Pfizer Inc. agreed to pay $49 million to settle allegations that the company defrauded the Medicaid health-care program for the poor by charging the government too much for cholesterol drug Lipitor.
At issue were alleged inducements offered in 1999 by Warner-Lambert Co., since acquired by Pfizer, to the Ochsner Health Plan, an health-maintenance organization operating in Louisiana and eastern Texas, in exchange for Lipitor being placed on the insurer's preferred list of drugs.
The settlement, reached in May but unsealed in U.S. District Court in Beaumont, Texas, only last week, stems from a complaint by a former employee of Parke-Davis, the prescription-drug unit of Warner-Lambert.
Pfizer, based in New York, bought Warner-Lambert in 2000. John David Foster, a national sales manager for Parke-Davis, filed the lawsuit in 2000. The federal government later joined the civil suit.
Pharmaceuticals companies are obligated to provide the "best price" for their medicines to Medicaid, a joint federal-state health-insurance program for the poor. The price must reflect rebates and other price adjustments. Payments made as "educational grants" could have the effect of lowering the cost of medicines for an insurer, but they wouldn't be classified as rebates for the purposes of calculating the best price.
In this Warner-Lambert case, what the company called educational grants the government argued was a disguised rebate.
A Pfizer spokeswoman said the Warner-Lambert practices are "a legacy issue and we're very pleased to have it behind us." The settlement doesn't constitute an admission of wrongdoing by Warner-Lambert or Pfizer.
Alice Gosfield, a health-care lawyer in Philadelphia, said the suit and its settlement strikes "at a business model that has operated in the pharmaceutical industry for a long time," namely, the lengths to which drug companies will go to have their medicine placed on preferred lists. She predicts that more of these activities will become public as more similar suits are settled or go to trial. "There are more of these in the pipeline," she said.
Other companies, most notably Schering-Plough Corp., have disclosed they face federal or state investigations into their Medicaid pricing practices.
According to the settlement, Mr. Foster learned the company had offered to provide the HMO with funds to allegedly support educational programs for patients and physicians, underwrite the salary of pharmacists and implement a management program to improve patient care. But Joel Androphy, a lawyer representing Mr. Foster, said his client believed these payments were disguised kickbacks that should have been factored into the best price paid by Medicaid. When Mr. Foster complained to his supervisor, he was ignored and eventually placed on indefinite administrative leave, Mr. Androphy said, and Mr. Foster filed his lawsuit under seal.
The federal government said in the settlement that Parke-Davis ended up paying Ochsner $250,000 -- labeled as "unrestricted educational grants" and "program funding" during the first half of 1999 -- in exchange for Ochsner's agreement to put Lipitor on its preferred-drug list.
Ochsner, based in New Orleans, didn't return a call seeking comment.
Under a federal statute dating to the time of the Civil War, Mr. Foster will receive about $6 million of $28 million the federal government will receive from the settlement. State governments, which share the financing of Medicaid programs, will divide $21 million.
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