After a long-running government investigation, Pfizer (PFE) has agreed to pay more than $784 million to settle allegations that its Wyeth unit overcharged state Medicaid programs for the Protonix heartburn drug.

The deal, which came less than three weeks before a trial was to begin in federal court in Boston, is being settled for substantially less than the $2 billion in liability that the US Department of Justice contended the drug maker faced, according to court documents.

The feds had filed a lawsuit in 2009 accusing Wyeth — which Pfizer had recently acquired — of failing to provide state Medicaid programs the same discounts that were given to other customers. The lawsuit alleged the drug maker failed to offer these discounts, which are known as the “Best Price” and is a means of ensuring that state agencies do not overpay for medicines, between 2001 and 2006.

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Specifically, Wyeth offered “deep discounts” on Protonix to thousands of hospitals nationwide through a bundled pricing arrangement, according to the lawsuit. The feds further alleged that the drug maker used these discounts as a marketing tool to drive “spillover” retail sales, which Medicaid and other insurers then covered at much higher prices.

But the feds alleged that Wyeth “knowingly ignored” the requirement and excluded from its Best Price reports the low prices given to hospitals. “By reporting false and inflated Best Prices, Wyeth improperly reduced its rebate payments by hundreds of millions of dollars and denied Medicaid the benefit of the low prices it was offering to thousands of hospitals,” the lawsuit stated.

Wyeth began offering discounts on two Protonix products – intravenous and oral versions – in response to aggressive pricing by AstraZeneca (AZN), which was marketing the Prilosec and Nexium heartburn meds. At the time, sales of oral Protonix had been weak and AstraZeneca had begun offering its own meds at a nominal price to build market share for its newer Nexium med, according to court documents.

Although Wyeth sold the only intravenous proton pump inhibitor — the formal name for this class of medicines — the “real money” was in the oral version of Protonix. The drug maker hoped that bundling its products would create greater demand for the oral version, according to a whistleblower lawsuit filed in 2003 by an AstraZeneca sales rep.

There were two whistleblower lawsuits, in fact, that were filed against Wyeth over its discounting practices. The other was filed by a Louisiana physician, William LaCorte, who has brought similar suits against other drug makers. Both of these lawsuits formed the basis, in part, for the federal lawsuit.

In a statement, Pfizer did not admit to any liability to the allegations, which prompted 15 states, including Massachusetts, Florida, California, New York, and Texas, to join the litigation.

“These cases are always a reminder that if the federal government and several states join a case, a company should run, not walk, to the settlement table,” said Patrick Burns, who heads Taxpayers Against Fraud, a nonprofit that advocates for stiffer penalties against drug makers and is partially funded by attorneys. “In the end, there was no way out for Pfizer. They were caught dead-to-rights.”

The settlement was foreshadowed last September when US District Court Judge Douglas Woodcock, who has been overseeing the case, indicated that he was inclined to deny Pfizer’s bid to dismiss the federal lawsuit. Pfizer had filed a motion in 2011 to have the lawsuit tossed. Burns estimated that the delay in ruling on the Pfizer motion to dismiss the federal lawsuit cost US taxpayers about $25 million.

In October 2014, the Organon unit of Merck agreed to pay $31 million to several states for allegedly failing to include discounts in its pricing, among other infractions.

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