CVS is facing multiple federal lawsuits alleging that it has improperly retained 340B revenue intended for safety-net hospitals and other healthcare providers. Under the existing Pharmacy Services Agreements (PSAs) between covered entities and CVS, the contract pharmacy must pass through all third-party payor reimbursement for successfully adjudicated 340B specialty drug claims to the hospitals, less a dispensing fee. These current PSAs provide covered entities with significant audit rights over CVS’s books and records and permit disputes to be filed in open court without mandatory arbitration. In short, the current PSA is favorable to hospitals, CVS knows that and is desperate to substantially revise the agreement.
Investigations by several hospitals led to allegations that CVS systematically diverted 340B savings from covered entities. The hospitals have filed suit in federal court, alleging that CaremarkPCS (CVS’s PBM) initially adjudicates a 340B-eligible drug claim at standard network reimbursement rates, but upon later identifying the claim as 340B-eligible, reprocesses the claim at a substantially reduced reimbursement rate without informing the payor or patient. The lawsuits allege that CVS/Caremark retains the difference, breaching the PSA and diverting scarce recourses from uninsured and indigent populations to CVS. The investigations showed that CVS/Caremark retained the majority of the 340B savings, leaving the covered entities, which are supposed to be the primary beneficiaries of the program, with less than half.
Notably, CVS does not deny the under-reimbursement practices. Instead, they argue that nothing in the contract nor the 340B regulations expressly prohibit retaining the majority 340B revenue. This does not sit well with covered entities.
CVS’s Response to the Litigation: New Contracts and Termination Threats
Rather than work with covered entities to reach fair agreements, CVS has begun terminating all existing PSAs and issuing new contracts that covered entities must sign by December 1, 2026, on a take-it-or-leave-it basis, with no opportunity to negotiate or redline. These contracts are problematic.
The existing PSA is favorable to not-for-profit hospitals and the proposed agreement rebalances power and dollars to CVS. The differences between the existing and proposed PSAs are stark, including below fair market reimbursement terms, restricted audit provisions, and a mandatory arbitration provision. Critically, the new PSAs’ reimbursement schedule appears to codify the very under-reimbursement practice that the lawsuits challenged, while stripping covered entities of the robust audit rights and replacing federal court with confidential arbitration with no discovery and other restrictions.
CVS is also sending, or has already sent, termination notices effective at year-end to covered entities that have not signed the new agreements. The current PSAs’ at-will termination clause, which CVS argues permits termination on 30 days’ notice, presents covered entities with a difficult decision:
Sign the New PSA: potentially surrendering substantial legal claims for past damages and allowing CVS to continue retaining more of the 340B savings that rightfully belong to the covered entity; or
Evaluate Potential Claims Before Signing: assess potential claims concerning prior 340B reimbursement practices, including whether to pursue recovery of past revenue, before entering into a new agreement.
Covered entities should also consider that future revenue generated through 340B contract pharmacy relationships is declining and may face additional pressure in 2027 and beyond, driven by growing manufacturer restrictions and HRSA’s forthcoming “Rebate Model,” which will require Covered Entities to submit detailed claims data before receiving the 340B discount. Against this changing landscape, covered entities should closely evaluate practices that may further reduce the 340B revenue available to support their programs and patients.
Given this landscape, safety-net hospitals and other covered entities that rely on 340B savings to support care for vulnerable and underserved patients should carefully evaluate CVS’s proposed agreements and termination notices before deciding how to proceed.
Making an Informed Decision About CVS’s New 340B PSA
Covered entities potentially affected by the reimbursement practices alleged in the CVS litigation should conduct careful due diligence, including (1) estimating past losses potentially attributable to CVS’s reimbursement practices and comparing those amounts with (2) the present value of anticipated future revenue from the CVS contract pharmacy relationship, taking into account the changing 340B contract pharmacy landscape. Covered entities should also evaluate how the proposed PSA may affect their reimbursement, audit rights, dispute-resolution options, and potential claims for past losses before signing a new agreement.
How Frier Levitt Can Help
Frier Levitt represents covered entities in disputes involving 340B contract pharmacy arrangements and reimbursement practices, including the pending litigation against CVS. Our attorneys can help covered entities evaluate CVS’s new PSA and termination notices, quantify potential past losses, assess available legal claims, and determine how the new contractual terms may affect their 340B programs moving forward.
