| Court: | United States District Court for the Southern District of New York |
| Case Number: | 1:24-cv-05303-MMG |
| Class Period: | 11/02/2022 - 10/17/2024 |
| Case Leaders: | Salvatore J. Graziano, Katherine M. Sinderson |
| Case Team: | Jonathan G. D’Errico, Prachi Patel |
BLB&G represents plaintiffs Louisiana Sheriffs’ Pension & Relief Fund, Southeastern Pennsylvania Transportation Authority, and City of Miami Fire Fighters’ and Police Officers’ Retirement Trust (collectively, the “Pension Funds”) in this securities class action brought on behalf of investors that purchased CVS Health Corporation (“CVS” or “the Company”) common stock during the Class Period. The action asserts claims against CVS and certain of its executives for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.
CVS’s Alleged Fraud
CVS is one of the nation’s largest Medicare Advantage providers. Throughout the Class Period, Defendants assured investors that the success of CVS’s Medicare Advantage business was attributable to macroeconomic sources or its unique offerings to beneficiaries and that the 2024 guidance “fully baked in” all known trends at which Medicare Advantage members use medical services.
Plaintiffs allege that CVS secretly employed AI algorithms to target and reject expensive requests for post-acute care at a massive scale. Plaintiffs further allege that CVS’s algorithms illegally denied claims based on cost, rather than medical necessity, to generate massive savings. As a result, CVS’s illegal algorithms painted a falsely rosy picture of CVS’s Health Care Benefits segment and CVS’s financial health.
In mid-2023, Defendants’ scheme began to collapse amidst a congressional investigation and new government regulations. As Defendants phased out CVS’s illicit algorithms, CVS was forced to provide the medically necessary care required under longstanding regulations. As a result, the rate at which CVS’s beneficiaries utilized CVS’s medical services increased, causing CVS’s medical costs to also rise.
Plaintiffs allege that the truth was revealed in 2024, as Defendants could no longer rely on CVS’s illegal algorithms and misleading guidance to prop up the Company’s performance. On May 1, 2024, CVS announced disastrous financial results for Q1 2024 that substantially lowered CVS’s 2024 guidance, including cutting diluted EPS guidance and reducing cash flow from operations guidance by $1.5 billion. CVS disclosed that its earnings shortfall was “primarily due to a decline in the Health Care Benefits segment’s operating results, reflecting utilization pressure in the Company’s Medicare business.” In response, CVS’s stock declined by about 16.8% to a closing price of $57.31 per share.
On October 17, 2024, a U.S. Senate subcommittee released its findings that CVS willfully disregarded Medicare Advantage rules and deployed cost-driven algorithms to deny Medicare Advantage claims in order to generate savings. Shortly after the Senate report was published, CVS announced that Defendant Karen Lynch, CVS’s then CEO, had stepped down. These revelations caused the price of CVS stock to decline by over 5% to a closing price of $60.34 on October 18, 2024.
On August 27, 2026, the Court denied in substantial part Defendants’ motion to dismiss Plaintiffs’ Amended Consolidated Complaint. The parties have since initiated discovery. On September 10, 2026, Defendants filed a motion for reconsideration of the Court’s August 27 Order denying Defendants’ motion to dismiss. Plaintiffs’ opposition to Defendants’ motion for reconsideration is due on September 24, 2026.