Federal and State Governments Intervene in Qui Tam Lawsuits against Wyeth Relating to Medicaid Best Price Reporting and Resulting Medicaid Rebate Payments

By JP Ellison – 

On May 18, 2009 the U.S. Department of Justice and sixteen states announced that they had intervened in whistleblower (qui tam) lawsuits pending in federal district court in Massachusetts against  drug manufacturer Wyeth, alleging false claims act violations under federal and state law.  A Wyeth spokesperson insists that the company has done nothing wrong and will vigorously defend against the allegations. 

The cases concern Wyeth’s acid-reflux drug Protonix (pantoprazole sodium).  According to the allegations made by the government, Wyeth “bundled” IV and oral versions of its drug Protonix, and sold both versions to hospitals at a substantial discount, but only if both versions of the drug were placed on the hospital formularies and certain market share requirements were met.  According to the government, Wyeth’s motivation for bundling the drugs was to get hospitals to use the IV version on its inpatients, so that they would continue with the oral version of the drug as outpatients.  The government alleges that the outpatient market was much more lucrative than the inpatient market.

Under Medicaid law, and the Medicaid rebate agreement, a brand name drug manufacturer is required to report its “best price” to the federal government.  The federal government then uses that pricing information to calculate a rebate that drug manufacturers must pay to each state Medicaid program.  The government alleges that Wyeth failed to properly calculate best price, and as a result underpaid Medicaid rebates to the states.  The government’s theory is that in reporting its best price, Wyeth improperly excluded as “nominal” the discounted sales price for the oral version of the drug, knowing that the discounted sales price was contingent on bundled sales, and therefore not properly excluded.

The government’s intervention in these lawsuits indicates that it  believes it can prove that Wyeth acted with the requisite intent to prove false claims act violations.

According to the allegations, Wyeth engaged in this conduct between 2000 and 2006.  Congress, in the Deficit Reduction Act of 2005, and the Centers for Medicare and Medicaid Services (“CMS”) in implementing regulations that were finalized in 2007, modified or clarified various aspects of best price reporting, including but not limited to bundling.  

It is unclear whether the 2000-2006 timeframe for the allegations is a function of the statute of limitations for these causes of action, changes in the laws and regulations, or some combination of both.

In any event, according to press reports, the expectation is that Wyeth will resolve these cases before Pfizer takes over Wyeth later this year.