U.S. Drug Company Accused of Cheating Medicaid

According to this Associated Press artic by Devlin Barrett, and this Fox News article by Wallace Witowski (article much shorter), Drugmaker Wyeth has been accused by the Justice Department and several states of illegally cheating the Medicaid system out of hundreds of millions of dollars. The claim is that the company overcharged for a drug in a sneaky way.

The AP article explains that the law requires drug companies to offer state Medicaid programs the same rebates that they offer to other customers, and that Wyeth sold one of its drugs to thousands of hospitals at a big discount by "bundling" two versions of it (one intravenous, one oral) together for one price. This is done in retail a lot... the concept of "buy this, get this free" is a useful and attractive sales technique. An example would be the way a lot of camera stores carry "kits" which include an SLR camera body, a lens, battery, and memory card for a smaller price than it would cost to buy them all individually. The price for the kit is considered to be a retail price, but in terms of real spending, it does constitute a discount. In terms of a drug company's sales, I can see how this could be problematic, especially if there is any kind of rebate involved with the bundled drug package.
Even though the company may want to differentiate between the "bundled" version sold to hospitals and the individual version sold to medicaid customers filling their prescriptions for oral medication at pharmacies around the country, the fact is that a discount was offered to one payer and withheld from another to whom the law required it be offered.
The AP article states that the Justice Department claims that Wyeth hid from the Medicaid program information regarding its bundling discounts of the drug sold to hospitals. Wyeth is reportedly planning to defend its pricing program, with a spokesperson quoted as saying that the company believes its pricing was correct.

I am interested to see how this turns out. I have no illusions about an honest mistake here. Either the company tried to pull a fast one with public funds by using a sales technique designed to hide a discount in order to avoid offering it to Medicaid as legally required, or several states (and the Justice Department) are splitting legal hairs in order to avoid properly paying for received goods.
My personal opinion at this point is leaning more toward believing the first concept than the second. First, there is no way the company went into this blind. Companies this size have teams of lawyers to analyze such moves, and they wouldn't do something like this without first checking it out so that they knew exactly what they were doing. Chances are, they are just on what they considered to be the safe side of the issue. Second, even if there wasn't any rebate involved in the bundled sales, the resulting discount means that the company gave hospitals a better price than it gave Medicaid. The purpose of the law mentioned in the article is to keep this kind of thing from happening. Since the Medicaid program pays in full (unlike most insurance companies, which usually require the customer to pay a set "co-payment" for prescriptions) using public money, it is unethical for a company to charge more for goods or services when Medicaid is paying than it would charge another customer. To do so would be fleecing the public, and a violation of the intent of the above mentioned law. Skirting the law by using a different method of discount is cheating, just as hiding one's income from the IRS is tax evasion. It is really hard for me to believe that if this company did offer a better discount to hospitals than to the Medicaid system, they didn't know they were cheating by doing so.
Whether or not a judge and jury comes to the same conclusion (and whether or not it is decided that the law was broken) will depend on what other information comes out, exactly how the law is worded, the exact way in which the bundling discount was made, and how convincing and compelling each side's arguments are in court. Right now, it looks this case could go either way. If Wyeth wins, however, I can see a new law being passed within a couple of months (or less) to avoid future issues with drug companies using different discount methods they think they don't have to offer to Medicaid.