An Overview of Common Forms of Pharmaceutical Fraud

In recent years, those who follow the law and legal developments have noted an uptick in cases filed against drug companies, pharmacies, and others involved in pharmaceutical fraud. This focus on pharmaceutical insurance fraud is an important development and these cases help protect individual consumers, U.S. taxpayers, and the public as a whole. We have discussed specific instances of such fraud in our discussion of the PharMerica and CVS cases. In this post, our California medical fraud law firm takes a broader view and examines the most common types of pharma fraud.

Types on Pharmaceutical and Insurance Fraud
Kickbacks in the pharma world typically involve a drug company bribing a doctor into prescribing a certain medication. Bribes may be disguised as Speaker Fees or grant money. This is illegal and very dangerous because the bribe can affect the physician’s judgment, resulting in the patient receiving a drug that is not the best medical choice. Kickbacks are also used by drug companies to get a favored status with an insurance provider.

Off-Label Marketing involves a company marketing drugs for purposes other than those approved by the FDA. While doctors are allowed to prescribe pills for off-label uses, drug companies may not market their products for any unapproved use. Off-label marketing violates the False Claims Act and essentially ignores the FDA process.

Clinical Trial Fraud involves a pharmaceutical company running tests on its own products and often falsifying outcomes in order to benefit the company’s products. It may include hiding negative side effects which can greatly endanger potential users.

Price Inflation typically involves the Average Wholesale Price (“AWP”), a figure based on data reported by pharmaceutical companies and the rate Medicare and some state-based programs will pay for the medication. The fraud arises when the companies inflate the AWP and overcharge the government programs for the medications. Additionally, a practice called “marketing the spread” is another type of kickback program where the drug company gives the doctor a deep discount and lets the doctor keep the difference between the reimbursement and the actual charge.

Best Price Fraud, a similar issue, involves the requirement that, in order to sell drugs to Medicaid, a company must promise to give the program the lowest rate it uses in the private sector. Companies must also provide the government a rebate if the program purchases products above the Best Price. One of the most common types of pharmaceutical fraud occurs when companies conceal cheaper rates, such as discounted rates used to get on a preferred formulary list with a private insurer. Since the drug companies report their own rates, it usually takes an inside whistleblower to identify this type of fraud.

Pharmaceutical Benefits Manager Fraud is more about potential perpetrator of frauds than a specific form of fraud. Pharmaceutical Benefits Manager (“PBM”) companies work with insurers to help them manage prescription drug claims, administer prescription drug plans, and reduce costs through discount agreements and other purchasing tactics. PBMs have been involved in kickback schemes and various fraudulent contract violations, such as shorting prescriptions or substituting medications to meet contract deadlines.

Protecting Individuals and the Public
Pharmaceutical fraud impacts everyone. Some cases of insurance fraud involve more specific victims, while others involve a broader defrauding of taxpayers and a disregard for public health. It takes bravery to speak up about fraudulent behavior, a fact recognized by the fraud laws which protect whistleblowers and offers a financial incentive to those who come forward and report fraud (see 31 U.S.C. 3730(d) and (h)) . If fraud has impacted you directly or you have observed fraud and are contemplating speaking up, we can help. Call our San Francisco pharmaceutical insurance attorney to schedule a free consultation.

See Related Blog Posts:
Case Study: PharMerica Litigation, Medicare Fraud, and Pharmaceutical Law

CVS Insurance Scandal