Local Roche units sue pharmacies over alleged test-strip scheme

Two Indianapolis-based subsidiaries of Swiss pharmaceutical giant Roche Group are accusing a group of pharmacies and supply houses of engaging in an elaborate scheme to defraud Roche of millions of dollars in sales on diabetes test strips.

Roche Diagnostics Corp. and Roche Diabetes Care, both headquartered in the Hague Road campus on the northeast side, say in a federal lawsuit that the pharmacies arbitraged the difference between the wholesale price and the insurance reimbursement rate on two types of diabetes test strips.

That action caused Roche to wrongfully pay millions of dollars in rebates and deprived it of millions of dollars in legitimate sales, Roche said in a 44-page complaint filed this week in U.S. District Court in Indianapolis. The scheme damaged Roche to the tune of at least $89 million, the complaint said.

Named as defendants are six pharmacies and medical supply companies, mostly based in Michigan, along with their owners and officers. One company is located in Wyoming. Roche is accusing them of fraud, criminal deception, negligent misrepresentation, breach of contract, unjust enrichment and conspiracy.

According to the complaint, the defendants conspired to obtain blood glucose strips manufactured by Roche and intended for sale only to people covered by certain insurance plans known as durable medical equipment, or DME, plans. The defendants diverted the test strips for retail sale to people covered by a different kind of insurance plan known as pharmacy benefits.

Test strips paid for by pharmacy plans have a substantially higher list price and are reimbursed by insurance at a higher rate than test strips paid for by DME plans. But unlike DME plans, pharmacy plans receive large rebates from Roche.

“By purchasing strips from Roche 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, defendants and their co-conspirators made millions of dollars in illicit profits,” the Roche lawsuit said.

It continued: “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. Rather, the profits resulted from causing Roche to pay substantial rebates to pharmacy plans for products that were intended for sale through DME plans.”

Roche said several of the defendants, including Binson’s Hospital Supplies of Centerline, Michigan, and J&B Medical Supply of Wixom, Michigan, had promised to sell the DME test strips only through DME channels, but broke their promise.

Binson’s covered up its wrongdoing by providing Roche with fraudulent quarterly sales reports, the lawsuit said. Instead of delivering the test strips to DME patients, it sold them them all to J&B, which diverted them to retail pharmacies, according to the complaint.

J&B, through a spokesman, denied it purchased any Roche strips from Binson’s and added it has not purchased strips through Roche since 2009.

Furthermore, J&B said it believed the lawsuit was “retaliatory” due to its decision in 2009 to drop Roche from its list of approved drugs, which it said it did at the request of insurance companies.

“Ironically, Roche continues to pursue J&B for additional business and for years has aggressively encouraged J&B to purchase their diabetic testing strips,” J&B said in an email.

Binson’s could not be reached for comment.

Other defendants named in the suit were Northwood Inc. of Centerline; Olympus Global of East Lansing, Michigan; Delta Global of Flint, Michigan; and Alpha XE of Cheyenne, Wyoming.

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