Mylan subsidiary Dey Pharma settles $280 million with US DoJ, but Merck KGaA to pay

Dey Pharma, a subsidiary of US generic drugs maker Mylan (Nasdaq: MYL) says that it has settled a law suit brought against it by the US Department of Justice in September 2006 relating to Medicare and Medicaid reimbursements paid by the federal government to pharmacists and other health care providers. In exchange for a release of claims, Dey has agreed to pay $280 million.

According to the DoJ, the US government alleged that Dey reported false prices for the following drugs: albuterol sulfate, albuterol MDI, cromolyn sodium and ipratropium bromide. The difference between the resulting inflated government payments and the actual price paid by health care providers for a drug is referred to as the “spread.” The larger the spread on a drug, the larger the profit for the health care provider or pharmacist who is reimbursed by the government.

The government alleges that Dey created artificially inflated spreads to market, promote and sell the drugs to existing and potential customers. Because payment from the Medicare and Medicaid programs was based on the false inflated prices, the government alleged that Dey caused false and fraudulent claims to be submitted to federal health care programs and, as a result, the government paid millions of claims for far greater amounts than it would have if Dey had reported truthful prices.