Drugmakers' Payments Draw Heat

Following its settlement of kickback allegations with Omnicare, the Justice Dept. continues to probe Johnson & Johnson

By Harris Meyer

A $112 million settlement involving alleged drug kickbacks that the Justice Dept. announced with the nation's largest nursing home pharmacy and a generic drug manufacturer on Nov. 3 is part of a wide-ranging investigation of suspected Medicaid fraud by the pharmaceutical industry. Critics say the continuing probe, which involves Johnson & Johnson (JNJ) and other major drugmakers, highlights what they describe as an industry practice of paying money to outfits that provide drugs to consumers, in return for preferential treatment.

Because those alleged payoffs have the effect of compromising patient care and driving up costs for government and private health insurers, cases like the settlement unsealed with Omnicare (OCR) in Covington, Ky., and IVAX Pharmaceuticals in Weston, Fla., could bolster opposition to the controversial deal the Obama Administration reached with the pharmaceutical industry to win its support for health-reform legislation. Many Democrats say the Administration should have asked for much bigger cost savings from drugmakers.

Under Tuesday's settlement, Omnicare will pay $98 million plus interest to the federal government and a number of state Medicaid programs to settle allegations that it participated in kickback schemes with IVAX, J&J, and two nursing home chains. IVAX, a subsidiary of Israel's Teva Pharmaceutical Industries (TEVA), agreed to pay $14 million plus interest.

No Admission of Wrongdoing

Omnicare and IVAX entered "corporate integrity agreements" to establish new training and policies to prevent future problems. Neither company admitted any wrongdoing. An Omnicare spokesman said the company agreed to settle the matter "to avoid expensive and time-consuming litigation" and "to focus on its mission of providing high-quality pharmaceutical care for the frail elderly." In a written statement, IVAX denied any liability relating to the Omnicare contract, which it said was executed years before the company was acquired by Teva.

The investigation of J&J is "ongoing," said acting U.S. Attorney Mike Loucks in Boston, whose office spearheaded the Omnicare probe. Asked whether such alleged kickback schemes are widespread, Loucks, a veteran health-care fraud investigator, said: "Almost invariably if we see one practice in one company, it's happening at other companies." J&J declined to comment directly, saying only that it received a subpoena in 2005 from the government seeking documents related to sales of eight drugs to Omnicare, and that several employees have been subpoenaed to testify before a grand jury.

Patrick Burns, a spokesman for Taxpayers Against Fraud, a nonprofit Washington group that promotes whistleblower suits, says the Justice Dept. is backed up with pharmaceutical fraud cases. Since drugmakers offer so many similar products, he contends, they rely on kickbacks to give their products a market edge. "In the pharmaceutical industry, the business isn't selling the best drug, it's the best scheme of kickbacks to the prescriber. Omnicare is just one of their sales points."

Tony West, assistant attorney general in the Justice Dept.'s civil division, explained the importance of anti-kickback enforcement. "Patients have a right to depend on the integrity of the medical advice they're getting," he said. "When kickbacks are involved, the medical judgment of the provider is corrupted."

Lawyers Advised Against It

The latest cases arose from several whistleblower complaints. One whistleblower was David M. Kammerer, who served as Omnicare's director of Medicaid reimbursement in 2000-02.

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