Two Drug Companies Settle Whistleblower Suit for More than $50 Million

The drug makers AstraZeneca and Cephalon have agreed to settlements totaling about $54 million over claims that they underpaid rebates owed under a Medicaid drug program.

AstraZeneca will pay $26.7 million to the U.S. government. An additional $19.8 million will be split among 24 states and the District of Columbia, federal prosecutors say, the Delaware News Journal (delawareonline) reports. Teva Pharmaceuticals’ subsidiary Cephalon Inc. will pay $7.5 million in a separate settlement related to the same case.

The settlement resolves a whistleblower lawsuit filed in 2008 by Ronald J. Streck, a Virginia pharmacist and attorney, who had been chief executive officer of the Healthcare Distribution Management Association. The lawsuit alleged that 30 pharmaceutical companies fraudulently manipulated the drug prices they report to the federal government in order to reduce the rebates they pay to the Medicaid Drug Rebate Program. The News Journal reports that the number of defendants was eventually reduced to four.

Under the Medicaid Drug Rebate Program, drug makers pay quarterly rebates to state Medicaid programs in exchange for coverage of their drugs. The amount of the rebates is based, in part, on the average manufacturer prices that pharmaceutical companies report to the government for each drug. The higher the AMP, the greater the rebate. According to federal prosecutors, the four drug makers—AstraZeneca, Cephalon, Biogen Inc., Genzyme Corporation—all underreported the AMP for a number of their drugs by improperly treating fees paid to wholesalers as price reductions. As a result, the government was overcharged for its payments to the states for the Medicaid program, the News Journal reports.

Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division, said in a statement, “The Medicaid Drug Rebate Program relies on drug manufacturers reporting accurate pricing information used in the rebate calculations.” Mizer said the settlements “demonstrate the Department of Justice’s commitment to ensuring that state Medicaid programs receive the full amount of rebates from manufacturers that Congress intended.”

AstraZeneca said in a statement that the settlement did not constitute an admission of fault and, further, that its price reporting decisions were made in good faith, according to the News Journal. “We continue to believe that those decisions reflect reasonable interpretation of the applicable laws and regulations,” the statement said. The company has until Monday to pay the portion of the settlement owed to the federal government. Payments to the states and the District of Columbia are detailed in separate agreements. Biogen has already settled its case and this leaves Genzyme, a subsidiary of Sanofi S.A., as the sole remaining defendant.

The lawsuit was filed under the whistleblower provisions of the federal False Claims Act, a law dating back to the Civil War era aimed at punishing war profiteers. The False Claims Act permits private individuals to sue on behalf of the government for false claims and share in any monies recovered by the government. The amount Streck will receive in the settlement has not yet been determined, the News Journal reports, but 15 to 25 percent is the usual range.

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