On April 27, 2016, DOJ announced that Pfizer and its subsidiary Wyeth, LLC, agreed to pay $784.6 million to resolve allegations that Wyeth failed to disclose to federal and state healthcare programs discounts provided to hospitals for Proton Pump Inhibitors (PPIs), as required by its Medicaid Drug Rebate Agreement. DOJ alleged that this lack of disclosure led to states overpaying millions of dollars in reimbursements for PPIs.

Under Medicaid’s Drug Rebate Program, drug manufacturers must enter into a Medicaid Drug Rebate Agreement with HHS for their prescription drugs to be reimbursed by Medicaid. These agreements require manufacturers to pay rebates for drugs purchased by Medicaid. The amounts of the rebates are based on the Average Manufacturer Price, or the average price paid by wholesalers, and the Best Price, or the lowest price paid by any purchaser. These prices must be reported to CMS on a quarterly basis.

In 2000, Wyeth introduced Protonix Oral as an oral PPI used to treat gastroesophageal reflux disease (GERD). At the time, this drug was one of many oral PPIs used in the outpatient setting. The following year, Wyeth introduced Protonix IV, an intravenous PPI. In contrast to Protonix Oral, which was already in a competitive market, Protonix IV was the first intravenous PPI.

Qui tam complaints were filed in the U.S. District Court for the Eastern District of Louisiana and the District of Massachusetts in March 2002 and November 2003, respectively, which related to Wyeth’s sale of the Protonix PPIs. Relators alleged that Wyeth violated the requirement of the Medicaid Drug Rebate Agreement and federal and state False Claims Acts by failing to disclose the Best Price for their Protonix products to the government.

Wyeth allegedly entered into agreements with hospitals, whereby the pharmaceutical company “bundled” its sale of Protonix Oral and Protonix IV in an effort to increase its market share of Protonix Oral. Wyeth allegedly agreed to offer Protonix Oral and Protonix IV at deeply discounted rates if both drugs were made available for use in the hospitals and listed on the hospitals’ Formularies lists. Further, Wyeth allegedly agreed to provide hospitals with additional discounts on the price of these drugs based on the hospital’s market share performance of Protonix Oral. While these agreements allowed hospitals to obtain Protonix Oral and Protonix IV at deeply discounted rates, Wyeth allegedly failed to disclose these discounts to the government, which resulted in the alleged FCA violations.

This settlement reflects the government’s increased focus on drug pricing issues. There also has been a considerable increase in qui tam lawsuits alleging a failure to disclose pricing information to government healthcare programs. Manufactures and distributors should carefully follow developments in these actions and settlements to ensure that that they do not run afoul of pricing requirements.