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Sept. 27, 2012

State Settlements With Drug Companies Over Medicaid Fraud Are at Record Highs; Many States Recover More Than They Spent on Enforcement

Pharmaceutical Industry Still the Largest Defrauder of the Federal Government

WASHINGTON, D.C. – Individual states are settling more cases than ever with pharmaceutical companies accused of defrauding their Medicaid programs and are recovering taxpayer money at record amounts from those settlements, a new Public Citizen report shows. In an era of ever-tighter Medicaid budgets, many states have recovered just as much, if not more, money from this litigation as they spent on all Medicaid fraud enforcement.

Following up on Public Citizen’s landmark 2010 study that documented the scale of 20 years of illegal pharmaceutical industry activity, the study released today assesses settlement activity since that report’s release. It also analyzes, for the first time, individual state enforcement efforts against drug companies since 1991, looking at financial recoveries as a proportion of state Medicaid prescription drug expenditures and conducting a “return on investment” analysis.

The bottom line: More settlements are being announced between state and federal governments and the drug industry than ever before, with financial penalties on the rise. Already, 2012 has seen a record amount of financial penalties assessed against the pharmaceutical industry, with $6.6 billion recovered through mid-July by both the federal government and states.

Overcharging health programs, mainly in the form of drug pricing fraud against state Medicaid programs, was the most common violation during the study period, while the unlawful promotion of drugs was associated with the largest penalties, as in the prior report.

Much of the recent increase in enforcement activity is due to individual state attorneys general taking the initiative to prosecute fraud allegedly perpetrated by the industry against their Medicaid programs. Since 1991, Kentucky has concluded the most settlements, while Texas leads all states in settlements made possible by private whistleblowers. Arkansas, Louisiana, South Carolina and Texas have recovered a total of $2.3 billion in penalties, representing more than two-thirds of the financial penalties recovered in single-state settlements since 1991. Overall, since 2009, state governments have finalized more than twice as many settlements, for more than six times as much money, as they had from the previous 18 years combined.

“It should come as no surprise that states facing Medicaid budget shortfalls are finally deciding to root out fraud that likely has cost their taxpayers billions of dollars over the years,” said Dr. Sammy Almashat, a researcher with Public Citizen’s Health Research Group and the study’s author. “What this new report unequivocally shows is that those states that have chosen to hold the pharmaceutical industry accountable have largely seen their enforcement efforts pay for themselves.”

Seventeen states recouped the equivalent or more of their entire Medicaid fraud enforcement budgets with money from these settlements alone. Arkansas, South Carolina, Alabama and Hawaii had the highest return on their investment, recouping between $12 and $84 for every dollar spent on Medicaid fraud enforcement.

The record-setting trend of settlements has continued on the federal level; the federal government has concluded almost as many settlements and recovered more in financial penalties in the past three and a half years as it had in the previous 18 years combined. The pharmaceutical industry remains the biggest defrauder of the federal government under the False Claims Act (FCA), which continues to be the most common law invoked in federal civil settlements.

The whistleblower provisions of the FCA have been the most important factor spurring the recent wave of federal settlements. Whistleblowers were responsible for initiating 21 federal settlements and $6 billion in penalties under the FCA during the most recent period studied (Nov. 2, 2010 – July 18, 2012). Almost half the whistleblower-prompted federal and state settlements during this time were made possible by a single whistleblower, Ven-a-Care pharmacy in Key West, Fla.

Three companies – GlaxoSmithKline, Johnson & Johnson and Abbott – were responsible for two-thirds of the financial penalties paid out to the federal and state governments during the most recent study period. GlaxoSmithKline topped the list with $3.1 billion alone in settlements, which includes the largest health fraud settlement ever reached with the federal government this past July over numerous violations, including the alleged illegal, off-label promotion of its dangerous diabetes drug, Avandia.

However, these penalties, large as they seem, are still far too low to deter future violations. The $30 billion paid out by pharmaceutical companies in settlements to the federal government and states since 1991 represents just a little more than two-thirds of the profits made by the 10 largest drug companies in 2010 alone. And the fact that the fraud has continued unabated means that new legislation and more felony charges against drug company executives who oversee this fraudulent activity are urgently needed, according to Almashat.

To read the report, visit http://www.citizen.org/hrg2073.

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