The Healthcare Fraud Group (www.healthcarefraudgroup.com) has competent lawyers that specialize in handling qui tam cases that involve drug manufacturers who have declared the wrong drug pricing components such as AMP and Best Price to the CMS. We are committed to helping clients who wish to reveal information that attests that a pharmaceutical company has committed fraudulent activities to escape the payment of rebates to Medicaid and other publicly-funded health care programs.

Consider this example of the money trail when a Medicaid beneficiary purchases a prescription drug from a pharmacy:

Retail pharmacies normally acquire drugs and medications from drug manufacturers or pharmaceutical companies and wholesalers. When a beneficiary of Medicaid goes to the pharmacy to have a physician’s prescription filled, the pharmacy will file a request for reimbursement for the drug (bought by the Medicaid beneficiary) to the local state agency of Medicaid. The reimbursement that the pharmacy will collect depends on the computation of the specific state where he is located. Different states have different computations for different drugs. Some states pay higher than the others. Generally, the formula for the reimbursements is based on the AWP minus a certain percentage. AWP refers to the Average Wholesale Price. This is a price submitted by the drug manufacturer to CMS or Center For Medicare And Medicaid Service and refers to the average price of the drugs when sold at the wholesale level.  After a few months, the drug manufacturer or wholesaler will then pay a refund (towards the government) for the medications paid for by the health care program each quarter.

This refund for the reimbursed medications is dependent on the product prices forwarded by drug manufacturers or pharmaceutical companies to the CMS each quarter. The first price considered is the AMP or Average Manufacturer Price. The AMP is the average price paid by drug manufacturers for drugs that are distributed or sold to the retail side or specifically to the pharmacies within a given quarter. The second price considered is the Best Price, which is the lowest transaction price of the drugs sold to the private sector, including all rebates and discounts during a given quarter.

The two prices, AMP and Best Price, must be duly conveyed to the CMS for each of the different dosage and potency of all prescription drugs obtained by patients who are recipients of the Medicaid coverage. These two elements serve as the basis of CMS and the state to identify and compute how much refund the drug manufacturers have to pay back to Medicaid and other government-funded health care programs.

Center for Medicare and Medicaid Services is the one tasked with computing the URA or the unit rebate amount for every prescription medication covered by the healthcare programs. To perform this URA computation, the CMS would refer back to the prices declared by the drug manufacturers, specifically the AMP and Best Price. Every quarter, the local state Medicaid agency would issue an invoice to the pharmaceutical company that made the drugs. This invoice contains the URA computed by the CMS and the number of units distributed per drug (this is taken from the records of Medicaid, as declared by the pharmacies who bought the medications and dispensed them to the beneficiaries of Medicaid). The URA and the number of distributed drugs will be used to calculate the amount of refund that the manufacturer owes to the health care program. Once the Medicaid agency has sent the said invoice containing the refund amount, the pharmaceutical company needs to pay the correct amount within 38 days. Failure to pay within the deadline can subject the manufacturer to interest charges as penalty.

Drug Types Depending On Manufacturing Status

One of the other bases of CMS for computing the URA is the category status of the drugs into consideration. Each drug can belong to either one of the following three drug types depending on its manufacturing status:

  1.       Innovator Multiple Source Drugs: these are outpatient medications covered by the Medicaid program and are approved under an NDA, PLA, ELA, or ADA. These drugs are more commonly known to patients as brand-name drugs. These drugs usually have brand name manufacturers and an accredited generic drug manufacturer.
  2.       Single Source Drugs: these are outpatient medications covered by the Medicaid program and manufactured and dispensed under an original NDA permitted by the FDA. This drug category can also include drugs that are accredited under PLA, ELA, or ADA. Single source drugs are brand name drugs manufactured by only one pharmaceutical company or source. These drugs are more expensive than multiple source drugs because these don’t have any generic equivalent.
  3.       Non-Innovator Multiple Source Drugs: these are outpatient medications similar to Innovator Multiple Source Drugs but have not gone through the same FDA approval process. These are more commonly known as generic drugs.

How Rebates Are Computed

Generally, the refunds for the Non-Innovator Multiple Source Drugs (Generic Drugs) are much lesser than the rebates for the Innovator Multiple Source Drugs and Single Source Drugs. Generic drugs have a base rate of 11% of the Average Manufacturer Price, without any additional refunds. On the other hand, the total refunds for Brand Name Drugs amount to 31% of Average Manufacturer Price, a significant 20% gap in between the two refund values.

The refund amount of the brand name drugs is dependent on two components. The first component is that the drug manufacturer must pay a base rebate equivalent to 15% of the AMP of the drug or the difference of AMP and the Best Price declared by the drug manufacturer, whichever of the two values are higher. The next component is an additional refund dependent on the changes to the AMP due to the inflation rate since the drug launch. This additional rebate has always been part of the refund to be paid by brand name drug manufacturers, primarily because more than 80% of the drugs reimbursed by Medicaid has an additional rebate.

Where is Fraud?

Fraud occurs in drug prices when the drug manufacturers declare incorrect drug pricing to CMS, specifically the values for the AMP and Best Price, as well the category status of the drug that they are selling (whether it is a brand name or generic drugs). Some pharmaceutical companies submit erroneous data in order to evade the larger rebates or refunds charged to brand name medications. If the incorrect AMP and Best Price are declared, the URA computation is already compromised. Unfortunately, some pharmaceutical companies have taken advantage of the trust accorded to them by the government and CMS.

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