Pharmacia: A Published Price, a Taxpayer Bill

In the Pharmacia AWP judgment, Wisconsin won $9 million in damages against Pharmacia Corporation over average wholesale price fraud affecting Medicaid. The jury found deceptive trade practices and Medicaid fraud. The trial court then cut the number of violations used to impose a separate financial penalty. For someone who knows how a drug’s reported price compares with its selling price, the case puts a familiar gap in concrete terms: a number in a pricing publication can determine how much public money changes hands.

What the Wisconsin AWP Case Was About

Wisconsin won a jury verdict against drug manufacturer Pharmacia for deceptive trade practices and Medicaid fraud in an average wholesale price case. The pricing problem behind these cases was the gap between a published benchmark and what customers actually paid.

Average wholesale price sounds like the result of surveying what wholesalers charge. In the historical system behind these cases, commercial publishers took pricing information from manufacturers, and government programs used the published numbers to calculate reimbursement. The price in the publication and the price a pharmacy paid for the drug could be very different.

That difference mattered to the buyer. A pharmacy buying below the reimbursement amount could keep the spread. A manufacturer could make its product attractive by offering that margin, while taxpayers picked up the expense.

The industry’s different drug-price benchmarks measure different things. Wholesale acquisition cost is itself a manufacturer’s list price that excludes discounts. Substituting a markup on that number for actual pharmacy acquisition costs still leaves the payer working from a list price. A formula can calculate its answer perfectly and still start with the wrong picture of what the drug costs.

Generic competition made that gap especially important. The Centers for Medicare & Medicaid Services found that, as market prices fell with generic competition, published AWPs did not usually fall by the same amount. The buyer could pay less for the drug while reimbursement stayed tied to the higher benchmark. A lower selling price could therefore make a product more attractive to the buyer without delivering the same saving to the public program. That is the commercial incentive behind marketing the spread.

What the Jury Found Against Pharmacia

The jury awarded Wisconsin $2 million for deceptive trade practices and $7 million for Medicaid fraud.

Those awards make this a pharmaceutical fraud case with a jury’s findings behind it. Wisconsin brought the state enforcement case and won damages under its own laws.

What the Court Changed

The trial court reduced the jury’s count of Medicaid-fraud violations from 1,440,000 to 4,578. The penalty rested on the smaller count.

The court imposed $1,000 for each violation in the reduced count, producing a $4,578,000 civil penalty.

How a Price Publisher Could Move Medicaid Payments

A separate federal case against McKesson shows the role a pricing publisher could play between a company reporting a number and Medicaid paying a claim. In its April 26, 2012 settlement announcement, the Department of Justice alleged that the wholesaler reported inflated markup percentages to First DataBank. The publisher used those figures in AWP benchmarks that Medicaid relied on.

McKesson’s alleged role was supplying the markup. Pharmacia’s Wisconsin case produced a verdict against a manufacturer. The pattern is a company feeding pricing information to a publisher, and a public program paying on the resulting number. The customer buying the drug sees the transaction price. The payer using the published benchmark can be working from a different picture of the same purchase.

Why a Discount Off AWP Could Mislead the Buyer

A discount tells the payer little without knowing the number it comes off. The 2004 American Journal of Health-System Pharmacy paper Examining the Value of Pharmacy Benefit Management Companies illustrates the problem through pharmacy benefit contracts.

The paper describes PBM spread pricing through an example in which a pharmacy receives one discounted AWP price while the payer is charged another. The intermediary keeps the difference. It also presents a hypothetical mail-order example in which a repacker assigns a higher AWP to the repackaged drug.

In that hypothetical, the payer pays $126 more for the prescription with the greater discount. For a buyer assessing a manufacturer-reported AWP, the same question matters: who set the starting price, and how does it compare with what customers actually paid?

Medicaid Moved Toward Acquisition Costs

The 2016 covered outpatient drug rule moved Medicaid pharmacy reimbursement from estimated costs based on published benchmarks toward actual acquisition cost plus a separate professional dispensing fee. The Centers for Medicare & Medicaid Services explained that AWP and WAC could fail to reflect the discounts and price concessions available in the marketplace.

That change went to the weakness exposed by the earlier pricing disputes: a published list price could keep governing payment after the actual purchase price had moved elsewhere. The new approach aimed the payment calculation at what pharmacies paid to acquire the drugs.

The Records Behind the Reported Price

The useful view inside a pricing business spans the price submitted for publication, the actual sale and the payment formula. Pricing employees may know how the submission was calculated. A pharmacy may know its acquisition cost and reimbursement. Someone working with payer contracts may see which published benchmark the payment system uses.

Those perspectives address the central problem in the AWP cases: the reimbursement number could drift away from the underlying transaction while continuing to move money. Our work with pharmaceutical whistleblowers connects that business knowledge to the particular reported price, payment and decisions inside the company.

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

You Know How the Price Was Set

If you know how a reported drug price was built and what customers actually paid, speak to one of our whistleblower experts about how that price was built. We build your strongest drug pricing whistleblower case with you, bring in pharmaceutical pricing whistleblower lawyers who understand reimbursement formulas, and stay beside you as the case moves forward.