Wyeth Pharmaceuticals got caught with its hand in the Medicaid cookie jar – and now parent company Pfizer must pay the consequences.

New York-based Pfizer, the world’s largest pharmaceutical company, has been ordered to pay $784.6 million to federal and state governments for fraudulent actions committed by Wyeth. Pfizer is left holding the bag after acquiring Wyeth in 2009, although the alleged Medicaid fraud occurred between 2001 and 2006, well before Pfizer’s buyout.

Pfizer Pays One of the Largest Settlements Ever

The huge award – the seventh largest pharmaceutical lawsuit settlement ever – will be divided between the US federal government and 35 states which also joined the lawsuit. It took 14 years to settle the case and, in the end, Pfizer agreed to not dispute the government’s claims.

Wyeth Knowingly Defrauded Taxpayers & Poor Seniors

The lawsuit alleged that Wyeth knowingly underpaid Medicaid drug rebates, defrauding taxpayers by falsely reporting the prices of its drugs under the Medicaid Prescription Drug Rebate Program.

The program, passed in 1990, was designed to help keep costs of prescription medications for poor seniors in check. As an incentive for participating in the program, Medicaid provides quarterly rebates to pharmaceutical companies based on the “best price” of its drugs.

Wyeth’s Acid Reflux Drug Pricing Was Medicaid Fraud

According to the suit, Wyeth knowingly took money from both ends of the rebate program through sales of its acid reflux medications, Protonix Oral and Protonix IV. The company double-dipped by selling their drugs at a higher price than the prices they reported to the government Medicaid program, thus earning a larger rebate.

Whistleblowers Rewarded for Helping to Catch the Fraudsters

The Medicaid fraud was discovered and reported by two whistleblowers protected by the False Claims Act, also known as the Lincoln Law. The act was named after the 16th President because it was passed by his administration during the American Civil War to curb massive fraud committed by both sides.

Essentially, the Lincoln Law rewards whistleblowers who report and sue for fraud on behalf of the United States government. The law also entitles the whistleblowers to 15% to 30% of the settlement amounts. In the Pfizer/Wyeth case, the whistleblowers received over $98 million.

Pfizer will also pay $413.2 million to the federal government and $371.4 million to state Medicaid programs.