Article by Erika A. Kelton published in Drug Topics, 3/20/2006.


Business practices in the pharmaceutical industry are changing largely as a result of whistleblower (“qui tam”) cases that have resulted in federal and state crackdowns on Medicare and Medicaid billing practices. Pharmacists are involved in some of the key actions, both as whistleblowers and as defendants.

Pharmacists have brought one of the biggest qui tam cases against a pharmacy benefits manager for fraud against Medicaid and other federal and state health plans. Pharmacists also have been the target of qui tam cases brought under the federal False Claims Act and similar state false claims laws.

A federal official said the government has about 150 pharmaceutical fraud cases pending that involve over 500 different drugs. To date, pharmaceutical manufacturers have paid about $2.5 billion to settle allegations involving Medicaid rebates, improper marketing and other practices affecting Medicaid and Medicare billing. Drug companies and others that engage in fraud could end up paying billions more.

Many of these pharmaceutical fraud cases are qui tam lawsuits filed by whistleblowers who allege billing fraud against Medicaid, Medicare and federal health insurance programs. Qui tam lawsuits involving various types of pharmaceutical fraud have been filed against pharmaceutical companies, pharmaceutical benefits management companies, retail pharmacies as well as pharmacists. More and more people are willing to step forward and expose Medicare and Medicaid billing fraud because of the financial reward they could receive and the job protection the law offers to whistleblowers.

How the False Claims Act and qui tam lawsuits work

The False Claims Act is a Civil War-era law that Congress revived and strengthened in 1986 to fight rampant fraud by defense contractors during the Cold War. The concept of “qui tam” – short for a Latin phrase that means “he who brings an action for the king as well as for himself” – dates back to the Middle Ages.

The False Claims Act allows private citizens who are aware of fraud against the federal government to sue any individual or company that is defrauding the government and recover funds on the government’s behalf through a qui tam lawsuit.

Any instance in which the government loses money directly or indirectly through fraud could be the basis for a qui tam lawsuit. If a pharmacy switched a Medicare or Medicaid beneficiary from a lower-priced or generic drug to a higher-priced or brand drug to increase profits or for non-medical reasons, the pharmacy could be sued under the False Claims Act. More than $9.5 billion have been returned to the U.S. Treasury as a result of qui tam lawsuits since 1986.

Generally the qui tam process works this way: An individual who is aware of health care fraud, Medicare or Medicaid fraud, or any other type of fraud against the government files a qui tam lawsuit in court. The lawsuit is filed “under seal,” which means no one but the government is told about the lawsuit and the public doesn’t have access to it. The seal gives the government time to investigate the allegations in the lawsuit without tipping off the defendant. It then must decide whether to join the case. The federal False Claims Act specifies that the seal may last for 60 days, but it can be extended with the permission of the court. In practice, seals usually last three years or longer, depending on the length of the government’s investigation.

If the government decides to join the qui tam case, the whistleblower – known as the “relator” — and the whistleblower’s attorney work with the Department of Justice to pursue the matter. If the government declines to intervene, the whistleblower and the whistleblower’s attorney can pursue the lawsuit on their own.

The False Claims Act offers whistleblowers some job protection. If they are retaliated against for filing a qui tam lawsuit, they may be entitled to reinstatement of their job and two times the amount of back pay plus interest. They also can file a wrongful termination lawsuit in state court.

Under the False Claims Act, liable defendants must pay three times the government’s losses plus a fine for each false claim. Whistleblowers are entitled by law to 15 percent to 25 percent of the recovery that results from their qui tam lawsuits if the government joins the case. If the government doesn’t join the case, the maximum recovery increases to 30 percent. Whistleblowers whose qui tam cases have been successful have been awarded a total of more than $1.4 billion.

Many states have false claims laws based on the federal statute. These allow private individuals to sue any individual or company that is defrauding the state or state-funded programs such as Medicaid and state employee health insurance programs. Some qui tam lawsuits may be brought under both federal and state statutes, depending on what government programs are losing funds through fraudulent practices. This is often the case when it comes to pharmaceutical fraud as Medicaid is funded by both the federal government and the states.

Pharmacists and whistleblower lawsuits under the False Claims Act

Two married pharmacists working for one of the largest pharmacy benefits managers, Caremark Rx Inc., filed a qui tam lawsuit in 2004 against their employer. They alleged Caremark had defrauded a Florida health plan for retired state workers by switching prescriptions to higher priced drugs without permission and failing to give the health plan credit for medications that were returned, unopened, by customers.

Pharmacists should be aware that whenever a pharmaceutical manufacturer offers them financial or other inducements to favor or switch drugs, the drug company could be liable under the False Claims Act. The pharmacy and pharmacist also could be liable under the False Claims Act if they were to accept such inducements. To the extent that such inducements or kickbacks are unreported by the pharmaceutical manufacturers, Medicaid “best price” violations also may be implicated.

Last year, a pharmacist who owned a small drugstore chain in western Kentucky admitted to repackaging and selling free samples of drugs that had been given to doctors and billing Medicaid for them. He paid $10.7 million in fines and penalties under the False Claims Act and agreed to give up his pharmaceutical license and ownership of any drugstores.

Other ways pharmacists may be liable under the fraud law include billing Medicare or Medicaid for returned or unclaimed items and then reselling the drug and billing Medicare or Medicaid again. Pharmacies that short-fill or dilute prescriptions are also in jeopardy of False Claims Act liability. In addition, inflating or improperly editing reimbursement claims may create False Claims Act liability.

Medicare Part D and pharmaceutical billing fraud

With the introduction of Medicare Part D prescription drug plans, questionable practices may rise as pharmacies face increased financial pressures. In addition to the improper practices described above, pharmacies that purchase cheaper, diverted prescription drugs off the secondary or “gray market” may also be exposed to FCA liability. Likewise, billing prescriptions for drugs that are reimbursable under Medicare Part B to both Part B and Part D would give rise to liability, as would the billing of Part B reimbursable prescriptions to Part D to take advantage of payment differentials.

Under Medicare Part D, some pharmacies may participate as co-owners of Prescription Drug Plans (“PDP). To the extent pharmacies do engage in this role, they should be aware that failures to correctly report price concessions from pharmaceutical manufacturers could lead to FCA liability. Similar failures to accurately report costs for the purpose of CMS “risk corridor” and “TROOP” calculations also may create FCA liability.

If a pharmacist suspects that the practices of a company or individual are defrauding Medicare or Medicaid, the pharmacist should consider consulting an attorney who has proven experience with qui tam cases and has expertise in Medicare and Medicaid fraud.

The lawyer can advise the pharmacist about the protection the law offers from liability, if the pharmacist’s employer is engaged in fraud, and job retaliation if the pharmacist decides to report the fraud or file a qui tam lawsuit.

Reputable attorneys won’t charge for preliminary discussions about a potential case and will take qui tam cases on a contingency basis, meaning they will share a percentage of the reward but won’t get paid anything if the case is unsuccessful. The lawyer should discuss the personal and professional risks of blowing the whistle before any steps are taken. While there can be many risks for whistleblowers, the personal satisfaction of stopping fraud and the financial rewards of a successful qui tam lawsuit can help compensate for those risks.

Let us help you.
Get a free, confidential case review