Dey: Selling the Gap Between Two Drug Prices

In the Dey pharmaceutical AWP settlement, the company agreed to pay $280 million over allegations that it inflated reported drug prices and marketed the spread to customers. The sales advantage was the gap between what a healthcare provider paid for a drug and what the government reimbursed. A manufacturer could make its product more attractive by making the public pay more for it.

The Department of Justice announced the settlement on December 20, 2010. A Florida home-infusion company, Ven-A-Care of the Florida Keys Inc., and its principals had brought the whistleblower case. Their place in the drug business matters: a buyer could see prices that the government’s reimbursement system failed to reflect.

By the Dey announcement, the Justice Department said it had recovered over $2 billion from pharmaceutical manufacturers over similar drug-pricing schemes. Dey was its fourth such manufacturer settlement announced that month.

Four Respiratory Drugs, One Pricing Allegation

The government named four Dey drugs in the nationwide resolution: Albuterol Sulfate, Albuterol MDI, Cromolyn Sodium and Ipratropium Bromide. Dey manufactured prescription drugs for allergies and respiratory diseases. The allegations concerned the prices reported for those products and the payments those reports generated.

In congressional testimony, Ven-A-Care’s president explained that Medicare reimbursed pharmacies for certain drugs administered through a nebulizer, including ipratropium bromide. That put respiratory-drug purchasing decisions inside the reimbursement system Dey allegedly exploited.

The Justice Department alleged that Dey knew federal health care programs relied on its reported prices to set payment rates and that its actual sales prices were far below the prices it reported. The government alleged that the inflated reports caused Medicare and Medicaid to pay millions of claims at amounts far above what truthful prices would have produced.

That puts the manufacturer inside the payment chain even though a provider submitted the claim. Dey allegedly supplied the price that helped determine the reimbursement, sold the drug at a lower actual price, and used the difference to win customers.

How Dey Allegedly Marketed the Spread

The spread was the difference between the provider’s actual purchase price and the government payment for the drug. The Justice Department alleged that Dey deliberately created artificial spreads and used them to market, promote and sell its products to existing and prospective customers.

Average wholesale price was a published benchmark that government programs used to estimate drug costs. In congressional testimony in December 2004, the HHS inspector general’s office explained that states lacked access to pharmacies’ actual acquisition costs and relied on estimates. The published prices generally bore little resemblance to the prices pharmacies paid.

For a pharmacy choosing which manufacturer’s product to buy, the purchase price was only part of the calculation. The expected reimbursement mattered too. A lower invoice price and a higher reported benchmark could make the same sale more profitable for the pharmacy, while Medicare or Medicaid picked up the inflated bill. That was the incentive the government alleged Dey offered. The Justice Department described the practice as a taxpayer-funded kickback scheme.

The inspector general’s pharmaceutical-manufacturer guidance described how control of the spread could give a manufacturer control over its customer’s profit. Promoting that profit became a way to sell the drug. In that alleged sales strategy, honest manufacturers had to compete against a margin funded by inflated government payments.

Why Ven-A-Care Could See Both Prices

Ven-A-Care brought knowledge from the purchasing side of the business into the Dey case. The case shows why the relevant insider need not sit inside the manufacturer: the customer encounters both the actual offer and the reimbursement pitch.

Ven-A-Care’s president described that perspective in the congressional hearing. His testimony explained that state programs received manufacturer prices either directly or through drug-price publications. He described sales personnel trained to pitch the higher reimbursement on their products, and wholesaler and purchasing-group software that let pharmacies compare spreads across manufacturers.

That account of industry sales practices helps explain what a buyer could recognize in Dey’s alleged sales strategy: the product was a respiratory drug, but the commercial attraction included the government-funded margin. The person receiving the pitch could understand something a published price alone would never show.

Texas Had Already Settled a Separate Dey Case

Dey’s earlier Texas Medicaid settlement was a separate resolution over allegedly false pricing submissions to the Texas Vendor Drug Program. On June 11, 2003, the Justice Department announced that Dey had agreed to pay the United States and Texas $18.5 million, a much smaller agreement than the later nationwide settlement. The drugs at issue were primarily used for asthma and other respiratory conditions.

The government alleged that Dey supplied false pricing information that caused providers to submit inflated reimbursement claims to Texas Medicaid. In the later congressional hearing, the Texas attorney general’s office explained that manufacturers submitted a questionnaire for each drug they wanted placed on the Medicaid formulary. It asked for prices to different kinds of customers, including wholesalers and direct purchasers, and a company representative certified the information’s accuracy.

Texas therefore had a direct statement from the manufacturer to compare with the prices used in ordinary business.

At the congressional hearing, Ven-A-Care’s president described the company’s role in bringing the Texas case and the state’s decision to join it. The buyer’s view of drug prices had helped expose the same basic problem in a program that collected pricing information directly from manufacturers.

What Government Audits Saw in the Market

Government audits showed why using a published benchmark as a substitute for purchase prices could be so expensive. In its written testimony at the hearing, the inspector general’s office reported that pharmacies’ acquisition costs in 1999 averaged 21.8% below AWP for brand-name drugs and 65.9% below AWP for generics.

Even the invoice price could overstate what the pharmacy ultimately paid after discounts and rebates.

A government program could use a published price to estimate a pharmacy’s cost while the pharmacy bought the drug much more cheaply. The Dey case added the alleged business decision to exploit that gap and sell it to customers.

The Sales Pitch Reappeared in Compounding

The reported-price problem reached well beyond Dey. Public Citizen’s 2018 report, Twenty-Seven Years of Pharmaceutical Industry Criminal and Civil Penalties: 1991 Through 2017, found that overcharging government health programs appeared in 204 settlements, more than any other violation category in its study. Most settlements in that category were state matters, mainly involving falsely elevated AWPs used for Medicaid reimbursement.

A later compounding-ingredient AWP case shows the same sales incentive in a different product market. In its complaint against Professional Compounding Centers of America, the government alleged that senior managers instructed sales representatives to emphasize the gap between reported ingredient prices and actual selling prices:

In Dey’s case the products were respiratory drugs. In the compounding case they were ingredients pharmacies used in preparations. Both allegations put the customer’s expected reimbursement at the center of the manufacturer’s pitch. The price report and the sales message worked together.

The Records Behind a Marketed Spread

In pharmaceutical fraud cases involving marketed spreads, the useful records connect the price sent outside the company with the price charged in a real transaction and the profit promised to the buyer. Pricing staff, sales representatives and pharmacy purchasers can see different parts of that connection.

The Texas attorney general’s office described particularly revealing evidence from its manufacturer investigations in the congressional hearing: spreadsheets comparing pharmacies’ profits on different manufacturers’ products, sales compensation tied to marketing the spread, and separate computer records for reported prices and real contract prices. The business records showed the prices used to win and fulfill orders alongside the prices reported for reimbursement.

The connection depends on which drug-price benchmark the payment used. A price-reporting employee may understand why the published figure remained high. A sales representative may know how the spread became a selling point. A purchasing or reimbursement specialist may recognize the relationship between a contract price and the payment expected for the same product. We work with that business knowledge to connect the reported number, the transaction and the company’s decisions.

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 Dey’s nationwide settlement, the Justice Department announced that the Ven-A-Care whistleblowers would receive approximately $67.2 million as their share.

The Dey award shows the value of knowledge from the buying side of the drug business. For pharmaceutical whistleblowers, the starting point is the pricing practice they understand and the records that explain it.

You Know the Price Behind the Pitch

If you saw a drug sold on a reimbursement spread that its reported price helped create, talk to our whistleblower experts. We turn your knowledge of pricing and sales into your strongest pharmaceutical whistleblower case, bring in pharmaceutical pricing fraud whistleblower lawyers, and stay beside you through the pursuit of a recovery.