Updated on April 3, 2017, with comments from J&B Medical Supply.
A broken promise over retail sales of Roche diabetes test strips may be at the heart of a federal lawsuit against a handful of pharmacies and medical suppliers. And if Roche is right, that broken promise may have cost the company millions of dollars.
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Two Indianapolis-based Roche units have accused several pharmacies and medical supply companies of exploiting the price differences of blood glucose test strips sold to people covered by durable medical equipment (DME) plans and those covered by pharmacy benefits plans.
Test strips paid for by pharmacy plans have a much higher list price and a higher insurance reimbursement rate than those paid for by DME plans, but pharmacy plans get significant rebates from Roche that DME plans do not receive.
The complaint, filed by Roche Diagnostics Corp. and Roche Diabetes Care in U.S. District Court in Indianapolis, accuses the defendants of buying Roche test strips at the lower DME list price and diverting them to sale in channels where they would be reimbursed at the much higher pharmacy plan rate. In doing so, Roche claims the defendants and their "co-conspirators" made millions of dollars in illicit profits, costing Roche as much as $89 million in wrongful rebates and legitimate sales.
According to the lawsuit, some of the defendants, including Centerline, MI-based Binson's Hospital Supplies, and Wixom, MI-based J&B Medical Supply, had promised to sell the DME test strips only through DME channels but broke that promise.
John Truscott, of Truscott Rossman, a public relations firm representing J&B Medical Supply, told Qmed that J&B has not purchased any of the test strips in question since 2009 because Roche had some issues with FDA at that time and "numerous insurance companies asked J&B to stop purchasing from them, and they stopped immediately."
Truscott said J&B plans to respond to the lawsuit with emails and letters that will show Roche has continued to try to win J&B's business back. He said the company is confident that it will be removed from the lawsuit after J&B presents this evidence. "They simply didn't have anything to do with the situation in question," he said.
Other defendants named in the lawsuit include Centerline, MI-based Northwood Inc.; East Lansing, MI-based Olympus Global; Flint, MI-based Delta Global; and Cheyenne, WY-based Alpha XE.
The lawsuit also notes that Roche has certain security measures in place, such as using separate packing and product codes for pharmacy and DME strips, so that there is "no legitimate way to engage in a profitable diversion scheme," therefore the defendants and their business associates would have had to have conspired against Roche in order to profit from the scheme.
"Importantly, defendants' profits did not result from offering lower prices to customers, the vast majority of whom pay a fixed out-of-pocket amount set by their insurance plans," Roche said in the lawsuit. "Rather, the profits resulted from causing Roche to pay substantial rebates to pharmacy plans for products that were intended for sale through DME plans."
The company also claims that Binson's Hospital Supplies "covered up their wrongdoing by giving Roche fabricated quarterly sales reports that indicated Northwood was fulfilling a certain number of patient prescriptions with its sale of Roche test strips. But in fact, Roche said in the lawsuit, Binson's "simply made up these numbers," and Northwood did not deliver any test strips to patients. Instead, Roche said, Northwood sold all of the test strips to J&B, and J&B diverted all of them to pharmacies.
Truscott said Binson's is a competitor to J&B, and that during the time in question, the two companies were involved in costly litigation against each other. "It's not the situation where they would have been cooperating with each other," he said.
Roche is suing the defendants for fraud, criminal deception, negligent misrepresentation, breach of contract, unjust enrichment, and conspiracy.
Amanda Pedersen is Qmed's news editor. Contact her at email@example.com
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