AstraZeneca: A Published Price Far From the Price Paid

The AstraZeneca AWP MDL class judgment held the drugmaker liable for inflated average wholesale price reporting in a consolidated case brought by private payers. The commercial problem was the spread between a published drug price and what a provider actually paid. For someone inside pricing, sales or reimbursement, that gap was a business proposition: the customer bought the drug, billed the payer and kept the difference.

The private case puts an uncomfortable question at the center of pharmaceutical fraud litigation. What happens when the price used to pay for a drug also helps sell it to the person who sends the bill?

The Published Price Became Part of the Sale

Average wholesale price fraud exploits the gap between the benchmark used for reimbursement and the customer’s acquisition cost. A manufacturer can offer a lower purchase price while leaving a much higher published price in place. Where reimbursement follows that benchmark, the customer’s profit grows at the payer’s expense.

The June 21, 2007 trial opinion described how average wholesale price had drifted away from actual transactions. Historically, wholesalers marked up their acquisition cost to arrive at the price charged to doctors and pharmacies. Consolidation and competition compressed wholesalers’ actual margins, while the old formula behind published prices persisted.

The court found that published AWPs were fictitious and rarely, if ever, the prices doctors or pharmacies actually paid. That finding explains the basic problem with the benchmark. A number could sit in a pricing publication, feed a reimbursement formula and look like a market price without describing the transaction that supplied the drug.

The publishing arrangement mattered too. The court described the federal government as entrusting pharmaceutical companies to report AWPs accurately to publications, without setting or regulating those prices itself. The payment system depended on information from the businesses whose sales could benefit from a larger spread.

The Department of Health and Human Services’ Office of Inspector General explained the incentive in its 2003 guidance for pharmaceutical manufacturers. To the extent a manufacturer controlled the spread, it controlled its customer’s profit. Sales representatives could promote that profit as a reason to buy the product or promise a particular margin. The attraction was the money available after reimbursement. The insurer or government program supplying that money was downstream from the sales conversation.

A discount funded by the manufacturer reduces what it receives from the sale. Inflating AWP instead can increase what a subsequent payer sends to the customer. The guidance identified that transfer as a central problem with manipulating the benchmark.

Why Private Insurers Kept Using AWP

Private insurers kept using the benchmark even after Medicare changed its general payment method for Part B drugs. The trial opinion described a payer that could see the savings from changing its formula and still feared the reaction from its doctors.

In February 2004, the insurer that brought the class case studied a change away from AWP. It calculated savings of $6,010,576 even after allowing for higher administration fees. Those fees mattered because doctors received payment for administering drugs as well as reimbursement for the drugs themselves.

The court described the insurer’s concern that its physician network would rebel against lower drug reimbursement. Higher service fees would still leave doctors less profitable. The insurer continued using AWP and also chose it for its hospital fee schedule.

That is the tension in this private-payer case. An insurer could understand that a benchmark overstated acquisition costs and still depend on a network accustomed to the money it generated. The spread had become part of the relationship between the payer and the provider. Changing a price formula meant changing somebody’s income.

Medicare’s move to average sales price took effect in 2005. A private insurer’s payment contracts presented their own decisions. The trial court’s account shows why a change in the public program did not automatically remove the benchmark from private health care payments.

The Cost Reached Beyond the Drug Buyer

A published price could increase what a healthcare payer owed even when the provider bought the drug cheaply. Patients with coinsurance could also pay more. The private insurer’s internal account, quoted in the trial opinion, specifically identified the effect of inflated AWP on patients who paid coinsurance.

Public Citizen’s Health Research Group examined the same pricing mechanism in government programs in its 2010 report, Rapidly Increasing Criminal and Civil Monetary Penalties Against the Pharmaceutical Industry: 1991 to 2010. It identified government-program overcharging, mainly Medicaid, as the violation responsible for the largest number of state settlements in its study. Its description of the consequence was direct:

The report connects those overpayments to published prices above the amounts charged to providers and pharmacies. Its state-program findings show the wider reach of the pricing mechanism. The private AWP case concerns the insurers exposed to that same split between the acquisition price and the number used to pay the claim.

AstraZeneca’s Separate Government Zoladex Case

AstraZeneca separately agreed to pay $266,127,844 to resolve federal civil claims over Zoladex pricing and sales practices, and $24.9 million for joint federal and state Medicaid civil claims. The Justice Department’s June 2003 announcement described allegations that AstraZeneca marketed the gap between Zoladex’s published price and the discounted price doctors paid, offered benefits to prescribers and left discounts out of reported best price.

A former sales executive at a competitor brought the whistleblower case. The Justice Department reported a reward of approximately $47.5 million, a 17% share of the civil recovery. Knowledge of the sales pitch came from someone who competed against it.

For an insider, that distinction directs our work toward the actual payments affected by the pricing decision. We connect what was reported and sold with the claims a particular program paid. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

The Same Sales Pitch in Compounding Ingredients

The spread-as-sales-pitch allegation also appears in compounding ingredient pricing. In a whistleblower case the Justice Department joined in 2021, it alleged that Professional Compounding Centers of America used inflated AWPs to encourage pharmacies to buy its ingredients. The allegation reached instructions inside the sales operation:

The government also alleged that the supplier promoted compound-drug formulas designed to maximize pharmacy reimbursement. The parallel is the selling proposition: buy this product because of the amount you can collect when you bill for it.

The Records Behind the Spread

The useful evidence connects the published benchmark, the actual sale and the reimbursement. People in price reporting, sales and payer contracting may know how the benchmark was chosen, how its profit was sold and why the payment formula stayed in place.

We examine those connections with pharmaceutical whistleblowers. We connect the invoice, the payer’s formula and the paid claim with you, then examine how sales instructions and reimbursement presentations used the difference to win business.

The insurer’s own analysis in the AWP trial adds another useful perspective. A decision to retain a benchmark can be documented in the same business records that quantify the cost of retaining it. Someone who knows the pricing decision may be able to explain a payment pattern that looks ordinary when viewed only as a series of claims.

You Know What the Price Was Meant to Do

If you saw a reimbursement spread used to win sales or a pricing decision that pushed inflated costs into government claims, speak to one of our whistleblower experts about the numbers behind the pitch. We work with you to build your strongest pharmaceutical pricing whistleblower case, bring in pharmaceutical pricing fraud whistleblower lawyers, and stay beside you from the first conversation through the case.