Fagron: Fluticasone AWP and the Marketed Margin

In the Fagron compounding AWP settlement, Fagron Holding USA LLC agreed to pay $22.05 million to resolve allegations that its subsidiary inflated average wholesale prices and marketed the resulting pharmacy profits. The government alleged that Freedom Pharmaceuticals sold pharmacies both the ingredients for compounded prescriptions and the prospect of unusually high reimbursement. Freedom allegedly supplied the number used to help calculate that reimbursement, then promoted the money its customers could make from it. In that alleged scheme, taxpayers funded the other side of the pitch.

The Department of Justice announced the settlement on November 7, 2019. This pharmaceutical fraud case concerned claims to TRICARE and the Department of Labor’s Office of Workers’ Compensation Programs. Fagron owned both ingredient suppliers and a pharmacy business. Freedom, its wholly owned subsidiary, was the ingredient supplier behind the fluticasone allegation.

Fluticasone Had a Sale Price and a Reported AWP

The Fagron fluticasone compounding ingredient AWP allegations centered on a reported average wholesale price of $3,500 per gram for fluticasone propionate, which Freedom typically sold for approximately $160 per gram.

That difference was the selling point in the alleged scheme. The Justice Department alleged that Freedom knew reimbursement under the federal healthcare programs depended in part on the average wholesale prices it reported to price listing agencies. The government alleged that Freedom deliberately inflated those figures to increase its pharmacy customers’ reimbursement and promoted the profit potential to induce purchases.

The compounding ingredient AWP mechanism connects those prices through the prescription claim. The Justice Department alleged that Freedom’s pricing enabled pharmacies to bill the federal programs thousands of dollars per prescription for some formulations.

How the Supplier’s Price Reached the Government’s Bill

Average wholesale price was a privately published benchmark that could drive reimbursement even when the supplier sold the ingredient for much less. In the Fagron allegations, the price listing agencies carried Freedom’s reported figures into a payment system that used them to help price compound prescriptions.

Compounding pharmacies buy ingredients or chemicals to prepare prescriptions for patients who need a specially made medicine not generally available in the marketplace.

Unlike transaction-based average sales price, average wholesale price has no governing transactional definition. Among the industry’s different drug price benchmarks, its name sounds like a measurement of sales, but the published number can sit far above the price on an invoice.

The pharmacy submitted the prescription bill, but the Justice Department alleged that Freedom knowingly supplied the inflated pricing information and encouraged pharmacies to buy on the strength of the resulting profits. The government’s case followed the claim back to the business selling that opportunity.

The Fagron Subsidiaries and the Federal Programs

The settlement covered both ingredient pricing and pharmacy conduct within Fagron’s business. The affected programs were TRICARE, administered by the Defense Health Agency for the Department of Defense, and the Labor Department’s workers’ compensation program.

The announcement also described allegations against Pharmacy Services Inc., Fagron’s wholly owned pharmacy subsidiary. The Justice Department alleged that the pharmacy business submitted fraudulent compound prescription claims, used sham insurance programs to manipulate pricing, paid physicians through bogus consulting agreements and illegally waived copays. The physician kickback allegations concerned those consulting payments.

Another subsidiary, B&B Pharmaceuticals Inc., faced an allegation that it set an inflated average wholesale price for gabapentin.

Medicare Part B moved to average sales price in 2005. Public Citizen’s 2018 report, Twenty-Seven Years of Pharmaceutical Industry Criminal and Civil Penalties: 1991 Through 2017, found that earlier government-overcharging settlements were predominantly state cases involving falsely elevated average wholesale prices used by Medicaid. It attributed part of the decline to earlier investigations reaching their end and suggested that Medicaid’s move toward actual acquisition costs could reduce future average wholesale price fraud.

Fagron’s settlement shows the same benchmark problem reaching other federal health care programs through compounded prescriptions.

The Settlement and the Whistleblower Reward

The Fagron settlement resolved allegations from two qui tam cases brought under the False Claims Act. The Justice Department announced that the whistleblowers would receive a combined award of about $3.75 million from the settlement proceeds.

Their cases reached the ingredient suppliers and the pharmacy business together. That is the practical value of an insider’s account here: the ingredient sale, the reported price and the eventual prescription claim can look like separate transactions until someone explains how the company connected them.

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

The Same Sales Pitch in Other Ingredient Cases

Professional Compounding Centers of America faced government allegations announced in November 2021 that it used inflated average wholesale prices to market reimbursement margins to pharmacies. The government’s complaint alleged that in 2014, PCCA frequently sold fluticasone propionate to certain pharmacy customers for approximately $135 to $197 per gram while reporting a benchmark of about $3,631 per gram. The same ingredient sat at the center of Freedom’s pricing allegation.

The complaint makes the alleged sales instruction unusually clear:

The PCCA complaint also alleged that the company promoted formulas designed to maximize pharmacy reimbursement, gave advice on third-party billing and profitability, and rewarded top customers with annual all-inclusive travel packages. The sales effort allegedly reached from the ingredient catalog into the choice of formula and the way pharmacies sought payment.

Medisca’s settlement announced in November 2024 concerned allegedly inflated average wholesale prices for resveratrol and mometasone furoate used by pharmacies billing TRICARE and federal workers’ compensation. Its resveratrol example put the supplier’s selling price below $2 per gram and the reported benchmark at $777 per gram.

Medisca’s ingredients differed, but the alleged commercial attraction was familiar: a pharmacy could buy from the supplier and use its reported benchmark in seeking much higher reimbursement. The pricing employee and the salesperson could each see a part of that arrangement that the prescription claim alone would not explain.

What Are Red Flags for Pharmacists?

A supplier’s emphasis on reimbursement profit, inflated published benchmarks and formulas promoted for their billing potential are features of the ingredient cases described here. For a pharmacist receiving that pitch, the sales conversation can explain why a particular ingredient or formula was being pushed.

The Fagron allegation connects the price Freedom reported with what it charged and what it told customers they could earn. The PCCA complaint adds allegations about management instructions, formula promotion and billing advice. Together, they show why pricing communications and pharmacy sales materials can matter alongside the prescription bills.

What Evidence Is Needed to Prove Fraud?

For this alleged pricing scheme, the evidence connects the supplier’s reported average wholesale price, actual sales, promotion of the margin and resulting government claims. We examine how those pieces fit, including what the supplier knew about the reimbursement its customers would seek.

A pricing employee may know how the published figure was chosen. A salesperson may know how the margin was presented to customers. A pharmacy purchaser or billing employee may recognize the ingredient price, the recommended formulation and the claim that followed. Those are different views of the same alleged transaction, and our work is to build the case around the connection your knowledge reveals.

You Know How the Margin Was Sold

If you worked with ingredient pricing, pharmacy sales or compound prescription billing, talk with our whistleblower experts about the reimbursement pitch you saw. We turn that knowledge into a focused case with you, bring in pharmaceutical fraud whistleblower lawyers who understand ingredient pricing and pharmacy reimbursement, and stay beside you throughout the case.