Medicare Compliance & Reimbursement

"Marketing the spread"  alleged in sweeping new lawsuit 

The campaign by state fraud fighters against pharmaceutical companies that report inaccurate pricing information shows no signs of abating.

And manufacturers of generic drugs may be the next big target.

In a lawsuit filed Sept. 25, Massachusetts Attorney General Tom Reilly accused 13 generic drugmakers of engaging in improper pricing and marketing schemes that cost the Bay State's Medicaid program more than $50 million.

The two key elements of the suit should be familiar to those who've been watching the litigation launched in other states against brand-name manufacturers. First, Reilly's office accuses the drugmakers of reporting inflated wholesale acquisition costs - a benchmark for Medicaid reimbursement in Massachusetts - to drug pricing clearinghouse First Data Bank and other price reporting services. Massachusetts then used the purportedly artificially high WACs to set its Medicaid reimbursement rates.

The second element involves marketing. According to Reilly's office, the companies used the "spread" - the difference between Medicaid reimbursement levels and the actual, much lower prices charged to customers - as a marketing tool. Customers such as nursing home pharmacies and retail establishments were allegedly sold on the fact that they could pocket the difference between what they paid for the drug and the higher figure they would be able to collect from Medicaid. Meanwhile, the drugmakers benefited by increasing their market share.

The suit "should serve as a wake-up call to those drug manufacturers who manipulate the system to inflate their profits at the expense of the Massachusetts Medicaid program and taxpayers," Reilly warns.

The Generic Pharmaceutical Association counters that it believes "the current methodology for calculating Medicaid rebates using information filed by companies regarding the wholesale acquisition cost and/or the average wholesale price has been reasonably applied by member companies to meet their statutory requirements for calculating Medicaid rebates."

Defendants Par Pharmaceutical Inc. and Teva Pharmaceuticals USA Inc. both said they would "vigorously" defend themselves against the lawsuit. Besides Par and Teva, the following companies are named in the complaint: Mylan Laboratories Inc., Barr Laboratories Inc. and subsidiary Duramed Pharmaceuticals Inc., Ivax Corp., Warrick Pharmaceuticals Corp., Watson Pharmaceuticals Inc. and subsidiary Schein Pharmaceutical Inc., Dey Inc., Ethex Corp., Purepac Pharmaceutical Co. and Roxane Pharmaceuticals Inc.

Lesson Learned: Generic companies should brace themselves for increased scrutiny on the drug-pricing front.