How Does Manipulation of Average Wholesale Price Amount to Fraud on the Government?

Government funded health care programs buy billions of dollars in prescription pharmaceutical products for program beneficiaries every year.  Under both Medicare and many Medicaid programs, the government pays for these prescriptions by reimbursing the retail outlets that dispense the prescriptions directly to the consumer.  The price these government programs reimburse for these products is based on a survey of the Average Wholesale Price (“AWP”) or the sticker price for that prescription.  Commercial publishers of prescription pricing information, such as Red Book or First DataBank, have published AWP data since 1970.  Significantly, the AWP data in these commercial publications is typically provided by the manufacturers, distributors, and other suppliers of the listed products. 

While government reimbursement is calculated according to the AWP, those entities responsible for actually dispensing the prescriptions to consumers, including pharmacists, Pharmacy Benefits Managers (“PBMs”), and Group Purchasing Organizations, buy the products from the manufacturers at a different price, known as the Wholesale Acquisition Cost (“WAC”).  The WAC is always less than the AWP and the difference between the two is commonly referred to as “the spread.”  The seller makes its profits on the spread.  The bigger the spread, the more profit for the entity selling the products.    

Manipulation of AWP emerged as a common type of fraud when pharmaceutical manufacturers realized they could financially induce those entities responsible for actually dispensing the prescriptions to consumers to sell more of their products if they could find a way for their products to return a greater profit margin.  The pharmaceutical manufacturers accomplished this by artificially increasing the AWP and thereby increasing the spread between the WAC and AWP.  With a bigger spread the manufacturer could then promote the fact that the product would return a bigger profit for the seller.  The scheme became known as “marketing the spread.” 

AWP fraud has been a proven means for pharmaceutical companies to sell more of their products and for sellers to make more profits on those sales, but it improperly increases drug costs by billions of dollars every year for the government healthcare programs and for consumers who have to make co-payments for their prescriptions.  That is why AWP manipulation and the improper inducements manufacturers may give sellers to use their products violate the federal Anti-Kickback Statute, the False Claims Act a number of federal regulations as well as corresponding state laws and regulations.

If you believe someone has knowingly committed Medicare or Medicaid fraud, such as AWP fraud, and you would like more information about how this may be grounds for bringing  a whistleblower lawsuit, the qui tam lawyers at Keller Grover LLP can help you. The whistleblower lawyers at Keller Grover understand qui tam litigation, including the whistleblower protection provisions, and strive to achieve the best possible results for their clients.