Feds shine investigative spotlight on relations with drug companies
Marketing the spread’ practice getting attention
Medical practices need to review their dealings with prescription drug manufacturers and marketers as federal investigators take a closer look at the relationship between pharmaceutical companies and providers for potential cases of fraud and abuse. "Drug marketing is the next wave of health care fraud-related investigations and prosecutions," says Michael D. Geldart, an attorney in the St. Petersburg, FL, law office of Holland and Knight.
Federal law enforcement officials are ready to enter "a new and more aggressive phase" of fraud investigations and enforcement actions against pharmaceutical companies and physicians when it comes to drug marketing and pricing practices, agree Michael E. Anderson and Keith D. Lind, attorneys in the Washington, DC, office of Holland and Knight.
One focus is on gathering evidence about a specific pricing practice known as "marketing the spread." This is a business strategy that involves discounting prices to physicians to increase the manufacturer’s market share. "If these investigations grow into an all-out attack on this pricing practice, both manufacturers and physicians may have to overhaul their drug marketing and purchasing practices," warns Anderson.
While Medicare does not cover the cost of most outpatient drugs, it does cover the cost of drugs that cannot be self-administered and are furnished incident to a physician’s services. "Typically, these are drugs that require supervised intravenous administration in a physician’s office or clinic," notes Lind. Medicare pays for covered drugs at the lower of either the amount billed or 95% of the "average wholesale price" (AWP). AWP is typically a function of the manufacturer’s suggested price, rather than an empirically derived statistical average of actual market prices.
Most manufacturers sell drug products to physicians at a discount from AWP — sometimes a substantial discount. Meanwhile, current Medicare rules permit physicians to bill for these drugs at 95% of AWP, no matter what the drug costs the practice. Taking advantage of the difference between the physician’s purchase price and the amount that a doctor is permitted to bill Medicare for is "marketing the spread."
While Congress, the Inspector General, and the Health Care Financing Administration have all investigated this practice and are considering moving against it, it is not currently illegal, say Anderson and Lind. However, the Department of Justice appears to be taking the position that a deliberate manipulation of the price spread between AWP and the discounted price paid by physicians violates the laws and regulations governing billing for goods and services covered by federal programs, such as Medicare. "It is not yet clear whether enforcement authorities are seeking to prosecute such activities under novel theories of civil or criminal liability or are investigating whether these practices amount to kickbacks based on existing enforcement theories," notes Lind.
However, the offering or providing of discounts, rebates, and free products for the purpose of inducing the referral of business, including the increase of business in an established relationship, could violate the Medicare and Medicaid anti-kickback rules, unless protected by a safe harbor, he warns. Moreover, if such pricing arrangements are considered to be kickbacks, providers could face civil and criminal liability under the False Claims Act. "With respect to marketing the spread, there are plenty of cases where drug manufacturers deliberately lowered the price of their drug so using it could be more profitable to a physician than a competitor’s drug," observes Anderson.
Similarly, investigators are looking into allegations that manufacturers have artificially inflated the AWP to increase the profit physicians could pocket as a way to generate greater use of certain drugs. Additionally, manufacturers have allegedly offered physicians free drug products that practices later resold for a profit. Some manufacturers have even linked receipt of these free drug samples to a physician’s actual switching of patients from a competitor’s drug to their drug. In at least one case, a physician has admitted to federal investigators that he demanded a free drug sample as a quid pro quo for each patient that he switched to the manufacturer’s drug, says Anderson.
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