Medicaid Fraud Settlement: Two Partnership Lessons for Physicians

A recent Medicaid fraud settlement in Texas holds two important lessons for physicians regarding business relationships.

Recently, Texas Attorney General Greg Abbott announced, that his state and the federal government will share a $5 million settlement with Major Pharmaceuticals, Inc., to resolve civil Medicaid fraud claims. The skewed pricing of generic drugs by Major prompted Texas’ enforcement action because of the adverse impact on the Medicaid program. Under the Texas Medicaid Fraud Prevention Act, pharmacies received overpayments by the Medicaid program.

"Under state and federal law, drug manufactures must file reports with the Medicaid program that disclose the prices they charge pharmacies, wholesalers and distributors for their products," stated a release from Abbott's office. "When manufacturers improperly report inflated market prices for their drugs, Medicaid reimburses pharmacies at vastly inflated rates."

Importantly the unlawfully created profit margins were used to persuade pharmacies and providers to utilize Major’s products. Hence, this set up liability for physicians, as well as pharmacies. Moreover, this type of alleged compensation by companies creates reporting exposure under the Sunshine Act.

This enforcement action underscores a couple of items for physicians. First, there is liability under both federal law and state law for these types of anti-kickback activity. Second, state laws may be more encompassing than federal law. In Texas, for example, the Anti-Solicitation act, which is similar to the federal Anti-Kickback Statute (AKS), applies to transactions that involve all patients, not just those paying with government insurance such as Medicare and Medicaid. Interestingly, the Texas law defers to the federal AKS safe harbors. Lastly, physicians and pharmacies may actually be the whistleblower that files the claim with the government.

In light of these actions, providers should conduct proper due diligence before entering into a business relationship with a company, especially when remuneration is involved.