Over the past two years, the relationship between pharmaceutical manufacturers and specialty pharmacies has been under increased scrutiny by the U.S. Department of Justice (DOJ). Specifically, the DOJ has targeted industry’s use of pharmaceutical providers and specialty pharmacies to enhance drug sales in at least two false claim actions. A third separate matter, in which the DOJ has yet to intervene, has resulted in a tumultuous month on Wall Street for the pharmaceutical company, as well as the cessation of operations of the specialty pharmacy. Accordingly, specialty pharmacies and pharmaceutical manufacturers should critically review their agreements and business practices involving marketing and related services.

Recent examples of wayward relationships between pharmaceutical manufacturers and specialty pharmacies include:

  • A major pharmaceutical company agreed to pay a nine-figure sum in settlement of a DOJ-led kickback case after being labeled a “repeat offender.” In this whistleblower action, the company is accused of providing discounts and rebates over an eight-year span to up to 20 pharmacies in exchange for the pharmacies switching patients to the company’s drug. To cut into competitor sales, the DOJ said the company provided between 5 and 20 percent “rebates” of annual drug sales in exchange for flipping patients. The complaint also alleged that the pharmaceutical company gave both referrals and rebates over a five-year period to a specialty pharmacy in exchange for encouraging patients to make refill orders for the company’s drug.
  • A pharmaceutical company recently made headlines due to charges of fraudulent accounting practices. In this case, the company was accused of “stuffing the channels,” or counting shipments to pharmacies as revenue rather than calculating revenue from actual sales of filled prescriptions.
  • Finally, in July, one of the largest nursing home pharmaceutical providers agreed to settle two False Claims Act suits with the DOJ. The complaint alleged that the provider solicited and received kickbacks from a drug manufacturer for more than a decade. Specifically, the DOJ claimed that the provider and the drug manufacturer maintained agreements giving increased rebates to the provider based on the number of patients served and the amount of prescribed drugs per patient.

Given the recent coverage of these issues by the press and the potential for negative consequences on Wall Street, the open targeting of specialty pharmacies by the DOJ, along with the potential for enormous fines and criminal conviction and the review of relationships with specialty pharmacies by pharmacy benefit managers, the industry should consider auditing their reimbursement and accounting practices and reviewing the relationships between specialty pharmacies and pharmaceutical manufacturers.