MemorialCare: Medi-Cal Overbilling After a Pricing Change

MemorialCare agreed to pay $31,532,679 in its 2020 340B Medi-Cal settlement over alleged prescription drug overbilling. The government said its hospitals and pharmacies kept charging higher usual and customary costs after a court lifted a temporary hold on California’s requirement to bill at actual acquisition cost. The discount reached the purchase. According to the government, it failed to reach the bill.

The U.S. Attorney’s Office for the Central District of California announced the settlement on November 2, 2020. Memorial Health Services, a nonprofit based in Fountain Valley, operated Long Beach Memorial Medical Center, Miller Children’s and Women’s Hospital, and Orange Coast Memorial Medical Center under the name MemorialCare Health System. Medi-Cal is California’s Medicaid program.

The Court Stay Ended, but the Old Rates Continued

From December 2016 through October 2019, Memorial Health allegedly billed for discounted drugs at higher usual and customary costs instead of the lower amounts it paid to acquire them. The Justice Department described a pricing change that Memorial Health allegedly failed to implement.

A California law required providers buying drugs through the federal 340B program to bill Medi-Cal at actual acquisition cost. A federal court temporarily put that requirement on hold, and Memorial Health billed its usual costs during the hold. Once a court lifted it, the required rate changed. According to the government’s account, Memorial Health’s billing did not follow.

California’s rule carried that discount into the Medi-Cal bill by tying the charge to what the provider paid. The alleged failure left taxpayers paying the higher price for drugs covered by a program serving lower-income patients. For a pharmacy or hospital billing employee, the important connection is between the acquisition cost, the applicable pricing instruction and the amount that actually reached Medi-Cal.

What the 340B Discount Has to Do With the Bill

The federal 340B program requires drug manufacturers to sell outpatient medication to eligible health care organizations at significantly reduced prices. Hospitals can make money on 340B drugs when insurance reimbursement exceeds that discounted purchase price.

The Government Accountability Office’s June 2015 report on drug payment incentives notes that the federal program does not specify how hospitals must use those savings or the resulting revenue. California’s Medi-Cal billing requirement addressed a more specific question: what the provider could charge this payer for the discounted drug. That is why the rate change mattered financially.

MemorialCare’s Own Audit Led to the Disclosure

After an internal audit, Memorial Health determined that its hospitals and pharmacies had overbilled the United States and California. It made the October 2019 voluntary disclosure that led to the settlement, then cooperated with the federal and state investigation.

The pricing problem reached the government through the organization that had submitted the bills. Someone who handled the pricing may know what happened between the required change and the audit: whether staff raised the mismatch, who heard about it and why the old rate kept reaching claims. That knowledge can put the billing decisions behind the numbers into view.

The Alleged Overbilling Behind the Payment

Where the Pricing Instruction Meets the Claim

The most useful insider account connects what the pharmacy paid with what the hospital or pharmacy billed, and explains how the price was chosen. If you worked in pharmacy billing when the required rate changed, you may have seen the old price continue to reach Medi-Cal. You may also know whether a correction reached the claims or stopped at a discussion about changing them. Our whistleblower experts work with you to turn that firsthand understanding into a case about the decisions behind the billing.

The Same Rate Failure at Pomona Valley

Pomona Valley Hospital Medical Center faced a similar allegation under the same California pricing requirement. Its February 2024 settlement announcement described a settlement of nearly $2,100,000 over alleged overbilling from December 2016 through September 2021, followed by voluntary disclosures.

Hospital 340B diversion concerns who receives the discounted drug. Duplicate discounts concern a manufacturer paying a Medicaid rebate on a drug already sold at the discounted price. MemorialCare’s settlement centered on the price billed to Medi-Cal.

Where the Drug Profits Went

A separate whistleblower complaint against Methodist Le Bonheur Healthcare alleged a different use of the drug margin. Its description follows the money from discounted cancer drugs through a pharmacy to referring physicians: Methodist would buy oral cancer drugs at 340B discounts, have West Clinic physicians prescribe them, fill the prescriptions through a pharmacy it controlled at retail prices far above the 340B purchase cost, and pass the profits to those physicians.

The complaint alleged that sharing those profits induced cancer-patient referrals. In that account, the financial relationship with the referring physicians was central. In MemorialCare’s case, the central transaction was the bill sent to Medi-Cal.

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

When the Required Rate Never Reached the Bill

If you handled drug pricing, pharmacy claims or an audit that exposed the same mismatch, speak with our whistleblower experts about the billing decisions you saw. We help you build your strongest Medi-Cal drug pricing whistleblower case and bring in whistleblower lawyers who understand Medicaid drug pricing. Our experts stay with you from that first assessment through the case’s resolution.