Best Price Qui Tam Cases

Finding the mythical needle in a haystack is easier than discovering the “best price” of a drug. Although revisions are being made, the system has put the entire process, practically unmonitored, into the hands of the very people who abuse the system. Federal law proscribes that drug manufacturers pay rebates to the states to insure that the Medicaid program is receiving the best price on covered drugs. The calculation of best price has been based on the average wholesale price. However, Congress recently amended the voluntary federal programs for prescription drug coverage to change the best price calculation from the average wholesale price to the average sales price. The amendment became effective on January 1, 2005.

“Best price” is defined as the lowest price the manufacturer sells the covered outpatient drug to any purchaser in the United States. When determining the best price, manufacturers must include cash discounts, free goods, volume discounts, and rebates given on the covered drug. However, best price calculations exclude prices charged to Indian Health Service, Veteran Administration, state homes for disabled veterans, Department of Defense, state pharmaceutical assistance programs, the Federal Supply Schedule of the General Services Administration, and any depot prices and single award contract prices, as determined by the government.

The Medicaid drug rebate process is a system consisting of five players. The key players are: the manufacturer, the wholesaler, the pharmacy, the Centers for Medicaid and Medicare Services and the state Medicaid agencies. The most important player is the manufacturer. Under the operating system it sells drugs to the wholesaler, calculates the Average Manufacturer Price (“AMP”) and Best Price, submits AMP/Best Price data to CMS, receives rebate invoices from state Medicaid agencies, validates the rebate claims, and then pays the rebates to the state Medicaid agency.

It also has the ability to dispute any claimed units sold. However, the system mainly relies upon a three-way interaction between manufacturers, the Centers for Medicaid and Medicare Services (“CMS”), and the state Medicaid agencies. The process is a very circular system. The manufacturer provides the “best price” and Average Manufacturer Price (“AMP”) to CMS. CMS calculates the unit rebate amount and provides that information to the state Medicaid agency. The states then use the utilization data provided by the pharmacies and the unit rebate amount to calculate the rebate owed to them by the manufacturer. However, the entire system is based upon the manufacturer honestly conveying to CMS the correct best price and AMP. Any mistakes, intentional or unintentional, will cause an underpayment in rebate amounts.

Given the complex calculation issues and the fact that manufacturers are given the most crucial role in the process, best price schemes are so common and are one of the most frequent type of healthcare fraud cases, they have become a top priority for the Office of Inspector General (“OIG”), Department of Health and Human Services and other healthcare fraud enforcement agencies. On April 28, 2003, the OIG released the final version of its Compliance Program Guidance for the Pharmaceutical Industry (“Guidance”). The Guidance reflects the government’s continuing concern about sales and marketing practices by pharmaceutical manufacturers.

Two of the major risk areas addressed in the Guidance are the integrity of data used to establish or determine government reimbursement and kickbacks. The Guidance asserts that a manufacturer may be liable under the False Claims Act if: (1) government reimbursement for a product depends partly on pricing information reported directly or indirectly; and (2) the manufacturer knowingly or recklessly failed to report such information completely and accurately.

Where appropriate, manufacturers’ reported prices should take into account discounts, rebates, free goods contingent on a purchase agreement, up-front payments, coupons, goods in kind, free or reduced-price services, grants, or other price concessions or similar benefits offered to purchasers. The Guidance stressed that accurate net prices must be calculated in bundled sales, stating “any discount . . . offered on purchases of multiple products should be fairly apportioned among the products.” While not providing instructions on calculating Medicaid rebates, the Guidance urges manufacturers to pay particular attention to calculating AMP and best price accurately.

Kickbacks are the second area where best price is used to defraud the government. The new Guidance reminds manufacturers that discounts deserve careful scrutiny, particularly because of their potential to implicate the best price requirements of the Medicaid Rebate Program. In addition, the Guidance highlighted the OIG’s fear that manufacturers have “a strong financial incentive to hide de facto pricing concessions” that could affect best price calculations and trigger increased Medicaid rebates.

Another area of abuse where best price may be falsely reported involves manufacturers’ dealings with Pharmaceutical Benefit Managers (“PBMs). Initially, PBMs were instrumental in establishing and managing drug formularies for customers. Manufacturers have developed a variety of arrangements whereby specific discounts and other chargebacks or rebates are paid to PBMs who remit financial benefits to the purchaser. When the ultimate effect is to adjust actual drug prices at the wholesale or retail level of trade, the price adjustment should be recognized in best price calculations.

For more information and case citations, please see “Federal False Claims Act and Qui Tam Litigation,” published by Law Journal Press (2010).

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You should be aware that qui tam claims are subject to a Statute of Limitations. The area of limitations periods is complex. There are also first to file rules, public disclosure bars, original source issues, and varying limitations in pursuing retaliation claims. If you wish to pursue your claims, you should promptly seek the opinion of an attorney regarding the merits of your qui tam claim and the applicable statute of limitations.