Walgreen Co. has agreed to pay $35 million to settle claims that it improperly switched patients' prescription drugs to more expensive ones in order to increase its reimbursement from Medicaid, the U.S. Justice Department announced today.

New Jersey and Pennsylvania will receive part of the money from the case, which was filed by a whistle-blower who sued major pharmacies in two other high-profile cases that netted $87 million in settlements.

Walgreen, of Deerfield, Ill., operates more than 5,000 retail pharmacies throughout the United States. It has about 3,500 employees in the Philadelphia region.

From 2001 to 2005, Walgreen switched the prescriptions for Medicaid patients who were prescribed 150-mg or 300-mg tablets of ulcer-fighting Ranitidine to more expensive capsules; prescriptions for 10-mg or 20-mg capsules of the antidepressant Fluoxetine to more expensive tablets; and prescriptions for 5-mg tablets of the Parkinson's drug Eldepryl to more expensive capsules, according to today's settlement.

The Justice Department said that by switching the prescriptions, Walgreen substantially increased its Medicaid reimbursement while providing no additional medical benefit to the affected patients - in violation of federal and state regulations.

The suit was filed in 2003 by Bernard Lisitza, a licensed pharmacist in Illinois, on behalf of federal and state governments.

Lisitza, who was temping for another pharmacy and filling some prescriptions for Walgreen's, contended in his suit that the drug-switching programs he observed by Walgreen's were schemes to increase pharmacy profits at taxpayers' expense, and that they resulted in no medical benefit to patients.

Recent generic drug-switching cases by Lisitza resulted in a $37 million settlement earlier this year with CVS Caremark Corp., owner of CVS pharmacies, and a $50 million settlement in late 2006 with Omnicare Inc., the nation's largest pharmacy for nursing homes.

Lisitza's attorney, Michael Behn, said his client was fired after reporting the drug switching at Omnicare and could find only temporary work far from his home in Northbrook, a suburb of Chicago.

"It's one thing to substitute a less-expensive generic for the brand name," Behn said in an interview today from his Chicago office. "It's a different story when a pharmacy is switching to a more expensive drug."

Lisitza will get about $5 million under the Walgreen's settlement. The federal share of the settlement is about $18.6 million.

Forty-six states and Puerto Rico will share about $16.4 million under separate agreements. New Jersey will receive $1.2 million and Pennsylvania about $9,000.

Last month, pharmacy-benefits manager Express Scripts Inc., of St. Louis, agreed to pay $9.5 million under an agreement with the attorneys general of 28 states, including Pennsylvania, over switching patients' cholesterol-drug brands to control costs. The attorneys general claimed that the switches resulted in Express Scripts' profiting by getting drugmaker rebates, and that such cost savings were never passed on to consumers.

Walgreen shares closed unchanged today at $36.34 on the New York Stock Exchange.