Amidst allegations of fraudulent price inflation, another pharmaceutical giant has agreed to settle a False Claims Act lawsuit. The McKesson Corporation recently agreed to pay the United States government an excess of $190 million to resolve allegations that they violated the False Claims Act by providing inflated price information on a large number of prescription drugs.
The False Claims Act lawsuit was originally filed by a whistleblower in 2005. Later, the United States Department of Justice (DOJ) chose to intervene.
McKesson and First DataBank (FDB) allegedly defrauded Medicaid, a healthcare program funded by both federal and state governments, by falsely reporting inflated pricing data on over four hundred medications. FDB publishes a list of drug prices, which are then used by most state Medicaid programs to develop reimbursement rates for pharmaceuticals. McKesson’s fraudulent drug pricing scheme effectively caused the government to set higher reimbursement rates across the board, defrauding Medicare of millions of dollars.
Along with McKesson paying $190 million to settle the False Claims Act lawsuit, FDB will pay an additional $2.7 million for their role in the pricing scheme. State governments were also given the option to negotiate with McKesson separately, based on their share of Medicaid overpayments. A settlement was eventually reached between the pharmaceutical company and 29 states, including the District of Columbia, for the sum of $151 million.
The Average Wholesale Price
The charges of McKesson’s fraudulent drug pricing relates to what is known as the “Average Wholesale Price” (AWP). AWP is a prescription drugs term used to describe the average price at which drugs are purchased at the wholesale level. It is the benchmark used by Medicaid and other programs to set payment rates for thousands of drugs.
Commercial publishers of drug pricing information, such as First DataBank or Red Book, have provided AWP data since 1970. The pricing information is “based on data obtained from manufacturers, distributors, and other suppliers.” No matter the method by which the pricing information was obtained, it turns out that the majority of published AWPs were grossly inflated when compared to the actual market prices for drugs. The reporting of fraudulent pricing information is a clear violation of the False Claims Act.
AWP has been used to determine third-party reimbursement for decades. This is true throughout the pharmaceutical industry, as third party payers generally have no other reliable means of obtaining real market prices. This is due to the fact that most pharmaceutical contracts contain confidentiality clauses.
The rate of reimbursements are typically based on AWP minus a percentage. Because published AWPs are often found to be dramatically overpriced, several states have filed lawsuits against pharmaceutical companies, charging them with multiple acts of fraud and False Claims Act violations.
Allegations within the False Claims Act Lawsuit
According to the government, McKesson allegedly reported inflated prices to FDB in relation to a wide variety of brand name drugs. Both McKesson and FDB are accused of engaging in an elaborate pricing scheme to “increase the published ‘average wholesale price’ (‘AWP’) of over four hundred branded drugs by five percent from late 2001 to 2005.”
Beginning in 2001, FDB and McKesson allegedly agreed to raise the price between AWP and the wholesale average price. According the government, the price on these drugs went from a standard 20 percent price difference to a staggering 25 percent difference. McKesson then provided the fraudulent data markups to FDB, who published the prices.
By 2002, an estimated 95 percent of all prescription drug manufacturers were using the bogus pricing data. Making matters worse, by 2004, the pricing scheme spread to 99 percent of all prescription drug manufacturers. The lucrative scheme came to an end in March 2005, when FDB announced they would no longer obtain their AWP pricing data from pharmaceutical wholesalers.
Medications that were overpriced in this scheme include some of the most popular and frequently prescribed drugs in the nation. Affected medications included Lipitor, Prozac, Nexium, Allegra, Wellbutrin, Zantac, Celebrex, Risperdal, Seroquel and Claritin.
As a result of this settlement, the prices of 1,442 drugs will be lowered by 4 percent.
David Morgan is the whistleblower in this False Claims Act lawsuit. Morgan is a Pennsylvania pharmacist and healthcare auditor. After becoming suspicious of McKesson’s pricing methods, he conducted his own investigation to uncover evidence of the fraud. Once satisfied with his findings, Morgan contacted a False Claims Act attorney and filed an official complaint.