Attorney General's News Release

May 11, 2005

Scheme by drug makers cost Missouri Medicaid millions, Nixon alleges in lawsuit

Albuterol was included in the false price reporting.

Jefferson City, Mo. — A scheme by two pharmaceutical companies to inflate reported prices for Medicaid reimbursement has cost Missouri taxpayers at least $15 million over the past 11 years, Attorney General Jay Nixon says. Nixon filed a lawsuit today in St. Louis City Circuit Court against drug makers Dey Inc. and Warrick Pharmaceuticals Corp. seeking penalties and triple damages for the overpricing, as well as a court order to stop the companies from violating the law in the future.

Nixon says Dey and Warrick did not accurately report the prices of drugs sold to pharmacies participating in the Missouri Medicaid program. The prices reported to pharmaceutical trade publications — referred to as average wholesale price (AWP) or wholesale acquisition cost (WAC) — often were substantially higher than the prices actually paid by the providers for the drugs, which were primarily generic brand inhalants used by patients with respiratory conditions.

Missouri's Medicaid program, other state Medicaid programs and the federal Medicare program use the AWP as one of the bases for the reimbursement paid to the providers when they submit claims to Medicaid. The Missouri Medicaid program uses drug pricing information from a company called First Data Bank.

Because the AWP reported by Dey and Warrick was intentionally and artificially inflated, Nixon said, the Missouri Medicaid program paid at least $15 million too much in provider reimbursement over a period that potentially goes back to 1994. Dey and Warrick, two competing companies incorporated in Delaware, profited from the higher AWP because the inflated reimbursement from Medicaid meant pharmacies had more incentive to dispense generic drugs from those two companies, Nixon says.

"A pharmacy that knew it would receive a greater reimbursement from Medicaid if it dispensed a Dey or Warrick generic prescription drug would be more likely to dispense the drugs from those companies," Nixon says. "By reporting inflated prices that were then used to calculate Medicaid reimbursement, the companies were defrauding taxpayers in order to increase their market shares. This is a glaring example of waste, fraud and abuse in the Medicaid system."

The lawsuit also alleges the defendants also hid the true cost of their drugs by giving providers free samples and by giving rebates and other inducements as a way of lowering the price providers paid. Such inducements increased the spread between the AWP the defendants reported and the actual price paid by the providers.

The drugs that were involved in the false price reporting included Albuterol, Albuterol Sulfate and Ipratropium Bromide. Nixon says an investigation by his office showed that Dey reported an AWP of $14.99 for its Albuterol Sulfate 5 mg/ml, 20 ml at the same time when the inhalant could be purchased by providers for $5.91 or lower, less than 40 percent of the AWP.

"The information we have indicates that false reporting by Dey Labs resulted in the Missouri Medicaid program paying more than $11.6 million above what it should have in reimbursement, and the false reporting by Warrick Pharmaceutical resulted in Medicaid paying more than $3.5 million too much," Nixon says. "We are seeking triple damages for those amounts, in addition to seeking false claims damages for thousands of false claims."

Under the Missouri Health Care Payment Fraud and Abuse Act, responsible parties can be found liable for $5,000 for each separate act of fraud, in addition to interest and triple damages.

"In other states, these defendants have fought intense legal battles, involving literally millions of pages of documents," Nixon says. "But I am dedicated to seeing that in the end, they are held responsible for their actions, and the taxpayers of Missouri will be made whole.

Inquiries from consumers should be directed to consumer@ago.mo.gov or 1-800-392-8222 (from within Missouri) or 573-751-3321 (outside Missouri).

All media inquiries should be directed to Press Secretary John Fougere.

E-mail      Phone: 573-751-8844         Fax: 573-751-5818