United States: $12.6 Million Sandoz ASP Reporting Settlement Raises More Questions Than It Answers

Last Updated: March 25 2015
Article by Ellyn Sternfield

Recently, HHS-OIG announced a first-of-its-kind settlement over pharmaceutical manufacturer reporting of Average Sales Price (ASP). Sandoz, Inc. agreed to pay a civil monetary penalty of $12.64 million for alleged failure to submit accurate ASP data to CMS.

ASP reporting was adopted in large part to create a mechanism whereby government drug reimbursement rates for biologics and physician-administered drugs are tied to the actual purchase price of those drugs. ASP is used by Medicare, and some Medicaid programs, to reimburse biologics and physician-administered drugs, such as chemotherapy drugs. Federal law requires pharmaceutical manufacturers to submit ASP information for each of these drugs to CMS on a quarterly basis. The statute authorizes imposition of a maximum civil penalty of $100,000 for each item of false information that is knowingly provided in the ASP reporting to CMS. Additional statutory authority provides that:

If the Secretary determines that a manufacturer has made a misrepresentation in the reporting of the manufacturer's average sales price for a drug or biological, the Secretary may apply a civil money penalty in an amount of up to $10,000 for each such price misrepresentation and for each day in which such price misrepresentation was applied.

So we know the legal authority that is the basis for HHS-OIG's sanction. But we don't know much more than that. In fact, the settlement itself raises more questions than it answers.

How did the case arise?

We don't know. Whether the case was the result of a self-disclosure, OIG investigation, or whistleblower report, was not addressed by HHS-OIG in its press release on the case. Sandoz did not issue a press release regarding the settlement.

What, allegedly, did Sandoz do?

Not much detail was provided. The settlement alleges that from January 2010 through March 2012 Sandoz failed to submit accurate quarterly ASP data to CMS. Neither the settlement nor the HHS-OIG press release provide information as to what Sandoz drugs were implicated, the nature of the price reporting inaccuracy, or the impact of inaccuracy. Sandoz admitted no liability in entering into the settlement.

How was the settlement amount determined?

Once again, we don't know. The amount is termed a civil monetary penalty, and the settlement documents and press release all cite to penalty authority.

Given ASP reporting utilized for Medicare and Medicaid reimbursement, we must question whether inaccurate ASP had an impact on Medicare or Medicaid, payments. But the settlement is silent on whether there was any calculation, or even consideration, of government program damages.

It may be that there were problems in calculating damages, or that any alleged damages were offset by rebates or other payments. But we can only speculate as to why the settlement omits any reference to damages, given the silence of the parties.

What type of release did Sandoz receive?

HHS-OIG released the company from any administrative civil monetary penalties for the alleged inaccurate ASP reports during the specified time period. No release was provided for any other related company or to any individual. No release was provided by any other government entity or program.

What was DOJ's role?

DOJ was not a party to the settlement. The settlement provides no release from potential false claims liability.

During almost 20 years of federal and state false claims litigation against pharmaceutical manufacturers over Average Wholesale Price (AWP) reporting, it was alleged that: (i) manufacturers falsely reported inflated AWPs to drug compendia; (ii) government programs utilized AWPs that were published by the compendia in reimbursement formulas; and (iii) the fact that the AWPs were inflated caused government programs to overpay for the drugs. False Claims cases were asserted despite the fact that: (i) AWP was not defined in law or regulation and there was no legal requirement that manufacturers report AWPs; (ii) AWPs were not reported by the manufacturers to any government entity; and (iii) the Medicaid and Medicare claim forms submitted by pharmacists did not even contain AWPs, meaning the claims at issue were not themselves false.

When it comes to ASP though: (i) ASP is defined by statute; (ii) ASP reporting is required by federal law; and (iii) ASP was reported by the manufacturer directly to a government entity. Given the legal contortions used to plead false claims cases involving AWP, DOJ's lack of involvement in a case involving ASP reporting, and the lack of any reference to false claims theories, is striking.

Did Sandoz have to enter into a CIA?

No. Sandoz has established a voluntary "Government Pricing Compliance Program" and HHS-OIG requires that the Sandoz Vice President and Chief Ethics & Compliance Officer certify that the specific procedures involved in the program have been fully implemented. Those procedures include installment of a program director, establishment of a Government Pricing Compliance Committee, adoption of a Code of Conduct, and specific policies applicable to price reporting, annual mandatory staff training requirements, and implementation of an audit program and a disclosure protocol.

It remains to be seen whether the HHS-OIG settlement with Sandoz is the conclusion of a government enforcement effort, or merely the first stage.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Ellyn Sternfield
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