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Sixteen states and the Justice Department are now backing two lawsuits alleging that the drug giant Wyeth, maker of the anti-migraine drug Phenergan known to cause gangrene when improperly administered, defrauded the federal government by giving drug discounts to hospitals that it did not give to Medicaid.

According to the lawsuits, filed in federal Massachusetts District Court, Wyeth deliberately avoided paying state Medicaid programs hundreds of millions of dollars in rebates for its acid-reflux drugs Protonix Oral and Protonix IV. Before cheaper generics entered the market to compete with these drugs, Wyeth was making about $2 billion a year in profits from them.

Medicaid, the health-insurance program for the poor, is entitled to the lowest price on prescription drugs, and drug makers are required to pay states rebates based on any discounts offered to other parties. Medicaid is financed half by the federal government and half by the states, which administer the program.

The complaint alleges that from 2000 to 2006 Wyeth sold the two medicines to thousands of hospitals at a deep discount in a bundled package called the Protonix Performance Agreement. The deal gave some hospitals as much as a 94% discount on the oral drug, the government says.

"By offering massive discounts to hospitals, but then hiding that information from the Medicaid program, we believe Wyeth caused Medicaid programs throughout the country to pay much more for these drugs than they should have," said Tony West, assistant U.S. attorney general for the Civil Division, in a news release. -Avery Johnson, The Wall Street Journal

The states joining on to the lawsuit include California, Delaware, Florida, Illinois, Indiana, Louisiana, Massachusetts, New York, Michigan, Nevada, New Hampshire, Tennessee, Texas, Virginia and Wisconsin.

Wyeth will likely settle this case before being acquired by Pfizer sometime later this year.

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