Last week, the feds decided to intervene, or join, a whistleblower lawsuit that an Illinois pharmacist filed five years ago against Par Pharmaceuticals for devising a scheme to illegally switch the forms or dosages for various generic drugs. The plan allegedly involved convincing pharmacies and nursing homes to purchase its meds and then causing Medicaid and numerous states to overpay.
Specifically, Par worked with Walgreen and Omnicare to switch prescriptions for generic Prozac, Zantac and Buspar. Walgreen had previously paid $35 million to settle charges of defrauding Medicaid and 42 states for illegally switching Par drugs. And Omnicare paid $49.5 million for the same infractions (read this). Neither company was named as a defendant in this lawsuit, however.
The lawsuit offers some instructive details. But first, it is worth noting that, at the time these events began a decade ago, Par was controlled by two generic drugmakers - Alphapharm and Genpharm - which were originally units of Merck KGgA and are now part of Mylan Laboratories. These drugmakers held seats on the Par board and, in some cases, oversaw various operations. Essentially, this meant Par took its marching orders from others that developed its generics.
For instance, Alphapharm and Genpharm sold Par the US marketing rights for the generics they made. And Genpharm acted as Alphapharm’s agent, and entered into two supply and development contracts with Par. Under the terms, Par paid Genpharm nearly half of the profits earned from its sales of Prozac tablets. In return, Par received exclusive distribution rights for Alphapharm’s generic Prozac in the US.
But how did the scheme work? The trio of drugmakers developed and marketed meds that had the same active ingredient as drugs that were subject to Medicaid pricing limits, but they sold different dosages or strengths - so they escaped the pricing limits. As a result, Par was able to sell its drugs at higher prices. And its customers benefited by being able to bill Medicaid at higher Medicaid rates that would have been obtained otherwise, according to the lawsuit (read it here).
Take the generic form of Prozac, which most frequently prescribed in 20mg dosage strength and only available in capsules. Par and its corporate overseers developed and marketed 20mg tablets, which were not subject to Medicaid pricing limts. And Par convinced its customers to push the tablets, even though the FDA had previously made clear that tablets and capsules may not be equivalent. But to ensure its customers went along, Par also offered significant rebates for hitting sales targets.
And the lawsuit charges the scheme began with Par. Testimony from George Riedl, who was the Walgreens executive vp for marketing a decade ago, indicates that Par “came to Walgreens with this idea of dosage form switching.” And Medicaid reimbursement was higher for the capsules than for the tablets, according to testimony from the Walgreen chief purchaser of generic drugs, John Ziebell.
One example involved generic Zantac, the antacid medicine. In April 2000, the US Center for Medicare & Medicaid Services planned to set so-called Federal Upper Limits for Zantac tablets. And so Par planned to market capsules at 150mg and 200mg dosages. To convince pharmacies, notably Walgreens, Par made presentations and distributed flyers, among other things.
Through its analysis, Par showed Walgreens how it could make over $75 million in extra profits by filling prescriptions for Zantac tablets with Par’s capsules, even though these would cost Walgreens more than the tablets. Why would Walgreens comply? According to the lawsuit, Par explained that Walgreens could charge more, and be paid more, for its capsules because there were profits to be made by evading Medicaid price limits.
Specifically, Par’s “Walgreens Ranitidine Analysis” shows that Par was going to charge Walgreens five times more for its Zantac capsules than competitors were charging for tablets. The Walgreens acquisition cost would be 9.5 cents for each Par capsule but only 1.9 cents for a rival tablet. This amounted to a per-prescription acquisition cost of $5.70 for a Par capsule prescription versus only $1.14 for a tablet prescription.
The lawsuit charges that Par told Walgreens that, while its capsules would cost more, there would be a maximum allowable cost, or MAC, price limit for tablet reimbursements. But Par noted there not such reimburmsement limits for its capsules. And so Medicaid would pay Walgreens $71.45 per prescription
for Par capsules, but only $5.35 for a tablet prescription. The analysis showed that, by evading the MAC on Zantac, Walgreens could make a profit of $65.75 for each Par capsule prescription. This compared to a profit of $4.21 for each tablet prescription.
In an interview with the FBI, Par vp of sales and marketing Julie Trendowicz confirmed the plan for
evading Medicaid price limits: “Q: Well, when you go in and offer the product, you market it on the basis of there being a MAC on the competition, as opposed to the product that Par wishes to sell, don’t you? A. If we offer that program to [Walgreens], yes, that’s what we would have.”
And Walgreen was happy to participate after realizing a gross profit of about $1.6 million a month could be recognized by converting half of the Zantac prescription to Par capsules. To make this happen, Walgreens also set up its distribution system so that all prescriptions for Zantac and generic Zantac meds were automatically filled with generic capsules. And the retailer made capsules the only form of generic Zantac that was “readily available,” the lawsuit maintains.
In fact, when receiving prescriptions for tablets, Walgreens pharmacists could not process orders as written, but instead had to fill the prescriptions with Par capsules. This included refills. Yet Walgreens did not obtain necessary authorization from a doctor or patient for switching.
Consequently, Medicaid paid more for Par capules. During the first year that Par worked with with Walgreens, which was from July 2001 to July 2002, the average Tennessee Medicaid reimbursement for generic Zantac tablets was 32 cents. Par capsules were reimbursed at a rate nearly three times as much, or 87 cents. From July 2003 to July 2004, the average Florida Medicaid reimbursement for generic Zantac tablets was 28 cents, while Par capsules were reimbursed at 91 cents.
As for Prozac, in Florida, during the month of January 2003, the Medicaid reimbursement for one 20mg generic capsule was 57 cents , while the reimbursement for one Par generic 20mg tablets was $1.77. During the same month, the Indiana Medicaid program reimbursed one 20mg generic Prozac capsule at 69 cents, while paying $1.91 for the Par tablet, according to the lawsuit.
To speed things along, Par gave wholesalers and distributors free products and other incentives to engage in a generic Prozac telemarketing program to pharmacies. These involved scripts that allegedly contained this message: Medicaid reimbursement on its generic Prozac allowed pharmacies to make huge profits at government expense, because the Par tablets were not subject to Medicaid price limits.
And Par gave its customers so-called stocking rebates to ensure a certain minimum order size. For example, Par gave Omnicare $100,000 worth of stocking credit on generica Prozac tablets. The higher the percentage of fluoxetine tablets dispensed versus capsules, the greater the additional rebate that its customers would receive. Omnicare received a rebate of 16 percent from Par and this payment amounted to almost $400,00 back in 2002.
In a September 21, 2001 email, Walgreens’ Riedl crowed that “all generic (fluoxetine) sku’s combined produced $8.3 million in gross profit for August 2001 with store substitution reaching 85 percent. The 20mg tablet alone produced $6.4 million in profit making it the #1 Rx profit item in the company.”
Then there the Buspar anti-anxiety med. In this case, Par switched the dosage strength, rather than the form - and promoted the combination of two its 7.5mg tablets for the widely used 15mg dosage.
Unlike the higher dosage, the Par tablets did not have a Federal Upper Limit on pricing. And a Par analysis showed that, by dispensing two Par 7.5mg tablets rather than one 15mg tablet from another manufacturer, Omnicare could increase its annual yearly profit by $1 million.
Par marketed this to Omnicare by emphasizing that the nursing home operators would pay the same amount of money to acquire 60 Par 7.5mg tablets as opposed to 30 of the 15mg tablets, or $5.32. As with the Zantac switch, the profits were not made through lower costs, but through higher Medicaid reimbursements, according to the lawsuit. The profit per 30-day prescription was four times as much for the 7.5mg tablet, or $40.98, versus the profit for the 15mg tablet, $10.51.
Meanwhile, in Michigan, during the month of March 2003, the Medicaid reimbursement for one 15mg tablet was 28 cents, while the reimbursement for two Par 7.5mg tablets was more than six times as much, or $1.70.
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