Mylan, Others To Pay $124M Over Medicaid Rebates

By Julie Zeveloff

Law360, New York (October 19, 2009) -- Mylan Inc. and several other pharmaceutical companies will pay a combined sum of $124 million to settle allegations that they bilked state Medicaid programs of millions of dollars by improperly classifying certain drugs for rebate purposes.

The U.S. Department of Justice on Monday announced the settlement, which resolves pending litigation in the U.S. District Court for the District of New Hampshire. The case, initially filed as a whistleblower suit by a Florida-based pharmacy, accused Mylan, AstraZeneca Pharmaceuticals, AstraZeneca Pharmaceuticals LP and Ortho-McNeil Pharmaceutical of violating the False Claims Act.

Under the terms of the settlement, two Mylan subsidiaries — Mylan Pharmaceuticals Inc. and UDL Laboratories Inc. — paid $118 million to resolve allegations that they underpaid rebate obligations with respect to several drugs, including ibuprofen tablets, Cephalexin and Cefactor.

Specifically, the Mylan entities paid $60.9 million to the federal government, $49.8 million to the state governments and $7.3 million to entities that participated in the Public Health Service's Drug Pricing Program, according to the DOJ.

AstraZeneca paid $1.43 million to the federal government and $1.17 million to the states to resolve allegations that it underpaid rebate obligations with respect to bronchial medication Albuterol, the DOJ said.

And Ortho-McNeil paid a total of $3.4 million, including $1.87 to the federal government, to resolve allegations that it underpaid its rebate obligations with respect to Dermatop, a topical corticosteroid.

According to DOJ, each of the pharmaceutical companies involved in the litigation had agreed to participate in the Medicaid Prescription Drug Rebate Program, a system put in place by Congress two decades ago amid concern over the costs Medicaid was paying for outpatient drugs.

Under the terms of the program, each pharmaceutical company agreed to pay quarterly rebates to Medicaid that were based on the amount of money health care programs paid for each company's drugs, DOJ said. Those rebates were determined by whether drugs were classified as “innovator” or “noninnovator,” with “innovator” drugs commanding a higher rebate price, according to the agency.

The suit accused the drugmakers of selling “innovator” drugs that were manufactured by other companies and then classifying those drugs as “noninnovator” for Medicaid rebate purposes, the DOJ said.

Whistleblower Ven-A-Care will receive a total of $10.7 million for its role in the suit, according to the agency.

The Mylan entities and AstraZeneca denied any wrongdoing.

“Mylan intends to seek recovery of a substantial portion of the settlement amount from any party that received overpayments resulting from adjusted net sales during the relevant time frame,” Mylan said in a statement Monday. “Mylan will record a one-time, nonrecurring after-tax charge of approximately $83 million in the quarter ended Sept. 30 as a result of this settlement.”

AstraZeneca spokesman Tony Jewell said, “AstraZeneca denies any wrongdoing in connection with this matter, which involved disputed issues regarding the proper classification of a drug under the Medicaid program.”

“The company cooperated fully in the government's investigation and believes this settlement will avoid the burden and expense of litigation,” he added.

Ortho-McNeil could not immediately be reached for comment Monday.

“The Civil Division will continue to work with our state partners to ensure that Medicaid programs, which provide health care to more than 58 million Americans, receive the same discounts that any larger insurer gets," Assistant Attorney General for the DOJ's Civil Division Tony West said in a statement Monday. "These cases exemplify the strong cooperation between the Department of Justice and the states in protecting American taxpayers."

“These settlements are the culmination of several years of hard work on the part of the government’s investigators and attorneys,” said John P. Kacavas, U.S. Attorney for the District of New Hampshire.

“The settlement with Mylan and UDL is the largest health care fraud recovery that the U.S. Attorney’s Office in New Hampshire has ever obtained. The settlements show that the government is committed to identifying health care fraud and ensuring that companies that benefit from doing business with the government agree to play by the rules," Kacavas said.

The case is U.S. v. Mylan Pharmaceuticals Inc. et al., case number 06-cv-00231, in the U.S. District Court for the District of New Hampshire.