On November 17, 2025, the United States Department of Justice (“DOJ”) announced that CVS Pharmacy had agreed to pay $18,282,280 to resolve allegations that it violated the federal False Claims Act (FCA) and the California’s False Claims Act by billing the Medi‑Cal program (California’s Medicaid program) for certain “Code 1” prescription drugs without the required diagnoses or documentation.
As alleged in the press release, CVS is one of the largest pharmacy chains in the U.S., with over 9,000 locations nationwide and more than 1,000 in California alone. Medi-Cal uses a formulary mechanism that classifies certain restricted drugs as “Code 1” drugs; reimbursement for those drugs is contingent on the presence of an approved diagnosis and required documentation by the pharmacy. According to the DOJ, CVS failed to confirm and document requisite diagnoses for Code 1 drugs and, in some instances, dispensed drugs for non-approved diagnoses and then submitted claims for reimbursement to Medi-Cal.
The settlement was the result of a qui tam (whistleblower) action brought under the federal FCA by a former CVS pharmacist. Under the terms of the settlement, the whistleblower will receive approximately $3.3 million of the recovery. Interestingly, the press release notes that “although CVS entered into a health care fraud settlement with the United States, CVS did not agree to compliance-related oversight with HHS-OIG through a corporate integrity agreement.” The press release also notes that the claims resolved by the settlement are allegations only, and that there has been no finding of liability.
Key Takeaways for Pharmacies & Pharmacists
1. Importance of Documentation and Diagnosis Validation
This matter underscores that pharmacies and other health-care providers participating in federal/state health-care programs must rigorously validate diagnoses and ensure that the requisite documentation is in place before submitting reimbursement claims. The “gatekeeper” role is not simply by prescription issuance but also by verifying compliance with the program rules.
2. Exposure Under Both Federal and State FCA Regimes
The combined use of the federal FCA and the California FCA means that entities operating in multi-jurisdictional environments must monitor not only federal regulatory regimes, but also state-level statutes that may mirror or enhance federal obligations. The risk profile may be heightened in states where Medicaid (or similar programs) adopt stricter formulary or documentation requirements.
3. Whistleblower (“Qui Tam”) Risks Remain Critical
The settlement confirms the ongoing importance of the qui tam provisions of the federal FCA: a private relator can bring an action on behalf of the United States and share in the recovery; here $3.3 million. As a practical matter, organizations should ensure robust internal-reporting channels, response protocols for whistleblower allegations, and periodic assessments of compliance programs for red-flags that might attract relators.
4. Absence of a CIA May Be a Strategic Signal
That CVS resolved the matter without agreeing to a Corporate Integrity Agreement (CIA) with HHS-OIG may reflect one or more of the following: (a) the scope of alleged wrongdoing was sufficiently narrow or remediated to the government’s satisfaction; (b) the parties negotiated a resolution that avoided the burden and oversight of a CIA; (c) the government weighed the costs/benefits of long-term oversight versus a monetary settlement. For other organizations, this raises the question of when a CIA becomes necessary and what triggers oversight obligations beyond paying a settlement.
5. Federal-State Coordination Remains Active
The press release indicates that the settlement is the result of a “joint effort” by the U.S. Attorney’s Office for the Eastern District of California, California’s Department of Medicaid Fraud & Elder Abuse, HHS OIG, and the FBI. This suggests enforcement frameworks increasingly draw on cooperative investigations across federal and state levels—meaning that fences between different investigative authorities are more permeable than ever.
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The attorneys at Chilivis Grubman represent pharmacies of all sizes in connection with government investigations, False Claims Act litigation, and other related matters. If you need assistance with such a matter, please contact us today.