A whistleblower suit against Wyeth appears to be the first case alleging that a firm's bundling contracts resulted in Medicaid fraud.

The Department of Justice and 16 states allege in a complaint that Wyeth offered steep discounts to hospitals that purchased both its oral and IV Protonix while reporting higher prices to the government.

By reporting false and inflated best prices for its antiulcer drugs Wyeth avoided paying hundreds of millions in rebates to state Medicaid programs, the complaint says.

Bundling has long been a controversial practice; congressional inquiries - and a J&J lawsuit - led Amgen to change its practices for Aranesp (¹ Also see "Aranesp Contracts Revised: 50% Share Of ESA Purchases Qualifies Clinics For Best Discount" - Pink Sheet, 29 August, 2008.).

And while DoJ has gone after failure to report hospital discounting before (a case against Merck settled last year) if this litigation is successful, it could force firms to be more cautious in how they link the pricing of two or more products in contract negotiations, thereby diminishing the value of having a unique product in their portfolios.

The Protonix case hinges not on bundling per se, but, like the Merck case, whether the firm properly adhered to nominal pricing provisions. One of the relators in the Wyeth case, New Orleans gerontologist William Lacorte, was also the relator in the Merck case.

DoJ and the states joined two separate whistleblower suits, or qui tam actions, brought under the False Claims Act. They are seeking damages equal to three times the loss sustained by the Medicaid programs plus penalties of $11,000 for each false claim or statement.

The complaint, filed May 18 in the U.S. District Court for the District of Massachusetts, claims Wyeth bundled sales of the two drugs to hospitals in an effort to get them to buy oral Protonix (pantopraxole) instead of competing proton pump inhibitors.

Wyeth licenses the right to distribute Protonix in the U.S. from Altana Pharma. One of Wyeth's top-selling drugs, Protonix had 2008 sales of $806 million, which includes sales of its brand and generic tablets and its IV formulation.

Discounts Based on Market Share

While there were three other oral PPIs on the market when Protonix was launched in 2000, Wyeth was the only intravenous PPI on the market from April 2001 until mid-2004. The complaint says Wyeth set a list price of approximately $20 per vial for Protonix IV and a list price of about $3 for oral Protonix and then offered steep bundled discounts on the drugs to those hospitals that agreed to purchase both under a single contract. Close to 90 percent of hospitals in the U.S. signed the agreement, according to the complaint.

The amount of the discount was based on whether hospitals agreed to place both products on their formularies and achieved a certain market share for oral Protonix. For example, if a participating hospital purchased enough of the oral drug in a quarter to meet the 60 percent market share requirement it would receive an 80 percent discount on Protonix IV and a 94 percent discount on oral Protonix.

Under the Medicaid Drug Rebate Program, manufacturers must report the average manufacturer price and the "best price" for certain drugs to the Secretary of HHS every quarter. The department uses these figures to calculate a unit rebate amount, which states use to invoice manufacturers for rebates based on the state's utilization of the drug.

The complaint says that from 2001 through 2006, Wyeth reported best prices for its two Protonix drugs that did not reflect the deep discounts available to thousands of hospitals through the bundled pricing arrangement.

"Wyeth knew that the reported Best Price for each of its drugs must reflect the effective price resulting from any 'bundled' arrangement where discounts were tied to other purchase requirements or conditions," the complaint states. "Nevertheless, Wyeth knowingly ignored this requirement and excluded from its Best Price reports the low prices on Protonix Oral and Protonix IV that hospitals realized through Wyeth's bundled discount offers."

The company denied that it had done anything wrong. "Wyeth believes its pricing calculations were correct and intends to vigorously defend itself in these actions," a company spokesperson said.

The DoJ complaint cites several documents to illustrate Wyeth intended to drive sales of oral Protonix in hospitals, and ultimately in the more lucrative outpatient retail market, by bundling sales of the oral and IV formulations.

Incentive to Switch From Competing Drugs

For example, the suit quotes a sales representative's comment: "The docs at [redated] feel that we are trying to squeeze them on the price of IV and oral. ... I pointed out that we bundled them together."

The complaint also includes excerpts of interviews a Wyeth vendor held in 2001 with hospital pharmacists who were under contract to buy both Protonix drugs. The interviewer asks a pharmacist at a hospital in Oklahoma: "You pay 15 cents for Protonix and $2.35 a pill for Prevacid ? I guess the next logical question is why not just go with Protonix?"

The pharmacist replies: "Well we are, that's an excellent question, we are going to go in that direction at the next P&T [Pharmacy & Therapeutics] Committee meeting, and that is on the agenda." The pharmacist notes that in order to get the 15-cent Protonix price the hospital must put the IV formulation on its formulary.

The suit could prove quite costly for Wyeth. Last year Merck agreed to pay $650 million to resolve allegations that it offered deep discounts to hospitals that purchased large quantities of Zocor and Vioxx over competitor brands without providing the same discount to Medicaid programs and paid illegal incentives to doctors to encourage them to prescribe the drugs (² Also see "Merck Marketing, Pricing Practices Lead To Settlement With Justice Dept." - Pink Sheet, 11 February, 2008., p. 14).

The DoJ has gone after several other companies for reporting false prices to Medicaid programs. In 2006 Schering-Plough reached a $435 million settlement over allegations of Medicaid fraud involving Claritin RediTabs and K-Dur and allegations ofkickbacks and off-label promotion and in 2004 it reached a $345.5 million settlement to resolve kickback and Medicaid best price allegations related to Claritin (³ [A#00680360002], p. 5).

- Brenda Sandburg (b.sandburg@elsevier.com)

Bundling of Wyeth Protonix Sales to Hospitals Tied to Medicaid Fraud, DoJ Says

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