More Proof That Whistleblowing on Medicaid Fraud Works

Ven-A-Care, a small company in Key West, Fla., is fighting a crusade against drug companies that overcharge the government. And since waging the war back in 1994, it has recovered more than $2 billion for state and federal governments -- and won roughly $380 million for itself in the process.

Its latest victory hails from Texas, where Ven-A-Care won a $170 million jury verdict against generic-drug maker Actavis earlier this week, the Am Law Litigation Daily reports. The Texas attorney general's office joined Ven-A-Care in the case, which accuses Actavis of overcharging Medicaid for drugs.

First, some background: Pharmacies and other drug providers purchase medicines from drug companies and then distribute them as needed to Medicaid recipients. Medicaid then reimburses the pharmacies for the cost of the drugs, plus a markup to cover the cost of distributing those drugs. (Medicare works the same way.)

But the four Ven-A-Care partners noticed a discrepancy: Some drug companies routinely charge pharmacies one price for a drug, but then tell Medicaid and Medicare that the price was much higher. When the government "reimburses" the pharmacy, the pharmacy makes a windfall profit -- presumably giving it an incentive to buy more drugs from those companies. Essentially, drug companies using this scam use tax dollars to try to bribe pharmacies into buying more of their drugs.

Padding Prices

How big of a markup? Often, a factor of 10 or more. Ven-A-Care lore is the partners were spurred to action by receiving a reimbursement check reflecting a price of almost $500 when it had paid about $50. According to previous lawsuits from the company, as reported by the Los Angeles Times, MediCal was charged $58.37 for a drug that pharmacies had purchased for $6.29, and it was billed $70.30 for a drug that pharmacies had bought for $3.07.

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Ven-A-Care has settled at least 18 overcharging suits since 2000, and California alone has recovered $95 million from these types of frauds exposed by the company, the Los Angeles Times notes.

One key reason that Ven-A-Care can afford to do what it does is because of a law that lets people sue on behalf of the government, if they're aware that the government is being ripped off, and win a percentage of whatever damages they recover. If the government wishes, it can participate in the case too, which cuts down on the whistleblowers' awards but also reduces their litigation costs. Unsurprisingly, the overcharging drug companies and their attorneys don't like Ven-A-Care or the law that lets them sue on behalf of the government.

The L.A. Times quotes opponents as arguing that:

• Ven-A-Care is a professional whistleblower and not a pharmacy, so it shouldn't be able to sue.

• The awards whistleblowers can reap are too large, and taxpayers should be getting more of the money.

• Federal participation in these cases is unfair because it could lead to criminal convictions and banishment from Medicaid and Medicare.

Whistleblowing Is OK -- Until You Get Too Good at It

To me, these arguments are nonsense. If a company is ripping off taxpayers, why would criminal convictions and banishment from taxpayer-funded programs be a bad thing? Sounds like justice to me.

Sure, Ven-A-Care has made good money for itself. But taxpayers get most of it, and without the whistleblowing, it's unlikely anything would be recovered. This is money well spent compared to giving illegal windfalls to pharmacies. And it's just offensive for the companies involved to say going after us for scamming the taxpayer is OK, but not if you do it too often or get too good at it. (I guess that's what "professional whistleblower" means.)

What amazes me is how many pharmacies must be taking the bribes gleefully. We need more Ven-A-Cares to reduce drug-price fraud, which is yet one more reason that U.S. health care costs are so high.

The idea of rewarding whistleblowers seems to be spreading. One of the big recent financial reforms has been setting up whistleblower awards for people who report securities crimes to the Securities and Exchange Commission, and the corporate defense bar is irate. Given Ven-A-Care's effectiveness, I hope its equivalents will soon emerge in the securities field.