Abbott sues pharmaceutical companies for Medicaid fraud

By Marilyn Tennissen | Jun 20, 2007

Greg Abbott AUSTIN � Texas Attorney General Greg Abbott filed a suit against three major pharmaceutical companies on charges the companies defrauded the Medicaid system.

Greg Abbott

AUSTIN – Texas Attorney General Greg Abbott filed a suit against three major pharmaceutical companies on charges the companies defrauded the Medicaid system.

Abbott filed a petition in Travis County District Court on June 20 against Mylan Laboratories Inc. of Pennsylvania, Sandoz Inc. of New Jersey and Teva Pharmaceuticals Inc. of Pennsylvania and their subsidiaries under the Texas Medicaid Fraud Prevention Act.

"Texas taxpayers will not tolerate the abuse of our Medicaid system and those who depend on it for their health care," Abbott said in a press release. "The Office of the Attorney General will crack down on anyone who schemes to evade the law and profit from defrauding the Medicaid program."

Texas law requires that manufacturers accurately report available pharmaceutical market prices to the Medicaid program in order for the products to be eligible for Medicaid reimbursement.

According to the Attorney General's first amended petition, the defendants sold hundreds of Medicaid-covered drugs at steeply discounted prices to large companies such as Wal-Mart, CVS Pharmacy and Walgreens, but failed to provide the same pricing information to the Medicaid program.

As a result, state officials were misled about current market prices for the drugs and Medicaid reimbursed at a significantly higher rates. The scheme was brought to the Attorney General's attention by Ven-a-Care of the Florida Keys Inc., an industry whistleblower.

Abbott and Ven-a-Care identified certain drugs for which Teva, Sandoz and Mylan reported false and misleading prices to the state.

"The defendants marketed their drugs to chain warehouse companies, wholesalers, distributors, group purchasing organizations, pharmacies, home health care companies and other customers through financial inducements including false price markups, discounts, rebates, chargebacks and other financial incentives. These devices were designed to, and did, create a difference between the 'price' as reported to the Texas Medicaid Program and the actual amount charged by defendants to their customers," the petition states. "Defendants thus wrongfully exploited and defrauded Texas Medicaid Program by causing it to pay the claims of defendants' customers at grossly inflated amounts that far exceeded the commercially available prices …"

The petition says the "spreads" between the reported and actual prices would benefit the defendants' Medicaid provider customers.

"This benefit to the providers was intended to and did induce the providers to purchase from defendants, thus increasing defendants sales and thus their profits, all to the detriment of the Texas Medicaid program, the beneficiaries thereof and the taxpayers of Texas," the suit states.

Abbott alleges that the defendants repeatedly violated the Texas Medicaid Fraud Prevention Act. The Act specifies 10 actions that are unlawful, and Abbott alleges that each of the defendants committed at least three of those unlawful acts.

Under the TMFPA, each defendant is liable to the state of Texas for the value of any payment provided under the Medicaid program, restitution and civil penalties ranging from $1,000 to $10,000 for each unlawful act, two times the value of the payments for which restitution is awarded and all fees, expenses and costs incurred.

"The defendants' violations have cost the state of Texas many millions of dollars over the years," Abbott wrote in the petition. "At present, the state is unable to determine the full extent of the overpayments caused by the defendants' fraudulent conduct."

Abbott says he is committed to cracking down on waste, fraud and abuse in the Medicaid system. In 2005 alone, the Texas Medicaid program cost more than $17 billion. To save taxpayer dollars, Attorney General Abbott has dramatically expanded both the Civil Medicaid Fraud Section and the Medicaid Fraud Control Unit. Since Attorney General Abbott took office, the civil and criminal Medicaid fraud sections have recovered almost $190 million.

To obtain more information about the Attorney General's efforts to fight Medicaid fraud, access the agency's Web site at

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