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States Sue Peoples Benefit Services

First Prosecution of Allegedly Fraudulent Medicare Drug Plan

November 3, 2005
Pennsylvania Attorney General Tom Corbett has filed a civil lawsuit and a special injunction against Peoples Benefit Services Inc., accusing the company of deceiving thousands of mostly older consumers by falsely implying that its discount drug cards and other products are government-endorsed insurance plans that offer "members" significant savings on prescription drugs, family medical and/or dental "coverage."

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The multi-state lawsuit marks the first legal action against a private company for allegedly using deceptive advertising and marketing to convince consumers that its products are affiliated with the government approved Medicare Part D Prescription Drug Plans.

The complaint and special injunction grow out of a 20 month multi-state investigation by Corbett and Attorneys General from Arkansas, Illinois and Massachusetts into the business practices of Peoples Benefit Services Inc

Pennsylvania led the multi-state probe into claims that the defendant violated the states' consumer protection laws, the Social Security Act, U.S. Postal rules regarding deceptive mail, and Pennsylvania's Fictitious Names Act and Telemarketer Registration Act.

The special injunction asks the court to prohibit Peoples from advertising, promoting and selling its products and memberships to senior citizens and Medicare recipients in a deceptive manner.

It also seeks to prevent thousands of consumers from purchasing the defendant's drug cards, which were deceptively marketed to replicate government-approved Medicare Part D Prescription Drug Plans.

Enrollment for the government approved drug coverage is scheduled to begin this November 15. Failure to enroll in the true government approved programs could result in loss of critical drug coverage and benefits or a requirement to pay a penalty for delayed enrollment.

In addition, the complaint asks the court to require Peoples to comply with all applicable state and federal laws plus cease conducting business in the states until it issues full refunds to consumers and pays civil penalties including enhanced fines for victims age 60 or older.

"Prescription drug coverage is the biggest change to the Medicare program in the last 40 years," Corbett said during a news conference in Philadelphia to announce the lawsuit.

"It is no coincidence that the defendant's drug cards are being advertised as 'look-a-likes' to the federal government approved plans that will begin accepting enrollees in two weeks.” According to investigators, the defendant in 2002 was issued a warning by the Pennsylvania Office of Attorney General that its business practices were in violation of the state's Consumer Protection Law.

The warning followed complaints from consumers that Peoples denied their requests for refunds on its prescription drug discount products despite the company's "full 60-day Money-Back Guarantee." The complaints were resolved through mediation.

Then in January 2003, Peoples began marketing its new prescription drug discount card for seniors at the same time of the intended start-date for enrollment in the Medicare-endorsed prescription drug card plan.

The defendant's program was called the "Senior Security Prescription Plan" or "Senior Security Supplement Initiative."

The defendant advertised its $5.95 per month prescription drug discount card through statewide telemarketing activities, TV ads and direct mail pieces that were sent to approximately 1.3 million Pennsylvania households.

The lawsuit claims that the print and broadcast ads contained similar words, typeface, phrases, logos and other characteristics to convince consumers that they were signing-up for the government-endorsed or approved prescription drug card program, including:

• Use of words such as "enrollment period, waiting period, schedule, plan, benefit and coverage."

• Bold type headlines that state, "NOTICE OF ELIGIBILITY FOR THE SENIOR SECURITY PRESCRIPTION PLAN," and "YOU HAVE JUST BECOME ELIGIBLE FOR A PRESCRIPTION DISCOUNT DRUG PLAN.

• The same sized circular logo that is used by the Social Security Administration.

• The inclusion of the consumers' exact date-of-birth on the "activation form."

In May 2003, the defendant's circular logo, also used by its sister company Peoples Benefit Life Insurance of the same address, resulted in a Cease and Desist notice from the Inspector General of the Social Security Administration (SSA).

The notice informed the business that its logo and use of the name "Senior Security Supplement" was in violation of federal law barring the use of SSA's program words, letters, symbols or emblems that create the false impression that the ad is approved, endorsed or affiliated with the government.

Other alleged deceptions in the ads include:

• misleading information that implies the program is an insurance plan rather than a discount card;

• false and grossly inflated dollar amounts associated with the amount of money all consumers have saved in the particular plans;

• false claims that consumers will save significant amounts of money on prescription drugs, when in some cases, the cost of the program has exceeded actual savings;

• creating a false sense of urgency and claiming that there was a limit on the number of consumers able to enroll, and

• providing outdated information on the pharmacies participating.

Investigators said consumers contacted their Attorney General soon after the ads were released to complain that the solicitations were deceptive and misleading.

In Pennsylvania, consumers claimed that they thought the mailings were from the U.S. government because of the similar color, layout, font and wording. Others said some of the print ads included a fictitious bill implying that consumers already agreed to a purchase.

Still other Pennsylvania residents complained that the defendant contacted them at their homes even though their names and addresses were officially registered on the state's "Do Not Call" list.

The Commonwealth's suit accuses the defendant of engaging in illegal telemarketing activities by failing to purchase the state's "no call" list prior to contacting consumers.

The lawsuit and special injunction asks the court to require the defendants to:

• Immediately cease advertising, promoting and selling its new drug card deceptively.

• Refund consumers who file complaints claiming that they purchased the plan because they thought it was a government-endorsed prescription drug card offer.

• Pay civil penalties of $1,000 per violation and $3,000 for each violation involving a consumer age 60 or older.

• Forfeit its right to conduct business in the Commonwealth pending payment of civil penalties and consumer restitution.

• Pay the states' investigation costs.

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