Warrick Albuterol Medicaid "Overpayments" Total $14.6 Mil. -Texas Argues

Warrick Pharmaceuticals is responsible for $14.6 mil. in albuterol reimbursement overpayments made by the Texas Medicaid Program, Texas Attorney General John Cornyn argued in a lawsuit filed Sept. 7 in Travis County, Texas state court.

The State of Texas is suing Warrick, Dey and Roxane Laboratories for the recovery of over $20 mil. in Medicaid overpayments since September 1995. Including double damages and civil penalties, the state is requesting a total of about $79 mil.

The Sept. 7 petition argues that the generic manufacturers violated the Texas Medicaid Fraud Prevention Act by reporting "falsely inflated prices on initial applications to have specified pharmaceuticals covered by Texas Medicaid." They are also charged with concealing subsequent decreases in prices.

In addition, Warrick, Dey and Roxane are accused of failing to disclose the actual price paid by providers "due to the existence of kickbacks, inducements, discounts, rebates, chargebacks, off-invoice pricing, free goods and grants which reduced the price paid by the defendants' customers for certain drugs."

The misrepresentations resulted in the overpayment by the Texas Department of Health to the defendants' customers for reimbursement under Medicaid, Cornyn explained in the petition.

Warrick, a subsidiary of Schering-Plough, is accused of reporting inflated prices on its short-acting bronchodilator albuterol (a generic version of Schering's Proventil) to the Medicaid program. In the petition, the state asks that Warrick pay a total of $52.8 mil. for restitution of overpayments, double damages and civil penalties.

Texas is also suing Dey, an affiliate of Merck KGaA, for about $5 mil. in Medicaid overpayments for its respiratory disease medications albuterol, acetylcysteine solution, cromolyn sodium and ipratropium bromide. Dey's albuterol, launched in 1996, is an authorized version of Glaxo Wellcome's Ventolin. Glaxo manufactured the generic albuterol for Dey until February. The state hopes to recover about $20 mil. from Dey, including damages and penalties.

Roxane Laboratories, a subsidiary of Boehringer Ingelheim, is charged with collecting about $776,000 in overpayments for ipratropium bromide, a generic version of BI's bronchodilator Atrovent. With damages and penalties, the state is asking for about $5.2 mil.

Warrick, Dey and Roxane were able to capture market share by selling to pharmacies at a reduced price, while the pharmacies were reimbursed at the inflated rate, Texas argued.

The Texas Medicaid Program bases its payments for claims on statements of acquisition costs provided by manufacturers. "The Texas Medicaid Program relied on the false and deceptive inflated prices and costs reported by the defendants and thus was defrauded into paying amounts that substantially exceeded a true and correct price for the drugs in question."

The Texas Department of Health's Medicaid overpayments "created a 'spread' that would financially benefit [the defendants'] Texas Medicaid provider customers and thus induce them to order, prescribe, dispense or administer the defendants' specified pharmaceuticals."

Warrick provided the greatest "spread" to pharmacies amongst companies selling albuterol, Cornyn's office reported, resulting in a 68% share of Medicaid reimbursement for the drug. Dey holds 24% of the albuterol market in Texas, the AG's office said.

"This scheme ensured that pharmacies would dispense the defendants' drugs over other, less profitable medications," the AG's office stated. For example, Warrick typically sold a box of albuterol to Texas pharmacies for $13.50 but reported to the Texas Department of Health that the price was $40.30, the AG's office said.

The Texas lawsuit targets companies that are also among the subjects of a House Commerce Committee investigation of reimbursement for drugs covered by Medicare (¹ (Also see "TAP, SB Pressed By Rep. Bliley To Provide More Drug Pricing Documents" - Pink Sheet, 11 Sep, 2000.)). In May, Committee Chairman Bliley (R-Va.) asked Warrick and Dey to turn over documents related to the pricing of albuterol (² (Also see "Congressional Drug Pricing Investigation Receives Boost From Rep. Bliley" - Pink Sheet, 15 May, 2000.)).

Ven-A-Care, named as a plaintiff in the suit, provided Texas with the information that is the basis for the suit.

The investigation of Warrick, Dey and Roxane was conducted with the Texas Health and Human Services Commission and the Texas Department of Health. Cornyn is investigating several other drug companies for the same or similar conduct.