AstraZeneca and Cephalon Agree to Pay $46.5 Million and $7.5 Million, Respectively, for Allegedly Underpaying Rebates Owed Under Medicaid Drug Rebate Program
The Department of Justice announced recently that AstraZeneca agreed to pay the United States and participating states a total of $46.5 million, plus interest, to resolve allegations that it knowingly underpaid rebates owed under the Medicaid Drug Rebate Program. In a separate settlement arising out of the same case, Cephalon Inc. agreed to pay the United States and participating states a total of $7.5 million, plus interest, to resolve similar allegations.
Pursuant to the Medicaid Drug Rebate Program, manufacturers are required to pay quarterly rebates to state Medicaid programs in exchange for Medicaid’s coverage of the manufacturers’ drugs. The quarterly rebates are based, in part, on the Average Manufacturer Prices (AMPs) that the manufacturers report to the government for each of their covered drugs. The AMP is the average price paid by wholesalers to manufacturers for drugs distributed to retail pharmacies. “Generally, the higher the reported AMP for a drug, the greater the rebate the manufacturer pays to state Medicaid programs for the drug,” notes DOJ.
The whistleblower lawsuit was initially filed in 2008 by Ronald J. Streck, a pharmacist and lawyer who operated a network of regional pharmacy wholesaler and retailers. According to his complaint, through this position he became “thoroughly familiar with the distribution agreements that manufacturers [ ] execute with wholesalers.” He alleged that the defendants treated fees to wholesalers as price reductions in calculating and reporting quarterly AMPS, which had the effect of reducing the prices for the drugs.
“These settlements resolve allegations that AstraZeneca and Cephalon underreported AMPs for a number of their drugs by improperly reducing the reported AMPs for service fees they paid to wholesalers,” states DOJ. “As a result, the government contends that AstraZeneca and Cephalon underpaid quarterly rebates owed to the states and caused the United States to be overcharged for its payments to the states for the Medicaid program.”
“The Medicaid Drug Rebate Program relies on drug manufacturers reporting accurate pricing information used in the rebate calculations,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, the head of the Justice Department’s Civil Division. “These settlements demonstrate the Department of Justice’s commitment to ensuring that state Medicaid programs receive the full amount of rebates from manufacturers that Congress intended.”
“We will continue to police the pharmaceutical industry when the Medicaid program overpays for drugs,” said First Assistant U.S. Attorney Louis D. Lappen of the Eastern District of Pennsylvania. “As these settlements demonstrate, it is critical for pharmaceutical manufacturers to comply with requirements of programs such as the Medicaid Drug Rebate Program to ensure that the government and the taxpayers are treated fairly in the reimbursement process.”
Life Science Compliance Update will include an in-depth discussion of this settlement and discount-related enforcement information in the coming issue.