Drug pricing isn't transparent. The list price is publically available, but many manufacturers offer point of sales discounts or rebates. For some drugs the actual price might only be 10% of the list price.
This makes it hard for Medicare and Medicaid to know how much to reimburse. It's in the drug company's and the pharmacy's best interest that what Medicare pays is as high as possible, since the difference between acquisition cost and reimbursement is profit in the pocket of the pharmacy. It also benefits drug companies since that profit incentivized use and what do they care? It's not their money.
What the gov't does is require every drug company to report various prices. What is the average price the drug is sold at (inclusive of all discount/rebates)? What's the lowest price the drug is sold at? The gov't then uses this information to determine how much to reimburse.
Some of these companies simply reported the wrong prices to the gov't that resulted in inflated reimbursement. That violation falls under the False Claim Act (from the US Civil War) and the companies get sued for every pill they sold at that wrong price. So it adds up.
>and the companies get sued for every pill they sold at that wrong price. //
They should instead lose all profits, and the C-grades lose all that years compensation and be barred temporarily from starting any new companies.
Only if misdeeds jeopardise their other profits will they take notice, otherwise it's always worth trying the fraud because they can do some business without fraudulently presenting prices and so maintain the business.
These sorts of deleterious actions should lead to punishment that risks putting the company in to receivership.
One particular penalty that is an option is being disbarred from participating in Medicare/Medicaid. Depending on the disease the drug treats, that can be 50% of your market. And you're disbarred as an entity, not just the individual drug.
Interesting, when Pfizer was found to be promoting off-label use of their drug (another no-no), they were disbarred. Well... their Pharmacia-Upjohn subsidiary was disbarred. Luckily that entity doesn't actually have any sales.
>is being disbarred from participating in Medicare/Medicaid. Depending on the disease the drug treats, that can be 50% of your market. And you're disbarred as an entity, not just the individual drug.
So the people on Medicare/Medicaid who may benefit from the drug are punished?
This makes it hard for Medicare and Medicaid to know how much to reimburse. It's in the drug company's and the pharmacy's best interest that what Medicare pays is as high as possible, since the difference between acquisition cost and reimbursement is profit in the pocket of the pharmacy. It also benefits drug companies since that profit incentivized use and what do they care? It's not their money.
What the gov't does is require every drug company to report various prices. What is the average price the drug is sold at (inclusive of all discount/rebates)? What's the lowest price the drug is sold at? The gov't then uses this information to determine how much to reimburse.
Some of these companies simply reported the wrong prices to the gov't that resulted in inflated reimbursement. That violation falls under the False Claim Act (from the US Civil War) and the companies get sued for every pill they sold at that wrong price. So it adds up.