Dava Pharmaceuticals: Branded Drugs on a Generic Rebate Bill

In the Dava Medicaid rebate settlement, Dava Pharmaceuticals agreed to pay $11 million to resolve allegations that it reduced Medicaid rebates through drug misclassification and incorrect average manufacturer price calculations. Dava sold versions of cefdinir, clarithromycin and methotrexate that the government said it wrongly treated as generic drugs for rebates. State Medicaid programs, and the taxpayers behind them, allegedly got back less than they were owed.

The Justice Department announced the settlement on February 8, 2012. It covered allegations that Dava knowingly underpaid rebates from October 1, 2005 through September 30, 2009. A whistleblower brought the pharmaceutical fraud case.

How the Reported Category Changed the Rebate

The government alleged that Dava treated its versions of cefdinir, clarithromycin and methotrexate as generic drugs when they should have been treated as branded products. According to the department, that choice lowered the overall percentage rebate payable to Medicaid.

The Medicaid Drug Rebate Program requires participating manufacturers to pay quarterly rebates to state Medicaid programs. The obligation depends in part on the drug’s category and the difference between what the program paid and prices paid by other purchasers.

During the period covered by Dava’s settlement, branded drugs carried a higher minimum rebate percentage than generics. The branded calculation also compared average manufacturer price with Best Price, the lowest qualifying price available to other purchasers. That comparison could increase what Medicaid was owed beyond the minimum. Calling a product generic therefore changed more than its description: it put the product on a different rebate calculation.

A later case against Mylan shows why the category deserves attention. In its EpiPen settlement announcement, the Justice Department alleged that Mylan reported EpiPen as generic despite the absence of a therapeutically equivalent drug, avoiding brand and inflation rebates. A competing manufacturer, Sanofi-Aventis US LLC, brought that case. Product knowledge outside the reporting company can matter, too.

The Separate Average Manufacturer Price Allegation

The government also alleged that Dava reduced its rebate obligations by incorrectly calculating average manufacturer prices for cefdinir, clarithromycin, methotrexate and Rheumatrex.

Those are separate parts of drug-price reporting. The category determines how a product is treated for rebate purposes. The average manufacturer price supplies a price used in the calculation.

Manufacturers report quarterly average manufacturer price and Best Price to the Centers for Medicare & Medicaid Services. States supply the drug utilization data. Those reports bring together the price information held by the company and the units paid for by Medicaid. The reporting system depends on the manufacturer getting its side right.

In the pharmaceutical business, a list price, an average manufacturer price and a manufacturer’s net receipts describe different things. The average manufacturer price is a program-specific measure with rules about which transactions and concessions belong in it. A commercial price list cannot explain on its own how the company reached the number reported for Medicaid.

For the employee responsible for that calculation, the relevant question is which transactions produced the reported average. The retail pharmacy channel matters to average manufacturer price, while a manufacturer’s list price leaves out discounts. A pricing analyst looking at the underlying sales and concessions sees something a published price list cannot show.

Price reports also carry a certification from a senior company officer or a directly delegated individual. Manufacturer-specific price information is confidential. That puts particular value on the knowledge of people who prepare the calculations and understand the sales behind them. The public can see a drug’s advertised price without seeing the company’s calculation of what it owes Medicaid.

The USC Schaeffer Center’s 2020 paper, The Association Between Drug Rebates and List Prices, found that increases in estimated rebates were associated with increases in list prices in U.S. branded-drug data from 2015 through 2018. Its comparison of list and estimated net prices illustrates why a price before discounts and a price after them tell different stories.

In the Wyeth and Pfizer Protonix settlement announced in April 2016, the government alleged that Wyeth left bundled hospital discounts on oral and intravenous Protonix out of Medicaid Best Price reporting. That case turned on how discounts across a deal reached the reported price. Dava’s allegations put the product category and average manufacturer price calculation together. The shared question is which business decision made the manufacturer’s rebate bill smaller.

Where the Settlement Money Went

The settlement allocated approximately $5.7 million to the federal government, over $5 million to participating states and approximately $200,000 to certain Public Health Service entities. The money addressed rebates withheld from Medicaid and inflated prices paid by public healthcare purchasers.

The government said the reporting caused certain entities to pay too much for the products.

The 340B drug discount program shows how rebate inputs can also affect a purchase price. In that program, the ceiling price generally starts with average manufacturer price and subtracts the Medicaid rebate amount per unit. A reported price or rebate error can therefore reach the acquisition price a health care provider pays. For a hospital or clinic buyer, the manufacturer’s government-pricing work can matter before a prescription reaches a patient.

That changes where someone in the business may see the problem. A person working on rebates sees the amount returned to Medicaid. Someone concerned with the purchasing price sees what the health care entity paid.

How Much Money Do Pharmaceutical Whistleblowers Get for Exposing Fraud?

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. In Dava’s case, the Justice Department said the whistleblower would receive 15% of the settlement proceeds.

The whistleblower brought it as a qui tam case.

For pharmaceutical whistleblowers who understand government pricing, the Dava allegations point to specific business decisions: the product category, the reported manufacturer price and the resulting rebate.

You Know How the Rebate Was Reported

If your pricing, product-data or finance work showed how a category or calculation kept Medicaid’s rebates down, speak to one of our whistleblower experts about how the rebate was reported. We build the case with you and bring in pharmaceutical fraud whistleblower lawyers who understand the connection between drug classifications, reported prices and unpaid rebates. You have our expertise beside you from the first conversation through the pursuit of a recovery.