‘Disguised’ Discounts Lead Medco to Settle False Claims Allegations

Medco’s parent company, Express Scripts Holding Company, executed the settlement agreement on Medco’s behalf (the Settlement Agreement). AstraZenca entered into a similar settlement in February 2015, also for $7.9 million.

Settlement Presents Unique Theory of Liability

Though there was not an admission of liability by Medco, the underlying qui tam lawsuit that gave rise to the settlement presents an interesting theory of liability. United States ex rel. DiMattia et al. v. Medco Health Solutions, Inc., No. 13-1285 (D. Del.). The complaint, which was filed by two former executives of AstraZeneca, alleged that Medco “knowingly solicited and accepted illegal in-kind value payments” pursuant to an agreement with AstraZeneca to place their drug Nexium in a “preferred tier position” on Medco formularies. AstraZeneca purportedly offered a significant discount off of the purchase price of Nexium, but “disguised” the discount in the form of price concessions on other AstraZeneca products.

While the complaint suggested that Medco accepted steep discounts on other AstraZeneca products in exchange for preferential treatment of Nexium over a number of years, the “Covered Conduct” addressed by the Settlement Agreement only concerned an arrangement from 2007. Specifically, the Settlement Agreement stated that Medco “requested a $40 million payment…in exchange for promoting AstraZeneca’s drug Nexium by maintaining its ‘sole and exclusive’ status on certain Medco formularies” but that instead of receiving that payment in the form of a discount on the purchase price of Nexium, Medco accepted price concessions on other drugs: namely, Prilosec, Toprol XL, and Plendil.

The United States took the view that Medco caused AstraZeneca to underreport the best price on Nexium under the Medicaid Drug Rebate Program resulting in the underpayment of rebates to state Medicaid programs on Nexium. The complaint alleged that Medco accepted the payment so that AstraZeneca could “circumvent its best price obligations for Nexium and maintain Nexium’s profitability at government expense” and “avoid paying discounts or rebates that would have affected the Medicaid best price for Nexium.” Interestingly, while the complaint characterizes the “disguised” discounts as kickbacks and tangentially references the Anti-Kickback Statute, the complaint is void of a specific count under the Anti-Kickback Statute.

Pharmaceutical Industry Should Take Note of the Anti-Kickback and Drug Price Reporting Implications

Although the theory of liability alleged in the complaint was not tested by a court due to both AstraZeneca’s and Medco’s settlements, this case should nevertheless be of interest to members of the pharmaceutical industry, as it suggests that even seemingly unbundled discounts or rebates can be inherently “bundled” by circumstances which would otherwise appear to require differential treatment in drug price reporting metrics, including best price.

These settlements also illustrate the importance of pharmacy benefit managers, health plans and other customers reviewing proposed discount and rebate arrangements not only for compliance with the discount safe harbor to the Anti-Kickback Statute, but also as to the implications of such arrangements on the contracting pharmaceutical manufacturer’s drug price reporting.