Exposing Fraud in Specialty Pharmacies and PBMs

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Judge gavel and stethoscope with pills. Exposing Fraud in Specialty Pharmacies and PBMs

Specialty pharmacies and PBMs distribute billions of dollars in medications annually across the U.S. However, some partake in fraudulent activities against the government. Individuals who are aware of such misconduct can not only serve the public interest but also potentially receive a financial reward by reporting it to the Justice Department with the support of a seasoned False Claims Act lawyer.

What is the False Claims Act?

The [False Claims Act (FCA) is a federal law enacted in 1863 during the American Civil War to fight fraud against the U.S. government. In 1986, Congress significantly strengthened this law. The FCA holds accountable individuals or entities that knowingly make false or fraudulent claims for payment to any U.S. government office or agency. They may be liable for three times the government’s losses and face additional penalties. For example, if a medical practice submits claims to the [Centers for Medicare and Medicaid Services (CMS) for reimbursement worth $10,000.00, whereas the actual services provided were valued at $5,000.00, the medical practice could owe the government $15,000.00 (three times the falsely claimed amount).

The government has the authority to initiate legal actions under the FCA, but the law also empowers private individuals to take legal actions on behalf of the government against those involved in fraudulent activities. This type of legal action is known as qui tam and the individuals who file such claims are referred to as “relators.” A successful qui tam case entitles the relator to a share of the recovered amount, typically between 15% and 30%.

These financial incentives are provided under the FCA to encourage individuals with knowledge of fraud to report it to the Justice Department. Numerous qui tam cases are filed across the U.S. annually. In the fiscal year 2023, the U.S. Department of Justice obtained settlements and judgments totaling over $2.68 billion from FCA cases.

a man in a suit reading a book in a pharmacy, representing fraud in specialty pharmacies

Fraud in Pharmacy Benefit Managers

Pharmacy Benefit Managers (PBMs) are third-party administrators who oversee prescription drug programs. They serve as intermediaries between health insurance providers and pharmaceutical companies, negotiating costs, rebates, and payments within the supply chain. PBMs manage formularies, which are lists of prescription medications covered by health insurance plans. In 2015, Express Scripts, a PBM, settled a qui tam claim under the FCA in the District of Delaware for $7.9 million. The allegations involved kickbacks from AstraZeneca for an exclusive designation of Nexium in its formularies.

Similarly, in 2014, Caremark, LLC, a PBM owned by CVS, reached a $6 million settlement with the U.S. Attorney for the Western District of Texas for failing to reimburse CMS for prescription drug costs.

Fraud in Specialty Pharmacies

Specialty pharmacies offer medications and services tailored to complex or rare health conditions like cancer, multiple sclerosis (MS), rheumatoid arthritis, inflammatory bowel disease, psoriasis, blood clotting disorders, and infertility. These pharmacies mainly provide specialty medications, often with high costs. Many of these treatments can run up to hundreds of dollars or more. In the U.S., specialty medications constitute roughly half of the total annual spending on medications. Due to their nature, many of these medications necessitate special handling, administration, or storage.

Because of the high costs of these specialized medications, FCA claims related to fraudulent activities by specialty pharmacies could involve hundreds of millions of dollars. For instance, in the autumn of 2015, the U.S. Attorney for the Southern District of New York settled a lawsuit against Swiss Pharmaceutical Corporation NOVARTIS for $390 million. This legal action revolved around allegations that the company engaged in kickback practices with multiple specialty pharmacies to promote two of its drugs to patients.

In a separate case resolved in February of this year, the U.S. Attorney for the Eastern District of Pennsylvania reached a $20 million settlement with Delaware-based specialty pharmacy BioTek. This settlement was part of an FCA lawsuit that accused BioTek of providing kickbacks to healthcare providers and patients, as well as submitting false claims to CMS . The exposure of BioTek’s misconduct came to light when two former employees exposed the company’s deceptive practices and provided crucial evidence to the government.

Similarities in Specialty Pharmacies and PBMs for Potential for False Claims Act Fraud

Specialty pharmacy fraud and PBM fraud share significant similarities in their potential for False Claims Act fraud due to their integral roles in the prescription drug supply chain. Both entities manage substantial financial transactions concerning high-cost medications, making them susceptible to fraudulent activities. Specialty pharmacies often deal with complex and expensive treatments, creating opportunities for inflated billing, kickbacks, and misrepresentation of drug efficacy or patient eligibility. 

Similarly, PBMs, which negotiate prices and manage formularies, can engage in fraudulent practices such as receiving kickbacks from pharmaceutical companies in exchange for exclusive drug placements, artificially inflating drug costs, or misaligning rebates and reimbursements. Both types of fraud undermine the integrity of healthcare delivery, inflate costs for the healthcare system, and ultimately harm patients who depend on these medications for their well-being.

Whistleblowers play a crucial role in exposing such fraud by leveraging the provisions of the FCA to hold these entities accountable and potentially recover significant funds for the government.

What are the Typical Warning Signs That Might Suggest Potential False Claims Act Fraud Within Specialty Pharmacies or PBMs?

When it comes to potential False Claims Act (FCA) fraud within specialty pharmacies or Pharmacy Benefit Managers (PBMs), there are several warning signs to watch out for:

  1. Kickbacks and Improper Incentives: Specialty pharmacies may engage in kickback schemes, where they receive financial incentives from pharmaceutical companies in exchange for promoting specific drugs to patients. These kickbacks can violate the FCA.

  2. Improper Waivers of Patient Copays: Some specialty pharmacies may improperly waive patient copays, which can lead to inflated claims submitted to government health care programs. The FCA prohibits such practices.

  3. Spread Pricing Manipulation: PBMs sometimes charge health plans significantly more than what they pay pharmacies for medications, pocketing the extra cash. This spread pricing manipulation can be a red flag for FCA violations.

  4. Falsifying Data Submitted to Government Pro.grams: Specialty pharmacies or PBMs that submit false or fraudulent data to government health care programs may be violating the FCA. This could include misrepresenting drug prices, patient information, or billing details.

  5. Non-Compliance with Rebate Arrangements: PBMs may fail to pass on savings from rebate arrangements and subsidies to their clients. This lack of transparency can raise suspicions of FCA violations.

These red flags don’t automatically prove fraud, but they warrant further investigation. If you suspect any of these practices, consider seeking legal advice or reporting them to relevant authorities.