KV Pharmaceutical and Ethex: Familiar Ingredients, Unapproved Products

KV Pharmaceutical Company agreed to pay $17 million in the Ethex nitroglycerin hyoscyamine settlement over allegations that Ethex misrepresented the drugs’ approval status and caused false claims to federal healthcare programs. The government alleged that Ethex submitted false quarterly reports while failing to tell the Centers for Medicare and Medicaid Services the products did not qualify for coverage. For an insider who knows the approval files or government reports, that is the heart of this case: the difference between the product’s regulatory history and what the company told the agency paying for it.

KV was the St. Louis-based parent of Ethex Corporation, which was already defunct when the Justice Department announced the settlement on December 6, 2011. This pharmaceutical fraud case concerned two particular products, Nitroglycerin Extended Release Capsules and Hyoscyamine Sulfate Extended Release Capsules. Their active ingredients had been used for years. Their extended-release formulations still needed approval.

Why Familiar Ingredients Did Not Mean Approved Products

Nitroglycerin ER and Hyoscyamine Sulfate ER required full Food and Drug Administration approval for safety and effectiveness despite the long history of their active ingredients. The Massachusetts U.S. Attorney’s Office described the approval determinations that made the distinction concrete.

In 1997, the Food and Drug Administration declared extended-release products, including these two, to be new drugs requiring full approval. In 1999, the agency also found Nitroglycerin ER less than effective and proposed withdrawing it from the market. The government said those determinations made the drugs ineligible for reimbursement by government health care programs such as Medicaid.

Yet the government alleged that Ethex caused claims for those products anyway. Taxpayers were being asked to fund a heart drug the government itself had called less than effective.

Nitroglycerin ER was used to treat angina, the chest pain caused by inadequate oxygen supply to the heart muscle. Hyoscyamine Sulfate ER was an antispasmodic used for stomach, intestinal and urinary tract disorders involving cramping and other painful muscle contractions.

Inside a drug company, the product is more specific than the ingredient name. Strength, dosage form, route and labeling belong to the particular product being sold. An ingredient’s long commercial history does not answer the approval question for an extended-release capsule.

The approval route determines what a manufacturer must show. A full new drug application includes reports of investigations into safety and effectiveness. An abbreviated generic application requires the same active ingredient, strength, dosage form, route and labeling as the reference product, plus bioequivalence. Even that abbreviated route is about a particular product. Ethex’s extended-release capsules needed their own regulatory approval despite the history of the ingredients.

By the settlement announcement, neither product had ever received full regulatory approval for safety and effectiveness, and neither remained on the market.

What Ethex Reported to CMS

The government alleged that Ethex misrepresented both products’ regulatory status and failed to advise the Centers for Medicare and Medicaid Services that they were unapproved and ineligible for coverage. It also alleged false quarterly reports concerning the products.

According to the Justice Department, Ethex knowingly caused false claims to be submitted for Nitroglycerin ER and Hyoscyamine Sulfate ER. The allegation was straightforward: Ethex kept the government paying for drugs that did not qualify for coverage.

Are Pharmaceutical Companies Liable for False Claims?

A pharmaceutical company can be liable under the False Claims Act for knowingly causing false claims even when another business submits them. In the pharmaceutical supply chain, a manufacturer, wholesaler and dispenser handle different parts of the product’s journey. A pharmacy or physician can submit the reimbursement claim affected by a manufacturer’s conduct.

The government’s allegation reached back from the claims to the manufacturer’s account of the products’ approval status. Someone working on regulatory files or government reporting could therefore understand a decision that mattered to reimbursement without processing the prescription claim themselves.

The KV Settlement and the Wider Whistleblower Case

The settlement resolved the allegations against Ethex within a qui tam case brought by a whistleblower against multiple defendants. The announced allocation was $10,158,695 to the federal government and $6,841,305 to state Medicaid programs.

A separate resolution in the same whistleblower action concerned Healthpoint’s unapproved prescription product Xenaderm. Healthpoint agreed to pay $28 million, with another $20 million due if an ownership change occurred within three years, for a total of up to $48 million.

The government alleged that Healthpoint caused Medicare and Medicaid claims for that product. The common thread was a manufacturer allegedly causing public programs to pay for an unapproved drug.

How Much Money Do Pharmaceutical Whistleblowers Get for Exposing Fraud?

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. In the Ethex resolution, the whistleblower was allocated about $1.5 million from the federal share, with additional amounts from the state share.

What Evidence Is Needed to Prove Fraud?

For an unapproved-drug reimbursement case, the useful evidence connects the particular product’s approval history, the company’s statements to the Centers for Medicare and Medicaid Services and the resulting government claims. We examine those connections with the insider who understands how the business handled them.

Product status also matters in drug misclassification and Medicaid rebate cases, where the category reported for a drug affects the rebate owed. In Ethex’s case, the government’s allegation concerned eligibility for coverage itself. The question was whether the drugs should have been paid for at all.

A pharmaceutical whistleblower may know why a report described a product as it did, who handled a Food and Drug Administration determination, or how the reimbursement team understood the product’s status. We work with that knowledge to identify the business decision behind the claims and build the case around it.

You Know What the Product File Said

If you saw an approval problem disappear from the account given to the government, speak with our whistleblower experts about the reports and the payments they supported. We work with you to build your strongest pharmaceutical whistleblower case and bring in pharmaceutical fraud whistleblower lawyers who understand drug approval and government reimbursement. From the first call through the case, we are your partners in turning what you know into a demand for accountability.