CVS Health Corp (CVS) has agreed to pay $18.3 million to settle allegations that its pharmacy division routinely billed California's Medicaid program for prescriptions without doing the required homework first.

U.S. Attorney Eric Grant announced the settlement with CVS Pharmacy Inc., resolving claims that the company sought Medi-Cal reimbursement for medications without confirming that patients had the necessary diagnoses or that proper documentation existed.

Here's how this is supposed to work: California's Medi-Cal program, which serves low-income residents and people with disabilities through joint federal and state funding, maintains a formulary of drugs that require extra scrutiny. These "Code 1" medications need specific diagnoses and documentation before pharmacies can dispense them. If a doctor prescribes a Code 1 drug for something outside the approved criteria, the pharmacy must submit a justification for review by the California Department of Health Care Services.

According to prosecutors, CVS didn't consistently follow these rules. The company allegedly failed to verify required diagnoses in numerous cases and sometimes dispensed Code 1 drugs for unapproved uses. Then it billed Medi-Cal anyway, despite lacking proper documentation. That led to violations of both the Federal False Claims Act and California's version of the law.

The settlement partially resolves claims brought by a former CVS pharmacist who used the False Claims Act's whistleblower provisions to flag the issue. That individual will receive roughly $3.3 million from the recovery, a standard reward for bringing violations to light.

CVS operates more than 9,000 stores nationwide, making it one of the country's largest pharmacy chains. The company regularly processes reimbursement requests for medications dispensed to Medi-Cal beneficiaries, so even small systematic failures in verification can add up quickly.

Price Action: CVS stock was down 0.77% at $77.81 at the last check on Tuesday.