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NYC Best Price Rule Fraud

Medicaid and Best Price Rule Fraud: Understanding the Complexities


To ensure that low-income, disabled, and elderly Americans have access to health coverage, Congress and President Lyndon B. Johnson established Medicaid as a federal-state partnership in 1965. The program pays for preventive care, doctor visits, hospital stays, and medications for individuals who would otherwise be unable to afford care.

Expansion of Medicaid

Research has shown that children and adults covered under Medicaid have better health outcomes than people who are uninsured, and the success of the program has been widely recognized. In 2009, Congress and President Barack Obama included a provision in the Patient Protection and Affordable Care Act, also known as Obamacare, to expand Medicaid to cover more low-income adults.

Medicaid Operations and Regulation

While Medicaid is a government entity operated under the joint auspices of the governments of the 50 states and the District of Columbia and the federal Department of Health and Human Services, it must contract with private entities – such as doctors, hospitals, and pharmaceutical companies – to provide care to recipients. To save money for taxpayers, these transactions are closely regulated to ensure the government pays a fair price for medical services and prescription drugs. For prescription drugs, Medicaid has formulated the “best price rule.”

Understanding the Best Price Rule

Under the best price rule, the best price is the lowest price that any retailer or other entity pays a pharmaceutical company or drug manufacturer for a given prescription drug. In calculating the best price, the company must determine the price factoring in volume and cash discounts as well as rebates, incentives, and other financial factors. Corporations selling to Medicaid must also report the average price they charge to all of their customers, known as the average manufacturer’s price.

Implications of the Best Price Rule

Since Medicaid purchases a very large number of medications each year – and is a federal entity – it is guaranteed a rebate based on a formula that links the average manufacturers’ price and the best price. The specific amount of the rebate varies based on the type of drug and the size of the difference between the two prices.

Fraud Prevention and Legal Ramifications

Given the massive volume of transactions with Medicaid, there is a strong financial incentive for companies to falsely report prices to Medicaid in order to earn more money and part with less of it through their rebates to federal and state governments. To prevent this type of fraud, the federal government has established strong criminal and civil penalties for best price fraud.

Under a federal law known as the False Claims Act, whistleblowers are incentivized to report fraud that impacts the government’s finances to appropriate authorities. The Department of Justice is empowered to investigate whistleblower allegations and can pursue civil lawsuits to recoup the amount that was fraudulently obtained – and a multiple of that amount as a penalty for misconduct. In 2012, a multinational pharmaceutical company paid $300 million to settle a case resulting from best price rule fraud.

Legal Consequences of Best Price Rule Fraud

The criminal charges that result from best price fraud are also very serious. Individuals who knowingly submitted false information about prices to Medicaid can be charged with a variety of federal crimes, including making false statements, wire fraud, mail fraud, and several charges that relate specifically to defrauding health coverage programs.

Penalties for these criminal charges can vary, but wire fraud charges alone often result in sentences of up to 30 years in prison and fines of up to $1 million. Indictments on best price fraud cases typically involve multiple counts; if convicted on all of them, defendants can effectively face a sentence of life imprisonment.

Legal Defense and Protection

If you, your business, or a loved one are being investigated for or facing charges of best price rule fraud, it is very important that you retain a criminal defense attorney immediately. The thicket of rules surrounding Medicaid and the pharmaceutical industry is very complex and requires an experienced attorney to help make sense of the case and applicable laws.

A qualified defense lawyer can prepare you and your business for an investigation, ensuring that your legal rights are protected. If you ultimately face criminal charges, a criminal defense attorney can work with prosecutors to strike a plea agreement that reduces your criminal liability and limits the sentence you might face. If all else fails, they can also present a vigorous defense before a judge and jury.

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