Omnicare: Discounting One Group of Residents to Win the Whole Facility

In the Omnicare nursing home settlement, the company agreed to pay $124.24 million to resolve allegations that kickbacks through below-cost drug contracts bought continued access to nursing home residents’ prescriptions. The alleged benefit went to the facility choosing the pharmacy. The business Omnicare wanted included prescriptions billed to Medicare and Medicaid. For someone who priced those contracts, the story is in the daily drug rate, the discounts on the invoice and the promise of the facility’s other business.

The Justice Department announced the settlement on June 25, 2014. It described Omnicare as the nation’s largest provider of pharmaceuticals and pharmacy services to nursing homes. This pharmaceutical fraud case concerned the financial terms used to keep those customers. A pharmacist who managed an Omnicare pharmacy brought the complaint that lays out the pricing decisions below.

How the Nursing Home Pharmacy Contract Worked

Medicare Part A’s payment arrangement gave a nursing facility a direct financial interest in its residents’ health care costs, including drugs. As the whistleblower’s complaint explains, the facility received a fixed daily payment per patient, based on the patient’s condition, with pharmaceuticals included. Its pharmacy contract could price those drugs per diem, or per patient per day. A lower pharmacy bill left more of that payment with the facility.

Other residents’ prescriptions brought a different payment path. The complaint described Medicare Part D among the programs that could reimburse residents’ drugs outside Part A. Omnicare also submitted drug claims to Medicare and Medicaid. A pharmacy contract could therefore affect both the facility’s own expenses and Omnicare’s access to separately reimbursed prescriptions.

That split made the alleged bargain work. The complaint alleged that Omnicare offered selected facilities low Part A rates to obtain the rest of their pharmacy business. It alleged that the rates, adjusted for patient population and drug mix, fell below prices charged to other customers and, in some instances, below Omnicare’s own costs. The facility received the saving. The pharmacy sought the wider account.

The Rates and Discounts in the Complaint

The complaint described actual facility accounts, comparing Part A pricing with what Omnicare charged Medicaid for drugs. Those comparisons make the alleged incentive visible in the contract and the monthly bill.

At one facility, the complaint alleged that Omnicare kept a daily Part A rate of about $21 unchanged from the start of the agreement in 2005, despite an annual review provision. For January 2008 through June 2009, the complaint put Medicaid’s daily comparison rates at roughly $27 to $42. It alleged that the arrangement gave Omnicare substantially all of the facility’s patient business, including prescriptions reimbursed outside Part A.

At another facility, Omnicare allegedly agreed to a $19 daily Part A rate without a provision to bring it into line with Medicaid pricing. The complaint also described a prompt-payment discount on monthly invoices to selected skilled nursing facilities:

The discount’s name described a condition the customer allegedly did not have to meet.

These are different benefits inside the same account: a low daily price, no adjustment to the comparison price, and a further reduction on the invoice. Someone who sees only the headline contract rate can miss what the pharmacy actually lets the customer pay.

A Rate Review That Left the Rate Alone

A written review provision could leave the same discount in place. For another facility, the complaint described a contract calling for an initial review and potential adjustment after 120 days, followed by reviews every 90 days. The contract tied the adjustment to prevailing state Medicaid reimbursement. The whistleblower alleged that Omnicare never adjusted the rate.

A true-up was the promised comparison and possible change to the price. The complaint’s point was what happened after the review date arrived. The contract language and the prices actually charged told different stories.

Why the Other Residents’ Business Mattered

The alleged discount on Part A drugs was tied to keeping the whole facility’s pharmacy account. The complaint described what happened when Omnicare tried to raise the second facility’s rate in 2009: the facility said it would find another pharmacy for its entire business. Omnicare allegedly kept the reduced rate.

That account connects the pricing concession to the customer’s decision. The threat to move all the business explains why a pharmacy might continue a low rate on one group of residents. The contract negotiation concerned the value of the entire relationship.

The government framed the settlement around that exchange. Its announcement described below-cost contracts intended to induce facilities to keep selecting Omnicare, alongside the facilities’ Medicare claims for short-term rehabilitation and Omnicare’s own drug claims. The alleged incentive reached public payments through both businesses.

The Anti-Kickback Statute prohibits financial inducements for referrals of services covered by Medicare, Medicaid and other federal programs. In this case, the government’s concern was that a benefit to the nursing facility influenced its pharmacy choice for residents. Taxpayers funded the resulting claims while the facility received the pricing advantage.

What the Internal Pricing Records Showed

The whistleblower’s account connected proposed prices, actual costs and management’s explanation for continuing the arrangements. His work as a pharmacist and pharmacy general manager gave him access to the commercial decisions behind the prescriptions.

According to the complaint, he had reviewed and approved pricing worksheets and quotes for new facility contracts. The complaint also alleged that management and pricing personnel confirmed below-Medicaid and sometimes below-cost arrangements, said they were being phased out, and continued to make exceptions for certain renewals.

The most revealing discussion concerned whether the bargain even paid. At a regional meeting, the complaint alleged, management said many accounts made no money because discounts on Part A beds were too large to recover through profits on other residents’ prescriptions. Yet the complaint said the first two facilities kept their discounted rates.

Those allegations give pricing worksheets a purpose beyond showing that a rate was low. They connect the proposed price to cost, the decision to keep the account and what management understood about the arrangement. The person approving a renewal can see a connection that a prescription claim alone does not show.

The importance of that inside view also appears in Public Citizen’s 2010 study, Rapidly Increasing Criminal and Civil Monetary Penalties Against the Pharmaceutical Industry: 1991 to 2010. Looking at pharmaceutical manufacturers, the study found that former employees and other whistleblowers initiated the largest number of federal settlements in its final decade. Here, the employee’s knowledge reached the worksheets and renewal decisions behind the price.

The Separate Medicaid Pricing Allegation

The complaint also alleged that Omnicare charged Medicaid more than selected facilities paid for the same drugs, then concealed those lower prices. This part of the complaint concerned the amount billed to Medicaid, alongside the allegation that discounted contracts bought referrals.

The whistleblower relied on state Medicaid payment rules described in the complaint as most-favored-customer pricing. The complaint cited Ohio’s limit based on a provider’s usual and customary charge to other patients, and alleged that Omnicare’s lower Part A and discounted prices should have affected what Medicaid paid. It also alleged that promised true-ups were left undone to preserve the facilities’ other business.

The same pricing records served different questions. The kickback allegation asked what the facility gave Omnicare in return for its discount. The Medicaid pricing allegation asked what Omnicare charged the program while giving selected customers a lower price.

The Settlement and the Whistleblower Award

The settlement resolved allegations brought in two qui tam lawsuits under the False Claims Act.

The announcement identified a $17.24 million award for the first whistleblower, the former Omnicare employee whose complaint described these contracts.

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

Omnicare’s Manufacturer Kickback Case Followed Money Into the Pharmacy

Omnicare’s manufacturer kickback case showed how pharmaceutical kickbacks through intermediaries could influence drug use. In a separate February 2014 resolution, the government alleged that Omnicare solicited and received payments from Amgen for programs designed to switch Medicaid beneficiaries from a competitor’s drug to Aranesp. The alleged payments included rebates tied to market share or volume and fees for services.

The nursing home contracting case followed the benefit outward, from Omnicare to the facility choosing its pharmacy. Both alleged arrangements used financial incentives to influence prescription business. In one, the manufacturer wanted its drug selected. In the other, Omnicare wanted the facility to keep selecting its pharmacy.

You Know Why the Rate Stayed Low

If you priced pharmacy contracts, approved discounts or saw a promised rate review go nowhere, speak to one of our whistleblower experts about the business those terms bought. We work with you to build your strongest case around the pricing decisions and bring in healthcare fraud whistleblower lawyers who understand pharmacy contracting and Medicare and Medicaid payments. You bring the inside view of the account, and we stay beside you through the case.