The Medicaid Drug Rebate Program requires that as a prerequisite for obtaining Medicaid coverage for their drugs, pharmaceutical companies must enter into an agreement guaranteeing to provide Medicaid with the same type of rebates and discounts on drugs as those that are provided to private marketplace purchasers.
The price that Medicaid pays for a drug is based on the “Best Price” and the “Average Manufacturer's Price” (AMP), both of which the pharmaceutical companies must report to Medicaid. “Best price” is the lowest price paid for a drug by any retailer or other purchaser. Best price includes cash discounts, volume discounts, rebates, and the value of free goods provided. Best price does not include discounts that are “nominal in amount.” AMP is the average price paid by wholesalers for a drug. Under the program, Medicaid is guaranteed a rebate for each drug equal to a percentage (varying from 13% to 23.1% depending on the type of drug) of the AMP or the difference between the AMP and the best price, whichever is greater. This rule ensures that Medicaid will pay at least the lowest price offered to any other purchaser.
Sometimes, pharmaceutical companies will offer private purchasers lower prices than the prices they report and offer to Medicaid. This is a violation of the companies' agreement with Medicaid, and this type of fraud has resulted in some of the largest False Claims Act settlements and judgments.
Real World Examples of Recent Best Price Rule Fraud False Claims Act Cases:
- 2012: As part of the largest health care fraud settlement in history, GlaxoSmithKline paid $300 million to settle claims arising from four whistleblower lawsuits that it reported false drug prices, resulting in underpayment to Medicaid, by failing to properly report discounts in contingent arrangements with purchasers.
- 2008: Merck & Company paid over $650 million to settle two whistleblower lawsuits brought by a former Merck employee and a physician in which it was alleged that Merck failed to provide proper rebates to Medicaid and paid kickbacks to health care providers. With regard to the best price rule violations, Merck failed to report discounts given to hospitals, wrongly characterizing those discounts as “nominal in amount.” The former employee whistleblower received more than $68 million as a result of the settlement.