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About=20 Medicaid

Rebate=20 Act & Best Price

How=20 Best Price Is Reported
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Introduction=20

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The= =20 Nevada Case

The Allegations=20

MD=20 Kickbacks

Consultant=20 Meetings

Free=20 Drug Kickbacks

Best=20 Price

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Steven=20 Cohen

M= ark=20 Kleiman

Be= thAnne=20 Yeager

Timeline: = A=20 Seven-Year Ordeal

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EDPA Complaint

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The = Drugs

Drug= =20 Expert Greg Hamilton, Sr.
Whistleblowers=20
$20=20 Billion-Plus Recovered

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The Medicaid Rebate Act and "Best Price" Provisions

Dean Steinke, the qui tam whistleblower who brought this False = Claims=20 Act case to whistleblower attorneys Steve Cohen and Mark Kleiman, = alleged=20 that Merck & Co., Inc., had submitted false price reports in = order to=20 reduce the rebates Merck was required to pay back to the States = under the=20 Medicaid Rebate Act, 42 U.S.C. =C2=A71396r-8. = The Nev= ada=20 federal court's decision that Merck's price reports were false = and=20 should have included marketing discounts Merck extended to = hospitals but=20 not to Medicaid was key to bringing about the settlement that is = the=20 subject of this Web site.

In 1990 Congress passed the Medicaid Rebate Act in response to=20 increasing Medicaid expenditures for prescription drugs. (See a history of the Medicaid Rebate Program.) The=20 legislation's goal was to stop drug companies from overcharging = Medicaid=20 by giving taxpayers (who fund Medicaid) the best discounts that = other=20 purchasers negotiated. (See How the Medicaid Rebate on Prescription Drugs = Affects=20 Pricing in the Pharmaceutical Industry, Congressional Budget = Office=20 Paper (January 1996), Chapter II, the Medicaid Rebate Program, at = 11.)

The mechanism Congress designed to achieve this goal requires = drug=20 companies that seek Medicaid payments for their prescription drugs = to pay=20 a rebate to each State each quarter that is based on the = difference=20 between the price that the State paid and any lower price paid by = other=20 purchasers, other than HMOs or government entities, known as the = Best=20 Price, or a rebate based upon a 15.1% discount off the Average=20 Manufacturing Price (AMP), whichever provides the greatest rebates = to the=20 States. According to pharmaceutical pricing expert, Greg= =20 Hamilton, the overwhelming majority of manufacturer drug = rebates are=20 Best Price-based, not the flat 15.1% rebate.

The rebates are based upon quarterly price reports the drug = companies=20 submit to the federal Centers for Medicare and Medicaid Services = ("CMS").=20 Using these price reports and the States' prescription drug-use = data, CMS=20 calculates the rebates owed by the drug companies to each State. = Not=20 surprisingly, the Office of Inspector General for the U.S. = Department of=20 Health and Human Services, which oversees CMS, has recognized = that,=20 "...manufacturers have a strong financial incentive to hide de=20 facto pricing concessions to other purchasers to avoid passing = on the=20 same discounts to the states" in the form of higher rebates based = on a=20 Best Price that would otherwise have included these discounts. = (See OIG Compliance Program Guidance for Pharmaceutical = Manufacturers, 68 Fed. Reg. 23,731, 23,735 (2003)).

Even though the Medicaid Rebate Act requires Best Price = reporting to=20 include (a) cash discounts; (b) free goods contingent on other = purchase=20 requirements; (c) volume discounts; and (d) any other rebates, = Best Price=20 reporting does not include discounts that are "merely nominal" in = amount.=20 Merck thus devised a "nominal price" discount to market = Vioxx=C2=AE and Zocor=C2=AE=20 to hospitals, a discount the hospitals qualified for so long as = they=20 purchased set amounts. Merck excluded these large discounts of = more than=20 90% of AMP from its Best Price reporting, claiming that so long as = the=20 discount resulted in a price of less than 10% of AMP, as CMS = defined=20 nominal price, the discount could be excluded from Best Price=20 reporting.

However, the legislative history of the Medicaid Rebate Act = indicates=20 that nominal price exclusion to Best Price reporting was intended = to=20 protect special purchasers, such as penny-a-pack birth control = pills sold=20 to Planned Parenthood. (See 136 Cong. Rec. 25,145 at S12954-01, = *S12962=20 (1990)). Congress was also clear that the overarching purpose of = the=20 Medicaid Rebate Act was to put Medicaid (the States, and the = taxpayers) on=20 par with all other commercial purchasers, such as hospitals. The = Deficit=20 Reduction Act of 2005 further delineated the nominal price = exclusion, and=20 as of Jan. 1, 2007, only certain sales for less than 10% of AMP=20 qualify.