Recently, we have seen many cases filed by whistleblowers against pharmacies for not properly reporting their Usual-and-Customary Drug Prices (U&C). The cases are usually filed under the False Claims Act (FCA) for manipulating U&C to receive greater reimbursements from government payors.

First of all, what is U&C? There is no uniform definition. Instead, third-party payor contracts and Medicaid state statutes define U&C, which is usually the lowest net price a cash patient would have paid on the day that the prescription was dispensed inclusive of all applicable discounts. The reporting requirements also vary by plans. For example, some payors may require U&C reporting on a daily basis while others may require annual reporting.

The most recent U&C case was filed by a former employee of Safeway alleging that Safeway increased its margins by not reporting its price matching program as U&C. The court, however, issued a ruling in favor of Safeway because there was no clear guidance at the time of Safeway’s price matching program whether such discounts should be included in reporting U&C. (See U.S. et al. v. Safeway, Inc. No. 11-cv-3406, C.D. ILL., June 12, 2020).

The case started in 2006 when multiple pharmacy chains launched a $4-generic programs. To avoid losing its customers, Safeway implemented a price-matching campaign. To avoid reporting $4 as its U&C price – which would had negatively affected Safeway’s reimbursement rates – this price matching campaign was available only to Safeway’s members. During the litigation, Safeway argued that because the club membership discount prices were not Safeway’s retail prices, Safeway did not have to report them to third-party payors as its U&C.

The majority of PBM contracts have a clause that they reimburse at the agreed contract price or U&C, whichever is cheaper. Safeway’s executives admitted that the main reason for going to a membership program was to protect U&C which would have had a positive impact on the gain. Despite this admission, the court ruled that at the time of Safeway’s price matching program, there was no authoritative guidance as to how to define U&C in conjunction with membership or discount programs. The ruling would have been different if Safeway continued its program into 2017, when the Seventh Circuit decided a ground-breaking case (Garbe decision) that held that discounted programs and membership programs should be included in reporting U&C. The court found that participants in such discount programs are considered the “general public,” and the discounted prices charged to those participants are considered the pharmacy’s U&C, which the pharmacy must also charge Medicare.

The bottom-line is: if a pharmacy offers a discount drug program, it must include such discounts into its U&C reporting and charge the same prices to Medicare. Most state Medicaid programs have a similar requirement. For example,  California Medicaid reimburses the lower of Actual Acquisition Cost (AAC) plus a professional dispensing fee, or usual and customary charges. More on Cal. Medicaid reimbursements.  Each pharmacy – especially if offering any discounts or membership prices – should implement a U&C tracking system to avoid potential fraud liability for failure to accurately report U&C pricing.