Healthcare Business News

Texas drugmaker agrees to pay up to $48 million in False Claims case

By Joe Carlson
Posted: December 6, 2012 - 7:15 pm ET

Drugmaker Healthpoint has agreed to pay up to $48 million to settle allegations it sold Medicare a drug that was never approved by the Food and Drug Administration and which was ineligible for reimbursement. It becomes at least the fifth company to resolve its role in a sprawling, decade-old False Claims Act case pending in Massachusetts against two dozen companies.

Healthpoint, Fort Worth, agreed to pay at least $28 million to resolve allegations from a whistle-blower (PDF) that it sold a skin ointment called Xenaderm to Medicare and state Medicaid programs, even though the product was not approved for sale as a prescription drug. The settlement terms also apply to Healthpoint's parent company DFB Pharmaceuticals.

Healthpoint also agreed to pay another $20 million if it follows through with a planned, $782 million all-cash acquisition this month by publicly traded Smith & Nephew.

The settlement agreement with the U.S. Justice Department (PDF) says Healthpoint did not admit liability or wrongdoing by settling the case. A company official could not be reached for comment Thursday.

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Court records say Healthpoint officials sold Xenaderm believing it would not need FDA approval because a similar drug was on the market prior to 1962, which exempted it from approval requirements. However, the Justice Department said the active ingredient in Xenaderm is trypsin, which was invalidated for Medicare and Medicaid after the FDA concluded in the 1970s that it was “less-than-effective” for its stated use.

A Justice Department news release said Healthpoint marketed Xenaderm to nursing homes as a prescription drug that would cost them nothing because government healthcare programs paid for it, unlike nonprescription ointments like Vaseline, which are not covered.

Whistle-blower Constance Conrad, who is described in court records as a Maryland resident with 30 years experience in the “federal healthcare programs field,” will receive an as-yet undisclosed share of the settlement. The Justice Department opted to intervene in the lawsuit as a plaintiff against Healthpoint in January 2011.

Conrad's 10-year-old lawsuit, Conrad v. Abbott Laboratories, et al., in U.S. District Court in Boston, accuses 24 pharmaceutical companies of selling drugs to Medicare and other government healthcare programs for “well in excess” of $500 million even though they were not properly approved by the FDA or eligible for coverage. The Justice Department has only joined the lawsuit against the handful of defendants that have now settled.

Some of the drugs allegedly were not covered because the companies submitted false information on new drugs, while others were previously determined to be less-than-effective in the past, and still others are dietary supplements, which are not drugs and therefore not eligible for coverage, the lawsuit says.

Justice Department records say at least four other companies have settled the allegations in the Conrad litigation, for varying amounts of money, all without admitting wrongdoing or liability:

In February 2010, Novartis subsidiary Eon Labs agreed to pay $3.5 million to settle allegations relating to billing for Nitroglycerin Sustained Release capsules.

In April 2010, UCB subsidiary Schwarz Pharma agreed to pay $22 million to settle allegations relating to billing for two drugs, Deponit and Hyoscyamine Sulfate Extended Release.

In September 2010, Forest Laboratories agreed to pay $313 million to settle allegations involving numerous drugs and numerous whistle-blower lawsuits, including Conrad's.

In December 2011, KV Pharmaceuticals agreed to pay $17 million to settle allegations involving its defunct former subsidiary Ethex Corp. and sales of two drugs, Nitroglycerin Extended Release Capsules and Hyoscyamine Sulfate Extended Release Capsules.

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