Roxane Laboratories: Selling the Gap Between the Price and the Payment

In the Roxane Laboratories AWP settlement, the company agreed to pay $280 million to resolve allegations that it reported inflated prices for nine drugs and marketed the reimbursement spread. The government said customers could buy a drug at one price, collect payment based on a much higher reported price, and keep the difference. The alleged sales advantage came out of Medicare and Medicaid.

The pharmaceutical fraud case began with a home-infusion company that knew the buying and billing sides of the business. A manufacturer’s price report, a customer’s purchase price and the government’s payment could describe the same drug very differently.

How Inflated Price Reports Became a Sales Pitch

The alleged average wholesale price fraud gave customers a financial reason to choose the manufacturer’s drugs. A larger gap between acquisition cost and government reimbursement meant a larger profit for the healthcare provider or pharmacist buying the product.

Average wholesale price was a published benchmark used to calculate reimbursement. Manufacturers supplied price information to drug-pricing publications such as First DataBank, Red Book and Medi-Span, and government programs used the published numbers to help set what they would pay. The customer’s actual purchase price could be far lower.

According to the Justice Department, Roxane, Abbott Laboratories and B. Braun Medical created artificially inflated spreads and used them to market drugs to existing and prospective customers. The alleged pitch joined the sale to the reimbursement: buy this product and earn the difference when the government pays. In the alleged scheme, a higher reported price made the offer more attractive without the customer ever paying that price.

The Health and Human Services Office of Inspector General explained the incentive in its 2003 guidance for pharmaceutical manufacturers. Where a manufacturer controls the spread, it controls the customer’s profit. Manipulating average wholesale price can transfer money to the customer from the government that later reimburses the purchase. Sales representatives promoting that margin as a reason to buy were part of the conduct the guidance addressed.

That arrangement puts taxpayers behind the sales offer. It also puts a manufacturer reporting honest prices at a disadvantage against a seller promising customers a larger government-funded margin.

The Nine Drugs and the Boehringer Names

The Roxane settlement covered Roxane Laboratories Inc., then known as Boehringer Ingelheim Roxane Inc., along with Boehringer Ingelheim Corp. and Boehringer Ingelheim Pharmaceuticals Inc.

The government alleged that Roxane reported false prices for these drugs:

1. Azathioprine
2. Diclofenac Sodium
3. Furosemide
4. Hydromorphone
5. Ipratropium Bromide
6. Oramorph SR
7. Roxanol
8. Roxicodone
9. Sodium Polystyrene Sulfonate

A person familiar with Roxanol sales or Ipratropium Bromide purchasing may recognize the commercial transaction more readily than the settlement headline. For an insider, the useful connection is between the product they know, the business reporting its price and the payment that followed.

The Whistleblower Case the Government Joined

A Florida home-infusion company and its principals brought the False Claims Act cases behind the settlements. The United States joined the Roxane case. The Justice Department announced the civil resolution on December 7, 2010.

The government alleged that the manufacturers knew federal health care programs relied on their reported prices to set payment rates. It said the false reports caused customers to submit claims that resulted in government payments far above what truthful reporting would have produced.

That is the connection between a manufacturer’s pricing decision and a False Claims Act case. The customer bills the program, but the manufacturer supplies the number that helps determine the payment. Here, the government alleged that the manufacturers also sold customers on the profit that number could produce.

The whistleblower’s role also shows why knowledge from the buying side matters. The company bringing the cases worked in home infusion, where purchasing drugs and obtaining reimbursement meet. That whistleblower’s perspective connects what a supplier tells its customers with what the government ultimately pays.

Separate Settlements in the Same Announcement

The Justice Department’s $421.2 million headline combined the Roxane resolution with separate agreements by Abbott and B. Braun. The announcement covered several manufacturers and different product groups, all facing allegations about false price reporting and government reimbursement.

Abbott agreed to pay $126.5 million to resolve two cases. They concerned infusion solutions and antibiotics. B. Braun agreed to pay $14,744,000 over alleged inflated Medicaid payments for its products, including infusion fluids and intravenous nutritional solutions.

The same alleged sales incentive could operate across water-based infusion products, antibiotics and Roxane’s named drugs. A customer bought the product, a government program reimbursed it, and the allegedly inflated benchmark enlarged the margin between those transactions.

A separate Dey settlement announced in December 2010 concerned the same alleged practice of reporting inflated prices and using the resulting reimbursement advantage to induce purchases. Its respiratory-drug list included Ipratropium Bromide, which also appeared in the Roxane case. The same home-infusion company brought that case too. The parallel shows how someone buying and billing for a drug could recognize the same pricing incentive across suppliers.

What the Published Price Hid

Average wholesale price’s weakness was visible long before the Roxane settlement. In a 1984 report, the Office of Inspector General described it as a list price that failed to reflect several kinds of discounts. Yet the published benchmark continued to shape reimbursement.

The practical problem was the distance between the price in a publication and the price in a transaction. If the benchmark stayed high while the actual selling price fell, the customer’s margin could grow. The Centers for Medicare & Medicaid Services described that pattern in its 2003 discussion of drug payment reform: generic competition could drive down market prices without a corresponding decline of the same magnitude in published average wholesale prices.

The government’s reliance on the reported number made that gap expensive. A 2010 Public Citizen Health Research Group review, Rapidly Increasing Criminal and Civil Monetary Penalties Against the Pharmaceutical Industry: 1991 to 2010, found that overcharging government health programs, principally Medicaid, drove the increase in state pharmaceutical settlements. Its account of the wider pricing problem put the consequence plainly:

In Roxane’s case, the allegation was that the manufacturer deliberately used the difference between reported and actual prices to win sales. The payment system supplied the opportunity. The alleged marketing made it a commercial strategy.

Medicare Part B moved to an average sales price system in 2005, but some reimbursement channels retained average wholesale price. Infusion drugs furnished through durable medical equipment continued to use a frozen average wholesale price benchmark until 2017.

What Evidence Is Needed to Prove Fraud?

In a case about inflated drug-price reports, the important connection runs from the manufacturer’s reported number to the customer’s actual cost, the government’s payment and what the company knew. Roxane’s settlement illustrates why drug-pricing fraud involves both the price submission and the business decisions around it.

We examine how the different records fit together. Price submissions show what the manufacturer told the publisher. Contracts and invoices show the price offered to the customer and what the customer paid. Reimbursement records show how the reported benchmark reached the government payment. Sales materials and communications may explain whether the company used the resulting margin to persuade customers to buy.

Those comparisons answer different questions. A pricing specialist may understand how the published number was selected. A salesperson may know how reimbursement featured in the offer. A pharmacy or infusion-business employee may know the actual purchase cost and the payment received. Each sees a different part of the transaction the government described.

The marketing side deserves attention because the allegation went beyond reporting a number. Roxane allegedly used the inflated spread to promote its drugs. A comparison of prices shows the gap. The sales discussion can explain why the company wanted that gap and how it expected customers to respond. We work with insiders to connect those decisions to the money the government paid.

How Much Money Do Pharmaceutical Whistleblowers Get for Exposing Fraud?

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. For the settlements announced together, the Justice Department said the whistleblowers would receive approximately $88.4 million collectively across the Roxane, Abbott and B. Braun resolutions.

The announced award recognized whistleblowers whose business put them close to drug purchasing and reimbursement. Someone who understands the gap between a manufacturer’s price report and a customer’s bill may hold the connection that makes a pricing case intelligible.

You Know the Price Behind the Report

If you worked with drug-price submissions, customer offers or reimbursement records, tell our whistleblower experts how the numbers differed. We build your strongest drug-pricing whistleblower case with you, bring in pharmaceutical pricing whistleblower lawyers who understand reimbursement and sales incentives, and stay your partners throughout the case.