Dey Pharma, a subsidiary of Mylan Inc., has agreed to pay $280 million to the federal government to settle allegations that it had violated the False Claims Act by engaging in a scheme to report false and inflated prices for its products, knowing that federal health care programs relied on those reported prices to set payment rates.

According to the Department of Justice, Dey had engaged in a scheme to report false and inflated prices for numerous pharmaceutical products, knowing that federal health care programs relied on those reported prices to set payment rates. The actual sales prices for the Dey products were far less than what Dey reported, the DOJ said.

The federal government has alleged that Dey reported false prices for the following drugs: Albuterol Sulfate, Albuterol MDI, Cromolyn Sodium and Ipratropium Bromide.

The DOJ said Dey had created artificially inflated spreads (a spread is the difference between the resulting inflated government payments and the actual price paid by healthcare providers) to market, promote and sell the drugs to existing and potential customers.

By falsely reporting inflated prices to the lists the government uses when calculating how much to pay for the drugs, Dey created an incentive for the purchase of their drugs by allowing buyers to pocket the difference between the actual price of the drug and the inflated government payment.

Because payment from the Medicare and Medicaid programs was based on the false inflated prices...Dey caused false and fraudulent claims to be submitted to federal health care programs and, as a result, the government paid millions of claims for far greater amounts than it would have if Dey had reported truthful prices, the DOJ said.

This is the fourth such settlement with pharmaceutical manufacturers that the DOJ has announced this month. Earlier this month, the DOJ announced settlements totaling $421.1 million involving similar allegations against three other manufacturers: Abbott Laboratories Inc., B. Braun Medical Inc. and Roxane Laboratories Inc.

With this settlement, the Department of Justice has now recovered over $2 billion dollars from pharmaceutical manufacturers arising from similar unlawful drug pricing schemes, said Assistant Attorney General (Civil Division) of the Department of Justice, Tony West.

Taxpayer-funded kickback schemes like this not only cost federal health care programs millions of dollars, they threaten to undermine the integrity of the choices health care providers make for their patients, West said.

These settlements are part of the government's emphasis on combating health care fraud. One of the most powerful tools in that effort is the False Claims Act, which the Justice Department has used to recover approximately $4.6 billion since January 2009 in cases involving fraud against federal health care programs. The Justice Department's total recoveries in False Claims Act cases since January 2009 have topped $5.8 billion.

The False Claims Act's  qui tam  provisions allow private persons with knowledge of fraud to file suit on behalf of the United States and share in any recovery. As part of the latest settlement, whistleblower Ven-A-Care of the Florida Keys Inc., a Florida home-infusion company, will receive a share of approximately $67.2 million.

Meanwhile, Dey said in a statement on Monday that it has agreed to pay $280 million to settle the lawsuit filed by the U.S. in September 2006 pertaining to Medicare and Medicaid reimbursements paid by the federal government to pharmacists and other healthcare providers.

The lawsuit was filed before Mylan bought the specialty drug division in 2007 from Merck KGaA.

The statement also said that under the acquisition agreement, Dey's former parent company Merck KGaA is responsible for paying the full amount of this settlement as well as all costs and other expenses associated with pending and future-related reimbursement lawsuits involving Dey.