Nursing Home Pharmacy Swapping: Cheap Part A Drugs in Exchange for Resident Business

Nursing home pharmacy kickbacks can take the form of cheap Part A drugs offered in exchange for access to residents’ separately reimbursed prescriptions. The nursing home saves on a bill it must pay. The pharmacy gets business it can bill to Medicare Part D or Medicaid. That exchange is called swapping. If you work with pharmacy contracts, pricing or nursing-home accounts, the important question is what business the discount was meant to buy.

Why Part A and Part D Matter to the Pharmacy Contract

Part A puts the drug expense inside the nursing home’s payment for a covered stay. Separately reimbursed prescriptions put the payment on the pharmacy’s side. A supplier looking at both can value the contract very differently from someone looking only at the facility’s drug bill.

Under Medicare’s skilled nursing facility billing rules, the Part A payment ordinarily bundles drugs with room, board, nursing and other covered services. Medicare pays the facility, and the facility pays an outside supplier under its contract. A lower pharmacy invoice reduces an expense the home bears within that bundled payment.

The alleged trade of below-cost Part A drugs for Part D referrals takes advantage of that split. The pharmacy accepts less from the nursing home in exchange for access to other residents’ prescriptions. Preferred-provider or exclusive arrangements can direct that separately reimbursed business to the pharmacy offering the concession.

The Anti-Kickback Statute prohibits knowingly buying or selling Medicare and Medicaid business. In a swapping arrangement, the alleged payment can be a saving on the nursing home’s drug bill. The question behind the pricing is what the facility promised in return.

Omnicare’s Below-Cost Pharmacy Contracts

Omnicare agreed to a $124.24 million settlement in June 2014 over allegations that below-cost nursing home pharmacy contracts bought access to other reimbursable drug business. The Justice Department’s announcement describes a resolution of two qui tam cases.

The government alleged that Omnicare offered attractive prices for drugs the facilities had to pay for, inducing them to select it for business reimbursed separately by federal programs. A nursing home’s saving was therefore part of the pharmacy’s alleged sales strategy. The facility contract opened the door to the prescription business on the other side of the payment boundary.

The nursing home gets the saving. Medicare and Medicaid pay for the prescription business the discount allegedly bought. The public programs fund the deal, while the facility and pharmacy share the benefit.

The department announced a $17.24 million reward for one of the whistleblowers.

Mariner and Sava’s Pharmacy Business Sale

A pharmacy business sale can carry a nursing home’s long-term referral contract inside the deal. In the Mariner and Sava case, the government alleged that Omnicare paid $50 million for a small pharmacy business with two employees to obtain 15-year pharmacy contracts. The alleged prize was the chains’ prescription business, wrapped in the sale of a tiny pharmacy.

Mariner Health Care and SavaSeniorCare were among the parties that agreed to a separate $14 million settlement in February 2010.

The whistleblower’s amended complaint described high pharmacy sale prices coupled with last-minute or backdated long-term customer contracts. It also alleged an effort to keep pharmacy bills out of an independent review. During negotiations, according to the complaint:

That allegation puts the billing-review proposal beside the acquisition and service contracts. Someone evaluating the deal would want to know what the purchaser expected to earn from the homes and why a review of the bills had become an obstacle. The pharmacy’s assets, the customer commitments and the conversations about those commitments tell the commercial story together.

Omnicare’s earlier $98 million settlement in 2009 covered several alleged arrangements, including this pharmacy purchase and manufacturer payments.

PharMerica’s Part A-to-Part D Swapping Case

The whistleblower case against PharMerica alleged that below-cost or below-market Part A drugs bought preferred or exclusive access to profitable Part D and Medicaid prescriptions. The evidence that mattered included nonpublic information about the daily prices in nursing-home contracts.

In 2018, the Third Circuit restored the case.

A facility’s daily drug rate and its customer commitments can show the particular bargain. The whistleblower alleged that the favorable rate was the price of getting the other business.

PharMerica’s Settlement Amount and the Company Annual Report

The company settled in May 2024. BrightSpring’s annual report describes a $120 million total financial impact from the resolution.

When a Pharmacy Discount Becomes a Referral Question

The referral question is who received the saving and who gained the business. The California Research Bureau’s 1997 report, Fraud and Abuse in the Health Care Market of California, describes steering business for a fee as a fraud mechanism and emphasizes the contractual relationships behind health care. That perspective helps explain why the pharmacy price and the facility’s promise belong in the same account of a swapping allegation.

A laboratory case shows the same exchange with different services. The whistleblower complaint against Kan-Di-Ki, operating as Diagnostic Labs, alleged low prices for services paid from nursing-home budgets in exchange for all of the homes’ Medicare Part B and Medi-Cal business. The supplier then billed those programs directly. The complaint made the alleged value transfer concrete:

The parallel is the customer saving tied to separately billed business. For the pharmacy arrangement, the facility’s drug contract and the pharmacy’s other prescription revenue show the corresponding sides of the alleged exchange.

Consultant Pharmacists and Manufacturer Payments

Manufacturer payments introduce another direction of influence: money goes to the pharmacy to promote a drug. In PharMerica’s separate Depakote settlement, the government alleged that rebates, educational grants and financial support encouraged recommendations of Abbott’s drug to nursing-home residents. Consultant pharmacists’ monthly medication reviews provided the channel to prescribing physicians.

The related whistleblower complaint alleged that payments under manufacturer contracts led PharMerica to direct its consultants to recommend new prescriptions or switches from existing drugs. Here, the financial arrangement reached the resident through a medication recommendation. In the swapping cases, it reached the resident’s pharmacy through the facility’s purchasing decision.

What Evidence Is Needed to Prove Fraud?

Evidence of pharmacy swapping connects the facility’s drug price, its promise of resident business and the pharmacy’s separately reimbursed prescriptions. Contracts and pricing terms show the bargain. Claims and billing records show the government-funded business it produced. Communications about the arrangement show why the parties made it.

A pharmacy account manager may understand why a facility received a particular daily rate. Someone in facility finance may see the saving and the commitment attached to it. An employee involved in an acquisition may know how customer contracts affected the purchase price. Those perspectives address different parts of the same transaction, and we work through the connections with you.

The cases put familiar business documents at the center of the allegation: the drug contract, the acquisition agreement, the promised customer relationship and, in the Mariner complaint, the proposed review of pharmacy bills. The useful account explains what the concession bought and who understood the exchange.

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

When You Know What the Discount Bought

If you know how a pharmacy discount or business purchase secured a nursing home’s prescription business, speak with our whistleblower experts about the deal. We work with you to turn what you know about the pricing and the promised business into your strongest pharmacy kickback whistleblower case. We bring in nursing home pharmacy kickback whistleblower lawyers and stay beside you from the first assessment through the case.