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Press Release

Wyeth and Pfizer Agree to Pay $784.6 Million to Resolve Lawsuit Alleging That Wyeth Underpaid Drug Rebates to Medicaid

For Immediate Release
Office of Public Affairs

The Department of Justice announced today that pharmaceutical companies Wyeth and Pfizer Inc. have agreed to pay $784.6 million to resolve allegations that Wyeth knowingly reported to the government false and fraudulent prices on two of its proton pump inhibitor (PPI) drugs, Protonix Oral and Protonix IV.  Pfizer, which is headquartered in New York City, acquired New Jersey-based Wyeth in 2009, approximately three years after Wyeth had ended the conduct that gave rise to the settlement.

“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. 

“This significant settlement illustrates that the government will not permit drug companies to dodge their obligations to the Medicaid program or create elaborate pricing schemes to deceive Medicaid into paying more than it should for drugs,” said U.S. Attorney Carmen Ortiz for the District of Massachusetts.  “This settlement, after years of hard-fought litigation, shows our commitment to ensuring that healthcare businesses do not take advantage of the federal health insurance programs which serve those who need assistance most.”

PPI drugs are used to treat symptoms of, among other things, acid reflux.  In a complaint filed in 2009, the government alleged that Wyeth failed to report deep discounts on Protonix Oral and Protonix IV that it made available to thousands of hospitals nationwide.  As part of the settlement, Wyeth and Pfizer do not deny the government’s allegations.

According to the government’s complaint, Wyeth sold Protonix Oral and Protonix IV through a bundled sales arrangement in which a hospital could earn deep discounts on both drugs if it placed them on formulary and made them “available” within the hospital.  Through this bundled arrangement, Wyeth sought to induce hospitals to buy and use Protonix Oral, which hospitals otherwise would have had little incentive to use, because other pre-existing oral PPI drugs were priced competitively and were considered to be as safe and effective.  Wyeth wanted to control the hospital market because patients discharged from the hospital on Protonix Oral were likely to stay on the drug for long periods of time, rather than switch to competing PPIs, during which time payers, including Medicaid, would pay nearly full price for the drug.

Under the Medicaid program, which is the nation’s provider of health insurance to the poor and disabled, drug companies must report to the government the best prices they offer other customers for their brand name drugs.  Based on these reported best prices, the drug companies pay rebates to the state Medicaid programs so that Medicaid, a large purchaser of drugs, receives the benefit of the same discounts drug companies offer to other large customers in the marketplace.

The government alleged that Wyeth hid from Medicaid the bundled discounts Wyeth gave to hospitals on Protonix Oral and Protonix IV.  As a result, Wyeth wrongfully avoided paying hundreds of millions of dollars in rebates to Medicaid during the period from 2001 to 2006.  Under the terms of today’s settlement, Wyeth will pay $413,248,820 to the federal government and $371,351,180 to state Medicaid programs. 

“When we make agreements with others we expect follow-through,” said Special Agent in Charge Phillip Coyne of the U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG).  “Similarly, taxpayers rightly expect large pharmaceutical companies will not falsely report prices to boost profits.  Any drug company shirking those responsibilities can expect to be held accountable for its deception.”    

“This litigation and settlement demonstrate the commitment of my office and other state attorneys general across the country to ensuring that pharmaceutical companies live up to their obligations to the Medicaid program,” said New York Attorney General Eric T. Schneiderman.

The settlement resolves allegations filed under the False Claims Act by Lauren Kieff, a former hospital sales representative for the pharmaceutical company AstraZeneca Pharmaceuticals, LP, and William St. John LaCorte, a physician practicing in New Orleans, Louisiana.  Under the False Claims Act, private parties may sue on behalf of the government for false claims for government funds and to receive a share of any recovery.  The relator share in this case will be $98,058,190 and will be paid from the proceeds of the federal and state settlements. 

The settlement was the result of close cooperation between the Civil Division’s Commercial Litigation Branch, the U.S. Attorney’s Office for the District of Massachusetts, the state attorneys general and other law enforcement entities including Medicaid Fraud Control Units, and the HHS-OIG.

This settlement illustrates the government’s emphasis on combating health care fraud and marks another achievement for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced in May 2009 by the Attorney General and the Secretary of Health and Human Services.  The partnership between the two departments has focused efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation.  One of the most powerful tools in this effort is the False Claims Act.  Since January 2009, the Justice Department has recovered a total of more than $29 billion through False Claims Act cases, with more than $17.5 billion of that amount recovered in cases involving fraud against federal health care programs.  The case is captioned United States ex rel. Kieff and LaCorte v. Wyeth and Pfizer, Inc., Nos. 03-12366 and 06-11724-DPW (D. Mass.).

Updated April 27, 2017

False Claims Act
Health Care Fraud
Press Release Number: 16-498