remicade price fixing: how it worked

remicade

A new site, called www.centocorwatch.org, gives updates on the class action suit against Remicade for price fixing. A pdf newsletter on the site describes the lawsuit in detail. The basics of the price fixing are as follows:

(note: The money values are for example only. However, the percentages are real.)

(1) Centocor set an "Average Wholesale Price" (AWP) for Remicade. The AWP is the price reimbursed by Medicare at 95%.

AWP set by Centocor: $13,000

95% reimbursement by Medicare: $12,350

(2) However, the AWP set by Centocor was 22% to 30% higher than it actually cost for doctors to buy the drug. So if a Remicade treatment cost a doctor $10,000, Medicare would still pay $12,350.

AWP set by Centocor: $12,200 to $13,000 (22% to 30% higher than actual cost)

95% reimbursement by Medicare: $11,590 to $12,350

Remicade actual cost for doctor: $10,000 (22%-30% lower than AWP)

(3) The difference between the Medicare reimbursement and the actual cost was pocketed by the doctor prescribing the drug.

AWP set by Centocor: $12,200 to $13,000 (22% to 30% higher than actual cost)

95% reimbursement by Medicare: $11,590 to $12,350

Remicade actual cost for doctor: $10,000 (22%-30% lower than AWP)
doctor profit: $1,590 to $2,350

(4) On their website for doctors, Centocor included a worksheet showing potential profits per patient while prescribing the drug.

These "profits" were made by setting an arbitrarily high AWP in order to overcharge Medicare.

From an April 11, 2002 New York times article:

A document available to doctors on Centocor's Web site until last week, when a reporter asked about it, stated that one ''benefit'' of prescribing Remicade was the ''financial impact'' on the physician's practice. The document included a worksheet where physicians could calculate their ''estimated revenue per patient'' from prescribing the drug.

The ''revenue,'' according to the worksheet, was primarily the difference between what Medicare pays doctors for Remicade, which is given intravenously in their offices, and the lower amount that Centocor charged doctors for the drug.

In the end, the profit incentive offered to doctors dramatically increased the number of prescriptions. Therefore, a healthy proportion of Centocor's revenue came through overcharging Medicare and therefore cheating tax payers.

Remicade sales for 2006 exceeded $3 billion.