Deficit Reduction Act of 2005 False Claims Act Education Requirements Are Not Applicable to Pharmaceutical Manufacturers

The Deficit Reduction Act of 2005 (“DRA”) provided that any entity that receives or makes annual payments under a Medicaid State plan of at least $5,000,000 must, as a condition of receiving such payments, establish written policies for employees, contractors, and agents that provide detailed information regarding the federal and state false claims laws, including remedies and whistleblower protections.  Pub. L. No. 109-171, § 6032(a)(3).  Because the statute requires compliance from any entity that “receives or makes” payments to Medicaid, there is an argument that the provision applies to pharmaceutical manufacturers who make rebate payments to States under the Medicaid Drug Rebate Program.  However, since that language is qualified by the statement “as a condition of receiving such payments,” another reading is that Congress did not intend for the provision to apply to entities that only make rebate payments to States pursuant to the Medicaid Drug Rebate Program.

On March 22, 2007, CMS issued guidance to State Medicaid agencies regarding implementation of section 6032 of the DRA in the form of Frequently Asked Questions (“FAQs”).  CMS clarified that pharmaceutical manufacturers that make payments to States under the Medicaid Drug Rebate Program are not “entities” that must comply with section 6032 of the DRA solely by virtue of making such payments.  FAQ No. 11.  Accordingly, such pharmaceutical manufacturers are not required by the DRA to establish written policies related to federal and state false claims laws. 

By Michelle L. Butler