Bayer Agrees to Pay U.S. $257 Million in Drug Fraud

[Guest guest]

Comments?

Misty

http://www..com

 

Bayer Agrees to Pay U.S. $257 Million in Drug Fraud

 

April 17, 2003

By MELODY PETERSEN

 

In the largest Medicaid fraud settlement, Bayer agreed

yesterday to pay the government $257 million and pleaded

guilty to a criminal charge after engaging in what federal

prosecutors said was a scheme to overcharge for the

antibiotic Cipro.

 

According to documents turned over to the government by a

whistle-blower, Bayer was coached in the scheme by a

purchasing manager from Kaiser Permanente, one of the

nation's largest health care organizations.

 

The fraud involved selling Cipro to Kaiser at prices lower

than the company was charging Medicaid, in violation of a

federal law that requires drug makers to give the Medicaid

program the lowest price charged to any customer. To cover

up the fraud, the Cipro bottles sold to Kaiser were

relabled with Kaiser's name and given a different drug

identification number.

 

In announcing the settlement yesterday, prosecutors in the

United States attorney's office in Boston did not charge

Kaiser with any wrongdoing. Prosecutors declined to comment

on Kaiser yesterday and said the investigation was

continuing.

 

" There is a commitment to pursuing those who cheat the

federal health care programs in any way, " said Susan G.

Winkler, an assistant United States attorney.

 

The five-year scheme by Bayer, which unfolded before the

2001 anthrax scare caused a run on Cipro, shows the lengths

to which some drug companies will go to profit on the

nation's complex prescription drug laws. Rules allow drug

makers to keep most pricing data secret. Recently, federal

prosecutors have begun focusing on similar pricing schemes

as drug costs continue to rise and as whistle-blowers have

come forward with documents detailing activities.

 

Prosecutors also announced yesterday that GlaxoSmithKline

had agreed to pay $87.6 million to settle civil charges

that it had overcharged the Medicaid program for Paxil, an

antidepressant, and Flonase, an allergy spray. That deal

also involved relabeling medicines for Kaiser, prosecutors

said.

 

The money from the settlements will be divided by the

federal and state governments, which jointly pay for

Medicaid. A portion will also go to public health clinics,

AIDS programs and other groups that are allowed to buy

medicines at the Medicaid price.

 

About $34 million of the Bayer settlement will go to the

estate of a former executive at the drug maker who became a

whistle-blower. George J. Couto, the whistle-blower, died

in November from cancer at the age of 39.

 

Bayer, based in Germany, said yesterday that it was pleased

to have the matter resolved. The company said it believed

that its marketing practices " were responsible and

conducted in good faith. " It said it did not believe that

the settlement would affect its continuing business with

the government.

 

In a brief statement, Kaiser said it believed that its

employees acted in accordance with the law. It said it had

been cooperating with investigators for more than three

years and would continue to do so.

 

GlaxoSmithKline said it had agreed to the settlement to

avoid the delay and expense of a trial. The company said it

" continues to believe that its interpretation of the law

was reasonable and in good faith. "

 

Bayer's Cipro scheme began in 1995 when Kaiser threatened

to stop buying the antibiotic after Johnson & Johnson

offered its medicine, Floxin, at a much lower price,

according to documents, including internal memos, that Mr.

Couto gave to prosecutors.

 

Bayer was desperate to keep the business of Kaiser, a

nonprofit health insurer with eight million members,

according to documents. Kaiser was buying about $7 million

of Cipro each year. In addition, other health groups often

follow Kaiser's lead in drug-buying decisions.

 

But if Bayer offered to beat the price offered by Johnson &

Johnson, Cipro's new price would fall below what Bayer was

charging Medicaid, forcing it to pay tens of millions of

dollars in additional rebates.

 

Alan Mello, a market manager for Bayer, looked for a way to

avoid paying the rebates, according to documents. His

suggestions included a plan to switch Kaiser patients who

were taking Cipro tablets to an injectable form of the

drug, which was not subject to the lowest-price

requirement, called the best price law. Kaiser rejected

that proposal.

 

In April 1995, according to Mr. Couto's testimony, Kaiser

suggested a solution. Bayer would ship Cipro to Kaiser in

the usual way, but the words " Distributed by Kaiser

Foundation Hospitals " would be typed on each bottle's label

along with Kaiser's national drug code number rather than

Bayer's. National drug codes, which are kept on a list

maintained by the Food and Drug Administration, serve to

identify medicines.

 

According to Mr. Couto, the executives' reasoning at the

time was that the responsibility for reporting the new

Cipro price fell to Kaiser. Because Kaiser did not have a

Medicaid agreement with the government, the reasoning

continued, it did not have to report the new price or pay

additional rebates to the government.

 

Mr. Couto told prosecutors that Clive Frith, a purchasing

manager for Kaiser, had told him that this was not the

first such deal that he had put together for Kaiser. " I do

this all the time, " Mr. Frith had said.

 

According to F.D.A. records, Kaiser has its own national

drug code numbers for dozens of relabeled medicines.

 

Mr. Couto told prosecutors that when he presented the final

details of the Kaiser agreement to his superiors, his boss

had joked, " We'll all look good in stripes. "

 

Medicaid fraud investigators and other experts say similar

relabeling has been done by many drug companies to hide the

deeply discounted prices they charge special customers.

 

In a study, Dr. Stephen W. Schondelmeyer, a professor of

pharmaceutical economics at the University of Minnesota,

found that the number of medicines that had been relabeled,

much as Bayer did with Cipro, had grown from 791 in 1990 to

20,801 this year. Some of the medicines may have been

relabeled for legitimate purposes, he said, but some

relabelings appear questionable.

 

" How do you have competition when you don't even know the

price? " Dr. Schondelmeyer asked.

 

In 1996, Bayer also began relabeling Adalat CC, a blood

pressure medicine, with Kaiser's drug code number so that

it could also give the health group deeper discounts on

that product without lowering the price it was charging to

Medicaid.

 

In 2000, after reading a newspaper article stating that the

government was looking into such practices, one Bayer

executive left a voice mail message for his colleague,

saying that they had known when the Cipro deal was done

that someday they " may have to pay the piper. " The voice

mail message was forwarded to Mr. Couto, who provided a

transcript to prosecutors.

 

Mr. Couto told prosecutors that he had become concerned

about the deal after attending a corporate ethics training

class in 1999. The ethics seminar was the first such course

Bayer had required him to attend, even though six years had

passed since he joined the company.

 

The class began with a video address by Helge H. Wehmeier,

who was then in charge of Bayer's United States operations.

Mr. Wehmeier said that Bayer executives were expected to

obey " not only the letter of the law, but the spirit of the

law as well. " And he urged them to call his office if they

learned of violations. Mr. Couto recalled how the room had

erupted with laughter.

 

Within days of the class, Mr. Couto wrote a memo to his

boss, asking how he should react to Mr. Wehmeier's comments

given the Kaiser relabeling deals, which he had come to

believe were illegal. Mr. Couto said he received no

response.

 

In February 2000, Mr. Couto and his lawyers, the firm of

Getnick & Getnick in Manhattan, presented his case to

federal prosecutors.

 

http://www.nytimes.com/2003/04/17/business/17DRUG.html?

ex=1051597466 & ei=1 & en=25fc5c6d9d8e9b0d