One of the most common schemes that pharmaceutical companies use in defrauding the federal and state government health care programs is inflating the “Average Wholesale Price” (AWP) for their drugs. The AWP is the average price for which drug wholesalers sell a specific drug to their customers, such as hospitals, physicians, and pharmacies. Medicare bases its reimbursement for each drug on the AWP reported by pharmaceutical companies.
Some pharmaceutical companies inflate the reported AWP for their drugs as a means of inducing pharmacies and other potential customers to purchase their drugs over their competitors’. This scheme is commonly called “marketing the spread.” The larger the difference between the AWP and the actual cost paid by a health care provider (i.e., the “spread”), the higher the incentive is to purchase the drug. Essentially, this scheme operates as a kickback to health care provider purchasers in the form of the potentially large profit that they will gain from Medicare’s reimbursement based on the inflated AWP.
Inflating the AWP can be a violation under the Federal Anti-Kickback Statute and, in turn, the Federal False Claims Act if the inflated prices cause false claims to be submitted to Medicare and other government health care programs. Pharmaceutical misconduct of this type has resulted in some of the largest settlements and judgments under the False Claims Act, with the federal government having recovered over $2 billion from pharmaceutical companies who have engaged in drug pricing fraud.
Real World Examples of Recent Inflated Pricing Fraud False Claims Act Cases:
- 2012: Actavis Group paid $118.6 million to the U.S. and four states to settle claims arising out of whistleblower lawsuits that the company reported inflated prices of their drugs. The whistleblower was awarded $15.6 million as a result of the amount recovered by the federal government in the settlement.
- 2010: Dey Inc., a pharmaceutical company, paid $280 million to resolve allegations in a whistleblower lawsuit brought under the False Claims Act that the company intentionally reported inflated prices for four of their drugs in order to market and sell those drugs. The whistleblower, a health care company itself, received over $67 million as an award for bringing the lawsuit.
- 2010: Three pharmaceutical manufacturers, Abbott Laboratories Inc., B. Braun Medical Inc., and Roxane Laboratories Inc., paid $421 million to resolve allegations that the companies reported false and inflated prices for a number of their drugs as an inducement to health care providers to purchase those drugs. The whistleblower, who brought the lawsuits pursuant to the False Claims Act, received over $88 million as a result of the settlements.