According to the Wall Street Journal, once again the Department of Justice is investigation drug companies for lying about the price of their drugs to the Medicaid program, a federal and state funded health care program for the poor. The United States Attorney’s Office for the Eastern District of Pennsylvania and the United States Department of Justice are now requesting information from Eli Lilly and Company, and Valeant Pharmaceuticals International, Inc. Valeant has also been in the news recently after it was questioned over its drug pricing and accounting practices concerning its relationship with a specialty pharmacy Warner Chilchot that distributed its drugs. (See blog post US Charges Pharma President.)
Pharmaceutical companies pay a rebate to the Medicaid program based on the average wholesale price of the drug known as AWP. The average wholesale price is supposed to be the average price that a wholesaler pays for the drug from the manufacturer. However this has been an area that has seen extensive litigation under the False Claims Act with many suits resulting in substantial payments to the government. Pharmaceutical companies are required to pay rebates between 17.1 % and 23.1% of the average price on most drugs, or they are required to rebate the between the difference between the average price and the best price that the drug is sold to private, non-government, customers.
The Department of Justice is conducting an investigation into the pricing of the Protonix, a heartburn medication sold by Pfizer, the pricing of Humalog, a type of insulin, and Cialis, sold by Lilly. Valeant also received a letter from the DOJ that it is being investigated for violations of the False Claims Act, concerning conduct of Biovail Pharmaceutical’s, the company that acquired Valeant in 2010. The False Claims Act creates liability for submitting false claims to the government. Fraudulent manipulation of the AWP creates liability under a fraudulent claim theory or based upon a violation of the Anti-Kickback statute. If found liable a company can be subject to treble damages and $5,500 to $11,000 for each false claim submitted.