Attorney General Becerra Announces $10 Million Settlement with Major Pharmaceutical Companies

SACRAMENTO — California Attorney General Xavier Becerra today announced a $10,397,052 nationwide settlement with Royal Pharmaceuticals LLC and Seton Pharmaceuticals LLC (Royal/Seton). The settlement was reached after the two jointly-held pharmaceutical companies self-disclosed underpaying Medicaid drug rebates to all 50 states from 2013 to 2017. California’s total settlement amount is $410,192.05, of which $164,080.33 will return to the federal government, and the remaining $246,111.72 will return to the Medi-Cal program.

“Cheating a program like Medi-Cal, which provides health insurance for many of California’s most vulnerable residents, is never okay,” said Attorney General Becerra. “However, when drug manufacturers come forward and report the companies’ error, we’re able to right the wrong and get the money back to the Medi-Cal program where it belongs.”

In September 2017, Royal/Seton self-reported the companies’ inaccurate data to the North Carolina Medicaid Fraud Control Unit. As part of the Medicaid Drug Rebate Program (MDRP), drug manufacturers are required to pay rebates to state Medicaid programs for each of the companies’ drugs that are covered by Medicaid. From September 2013 to January 2017, Royal/Seton inadvertently yet inaccurately reported information that is key to the Centers for Medicare and Medicaid Services’ (CMS) determination of each drug’s rebate amount. The drugs at issue were two low-potency topical steroid products: “Derma-Smoothe,” which is made by Royal and its generic equivalent “fluocinolone,” made by Seton. The companies were inaccurately reporting the drugs’ Market Date, which is the date the drugs were first marketed under Royal/Seton’s rebate agreement. This error altered CMS’s formula resulting in a lower calculated rebate amount, and consequently, Royal/Seton’s underpayment to all 50 states’ Medicaid programs.

This settlement comes on the heels of a settlement with Memorial Health Services that was reached after the health system self-disclosed that it overcharged Medi-Cal for a period of three years. California’s share of that settlement was $18.9 million.

Today’s settlement was negotiated by the California Department of Justice’s Division of Medi-Cal Fraud and Elder Abuse (DMFEA), working with a team of other states. Through the DMFEA, the Attorney General’s office works to protect Californians by investigating and prosecuting those who perpetuate fraud on the Medi-Cal program. DMFEA also investigates and prosecutes those responsible for abuse, neglect, and fraud committed against elderly and dependent adults in the state. DMFEA regularly works with whistleblowers, the California Department of Health Care Services, and law enforcement agencies to investigate and prosecute.

A copy of the settlement agreement with Royal is available here and a copy of the settlement agreement with Seton is available here. 

The DMFEA receives 75 percent of its funding from the U.S. Department of Health and Human Services under a grant award totaling $33,829,000 for Federal fiscal year 2019-2020. The remaining 25 percent, totaling $11,379,000 for fiscal year 2019-20, is funded by the State of California. The Federal fiscal year is defined as October 1, 2019, through September 30, 2020.