State Attorney General Kathleen Kane announced a settlement Monday with a company accused of filing false claims to Medicaid for an unapproved drug.

Pennsylvania reached a multi-million-dollar settlement with Healthpoint Ltd and DFB Pharmaceuticals to resolve allegations that Healthpoint caused false claims to be submitted to Medicaid for an unapproved drug, state Attorney General Kathleen G. Kane announced Monday.

Pennsylvania’s settlement, which will return nearly $2 million to the state Department of Public Welfare, is part of the U.S. Department of Justice’s agreement with Healthpoint Ltd. and DFB Pharmaceuticals to pay up to $48 million to resolve allegations that the company submitted claims to Medicare and Medicaid program for Xenaderm, which was ineligible for reimbursement.

“For a pharmaceutical company to knowingly misrepresent a drug, take taxpayers dollars and then, overcharge state programs is unconscionable,” said Kane. “My administration will take action against any company that disregards the law and puts our citizens at risk.”

According to complaints, Healthpoint, a Smith & Nephew business, did not accurately represent the regulatory status of Xenaderm– a prescription skin ointment for the treatment of nursing-home patients’ bed sores that was not approved by the Food and Drug Administration (FDA) – when it submitted quarterly reports to the U.S. government.

Under the Federal Food Drug and Cosmetic Act, manufacturers must obtain FDA approval before introducing any new drug into the market. The U.S. Department of Justice intervened in, and later filed, a civil False Claims Act case against Healthpoint, alleging that Healthpoint’s business strategy was to market new prescription drug products modeled after drug products that were on the market before October 1962, in order to avoid the time, effort, and expense of obtaining FDA approval.

The complaint also alleged that at no time prior to its introduction of Xenaderm into the market did Healthpoint complete any double-blind placebo-controlled clinical studies that established the safety and effectiveness of Xenaderm.  In fact, one of Healthpoint’s own clinical researchers conceded in an internal e-mail that the safety and efficacy data for Xenaderm was “cruelly insufficient” to meet FDA standards.

Notwithstanding the lack of FDA approval, the U.S. government alleges, Healthpoint actively promoted Xenaderm as a prescription drug that, unlike non-prescription skin ointments such as Vaseline, was “Medicare reimbursed” and thus, cost nursing homes nothing to administer to patients.

The Pennsylvania Office of Attorney General negotiated the state’s claims in the U.S. Department of Justice lawsuit.  The National Association of Medicaid Fraud Control Units also participated with the U.S. Department of Justice in the settlement negotiations with Healthpoint, along with Offices of the Attorneys General including Florida, North Carolina, Ohio, Massachusetts and Virginia.

The settlement resolves allegations against Healthpoint in a multi-defendant whistleblower action captioned United States ex rel. Constance Conrad v. Healthpoint, Ltd., et al., No. 02-11738-RWZ (D. Mass.).   The lawsuit was brought under the whistleblower provisions of the False Claims Act, which allow private parties with knowledge of fraud to sue on behalf of the United States and share in any recovery.