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April 16, 2003
Drug Companies to Reimburse State in 'Lick and Stick' Scheme

OLYMPIA -- Two major pharmaceutical companies will reimburse the state of Washington $5.2 million to settle claims they illegally manipulated prescription-drug price information in order to avoid paying rebates to the state Medicaid program, Attorney General Christine Gregoire announced today.

The companies-Bayer and GlaxoSmithKline-also will sign corporate integrity agreements requiring them to certify the manner in which they calculate future "best prices" for prescription drugs purchased by the state. Under federal law, drug companies are required to pay rebates to states if the actual price the states pay to pharmacies is higher than the manufacturer's best price.

Failure to abide by the corporate integrity agreement could subject a pharmaceutical manufacturer to criminal prosecution under state law.

"With all of today's budget problems, states simply cannot permit drug manufacturers to drain state Medicaid programs in order to enrich corporate bank accounts," Gregoire said. "This settlement returns money that rightfully belongs to the taxpayers, and provides a powerful incentive for companies to follow the law when establishing the best price on medications."

The separate settlements involving the two companies, the federal government and various states-including Washington-were filed today in U.S. District Court in Boston. The settlements concluded an investigation led by the Washington Attorney General's Medicaid Fraud Control Unit, working in conjunction with similar Medicaid fraud units in Pennsylvania and Maryland.

The Bayer and GlaxoSmithKline investigations were treated as separate cases, and there were no allegations the companies conspired to manipulate drug prices.

According to investigators, the companies sold large quantities of prescription medications to a health maintenance organization (HMO) at discounted prices, but relabeled the medications to sell under the HMO's own name. By doing so, the pharmaceutical makers could offer the HMO discounts without including the sale information in the best-price calculation provided to the states. As a result of the relabeling scheme, referred to as "lick and stick," the companies kept the best-price figure high and avoided paying the states rebates.

Drugs marketed under the scheme included the prescription nasal spray Flonase and the antidepressant Paxil, both manufactured by GlaxoSmithKline, and the antibiotic Cipro and the antihypertension drug Adalat, which are manufactured by Bayer.

Under the GlaxoSmithKline settlement, the company will pay a total of $87.6 million in damages and penalties to the federal government, 49 states and the District of Columbia. Bayer will pay $242 million in damages and penalties. In both cases, the federal government will receive 55 percent of the settlement to cover the federal portion of the Medicaid damages, and the states and the District of Columbia will share the rest.

The settlement money will not be distributed directly to Medicaid patients, but will be returned to the states to help fund their Medicaid programs.

In addition to the civil settlement with Bayer, the U.S. Attorney in Boston today announced the company would plead guilty to a criminal charge of violating of the Food, Drug, and Cosmetic Act and will pay a fine of $5.6 million.

Today's announcement follows another Medicaid fraud settlement in December involving the pharmaceutical company Pfizer. That investigation also was led by Washington's Medicaid Fraud Control Unit and resulted in an $875,000 reimbursement to the state Medicaid program.

Other Medicaid fraud investigations are continuing


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