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

New Jersey and Pennsylvania will be receiving part of that money.

From 2001 to 2005, Walgreens 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 antidepressant Fluoxetine to more expensive tablets; and prescriptions for 5 mg tablets of Parkinson's disease drug Eldepryl to more expensive capsules, according to the settlement.

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

Walgreens will pay $35 million to resolve a whistleblower suit filed in 2003 by Bernard Lisitza, a licensed pharmacist in Illinois. Lisitza, who was temping for another pharmacy and filling some prescriptions for Walgreen's, filed the suit on behalf of the federal and state governments.

He contended in his suit that the drug switching programs he observed at Walgreens were schemes to increase pharmacy profits at taxpayers' expense, and which resulted with no medical benefit to patients.

Prior 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 will receive approximately $5 million as his share in the Walgreens settlement. The federal share of the settlement is approximately $18.6 million.

"These settlements have made it very clear that drug switching for profit was an industry-wide practice that the government won't tolerate," said Michael Behn, the lawyer who represented Lisitza in an interview today from his Chicago office.

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

"The United States will not tolerate pharmacies or any other health-care providers that attempt to manipulate the Medicaid program at the taxpayers' expense," said Gregory G. Katsas, acting assisting attorney general for the Civil Division.

The case is the Justice Department's third settlement with a company that has engaged in improper drug switching.

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 such switching resulted in Express Scripts profiting by getting drugmaker rebates, but such cost savings were never passed to consumers.

In settling its case, Walgreens also entered into a five-year compliance agreement with the U.S. Department of Health and Human Services to ensure that it does not improperly switch drugs in the future.

The company operates over 5,000 retail pharmacies throughout the U.S. It has approximately 3,500 employees in the Philadelphia region.

Company shares were priced at $36.24 in early-afternoon trading on the New York Stock Exchange, down $0.10.