Average Manufacturer Price Misreporting: A Fee on the Ledger, a Smaller Medicaid Rebate

Average manufacturer price misreporting can understate the price a drugmaker reports to Medicaid and reduce the rebates it owes. A manufacturer pays a wholesaler for services, deducts that payment as though it were a drug discount, and reports a lower AMP. Taxpayers and state Medicaid programs get less back. If you work in government pricing, contracts or finance, the agreement and the calculation may tell you exactly where the difference began.

What Does AMP Measure?

Average manufacturer price measures what manufacturers receive for drugs sold through the retail community pharmacy channel. It includes sales to wholesalers for distribution to those pharmacies and sales directly to retail community pharmacies. The customer’s role and the drug’s destination determine which transactions belong in the calculation.

That boundary matters before anyone applies a discount. A manufacturer selling through wholesalers and directly to pharmacies has to connect the sales and their units to the right channel. Its overall revenue after concessions answers a different question from the retail-channel average reported to Medicaid.

Customary prompt-pay discounts to wholesalers and bona fide service fees stay out of AMP. Other discounts and payments to retail community pharmacies count, so treating a service payment as a drug discount changes the reported price.

Payments and concessions involving pharmacy benefit managers, hospitals, mail-order pharmacies and long-term-care providers generally stay outside the retail-channel calculation. Some drugs not generally dispensed through retail pharmacies, including injected and infused drugs, have different treatment. A blanket rule for every customer can miss that distinction.

For a pricing specialist, the customer classification is part of the price. We examine how the company assigned that classification alongside the transaction, the units and the concession it used.

The USC Schaeffer Center’s 2020 paper, The Association Between Drug Rebates and List Prices, found a positive association between changes in list prices and estimated rebates for U.S. brand drugs. Its measure combined several kinds of concessions:

For an AMP review, its useful lesson is the mix of payments inside an overall net-price measure. We need to separate those payments by recipient, purpose and channel to understand the manufacturer’s reported average.

Why Does a Lower AMP Reduce Medicaid Rebates?

A lower reported AMP can reduce the rebate a manufacturer owes for Medicaid prescriptions. Manufacturers report the price inputs, states report utilization, and the rebate owed depends on both the amount per unit and the units Medicaid paid for.

For most brand drugs, the basic Medicaid rebate is the greater of 23.1% of AMP or the difference between AMP and Best Price. The basic generic rebate is 13% of AMP. Best Price is the lowest qualifying price available from the manufacturer, with specified exclusions. AMP is an average across qualifying sales.

The inflation rebate adds another reason to examine the reported number. It compares AMP with the drug’s historical base-date AMP adjusted for inflation. Understating the current price or improperly raising the historical baseline can reduce that additional rebate.

The former cap at 100% of AMP ended for rebate periods beginning January 1, 2024. The total rebate can now exceed AMP. That makes the history behind a base date consequential long after the original report.

AMP also helps determine the 340B ceiling price, generally AMP minus the Medicaid unit rebate amount. The same price-reporting records can therefore matter to safety-net purchasers as well as state Medicaid programs.

Wholesaler Fees and the Direction of the Error

A whistleblower case over AMP deductions for wholesaler administrative fees follows a payment from the wholesaler agreement into the reported price. The central question is what the payment bought and why the manufacturer deducted it.

A bona fide service fee pays fair market value for an itemized service actually performed for the manufacturer, which the manufacturer would otherwise perform or purchase. The fee must also stay with the recipient rather than pass through to its client or customer. The agreement, evidence of the work and support for its value give substance to the label.

Excluding a service fee from AMP means leaving it out of the price calculation. Deducting it as a price concession instead lowers the reported price. That is the alleged mechanism in the AstraZeneca and Cephalon settlements announced in July 2015. AstraZeneca agreed to pay $46.5 million and Cephalon $7.5 million to resolve allegations that deducting wholesaler service fees had lowered their reported AMP and quarterly Medicaid rebates. A pharmacist brought the whistleblower case.

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

The incentive reverses in Medicare Part B. There, a real price concession should reduce average sales price. Calling it a service fee and leaving it out of the deductions can keep ASP too high. In one program the manufacturer benefits from reporting a lower price and paying a smaller rebate. In the other, overstating the price can increase Medicare payment. The same account label needs a different question depending on the government report.

Price Appreciation Credits Can Leave Value Out

Price appreciation provisions can return additional value to a manufacturer when a wholesaler’s inventory becomes more valuable after a list-price increase. The inventory was already on the wholesaler’s shelves. The contract determines how the manufacturer shares in the increase.

Bristol-Myers Squibb’s April 2021 settlement addressed allegations about both sides of that arrangement. The company allegedly deducted wholesaler service fees improperly and left out additional value it received under price appreciation provisions. It agreed to pay $75 million.

One allegation concerned money treated as a deduction. The other concerned value omitted from the reported price altogether. Reading the service-fee account alone would leave the alleged omitted value unexplained. We would compare the wholesaler contract, inventory-related credits and reported AMP together.

What Can an AMP Whistleblower’s Records Show?

An insider’s records can connect a reported AMP to the sales, deductions and decisions that produced it. Our review starts with that connection: what the company received, what it counted and what it certified to the government.

The invoice records, customer classifications and units can show which sales entered the average. Product identifiers and package information help connect the price to the quantity and reporting period. Prompt-pay terms, chargebacks, rebates, credits and returns show the adjustments behind that price. We work through these records with you to understand what changed between the transaction and the reported number.

A fee agreement needs evidence of the services performed, their fair market value and whether the payment passed through to a customer. A description in the ledger tells us how the company booked the payment. The other records show what it paid for.

Bundled arrangements add another layer. Concessions conditioned on purchases of the same drug, different drugs, another product or a performance requirement require allocation across the arrangement. Free goods contingent on a purchase also count toward Best Price. A single invoice can leave the wider agreement out of view.

Manufacturers report quarterly AMP and Best Price to the Centers for Medicare & Medicaid Services, with monthly reporting of AMP units and product information. An authorized officer or directly delegated individual certifies the reports. Those certifications connect the calculation to the number the government uses.

Manufacturers must retain records of their calculation assumptions. In its September 2019 report, Reasonable Assumptions in Manufacturer Reporting of AMPs and Best Prices, the HHS Office of Inspector General found that 67 of 74 surveyed manufacturers paying bona fide service fees made assumptions about those fees.

Those assumptions can explain why a payment took one route through the calculation and a similar payment took another. We examine the written methodology, calculation versions and restatements with you to connect the pricing decision to what the company certified. A late AMP restatement makes its explanation worth reading alongside the earlier reports.

AMP Cases Reach Beyond a Single Deduction

AMP cases can involve the system that produced prices across a product line or the historical baseline behind the inflation rebate. The records worth examining change with the alleged mechanism.

King Pharmaceuticals Redid Its Entire Product Line

King Pharmaceuticals agreed to a $124 million settlement announced in November 2005 over government-pricing allegations. The government alleged inaccurate AMP and Best Price reporting across its product line from 1994 through 2002, attributing the problem to missing internal systems and controls. King agreed to redo its pricing across the entire line over several years.

The whistleblower had been its director of contracts and national accounts. That role sits close to the terms the business negotiated. The case gives a pricing specialist a broader comparison than one disputed fee: the same calculation method across products and reporting periods. We would examine how a repeated treatment moved from contracts into the reporting system.

Acthar’s Base Date and the Rebate Bill

Mallinckrodt’s Acthar matter concerned allegations that the manufacturer calculated rebates as though an old drug were newly marketed in 2013. The government alleged that this treatment avoided inflation rebates on earlier price increases.

The whistleblower’s amended complaint describes what allegedly happened after CMS challenged the reporting and the company calculated its exposure:

The alleged response was to restrict discussion of the calculation. For an insider, that connects the reported base date to what finance understood about the rebate bill.

In the March 2022 settlement, Mallinckrodt admitted that Acthar had been approved and marketed before 1990 and agreed to correct its base-date AMP. Approximately $234.7 million of the settlement addressed the rebate allegations. A drug sold for decades had been treated as new on its rebate reports.

Nitro OS Was Relaunched With the Same Ingredients

Nostrum’s Nitro OS matter shows the same kind of comparison at the product level. In the October 2023 resolution, Nostrum admitted facts about a relaunch it characterized as a reformulation even though the ingredients, dosage form and strength remained unchanged. The government alleged that Nostrum failed to pay inflation-based rebates after the relaunch and a price increase.

The approval and manufacturing history supply a concrete comparison with the characterization used for rebates. The product’s history matters as much as the latest invoice.

AMP, ASP and AWP Answer Different Price Questions

AMP supplies a retail-channel price for Medicaid rebates. ASP supplies a sales-price input for Medicare Part B. Average wholesale price is a privately published benchmark that has been used in reimbursement, with a history of diverging from actual acquisition prices.

Those distinctions determine the records we examine. A wholesaler service agreement can affect AMP and ASP differently, while an inflated published AWP raises a different pricing question. We connect the transaction to the particular program and reported number.

When You Know Why the Reported Price Changed

If you know how a wholesaler payment, customer classification or base date changed the reported AMP, bring that pricing decision to our whistleblower experts. We work beside you to connect the contracts, calculations and decisions into your strongest Medicaid rebate whistleblower case. We bring in pharmaceutical fraud whistleblower lawyers who understand government pricing and stay with you through the case.