Office of the Attorney General News Release Archive


Thursday, September 7, 2000

CORNYN SUES THREE DRUG COMPANIES FOR MEDICAID FRAUD

Sues for $79 million in damages and penalties
Drug companies used taxpayer dollars to corner the market

AUSTIN - Texas Attorney General John Cornyn today announced a lawsuit against three drug companies - Dey, Inc., Roxane Laboratories, Inc., and Warrick Pharmaceuticals Corporation - for civil Medicaid fraud. The lawsuit claims that since 1995, the companies defrauded the Texas Medicaid program of over $20 million dollars as part of a complicated scheme to corner the market in respiratory disease medications. The State seeks to recover the overpayments plus more than $58 million in penalties for a total of $79 million dollars.

"This is stealing from taxpayers, plain and simple, and it is wrong. Medicaid funds should be spent only to provide necessary medical care and prescription medications to poorer Texans. Instead, this elaborate scheme steals scarce tax dollars to finance corporate market strategies and to illegally inflate the bottom line," said Attorney General Cornyn.

Typically, when a doctor prescribes medication for a Medicaid patient, a pharmacy dispenses the medication and then bills Medicaid for reimbursement. In order for the drug to be eligible for Medicaid reimbursement, the drug manufacturer must certify the prices at which it sells the drug in writing with the Texas Department of Health (TDH). TDH uses that certification to calculate the amount of reimbursement pharmacies will receive. Texas is the only state that requires drug manufacturers to certify their prices in order to be eligible for Medicaid reimbursement.

These drug companies falsely reported inflated prices for their respiratory medications, including albuterol and ipratropium bromide, to TDH. Then, they turned around and sold these drugs to pharmacies at drastically reduced prices while the pharmacies were reimbursed at the inflated price. This scheme ensured that pharmacies would dispense the defendants' drugs over other, less profitable medications. All of this was part of a strategy by the drug companies to increase their market share and "capture" the market.

For example, Warrick typically sold a box of its asthma medication albuterol for $13.50 to pharmacies in Texas but reported to TDH that the price was $40.30a 200% increase which is passed on to the taxpayers. This difference in price is referred to by the pharmaceutical industry as "the spread." It is the difference between what Medicaid reimburses to pharmacies (using prices that are certified by the drug companies) and the actual price that pharmacies pay to the drug companies.

Investigators from the Attorney General's office have found that Warrick provided the greatest "spread" amongst drug companies selling albuterol in Texas. Warrick had the largest "share" of the Medicaid market for albuterol in Texas. Of the $4.8 million in Texas Medicaid reimbursements for albuterol, Warrick receives a hefty 68%.

Dey also had a large "spread" for its albuterol, and its market share was 24%. All other manufacturers of albuterol had only 8% of the market.

The lawsuit, filed in Travis County, alleges violations of the Medicaid Fraud Prevention Act, which the Texas legislature enacted in 1995. This Act gives the Attorney General the authority to investigate and prosecute civil Medicaid fraud in Texas. Investigation of the three defendants was conducted in conjunction with the Texas Health and Human Services Commission (HHSC) and TDH.

This lawsuit involves less than a tenth of one percent of the 25,000 prescription drugs that Medicaid reimburses in Texas. While the vast majority of Medicaid drugs are paid according to Texas law, Attorney General Cornyn is actively investigating several other drug companies for the same or similar conduct.

"By rooting out the dishonest and fraudulent drug companies, we maintain the integrity of our Medicaid system," said Attorney General Cornyn. Medicaid Fraud Lawsuit Fact Sheet
Warrick Pharmaceuticals Corporation
Dey, Inc.
Roxane Laboratories, Inc.
Medicaid Reimbursements for Albuterol

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Contact Mark Heckmann, Heather Browne, or Tom Kelley at (512) 463-2050
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