The Department of Justice recently announced it has reached a more than $780 million settlement with Pfizer Inc. and its subsidiary Wyeth to resolve allegations that from 2001 through 2006, Wyeth reported false prices to the government on two of its proton pump inhibitor drugs, Protonix Oral and Protonix IV, in violation of the False Claims Act. As a result of the alleged scheme, Wyeth avoided paying hundreds of millions of dollars in drug rebates to Medicaid. Pfizer and Wyeth agreed to pay a total of approximately $784.6 million to resolve the allegations.

Proton pump inhibitor drugs are drugs used to treat symptoms of acid reflux. The government alleged that Wyeth failed to report deep discounts the company offered to hospitals on Protonix Oral and Protonix IV. According to the government, Wyeth sold both Protonix drugs through a bundled sales arrangement through which hospitals could receive significant discounts on the drugs if it placed both drugs on the hospital’s formulary and made them available throughout the hospital. By bundling payments for the drugs, Wyeth attempted to induce the hospitals to buy and use Protonix Oral, which hospitals otherwise had little incentive to use because other proton pump inhibitor drugs were available and priced more competitively.

Wyeth allegedly failed to include the bundled payment discounts in its Medicaid best price reports and, as a result, avoided paying drug rebates to the Medicaid program. As part of the settlement, Wyeth will pay approximately $413.2 million to the federal government and $371.4 million to various state Medicaid programs.

The settlement resolves a qui tam lawsuit filed by two relators, a former AstraZeneca Pharmaceuticals, LP, hospital sales representative and a Louisiana physician. The relators will receive $98 million as a result of the settlement.

Pharmaceutical manufacturers should ensure they are complying with all Medicaid drug rebate reporting requirements and reporting drug pricing information accurately in order to avoid potential False Claims Act liability.