Medicaid Fraud Involving “best Price” For Pharmaceuticals

One area of fraud involving pharmaceutical companies relates to the Medicaid drug rebate program. 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. Such conduct constitutes fraud against Medicaid and forms the basis of a qui tam or whistleblower lawsuit under the False Claims Act or similar state false claims acts.

A recent example of a Best Price violation involved Aventis Pharmaceuticals Inc. In 2009, Aventis agreed to pay $1 million to settle claims that between 1995 and 2000 Aventis and its corporate predecessors knowingly misrepresented Best Price information for the anti-inflammatory nasal sprays Azmacort, Nascort and Nascort AQ. The violations involved Aventis entering into a “private label” agreement with Kaiser Permante, a large health maintenance organization. Aventis repackaged its drugs under Kaiser’s private label, and thereby avoided reporting the lower price offered to Kaiser in its best price calculation for these medications. The failure to report the private label prices caused the Center for Medicare and Medicaid Services to overestimate Aventis’ Best Price on the three drugs, resulting in the underpayment of drug rebates to the Medicaid program and state-funded pharmaceutical assistance programs.

If you know or suspect that a pharmaceutical company is violating the Best Price requirement, please contact Michael S. Bigin or Laurence J. Hasson for more information.