Are There “Special” Frauds Involving Specialty Drugs? Part I

If you work in an industry involving pharmaceuticals, whether as a drug sales rep, a PBM employee or a direct healthcare provider, you’ve probably heard a lot about specialty drugs.  But what exactly are they?  Is fraud common in this area?  How do you know if your employer is playing by the rules with regard to these drugs?

What Are Specialty Drugs?

I was speaking at a seminar about two years ago, with experts in all different areas of pharmaceutical policy and pricing.  At a speakers’ dinner before the symposium, I innocently asked if someone could explain to me exactly what specialty drugs were.  To my surprise, everyone laughed – not unkindly, but with an understanding as to why someone might need to ask that question.

It turns out, there really isn’t a clear definition of what the term means, despite the fact that many contracts and various government regulations have separate provisions governing specialty drugs.  As stated in the March 2015 MedPAC Status Report on Part D, “[s]pecialty drugs are, by definition, high-cost drugs.” Medicare Payment Advisory Commission, Report to Congress – Medicare Payment Policy, March 2015, at p 370.

Somewhat more helpfully, the Report noted that while the industry does not have a consistent definition of specialty drugs, they “tend to be characterized as high cost … and are used to treat a rare condition, require special handling, use a limited distribution network, or require ongoing clinical assessment.”  Id. at n 17.  In other words, in some fashion or another, these drugs flow through the healthcare system in some way that varies from the norm of pharmaceutical manufacturer to wholesaler to pharmacy to patient, and these drugs quite likely have some atypical characteristics in terms of how they are prescribed or some special terms or conditions governing the usual money flow to pay for them.  Specialty drugs are often used to treat serious chronic illnesses, such as cancer, HIV/AIDS, multiple sclerosis, hepatitis C and hemophilia.

Is Fraud Common in the Area of Specialty Drugs?

Unfortunately, if you read the news, you’re aware that there is a lot of fraud involving pharmaceuticals overall.  Prices are manipulated and misreported, efforts are made to block generic versions of expensive brand drugs from coming to market, drugs can be over-prescribed to drive profits and drugs can be aggressively marketed for conditions they are not approved to treat.  Given the huge amount of government funding in the healthcare area, it is not surprising that many whistleblower cases include allegations of fraud on the government with regard to pharmaceutical products.

Is this happening especially in the area of specialty drugs? Again, given the enormous dollars that are spent on specialty drugs, it is hard to imagine that there has not been an increase in fraud in that segment of the market.  As everyone knows, it you want to find fraud, follow the money.  Where the government spends huge amounts of money through private entities, that’s where one will see attempts to cheat and defraud the government. In the 2015 MedPAC Report to Congress, it was estimated that 30% of all PBM dollars spent on drugs were for specialty drugs, and predictions were that the number would be as high as 50% by 2018.  Id. at p. 370.