Drugmakers' Payments Draw Heat

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Omnicare is a publicly traded pharmacy benefit manager for long-term care facilities that operates in 47 states, the District of Columbia, and Canada. It had revenues of $6.3 billion in 2008.

According to the settlement, Omnicare allegedly received $8 million in payments from IVAX in 2000-04 to buy $50 million in generic drugs and recommend that physicians prescribe them to their nursing home patients. Omnicare entered the contract even though its outside counsel repeatedly warned it might violate the federal anti-kickback law, the government alleged in its complaint, filed in March. Omnicare also took payments from New Brunswick (N.J.)-based J&J from 1999 to 2004 to aggressively persuade doctors to prescribe Risperdal, an anti-psychotic drug, and discourage use of alternative medications, according to the settlement.

In addition, Omnicare allegedly paid $50 million to nursing home chains Mariner Health Care and SavaSeniorCare in 2004 to keep referring their Medicaid and Medicare patients to Omnicare for pharmacy services. According to the government's complaint, Omnicare again ignored its outside counsel's advice that the payment was illegal. The government is proceeding with its case against Mariner and SavaSeniorCare. In a written statement, SavaSeniorCare said the government's allegations involved a transaction that occurred before the company started operations and before its current management team was in place. Mariner did respond to requests for comment.

The settlement also said that in 2005-08, Omnicare gave nursing homes discounts on pharmacy consultant services to persuade the facilities to use the company's other, more lucrative services. Nursing homes are required by federal law to have a consulting pharmacist review each resident's drug regiment monthly.

Widespread Rebates

This isn't the first time Omnicare has had to settle civil fraud complaints filed by the government. In 2006, Omnicare agreed to pay $102 million to settle Medicaid fraud cases in 43 states, without admitting wrongdoing, including a $52.5 million settlement with Michigan. One complaint accused Omnicare of switching two drugs from tablet to capsule form to boost Medicaid payments. Omnicare had to enter a five-year corporate integrity agreement.

Last December, the government filed a False Claims Act complaint along with Kammerer in federal court in Boston naming Omnicare and a number of large drug manufacturers as defendants. On Tuesday, the government gave notice that it declined to intervene in the whistleblower case, which names Abbott (ABT), Eli Lilly (LLY), Bayer (BAYGN), GlaxoSmithKline (GSK), Hoffman-La Roche, Merck (MRK), Pfizer (PFE), and other big drugmakers. That complaint alleges that for at least eight years Omnicare executives pressured their pharmacy staffers around the country to switch nursing home patients to particular brand-name drugs in return for rebates from the drugmakers. According to the complaint, Omnicare staffers dispensed the drugs even when the patients' physicians had prescribed other drugs; the physicians were not notified of the switches or were given misleading information about the costs and benefits of the alternative drug.

Some observers say paying kickbacks of various types to sell drugs is endemic in the pharmaceutical industry. Brian Smith, president of Cincinnati's Veritas, a pharmacy contract manager for nursing homes, said that when he entered the business in 2002, it was well-known that pharmacists consulting for nursing homes received payments from wholesalers and manufacturers to boost sales of particular drugs. "I thought it was just the industry standard," he said.

The Office of Inspector General of the Health & Human Services Dept. has the authority to bar health-care companies from participating in the Medicaid, Medicare, and other federal health programs as a penalty for violating anti-fraud laws. That's a severe sanction given the huge size of those programs. The settlements with Omnicare and IVAX left open the possibility of exclusion.

Overzealous?

Some experts say Omnicare should be barred as a repeat offender, to send a strong message to other pharmaceutical industry players that fraud will no longer be tolerated. "If the government were really serious, they'd give Omnicare the death sentence," said Erik Gordon, a business professor at the University of Michigan who follows the pharmaceutical industry. "Then all the other players would say this isn't just the cost of doing business, this is a bet-the-company thing."

West declined to comment on whether the Justice Dept. will recommended the exclusion of the two companies, saying only that his office works closely with the OIG's office on appropriate penalties.

Burns, with Taxpayers Against Fraud, said the government has been hesitant to exclude health-care companies for fraud, fearing it will be seen as overzealous. But he believes that's the wrong attitude. "Doing business with the U.S. government is a privilege, not a right," he said. "I think Omnicare has abused the privilege."

Harris Meyer is a freelance writer in Yakima, Wash.