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Post date: April 27 2016

A.G. Schneiderman Announces Multistate And Federal Settlement With Wyeth And Pfizer For $784.6m To Resolve Allegations Of Underpaying Rebates Owed Through The Medicaid Drug Rebate Program

New York Leads Team Of States In Settlement Of Allegations That Wyeth Knowingly Reported False Prices To Avoid Paying Rebate Obligations

Schneiderman: We Will Work To Ensure That Pharmaceutical Companies Uphold Financial Commitments To Medicaid

NEW YORK – Attorney General Eric T. Schneiderman today announced that New York, along with the United States and other States, reached an agreement in principle to settle allegations against Wyeth, a wholly owned subsidiary of Pfizer, Inc.  The settlement will resolve allegations that Wyeth knowingly underpaid rebates owed under the Medicaid Drug Rebate Program for the sales of Protonix Oral and Protonix IV between 2001 and 2006.  Under the settlement Wyeth agreed to pay $784.6 million to the United States and the States.  About $93.7 million of the settlement will resolve claims relating to New York’s Medicaid program, with the state receiving $55.6 million and the Federal government receiving $38.1 million.

“Pharmaceutical companies cannot dodge their obligations to the Medicaid Program – they must be held accountable and play by the rules,” Attorney General Schneiderman said.  “This settlement sends the message that efforts to shortchange Medicaid will not be tolerated, and that my office will continue working to ensure that pharmaceutical companies report accurate prices and pay what they owe to the Medicaid Program.”

The settlement stems from two whistleblower lawsuits, U.S., al., ex rel. Kieff v. Wyeth Pharmaceuticals, Inc., Civ. No. 03-cv-12366, and  U.S., , et al., ex rel. William St. John LaCorte v. Wyeth, Civ. No. 06-cv-11724  which were filed in the United States District Court for the District of Massachusetts.  The United States, 35 states and the District of Columbia intervened in the lawsuits.   

“This settlement demonstrates our unwavering commitment to hold pharmaceutical companies responsible for pursuing pricing schemes that attempt to manipulate and overcharge federal health care programs – programs that protect the poor and disabled – for drugs sold to commercial customers at much lower prices,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division

Wyeth, Inc. was a Delaware corporation with its headquarters in Madison, New Jersey. Pfizer, Inc. is a Delaware corporation headquartered in New York, New York.  Pfizer acquired Wyeth, Inc., in 2009, after the conduct alleged in the lawsuits. At all relevant times, Wyeth distributed, marketed and/or sold pharmaceutical products in the United States, including Protonix Oral and intravenous Protonix IV.  Protonix Oral and Protonix IV are in a class of drugs called Proton Pump Inhibitors which inhibit the production of gastric acid. 

​The Medicaid Prescription Drug Rebate Program was enacted by Congress in 1990 as a cost containment measure for Medicaid’s payment for outpatient drugs.  The Medicaid Drug Rebate Program requires participating pharmaceutical manufacturers to pay quarterly rebates to State Medicaid programs for each of its drugs sold to pharmacies that were reimbursed by Medicaid.  The quarterly rebate is determined from each pharmaceutical manufacturer’s reported “Best Price,” or the lowest price for which it sold a covered drug in a particular quarter.  

In their court filings, the government plaintiffs alleged that during the third quarter 2001 through 2006, Wyeth sold Protonix Oral tablets and Protonix IV to hospitals at discounted prices. The governments alleged that Wyeth’s contracts with the hospitals created a bundled sale under the terms of the Medicaid Drug Rebate Agreement by linking discounts available to participating hospitals for Protonix IV to discounts on Protonix Oral tablets.   However, Wyeth did not treat the sales of Protonix Oral tablets and Protonix IV as bundled within the meaning of the Medicaid Drug Rebate Program and therefore failed to properly allocate the discounts available under the contract.   As a result of this failure, Wyeth falsely reported its Best Prices for Protonix Oral tablets and Protonix IV thereby causing the Unit Rebate Amount for Protonix Oral tablets and Protonix IV, which is used to determine the quarterly rebate to pay the State for each drug, to be understated during the Relevant Period.  The governments alleged that Wyeth concealed, avoided or decreased its obligation to pay Medicaid Drug Rebates to the State for Protonix Oral tablets and Protonix IV.  

Because the Medicaid program is jointly funded by the federal and state governments, Pfizer will pay in excess of $413 million of the $784.6 million to the United States.  The States will receive $371 million of the settlement. 

​New York’s claims in the case were handled by the Medicaid Fraud Control Unit, which worked closely with the United States Attorney’s Office for the District of Massachusetts, the United States Department of Justice and a multi-state team that included representatives from the Office of the Attorneys General for North Carolina, Indiana and the Commonwealth of Massachusetts.  New York was also assisted by representatives of the New York State Department of Health’s Office of Health Insurance Programs, headed by Deputy Commissioner Jason A. Helgerson.

​Senior Counsel Carolyn T. Ellis led a multi-state team that litigated the case and negotiated the settlement with Wyeth and Pfizer for the States.   Special Auditor-Investigator Colin Ware was a member of the state team.  Special Assistant Attorney General Diana Elkind and Regional Chief Auditor Civil Enforcement Division Stacey M. Millis also worked on the case for New York.  Electronic Investigative Support Group Deputy Director Carolyn Hart and eDiscovery Analyst Veronica Frear provided support to all the states that litigated the case. The Medicaid Fraud Control Unit is led by Director Amy Held and Assistant Deputy Attorney General Paul J. Mahoney.  The Division of Criminal Justice is led by Executive Deputy Attorney General Kelly Donovan.