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Attorney General Ellen F. Rosenblum

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Attorney General and Medicaid Fraud Association Reach Agreement With TAP Pharmaceutical Products To Pay $56.7 Million To State Medicaid Programs

October 3, 2001

Attorney General Hardy Myers and the National Association of Medicaid Fraud Control Units ("NAMFCU") today announced that they have reached an agreement in principle with TAP Pharmaceutical Products, Inc. ("TAP") to pay $56.7 million to the State Medicaid Programs for damages caused by TAP's marketing practices for its drug Lupron, used for the treatment of prostate cancer.

As part of the settlement, the State of Oregon will recover $357,520.98 in restitution and penalties for its Medicaid Program. The agreement in principle involves all 50 states plus the District of Columbia. To date, 43 states and the District of Columbia have executed formal settlement agreements with TAP, including Oregon.

The state settlements were reached in conjunction with a federal settlement negotiated by the United States Attorney's Office in Boston, Massachusetts. Under the federal agreement, TAP will plead guilty to federal criminal charges of conspiracy to violate the Prescription Drug Marketing Act, and also enter a civil settlement to pay damages to Medicare and other federally funded health care programs. As part of the federal settlement, TAP will pay the federal government $524.3 million as well as a substantial criminal fine. The total amount paid by TAP to federal and state health care programs will make this case the largest health care settlement ever.

The federal and state settlements are the culmination of a lengthy investigation into TAP's marketing practices. The practices centered around TAP's provision of free dosages of Lupron to physicians and other providers, knowing that these providers would bill the free dosages to health care insurers, including Medicaid and Medicare. The States alleged that when TAP failed to include the free Lupron in the calculation of its "best price" as required under the federal Medicaid drug rebate program, the State Medicaid Programs received lower rebate amounts than were lawfully due.

A second marketing practice addressed by the settlements involved TAP's inflation of "Average Wholesale Price (AWP)." Medicare and many State Medicaid Programs, including Oregon, base some pharmaceutical reimbursements on "AWP." By inflating "AWP," the States alleged that TAP created an economic incentive for physicians to prescribe its product, because the physician kept the "spread" between the true purchase price and the reported "AWP." This resulted in damage to the various Medicaid Programs by causing inflated reimbursement to physicians and others who used TAP's products.

As part of the agreement in principle with the States, TAP will be required to report accurate pricing information on all its products to Oregon's State Medicaid Program as well as to the commercial price reporting services that provide pricing information to the states.

Additionally, TAP will cooperate with the States in investigating other health care providers, including physicians, who defrauded the Medicaid Programs by participating in TAP's marketing schemes. TAP also entered into a Corporate Integrity Agreement ("CIA") with the United States Department of Health and Human Service's Inspector General. The CIA will require strict scrutiny of TAP's marketing and sales practices for the next seven years.

The TAP case is the second settlement entered into by Oregon and other states with a major manufacturer of pharmaceutical products, following on the heels of a similar settlement with Bayer Corporation earlier this year over Bayer's marketing practices. "In recent years, pharmaceutical costs have eaten up a sizeable portion of the State's Medicaid Budget," Attorney General Myers said. "It is our hope that pursuit of these cases, and the pricing information provided under the terms of the negotiated settlements, will have a significant impact on lowering those costs."

Leading the NAMFCU negotiation team on behalf of the States and the District of Columbia were John Guthrie, Director of the Ohio Medicaid Fraud Control Unit; Ellyn Sternfield, Director of the Oregon Medicaid Fraud Control Unit; and David Waterbury, Director of the Washington Medicaid Fraud Control Unit. Ms. Sternfield, as current President of NAMFCU, and Guthrie and Waterbury as past president of NAMFCU, received unprecedented support and cooperation from federal and state officials in effectuating these settlements.


Ellyn Sternfield, Attorney-in-Charge, Oregon DOJ Medicaid Fraud Unit, (503) 229-5725, x241 |
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