Failure to Disclose Best Pricing: Pharmaceutical Companies Settle FCA Claims for $784 Million
The Department of Justice announced late last month that pharmaceutical manufacturers Wyeth and Pfizer would pay $784 million to resolve a False Claims Act investigation and qui tam lawsuit arising from Wyeth’s failure to disclose its best pricing of drugs to the government. The case was brought under the FCA’s qui tam provisions; the relators’ share of the recovery is nearly $100 million. The case illustrates the importance of dedicated FCA due diligence in acquisitions and compliance with Federal pricing obligations that arise not only in the healthcare context but also in other areas, like Federal Supply Schedule contracting.
The case involved two proton pump inhibitor (PPI) drugs that Wyeth sold to hospitals nationwide. Under the Federal Medicaid program, drug companies are obliged to report to the government the lowest prices that they charge to other customers, thereby ensuring that the government receives pricing favorable to other large private purchasers in the marketplace. Drug manufacturers are also obliged to reimburse the government for the difference between the price charged to the government and any lower price charged to the manufacturers’ other customers.
The relators here alleged that Wyeth had offered private hospitals significant discounts on the PPI drugs as part of a bundling plan, but that Wyeth failed to report this best-pricing of the PPI drugs to the government. The relators also alleged that Wyeth had failed to reimburse the government for the discounts, as was required under the applicable Medicaid rules. From 2001 to 2006, the scheme allegedly enabled Wyeth to avoid paying hundreds of millions in reimbursements that would have otherwise been due to the government.
Among other things, the settlement underscores the importance of dedicated FCA due diligence during mergers and acquisitions. Pfizer purchased Wyeth in 2009, some three years after the alleged misconduct ended, yet it was still a party to the settlement and resolving issues related to Wyeth’s conduct in 2016. The case similarly shows the significant monetary risk associated with not syncing a compliance system with regulatory obligations, as well as the necessity for investment of adequate compliance resources. The ramifications for failing to comply with program regulations or contractual obligations may not be limited to administrative remedies like program exclusion or legal remedies like a breach-of-contract claim; the case indicates the government’s willingness to invest significant investigative resources and to bring the FCA to bear on defective-pricing schemes.