Taro Pharmaceuticals: When Rival Drugmakers Divide the Customers

Taro Pharmaceuticals agreed to pay $213.2 million to resolve civil allegations of generic-drug price fixing that allegedly raised costs for federal healthcare programs. The alleged arrangements covered prices, supply and which customers competing manufacturers would serve. If you worked in pricing, sales or contracting, those decisions may be familiar long before you see the government bill.

The Department of Justice announced the settlement on October 1, 2021. The pharmaceutical fraud case reached into the commercial decisions of Taro Pharmaceuticals U.S.A., Inc., a generic manufacturer headquartered in New York. The government alleged that arrangements with other manufacturers generated higher drug prices and violated the Anti-Kickback Statute. Taro also agreed to outside oversight of its pricing and contracting functions.

Prices, Supply and Who Got the Customer

The government’s Taro Pharmaceuticals price fixing allegations concerned arrangements among manufacturers between 2013 and 2015. The civil case put customer allocation alongside price and supply: competitors allegedly coordinated who would get business as well as what the drugs would cost.

The products make the allegation concrete. The Justice Department identified etodolac, a nonsteroidal anti-inflammatory drug used for pain and arthritis, and nystatin-triamcinolone cream and ointment, which combine an antifungal medicine and a steroid to treat certain skin infections.

Generic manufacturers sell into a market where wholesalers handle inventory and distribution, and buying organizations negotiate acquisition terms. The negotiation happens before a prescription becomes a pharmacy claim. Customer allocation can reach that earlier commercial decision: which manufacturer pursues an account and which leaves the business to a rival.

A buyer’s ability to seek a better offer is part of what competition is supposed to deliver. The government’s allegation was that manufacturers interfered with that process together. The public programs paying for the drugs were downstream of an alleged arrangement they had no part in making.

The different drug-price measures matter when following that money. Wholesale acquisition cost is a manufacturer’s list price to wholesalers or direct purchasers, before discounts and rebates. The amount a buyer actually pays can be different. A product sheet shows one part of that story. The negotiated transaction shows another.

Why the Government Called the Arrangements Kickbacks

The civil case treated the alleged arrangements over prices, supply and customers as benefits exchanged among manufacturers. The Justice Department alleged that Taro and the other settling companies paid and received kickbacks through those arrangements.

The Justice Department’s explanation of the civil claims connects the Anti-Kickback Statute to the False Claims Act. The kickback law bars paying or receiving benefits in return for arranging purchases of drugs that federal health care programs may pay for. The False Claims Act lets the government recover money from claims affected by those arrangements.

A manufacturer can cause a false claim even when a pharmacy or physician submits the bill. That is why the commercial relationship among drugmakers belongs in the same investigation as the program’s payments. One set of records explains how the price was set. Another shows where the public money went.

Medicare and Medicaid were among the programs the government identified in explaining the harm. The announcement also described the burden of artificially inflated drug prices on TRICARE, the healthcare program for military members and their dependents. Taxpayers financed the alleged loss of competition, while patients depended on the same medicines.

The Same Civil Theory Reached Other Generic Drugs

Taro’s settlement was part of a group of civil resolutions totaling $447.2 million with Taro, Sandoz and Apotex. The Justice Department alleged the same broad price, supply and customer-allocation mechanism across the settling companies, while identifying different drugs for each.

Sandoz’s civil settlement was $185 million, with drugs including benazepril HCTZ. Apotex agreed to $49 million in connection with pravastatin.

The parallel settlements show why the product and customer are essential to understanding a pricing case. The alleged practice could recur across drugs used for very different conditions. Each account still needs the manufacturer, the product and the arrangement that affected its sale. A company-wide revenue figure tells far less about that conduct than the terms offered to a particular buyer.

What Taro’s Corporate Integrity Agreement Required

Taro entered a five-year corporate integrity agreement with the Department of Health and Human Services’ Office of Inspector General alongside its civil settlement. The agency’s Taro agreement listing gives September 30, 2021 as its effective date.

The Justice Department described internal monitoring, price transparency and risk assessment requirements in the agreements for all the settling companies. They also included provisions for taking back executive compensation and compliance certifications from executives and board members.

The most revealing requirement reached the people responsible for the commercial terms. The companies had to report price-related information to the Inspector General, and key executives involved in pricing and contracting had to make individual certifications. Accountability followed the functions that could approve a price or a customer arrangement.

For someone inside those functions, the connection matters. A pricing approval, the contract it supports and the certification about compliance address different parts of the same business decision. We examine how those accounts fit together when evaluating what an insider has seen.

What Evidence Is Needed to Prove Fraud?

For a generic-drug pricing case, we look for the connection between competitor arrangements, particular drugs and customers, and government-paid claims. Pricing and contracting knowledge can explain why an offer changed or why a customer went to one manufacturer.

The separate multistate generic-drug litigation illustrates how communications can fill in that account. The states described investigations built on cooperating witnesses and company communications, including a witness’s notes of competitor calls and internal meetings.

In the states’ account, executives met at industry dinners and golf outings and communicated by phone and messages. They allegedly used terms such as “fair share” to describe arrangements that discouraged competition and raised prices. Calling a share fair to the manufacturers says nothing about whether the buyer got a competitive offer.

The value of an insider is the connection between the conversation and the commercial result. A person who knows the product, account and pricing decision can explain a record that otherwise looks like an ordinary contact between people in the same industry. Our work with pharmaceutical whistleblowers focuses on making that connection specific, then following it to the government’s payment.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. We assess the pricing conduct and payment connection with you and bring in pharmaceutical whistleblower lawyers who understand both generic-drug competition and false claims.

You Know How the Customer Was Assigned

If you saw competitors agree on a drug’s price, supply or customers, speak to our whistleblower experts about what happened inside the pricing decision. We develop the case with you, match it with pharmaceutical whistleblower lawyers experienced in competitor coordination, and remain your partners through the pursuit of a recovery.