Lessons from a False Claims Act Ruling on Medicare Pricing and the “Usual and Customary” Price

We pride ourselves on our work helping whistleblowers bring claims pursuant to the False Claims Act.  As a False Claims Act law firm, we have specialized knowledge of this complex piece of legislation that empowers individuals to bring fraud claims on behalf of the government.  A ruling from a federal district court released in late Spring in a case alleging Medicare fraud looks at one of the many important details that come up in these cases.  More specifically, the case looks at what constitutes a “usual and customary” price for purposes of determining whether a provider is complying with the law and offering Medicare beneficiaries an appropriate price on prescription drugs.   In doing so, the court highlights one important requirement that is often subverted by perpetrators of fraud and also provides a reminder of how complex False Claims Act cases can be.

Bhealth$ackground on the Garbe Case

On May 27, 2006, the Seventh Circuit Court of Appeals released an important ruling in United States ex rel. Garbe v. Kmart Corporation, a False Claims Act case brought by James Garbe on behalf of the United States against Kmart.  According to the complaint, Garbe, a pharmacist at Kmart, noticed that another pharmacy charged his Medicare Part D insurer substantially less that Kmart typically charged insurers for the same prescription.  He investigated and found that Kmart routinely charged customers paying out of pocket less than it charged those paying with insurance (public or private).  He also found that most cash customers took part in Kmart’s “discount programs” and that this discount price was not included when Kmart calculated its “usual and customary” prices on generic medications for purposes of Medicare reimbursement.

A lower court asked the Court of Appeals to examine several issues, including the application of Medicare pricing rules.  Under Medicare D rules, pharmacies must report the “usual and customary” prices on prescriptions and cannot charge a higher rate to Medicare D beneficiaries.  Generally, the “usual and customary” price is the “cash price offered to the general public.”  As the court explains, this is intended to ensure the government does not overpay for prescriptions and that Medicare Part D customers receive the benefit of deals offered to cash purchasers.

Seventh Circuit: Cash Discount Programs Must Be Included in Medicare “Usual and Customary” Price Calculation

Kmapill$rt argued that the term “general public” excludes customers taking part in a discount program.  Denying Kmart’s argument, the appeals court found that there was no meaningful distinction between the general public and discount plan members.  The court noted that barriers to joining the discount program were almost nonexistent.  As the court explained:

“Allowing Kmart to insulate high ‘usual and customary’ prices by artificially dividing its customer base would undermine a central purpose of the statutory and regulatory structure. The ‘usual and customary’ price requirement should not be frustrated by so flimsy a device as Kmart’s ‘discount programs.’ Because Kmart 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, the Kmart ‘discount’ prices at issue represented the ‘usual and customary’ charges for the drugs.”

Lessons from the Recent Garbe Decision

There are many lessons to be found in the Garbe decision.  For our purposes, two are particularly important:

  1. The courts, like the legislature, are serious about ensuring that Medicare receives a fair price on prescription drugs.  This can likely be extended to include pricing on medical products and medical services.  Systemically trying to subvert these rules can amount to fraud.
  2. The False Claims Act is a complex statute and analyzing a False Claims Act case often requires understanding other laws/regulations/rubrics such as the rules underlying Medicare D reimbursement.   Our Medicare pricing fraud law firm understands the False Claims Act and federal health care regulations, including the laws regarding drug pricing for Medicare, Medicaid, and other federal health programs

Taken together, these two rules amount to one overarching principle: We need honest witnesses to report Medicare fraud and attorneys who understand the law (both False Claims Act law and the underlying laws like those that govern Medicare reimbursements).

Our Experienced False Claims Act Law Firm

If you have witnessed Medicare/Medicaid fraud, or even simply suspect that you have, please contact our experienced health care fraud law firm.  Together, we can work to use the law to bring an end to fraud on the government.  Remember: Medicare fraud and other forms of fraud on the government amount to stealing money from the wallets of every taxpaying American and also diverts money from important ends, such as the care and well-being of our senior citizens.

With the False Claims Act, one person CAN make a difference.  Reach out, speak up, and help end fraud.  We can help.

See Related Blog Posts:

Understanding the False Claims Act: Whistleblowers’ Law Firm Looks at Government Intervention

The False Claims Act: What it Does and How Private Whistleblowers Can Use It

(Image of multiple pills forming dollar sign by Ano lobb; Image of open pill by Bill David Brooks)