“Usual and customary (U&C) pricing” can be a very confusing term, even to executives of specialty pharmacy companies. The term seems as though it should be an easy-to-define, industry-wide standard on pricing. Instead, however, it is subject to varying definitions in individual contracts and, in the case of many Medicaid plans, state statutes.
Therefore, calculating U&C pricing for the same specialty pharmaceutical product from the same manufacturer may vary widely among commercial plans, Medicare Part D plans, and state Medicaid programs. These discrepancies are at the root of an emerging fraud risk for specialty pharmacy companies.
The Issue is Working its Way Through the Courts
Several cases have started to work their way through the court, mostly involving whistleblowers who are alleging that specialty pharmacies improperly reported U&C prices, and as a result, received greater reimbursement than they were entitled to.
For example, in January 2015, a federal district court in Illinois ruled on a whistleblower lawsuit brought by a pharmacist previously employed by Kmart Corporation. The whistleblower in that suit alleged that Kmart violated the False Claims Act (FCA) by misrepresenting its U&C pricing for various generic prescription drugs, which in turn caused Medicare and other state and federal prescription drug benefit programs to overpay for those drugs.
As part of a discount program, Kmart set low prices for cash customers who signed up for one of Kmart’s discount programs. Kmart then charged higher prices for the same generic drugs paid for by third-party insurers, including Medicare Part D, state Medicaid programs, and non-program cash customers.
The district court held that the U&C price standard is the cash price to the general public, which is the amount charged to customers for the prescription – unless state law, relevant contract, or payor sheet provides additional guidance. The district court therefore concluded that members of Kmart’s generic discount programs were members of the “general public” for purposes of U&C pricing, at least under the in-question Minnesota, Nevada, and Alabama Medicaid programs.
Similar allegations have been raised in other whistleblower suits under the FCA.
The district court’s ruling in the Kmart case indicates that misrepresentations on pricing to pharmacy benefit managers (or Part D plan sponsors), even if not submitted directly to the government, may be considered sufficient for an FCA violation. The district court found that misrepresentation of U&C pricing was material, even though CMS would have paid the plan sponsor the same amount of money whether Kmart submitted false U&C pricing or not, thereby expanding the scope of FCA liability under Part D.
Kmart appealed that decision, and in May 2016, a federal appeals court upheld this federal district court ruling.
What Does this Mean?
Given the recent fraud cases relating to U&C pricing manipulation, and in light of the varying definitions of U&C pricing across federal and state health care programs, pharmacies should work to implement a U&C pricing policy that includes tracking pricing to all patients and pricing requirements across all payor contracts, including private payor contracts, if possible.
Such a policy may be difficult to create and implement, however, because of the variance sin state and payor definitions of U&C, such as differing volume percentage requirements for purchases. Pharmacies should continue to be aware of the price reporting requirements of each payor or program.
Tracking mechanisms will ideally incorporate different payor and program requirements, including reflecting each payor’s definition of U&C and fee schedule, as well as be able to generate annual reports. Such a tracking system would allow pharmacies to tailor their pricing to specific payors, while avoiding potential fraud liability for failure to accurately report U&C pricing.