By Jeffrey H. Brochin, J.D.
Pharmacy discount programs offered to the general public establish the lowest prices for which its drugs are widely and consistently available, and are the ‘usual and customary’ charges which Medicare Part D and Medicaid are entitled to.
A federal district court in Illinois has granted the motion for partial summary judgment filed by a qui tam relator in a case brought pursuant to the False Claims Act (FCA). The relator alleged that the pharmacies submitted false or fraudulent claims to obtain federal funds from Government Healthcare Programs (GHP) to which they were not entitled, by electronic submission of inflated usual and customary charges to GHPs that occurred when the pharmacies failed to report their cash price matches as their usual and customary price (U.S. ex rel. Schutte v. SuperValu, Inc., August 5, 2019, Mills, R.).
Price-march programs. SuperValu and Albertsons, Inc. began offering a price-match program in 2006 by which they would match the advertised price of certain drugs offered by their competitors under certain conditions. A price-match program override occurred when pharmacy personnel replaced the stores’ then-current, reported cash retail price with a lower competitor price. Albertsons discontinued the price-match program in October 2013, and SuperValu discontinued the price-match program in December 2016.
The relator alleged that the pharmacies did not submit the lower matched price cash sales transactions to third-party payors, including GHPs. The pharmacies would not allow lower matched prices to be submitted to third party insurance even if a customer specifically asked them to process a price match transaction through the customer’s insurance because the pharmacies claimed that doing so would have violated their contracts with the payors.
Determining ‘usual and customary’ price. Individual pharmacies could not change the usual and customary price reported to third parties because the usual and customary price reported to third parties, including GHPs, was set by the pharmacies’ corporate pricing department. The pharmacies also contended that the usual and customary prices were controlled by applicable third-party contracts or state law; however, they also claimed that where appropriate, under an applicable contract or state plan to include price-matched prices when reporting their usual and customary prices, they performed back-end reconciliation.
Requirement to report lower price. The pharmacies alleged that the primary Pharmacy Benefit Managers that processed more than 92% of the pharmacies’ total prescription records and more than 94% of their total amount paid for those prescription records, did not consider the individualized price matching to have altered the usual and customary prices they submitted. Moreover, the pharmacies claimed they were not required to submit lower price-match amounts as their usual and customary prices, at least for some part of the relevant time period, regardless of their advertisements indicating their willingness to price match. The relators disputed the claim that the pharmacies were not required to submit lower price-match amounts as their usual and customary prices.
CMS manual guidance. The court noted that unless state regulations provide otherwise, the ‘usual and customary’ price is defined as the ‘cash price offered to the general public.’ Furthermore, the CMS Manual states that where a pharmacy offers a lower price to its customers throughout a benefit year the lower price is considered the ‘usual and customary’ price rather than a one-time lower cash price, even where the cash purchaser uses a discount card.
The court ruled that If a pharmacy offered the terms of its ‘discount programs’ to the general public and made them the lowest prices for which its drugs were widely and consistently available, those discount prices were the pharmacy’s ‘usual and customary’ charges for the drugs, and Medicare Part D and Medicaid were entitled to those usual and customary prices.
Based on the foregoing, the court granted the relator’s motion for partial summary judgment.
The case is No.: 3:11-cv-03290-RM-TSH.
Attorneys: John David Hoelzer, U.S. Department of Justice, for the United States. John Timothy Keller (Aschemann Keller LLC) for State of California and State of Delaware. Frederick Robinson (Reed Smith LLP) and Charles R. Schmadeke (Hinshaw & Culbertson LLP) for SuperValu Inc., ACME Sav-On Pharmacy, Albertsons Osco Pharmacy, Albertsons Sav-On Pharmacy, SuperValu Holdings, Inc. and FF Acquisitions, LLC.
Companies: State of California; State of Delaware; SuperValu Inc.; ACME Sav-On Pharmacy; Albertsons Osco Pharmacy; Albertsons Sav-On Pharmacy; SuperValu Holdings, Inc.; FF Acquisitions, LLC
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