Healthcare is the largest single cost in the federal budget – approximately 22 percent of the total — and the cost increases dramatically from year to year. With fraud following that money, the government is highly incentivized to investigate and prosecute corruption in the healthcare and pharmaceutical industries.
False Claims Act violations involve making fraudulent medical billing claims for payment from the government healthcare programs. One of the largest programs is Medicaid, healthcare for the indigent. Fraudulent conduct can involve overbilling, or receiving payments under these programs while not in compliance with healthcare regulations. Qui tam law suits brought by Medicaid fraud attorneys have recovered billions of dollars from companies committing health care fraud.
The Medicaid Program
Medicaid, a government program funded by federal and state taxes, provides healthcare for those who cannot afford it. It is the only way that millions of low-income families can obtain medical care. Federal and state governments split Medicaid costs, typically on a 50-50 basis.
The federal government sets the basic requirements for Medicaid participation, but the specifics are left up to the states. Each state sets criteria for beneficiaries, decides what services may or may not be covered, decides which medical providers can participate, and determines all other requirements for the state Medicaid program. The federal government administers the program through the Centers for Medicare and Medicaid Services (“CMS”), and each state has its own agency.
Each state Medicaid program covers prescription drugs. Prescription drug costs have been a rapidly increasing part of Medicaid costs. There are over 42 million Medicaid beneficiaries and prescription drug benefits exceed $22 billion dollars.
It is widely recognized that fraud against the Medicaid program costs taxpayers billions of dollars. In recent years, there has been a focus on fraud in charging the states for prescription drugs. Well over $14 billion in taxpayer funds have been recovered through Medicaid whistleblower’s False Claims Act suits against pharmacies, pharmaceutical manufacturers and pharmaceutical benefit managers.
Detecting and preventing fraud in government prescription drug programs have become particularly important since the implementation of Medicare Part D. Unlike Medicaid, Medicare is a program that provides government funded healthcare for seniors. As the total annual costs of the program exceed $60 billion, the potential for Medicare and Medicaid fraud and abuse is a serious concern. The government will continue to rely on whistleblowers, particularly pharmacists, and other concerned citizens to help stop those who cheat and steal from the Medicaid and Medicare programs.
Generic Drug Pricing
State and federal governments limit the amount that Medicaid will pay for certain generic drugs under federal price ceilings known as the “Federal upper limit.”
According to the United States Department of Health and Human Services, the “Federal upper limit program was put in place to ensure that the Federal Government acts as a prudent payer by taking advantage of current market prices” for generic drugs. Under this program, the federal government limits states’ payments to 150 percent of the published price of any drug that has three or more competing suppliers.
Each state determines its own method of determining reimbursement payments under its Medicaid program. States can set limitations beyond the Federal upper limit. These state price ceilings are known as “Maximum Allowable Costs” or “State upper limits.”
In Illinois, for example, the “maximum price” the state will pay for generic drugs is calculated as the lowest of the five possible prices:
- the Federal upper limit;
- the State upper limit;
- the pharmacy’s prevailing charge to the general public;
- the manufacturer’s average wholesale price minus 25 percent; or
- the average wholesale price for drugs where that price is based upon the actual market wholesale price.
The state also pays a dispensing fee of $6.35.
Typically, federal and state governments pay much less for a generic drug when an upper limit has been set.