HHS-OIG: Novartis Division, Sandoz, to Pay $12.6 Million in Civil Monetary Penalties for Misrepresenting Drug Pricing Data to Medicare

The HHS Office of Inspector General (OIG) yesterday announced that Sandoz Inc. will pay $12.64 million to settle allegations it misrepresented drug pricing data to the Medicare program.

According to the OIG press release, the Sandoz settlement is the largest ever entered into under OIG’s drug price reporting civil monetary penalty (CMP) authority.

Background

Medicare Part B covers a limited number of outpatient prescription drugs. In general, Part B  covers drugs that aren’t normally self-administered and instead are given as part of a doctor’s service. Coverage is usually limited to drugs that are given by infusion or injection, such as vaccinations, osteoporosis drugs, end-stage renal disease drugs, and a number of others.

The Centers for Medicare and Medicaid Services (CMS) uses a separate methodology to reimburse physicians for Part B drugs, as opposed to the physician fee schedule for various health related services. The methodology used is known as the Average Sales Price (ASP). CMS requires manufactures to submit price information each quarter. This information is proprietary and not available to the public, but CMS uses this reported data to calculate a reimbursement amount for each drug. The government publishes these amounts on a quarterly basis. View the 2015 ASP Drug Pricing Files.

The purpose of the ASP reporting requirement is to ensure that the Part B reimbursement rate for a product is tied to the actual sales price for that product available on the commercial market.

For a useful FAQ page on CMS’s responses to certain Average Sales Price related questions, click here.

Civil Monetary Penalties

Manufacturers may face civil money penalties or suspension of their rebate agreements if they knowingly provide false information about their ASPs or fail to report ASP data in the required timeframe. The penalties associated with late submissions may be increased by up to $10,000 for each day the ASP data are not provided. Furthermore, if manufactures knowingly provide false information, they may be subject to a $100,000 penalty for each item of false information. View the statute here.

Here, OIG alleged that, between January 2010 and March 2012, Sandoz misrepresented Average Sales Price data to CMS. “Sandoz’s misrepresentations undermined the integrity of the Medicare Part B drug pricing system; we will continue to penalize manufacturers that misrepresent or fail to timely file the required information,” OIG Chief Counsel Gregory Demske noted.

Sandoz is the generic’s division of Novartis Pharmaceuticals and one of the world’s largest generic manufacturers. The Food and Drug Administration recently approved their product Zarxio, the first biosimilar approved for sale in the U.S.

OIG previously pursued CMPs against Sandoz for late reporting of drug pricing information to CMS. That case settled in December 2011 with Sandoz paying $230,000. This case seems to suggest more egregious conduct. 

“Drug manufacturers report several types of drug pricing information to CMS. In addition to determining Medicare Part B payments, pricing data is used to calculate rebates that manufacturers pay to the States in connection with the Medicaid program,” states OIG.

The issue of late or inaccurate reporting of drug pricing information has been a longstanding area of concern for OIG, notes the agency. OIG’s Office of Evaluation and Inspections has issued several reports relating to price reporting by manufacturers.

In 2010, OIG issued a Special Advisory Bulletin notifying drug manufacturers of the office’s intent to pursue CMP actions for failure to meet reporting requirements.

“The Medicare program relies on drug manufacturers to accurately report pricing information,” said Demske. “We hope today’s settlement reinforces for these companies the importance of taking their drug price reporting responsibilities seriously.”