Pharmaceutical fraud encompasses a variety of illegal schemes utilized by pharmaceutical manufacturers, pharmacies, or other health care providers resulting in the submission of claims for reimbursement from government programs for drugs that are improperly manufactured, marketed, or priced.
The Medicaid Rebate Program depends on pharmaceutical companies’ good faith reporting of the Average Manufacturer Price (AMP), status (Brand Name vs. Generic), and Best Price (lowest transaction price for any private buyer including discounts, coupons, rebates, etc.) of every dosage and strength of every drug they sell. This information, reported to the Center for Medicare/Medicaid Services (CMS), is used to determine the rebates that drug manufacturers are required to pay to Medicaid in order to ensure taxpayers are purchasing prescription drugs at the lowest possible price.
Fraudulent Medicaid Price Reporting Costs Taxpayers
Despite the government’s trust in their honest reporting, pharmaceutical manufacturers have an enormous incentive to falsify this information because this ultimately determines the rebates they owe to Medicaid. Unscrupulous manufacturers use false price and status reporting to defraud Medicaid out of millions of taxpayer dollars, which is outright pharmaceutical fraud.
Designed to reduce expenditures by Medicaid, the rebate program mandates that pharmaceutical companies provide Medicaid with certain rebates on drugs provided to Medicaid patients. The amount of a rebate is determined by a statutorily defined formula. Pharmaceutical companies must report to the Centers for Medicaid and Medicare Services on a quarterly basis certain pricing information by drug, including the “Average Manufacturer Price” and, for some drugs, the “Best Price.” Best Price means the lowest price at which the pharmaceutical company sells its drug to retail, for-profit customers, such as private insurers, wholesalers, pharmacists, group purchasing organizations, and other similar businesses.
In order to induce these private insurers, pharmacists, and businesses to purchase their drugs, pharmaceutical companies will offer their drugs at prices below the Best Price offered to Medicaid. Pharmaceutical companies must provide a rebate – the difference between the price they initially charged Medicaid and their “Best Price” – each year to account for the difference in pricing. For many drugs, the lower a pharmaceutical company’s Best Price, the higher that company’s potential rebate liability will be.
The violation of the Best Price requirement can be a violation of both the federal False Claims Act and similar state false claims acts. Some pharmaceutical companies will misreport the discounted price from the government through agreements between the companies and the private insurers, pharmacists and businesses so as to avoid paying the rebates to Medicaid, and matching the discounted price they are providing to private insurers, pharmacists and businesses. Other pharmaceutical companies knowingly mischaracterize the discounts by structuring them as educational grants, sham data processing fees, or similar arrangements in an attempt to disguise their status as discounts. In either case, the objective is the same – the preferred customer gets the drug at a deep discount and the pharmaceutical company avoids additional rebate obligations to the state Medicaid programs.
When pharmaceutical companies use fraudulent Medicaid Price Reporting schemes to save themselves millions of dollars, they are essentially stealing money from taxpayers by defrauding Medicaid. This means that fewer Medicaid dollars are available to help seniors and lower-income families pay for the prescription drugs they need. Whistleblowers who report Medicaid Price Reporting fraud help the government provide these desperately needed drugs to those who need them, and therefore perform a crucial public service.