APRIL 28, 2025

FOR IMMEDIATE RELEASE: Sun Pharmaceutical Industries, Inc. (Sun Pharma) recently filed a lawsuit in New Jersey federal court against a number of independent pharmacies for alleged violations of RICO, a law designed to facilitate the prosecution of wide-spread criminal organizations such as La Cosa Nostra and MS-13. In a nutshell, Sun Pharma alleges that the defendants returned short-dated Sun products for wholesaler credits that exceeded what those pharmacies had paid for the drugs.

With the filing of a public lawsuit, however, Sun Pharma's purported folly in over-paying refunds has been eclipsed by an even more colossal blunder: Sun Pharma has unwittingly implicated itself and its business partners, including Cardinal Health, in an illegal conspiracy to bribe pharmacies in violation of the federal Anti-Kickback Statute (AKS) and potential state, commercial bribery statutes. Specifically, Sun Pharma induced pharmacies to purchase its products by paying refunds based on wholesale acquisition cost (WAC), rather than pharmacies' lower acquisition costs.

Sun Pharma's scheme, and that of certain other manufacturers, has long been an open secret in the industry, but apparently has not yet resulted in regulatory scrutiny. That may change now that Sun Pharma has exposed itself. Indeed, in a recent Advisory Opinion, the Department of Health and Human Services, Office of Inspector General, reaffirmed that a manufacturer refund program "would generate prohibited remuneration under the Federal anti-kickback statute" and "is not protected by a safe harbor." OIG Advisory Opinion, No. 24-04. In that case, however, the OIG issued a favorable no-action letter because the drug at issue was a regenerative tissue-based therapy for an ultra-rare primary immunodeficiency disorder with a shelf-life of only three hours.

In contrast to the limited refund program described above, Sun Pharma's refund program worked very differently. According to Sun Pharma's Return Goods Policy, it offered refunds across broad drug categories, including: (1) unopened product with seals intact within six months of the expiration date; (2) overstock product within 12 months prior to expiration date; (3) products damaged during shipping to the customer; and (4) products received due to shipping error. Moreover, Sun Pharma's Policy stated that "credit will be issued in the form of a credit memo based on current prevailing cost or the net cost of acquisition to the customer, whichever is lower."

Contrary to its own Policy, Sun Pharma never required customers to provide their acquisition costs, only the WAC value of the return. In addition, Cardinal was compensated based on WAC values for funneling manufacturer kickbacks to customers in the form of "credit memos" which, in turn, required Cardinal's customers to purchase more product, including product they had originally purchased elsewhere, from none other than Cardinal itself. Furthermore, Sun Pharma never required purchase dates, only expiration dates, for product returns. Accordingly, Sun Pharma can hardly be heard to complain that pharmacies purchased product, including short-dated product, for less than the amount of Sun Pharma's refund: that was one purpose of Sun Pharma's kickback scheme!

In summary, because Sun Pharma authorized refunds tied to WAC irrespective when goods were purchased or their acquisition cost, that illegal remuneration meant that customers were induced to purchase larger quantities of Sun Pharma products compared to competing drugs. Sun Pharma underwrote a portion of buyers' risks for expired product, and federal regulators likely will want to probe whether such manufacturer refund programs incentivized the purchase of medications that were subsequently reimbursed by Medicare and Medicaid. Indeed, one of the participants in Sun Pharma's scheme, Cardinal Health, recently paid $13 million to settle allegations that it had violated the Anti-Kickback Statute by paying up-front rebates, or "prebates," to oncology practices that agreed to purchase drugs from Cardinal. Hence, Sun Pharma's lawsuit may represent one head-scratching mistake after another, and prove far more costly to the Company and its business partners than the amount Sun Pharma paid out in product-return kickbacks.