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Providence, RI - A Rhode Island federal judge on Thursday dismissed Caremark from long-running litigation alleging CVS schemed with pharmacy benefit managers (PBMs) to overcharge insured health plans for generic drugs. The judge ruled that Caremark's contracts with the benefit funds contain enforceable arbitration clauses.

U.S. District Judge William E. Smith noted in his order that PBM Caremark has identified approximately 2,600 benefit funds with contracts requiring either arbitration or mediation before litigation. Due to these contractual provisions, both the benefit funds and Caremark — a subsidiary of CVS — agreed that the court should dismiss Caremark from the case, Judge Smith stated.

Regarding CVS, Judge Smith pointed out that the company is not a party to the contracts. However, the question remains if CVS may invoke alternative dispute resolution provisions to get some claims dismissed or exclude those benefit funds from the class certified in 2021. Judge Smith said this question must be delegated to an arbitrator.

Rather than dismiss the claims brought by the benefit funds subject to the Caremark contracts, Judge Smith placed them "in a subclass for which this case is stayed until completion of the arbitrator's assessment of arbitrability."

"If an arbitrator finds a [benefit fund's] claims not arbitrable, the court will lift the stay for those claims and allow them to proceed," Judge Smith said.

The dispute dates back to 2016 when the Sheet Metal Workers Local No. 20 Welfare and Benefit Fund accused CVS of violating state consumer protection laws, negligent misrepresentation, and unjust enrichment by failing to price its health savings pass membership with its "usual and customary" price. This allegedly led to inflated prices submitted to PBMs, resulting in insured consumers paying more for generics than the usual and customary cash price.

In 2018, the benefit fund lodged an amended complaint naming Caremark as a defendant and adding a claim that CVS conspired with PBMs to defraud health plans by not requiring them to report health savings pass pricing as usual and customary pricing.

The Sheet Metal Workers fund case was consolidated with a similar one filed by the Plumbers Welfare Fund, Local 130, U.A. in 2017. In May 2021, Judge Smith granted certification to multiple classes of health plans, rejecting the companies' arguments that the classes were too obscure and would require an unmanageable amount of work to identify class members.

In the same order, Judge Smith granted Caremark's motion to dismiss the Sheet Metal Workers fund's claims because of the arbitration clause in their contract.

On Thursday, Judge Smith also ruled that certain benefit funds whose contracts don't delegate issues of arbitrability to the arbitrator must arbitrate their claims against CVS. These benefit funds, governed by Delaware, Hawaii, and Texas law, must be excluded from the class because CVS can invoke its alternative dispute resolution provisions through equitable estoppel under state law, the order said.

The benefit funds argued that federal law should apply, Judge Smith added.

Several contracts involve mediation clauses rather than arbitration ones. Those funds, governed by California, Delaware, Florida, Georgia, Iowa, Massachusetts, New York, Ohio, Tennessee, Texas, or Virginia law, must also be excluded from the class, Judge Smith held. However, the benefit funds with mediation clauses governed by Alabama, Colorado, Idaho, Illinois, Indiana, or New Jersey law may proceed, Judge Smith ruled.

CVS, Caremark, and counsel for the benefit funds didn't immediately respond to requests for comment Friday.

Plumbers Welfare Fund, Local 130, U.A., and the Sheet Metal Workers Local No. 20 Welfare and Benefit Fund are represented by Steve W. Berman, Daniel J. Kurowski, Christopher R. Pitoun, and Mark T. Vazquez of Hagens Berman Sobol Shapiro LLP, and Elizabeth A. Fegan of Fegan Scott LLC.

CVS and Caremark are represented by Robert C. Corrente of Whelan Corrente & Flanders LLP and Enu Mainigi, Craig D. Singer, William T. Burke, Grant A. Geyerman, and Kathryn E. Hoover of Williams & Connolly LLP.

The cases are Sheet Metal Workers Local No. 20 Welfare and Benefit Fund et al. v. CVS Health Corp., case number 1:16-cv-00046, and Plumbers Welfare Fund Local 130 v. CVS Health Corp., case number 1:16-cv-00447, in the U.S. District Court for the District of Rhode Island.