The Boston Globe, April 16, 2003


Two major pharmaceutical companies have agreed to pay one of the largest Medicaid abuse settlements in US history to resolve allegations that they overcharged the government insurance program for the poor, according to federal investigators and others familiar with the case.

Under an agreement negotiated with the US attorney's office in Boston and state Medicaid fraud investigators around the country, Bayer AG will pay the government about $250 million and Glaxo SmithKline has agreed to pay about $90 million for failing to give the Medicaid program the lowest price charged to any customer, as required by law.

Bayer is pleading guilty to violating the federal Prescription Drug Marketing Act and paying a criminal fine of about $5 million for alleged overcharges involving its antibiotic Cipro and its high blood pressure drug Adalat. Bayer will also pay a much larger civil fine than Glaxo.

Glaxo, which was not accused of any criminal wrongdoing, is only paying a civil fine for overcharges involving its antidepressant Paxil and nasal allergy spray Flonase, the sources said.

Prosecutors are expected to announce the settlement today in Boston. Both the US attorney's office and the state attorney general's office declined to comment yesterday.

"It's a very significant fine, and I do think [it] sends a message that hopefully will be heard by other companies that these kinds of practices are unacceptable," said Dr. Peter Lurie, deputy director of Public Citizen's Health Research Group in Washington. "If Medicaid can't get a decent price, who can?" he added. "It's an enormous payer with tens of millions of subscribers."

The investigation centered on allegations that the companies hid their lowest prices from Medicaid by repackaging or relabeling their drugs under a middleman's name. The middleman then sold the drugs at a deep discount that was not reported to the government. By law, the companies are required to report all their prices and then pay Medicaid a rebate if they charge anyone less than the government.

All 50 states will share the settlement money. A whistle-blower who alerted federal officials to the alleged fraud by Bayer will also get a portion of the settlement. Bayer released a statement confirming that the company had reached a settlement with the US attorney's office. "Throughout the investigation, Bayer cooperated fully with the goverment and we are now pleased to put this matter behind us," the company said.

In December, Bayer AG, based in Germany, announced that it had set aside $257 million to settle allegations that it failed to pay rebates owed to Medicaid from 1995 to 2000. The Medicaid program is a shared federal and state program to provide health insurance to the poor.

The settlement comes as state and federal prosecutors nationwide are investigating drug pricing and sales tactics by dozens of pharmaceutical companies that they allege have defrauded the public of billions of dollars and driven up the nation's Medicare and Medicaid bills.

In the fall of 2001, federal prosecutors in Boston won a record $885 million settlement from TAP Pharmaceutical Products in a combined criminal and civil case that alleged the company inflated the price of Lupron, the top-selling drug for prostate cancer. TAP officials were indicted and are awaiting trial on charges of giving kickbacks to doctors to induce them to prescribe Lupron.

Some 20 lawsuits filed against two dozen pharmaceutical companies by citizens and states across the country have been consolidated into one case before a federal judge in Boston. The suit alleges that the companies inflated the prices the government paid for prescriptions for the elderly and disabled through the Medicare and Medicaid programs.

The Boston investigation of Cipro unfolded at the same time that Bayer was selling 100 million Cipro tablets to the government to use in the wake of the anthrax bioterror scare in fall 2001. Prescriptions for the drug soared after the government said it was the best treatment for anthrax. Under a government threat to break Bayer's patent on the drug because of the national emergency, Bayer agreed to provide it at nearly half the usual government price.
By Alice Dembner