Oregon Department of Justice

Attorney General Ellen F. Rosenblum

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AstraZeneca Pharmaceuticals Enters Landmark Federal/State Settlement Over Zoladex Marketing

June 20, 2003

Oregon Attorney General Hardy Myers and the National Association of Medicaid Fraud Control Units ("NAMFCU") today announced an agreement in principle with AstraZeneca Pharmaceuticals LP (Zeneca) to pay $24.9 million to the State Medicaid Programs for damages caused by Zeneca's marketing practices for its drug Zoladex, used for the treatment of prostate cancer. As part of the settlement, the State of Oregon will recover $184,100 in restitution and penalties for its Medicaid Program. The agreement in principle involves all 50 states plus the District of Columbia.

The state settlements were reached in conjunction with a federal settlement negotiated by the United States Attorney's Office in Delaware and a small team of State Medicaid Fraud Attorneys, including the Attorney in Charge of Oregon's Medicaid Fraud Unit. Pursuant to the agreement, Zeneca has pled guilty in Federal Court to federal criminal charges of conspiracy to violate the Prescription Drug Marketing Act, and also entered a civil settlement to pay damages to Medicare, Medicaid, and other federally-funded health care programs. As part of the federal settlement, Zeneca will pay the federal government $266 million in Medicare damages, as well as a substantial criminal fine. Upon finalization of all settlements, Zeneca's total restitution, fines and penalties to the federal government and the State Medicaid Programs will be $354.9 million. Allocation of the damages and penalties between the various government programs was determined based on the programs' actual claims and payments for Zoladex.

The federal and state settlements are the culmination of a lengthy investigation into Zeneca's marketing practices. One part of the case centered around Zeneca's provision of free dosages of Zoladex 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 Zeneca failed to include the free dosages in the calculation of its "best price" for Zoladex, 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 Zeneca's inflation of its reported "Average Wholesale Price (AWP)" for Zoladex, while at the same time offering physicians discounts, rebates, grants and other inducements to order and use the product. Those discounts and other items of benefit were not reported to Medicare or Medicaid. Medicare and many State Medicaid Programs, including Oregon, base some pharmaceutical reimbursements on "AWP." By reporting an inflated "AWP," the States alleged that Zeneca 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 as Medicaid paid the providers the inflated AWP-based reimbursement rates for Zoladex.

As part of the settlements, the federal and state attorneys required Zeneca to enter into a comprehensive Corporate Integrity Agreement, which includes provisions requiring Zeneca report to the State Medicaid Programs accurate pricing information on all present and future-developed Zeneca products which are marketed to physicians for in-office administration and billed to federal/state health care programs.

Zeneca had itself adopted an extensive internal compliance program in January 2001; the government attorneys incorporated many of Zeneca's existing audit and monitoring protocols into the government Corporate Integrity Agreement. The settlement also requires Zeneca to cooperate with State Medicaid Fraud Units' investigations of individuals, including physicians, who submitted claims and were paid inflated prices by the Medicaid Program due to the physicians' participation in the Zoladex marketing scheme.

The Zeneca settlement is the fifth marketing/best price case the Oregon Medicaid Fraud Unit has settled with a major pharmaceutical manufacturer in the last six months. The Oregon Medicaid Program will recover in excess of $2.7 million in damages and penalties from the Oregon Medicaid Fraud Unit's work on these cases.

"It is well known that in the last several years, prescription drug costs have eaten up a sizeable portion of the State's Medicaid Budget," Attorney General Myers said. "It is our hope that the Medicaid Fraud Unit's work in this area will serve a deterrence purpose and that, combined with the monetary recoveries and the affirmative relief provided under the terms of the negotiated settlements, will have a significant impact on lowering Medicaid's costs."

Contact:

Kevin Neely, Justice, (503) 378-6002
Ellyn Sternfield, Atty. in Charge, DOJ Medicaid Fraud Unit, (503) 229-5725 x241 |
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