Schering-Plough: Claritin Discounts With Other Names

In the Schering-Plough Claritin Medicaid rebate settlement, Schering-Plough agreed to pay $292,969,482 to resolve allegations that it disguised managed-care discounts and left their value out of Best Price. The alleged discounts took the form of data fees, discounted products, services, risk-sharing and prepaid rebates. Cigna allegedly received $3 million worth of deeply discounted Claritin RediTabs, health management services far below fair market value and an interest-free loan in the form of prepaid rebates. PacifiCare allegedly received a risk-share arrangement covering part of its respiratory drug costs, deep discounts on other Schering products, payment and services for internet development, and prepaid rebates that worked as an interest-free loan.

The Justice Department announced the civil resolution on July 30, 2004. Former employees of ITG, Inc. brought the whistleblower case. Cigna and PacifiCare were the managed-care customers in the arrangements. In the late 1990s, according to the government, both threatened to drop Claritin from their formularies in favor of Allegra, its less expensive competitor, and Schering-Plough funded significant price concessions to match Allegra’s price and keep Claritin on those formularies while trying to avoid additional Medicaid rebate obligations. The drug pricing fraud allegation concerned what Schering-Plough reported about the value it gave them, and what public programs consequently paid.

Why Managed-Care Access Is Worth Paying For

A manufacturer can use a concession to buy formulary access, preferred placement, volume or less competition within a drug class. The commercial value is access to patients whose prescriptions the plan covers. A buyer negotiating that access can bargain over more than the price printed on an invoice.

A later measurement shows what that access is worth. In its September 2023 report on Medicare Part D rebates, the Government Accountability Office found that plan sponsors attributed 92.7 percent of the rebate dollars they categorized for 2021 to formulary access and tier placement. That describes a later market, but the commercial prize is recognizable: a place on the drug list.

The manufacturer also has a reason to resist recording a low price. The May 2018 Managed Care article Indication-Specific Drug Pricing–Simple in Theory, Complex in Reality reported manufacturers’ concern that a lower price for one use of a drug could create a lower Best Price across its uses, cutting revenue and profit. A concession negotiated for one customer can reach beyond that customer’s account.

The benefit can even sit on another drug. In AstraZeneca’s settlement announced February 11, 2015, the company agreed to pay $7.9 million over alleged concessions on Prilosec, Toprol XL and Plendil in return for Nexium’s exclusive position on certain Medco formularies. The government alleged that the arrangement caused claims to the Retiree Drug Subsidy Program. The discounted drugs and the drug winning access were different.

That is why the data fees and services in the Claritin allegations deserve more than a glance at the payment’s name. A service payment and a discounted product can appear in different parts of a company’s accounts while belonging to the same commercial negotiation.

What the List Price Leaves Out

The list price does not show the whole concession. Neither does a ledger entry selected because its description happens to contain the word rebate.

The USC Schaeffer Center’s 2020 white paper The Association Between Drug Rebates and List Prices found that increases in estimated rebates were associated with increases in list prices in its data from 2015 to 2018. A rising list price can coexist with a growing concession to the buyer. The deal can be spread across several payments.

What the Best Price Report Left Out

Best Price is the lowest qualifying price available from the manufacturer to specified buyers. The Medicaid drug rebate program uses that price and average manufacturer price to calculate what the manufacturer owes back to the program.

For branded drugs, one part of the basic rebate calculation compares average manufacturer price with Best Price. Where that difference sets the rebate, a lower qualifying Best Price means a larger rebate. Omit a qualifying discount from that calculation, and Best Price stays too high while the rebate stays too low. The buyer gets the concession while Medicaid loses the benefit of it.

Best Price includes cash discounts, volume discounts, rebates and free goods tied to a purchase requirement. The Best Price problem in the Claritin case was the allegation that Schering-Plough disguised discounts as other forms of value and failed to include them. Calling a payment a data fee did not answer what it bought or how it affected the customer’s price.

Each name points to a different record of the same bargain. We examine the terms together with the treatment each payment received in the government’s price calculation.

For a payment described as a service, we look at the work actually performed and what the payment bought. The distinction between a service fee and a price concession can disappear on a summary ledger even when the underlying agreement makes the purpose clear.

The Alleged Loss Reached Medicaid and Health Centers

The alleged harm reached both state Medicaid rebates and the prices paid by Public Health Service entities. Schering-Plough’s civil payment covered the United States, 50 state Medicaid programs and those public-health purchasers. Schering-Plough also agreed to a corporate integrity agreement with the Department of Health and Human Services addressing the sales, marketing and pricing of its drugs to government programs, with five years of independent audits.

By leaving incentive value out of Best Price, Schering-Plough allegedly underpaid rebates to states and overcharged purchasers such as community health centers. Those purchasers bought drugs at ceiling prices tied to Medicaid rebate prices. The government alleged that, because the concessions were left out of Claritin’s reported Best Price, Medicaid and the Public Health Service purchasers paid far more for Claritin from 1998 through 2002 than the two managed-care customers did.

That link is how a manufacturer price report can produce 340B ceiling-price overcharges. The ceiling generally starts with average manufacturer price and subtracts the Medicaid unit rebate amount. Understate the rebate, and the resulting ceiling can be too high. The managed-care customer got the benefit. Under the government’s allegations, taxpayers and health centers paid for leaving it out of the report.

Is It Hard to Prove Medicaid Fraud?

The challenge is connecting the commercial deal to confidential price reports. We work through that connection with the insider who understands the deal, the calculation or both, testing their account against the company’s own records.

Manufacturers report average manufacturer price and Best Price to the Centers for Medicare & Medicaid Services each quarter. States supply drug utilization, and manufacturers’ price reports carry an authorized officer’s certification. The transaction, the calculation and the report are different records of the same business. Comparing them is where the missing concession can become visible.

People in contracting, finance and government pricing may see different parts of that connection. Someone negotiating an account may understand why the customer demanded a particular benefit. Someone calculating Best Price may know why a payment was excluded. The valuable knowledge is how the decision moved from one part of the business to the other.

Manufacturer-specific price reports are confidential. A public list price cannot supply the internal calculation or explain a decision to omit a concession. That makes the employee’s account of what the company agreed to, and how it reported the agreement, particularly valuable.

The Same Missing Discount Under Different Labels

Other rebate cases show how a commercial concession can disappear from Best Price through a different description of the deal.

In the Aventis private-label settlement announced in 2009, the government alleged that the company gave Kaiser Permanente discounted prices for Azmacort, Nasacort and Nasacort AQ under private-label agreements. The drugs were repackaged under a different label, and the discounted prices allegedly stayed out of Best Price. The government alleged that Medicaid received smaller rebates and Public Health Service purchasers paid inflated prices. The alleged disguise was the product’s label.

In the Wyeth and Pfizer rebate settlement announced in 2016, the government alleged that Wyeth bundled discounts on oral and intravenous Protonix to win hospital use. The government described the commercial prize as the prescription business after discharge: patients who started oral Protonix in the hospital were likely to remain on it, while Medicaid and other payers paid nearly full price. The government alleged that Wyeth hid the hospital bundle from Medicaid’s Best Price calculation.

The recurring question is what the buyer received across the arrangement. In Claritin, the alleged disguise was a collection of fees and benefits. In Aventis, it was private labeling. In Wyeth, it was a bundle. The price-reporting consequence depended on whether the concession reached the number used to calculate Medicaid’s rebate.

The Whistleblowers’ Share of the Recovery

The Justice Department announced a collective whistleblower award of about $31.7 million for the former ITG employees who brought the case. The award was their share of the recovery.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

You Know What the Customer Actually Received

If you know a managed-care benefit disappeared between the contract and the Best Price report, talk with our whistleblower experts about the deal behind the number. We build your case around that commercial knowledge, bring in pharmaceutical pricing whistleblower lawyers who understand Medicaid rebates, and stay at your side as your case moves forward.