Pfizer announced an agreement in principle to resolve a long running False Claims Act lawsuit against its subsidiary Wyeth for $785 million a few weeks ahead of trial. Wyeth engaged in the conduct at issue from 2001 to 2006 according to the amended complaint. Wyeth was acquired by Pfizer in 2009.
The Department of Justice has settled a False Claims Act case against VMware for $75.5 million. The lawsuit, initiated by a whistleblower, contained allegations that the company concealed its commercial pricing practices and overcharged the U.S. Government on products and services sold pursuant to the GSA Multiple Award Schedule contract entered into by VMWare and Carahsoft Technology Corporation.
The U.S. Government requires contractors to disclose the prices and discounts offered to commercial customers in order to ensure that government agencies are getting the supplier’s best price. The GSA regulations specify that prospective vendors applying for a MAS contract make After negotiation of the price(s) and establishment of the government contract, contractors must subsequently inform the government of changes to their pricing practices or discounts for commercial customers.
If they do not make accurate disclosures, the submission of claims for payment under the contracts can overcharge the federal government and violate the False Claims Act. In this case, the settlement resolved the allegations without a determination of liability.
The U.S. Government spends more than $80 billion a year on information technology currently. It is divided between civilian and defense spending, with civilian agency spending accounting for approximately $48 billion a year. With growing spending in this area, it seems like there is more False Claims Act litigation as well. Last summer, the Government intervened in another best price case brought by a whistleblower against CA Technologies.
Last week, the government intervened in a whistleblower lawsuit brought under the False Claims Act against CA Technologies, an IT software provider headquartered in New York. CA is accused of overcharging government customers for software under the terms of its “best price” contract with the General Services Administration.
The federal government requires suppliers to give them the same price and discounts they offer to other large customers or explain the reasoning behind any price discrepancy. During contract negotiations, they must provide information about their pricing policies. If, after entering into a contract with the government, the company provides larger discounts to their commercial customers, they are required to pass on those discounts to the government as well.
Instead, CA increased their discounts to commercial customers without telling the government about the lower prices they were charging. According to the lawsuit, a private sector customer paid $3,400 for a software license that the federal government was charged $34,487.
Dani Shemesh, an ex-employee of CA Israel Ltd., tipped the government off to the larger discounts. If the government successfully recovers money as a result of the allegations, Shemesh may be entitled to between 15 and 25 percent of the recovery as a whistleblower pursuant to the False Claims Act.
A Quick History of Best Price Litigation
There has already been one settlement this year of a case involving a company that failed to give a government body their best price. Office Depot paid $475,000 to settle allegations brought under the New York False Claims Act that it overcharged state government entities in New York. The contract required the office supply store to charge New York no more than it charged the U.S. government under its GSA contract.
In 2011, Oracle settled similar allegations related to their pricing and discounting policy with the Government. The settlement, $199.5 million, was the largest by a company for failure to meet the obligations of a contract with GSA. The whistleblower, a former Oracle employee, received $40 million for initiating the qui tam lawsuit.
The largest settlements for this type of litigation have been collected for Medicaid fraud. The Medicaid Rebate Statute requires pharmaceutical manufacturers to report prices to the government to ensure that Medicaid is not being overcharged. Drug companies have paid hundreds of millions to resolve allegations of overcharging and misreported prices.