AstraZeneca and Cephalon, two of the country’s leading biopharmaceutical suppliers, agreed to pay the government a settlement of $54.4 million to resolve allegations of violating the False Claims Act (FCA) by knowingly underpaying rebates owed to the government under the Medicaid Drug Rebate Program (MDR).  AstraZeneca, (headquartered in Delaware) agreed to pay the U.S. government $26.7 million, plus interest and Cephalon’s portion of the agreement is $4.3 million, plus interest.  Part of the settlement will be distributed to participating state and local governments.

The MDR is designed to offset Federal and State costs of most outpatient prescription drugs dispensed to Medicaid patients.  Drug companies are invited to be participating providers of pharmaceuticals under the MDR program provided they sign a national rebate agreement.  The agreement requires participating drug manufacturers to issue quarterly rebates or refunds to the government based on the Average Manufacturer Price (AMP) per unit cost of each drug.  For example, if the drug dispensed to a patient cost $25, the government would be issued a rebate of 17.1 to 23.1% of the AMP of the drug which translates to a rebate of between $4.28 and $5.78 per unit.  This agreement is designed to benefit the government so that it does not have to absorb the full cost of prescription drugs, which makes it more affordable for the patient.  In return, the pharmaceutical manufacturer has a consistent market in which to sell its products.

However, according a qui tam lawsuit filed by a pharmacist, Ronald J. Streck, on behalf of the government and under the qui tam provisions of the FCA, AstraZeneca and Cephalon allegedly violated the FCA by knowingly misrepresenting the AMP to the government, which caused the United States to be overcharged for its payments to the states for the Medicaid program.  Allegedly violating the FCA is not new for AstraZeneca.  In February, 2015, AstraZeneca, agreed to pay the U.S. government $7.9 million to resolved allegations that it violated the FCA by allegedly offering kickback incentives to a drug management company, in exchange for selling its pharmaceutical products.

Under the FCA, any person, who knows of an individual or company that has defrauded the federal government, can file a “qui tam” lawsuit to recover damages on the government’s behalf.  Additionally, a whistleblower who files a case against a company that has committed fraud against the government, may receive an award of up to 30 percent of the settlement.