Attorney General's News Release

December 21, 2005

Price inflation scheme by pharmaceutical companies cost Missouri Medicaid more than $19 million, Nixon alleges

Jefferson City, Mo. — A scheme by several pharmaceutical companies to inflate the reimbursement for Medicaid-covered prescriptions has cost Missouri taxpayers at least $19 million since 1994, Attorney General Jay Nixon says. Nixon filed lawsuits today against the drug companies and is asking for penalties and treble damages to reimburse Medicaid for the overpayments.

According to the lawsuits, the pharmaceutical companies sold the drugs to Medicaid providers (such as pharmacies) at one price but then greatly inflated the reported price used by the Medicaid program to reimburse the providers. In one case, a drug used to treat heartburn was sold to the provider for about seven cents per unit, but the price reported for Medicaid reimbursement was more than $1.42 per unit.

"A pharmacy that knew it would receive greater reimbursement from Medicaid if it dispensed a generic drug from one of these companies would be more likely to dispense 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 significant example of waste, fraud and abuse in the Medicaid system."

Nixon filed his lawsuits in St. Louis City Circuit Court against the following drug makers:

• Mylan Laboratories Inc. and its subsidiary, Mylan Pharmaceuticals Inc.
• Teva Pharmaceuticals USA Inc.; its parent company, Teva Pharmaceutical Industries Ltd.; and Novopharm, a subsidiary of Teva Pharmaceutical Industries.
• Watson Pharmaceuticals Inc. and its subsidiary Watson Pharma Inc. (formerly known as Schein Pharmaceutical Inc.)
• Boehringer Ingelheim Roxane Inc.; its parent company, Boehringer Ingelheim Corp.; and four related corporations.

Nixon says 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. The drugs prescribed included antibiotics and those used to treat anxiety, heartburn and other ailments and diseases.

Missouri's Medicaid program, other state Medicaid programs and the federal Medicare program use the AWP as one of the bases for reimbursement paid to the providers when they submit claims to Medicaid. The Missouri Medicaid program uses drug pricing information from a company called First DataBank; Nixon's lawsuits say the companies sued reported false prices to First DataBank.

Because the AWP reported by the companies was intentionally and artificially inflated, Nixon said, the Missouri Medicaid program paid at least $19 million too much in provider reimbursement over a period that potentially goes back 11 years to 1994. The companies profited from the higher AWP because the inflated reimbursement from Medicaid meant pharmacies had more incentive to dispense generic drugs from one of those companies, Nixon says.

The lawsuit also alleges the defendants sometimes 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.

Under the Missouri Health Care Payment Fraud and Abuse Act, responsible parties can be found liable for penalties of no less than $5,000 and no more than $10,000 for each false claim made for reimbursement, as well as damages three times the amount that was overpaid. The lawsuits also ask for court orders to stop the companies from violating the law in the future.

In May, Nixon filed a similar lawsuit against two other pharmaceutical companies, Dey Inc. and Warrick Pharmaceuticals Corp., for similar schemes. That lawsuit, also filed in St. Louis City Circuit Court, is still pending.

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