Cypress Pharmaceutical, Inc. pays $2.8 million to settle False Claims Act suit over unapproved drugs

by Ben Vernia | March 28th, 2012

On March 28, the Department of Justice announced that a Mississippi-based pharmaceutical firm and its CEO had agreed to pay $2.8 million to settle claims that they marked unapproved drugs as “safe and effective.” According to DOJ’s press release:

Mississippi-based Cypress Pharmaceutical Inc., its subsidiary Hawthorn Pharmaceuticals Inc. and its CEO, Max Draughn, have agreed to pay $2.8 million to resolve civil allegations under the False Claims Act, the Justice Department announced today. The government alleged that between 2003 and 2009, Cypress, Hawthorn and Draughn were responsible for marketing three pharmaceutical products that were not approved as safe and effective by the Food and Drug Administration (FDA). The products were Hylira, a gel used for the treatment of dry skin, Zaclir, an acne treatment and Zacare, another acne treatment.

The government alleged that although the drugs lacked the “safe and effective” designation, Hawthorn’s sale representatives promoted the products to physicians and state Medicaid officials using that designation. This caused TRICARE, the military’s health care program, and state Medicaid programs to improperly pay for the three products. The government also alleged that Cypress, Hawthorn and Draughn caused the submission to the Centers for Medicare and Medicaid Services (CMS) of false quarterly reports that misrepresented these products’ regulatory status and failed to advise CMS that the drugs did not qualify as outpatient drugs that were covered for payment.

Medicaid is partially funded by the federal government. The federal portion of today’s settlement, including payments due to the TRICARE program, is $1,615,783. The state Medicaid share of the settlement is $1,184,217.

DOJ announced that the relator will receive “more than $300,000.” (The uncertainty probably arises from the need to ascertain his share of the recovery for those states with False Claims Acts.)

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