The U.S. Department of Justice (DOJ), in a November 11 press release, revealed it had reached agreement with Bristol, Tennessee-based King Pharmaceuticals for its Medicaid fraud violations. The company will pay a Medicaid rebate of $124 million plus interest as a result of its failure to pay accurate rebates.

The rebate beneficiaries, the Medicaid program, state Medicaid agencies and other federal and state agencies that purchased drugs from the company, will be compensated for both overcharges and underpaid rebates.

The rebate program in question works like this: First it guarantees that Medicaid pays the lowest available market price for drugs covered in the program.

Those prices are determined by looking at two prices vendors must report to Medicaid for its Medicaid-reimbursed drugs: the average manufacturer price (AMP) and best price (BP).

The government claims that from 1994 through 2002, King failed to report accurately the average manufacturer price (AMP) and best price (BP) those drugs.

Those numbers are key because AMP and BP are taken into account to calculate the quarterly rebate payment that participating vendors must make to each state Medicaid program.

In addition, those prices are used to peg the ceiling price for drugs purchased by certain federal and state drug programs and other agencies such as the Veterans Administration and entities subsidized by the Public Health Service.

King’s misreporting of those figures across its entire line of drugs came about because of inadequate and inappropriate internal methodologies, controls and systems to calculate those figures.

The settlement covers the period from January 1, 1994 to December 31, 2002. It resolves two claims: that King knowingly failed to report accurately to the Center of Medicare and Medicaid Services on a quarterly basis the AMPs and BP’s for its drug products, and to pay the corresponding proper amounts of Medicaid rebates.

Secondly, it resolves charges that King overcharged Public Health Service groups and didn’t provide accurate information to the VA, and overcharged for its drug products from the VA/Federal Supply Schedule.

The Whistleblower provisions of the False Claims Act played a large part in this successful outcome. A former King employee, Edward Bogart, one-time Director of Contracts and National Accounts for King, filed the initial suit. He also brought claims under similar false claims statutes of 13 states and the District of Columbia.

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