A.G. Schneiderman Announces $28 Million In Settlements With Two Pharmaceutical Companies For Violating Medicaid Regulations

Dava Pharmaceuticals, Inc. Overcharged Medicaid By Misclassifying Drugs In Rebate Program 

KV Pharmaceutical Company Accepted Taxpayer Money For Drugs That Did Not Qualify For Coverage Under Federal And State Health Care Programs


NEW YORK - Attorney General Eric T. Schneiderman today announced settlements totaling $28 million with two pharmaceutical companies that ripped off taxpayers and the Medicaid system. In two multi-state agreements, Dava Pharmaceuticals, Inc. and KV Pharmaceutical Company will pay back New York for separate violations of the False Claims Act. Dava misclassified drugs to evade paying its obligations to Medicaid, and KV failed to advise the Centers for Medicare and Medicaid Services that two unapproved drugs did not qualify for coverage under federal and state health care programs, allowing the company to accept taxpayer money unlawfully. The portion of the settlements going to New York State is more than $2.5 million. 

“My office has long pledged to hold accountable pharmaceutical companies that abuse the Medicaid program and rip off taxpayers.” Attorney General 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.” 

Dava Pharmaceuticals, Inc.

Attorney General Schneiderman's office reached a settlement with Dava Pharmaceuticals regarding charges that the Delaware-based corporation underpaid their rebate obligations through the Medicaid Prescription Drug Rebate Program between October 1, 2005 and September 30, 2009. Under that program, participating drug companies are required to pay quarterly rebates to state Medicaid programs. The rebate, which is a percentage of the average manufacturing price, is based on the amount of money that Medicaid paid for each company’s drugs.

The precise amount of a rebate is determined in part by whether a drug is considered an “innovator” drug or a “non-innovator” drug. Similar to brand name and generic drugs, the rebate for innovator drugs is higher than the rebate for non-innovator drugs. The participating states and the federal government found that Dava had misclassified the drugs Cefdinir, Clarithromycin and Methotrexate as non-innovator drugs for Medicaid rebate purposes. As a result, the company underpaid their rebate obligations to the Medicaid Program at the expense of taxpayers.

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

KV Pharmaceutical Company 

In the office's agreement with KV Pharmaceutical Company, Attorney General Schneiderman settled charges that the company failed to advise the Centers for Medicare and Medicaid Services that two unapproved products did not qualify for coverage under federal and state health care programs. KV, which was the St. Louis-based parent company of the now-defunct Ethex Corporation, will pay a total of $17 million to compensate Medicaid and various federal healthcare programs for its conduct. New York State will receive $1,189,577.

According to the settlement, Ethex submitted false quarterly reports to the government related to drugs Nitroglycerin Extended Release Capsules (Nitroglycerin ER) and Hyoscyamine Sulfate Extended Release Capsules (Hyoscyamine ER). The Food and Drug Administration (FDA) deemed the drugs—used to treat chest pain due to lack of oxygen supply, and various stomach, intestinal and urinary tract disorders respectively—“less than effective” and ineligible for reimbursement by the government health care programs, such as Medicaid, in the late 1990s. 

The settlement resolves charges that despite the drugs classification as “less than effective,” Ethex actively promoted Nitroglycerin ER and Hyoscyamine Sulfate ER as prescription drugs that were “Medicaid reimbursable.” As a result, the government contends Ethex knowingly caused false claims to be submitted for Nitroglycerin ER and Hyoscyamine Sulfate ER. Ultimately, neither drug received full regulatory approval for safety and effectiveness, and neither product is currently on the market.

Both cases were brought under the qui tam, or whistleblower, provisions of the False Claims Act, which allow private parties with knowledge of fraud to sue on behalf of the United States. In both cases, a National Association of Medicaid Fraud Control Units team participated in the investigations and conducted the settlement negotiations with KV and Dava on behalf of the settling states. Team members included representatives from New York, South Carolina, Texas and Maine.

The cases were handled by Jay Speers, Counsel for the New York State Medicaid Fraud Control Unit, Chief Auditor for the Civil Enforcement Unit Michael Lacasse, and Senior Special Auditor and Investigator Matthew Tandle, under the supervision of Deputy Attorney General of MFCU Monica Hickey-Martin.

New Yorkers are urged to report cases of suspected Medicaid fraud to the Attorney General’s toll-free Medicaid Fraud Hotline, at 1-866-NYS-FIGHT (697-3444).

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