2 Drug Makers to Pay $875 Million to Settle Fraud Case

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http://www.nytimes.com/2001/10/04/business/04DRUG.html?pagewanted=print

October 4, 2001

2 Drug Makers to Pay $875 Million to Settle Fraud Case

By MELODY PETERSEN

joint venture of Abbott Laboratories (news/quote) and Takeda Chemical

Industries agreed yesterday to pay $875 million to settle criminal and

civil charges that it had illegally manipulated the Medicare and Medicaid

programs.

The settlement against the joint venture, TAP Pharmaceutical Products, is

the largest for health care fraud.

Prosecutors contended that sales representatives for TAP gave doctors free

samples of Lupron, a drug used to treat prostate cancer and infertility,

and then helped them get government reimbursements at hundreds of dollars

for each dose.

Prosecutors also indicted six current and former employees of TAP —

including Alan MacKenzie, now the president of Takeda Pharmaceuticals North

America — charging them with conspiracy to pay kickbacks to doctors if they

prescribed Lupron. The kickbacks included trips to resorts, medical

equipment and money offered to the doctors as " educational grants, "

prosecutors said.

Takeda Pharmaceuticals is the American subsidiary of Takeda Chemical

Industries of Japan. Abbott Laboratories is based in Abbott Park, Ill.

The investigation began more than four years ago after Durand, a

former vice president for sales at TAP, and Dr. ph Gerstein, a

urologist employed by the Tufts Associated Health Maintenance Organization

in Waltham, Mass., separately told federal officials about what they

believed were illegal sales practices on the part of TAP.

After starting to work with federal investigators, Dr. Gerstein met with

TAP sales representatives who offered him $65,000 in grants that they said

he could use for any purpose if he would reverse his decision to have his

health maintenance organization use only Zoladex, a less expensive drug

that competes with Lupron.

Dr. Gerstein, Mr. Durand and Tufts are to share roughly $95 million of the

settlement for serving as whistleblowers under federal law.

The settlement agreement, which had been expected for months, comes as

other drug companies are under scrutiny for similar practices.

Bristol-Myers Squibb (news/quote) and Schering-Plough (news/quote) have

said they are being investigated by the same prosecutors in Boston who

announced the settlement with TAP yesterday. Those investigations also

involve questions about how the companies marketed and priced drugs covered

by Medicare. Both companies said yesterday that they had done nothing wrong.

J. Sullivan, the United States attorney for Massachusetts, said at

a news conference in Boston yesterday that the settlement and indictments

sent " a very strong signal to the pharmaceutical industry. "

" These types of behavior are not tolerated, " Mr. Sullivan said, " and are

going to be investigated, even if it takes four and a half years to bring

to conclusion. "

The $875 million settlement is more than the $840 million paid last year by

HCA-the Healthcare Company, the large hospital chain, to settle health care

fraud charges. It is also more than TAP's sales of Lupron last year, which

were about $800 million.

Watkins, the president of TAP, which is based in Lake Forest, Ill.,

said yesterday that the joint venture " fundamentally disagreed " with most

of the prosecution allegations, but had decided to settle the case because

the government had threatened to stop all federal reimbursements for

Lupron. Those reimbursements accounted for about $450 million of the drug's

sales last year, he said.

" We could not afford to have this drug denied to our patients, " he said.

Mr. Watkins added that the availability, safety and effectiveness of Lupron

was never a question in the case.

He said that TAP admitted it provided free samples of Lupron to a number of

physicians, primarily in the early to mid-1990's, knowing that the doctors

would seek reimbursement from the federal government.

" The billing for free samples is wrong, and it should never have happened, "

Mr. Watkins said. " We have taken strong action so that this inappropriate

marketing practice will never happen again. "

Takeda Pharmaceuticals said that Mr. MacKenzie had decided to take a leave

of absence from the company to focus on his defense against the

government's charges.

" We fully support him in his belief that he will be exonerated, " said Matt

Kuhn, a Takeda spokesman, " and we look forward to his return. "

Medicare now covers a very limited number of drugs. Most of them are

products like Lupron, which must be administered by a physician.

Pharmaceutical companies supply doctors with drugs to give Medicare

patients, and Medicare then repays the doctors based on a price provided by

the companies called the " average wholesale price. "

The government charged TAP with inflating that price so that doctors could

be reimbursed more than TAP actually charged them for the drug. The

excessive government reimbursements were cited by sales representatives,

the government said, as a way to get doctors to prescribe Lupron rather

than its lower-priced competitor.

In addition, since the government pays just 80 percent of the price of the

drug, and patients pay the rest, prosecutors said that TAP had defrauded

hundreds of elderly Medicare patients, mostly men suffering from prostate

cancer, by inflating Lupron's average wholesale price.

At least one lawsuit has been filed against TAP to recover the excessive

payments by patients.

The government has also charged five doctors with health care fraud in the

case. Prosecutors said that those doctors had conspired with the company to

receive excessive Medicare reimbursements. Four of those doctors were

charged months ago and all have pleaded guilty to the charges. The fifth

doctor was indicted yesterday.

As part of yesterday's settlement, TAP also agreed to comply with a 33-

page " corporate integrity agreement. " The document requires TAP to train

its employees in the proper methods of promoting and marketing drugs

covered by federal health programs. The agreement also requires TAP to

accurately report its true average sales price for Lupron and other drugs

to the Medicare and Medicaid programs.

The company would be forced to pay a fine of $2,500 for each day it fails

to comply with the agreement, which is effective for the next seven years.

S. Prouty, special agent in charge of the F.B.I. in New England,

which was part of the investigation, said that other cases were still going

forward and would result in " very significant settlements. "

Medicare frauds, he said, " are an insidious kind of white-collar crime, and

we have made some serious inroads in attacking them. "

--------------------------------------------------------

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