FCA Claims Based on Average Wholesale Price (AWP) Theory Barred by Public Disclosure Bar

By on February 17, 2016

On January 20, 2016, the U.S. District Court for the Eastern District of Missouri dismissed a complaint based on allegations of Average Wholesale Price (AWP) fraud under the False Claims Act (FCA) against CSL Behring, LLC (Behring) and specialty pharmacies Accredo Health, Inc., (Accredo) and Coram LLC (Coram).  See United States ex rel. Lager v. CSL Behring, LLC, et al., No. 4:14-CV-841CEJ, 2016 WL 233245 (E.D. Missouri 2016).  The Court found that relator’s allegations were barred by the public disclosure bar and did not satisfy the “original source” exception.

Relator, a former Behring employee, alleged that the company reported inflated AWPs for prescription drugs, Vivaglobin and Hizentra, causing government health programs to reimburse specialty pharmacies much more than they paid for the drugs ($133 v. $65 and $151 v. $70).    Vivaglobin and Hizentra are classified as “DME infusion drugs” because they are self-administered by patients through a pump, which is considered durable medical equipment (DME). Unlike most drugs which the government reimburses based on a percentage of the average sales price (ASP), DME infusion drugs are reimbursed based on a percentage of the drug’s AWP.  Unlike ASP, AWP is not defined by law or regulation and is not based on actual sales data.  AWP is based on figures the drug manufacturer reports to third-party publishers and is substantially higher than ASP.  In addition to allegations that Behring reported inflated AWPs, relator claimed that Behring used the “spread” between the actual cost and the AWP-based reimbursement rates to induce their customers, including Accredo and Coram, to buy their products.

Citing multiple government sources and media outlets “[that] have long disclosed that AWP does not represent the actual prices of drugs,” as well as “multiple disclosures that manufacturers used the difference between actual costs and AWPs to influence sales,” the court dismissed the complaint under the public disclosure bar, 31 U.S.C. § 3730(e)(4)(A). Id. at *3-*6 (commenting that “[t]his state of affairs has been labeled as a scam and fraud by the press and in multiple civil lawsuits”). The court was unpersuaded by relator’s argument that the public disclosure bar did not apply because the public disclosures did not “contain[] all of the elements of the alleged fraudulent transactions” (emphasis added), including the defendants and drugs at issue.  The court noted that the prior public disclosures “need not contain every fact or legal consequence to trigger the public disclosure bar” (citation omitted) and explained:

In 2007, the court overseeing the multidistrict litigation found that pharmaceutical companies submitted “false, inflated AWPs” that “caused real injuries.” In re Pharm. Indus. Average Wholesale Price Litig., 491 . Supp. 2d at 31.  In 2013 the OIG disclosed the extreme spread between AWP and ASPs for DME infusion drugs, generally, while publications by the third-party publishers and CMS showed the spread for Viaglobin and Hizentra in particular.  These disclosures are sufficient to identify both the defendants and the drugs.

Relator also failed to adequately allege that he was an “original source” pursuant to 31 U.S.C. §3730(e)(4)(B).  Relator claimed that he qualified as an original source because he had “knowledge that [wa]s independent of and materially add[ed] to the publicly disclosed allegations” and he disclosed that information to the Government “before filing [this] action.”  The court rejected this claim for two reasons.  First, the court found that relator’s mandatory pre-filing disclosure in compliance with §3730(b)(2) did not satisfy the pre-filing disclosure requirement of §3730(e)(4)(B).  Id. at *7 (noting that the purpose of the §3730(e)(4)(B) is to encourage “private individuals to come forward with their information of fraud at the earliest possible time and…discourage persons with relevant information from remaining silent.” (citations omitted)).  Second, putting the timing issues aside, the court found that relator’s information did not materially add to the vast amounts of information available in public disclosures.  Relator’s knowledge simply wasn’t “qualitatively different” from information already discovered.

This case suggests that future AWP fraud-based FCA cases will face a steep uphill battle, and may be foreclosed by the public disclosure bar.  The government is and has been on notice that AWPs do not represent the actual sales price and that some manufacturers have used the “spread” between the AWP-based cost and the actual price to induce sales.  In this regard, it may be difficult for a future relator to bring enough “qualitatively different” information to the table to qualify as an original source.

Dana McSherry
Dana McSherry represents clients in health care, securities and other government enforcement matters, both civil and criminal. Dana also assists clients in conducting internal investigations and counsels clients across the health care industry on compliance and risk management issues. Read Dana McSherry's full bio.