Best Price Fraud
Best Price Fraud occurs when a pharmaceutical company intentionally provides the government with incorrect information regarding their medications’ price. By manipulating the data currently available on the open market (the so-called “Best Price”), manufacturers are able to increase their profits at the expense of federal assistance programs. This illegal scheme is one of many offenses that falls under the False Claims Act, which imposes liability on companies that defraud the United States authorities.
What are Best Price and Average Wholesale Price?
Assistance programs guarantees that enrollees pay the least amount of money possible for their prescription medications. Medicaid ensures this Best Price through a rebate program that requires pharmaceutical companies to provide the government with the lowest fee they offer across the entire drug marketplace. This includes local rebates at pharmacies and volume discounts paid by the wholesale market, the authorities, and private providers.
If a citizen pays a higher amount than the one agreed upon, Medicaid will supplement the price difference between the two so that he would never pay more for a drug than the lowest possible. After the enrollee is covered for the difference, the product’s manufacturer is responsible for reimbursing the additional costs in the form of a rebate. This is based upon the “spread” between the Best Price (BP) and the Average Wholesale Price (AWP) of the product. For example, if the recipient pays $58 per pill on a product whose BP is calculated at $40 per pill, the manufacturer will pay $18 per overcharged dose to the federal program.
Medicaid lacks the manpower and resources to verify that it is paying the correct BP for all medications at all pharmacies and wholesalers. Big Pharma track this data for their own sales and marketing purposes, but the government cannot request this information from them because federal law considers it proprietary. The result is a system of self-regulation, with the Best Price and effective rebate amount determined entirely by the pharmaceutical companies themselves.
What is Best Price Fraud?
Best price fraud is when the manufacturer artificially inflates the amount that they report to the government. This reduces the “spread” between the BP and the AWP, decreasing the required rebate. Following the above example, f the manufacturer falsely reports the $58 pill to the government with a BP of $50 instead of $40, the company illegally lowers the amount it owes Medicaid to $8 a pill instead of $18. Over time, this tactic can defraud taxpayers of millions of dollars in funds.
A company may also falsify its Average Wholesale Price in order to charge federal programs more than it charges hospitals, doctors and private insurers. For example, if a manufacturer sells a medication for $2 a pill and then charges the government for $10 a pill, that is drug price manipulation and another type of illegal scheme. Because pharmaceutical companies also do not have to disclose their actual AWP to the authorities, they are often able to misrepresent the actual costs. This allows them to charge Medicaid for far more than they actually make private insurers pay for a drug.
The Costs of Best Price Fraud
Best Price Fraud and Average Wholesale Price manipulation have been pervasive issues for more than a decade. Since 1986, the government has recovered a staggering $27 billion. Pricing fraud is so pervasive that, according to a report filed by CBS’ “60 Minutes,” in 2010 some drug company executives have quipped that “AWP” actually stands for “Ain’t What’s Paid.”
In some cases of price manipulation, Big Pharma have charged Medicare and Medicaid up to 1000% more than the actual AWP. In 2013, it was found that manufacturer Baxter International had been charging $928 for saline bags that cost $1.71 to provide. Recently, Federal Enforcement officers have made prosecuting pricing fraud a top priority. In the Obama administration’s first three years alone, the Department of Justice recovered $5 billion from pharmaceutical manufacturers for price manipulation schemes.
Notorious cases and Examples
Bayer AG
In March 2003, Bayer AG paid the Justice Department $14 million to settle a 1990s best price fraud scheme that manipulated the entire “spread” of several products. The company used kickbacks to encourage healthcare providers and pharmacies to over-prescribe their more expensive products, in order to increase sales and artificially inflate their Average Wholesale Prices. At the same time, company executives reported an inflated BP to Medicaid on these products. This kept the spread on pace, or smaller than, the sales growth. Bayer AG grew its profits and market share while limiting their rebate liability to Medicaid. The fraud was eventually exposed by a group of whistleblowers from an independently-owned Florida pharmacy.
Merck
In February 2008, Merck paid the Department of Justice a $650 million fee, in one of the largest False Claims Act settlements in history. The case was born out of evidence from former Merck employee H. Dean Steinke, whose information showed that the company violated BP laws on its products Zocor and Vioxx. For his whistleblower efforts, he was awarded over $44 million.
Dey Pharma L.P.
In May 2010, Dey Pharma L.P. agreed to a $280 million settlement after it was proven that the company was intentionally reporting incorrect Best Prices for four of its best-selling products. The qui tam relator, a home-infusion company-turned-whistleblower organization called Ven-A-Care, received a $67.2 million reward.
How to Report Best Price Fraud
As pharmaceutical manufacturers alone have access to the proprietary information for the correct rebate amounts, this illegal scheme is a crime that can only originate with them. Almost all successful lawsuits against this sort of fraud have been qui tam cases built by whistleblowers with insider information. These relators have included pharmaceutical company employees, healthcare providers, wholesale purchasers, and private pharmacies. Company employees may become aware of erroneous Best Price data or of intentions to defraud the government, and business affiliates may receive improper offers in order to perpetuate the unlawful scheme.
Examples of this type of pharmaceutical scam are often not as straightforward as a company reporting a false Best Price to Medicaid. As more violations have been exposed and tried by the Department of Justice, unscrupulous companies’ tactics have become more sophisticated and varied.
Some companies have kept their fees artificially high by disguising their price discounts to private purchasers as processing fees, educational grants, financial investments, or other arrangements that effectively lower the cost of the purchased medications. In some cases, drug manufacturers have enlisted the help of private insurers, local pharmacists, and healthcare providers in their false reporting by providing kickbacks and other illegal monetary deals.
Identifying Best Price Fraud
Situations you should be aware of since they may point to an ongoing Best Price fraud you could report:
Contact us to become a Whistleblower
If you know of a company falsely reporting the Best Price to a federal program or manipulating its Average Wholesale Price through hidden discounts or kickbacks, you may have a whistleblower claim. You can help the millions of people who rely on those assistance programs by calling our toll‐free number at 1‐800‐681‐3228 to speaking to an attorney or filling out our form. Our legal team will assist you, grant you full anonymity, and protect your rights through the course of the entire process.
