On October 16, the Texas Office of Attorney General settled an enforcement action against Ranbaxy, an Indian manufacturer of generic drugs.

The settlement resolves the State’s lawsuit under the Texas Medicaid Fraud Prevention Act (“TMFPA”) against Ranbaxy for allegedly reporting inflated drug prices to the State Medicaid program.

The settlement agreement requires Ranbaxy to pay US$17.875 million to the Texas general revenue fund and another US$17.875 million to the federal government. The Texas Attorney General’s office will also receive US$4 million in attorneys’ fees and costs.

The payments will be made in four installments, starting this November and ending next year.

In September 2012, after an investigation, the State filed a complaint against Ranbaxy alleging violations of the TMFPA.

The complaint alleged that since 1997, Ranbaxy had violated Texas law by misreporting the prices of dozens of drugs to the State Medicaid program, or otherwise hiding or failing to disclose the market prices for its drugs.

Ranbaxy then allegedly marketed those same drugs to wholesalers, distributors, and pharmacies at different prices.

In this way, the company allegedly generated a “spread” consisting of the difference between a drug’s market price and reimbursement price, which Ranbaxy allegedly used to induce wholesalers, distributors, and pharmacies to select its products over competitor products.

Under Texas law, drug manufacturers like Ranbaxy must file reports with the Medicaid program that disclose the actual net prices they charge pharmacies, wholesalers, and distributors for their products.

Unlike other state Medicaid programs, Texas bases its drug reimbursement rates on these manufacturer-reported prices, rather than on standard pricing metrics such as average manufacturer price (“AMP”). When manufacturers report inflated or inaccurate market prices for their drugs, or when manufacturers fail to update pricing information on a regular basis, Medicaid reimbursement rates for those drugs can be artificially high.

Under the TMFPA, Texas can recover treble damages based on inflated drug reimbursements, as well as between US$5,500 and US$11,000 in civil penalties per violation of the Act.

Since 2000, the Texas Attorney General’s Civil Medicaid Fraud Division has investigated dozens of pharmaceutical companies for reporting inflated drug prices to Medicaid.

In fact, since 2002, the Division has recovered over US$600 million for the State of Texas, and over US$1.5 billion for the state and federal governments combined.

And the trend does not appear to be slowing. In 2013 and 2014 alone, the Texas Attorney General settled lawsuits with more than a dozen pharmaceutical companies for Medicaid fraud.

These include: