Nearly half of $154M settlement going to Texas

Jessica M. Karmasek Aug. 24, 2011, 10:25am


AUSTIN, Texas (Legal Newsline) - Texas Attorney General Greg Abbott said Wednesday that the state will receive nearly $72 million as part of a multi-state settlement with Par Pharmaceutical Inc.

In 2008, the Attorney General's Office charged Par, based in New Jersey, and three other drug manufacturers with defrauding the state's Medicaid program by improperly reporting drug prices.

Because the defendants provided inaccurate market prices for their drugs, the Medicaid program over-reimbursed pharmacies for Par's products.

Under the agreement, Par must pay $154 million to resolve enforcement actions filed by Texas and four other states. Almost half of the total settlement -- about $71.8 million -- will be allocated to Texas, while the remaining $82.2 million will be shared by Florida, Kentucky, South Carolina and Alaska.

Because Medicaid is jointly funded by the state and the federal government, the federal government is entitled to a portion of the Texas recovery, as well as the other states' shares.

Texas' case against Par was originally scheduled for trial in Travis County earlier this year. However, the agreement resolves the state's enforcement action without a lengthy and costly trial, Abbott said.

The attorney general's 2008 enforcement action charged that the following defendants improperly reported their drug prices to the taxpayer-funded Medicaid program: Par; Watson/Schein Pharmaceuticals Inc. of California; Alpharma and Purepac of New Jersey; and Barr Pharmaceuticals Inc. of New York.

The case against Barr settled last year, and a settlement with Watson is imminent. Alpharma and Purepac have said they will appeal the court's judgment finding that both manufacturers defrauded the Medicaid program, Abbott said.

Under state and federal law, drug manufacturers must file reports with the Medicaid program that disclose the prices they charge pharmacies, wholesalers and distributors for their products.

The Texas Medicaid program uses manufacturer-supplied pricing information to estimate the amount that Medicaid should pay pharmacies for each supplier's pharmaceutical products. Pharmacies bill the state-run, taxpayer-funded program for the cost of prescription drugs, plus dispensing fees. Medicaid reimburses pharmacies based on the manufacturer-reported pricing information.

When manufacturers improperly report market prices for their drugs, Medicaid reimburses pharmacies at vastly inflated rates. The difference between the reimbursement amount and the actual market price is referred to as the "spread."

Texas' enforcement action charged the defendant pharmaceutical companies with using their illegally created spreads -- which date back to the early 1990s -- to unlawfully induce pharmacies and other providers to purchase the defendants' products, which reflects a fraud on the Medicaid program.

According to the settlement -- and under the Texas Medicaid Fraud Prevention Act -- Ven-a-Care of the Florida Keys Inc. also receives a share of the Texas recovery because the relator-whistleblower uncovered the defendant's fraudulent conduct.

Additionally, the Attorney General's Office will recover investigative and legal costs associated with its enforcement action.

From Legal Newsline: Reach Jessica Karmasek by email at

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