When Medicare is the payor for a pharmaceutical claim, Medicare should benefit from any rebates. Part D Sponsors are required to report any pharmaceutical rebates they receive to CMS annually. “Truthful and accurate documentation in the delivery of health care goods or services is crucial to the integrity of federal health care programs,” stated the Deputy Inspector General for Investigations of the Department of Health and Human Services Office of Inspector General (HHS-OIG). “Improper submission of manufacturer drug rebates and fees by Part D Plan Sponsors for pharmaceutical products in order to make more money will not be tolerated.”

Breakdown of the Settlement

Monetary Resolution: Rite Aid and Elixir Insurance will pay $101 million to the United States.

Bankruptcy Inclusion: RX Options and RX Solutions will provide an allowed, unsubordinated, general unsecured claim totaling $20 million in Rite Aid’s ongoing bankruptcy case in the District of New Jersey.

Bankruptcy Court Approval: The settlement was part of Rite Aid’s plan of reorganization, approved on June 28, 2024, becoming effective later this summer.

Implications for Healthcare Professionals

For healthcare professionals, this case serves as a crucial reminder of the importance of compliance and accurate reporting in all dealings with Medicare and other federal programs. The qui tam provisions of the False Claims Act encourage industry insiders, such as the former PBM employee whistleblower in this case, to speak up when they observe their employer doing something shady with government funds. Healthcare professionals should be aware of the protections granted to whistleblowers under the False Claims Act.

The message from the attorneys, HHS-OIG, and FBI Cleveland Field Office about this Rite Aid case was clear: companies that handle Medicare Part D benefits, ensure your practices align with regulatory standards and contribute positively to the federally-funded healthcare ecosystem.