Omnicare: The Discount Went to the Nursing Home

Omnicare agreed to pay $124.24 million in a pharmacy swapping settlement over allegations that it offered below-cost drug contracts to skilled nursing facilities to secure their Medicare and Medicaid pharmacy business. The alleged bargain worked across separate bills: a cheaper drug contract for the nursing home, followed by pharmacy claims to public programs. For someone inside pharmacy sales, contracting or a facility’s business office, the important connection is between the price the facility received and the business it sent back.

At the time of the settlement, Omnicare was the nation’s largest provider of pharmaceuticals and pharmacy services to nursing homes. The Justice Department’s settlement announcement described below-cost contracts used to induce facilities to keep selecting Omnicare as their pharmacy provider. A former employee was among the whistleblowers who brought the allegations forward.

How Nursing Home Pharmacy Swapping Works

Nursing home pharmacy swapping uses a financial benefit on business the facility pays for to obtain other business paid for separately by public programs. In Omnicare’s case, the government alleged that the benefit was a below-cost drug contract and the return was continued pharmacy selection.

Under Medicare’s bundled-payment rules, the Part A payment to a skilled nursing facility bundles many services, including drugs, unless an exclusion applies. Medicare pays the facility, and the facility’s contract determines what it pays an outside supplier. A reduction in that supplier’s bill leaves more of the bundled payment in the facility’s budget.

The pharmacy has another side to its business. DOJ described Omnicare submitting separate Medicare and Medicaid claims for drugs it supplied, alongside the facilities’ own Medicare claims for short rehabilitation stays. The alleged exchange connected the facility’s savings to Omnicare’s access to that separately reimbursed business. Under the alleged arrangement, the nursing home received the favorable contract. Public programs received the pharmacy’s claims.

The alleged bargain put facility savings ahead of residents’ interests, with taxpayers funding the business it secured.

DOJ explained that the Anti-Kickback Statute prohibits offering value to induce business covered by federal health care programs. Its purpose here was practical: supplier selection should serve patients’ interests. A facility’s savings become the government’s concern when, as alleged here, they buy access to publicly funded prescriptions.

The Omnicare Settlement and the Whistleblower Reward

The Justice Department announced the Omnicare settlement on June 25, 2014. It resolved allegations brought in two qui tam lawsuits under the False Claims Act, which allows private parties to bring a case on the government’s behalf and share in a recovery.

Of the announced payment, $8.24 million was allocated to states that jointly funded the affected Medicaid programs. That state allocation reflects the reach of the alleged arrangement: the separately billed drug business involved Medicaid as well as Medicare.

What Is the Reward for a Medicare Fraud Whistleblower?

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. In this settlement, DOJ said the first whistleblower, a former Omnicare employee, would receive $17.24 million.

The opportunity for an insider is to explain the commercial decision behind the billing: why a particular account received a particular price and what business the pharmacy expected in return. Our whistleblower experts build the case with you around that commercial decision.

What Evidence Is Needed to Report Fraud?

For nursing home pharmacy swapping, the useful evidence connects contract pricing, the facility’s pharmacy-selection decision and the resulting public-program claims. We examine those connections with the insider who knows how the account worked.

The facility-pharmacy agreement, supplier accounts and reimbursement claims let us connect the offered price to the business it was meant to secure. An insider’s knowledge of who approved the arrangement and why gives those records their context.

The California Research Bureau’s 1997 report, Fraud and Abuse in the Health Care Market of California, published by the California State Library, explains why examining only claims for services never performed leaves out much of health care fraud. It treats the contractual relationship as part of the analysis and describes kickbacks as value exchanged for directing business. That perspective fits the question this case raises: what did the favorable contract buy?

A pharmacy employee may understand the pricing decision. A facility employee may understand the choice of supplier. Our whistleblower experts work with that knowledge to connect the commercial arrangement to the healthcare claims it generated.

The Same Bargain in Other Nursing Home Contracts

The alleged exchange also appeared in laboratory and radiology services. Kan-Di-Ki, doing business as Diagnostic Laboratories and Radiology, agreed to a $17.5 million settlement announced in September 2013. The supplier allegedly charged facilities below-cost rates for Part A services in exchange for their Medicare Part B and Medi-Cal referrals.

The whistleblowers’ complaint described artificially low prices on business paid from the facility’s own budget, followed by direct billing to public programs for the referred business. Its comparison makes the alleged value transfer unusually clear:

The complaint also alleged that the supplier forgave customer debts to keep the referrals coming. That adds another place the benefit can appear: an account balance written off, alongside the rate offered in the contract. In either form, the allegation concerns facility savings exchanged for separately reimbursed business.

Pharmacy Prices and the Business They Bring

PharMerica faced a separate pharmacy swapping case alleging below-cost Part A drugs in exchange for access to profitable Part D and Medicaid prescriptions.

A separate Omnicare proceeding involving Mariner and Sava concerned value delivered through a pharmacy acquisition. The government alleged a $50 million payment connected to buying a small pharmacy business, while the nursing-home companies committed pharmacy business to Omnicare. The whistleblower’s complaint described inflated pharmacy purchase prices and purported loans as inducements for captive nursing-home contracts.

That was a separate transaction and resolution. Its relevance here is the commercial pattern: the alleged benefit can sit in a drug price, a forgiven balance or a purchase price. What connects those forms is the nursing-home business the supplier expects in return.

You Know Why the Account Got That Price

If you worked on a nursing-home pharmacy contract and know what the discount was meant to secure, speak to one of our whistleblower experts about what that discount bought. We build your strongest pharmacy whistleblower case around the pricing, the business decision and the resulting claims, and bring in pharmacy fraud whistleblower lawyers who understand those relationships. We stay beside you as your partners through the case.