Omnicare: The Discount the Taxpayers Paid For

In the Omnicare facility contracting settlement case, the nursing-home pharmacy agreed to pay $124.24 million to resolve allegations that below-cost facility contracts bought access to other Medicare and Medicaid prescription business. The alleged bargain reduced the nursing home’s own drug costs while giving Omnicare the opportunity to bill for other residents’ medicines. If you worked with the facility rates, pharmacy contracts or reimbursement, you may recognize what made that exchange valuable.

The Justice Department announced the settlement on June 25, 2014. It alleged that Omnicare offered improper financial incentives to skilled nursing facilities in return for their continued selection of the company as their pharmacy provider. The case shows how long-term-care pharmacy kickbacks can sit in the price a facility pays for drugs and the business it directs in return.

How a Facility Discount Buys Other Pharmacy Business

The financial incentive comes from different payment arrangements inside the same nursing home. A discount can save the facility money on care it must pay for itself, while the pharmacy earns revenue from prescriptions billed separately to government programs.

In its opinion concerning separate PharMerica allegations, the Third Circuit explained the underlying economics. Medicare Part A pays a nursing home a fixed daily amount for a covered patient’s care, including prescription drugs. The facility must pay its drug expenses from that amount. Lower pharmacy charges therefore leave the facility with more of its daily payment.

For residents covered by Medicaid or Medicare Part D, the court described a different arrangement. The pharmacy collects drug payments from the state Medicaid program or the Part D prescription drug plan sponsor. The nursing home does not bear those drug costs. That gives the facility a reason to focus on the prices it pays directly, even though its choice of pharmacy also brings the provider other prescription business.

The court called the exchange swapping. It explained why a pharmacy might accept below-cost prices for Part A patients: the margins on the other residents’ prescriptions could compensate for those losses. Those economics explain the alleged bargain in the Omnicare settlement, whose announcement likewise distinguished the facilities’ Medicare rehabilitation claims from Omnicare’s additional Medicare and Medicaid drug claims.

We see the problem with calling that bargain a saving. Under the alleged arrangement, the nursing home gets the discount while taxpayers fund the business offered in exchange. The resident’s prescription becomes part of the sales deal.

Per-Diem Rates, Prompt-Payment Discounts and Free Drugs

The Omnicare allegations reached several ways of lowering the facility’s expenses: discounted per-diem and fee-for-service rates, prompt-payment discounts and free drugs. The Omnicare agreement in the North Carolina report described inducements from 2004 to 2012, with resulting claims through 2013.

The government’s allegation was specific: Omnicare entered below-cost supply contracts to induce facilities to select it as their pharmacy provider, then submitted additional drug claims to Medicare and Medicaid. The contract and the reimbursed prescriptions were parts of the same alleged exchange.

Two Whistleblower Cases Behind the Settlement

The settlement resolved two cases brought by whistleblowers under the False Claims Act’s qui tam provisions. One whistleblower was a former Omnicare employee.

Under the Anti-Kickback Statute, the alleged benefit here was the break on the facility’s drug costs in exchange for its pharmacy business. The government’s concern was that a financial incentive to the nursing home influenced the choice of healthcare provider for its residents.

For someone inside the business, that makes the contracting decision central. Knowing why the rate was offered, who approved it and what business was expected in return can connect a facility’s apparent saving to the government’s prescription bill.

Does a Settlement Headline Determine a Reward?

No. The settlement amount and a whistleblower’s reward are different figures. From the Omnicare settlement, the Justice Department announced that the former employee would receive a $17.24 million whistleblower award.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. If you understand the connection between a facility concession and government-paid prescriptions, we can assess that connection with you as the basis for a pharmacy whistleblower case.

Buying Access Through a Different Deal

Omnicare’s separate Aranesp and Depakote matters concerned another direction of payment: manufacturer incentives and pharmacy recommendations. The Depakote settlement announcement concerned payments intended to influence consultant pharmacists’ recommendations. Here, the facility-contracting allegation concerned benefits flowing from the pharmacy to the nursing home to secure its business. The person who understands who received the benefit can explain which decision it was meant to buy. A separate whistleblower complaint alleged that Omnicare bought institutional pharmacies at inflated prices to obtain their nursing-home contracts.

The Records That Connect the Discount to the Claim

A facility-contracting case depends on the connection between the concession, the pharmacy selection and the reimbursed prescriptions. We examine the commercial arrangement and the payment records together, with the insider who knows how the business worked. In the separate PharMerica case, the whistleblower used nonpublic per-diem contract rates alongside public financial statements to allege below-cost Part A service in exchange for other residents’ prescription business.

Institutional pharmacy has facility drug-supply agreements and consultant agreements alongside payer and network terms. Those agreements govern different relationships. The facility’s favorable price belongs with the business commitments attached to it, while the pharmacy’s claims show which payer was asked to fund the resulting prescriptions. We compare the deal terms and actual invoices with the prescription business the facility directed to the pharmacy, then follow the dispensing records and claims through to payment.

The work also needs the knowledge behind the paperwork. A facility finance employee may know what expense the deal reduced. A pharmacy contracting employee may know what business justified the price. Someone in billing may know which residents’ prescriptions generated the separate claims. We build the account with you around the part you understand and the connections it reveals.

You Know What the Facility Was Promised

If you know why a pharmacy offered a facility an unusually low rate or free drugs, speak to one of our Whistleblower Experts about what the facility was promised. We bring in pharmacy fraud whistleblower lawyers who understand nursing-home contracting and government reimbursement. We stay beside you through the process, bringing your knowledge of the deal and our expertise together to build your strongest pharmacy whistleblower case.