Under the False Claims Act, it is considered unlawful for businesses or practitioners engaged in the healthcare field to engage in incentivized financial relationships with one another. The concept, often referred to as an illegal kickback, is considered unlawful due to the ‘taint’ it places on the doctor-patient or manufacturer-consumer relationship. More specifically, the False Claims Act – and the accompanying statute known as the Stark Law – forbids engaging in these financial arrangements when the subject of the incentive is a recipient of Medicare or Medicaid. If these patients are found to be involved in a kickback scheme, the involved parties could face significant penalties, including exclusion from Medicare and Medicaid programs.
In today’s case, we look at an arrangement discovered between Medco, which is a subsidiary of the pharmaceutical distribution company known as Express Scripts, and several brand name pharmaceutical companies, including Astra Zeneca.[1. “‘Disguised’ discounts lead Medco to settle false claims allegations.” May 29, 2015. http://www.lexology.com/library/detail.aspx?g=48457db3-1c9c-45f3-913b-88a83d7791c9]
Medco agreed to settle the False Claims Act lawsuit for $7.9 million and has not admitted liability in the matter.
Details of the False Claims Act lawsuit against Medco
The case against Medco was commenced by two former executives of Astra Zeneca. In their lawsuit, the plaintiffs alleged that Astra Zeneca “knowingly solicited and accepted illegal in-kind value payments” from Medco in exchange for Medco’s promise to place the blockbuster drug Nexium in a “preferred position” in its hierarchy of formularies. In reality, Astra Zeneca is believed to have offered “deep discounts” on the Nexium “Purple Pill,” which were disguised and accounted for through the use of price concessions with other Astra Zeneca products.
According to the allegations, Medco was offered a $40 million payout from Astra Zeneca as long as it promised to promote Nexium over other similar medications. Instead of accepting the lump sum, Medco is alleged to have accepted discounts on the purchase price of other drugs from Astra Zeneca, including Prilosec, Toprol XL, and Plendil.
How it amounts to a false claim
At first blush, the arrangement may seem like nothing more than a prudent business deal between two pharmaceutical companies. However, the arrangement undoubtedly places a strain on resources reserved for Medicare and Medicaid, as pharmaceutical companies are required to offer government programs the same discounts on drugs as offered to the general public. More specifically, Medco is alleged to have underreported the best possible price for Nexium in light of the extensive disguised discounts offered on the drug. More succinctly, Medico is alleged to have “circumvent[ed] its best price obligations for Nexium and maintain Nexium’s profitability at government expense.”
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