Schneiderman

NEW YORK (Legal Newsline) - New York Attorney General Eric Schneiderman announced settlements totaling $28 million on Tuesday with two pharmaceutical companies that allegedly violated Medicaid regulations.

As part of two multistate agreements, Dava Pharmaceuticals Inc. and KV Pharmaceutical Co. will pay the state of New York for alleged separate violations of the False Claims Act. Dava allegedly misclassified drugs to evade paying obligations to Medicaid. KV allegedly failed to advise the Centers for Medicare and Medicaid Services about two drugs that did not qualify for coverage under state and federal health care programs.

The state of New York will receive more than $2.5 million as its portion of the settlements.

"My office has long pledged to hold accountable pharmaceutical companies that abuse the Medicaid program and rip off taxpayers." Schneiderman said. "The actions taken today reflect our commitment to cracking down on those attempting to waste our scarce Medicaid resources. By aggressively rooting out fraud in the health care system, our office will continue to pursue justice on behalf of New York's taxpayers."

Schneiderman's office reached a settlement with Dava Pharmaceuticals regarding allegations that the Delaware-based corporation underpaid rebate obligations between Oct. 1, 2005, and Sept. 30, 2009, through the Medicaid Prescription Drug Rebate Program. The program requires participating drug companies to pay quarterly rebates to state Medicaid programs. The rebate is a percentage of the average manufacturing price and is based on the money Medicaid paid for each company's drugs.

The rebate amount is partly determined by whether a drug is considered an innovator drug or a non-innovator drug. The rebate for innovator drugs is higher than the rebate for non-innovator drugs. Participating states and the federal government allegedly found that Dava misclassified the drugs Methotrexate, Clarithromycin and Cefdinir as non-innovator drugs for the purposes of Medicaid rebates. This allegedly caused the company to underpay its rebate obligations to the Medicaid program at the taxpayers' expense.

In the multistate and federal agreement, Dava must pay $11 million in total worth of damages to compensate Medicaid and other federal healthcare programs for its alleged conduct. New York will receive $1,316,575 of the total settlement.

Schneiderman's office settled with KV Pharmaceutical Co. to resolve allegations that the company failed to advise the Centers for Medicare and Medicaid Services that two unapproved products did not qualify for coverage under state and federal health care programs. KV, which was the St. Louis-based parent company of the defunct Ethex Corporation, must pay $17 million to compensate Medicaid and other federal healthcare programs for its alleged conduct. The state of New York will receive $1,189,577 worth of the total settlement.

Ethex allegedly submitted false quarterly reports to the government related to Hyoscyamine Sulfate Extended Release Capsules and Nitroglycerin Extended Release Capsules. The U.S. Food and Drug Administration deemed the drugs "less than effective" for their use treating chest pain because of a lack of oxygen supply, along with various urinary tract, intestinal and stomach disorders. The drugs were labeled ineligible for reimbursement in the late 1990s for government health care programs like Medicaid.

The settlement resolves allegations that despite the FDA classification of the drugs as "less than effective," Ethex continued to promote the drugs as prescriptions that were reimbursable by Medicaid. The government alleges that Ethex knowingly caused false claims to be submitted for the drugs. Neither drug received full regulatory approval for effectiveness and safety and neither product is currently on the market.

Both of the cases were brought under the whistleblower, or qui tam, provisions of the False Claim Act. The law allows private parties with the knowledge of fraud to sue on behalf of the United States.

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