Nostrum Laboratories and CEO to Pay Up to $50 Million to Settle False Claims Act Claims with DOJ

Nostrum Laboratories Inc. and its CEO, Nirmal Mulye, Ph.D., have agreed to a settlement of up to $50 million to resolve allegations that they violated the False Claims Act by knowingly underpaying Medicaid rebates for Nostrum's drug Nitrofurantoin Oral Suspension (Nitro OS). The settlement, which includes a minimum payment of $3,825,000, is contingent on certain financial conditions.

The case revolves around Nostrum's participation in the Medicaid Drug Rebate Program, which mandates that drug manufacturers pay quarterly rebates to state Medicaid programs. These rebates are calculated based on inflation rates and are designed to protect the Medicaid program from price increases exceeding inflation. However, Nostrum allegedly failed to meet these requirements.

As part of the settlement, Nostrum and its CEO admitted to several key points:

1. In 2018, Nostrum temporarily stopped the production of Nitro OS due to lead content issues, but later resumed its manufacture.
2. Nostrum increased the price of Nitro OS significantly, resulting in higher Medicaid Drug Rebate invoices from state programs based on the inflation-based rebate.
3. Despite CMS notifications and knowing about the price increase and inflation-based rebates, Nostrum did not pay the full invoiced amounts from the fourth quarter of 2018 through the first quarter of 2020.
4. Nostrum argued that the post-2018 Nitro OS version was a "new" drug and should not be subject to rebates based on the prior version's price.

The United States asserts that Nostrum and Mulye knowingly failed to pay the required rebate amounts owed for Nitro OS, violating the Rebate Statute and Rebate Agreement from Oct. 1, 2018, through March 31, 2020. Principal Deputy Assistant Attorney General Brian M. Boynton emphasized the Department's commitment to ensuring that pharmaceutical manufacturers meet their obligations to taxpayer-funded healthcare programs.

This resolution was the result of collaborative efforts between the Justice Department's Civil Division, Commercial Litigation Branch, Fraud Section, the U.S. Attorney's Office for the District of Massachusetts, and the assistance of HHS-OIG and the FBI.