Bristol-Myers Squibb: Wholesaler Fees and Price-Appreciation Terms

In the Bristol-Myers Squibb AMP settlement, the company agreed to pay $75 million to resolve allegations that it underreported average manufacturer prices and underpaid Medicaid drug rebates. The alleged reporting errors ran in both directions: fees paid to wholesalers reduced the reported price, while additional value received from wholesalers never entered it. Different decisions, the same alleged result. State Medicaid programs get less back, and taxpayers carry the cost.

The Justice Department announced the resolution on April 1, 2021. A pharmacist brought the False Claims Act case, and the whistleblower continued pursuing it after the government declined to join. Both service-fee deductions and price-appreciation provisions in BMS’s wholesaler contracts drove this pharmaceutical fraud settlement.

How Wholesaler Service Fees Allegedly Reduced AMP

Bristol-Myers Squibb allegedly deducted wholesaler service fees from AMP when those payments should have stayed outside the price calculation. Treating compensation for services as a drug-price discount made the reported average smaller and, according to the government, reduced the rebates owed to states.

Under the Medicaid Drug Rebate Program, manufacturers pay quarterly rebates to state Medicaid programs in exchange for coverage of their drugs. Those rebates depend in part on prices the manufacturer reports. Generally, a higher reported AMP means a larger rebate. In the BMS case, the alleged underpayment left the company with money owed to a program that pays for health care.

For drugs distributed through retail community pharmacies, AMP measures the average price paid to the manufacturer by wholesalers and by pharmacies buying directly. The wholesaler is both a buyer of drugs and a provider of services to the manufacturer. Payments for distribution, inventory management and administrative work can sit alongside the price charged for the product.

The distinction matters because qualifying bona fide service fees are excluded from AMP. Excluding the fee means leaving that service payment out of the drug-price calculation. Deducting it means treating it as a reduction in what the manufacturer received for the drug.

A qualifying fee pays fair market value for an itemized service actually performed on the manufacturer’s behalf, work the manufacturer would otherwise perform or purchase. The payment also must not pass through to the service provider’s customer. The work, its value and where the payment went explain what the fee bought. The assumptions behind a reported price help explain why the manufacturer included or left out a payment.

That is the AMP misreporting allegation in the BMS case. The government said service payments had improperly lowered the reported price. The alleged saving occurred in the Medicaid rebate calculation, beyond the commercial payment to the wholesaler itself.

What Wholesaler Price Appreciation Meant for AMP

The Bristol-Myers Squibb wholesaler price-appreciation allegation concerned value flowing back to the manufacturer. The government alleged that BMS left this additional value out of reported AMP even though it received the value under its wholesaler contracts.

Price appreciation starts with inventory already purchased. When a manufacturer raises its price, a wholesaler holding stock acquired at the earlier price can sell that stock at the new, higher price. The stock has become more valuable without another purchase from the manufacturer. A contract can return part of that gain to the manufacturer.

In the BMS allegations, the returned value belonged in the reported manufacturer price. Leaving it out made AMP smaller than it should have been. This part of the case asks what the manufacturer received through the contract after the original sale, as well as what the wholesaler originally paid for the drugs.

A review confined to outgoing fees would miss the second BMS allegation. One concerns money the manufacturer paid for services. The other concerns value the manufacturer received. The government alleged that both treatments understated the same reported price and reduced the same Medicaid rebate obligation.

The Published Price Leaves Out Part of the Business

The USC Schaeffer Center’s 2020 paper, The Association Between Drug Rebates and List Prices, measured rebates as the difference between list prices and estimated net prices. Wholesaler payments were part of that difference:

For the BMS allegations, those wholesaler payments are the point: AMP depends on how each payment is treated, not simply on the gap between a drug’s list and net prices.

What Evidence Is Needed to Prove Fraud?

For the BMS pricing allegations, the evidence needs to connect the wholesaler arrangement, the value exchanged, the reported AMP and the Medicaid rebates affected. We examine the commercial transaction alongside the company’s pricing decisions and what the people making those decisions knew.

We bring the pricing employee’s calculation, the contract manager’s explanation and the finance team’s account of the payment together around the rebates the manufacturer owed.

Can a Pharmacist Be a Whistleblower?

Yes. A pharmacist brought the BMS case and the earlier wholesaler-fee cases against AstraZeneca and Cephalon. The relevant knowledge concerned manufacturer pricing and wholesaler arrangements, a part of the drug business that reaches beyond dispensing prescriptions.

In the BMS case, the government declined to join, and the whistleblower and the whistleblower lawyers proceeded. The Justice Department credited their efforts as critical to the settlement.

For a pharmaceutical whistleblower, knowledge of how a contract works can explain a number that looks ordinary on a report. We work with healthcare insiders in pricing, pharmacy and distribution to connect that knowledge to the payment decisions inside the business.

The Earlier Wholesaler-Fee Settlements

AstraZeneca agreed to pay $46.5 million and Cephalon agreed to pay $7.5 million in the wholesaler-fee settlements announced by the Justice Department on July 6, 2015. The government alleged that both manufacturers improperly deducted wholesaler service fees from AMP and consequently underpaid quarterly Medicaid rebates.

The shared pattern is the reporting treatment: payments to wholesalers allegedly became deductions that lowered the manufacturer’s rebate bill. BMS’s case also reached the incoming value under price-appreciation terms. Together, these allegations show why a review of wholesaler arrangements has to follow both sides of the exchange into the government report.

The Federal and State Settlement

The BMS settlement allocated approximately $41 million to the United States, with the remainder going to participating states. That division follows the alleged harm described by the Justice Department: states received too little in rebates, and the United States was overcharged through its payments to states for Medicaid. Taxpayers carried the cost of the allegedly understated manufacturer prices.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. In a pricing case, the contribution can be knowing why a fee was deducted or why contract value failed to reach the reported price. That is the connection our whistleblower experts develop with you.

You Know Where the Price Changed

If the wholesaler agreement and the reported AMP tell different stories, speak with our whistleblower experts about the unpaid Medicaid rebates. We build the case around your knowledge of the fees, inventory and pricing decisions, and bring in pharmaceutical pricing whistleblower lawyers who understand Medicaid rebate disputes. We stay beside you throughout your Medicaid rebate whistleblower case, from the first conversation through its resolution.