Abbott Laboratories: The Profit Between Two Drug Prices

In the Abbott average wholesale price settlement, Abbott Laboratories agreed to pay $126.5 million to resolve allegations that it inflated reported drug prices and used the resulting reimbursement spread to sell its products. The government alleged that healthcare providers could buy the drugs cheaply, bill Medicare and Medicaid at rates based on inflated prices, and keep the difference. That allegedly made the government’s overpayment part of the sales pitch. For someone who knew the actual selling prices, the published numbers told a very different story.

The Justice Department announced the settlement on December 7, 2010. This pharmaceutical fraud settlement resolved two qui tam cases: one concerned infusion solutions and an intravenous antibiotic, and the other an oral antibiotic.

How the Reported Price Became a Sales Tool

The alleged average wholesale price fraud connected a manufacturer’s price report to the amount a customer could collect from a government program. The spread was the gap between reimbursement and the customer’s acquisition cost.

The sales price is what the customer pays for the product. The reimbursement benchmark helps determine what the customer receives for supplying it to a patient. A manufacturer could therefore make its drug more attractive by increasing the customer’s expected reimbursement, even without changing the drug itself.

According to the Justice Department, Abbott and the other manufacturers knowingly reported false prices, then used artificially inflated spreads to market their products to existing and potential customers. The government alleged that Medicare and Medicaid consequently paid millions of claims for more than they would have paid using truthful prices. The alleged benefit to the seller was more business. The benefit offered to the buyer was a larger margin, funded by taxpayers.

The industry machinery made that possible. Manufacturers supplied prices to commercial drug compendia, and public programs used those published figures in their payment calculations. Average wholesale price was one of the historical drug pricing benchmarks used to calculate reimbursement. It could be far above the customer’s acquisition price. A price could travel from a manufacturer’s report into reimbursement without describing what changed hands in the sale.

Public Citizen’s 2010 study of earlier pharmaceutical settlements found that overcharging government health programs, mainly Medicaid, accounted for the largest number of state settlements. Its description of the wider pricing problem was blunt:

In the settlement announcement, the Department of Health and Human Services’ Office of Inspector General described years of monitoring reported drug prices, including average wholesale price. Its reports had identified excessive Medicare and Medicaid payments. The gap between published prices and actual costs had been visible to government auditors as well as to businesses buying the drugs.

The First Case Covered Infusion Products

The first Abbott case concerned reported prices for dextrose solutions, sodium chloride solutions, sterile water and vancomycin. The Justice Department described the first three as generic, water-based solutions used primarily to facilitate intravenous infusion or injection of other drugs. Vancomycin was the intravenous antibiotic in the group.

The solutions help deliver treatment, and the antibiotic is itself administered intravenously. The alleged pricing scheme reached the supplies used to give other drugs as well as the drug being given. Someone familiar with infusion purchasing would recognize the products behind the price reports.

The United States joined the first whistleblower case. The alleged False Claims Act violations concerned Abbott’s pricing of those named products. The connection to government payment ran through the customers’ claims: Abbott allegedly supplied the inflated prices that helped determine what those customers would receive.

The Second Case Concerned Erythromycin

The second Abbott whistleblower case concerned erythromycin, which the Justice Department described as an oral antibiotic. A whistleblower brought that case separately, and the announced Abbott settlement resolved it along with the infusion-product case.

The commercial question was still the relationship between the reported drug price, the actual selling price and the government payment. An insider in oral-antibiotic sales would be looking at a different product from an infusion buyer, but the alleged sales incentive was the same.

The Settlement and the Shared Whistleblower Award

Abbott’s amount was part of a wider announcement covering B. Braun Medical and Roxane Laboratories as well. The Justice Department put the combined settlements at $421.2 million.

The whistleblowers behind the announced group included a Florida home infusion company and its principals. The Justice Department said they would receive approximately $88.4 million collectively across the settlements.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. The whistleblower came from the business handling the drugs, where acquisition prices and reimbursement met.

The Same Infusion Products Appeared in B. Braun’s Case

In B. Braun’s settlement announcement, the government alleged that its reported prices caused Medicaid to overpay for 49 drug products. Its product list included dextrose solutions, sodium chloride solutions and sterile water, the same kinds of infusion supplies named in Abbott’s first case. It also included lactated ringers solution, intravenous nutritional solutions and other intravenously administered drugs.

That overlap shows why product knowledge matters across drug pricing fraud cases. The pricing allegation reached familiar infusion products sold by different manufacturers. A buyer who knew what those products actually cost could see a part of the transaction that a published benchmark concealed. The health care program’s payment calculation, meanwhile, depended on the reported number.

What Evidence Is Needed to Prove Fraud?

We examine how the reported price, the actual sale and the resulting government payment connect in an average wholesale price case. The alleged spread marketing adds another question: how did the manufacturer use that difference to persuade customers to buy?

We work through those connections with people who know the pharmaceutical business. Price submissions show the number sent for publication. Sales records show what customers paid. Reimbursement records show how the benchmark affected the claim. Sales communications can show whether the anticipated margin was part of the pitch.

Someone working on price reporting may know how the published figure was chosen. Someone in sales or infusion purchasing may know what buyers were offered and why they chose a product. Our work is to connect that commercial knowledge to the payments and decisions behind the case.

You Know the Price Customers Actually Paid

If you saw a reported drug price become a promise of profit to customers, tell our whistleblower experts what you saw. We work beside you to build your strongest drug pricing whistleblower case from the pricing and sales decisions you understand, bring in pharmaceutical pricing fraud whistleblower lawyers, and remain your partners throughout the case.