Federal and state governments spend an enormous amount of their resources on prescription drugs. $137 billion, or roughly 1/6^th of the Medicare budget, which pays for everything from major surgeries to nursing homes to dialysis, goes to cover pharmaceuticals. That doesn’t take into account the drug co-pays from Medicare beneficiaries, what state Medicaid programs spend on drugs (~$51 billion), or what other federal agencies spend (billions more).

With that much money flying around, it’s no surprise that fraudsters are drawn to the drug industry. As prescription drug expenditures continue to rise, we want to highlight some common fraud schemes:

Kickbacks – Kickbacks in the drug industry are a common target of DOJ enforcement. Whistleblowers initiate many of the cases because kickbacks in the Medicare and Medicaid programs constitute a per se violation of the False Claims Act. A recent example involves Gilead, a behemoth in the HIV drug market, agreeing to pay over $200 million to resolve allegations that it paid doctors kickbacks, in the form of speaking fees, to prescribe its drugs.
But kickbacks can take many forms. Other common schemes include drug companies inducing Medicare beneficiaries to use their high-priced drugs by funneling co-pay waivers through charitable foundations. The government has recovered billions under this legal theory.
Kickback schemes also are not limited to drug makers. Pharmacies, distributors, and other healthcare industry participants can also violate these laws.

Off-Label Use– Promoting drugs for unapproved conditions, in unapproved patient groups, or in unapproved dosages is referred to as “off-label” use, and such promotion may have a negative impact on quality of care for patients.
Off-label promotion by drug companies can lead to FCA liability if Medicare or Medicaid is billed for the off-label use of the drugs. Recent examples include a whistleblower case that resulted in a jury verdict finding that a Johnson & Johnson subsidiary, Janssen, owes over $1 billion dollars in damages and penalties.

Pricing Manipulation- There are many laws governing how much government-funded healthcare programs will pay for prescription drugs. Manipulating that data, fixing prices, or engaging in other creative accounting schemes to disguise true drug costs also can lead to a violation of the FCA.
For instance, since 1990, if drug companies raise their prices at a rate greater than inflation, they owe Medicaid a rebate. In 2022, Mallinckrodt agreed to settle allegations that it overcharged Medicaid by not linking its drug price increases to when a drug was approved initially, but when its indications were expanded (often decades after initial approval). In 2022, a similar rebate mechanism was enacted for Medicare drug pricing under the Inflation Reduction Act.
Drug companies also may be liable for conspiring to fix the price of competitor drugs. In October 2024, for example, Teva agreed to pay $425 million to settle FCA claims for price-fixing of generic drugs. 
Another relatively common pricing scheme involves the misreporting of Average Wholesale Prices (AWP), which must be reported to the government to ensure that the United States pays the same, or lower, price than other customers. Inflating AWP reporting can lead to the government paying more than it should for drugs, in violation of the FCA.

These are, by no means, the only fraud schemes in the drug industry. Government enforcement, by definition, focuses on past conduct. In an arena as complex as drug marketing and pricing, new fraud schemes emerge constantly, which is why whistleblowers are so essential to exposing these prescription drug fraud schemes and protecting the public.


This piece was written by Max Voldman, a partner with Whistleblower Partners LLP.