CHICAGO — Walgreen Co. has agreed to pay $35 million to settle a federal whistleblower lawsuit alleging it boosted the price for prescriptions paid by Medicaid by switching from capsules to tablets, or vice versa, depending on which was most expensive.

Federal officials said that the practice of switching dramatically increased the amount of taxpayer money that Walgreens, which operates drug stores in 48 states and Puerto Rico, charged to the Medicaid program.

The federal government, 42 states and Puerto Rico will share the $35 million, officials said. The whistleblower who filed the suit, pharmacist Bernard Lisitza, will get about $5 million of that amount, his lawyer, Michael Behn, said.

Under the agreement, Walgreens will pay the federal government more than $18.5 million and more than $16.4 million will be apportioned among the states and Puerto Rico as well as the whistleblower.

Walgreens, based in Deerfield, Ill., denied any wrongdoing in connection with the settlement and said it reached the agreement merely "to avoid the expense and uncertainty of litigation and to resolve all of the government's claims." It said the settlement would have no affect on the company's financial results.

It was the third settlement by a major pharmacy chain resulting from Lisitza whistleblower suits, joined by the federal government, that alleged switching of tablets and capsules. CVS Caremark Corp. agreed to pay $36.7 million in March and Omnicare Inc. $49.5 million in November 2006.

"Let this serve as a reminder of our priority to investigate and prevent illegal schemes that abuse Medicaid programs at the expense of taxpayers and vulnerable recipients," said Daniel R. Levinson, inspector general of the U.S. Department of Health and Human Services.

In such cases, the whistleblower files the initial suit and the federal government then determines whether to investigate the allegations and possibly join the suit. -->

The settlement covers allegations that for three drugs — ranitidine (generic Zantac), fluoxetine (generic Prozac) and Eldepryl or selegiline (generic Eldepryl) — Walgreens switched Medicaid patients from a cheaper version to a more expensive version to boost its reimbursements from the Medicaid program.

For example, Medicaid patients who had prescriptions for 150- or 300-milligram tablets of ranitidine were switched to more expensive capsules. Those with prescriptions for 10 mg or 20 mg capsules of fluoxetine were switched to more expensive tablets, officials said. And prescriptions for 5 mg tablets of Eldepryl were switched to more expensive capsules.

Pharmacists are allowed to make such switches only if the form of the compound they are switching to is therapeutically equivalent and costs less than the one specified in the prescription, officials said.

Federal officials declined to estimate the cost to the taxpayer of the switches that allegedly were made in the three cases.

Federal officials said the only states not participating in the settlement are Alaska, California, Delaware, Hawaii, Maine, North Dakota, Vermont and West Virginia, as well as the District of Columbia.