What is “usual and customary price” fraud?

“Usual and customary price” fraud involves overcharging the government for prescriptions or generic drugs. The federal government administers many different programs that provide drug coverage to qualifying individuals, including Medicare Part D, Medicaid, and Tricare (for members of the military). State governments also pay for prescription drugs through Medicaid and other programs.

The government does not want to pay more for drugs than pharmacies or providers charge to patients with private insurance. So, in certain contexts, it limits the amount pharmacies and providers can charge to their “usual and customary price to the general public.”

In short, pharmacies cannot charge the public $10 for a drug, and then turn around and charge the government $15.

The rule may sound simple, but complicated questions can arise. In a case heard by the Supreme Court, two pharmacies adopted a price-match program, under which it matched a competitor’s price at the customer’s request. Many customers asked for price matches, and one pharmacy allegedly ended up selling 88% of its drugs at a discounted rate.

But the pharmacy failed to include the same discounts in the “usual and customary price” it charged the government. In one example, the pharmacy charged a discounted rate of $10 for a cholesterol drug in 94% of its sales, but continued to charge $108 as its “usual and customary price” to the government.  

A whistleblower later sued the pharmacy on behalf of the government to recover the alleged overcharges.  The case went all the way to the Supreme Court, which allowed the whistleblower’s claims to proceed even though the pharmacy asserted it had adopted an objectively reasonable interpretation of legal requirements. 

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