Unapproved Drugs Reported as Covered: The Quarterly Report Behind the Medicaid Payment

Unapproved drugs can lead to false claims for Medicaid coverage when a manufacturer misrepresents their regulatory status and causes the program to pay. This form of pharmaceutical fraud starts with the discrepancy between the regulatory file and a quarterly report, before anyone bills for a prescription. If you work in regulatory affairs, government reporting or sales, you may know where those accounts split and who chose the account sent outside the company.

Why Approval Status Matters to Medicaid

A drug’s coverage depends on the particular product and its regulatory status. The active ingredient, strength, dosage form, label and approval history belong together. A familiar ingredient can appear in a formulation that still needs approval, and a change in prescription status can change whether a public program pays.

That distinction matters inside a manufacturer. Regulatory affairs may be dealing with an extended-release formulation while a sales team recognizes an ingredient it has sold for years. The government cases below turn on what the company represented about the product that actually reached the patient.

How a Quarterly Report Leads to a Paid Claim

A manufacturer’s product-status report can cause false claims further along the payment chain. In the Medicaid cases below, the Justice Department alleged that false quarterly reports misrepresented regulatory status and failed to tell the Centers for Medicare and Medicaid Services that the products did not qualify for coverage.

This is a particular form of drug pricing fraud: manufacturer-supplied information changes what the government pays. The allegation here concerns the product’s eligibility for payment. A pharmacy or provider can submit the resulting claim even though the manufacturer supplied the false information behind it.

A National Drug Code, package information and the exact formulation help connect a manufacturer’s product records to the medicine sold. We examine that identity alongside the regulatory decision, the report and the paid claims.

Are Pharmaceutical Companies Liable for False Claims?

A pharmaceutical company can face a False Claims Act case for knowingly causing false claims that someone else submits. In the Medicaid cases below, the government alleged that the manufacturer’s report caused the bill to be paid.

Whistleblowers brought the cases discussed here. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. For someone inside the business, the useful knowledge may be the decision to keep reporting or marketing a product as covered after its regulatory status said otherwise.

Unapproved-Drug Coverage Cases

The Medicaid settlements show the same reporting problem in patches, extended-release capsules and skin products. The Medicare Part D case concerns a separate problem: prescription-only labeling kept in use after a switch to over-the-counter status.

Schwarz and UCB’s Quarterly Reports

Schwarz Pharma, a UCB subsidiary, agreed to pay $22 million in 2010 to resolve allegations concerning Deponit, a nitroglycerin skin patch, and Hyoscyamine Sulfate Extended Release. The Justice Department’s announcement said Food and Drug Administration determinations in 1997 and 1999 had made the products ineligible for government reimbursement, including Medicaid.

The government alleged that Schwarz submitted false quarterly reports and failed to tell the Centers for Medicare and Medicaid Services the products did not qualify. Those representations allegedly caused false claims for the drugs. We see a basic absurdity in these allegations: taxpayers were asked to pay for an approval status the products did not have.

The Justice Department’s Civil Division, the U.S. Attorneys’ Offices for Massachusetts and the Southern District of Texas, and the Department of Health and Human Services Office of Inspector General investigated. The settlement provided the two whistleblowers a combined $1.8 million from the federal recovery, with additional amounts from the state share.

KV and Ethex’s Extended-Release Capsules

KV Pharmaceutical agreed to pay $17 million in 2011 over allegations against its Ethex subsidiary involving nitroglycerin and hyoscyamine extended-release capsules. Ethex allegedly misrepresented both products’ regulatory status in quarterly reports and caused false claims for reimbursement.

The Massachusetts announcement explains the formulation problem. In 1997, the Food and Drug Administration declared extended-release products, including these drugs, to require full approval for safety and effectiveness. The active ingredients had been used for years, but neither product ultimately received that approval. In 1999, the agency also found Nitroglycerin ER less than effective and proposed withdrawing it from the market.

The Department of Health and Human Services Office of Inspector General investigated the Massachusetts case. The settlement provided the whistleblower $1.5 million from the federal recovery, with additional amounts from the state share.

Cypress and Hawthorn’s Sales Representations

Cypress Pharmaceutical, its Hawthorn subsidiary and its chief executive agreed to pay $2.8 million in 2012 to resolve civil allegations involving Hylira, Zaclir and Zacare. The government alleged that they marketed this dry-skin gel and these acne treatments between 2003 and 2009 without Food and Drug Administration approval as safe and effective.

According to the settlement announcement, Hawthorn sales representatives nevertheless promoted the products to physicians and state Medicaid officials as having that designation. The government alleged that these representations caused Medicaid and TRICARE to pay improperly, and that false quarterly reports also misrepresented the products’ status. A former Hawthorn district sales manager brought the whistleblower case.

Akorn’s Prescription Label and Medicare Part D

Akorn agreed to pay $7.9 million in 2022 to resolve allegations that it caused Medicare Part D to pay for ineligible generic drugs. The Justice Department’s account explains that Part D reimburses prescription-only drugs and excludes over-the-counter drugs. The products were diclofenac, olopatadine and azelastine.

The Food and Drug Administration approved full over-the-counter switches for the brand versions of diclofenac and olopatadine in February 2020, and azelastine in June 2021. Akorn admitted that it delayed seeking the required conversions and continued selling newly manufactured units under obsolete prescription-only labels. The label carried a payment consequence: the settlement concerned Medicare coverage that the government said those drugs no longer qualified for.

What Evidence Is Needed to Prove Fraud?

The useful evidence connects the exact product, its regulatory status, the representation made about it and the resulting government payment. Regulatory files show the formulation and approval history. Product data and submitted reports show what the Centers for Medicare and Medicaid Services was told. Labeling decisions, sales materials and internal communications explain who chose the representation and when it changed.

The Akorn whistleblower complaint made that comparison concrete by pointing to the company’s website and the labeling it submitted to FDA. Its allegation identified both the prescription-only claim and a marketing date left open:

The comparison puts dates to the alleged mismatch. We connect that kind of product history with the claims paid during the same period and the decisions inside the business. A reporting employee, regulatory specialist or sales manager may know why the external account stayed the same after the underlying status changed.

Coverage Eligibility and Medicaid Rebate Classification

Drug misclassification and Medicaid rebates concern the category used to calculate the rebate on a covered drug. The Medicaid cases here concern the earlier payment question: whether the product qualified for coverage at all.

Public Citizen’s 2018 report, Twenty-Seven Years of Pharmaceutical Industry Criminal and Civil Penalties: 1991 Through 2017, found that overcharging government health programs, mainly drug-pricing fraud against state Medicaid programs, was the most common violation in its wider industry dataset. We follow the manufacturer’s account through to the payment and the people inside the business who understood the difference.

When You Know Why the Status Stayed Wrong

If you know why an unapproved product kept appearing as covered, or why an obsolete prescription label stayed in use, speak with our whistleblower experts about the reporting decision. We work beside you to build your strongest pharmaceutical whistleblower case, connecting product status, company knowledge and public payment. We bring in pharmaceutical whistleblower lawyers who understand these coverage disputes and stay with you as the case develops.