Donuts sound delicious, unless you’re only getting the hole.

In the case of CVS pharmacies the Federal Trade Commission found the pharmacy chain was making consumers pay for the hole sooner than they had to. Now, they’re being penalized $5 million.

The “donut hole” in this case is a colloquial reference to the gap in Medicare coverage where consumers have to pay for medication out of their own pockets when they’ve passed the threshold of one coverage before reaching a new threshold of coverage. That gap that is paid for out of patient’s own pocket is known as the donut hole.

What CVS has been found guilty of is charging inappropriately high amounts to Medicare beneficiaries so they reach their maximum amount of coverage sooner.

According to the complaint:

“Many beneficiaries, therefore, unexpectedly entered the donut hole and became responsible for the total cost of their prescription drugs, with no opportunity to change plans until the next calendar year.”

Consumers would be unaware that they were eating into their benefits because they are only making a small copayment at the point of sale, but the amount being charged to their beneficiary allowance was as much as 10 times higher.

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Consumers were given the wrong pricing for medication through a subsidiary of CVS called RxAmerica.com.

According to the complaint, RxAmerica posted prices on their Plan Finder website and other third-party websites that the price of gabapentin 600mg, a generic drug used to treat epileptic seizures, at CVS was $26.83. In reality, RxAmerica was paying CVS $257.70, almost ten times that amount. Similarly, the price of megestrol, a generic drug used to relieve breast cancer symptoms, at CVS was $55.68, whereas RxAmerica actually was paying CVS $305.89, more than five times that amount. In 2008, RxAmerica represented the price of omeprazole 20mg, a drug used to treat ulcers and gastroesophageal reflux disease, at Walgreens was $22.04, whereas RxAmerica actually was paying Walgreens $162.00, more than seven times that amount.

The complaint stated:

“As a result of this reimbursement structure, many beneficiaries using CVS and Walgreens stores ran through their benefits coverage at faster rates than they would have based on the posted prices.”

Medicare Part D is a prescription drug benefit for consumers with Medicare coverage,

primarily senior citizens and persons with disabilities. Medicare drug plans differ in cost and offer a variety of benefits. Beneficiaries are directed to a government website CMS.gov (Centers for Medicare & Medicaid Services) where they could then access a program called Plan Finder.

According to the complaint:

“Beneficiaries rely on the information posted on Plan Finder when selecting a Medicare

drug plan because Plan Finder calculates the beneficiary’s estimated costs for any given

plan and projects which plan will keep the beneficiary out of the donut hole the longest

and which plan will have the lowest overall cost.”

Unfortunately, Plan Finder directed Medicare patients to the RxAmerica website where costs were misrepresented to the beneficiaries’ detriment. (Note: RxAmerica is changing their name to CVS Caremark.)

Today, the FTC has accepted as final an order with CVS Caremark settling charges that it misrepresented the prices of certain Medicare Part D prescription drugs, including drugs used to treat breast cancer symptoms and epilepsy, at CVS and Walgreens pharmacies.

The settlement bars deceptive claims related to Medicare Part D drug prices and requires CVS Caremark to pay $5 million to reimburse affected Medicare Part D consumers for the price discrepancy.

The FTC will mail redress checks to eligible consumers when records have been fully processed. Consumers do not need to take any additional action in order to receive their checks.