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Regeneron Accused of Drug Pricing Fraud in Latest FCA Case

April 24, 2024

According to a recent press release, the Department of Justice has filed a Complaint against New York-based Regeneron Pharmaceuticals Inc. (Regeneron) under the False Claims Act (FCA). The case involves Regeneron’s drug Eylea. Eylea is an anti-vascular endothelial growth factor inhibitor approved to treat neovascular Age-Related Macular Degeneration. The gravamen of the FCA case is that Regeneron committed drug pricing fraud by failing to disclose price concessions given to its commercial customers.  This failure resulted in a higher reimbursement rate from the Centers for Medicare and Medicaid Services (CMS).

The lawsuit was originally filed by a whistleblower under the qui tam provision of the FCA. The qui tam provision allows private parties to initiate actions on behalf of the United States. The whistleblower’s complaint contended that the price concession was an inducement that resulted in violations of the Anti-Kickback Statute (AKS) and the FCA. The government does not appear to have intervened in the AKS claim, however.

Calculation of Medicare Drug Average Sales Price

Medicare pays for some separately payable Medicare Part B-covered drugs and biologics using the average sales price (ASP) methodology. Medicare pays most of these drugs and biologics at a rate of ASP plus 6%. To calculate the ASP and payment of each drug and biologic, manufacturers submit sales data, including discounts, to CMS.  Drug companies that overstate the price of their drugs or fail to disclose price concessions may run afoul of the FCA.

United States Alleges Regeneron Drug Pricing Fraud

The case alleges that Regeneron passed on price concessions in the form of credit card processing fee discounts through its distributor to its physician customers. Payment of the processing fees were ostensibly aimed at facilitating credit card transactions for Eylea purchases while maintaining lower cash prices for the drug. Consequently, Regeneron’s commercial customers could avail themselves of credit card rewards (such as cash back) without incurring processing fees.

The government contends liability attached by virtue of Regeneron treating the price concession as a “service fee” rather than reporting it to CMS as a discount.  Reporting it as a discount would reduce Eylea’s ASP.  This would have resulted in a lower Medicare reimbursement rate. Among the criteria necessary to satisfy “bona fide service fee” status is that the fee is “not passed on in whole or in part to a client or customer of an entity, whether or not the entity takes title to the drug.”  According to the government, in this situation, that criteria was not met.

The dollars at stake here are significant. While a casual observer may not think much of “credit card fees” in terms of a price concession, it allegedly resulted in hundreds of thousands of dollars in price reductions, and hundreds of millions of dollars in Medicare overpayments.  According to the government, Regeneron paid over $250 million in credit card processing fees in a 3-year period, but did not report them as discounts.

Continuing Pattern of Enforcement Against Drug Companies

The government’s complaint has generated significant attention.  Bloomberg reporter Ben Penn recently explored the case and its implications in an article titled: “US Intensifies Drug Discount Debate in Latest Regeneron Lawsuit.”

As Penn notes,

Lawyers also are closely monitoring the Regeneron development because it dovetails with several other hot-button issues in DOJ enforcement. Those include unfair competitive practices, individual accountability for senior executives, and the implications of a consequential US Supreme Court ruling [Supervalu] last year on proving intent in FCA cases.

Significantly, the scienter standard under the mis-pricing theory is easier to satisfy than in a kickback case. That is because it is unnecessary to prove the “willfulness” element of the predicate AKS violation. This could be a reason why the government opted to focus on the pricing theory rather than the kickback theory of the case — as the same basic facts underly both arguments.

Penn spoke with several prominent health care fraud attorneys, including WLC’s Erica Blachman Hitchings, for their takes on the case.  Hitchings, a former FCA government counsel, noted that the government’s complaint reflects a meticulous and thoughtful investigation.  It integrates evidence clipped from internal presentations, invoices, and memoranda to executives to support its allegations that the conduct was done “knowingly.”  She also noted that the government’s case has jury appeal:

All jurors will be able to relate to the fact that the physicians could still get all of the benefit of the credit card rewards without incurring the downside, the processing fees. In that way, the company is able to create a win win for the doctors, the company, and, as alleged, at the cost of the taxpayers.

– WLC’s Erica Blachman Hitchings

Regeneron Drug Pricing Fraud: Same Scheme, Different Name

The alleged Regeneron drug pricing fraud is not an entirely novel scheme. The allegations align with other FCA cases, including those involving co-pay waivers.  Regeneron is a defendant in one such ongoing case.   Additionally, there is a long history of cases involving drug pricing fraud, including cases handled by WLC.

Routine Co-pay Waivers

It is not illegal to write off a patient’s co-pay balance if the provider makes a good-faith attempt to collect.  However, when a provider has a policy of not attempting to collect co-pays that becomes illegal. Moreover, providers and manufacturers often use co-pay waivers to induce doctors to prescribe their drugs or products instead of cheaper generic competitors.  The AKS also prohibits offering discounts to induce prescriptions or referrals of a specific product.

In recent years, several pharmaceutical companies have paid significant settlements for co-pay waiver fraud.  Some recent examples are:

  • Actelion Pharmaceuticals US, Inc paid $360 million to resolve claims that it illegally paid thousands of Medicare patients’ co-pays for its pulmonary arterial hypertension drugs.
  • Specialty pharmacy, BioTek reMEDys, Inc., paid $20 million to resolve allegations that it violated the False Claims Act and the AKS by routinely waving co-payments.

Medicaid Rebate Fraud

The Medicaid Drug Rebate Program (MDRP) ensures Medicaid does not overpay for drugs compared to private purchasers. Under the program, a drug manufacturer must pay quarterly rebates to state Medicaid programs in exchange for Medicaid’s coverage of the drug.  Pharmaceutical companies who misstate the price commercial payors pay for its drugs face claims of False Claims Act violations.  For example, Mylan and Mallinckrodt settled significant cases alleging Medicaid rebate fraud brought by our whistleblower clients.

We Help Whistleblowers Report Pharmaceutical and Other Fraud

The Whistleblower Law Collaborative LLC  represents clients in bringing actions under the federal and state False Claims Acts and other whistleblower programs. Among the firm’s many successes is the government’s $234 million settlement with Mallinckrodt for Medicaid Rebate Fraud.  If you are aware of government fraud, contact us for a free, confidential, consultation.