Par used Medicaid rule to overcharge for meds, suit says

Par Pharmaceutical ($PRX) exploited a loophole in Medicaid pricing rules to boost its sales--and overcharge the federally funded program at the same time, a whistleblower suit claims. The U.S. government has joined the False Claims Act suit, which was unsealed yesterday. It also names two Mylan ($MYL) units, saying they participated in a drug-switching scheme. The government, however, didn't throw its weight behind those claims.

Here's how it worked, according to the suit: A Medicaid pricing cap applied to generic Prozac and Zantac tablets, but not to capsule forms of the same meds. Par persuaded drugstores to substitute its capsules when filling scripts for those drugs--and charged prices two to 5 times those on tablet versions.

"To increase sales, defendants marketed their higher-priced drugs to pharmacies by falsely portraying their drugs as equivalent to popular, lower-priced generics," the government said (as quoted by Bloomberg). This way, the drugstores could get higher reimbursements from Medicaid programs and "evade the government's price limits."

The suit was initially filed by pharmacist Bernard Lisitza, who has also filed similar claims against drugstores and other pharma companies, Bloomberg notes. "My client noticed there was a pattern of switching capsules for tablets, depending on which would be the more profitable," Michael Behn, Lisitza's attorney, told the news service.

The government is seeking triple damages in the suit.

- read the Bloomberg story