AstraZeneca And Cephalon To Pay Millions For Allegedly Underpaying Medicaid Rebates

PHILADELPHIA – AstraZeneca LP has agreed to pay the United States and participating individual states a total of $46.5 million, plus interest, to resolve allegations that it knowingly underpaid rebates owed under the Medicaid Drug Rebate Program, the Justice Department announced today.  Of that amount, AstraZeneca will pay roughly $26.7 million, plus interest, to the United States, and the remainder to states participating in the settlement.

In a separate settlement arising out of the same case, Cephalon Inc. has agreed to pay the United States and participating states a total of $7.5 million, plus interest, to resolve similar allegations.  Of that amount, Cephalon will pay roughly $4.3 million, plus interest, to the United States, and the remainder to states participating in the settlement.

Pursuant to the Medicaid Drug Rebate Program, drug manufacturers are required to pay quarterly rebates to state Medicaid programs in exchange for Medicaid’s coverage of the manufacturers’ drugs.  The quarterly rebates are based, in part, on the average manufacturer prices (AMPs) that the manufacturers report to the government for each of their covered drugs.  Generally, the higher the reported AMP for a drug, the greater the rebate the manufacturer pays to state Medicaid programs for the drug.  These settlements resolve allegations that AstraZeneca and Cephalon underreported AMPs for a number of their drugs by improperly reducing the reported AMPs for service fees they paid to wholesalers.  As a result, the government contends that AstraZeneca and Cephalon underpaid quarterly rebates owed to the states and caused the United States to be overcharged for its payments to the states for the Medicaid program.

The settlements were announced today by First Assistant United States Attorney Louis D. Lappen and the Department of Justice.  “We will continue to police the pharmaceutical industry when the Medicaid program overpays for drugs.  As these settlements demonstrate, it is critical for pharmaceutical manufacturers to comply with requirements of programs such as the Medicaid Drug Rebate Program to ensure that the government and the taxpayers are treated fairly in the reimbursement process,” said Lappen.

The settlements partially resolve a lawsuit filed under the qui tam, or whistleblower, provisions of the False Claims Act, which permit private individuals to sue on behalf of the government for false claims and to share in any recovery.  The amount to be received by the whistleblower in this suit, Ronald J. Streck, a pharmacist, has not yet been determined.

“The Medicaid Drug Rebate Program relies on drug manufacturers reporting accurate pricing information used in the rebate calculations,” said Benjamin C. Mizer, Principal Deputy Assistant Attorney General for the Justice Department’s Civil Division.  “These 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.”

For the United States Attorney’s Office for the Eastern District of Pennsylvania, this investigation and settlements were handled by Assistant United States Attorney Eric D. Gill.  The United States’ investigation and settlements were also conducted by the Justice Department’s Commercial Litigation Branch of the Civil Division.  The claims settled by these agreements are allegations only, and there has been no determination of liability.  The lawsuit is captioned United States ex rel. Streck v. Allergan, Inc., et al., Case No. 08-cv-5135 (E.D. Pa.).

These settlements 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 $24 billion through False Claims Act cases, with more than $15.3 billion of that amount recovered in cases involving fraud against federal health care programs.