Pharmaceutical Scams: A Methodical Fraudulent Activity

”Box of pills" Photo by tiptoee -

The importance of the pharmaceutical industry can’t be ignored. From the research, development, production to sales, the industry is at the helm of everything associated with medications. With the healthcare sector expanding like never before, pharmaceutical revenues are also reaching new heights.

In 2014, the worldwide pharmaceutical revenues crossed the barrier of one trillion dollars for the first time in history. From that year onwards, the revenues are only getting bigger and bigger. With this much of market capital, the scope of fraud and scams in the pharmaceutical sector is also immense.

From large-scale system swindling to individual shenanigans, pharmaceutical fraud affects patients in one way or the other. It can be played out in multiple ways and we will cover some of the most popular pharmaceutical frauds in this article.

Best Price Fraud

Medicaid and Medicare rebate programs were introduced to help the senior citizenry and low-income groups of the country. Pharmaceutical manufacturers are important parts of these programs where they provide subsidized prescription drugs to the inducted consumer As soon as you combine companies with Government regulations, there is always the possibility of widespread fraud.

To make sure that taxpayers are paying the lowest price on prescription medications, pharmaceutical companies are required to furnish the best price for any given drug. After stating these rates, they have to rebate the consumers for the drugs that are purchased above the best price.

These companies can carry out a systemic scam by exploiting the rebate program. By stating false prices, they can significantly decrease their rebate liabilities. By changing best prices by a few cents or dollar on a single drug, they save hundreds and thousands of dollars in rebate liabilities.

Since it is committed on an organizational level, it is difficult to identify such pharmaceutical frauds, unless and until a whistleblower comes forward. People or an organization caught instigating best price frauds can be tried through the False Claims Act. It is a federal legislative piece to do legal proceedings against the individuals or companies that are involved in defrauding state-run programs.

Off-Label Scam

We are aware of the fact that sometimes drugs are abused by patients. To limit these cases, electronic prescriptions are mandatory for all such drugs that can be misused. But there is a pharmaceutical fraud, where misuse of a drug is encouraged and instigated by companies to pocket hefty returns.

All over the world, pharmaceutical drugs are regulated through strict government laws. For instance, in the US, the Food and Drug Administration is tasked to approve any drug before it’s marketed for sale. The FDA is also responsible to allot and approve the label of every drug, which entails its use for any particular medical condition.

Pharmaceutical companies are then obliged to market the drug with the label only indicating that particular use approved by the FDA. In off-label frauds, the label of a drug is falsely modified to increase its sale. If a drug is approved as only a sleeping pill by the regulators, but it is marketed with a label that also reads muscle relaxant, then it will be deemed as an off-label scam. Off-label pharmaceutical scams are not only demonstrating illegal revenue generation, but they also put patients’ health in jeopardy.

Kickbacks and Illegal Incentives

These systematic pharmaceutical scams are carried out in collusion with healthcare providers where companies bribe them into prescribing particular drug products to the patients. In the name of incentives, companies lure hospitals and physicians to only recommend their pharmaceutical products. These kickbacks often have deep consequences for patients because doctors who favor a certain pharmaceutical company will continue to recommend drugs that might not be effective for patients.

Oftentimes, healthcare providers make an unregulated market for drugs that are not tested or approved by the FDA. These kickbacks are not given by just handing over money to the culprits. There are several cunning ways to deliver these kickbacks.

  • They show this collusion as a joint venture between the parties involved
  • Kickbacks are often paid in the name of research grants
  • They avail the ‘advisory’ services of doctors and then make the payments for it
  • Bribing through payments on attending lectures, board meetings, and health conferences

Arranging their vacations and giving lavish and expensive gifts is another way to bribe people responsible for making decisions regarding prescription drugs and their use.

Defrauding Through Inflated Pricing

The government pays for state-run healthcare programs through Average Wholesale Price (AWP). To skim more money through government reimbursements, pharmaceuticals inflate AWP by colluding with healthcare providers to induce a significant difference between the actual price of the drug and its AWP quotes (where the later price is obviously quite higher). It’s another fraudulent activity where taxpayer money gets ripped off by the manufactures of medicines.

In 2012, a subsidiary of Actavis Group has to pay around $200 million in the claims that they ripped off the federal government and multiple states by overcharging them through Medicare and Medicaid programs.

Frauds Involving Pharmaceutical Benefit Management

Pharmaceutical Benefits Management (PBM) was established with the intent to aid insurance groups with the claims involving prescription drugs. But then its role started to expand and now they have become a chief broker of many healthcare transactions.

From government-run health programs to commercial health plans, they act as the administrators managing the deals and contracts regarding prescription drugs. Expansion of their role has also increased the potential of scams in their operations. PBMs are now strong entities with established connections in upper echelons where critical healthcare decisions are made.

There have been instances where PBM has become a part of pharmaceutical irregularities in the form of contractual irresponsibility, unlawful rebates, kickbacks and unapproved discount memorandums. Some of them are indeed unintentional, but a majority of them have been occurred due to ill-intentions involving the incentive of hefty sums of money. Recently, CEO of Nebraska PBM has pleaded guilty in a case where he was accused of taking kickbacks in pharmaceutical operations in Texas. And let’s not forget about the Epipen debacle, where the company increased the price of this drug by 400%.

And also recently, President Trump issued decrees that will help sustain or lower prices of prescription drugs. This is a good start, but more needs to be done.

Posted On May 25, 2018