A lawsuit has alleged that Caremark, the pharmacy benefit manager (PBM) operated by CVS Health, deliberately constructed a specialty drug formulary that steered patients toward more expensive medications while excluding cheaper alternatives that could have served the same therapeutic purpose. The core claim is that Caremark’s formulary decisions were driven not by clinical efficacy but by the rebates and fees the company collected from pharmaceutical manufacturers, effectively forcing patients and plan sponsors to pay inflated costs for specialty drugs when lower-cost options were available. For example, plaintiffs have pointed to situations where a biosimilar or generic specialty medication existed at a fraction of the brand-name cost, yet Caremark’s formulary either excluded it entirely or placed it on a tier that made it functionally inaccessible to patients.
This type of lawsuit sits at the intersection of pharmacy benefit management, fiduciary duty, and healthcare pricing — an area that has drawn increasing scrutiny from regulators, employers, and patients alike. Specialty drugs, which treat complex conditions like cancer, rheumatoid arthritis, and multiple sclerosis, represent a relatively small share of total prescriptions but account for a disproportionately large share of drug spending. When a PBM is accused of manipulating which specialty drugs appear on a formulary to maximize its own revenue rather than minimize costs for the plans and patients it serves, the financial and health consequences can be significant.
Table of Contents
- What Does the Lawsuit Claim About Caremark’s Specialty Drug Formulary Practices?
- How Do Specialty Drug Formularies Work and Where Can They Go Wrong?
- The Broader Regulatory and Legal Landscape Around PBM Practices
- What Should Affected Plan Sponsors and Patients Do?
- Common Pitfalls and Limitations in PBM Litigation
- The Role of Biosimilars in the Specialty Drug Cost Debate
- What Could Change Going Forward?
- Frequently Asked Questions
What Does the Lawsuit Claim About Caremark’s Specialty Drug Formulary Practices?
The lawsuit alleges that Caremark used its position as one of the largest PBMs in the United States to create formularies that prioritized drugs generating the highest rebates and administrative fees for Caremark, rather than the drugs that offered the best value or clinical outcomes for patients. In practical terms, this meant that when a plan sponsor — typically an employer or union health plan — hired Caremark to manage its prescription drug benefits, Caremark allegedly structured the formulary so that patients were directed toward high-cost specialty medications. Cheaper alternatives, including FDA-approved biosimilars and generics, were either left off the formulary, placed on higher cost-sharing tiers, or subjected to prior authorization requirements that discouraged their use. A key element of the complaint centers on the rebate structure that dominates PBM economics. Drug manufacturers frequently pay rebates to PBMs in exchange for favorable formulary placement.
The allegation is that Caremark kept a substantial portion of these rebates rather than passing the savings through to the plans and patients it was supposed to be serving. In one illustrative scenario described in filings, a brand-name specialty drug with a list price several times higher than an available biosimilar was given preferred formulary status, allegedly because the manufacturer’s rebate made the brand-name drug more profitable for Caremark — even though the plan and patient would have paid less out of pocket with the biosimilar. This creates a perverse incentive where the PBM benefits financially from higher drug prices, while the people paying for the drugs bear the cost. The plaintiffs have also pointed to Caremark’s ownership structure as a contributing factor. Because Caremark is a subsidiary of CVS Health, which also owns CVS Specialty pharmacy, the lawsuit suggests that Caremark had an additional incentive to route specialty prescriptions through its own affiliated pharmacy, where it could capture both the dispensing margin and the PBM management fees. This vertical integration, while legal, raises questions about whether Caremark’s formulary decisions were made in the interest of the plans it managed or in the interest of its parent company’s bottom line.
How Do Specialty Drug Formularies Work and Where Can They Go Wrong?
A formulary is essentially a list of medications that a health plan covers, organized into tiers that determine how much a patient pays out of pocket. Tier 1 typically includes the cheapest generics with the lowest copays, while higher tiers cover brand-name and specialty drugs with progressively higher cost-sharing. PBMs like Caremark are hired by plan sponsors to design and manage these formularies, negotiate drug prices with manufacturers, and process pharmacy claims. In theory, the PBM’s role is to use its bargaining power to secure lower drug costs for the plan and its members. Specialty drugs complicate this picture considerably. These medications — which often require special handling, injection or infusion, and close clinical monitoring — can cost thousands or even tens of thousands of dollars per month.
Because the dollar amounts are so large, even small differences in formulary placement can translate into enormous cost differences for patients and plans. A patient whose specialty drug is on a preferred tier might pay a flat copay of a few hundred dollars, while the same patient taking a non-preferred alternative could face coinsurance of 20 to 40 percent of the drug’s list price, potentially amounting to thousands of dollars per fill. However, it is important to note that formulary design is not inherently problematic. PBMs do have legitimate clinical and economic reasons for preferring certain drugs over others, and not every formulary exclusion reflects a conflict of interest. Some biosimilars, for instance, may have limited real-world efficacy data compared to the originator biologic, or a plan’s patient population may have specific clinical needs that justify a particular formulary structure. The critical question in this lawsuit is whether Caremark’s decisions crossed the line from legitimate formulary management into self-dealing — a distinction that often comes down to whether the PBM can demonstrate that its choices were clinically justified and whether rebate savings were appropriately shared with the plan.
The Broader Regulatory and Legal Landscape Around PBM Practices
Caremark is not the only PBM to face scrutiny over formulary practices. The three largest PBMs — Caremark (CVS Health), Express Scripts (Cigna), and OptumRx (UnitedHealth Group) — collectively manage prescription benefits for the vast majority of Americans with commercial insurance, and all three have faced lawsuits, congressional investigations, or regulatory actions related to their pricing and rebate practices. The Federal Trade Commission launched a major investigation into PBM practices and, as of recent reports, has issued findings suggesting that the largest PBMs have used their market power in ways that have raised drug costs for patients, particularly in the specialty drug space. At the state level, a growing number of legislatures have passed or considered laws requiring greater PBM transparency, including mandates that PBMs disclose rebate amounts, spread pricing margins, and the criteria used to make formulary decisions. Some states have gone further, imposing fiduciary duties on PBMs — meaning the PBM would be legally obligated to act in the best interest of the plan sponsor and its members, rather than in its own financial interest.
These legislative efforts reflect a bipartisan recognition that the current PBM business model creates conflicts of interest that can harm patients and drive up healthcare costs. For plan sponsors, this regulatory environment creates both opportunities and risks. Employers and unions that sponsor health plans may have legal claims against their PBMs if they can demonstrate that formulary decisions were made to benefit the PBM at the plan’s expense. However, proving this can be difficult because PBM contracts are often complex and opaque, and the rebate and fee arrangements that drive formulary decisions are typically protected by confidentiality clauses. The Caremark lawsuit, if it proceeds to discovery, could shed light on the internal decision-making processes that determine which specialty drugs make it onto formularies and which are excluded.
What Should Affected Plan Sponsors and Patients Do?
If you are a plan sponsor — an employer, union, or other entity that contracts with Caremark for PBM services — the first step is to review your PBM contract carefully, ideally with the help of a benefits consultant or attorney who specializes in pharmacy benefit management. Key provisions to examine include how rebates are calculated and shared, whether the PBM has discretion over formulary design, and what fiduciary or transparency obligations the PBM has agreed to. Some contracts include audit rights that allow the plan sponsor to examine the PBM’s rebate receipts and formulary decisions, but these rights are often limited in scope and time. For individual patients, the situation is more complex. If you have been prescribed a specialty medication and your formulary does not cover a cheaper alternative that your doctor has recommended, you may be able to request an exception or appeal the coverage decision through your health plan.
Most plans have a process for formulary exceptions, particularly when a physician provides clinical justification for a specific medication. Additionally, some specialty drug manufacturers offer patient assistance programs that can reduce out-of-pocket costs, though these programs are not available for all medications and may have eligibility requirements. The tradeoff for patients is between pursuing individual relief — such as a formulary exception or manufacturer copay assistance — and participating in broader legal action. Individual workarounds can provide immediate cost savings, but they do not address the underlying formulary structure that may be inflating costs across the plan. Class action litigation, by contrast, seeks systemic relief that could result in changes to how Caremark designs its formularies and shares rebate savings, but individual plaintiffs may see limited direct financial recovery, and lawsuits of this nature can take years to resolve.
Common Pitfalls and Limitations in PBM Litigation
One of the most significant challenges in lawsuits like the one against Caremark is establishing standing and proving damages. Plan sponsors must typically demonstrate that they paid more for specialty drugs than they would have under a formulary that included cheaper alternatives, and that the difference was attributable to Caremark’s self-interested formulary decisions rather than legitimate clinical or economic factors. This requires detailed analysis of drug pricing data, rebate flows, and formulary alternatives — information that is often controlled by the PBM and subject to confidentiality agreements. Another limitation is the role of arbitration clauses in PBM contracts. Many PBM agreements include mandatory arbitration provisions that require disputes to be resolved outside of court, which can limit the ability of plan sponsors to pursue class action claims.
If your contract with Caremark includes an arbitration clause, you may be required to pursue your claims individually through arbitration rather than joining a class action, which can reduce the use and efficiency that class proceedings provide. It is worth noting that the enforceability of arbitration clauses in this context has been litigated, and outcomes vary by jurisdiction. Patients and plan sponsors should also be aware that even successful litigation may not result in immediate formulary changes. Court orders and settlements in PBM cases have historically focused on financial relief — such as rebate pass-throughs or damages payments — rather than mandating specific formulary structures. This means that even if the lawsuit results in a favorable outcome for plaintiffs, the broader dynamics of PBM formulary management may not change unless accompanied by regulatory reform or significant market pressure.
The Role of Biosimilars in the Specialty Drug Cost Debate
Biosimilars — which are to biologic drugs roughly what generics are to traditional small-molecule drugs — are central to the allegations in the Caremark lawsuit. The FDA has approved a growing number of biosimilars for conditions ranging from rheumatoid arthritis to cancer, and these products are typically priced at a discount to their reference biologics. However, biosimilar uptake in the United States has historically lagged behind other countries, and critics have pointed to PBM formulary practices as one reason why.
If a PBM earns higher rebates from the brand-name biologic than it would from a biosimilar, it has a financial incentive to keep the brand on the formulary and exclude or disadvantage the biosimilar, even when the biosimilar would be clinically appropriate and cheaper for the plan and patient. For example, in the case of adalimumab — the active ingredient in Humira, one of the best-selling drugs in history — multiple biosimilars have received FDA approval and entered the market at lower list prices. Yet formulary adoption of these biosimilars has varied significantly across PBMs, and patients have reported difficulty accessing them through their insurance. The Caremark lawsuit draws attention to these dynamics and asks whether PBM formulary decisions around biosimilars are being made in the interest of patients and plans, or in the interest of the PBM’s revenue.
What Could Change Going Forward?
The outcome of the Caremark lawsuit, along with parallel regulatory efforts at the federal and state levels, could reshape how PBMs manage specialty drug formularies. If courts or regulators impose stronger fiduciary duties on PBMs, or require greater transparency in rebate and formulary decision-making, it could become harder for PBMs to maintain formularies that favor high-cost drugs over cheaper alternatives. Some industry observers have predicted a shift toward cost-based formulary models — where formulary placement is determined primarily by net cost to the plan rather than gross rebates to the PBM — though such a transition would require significant changes to the way PBMs are compensated.
For now, the case serves as a reminder that patients and plan sponsors should not assume their PBM is acting solely in their interest. Scrutinizing formulary decisions, understanding rebate arrangements, and staying informed about legal and regulatory developments in the PBM space are all important steps for anyone who relies on specialty medications or sponsors a health plan that covers them. As the legal and regulatory landscape continues to evolve, there may be new opportunities for affected parties to seek relief and push for a more transparent and patient-centered approach to specialty drug coverage.
Frequently Asked Questions
What is a pharmacy benefit manager and what role does Caremark play?
A pharmacy benefit manager, or PBM, is a company that manages prescription drug benefits on behalf of health plans. Caremark, a subsidiary of CVS Health, is one of the largest PBMs in the country and is responsible for designing formularies, negotiating drug prices, and processing pharmacy claims for millions of Americans. The lawsuit alleges that Caremark used this role to steer patients toward costlier specialty drugs that generated higher rebates for the company.
How do I know if my health plan uses Caremark as its PBM?
Your plan’s PBM is typically identified on your pharmacy benefit card, in your plan documents, or through your employer’s human resources department. If your prescriptions are processed through CVS Caremark or you use the CVS Caremark website or app to manage your pharmacy benefits, Caremark is likely your PBM.
Can I request a cheaper alternative if my formulary only covers an expensive specialty drug?
Yes. Most health plans allow you to request a formulary exception, especially if your doctor provides clinical justification for an alternative medication. You can also ask your doctor whether a biosimilar or generic is available for your condition and work with your plan to determine coverage options. Be prepared for a process that may require documentation and potentially an appeal.
What is the difference between a biosimilar and a generic drug?
Generic drugs are chemically identical copies of small-molecule brand-name drugs and are approved through an abbreviated process. Biosimilars are similar but not identical to complex biologic drugs and must undergo a more rigorous approval process demonstrating that they have no clinically meaningful differences from the reference biologic. Both are typically less expensive than their brand-name counterparts.
How long do class action lawsuits like this typically take to resolve?
PBM class actions can take several years from filing to resolution, depending on the complexity of the case, the scope of discovery, and whether the parties reach a settlement or proceed to trial. Some cases settle relatively quickly, while others can stretch on for five years or more. Affected parties should monitor the case for updates but should not expect immediate results.
Are other PBMs facing similar lawsuits?
Yes. Express Scripts, OptumRx, and other PBMs have faced similar allegations regarding formulary manipulation, rebate retention, and conflicts of interest. The FTC has also investigated the three largest PBMs and issued reports critical of certain industry practices. The Caremark lawsuit is part of a broader wave of legal and regulatory scrutiny directed at the PBM industry as a whole.