Pharmacy fraud can take many forms, some of which can be very costly to taxpayers when the pharmaceuticals involved are paid for by government-funded health programs like Medicare or Medicaid.
Some of the most common types of pharmacy fraud include: auto-refilling fraud, off-label marketing of drugs, average manufacturer price/best price fraud, drug switching, pharmaceutical benefits manager (“PBM”) fraud, and illegal kickbacks.
A. Auto-Refilling Fraud
Some pharmacies allow patients to have their prescriptions automatically refilled, especially for chronic conditions that require continuous and regular refills.
When a patient stops using a drug, the pharmacy supplying the drug is not always promptly notified. In those cases, a patient’s pharmacy prescription may be refilled by the pharmacy even after a patient no longer needs the medication and is not aware that the prescription has been refilled.
Without the patient’s knowledge, a pharmacy can charge Medicare or Medicaid for the cost of the medication. The pharmacy can then sell the medication to make a profit. The pharmacy can repeat this process until the maximum number of refills is met or the prescription expires. There have been several qui tam whistleblower cases under the False Claims Act in relation to this type of conduct, including one prosecuted by Berger Montague’s Qui Tam Practice Group.
B. Off-Label Marketing of Drugs
Before any drug can be sold in the United States, it must be evaluated and approved by the FDA for specific intended uses.[i] Under federal law, pharmaceutical companies can only market or promote drugs for the specific uses approved by the FDA.[ii] A drug’s FDA-approved use is called its “label.” Doctors, unlike pharmaceutical companies, may legally prescribe medications for “off-label” uses not expressly approved by the FDA.[iii]
Pharmaceutical companies violate the law when they market drugs to doctors for off-label uses. Pharmaceutical companies can be liable under the federal False Claims Act for marketing a drug to a doctor for an off-label use if the doctor then prescribes the drug for that use under the Medicare or Medicaid program. Some of the largest qui tam whistleblower cases have involved off-label marketing.
C. Average Manufacturer Price/Best Price Fraud
Medicare and Medicaid both use rebate programs to minimize the cost of prescription drugs to taxpayers. Drug manufacturers must agree to provide rebates as a condition of participation in Medicare or Medicaid coverage plans.
The success of these rebate programs depends on accurate disclosures by drug manufacturers of the Average Manufacturer Price (“AMP”) of their drugs, which is usually the average price that wholesale buyers pay for those drugs, and the “best price” offered to any purchaser.[iv]
State Medicaid programs receive 23.1% of the AMP, or the difference between the AMP and the “best price” offered to any purchaser, whichever is higher, as a rebate.[v] Medicare sponsors also rely on the AMP and “best price” figures to negotiate Medicare drug rebates. State Medicaid programs are especially vulnerable to AMP and “best price” fraud because the data is confidential and not shared with state governments.[vi]
Pharmaceutical manufacturers commit fraud when they manipulate the AMP in order to reduce Medicaid and Medicare rebates. Pharmaceutical manufacturers are required to include discounts and coupons offered to wholesalers, pharmacies, and other purchasers in the “best price” figures. Manufacturers that manipulate these figures are liable for fraud.
Berger Montague’s Qui Tam Practice Group has pursued more than a dozen cases of Medicaid rebate fraud. Those cases have returned more than $825 million to federal and state treasuries.
D. Drug Switching
Drug switching fraud occurs when pharmacies fill a prescription with a different drug than the one prescribed. For example, a pharmacy might profit from drug switching at taxpayers’ expense by filling a patient’s prescription with a less expensive drug than the one prescribed, and then submitting a claim to Medicare or Medicaid for the price of the more expensive drug.
E. Pharmaceutical Benefits Manager (“PBM”) Fraud
Medicare Part D plans and federal and state employee healthcare plans employ pharmacy benefit managers (“PBMs”) to negotiate rebates from pharmaceutical companies.[vii] PBMs can commit fraud by, among other things, failing to properly process rebates.
Additionally, a PBMs’ position as intermediaries between the government and drug companies opens up opportunities for other schemes. Cases against PBMs for fraud are not particularly common (yet), but Berger Montague’s Qui Tam Practice Group is looking closely at this industry for potential cases.
F. Illegal Kickbacks
Illegal kickbacks often involve payments or other rewards given by pharmaceutical companies to doctors or pharmacists in exchange for prescribing or filling prescriptions with a specific brand of pharmaceutical. For example, a pharmaceutical company might offer golf outings to doctors who prescribe the company’s brand of medication.
Illegal kickbacks can also be combined with other kinds of fraud. For example, a pharmacy committing drug switching fraud might offer kickbacks such as store discounts, gift cards, or merchandise to patients receiving the switched drugs in order to persuade those patients to keep accepting the switched drugs.
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[i] https://www.fda.gov/drugs/developmentapprovalprocess/default.htm, (“The FDA considers the promotion of a drug or device for a use other than one that has been approved by the FDA—what is known as “off-label” promotion—to violate the misbranding proscriptions because when a drug or device is promoted for an unapproved use, the label contains no instructions about how to safely use the drug for the unapproved use.”).