Healthy Skepticism Library item: 1052

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Publication type: news

Frost G.
Bayer Agrees to Biggest Medicaid Fraud Settlement
USA Today 2003 Apr 16
http://www.usatoday.com/money/industries/health/drugs/2003-04-16-drug-settlement_x.htm

Full text:

BOSTON (Reuters) – Germany’s Bayer AG will plead guilty to a crimial
charge and pay $257 million in fines and civil damages in what U.S.
prosecutors on Wednesday called the biggest Medicaid fraud recovery in
U.S. history.
Michael Sullivan, U.S. attorney for the District of Massachusetts,
announced the settlement of civil and criminal charges against Bayer and
also unveiled a smaller, $87.6 million deal with GlaxoSmithKline Plc to
settle similar civil allegations against the British drugmaker.
Soaring drug prices and strapped state budgets are leading U.S.
attorneys and states to crack down on abuse of Medicaid, the U.S. health
plan for the poor and disabled.
The government’s case against the German drugs and chemical maker grew
out of a whistle-blower lawsuit that claimed Bayer overcharged Medicaid
for drugs such as Cipro, the antibiotic that gained popularity during
the U.S. anthrax scare.
For a drugmaker to take part in the joint state-federal Medicaid
program, it must offer the government the “best price” on its
pharmaceuticals.
In this case, authorities accused Bayer of cheating Medicaid of at least
$100 million by failing to offer it the same low price it charged to
Kaiser Permamente Medical Care Program.
At the time of the alleged offenses, Kaiser was the nation’s largest
health maintenance organization and often purchased drugs directly from
manufacturers to save on costs, negotiating aggressively for lower
prices.
“They must have the goods on these guys because the way that statute was
written provides a good amount of wiggle room” for drug companies to set
prices, said Ira Loss, a health care expert at Washington Analysis.
WHISTLE-BLOWER
At a news conference in Boston, Sullivan acknowledged that much of the
government’s case against Bayer relied on testimony from whistle-blower
George Couto, a former senior marketing executive at the German company
who has since died.
“Without his courageous effort, this case would not likely have been
successfully pursued,” Sullivan said.
Last August, while he was in the terminal stage of pancreatic cancer,
Couto spent a week giving testimony and being cross-examined by Bayer’s
attorneys. Couto succumbed to the disease in November, but his estate
will receive around $34 million from the settlement for his contribution
to the case.
Bayer would not comment specifically on the settlement, but a spokesman
said the company announced in December it would put aside $257 million
to settle the charges with the government.
Glaxo said in a statement it agreed to settle for $87.6 million with the
U.S. Attorney’s office “to avoid delay and expense of a trial.”
Britain-based Glaxo did not admit wrongdoing and said the disagreement
stemmed from “an ambiguous aspect” of the Medicaid pricing law.
Under the terms of the settlements, Bayer will plead guilty to a charge
that it violated the federal Food, Drug and Cosmetic Act by failing to
notify the FDA (news – web sites) in 1995 that it was producing Cipro
under a private label for Kaiser.
Of the $340 million in civil settlements set to be paid by Glaxo and
Bayer, more than half will go to the federal government and the rest
will be given to 49 states and the District of Columbia, Sullivan said.
The settlements were made possible in part by the federal False Claims
Act, a law that dates from the U.S. Civil War era and which was
modernized under the Reagan administration. Since then, the government
has recovered more than $10 billion through fraud actions initiated
under the statute.
Taxpayers Against Fraud, a Washington-based nonprofit organization that
seeks to further the False Claims Act, said the previous biggest
Medicaid fraud recovery from a corporate defendant was the $49 million
that Pfizer Inc. agreed to pay in October.
Glaxo’s American Depositary Receipts fell $1.14, or 2.9 percent, to
$37.60 on the New York Stock Exchange (news – web sites), while Bayer’s
ADRs fell 57 cents, or 3.2 percent, to $17.15. (additional reporting by
Kim Dixon in Chicago and Jed Seltzer in New York)