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Litigation points to the complexity of 'fair market value' calculations in manufacturer-wholesaler agreements
In an era of multibillion-dollar settlements over False Claims Act litigation, a $55.5-million settlement, whose cost is shared by three manufacturers, is a relatively small penalty. But the fact that it might be the first in a series of such settlements, plus the implications for analyzing “fair market value” (FMV) of arrangements between manufacturers, wholesalers and federal and state governments broadens its significance. And the fact that the case, Streck vs AstraZeneca, et al., was brought by a longterm executive (and former president) of the Healthcare Distribution Management Assn. adds a frisson of notoriety to the settlement.
The case (U.S. ex rel. Ronald Streck v. AstraZeneca, LP, et al., C.A. No. 08-5135) is being settled out of court by AstraZeneca (which is on the hook for the largest part of the settlement, $46.5 million), Cephalon ($7.5 million; now, but not at the time of the alleged fraud, part of Teva Pharma) and Biogen ($1.5 million) has been litigated as a “declined case” (meaning, the US Dept. of Justice did not join into it) by Berger & Montague (Philadelphia), with Faruqi & Faruqi (New York) as co-counsel. Another case, against Genzyme, is ongoing, and a yet larger group of manufacturers, against whom allegations were rejected in 2011, will continue to be involved in an appeal of that earlier decision.
In 2003, following his retirement as president and CEO of HDMA, Streck filed a qui tam whistleblower suit against the manufacturers. The basic claim is that manufacturers were treating payments to wholesalers as discounts, when in fact the payments were for bona fide services rendered. “By treating the payments as discounts, the manufacturers reported lower average manufacturer prices, which consequently led them to pay less in rebates to state Medicaid programs,” according to a statement from Berger & Montague. Morever, Streck's suit was “the first of its kind, in that the alleged fraud scheme had never been revealed in any prior lawsuit or government enforcement operation.”
The definitions of “bona fide services” as well as their defined FMV was unclear until 2007, when CMS published a Final Rule providing some clarity around defining “average manufacturer price” (AMP)—but as of 2013, the subject still has been difficult to analyze in a manner that is compliant with CMS guidelines. The Affordable Care Act, passed in 2010, adds some additional complexity. Manufacturers are advised to perform due diligence both on the nature adn value of claimed discounts and services in their contracts with wholesalers and other buyers, certainly where Medicaid or Medicare dollars are concerned.