Wyeth and Pfizer last week reached a $784.6 million settlement with the Department of Justice to resolve allegations that Wyeth knowingly reported to the government false and fraudulent prices on two of its drugs.

Under the terms of the settlement, Wyeth will pay $413.2 million to the federal government and $371.3 million to state Medicaid programs. Pfizer acquired Wyeth in 2009, approximately three years after Wyeth ended the conduct that gave rise to the settlement.

In a complaint filed in 2009, the government alleged that Wyeth failed to report deep discounts on two of its proton pump inhibitor (PPI) drugs—Protonix Oral and Protonix IV--that it made available to thousands of hospitals nationwide. As part of the settlement, Wyeth and Pfizer do not deny the government’s allegations.

According to the government’s complaint, Wyeth sold Protonix Oral and Protonix IV through a bundled sales arrangement in which a hospital could earn deep discounts on both drugs if it placed them on formulary and made them “available” within the hospital. Through this bundled arrangement, Wyeth sought to induce hospitals to buy and use Protonix Oral, which hospitals otherwise would have had little incentive to use, because other pre-existing oral PPI drugs were priced competitively and were considered to be as safe and effective. 

“Wyeth wanted to control the hospital market, because patients discharged from the hospital on Protonix Oral were likely to stay on the drug for long periods of time, rather than switch to competing PPIs, during which time payers, including Medicaid, would pay nearly full price for the drug,” the Justice Department said.

Under the Medicaid program, drug companies must report to the government the best prices they offer other customers for their brand name drugs. Based on these reported best prices, the drug companies pay rebates to the state Medicaid programs so that Medicaid, a large purchaser of drugs, receives the benefit of the same discounts drug companies offer to other large customers in the marketplace.

The government alleged that Wyeth hid from Medicaid the bundled discounts Wyeth gave to hospitals on Protonix Oral and Protonix IV. As a result, Wyeth wrongfully avoided paying hundreds of millions of dollars in rebates to Medicaid during the period from 2001 to 2006. 

The settlement resolves allegations filed under the whistleblower provisions of the False Claims Act, which permit private individuals to sue on behalf of the government for false claims and to share in any recovery. Lauren Kieff, a former hospital sales representative for pharmaceutical company AstraZeneca Pharmaceuticals and the whistleblower in this case, will receive approximately $98 million from the proceeds of the federal and state settlements.