Medicaid Best Price Fraud: Discounts Hidden Behind Labels and Customer Arrangements

Medicaid Best Price fraud occurs when a drug manufacturer knowingly conceals or misreports a qualifying customer price to reduce the rebates it owes Medicaid. The customer gets the discount. The manufacturer reports a price that leaves the government short. If you work in contracting, government pricing or rebate operations, you may know both the arrangement the company made and the number it certified.

The missing concession can sit in a private-label agreement, a hospital bundle or a payment described as an educational grant. The price on the invoice is only part of that story. What the customer received, what it promised in return and how the manufacturer treated the arrangement in its quarterly calculation can explain the difference.

How Medicaid Best Price Works

Medicaid Best Price is the lowest qualifying price a manufacturer makes available during the rebate period. Eligible buyers include wholesalers, retailers, providers, health maintenance organizations, nonprofit entities and government entities in the United States. The buyer and the purchasing arrangement determine which prices belong in the calculation.

Manufacturers report Average Manufacturer Price and Best Price to the Centers for Medicare & Medicaid Services each quarter. States report the drug units Medicaid paid for. The reported prices drive the rebate per unit, and the utilization determines how many units the manufacturer owes rebates on. The manufacturer supplies the price inputs used to calculate its own bill.

For brand drugs covered by the Best Price calculation, the basic rebate uses the greater of the difference between AMP and Best Price or a minimum percentage of AMP. A lower Best Price can therefore increase the rebate. Reporting a higher price than the qualifying customer actually received can shrink that obligation. An additional inflation rebate addresses price increases measured against the drug’s historical baseline.

Some government purchasing programs’ prices are excluded, so Best Price is the lowest qualifying price, not simply the lowest price anywhere.

Why the Discount’s Label Matters

Best Price includes cash discounts, volume discounts, rebates and free goods contingent on a purchase requirement. An indirect concession can change the buyer’s effective price even when it arrives through another arrangement. Special packaging, labeling or a different product identifier does not remove a qualifying price from the calculation.

A bona fide service fee stays out of Best Price when it pays fair market value for specific work the manufacturer would otherwise do or buy, and none of the fee passes to the service provider’s customer. The service agreement, valuation and payment records show whether the fee fits that description.

The direction changes with the benchmark. Wrongly excluding a concession from Best Price can keep Best Price too high. Wrongly deducting a service fee from AMP can push AMP too low. Someone reviewing these arrangements needs to know which reported number the company changed and how that change affected the government payment.

Why One Customer’s Price Reaches Beyond That Customer

Best Price gives a manufacturer a reason to care about the consequences of a single low-price deal across its Medicaid business. A 2018 article in Managed Care examined that commercial constraint when discussing prices that vary by a drug’s use:

The price offered to win one account can affect the rebates owed elsewhere. That gives a pricing team a reason to scrutinize the deal, and an insider’s knowledge of the customer arrangement can matter more than the published list price.

Private-Label Discounts and the Aventis Arrangement

Aventis agreed to a $95.5 million civil settlement in May 2009 over alleged Best Price misreporting for Azmacort, Nasacort and Nasacort AQ. The allegations covered sales of the anti-inflammatory nasal sprays between 1995 and 2000.

The Justice Department alleged that Aventis entered private-label agreements with Kaiser Permanente to avoid triggering a lower Best Price and the additional Medicaid rebates that would follow. The alleged arrangement repackaged Aventis’s drugs under a new label. According to the department, the manufacturer underpaid Medicaid rebates and overcharged certain Public Health Service purchasers.

The 340B Drug Pricing Program’s ceiling price is Average Manufacturer Price minus the Medicaid rebate per unit. An inflated Best Price that shrinks that rebate can also raise the ceiling price paid by safety-net health care providers.

The label changed. The government alleged that the qualifying discount stayed out of the report. For someone inside the business, the telling comparison is between the private-label agreement, the product sold and the price included in the calculation. The commercial purpose of the arrangement belongs beside the packaging history.

Bayer supplies an earlier parallel. The Justice Department and Department of Health and Human Services report for fiscal 2003 described allegations that Bayer concealed discounted private-label sales to a health maintenance organization when calculating Medicaid rebates. The same report described allegations that GlaxoSmithKline concealed deep private-label discounts to that purchaser.

Did the manufacturer’s customer receive a low price that its Medicaid calculation left out? The private-label agreement is part of the pricing evidence, alongside the sale itself.

Medicaid Best Price and the Omitted Hospital Discount Contract

An omitted hospital discount contract can hide the concession that should lower Medicaid Best Price. The Wyeth Protonix case shows why the hospital agreement and its conditions matter as much as the invoice for either drug.

Wyeth and Pfizer agreed to a $784.6 million settlement in April 2016 to resolve allegations that Wyeth hid bundled discounts on oral and intravenous Protonix. The government alleged that this avoided Medicaid rebates from 2001 through 2006.

According to the Justice Department, Wyeth linked discounts on the oral drug to discounts on the intravenous drug to induce hospitals to use oral Protonix. Competing oral drugs were already competitively priced and considered at least as safe and effective. The hospital needed a reason to switch.

The return Wyeth allegedly sought came after discharge. Patients who left the hospital on oral Protonix were likely to continue taking it, while Medicaid and other payers paid nearly full price. A discount during the hospital stay could buy a stream of outpatient prescriptions. The hospital received the concession, while the later payer supplied the return. State Medicaid programs and the taxpayers funding them allegedly lost the rebates on top of paying for those prescriptions.

Bundled-sale treatment follows the conditions of the arrangement, including a purchase of another drug or a performance requirement. Discounts must be allocated across the products in the bundle. For the employee who knows a hospital contract was omitted, the central connection is the negotiated concession, the products it covered and its treatment in the reported Best Price. A side agreement or rebate schedule may explain a discount that the invoice alone does not.

Nominal Prices and Educational Grants

A nominal-price designation and an educational-grant designation have both appeared in allegations that manufacturers left customer value out of Best Price. The payment’s commercial purpose explains why the label deserves examination.

Merck’s Pepcid settlement, announced in February 2008, addressed allegations that the company offered hospitals substantially reduced prices in exchange for primarily using Pepcid instead of a competing drug. The government alleged that Merck wanted the continuing business from patients after discharge and omitted the discounts from government-reported prices. Merck agreed to pay $250 million in that matter.

The broader Merck allegations described hospital prices improperly treated as nominal and excluded from reporting. The commercial resemblance to Protonix is direct: a hospital discount aimed at later prescriptions. The reporting labels differed, but both allegations put the missing concession between the hospital contract and the Medicaid rebate.

The Deficit Reduction Act of 2005 restricted which purchasers could receive excluded nominal prices. The current framework requires both a qualifying price and an eligible recipient.

The educational-grant example came earlier. The Department of Health and Human Services’ inspector general’s account of the October 2002 Pfizer settlement described allegations that Warner-Lambert omitted unrestricted educational grants from reported Best Price. The government alleged that the grants went to a managed-care organization to secure unrestricted formulary status for Lipitor, the cholesterol drug. The grant allegedly bought the drug’s position on the purchaser’s formulary, its list of covered medicines.

The grant, hospital discount and private-label sale each put value into a customer relationship. The question for the reporting employee is what happened to that value when the company calculated the government price.

What an Insider Can See Behind the Certified Price

The manufacturer calculates the price and certifies the report. A chief executive officer, chief financial officer, equivalent officer or direct delegate must certify the submission. Manufacturer-specific price information is confidential. The people who negotiate the customer arrangement and calculate the reported number can therefore see a connection that an outsider cannot read from public prices.

The assumptions behind that calculation can be especially revealing. In its September 2019 report, Reasonable Assumptions in Manufacturer Reporting of AMPs and Best Prices, the Department of Health and Human Services’ inspector general found that the Centers for Medicare & Medicaid Services historically instructed manufacturers not to submit their reasonable assumptions routinely. The manufacturer retained them, and the agency examined them in particular inquiries. The number went to the agency while much of the reasoning stayed inside the company.

Among the responding manufacturers that paid bona fide service fees, 67 of 74 reported making assumptions about those fees in calculating AMP or Best Price. The inspector general also described approaches to fair market value ranging from assuming commercially typical fees were fair to hiring consultants to establish benchmarks.

For a pricing employee, the assumption memo may explain why a payment was excluded. The service records can show what the recipient actually did. Customer contracts, rebate schedules and payment records connect the negotiated terms to what the buyer received. The calculation and certification show how those transactions reached the government report.

This is where we work with the insider’s knowledge of the business. An employee may understand why a private label was created, what a hospital had to buy to earn a discount or which account received a grant. We connect that commercial explanation to the reported price and the rebate obligation.

Is It Hard to Prove Medicaid Fraud?

The answer depends on what the customer deal and the company’s reporting show; we assess that with you. In a Best Price case, we connect the customer arrangement to the reported price, the rebate shortfall and what the manufacturer knew.

The neighboring AMP cases show how specific the connection can be. In the AstraZeneca and Cephalon settlements announced in July 2015, the government alleged that the companies improperly deducted wholesaler service fees from reported AMP, reducing the quarterly rebates owed to states. A pharmacist brought the whistleblower case. The relevant knowledge concerned a payment’s treatment in the manufacturer’s calculation.

The private-label, hospital and service-fee cases also show why an investigation needs the people who understand the transaction. A healthcare contracting employee may know the condition attached to a hospital discount. A wholesaler may know the service it performed and the payment it received. A government-pricing analyst may know how the company translated those terms into its report. We bring those parts of the arrangement together.

A whistleblower case under the False Claims Act can pursue knowingly underpaid Medicaid rebates and can pay 15% to 30% of what the government recovers. Your knowledge of the customer deal can be the starting point for examining why the rebate was smaller than it should have been.

You Know the Deal Behind the Number

If you know a customer concession was kept out of Medicaid Best Price, speak with our whistleblower experts about the arrangement and who made the reporting decision. We build the case with you around the customer value, the calculation and the unpaid rebates, and bring in Medicaid pricing and rebate whistleblower lawyers who understand manufacturer reporting. We stay beside you from that first conversation through the case.