Heritage Pharmaceuticals: When Competitors Divide the Customers

In the Heritage Pharmaceuticals price fixing settlement, the generic drugmaker agreed to pay over $7 million to resolve civil allegations that it inflated prices and divided customers. The government alleged that manufacturers who should have been competing for business paid and received compensation from one another while arranging prices. The customer list belonged in the fraud story as much as the price list.

Hydralazine, Theophylline and Glyburide

Heritage manufactured generic medicines used for conditions ranging from high blood pressure to diabetes. The Justice Department’s May 31, 2019 announcement named hydralazine, used to treat high blood pressure, theophylline, used for asthma and other respiratory problems, and glyburide, used for diabetes.

The civil settlement covered alleged arrangements between Heritage and other drug manufacturers from 2012 through 2015. The government alleged that Heritage both paid and received compensation in those dealings. Its account joined the decisions about prices and customers to the drugs that public health programs paid for.

Are Generic Drugs Causing Inflated Prices?

Agreements between generic manufacturers to fix prices and divide customers can inflate drug prices. That was the allegation against Heritage: rival sellers arranged the competition that buyers were counting on to bring prices down. Taxpayers funded the public programs buying the medicines, and patients depended on affordable treatment.

The generic business runs through purchasing decisions well before a prescription reaches a patient. Wholesalers handle inventory, credit and delivery, while joint buying organizations negotiate acquisition terms for generic medicines. A manufacturer’s sales staff may be dealing with a purchasing organization whose decisions affect which supplier wins the business.

Those buying relationships can bring a wholesaler and a pharmacy chain to the same negotiating table. Red Oak Sourcing, for example, joins Cardinal Health and CVS in generic procurement. The negotiation over what the buyer pays happens before the prescription reaches an insurance claim.

Customer allocation attacks that purchasing process. When rival manufacturers agree to leave an account to one another, the buyer loses the competition for its business. Heritage’s alleged arrangements reached medicines supplied to Medicare and Medicaid, bringing the cost of that lost competition to public budgets.

Why Federal Health Programs Were Paying

The drugs in Heritage’s alleged scheme reached Medicare and Medicaid beneficiaries, the Department of Defense’s TRICARE beneficiaries and the Department of Veterans Affairs. The civil healthcare fraud settlement addressed False Claims Act allegations involving that federal health care spending.

The kickback theory concerned what competing manufacturers gave one another in exchange for arrangements on price, supply and customers. An agreement to leave business to a rival has value to the rival receiving it. The government treated that exchange of value as part of how the companies arranged drug sales paid for by federal health programs.

That is why this belongs among pharmaceutical fraud cases involving government payments. The Justice Department pursued the public programs’ losses through the False Claims Act. The alleged bargain between manufacturers reached beyond their own sales departments to the government-funded prescriptions at the other end of the transaction.

Heritage’s Later State Settlement

Heritage also agreed to a $10 million state settlement, announced on October 31, 2024. Apotex agreed to a separate $39.1 million state settlement alongside it. These agreements concerned the states’ generic price-fixing litigation.

Heritage appeared in the first multistate generic-drug complaint in 2016, which covered 15 generic drugs. The wider state litigation expanded across manufacturers and medicines. Connecticut’s attorney general described an investigation built from cooperating witnesses, over 20 million documents and millions of call records connecting sales and pricing personnel across the generics industry.

The Former Executives and the Communications Behind the Prices

Heritage’s former chief executive and former president were among the executives cooperating with the states.

Connecticut’s account of the wider investigation described competitors meeting at industry dinners, cocktail parties and golf outings and communicating through calls, emails and text messages. The states alleged that these contacts helped establish and maintain agreements discouraging competition.

The language was revealing. According to the states, participants used terms such as “fair share,” “playing nice in the sandbox,” and “responsible competitor” to describe how they discouraged competition and raised prices. Fairness to a rival meant less competition for the buyer.

Connecticut also described a cooperator’s two-volume notebook recording discussions with competitors and internal company meetings over several years. The notebook put both kinds of conversation in the same contemporaneous account. That is the value of an insider’s knowledge: explaining what the commercial language meant and how a discussion became a pricing or customer decision.

What Other Generic Settlements Changed

Sandoz, Taro and Apotex later agreed to pay a combined $447.2 million to resolve civil allegations involving generic-drug pricing and customer allocation. The Justice Department announced those civil settlements on October 1, 2021. The same problem reached well beyond Heritage’s early settlement.

Apotex’s civil case concerned alleged arrangements to increase and maintain pravastatin prices, causing federal programs to overpay. Different drugs carried the same connection between competitor agreements and public spending.

Each company also entered a five-year corporate integrity agreement with the Department of Health and Human Services’ inspector general. The agreements required the companies to report price-related information to the inspector general. They also required individual certifications from the key executives responsible for the companies’ pricing and contracting functions. The controls reached the functions that decide what a customer pays and how the company gets the business.

The Pricing Decisions an Insider Can Explain

An insider may know why a customer was left to a rival, who discussed a price change with another manufacturer or how an internal instruction affected an offer. Those are the decisions behind the price list and the customer list.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

You Know How the Account Was Decided

If you know how competitors arranged prices or divided customers, speak with our whistleblower experts about the decisions you saw. We build the case with you and bring in pharmaceutical fraud whistleblower lawyers who understand how agreements between drugmakers reach government payments. We stay beside you through the process, working to build your strongest pharmaceutical whistleblower case.