First DataBank and Medi-Span: The Price Publishers Ordered to Roll Back AWP

The First DataBank and Medi-Span AWP class settlements required a rollback of drug-pricing benchmarks that private plaintiffs alleged were inflated. The companies published the price benchmarks used to calculate prescription reimbursements. Inflating that number could make healthcare plans pay more without a corresponding change in what the pharmacy paid to buy the drug. A published number could move other people’s money.

A federal court in Massachusetts approved the amended publisher settlements on March 17, 2009. These pharmaceutical pricing cases concerned private class relief. McKesson, the wholesaler, later reached a separate settlement over the federal share of Medicaid overpayments. The publisher rollback and the government’s recovery addressed different parts of the payment chain.

How the Publisher’s Number Became a Payment

Average wholesale price was a commercial benchmark that reimbursement contracts used to calculate payment. Wholesale acquisition cost supplied the starting point for the markup at issue here. WAC is the manufacturer’s list price to wholesalers or direct purchasers, before discounts, rebates and other price reductions.

Those different drug-price measures describe different things. WAC does not tell a payer what a pharmacy actually spent acquiring a drug. Adding a markup to WAC does not supply the missing invoice information. Yet a contract written around AWP can turn that published figure into the amount charged for a prescription.

The economics had already separated from the label. In a 2007 opinion on the broader AWP litigation, the court described historical formulaic markups that persisted after competition and consolidation reduced actual wholesaler margins to 2 to 3 percent. The published benchmark continued to carry a margin the wholesale transaction no longer reflected.

That explains why average wholesale price fraud could involve the information feeding reimbursement as well as the sale of the drug. A manufacturer’s price, a wholesaler’s reported markup and a publisher’s benchmark occupy different places in the chain. The payer sees the resulting claim. An insider may know which input changed and who supplied it.

What the Publisher Rollbacks Required

The approved terms called for First DataBank and Medi-Span to reduce the WAC-to-AWP multiplier from 1.25 to 1.20 for the 1,442 National Drug Codes identified as affected by the alleged scheme. The remedy targeted the published markup attached to those codes.

The two publishers had separate class actions. First DataBank’s case also named McKesson. The Medi-Span case proceeded separately.

The practical change was in the benchmark that a reimbursement formula consumed. Where payment depended on that benchmark, lowering it would lower the formula’s result if the other terms stayed the same. That is why the affected drug codes and the contract’s price basis matter together. The price file identifies the number to use. The contract determines what happens to it.

For a pricing employee, the distinction is concrete. A change to the markup changes the published AWP. A change to the discount in a payer contract changes how much of that AWP is charged. Both can move the payment, but they are decisions made at different points in the business.

McKesson’s Federal Settlement Was a Separate Payment

McKesson’s federal AWP settlement required $187 million in principal to resolve the federal share of Medicaid overpayments. The Department of Justice announced it on April 26, 2012, resolving allegations that McKesson reported inflated markup percentages to First DataBank, which published the AWP benchmarks used by Medicaid.

States could negotiate their own claims separately. The overlap is the reported markup. In the publisher cases, private plaintiffs challenged the benchmark and obtained rollback agreements. In the federal case, the government pursued the wholesaler over pricing information that allegedly increased Medicaid payments. The same pricing input can inflate health care payments by private plans and a government program, with separate claims over who paid too much.

AWP Discounts Could Hide Different Contract Prices

An AWP-minus-discount contract gives a plan a percentage reduction from a benchmark. It does not, by itself, tell the plan what the pharmacy received or what the drug cost to acquire. The contracts on either side of a pharmacy benefit manager can use different payment terms for the same prescription.

The 2004 paper Examining the Value of Pharmacy Benefit Management Companies, published in the American Journal of Health-System Pharmacy, illustrates the difference. In its brand-drug example, the PBM pays the pharmacy AWP minus 13% plus a dispensing fee, while charging the payer AWP minus 10% plus a fee. The paper describes the gap as a source of PBM revenue.

This spread between the plan’s charge and the pharmacy’s payment explains why a publisher rollback matters on both sides of the contract. With unchanged discounts, a lower benchmark changes both calculations. The contract terms, rather than the size of the published rollback alone, determine the payment effect.

The paper gives another illustration using hypothetical costs for a PBM-owned mail-order pharmacy with a repacker’s license. It explains how repackaging permits a new drug code and a new AWP:

In that hypothetical comparison, the larger discount comes off a higher starting price, and the payer spends more. The example exposes a weakness in comparing discounts without comparing the underlying benchmarks. It also explains why someone who knows the price file may see something the purchaser looking only at the discount misses.

First DataBank Stopped Blue Book AWP, While Medi-Span Kept It

First DataBank states that it discontinued publication of Blue Book Average Wholesale Price on September 28, 2011. Medi-Span’s pricing policy describes its publication of AWP alongside other pricing measures, including National Average Drug Acquisition Cost.

By Medi-Span’s own account, average wholesale price is neither an average nor a measure of actual wholesale transactions. Its policy says the number does not represent the discounts or rebates wholesalers offer. It relies on manufacturers’ pricing submissions. The publisher may check that a submission is authorized and authentic, but says it does not independently investigate whether the reported price matches actual purchase or sale prices.

An authorized submission answers who supplied the number. It does not answer what a buyer paid. That distinction connects the old rollback dispute to the work of anyone handling pricing data: the identity of the source and the economic meaning of the price are separate questions.

What Evidence Is Needed to Prove Fraud?

For an alleged benchmark-pricing scheme, the useful evidence connects the reported input, the published price, the reimbursement formula and the resulting payment. We work with pharmaceutical whistleblowers to understand those connections and what the people responsible knew about the pricing information.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. That share of a government recovery belongs to the whistleblower route, distinct from the private publisher class settlements discussed here.

You Know Where the Published Price Came From

If you worked on the pricing feed, the markup or the contract that turned it into a payment, speak to our whistleblower experts about the pricing behind the payment. We build your strongest pharmaceutical whistleblower case around that knowledge, bring in pharmaceutical pricing whistleblower lawyers who understand reimbursement data, and stay alongside you throughout the case.