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WASHINGTON, DC. - King Pharmaceuticals has agreed to pay $124 million plus interest to resolve allegations that it underpaid rebates owed under the Medicaid program and overcharged various federal and state governmental entities for its drug products, the Justice Department announced today. The rebate program ensures that Medicaid receives the lowest price available in the marketplace for the program’s reimbursed drugs. Today’s resolution ensures that the Medicaid program, each of the state Medicaid agencies, and other federal and state agencies that purchased the Bristol, Tennessee company’s drug products will recover all underpaid rebates and overcharges resulting from King’s systemic and widespread misreporting of its drug prices to the government. The government alleges that from 1994 through 2002, the company failed to report accurately the average manufacturer price (AMP) and best price (BP) for its Medicaid-reimbursed drugs. AMP and BP are used to calculate a quarterly rebate payment that each participating manufacturer must make to each state Medicaid program. They are also used to determine the ceiling price for drugs purchased under certain federal and state drug programs, and by agencies such as the Veterans Administration and entities subsidized by the Public Health Service. King’s misreporting of both AMP and BP’s across its entire product line resulted from the absence of appropriate internal systems and controls and improper methodologies used to calculate the erroneous figures.

“Accurate and proper reporting of drug prices by the pharmaceutical industry is crucial to the fiscal integrity of the Medicaid program as well as other federal and state programs that provide drug coverage to the indigent and most vulnerable members of our society,” said Assistant Attorney General Peter Keisler. “Drug companies have a duty and responsibility to ensure that the prices they report on their drug products are truthful and accurate.” “This settlement shows that the compliance efforts that the federal government and the pharmaceutical companies have in place can help protect the Medicaid beneficiaries and taxpayers,” said CMS Administrator Mark B. McClellan, M.D., Ph.D. “With Medicare prescription drug coverage beginning in January, we are being especially vigilant about our payments for prescription drugs.” The civil settlement covers the period from January 1, 1994 to December 31, 2002 and resolves claims that King knowingly failed to report accurately to the Center of Medicare and Medicaid Services on a quarterly basis the AMPs and BP’s for its drug products, and to pay the corresponding proper amounts of Medicaid rebates. Additionally, the settlement resolves claims that King overcharged Public Health Service entities and failed to provide accurate information to the VA, and overcharged for purchases of its drug products from the VA/Federal Supply Schedule. Further, the Office of Counsel for the HHS Office of Inspector General (HHS OIG) and King have entered into a Corporate Integrity Agreement to ensure that King accurately reports its AMP and BP figures in the future. “As this case demonstrates, the federal government will continue its vigilance over and enforcement of the Medicaid drug rebate program,” said Daniel R. Levinson, Inspector General of the Department of Health and Human Services. “Pharmaceutical companies need robust compliance programs that include clear procedures for calculating drug prices.” The United States’ investigation and civil settlement resulted from the filing of a suit by a former King employee on behalf of the United States under the qui tam or whistleblower provisions of the False Claims Act. Edward Bogart, formerly Director of Contracts and National Accounts for King, also brought claims under similar false claims statutes of 13 states and the District of Columbia. The United States and Mr. Bogart have not reached agreement on a share of the proceeds of the settlement. "Unlike prior settlements, which involved the misreporting of prices relating to a specific transaction or drug, this settlement is unique because King agreed to redo its pricing on its entire product line over a period of several years," said Patrick Meehan, U.S.Attorney for the Eastern District of Pennsylvania. Meehan also praised the settlement as an "outstanding result." King revealed the existence of its internal problems in a series of disclosures to the federal government and cooperated fully in uncovering the full extent of its problems. The Department of Health and Human Services Office of Inspector General, the Veterans Administration, and a team assembled by the National Association of Medicaid Fraud Control Units participated in this investigation, which was conducted jointly by the U.S. Attorney’s Office in Philadelphia and the Fraud Section of the Civil Division.