ATTORNEY GENERAL JOHN CORNYN
$79 Million Medicaid Fraud Lawsuit

The State of Texas

v.

Dey, Inc., Roxane Laboratories, Inc.,
and Warrick Pharmaceuticals Corporation


Background on the Texas Medicaid Vendor Drug Program

  • Medicaid is a state and federally funded program for health care for the indigent. In Texas, the Medicaid program is administered by the Texas Health and Human Services Commission ("HHSC").
  • HHSC contracts with the Texas Department of Health ("TDH") to administer the Medicaid Vendor Drug Program, which provides payment for prescription drugs for Medicaid patients.
  • Texas is the only state in the country which requires drug companies to certify the prices of their drugs to Texas Medicaid, and also requires the drug companies to report subsequent changes in pricing within 15 days of any change. The certification requires the drug companies to report:
    • - wholesale price to pharmacies
      - the price to wholesalers and distributors
      - the direct price to pharmacies
      - the price to any other special purchasing groups

  • TDH uses the drug companies' certifications to determine the amount that Texas Medicaid will pay to pharmacies for the drugs.
  • Pharmacies buy drugs either directly from the drug companies or from wholesalers. When the pharmacy dispenses a drug to a Medicaid patient, the pharmacy submits a claim to Medicaid for payment. Then Medicaid reimburses the pharmacy using an amount that is based on the price certification from the drug company.
  • Drug companies use the term "spread" for the difference between the actual price paid by pharmacies to drug companies, and the price that Medicaid reimburses to the pharmacy for the very same drug. The "spread" represents profit to the pharmacies at the expense of the Texas Medicaid program and Texas taxpayers.

The Texas Medicaid Fraud Prevention Act

  • Found in chapter 36 of the Texas Human Resources Code. The Act specifies 10 separate acts which are declared to be unlawful, including:
  • Knowingly or intentionally:


      - making a false statement or misrepresentation of material fact on an application for a benefit or for payment under the Medicaid program;
      - concealing or failing to disclose an event which permits a greater Medicaid payment than is authorized; and
      - making a false statement or misrepresentation of fact concerning information required to be provided by a federal or state law, rule, regulation or provider agreement pertaining to the Medicaid program.
  • The Act authorizes the Texas Attorney General to sue for:
    • - restitution;
      - two times the amount of the restitution;
      - penalties of $1,000 to $10,000 per unlawful act; and
      - interest, costs, and attorneys' fees.