Pfizer Agrees to $49 Million Settlement over Allegations of Overcharging Medicaid for Lipitor

Pfizer has agreed to pay $49 million to settle allegations that the drug company defrauded the federal government and 40 states by charging too much for its cholesterol treatment Lipitor, the Wall Street Journal reports. According to the allegations, raised in a whistle-blower lawsuit filed in 2000, Warner-Lambert -- which since has been acquired by Pfizer -- offered payments to an HMO operating in Louisiana and Texas in exchange for placing Lipitor on the insurer's preferred drug list (Hensely, Wall Street Journal, 10/29). A former employee of Parke-Davis Labs, Warner-Lambert's prescription drug unit, told prosecutors that the drug company gave Oshsner Health Plans $250,000 in "educational grants" to encourage the health plan to include the drug on its formulary (Appleby, USA Today, 10/29). Although Warner-Lambert said the funds constituted educational grants, the government maintained they were "a disguised rebate," the Journal reports (Wall Street Journal, 10/29). Federal law requires pharmaceutical companies to sell their drugs to Medicaid at the best price available to any customer, and while educational grants are not a factor in calculating that price, rebates and discounts are. If, as the government alleges, the grants made by Pfizer were actually rebates, the amount of the rebates should have been subtracted from the price of Lipitor to determine the best price (American Health Line, 5/17). The government alleges that by not reporting the payments as a rebate, Pfizer kept Lipitor prices "artificially higher" and cost states $20 million (USA Today, 10/29).

As part of the settlement, the federal government will receive $27.9 million, plus accrued interest, and 40 states will share the remaining $21.1 million. In addition, Pfizer has agreed to a five-year corporate integrity agreement with HHS that will require the drug company to certify its "best-price processes" and establish internal processes to prevent future problems with the rebate system (Seper, Washington Times, 10/29). While not admitting any wrongdoing, a Pfizer spokesperson said that Warner-Lambert's arrangement is a "legacy issue and we're very pleased to have it behind us." The Journal reports that although the settlement agreement was reached in May, it was unsealed last week in U.S. District Court in Beaumont, Texas (Wall Street Journal, 10/29).