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This is a qui tam action under the False Claims Act. In this case, the plaintiff asserted that the defendants, who operate pharmacies in the state of Alabama, defrauded the federal government by charging the Alabama Medicaid Agency a higher prescription "dispensing fee" than allowed by the Alabama Medicaid provider contract. The plaintiff, a sole proprietorship, asserted he met the statutory definition of "original source" under the False Claims Act. The dispensing fee paid by Medicaid is $5.40 per prescription, while the dispensing fee paid by Blue Cross-Blue Shield of Alabama is $2.30 per prescription. The plaintiff contended that the $5.40 dispensing fee charged for Medicaid prescriptions was in clear violation of the contracts between Medicaid and defendants, and that the defendants knowingly and willingly perpetrated a fraud on the United States by charging higher rates to Medicaid participants.
The central issue in this case is the definition of general public in the provider contract, which states in part, "In no event shall the Medicaid payment exceed the amount charged to the general public for the same service." The plaintiff argued the term general public referred to any person who did not receive assistance for payment of prescriptions through Medicaid. The defendants, on the other hand, asserted that general public unambiguously meant a cash customer (i.e, someone who pays the retail price for his/her prescription without financial assistance from any other source) and did not include a third-party payer like Blue Cross-Blue Shield. The district court agreed with the defendants by noting that customers for whom Blue Cross-Blue Shield pays the cost of prescription drugs were not members of the "general public."
The court then addressed the issue of what constitutes a pharmacy's "usual and customary" charge to the general public. The plaintiff claimed Blue Cross-Blue Shield's lower dispensing fee caused the state's payment to exceed the cost to the general public. In refuting this argument, the court held the "usual and customary charge to the general public" referred to the retail price or billed charges and did not refer to dispensing fees charged to other third-party providers. Furthermore, the court ruled that there is no requirement in the federal and state regulations, or in the provider contract, that reimbursement from Medicaid not exceed reimbursement amounts provided by other third-party providers, such as Blue Cross-Blue Shield.
In rendering its decision for the defendants, the district court applied the Pennsylvania Department of Public Welfare's regulation governing reimbursement for prescription drugs provided to Medicaid recipients. Though "usual and customary charges" may vary according to each state's statute, the following Pennsylvania example provides a good illustration:
To be able to determine more easily the pharmacy's "usual and customary charge" when billing the Department, the pharmacist must only take into consideration the type of Medicaid patient being served. If a Medicaid patient meets the qualifications of a pharmacy's special group or inclusive category of customers, and it is the policy of that pharmacy to extend that specific group a special rate that includes certain discounts, special promotions or other programs initiated to reduce prescription prices, the pharmacy must also extend the same rate to the Department for that Medicaid recipient.
One point regarding prescription pricing should be made at this juncture. Federal regulations set upper limits for Medicaid reimbursement of prescription drugs. The current version of the federal regulations differentiates between multiple-source drugs (i.e., generic drugs) and other drugs. The Health Care Financing Administration (HCFA) sets specific upper limits for reimbursement of certain multiple source drugs. Reimbursement of other drugs (i.e., brand-name drugs) continues to be based on the requirement that payment be determined by applying the lower of the (1) estimated acquisition costs (EAC) plus reasonable dispensing fees, or (2) providers' usual and customary charges to the general public, as discussed earlier. EAC is defined as the agency's "best estimate of the price generally and currently paid by providers." Though the states are somewhat restricted by federal reimbursement rates, they are given some leeway in setting their acquisition costs.
Given this flexibility in prescription pricing, is a pharmacy required to disclose its pricing information to its uninsured customers?
Langford v. Rite Aid of Alabama, Inc.
The plaintiff in this case argued that Rite Aid had implemented a scheme to defraud its uninsured customers of prescription drugs by charging them higher prices for medication than it charged its insured customers, then failing to disclose this fact. The court of appeals was not convinced by the plaintiff's argument and found for the defendant.
In rendering its opinion, the court stated that retailers are not expected to disclose information about their pricing schemes. Consumers are the individuals best equipped to gather pricing information, putting it to the best use. The court went further by noting that "pharmacists owe duties to their patients ranging from diligence in recommending medication to confidentiality in maintaining patient's records; however, nothing in their professional code of conduct suggests, even obliquely, that pharmacists violate that duty by not disclosing the pricing policies of their pharmacy."
It is important to note that this case involved an uninsured patient. Had this plaintiff been a Medicaid recipient who had been charged a higher price than other patients of similar nature, the court may have ruled against the pharmacy.
Application principles for the False Claims Act are presented in Fig. 2.
• Usual and customary charges refer to the retail price or billed charges.
• A pharmacist is not required to disclose the pricing policies of his/her pharmacy to its patients.