Sales tactics, pricing under juries's scrutiny

By Alice Dembner and Shelley Murphy, Globe Staff, 8/8/2002

State and federal prosecutors nationwide are expanding their investigations into alleged pricing fraud and kickbacks in the pharmaceutical industry, after a record $885 million settlement won by the US attorney in Boston last fall.

In Massachusetts alone, grand juries at the state and federal level are examining whether 20 companies defrauded the Medicaid and Medicare insurance programs for the poor and elderly, law enforcement officials said.

Across the country, several lawsuits have been filed, and many major drug companies are under investigation as prosecutors take aim at drug pricing and sales tactics they allege have defrauded the public of billions and driven up the nation's medical bills.

''The lens is widening,'' said David Nalven, chief of the business and labor protection bureau at the Massachusetts attorney general's office. ''The focus is not only on the manufacturers, but on wholesalers, pharmacy benefit managers, and all the way down to retail pharmacies. The goal is to recover money for governmental programs like Medicaid, but a secondary goal is broad industry-wide reform.''

While pharmaceutical companies have been under scrutiny by law enforcement since the late 1990s, the efforts got a boost last fall when 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 also accused of giving kickbacks to doctors to induce them to prescribe Lupron.

Since then, Boston prosecutors have expanded their investigation to another drug made by TAP, the heartburn medication Prevacid, and recently indicted a dozen current and former employees of the company, as well as a handful of doctors who allegedly billed Medicare for drugs that they received as free samples.

TAP spokeswoman Kim Modory said the company has ''consistently provided accurate information to the government'' on the pricing of its drugs. ''Our stance is, Medicare is complex, and it needs reform,'' she added. But she also said, ''We have strengthened our commitment to ethics and compliance to ensure that TAP operates ethically.''

In a suit typical of the wave of fraud cases, the Texas attorney general is alleging that Warrick Pharmaceuticals cornered 65 percent of the Medicaid market for albuterol, an asthma drug, by charging pharmacists only $13.50 per Medicaid and Medicare prescription, while getting the government to reimburse pharmacists based on a list price of $40.30. Together with two other generic drug companies, Warrick allegedly bilked the government out of $20 million that went to pharmacists instead.

Warrick denies the charge. William O'Donnell, a spokesman for Warrick's parent company, Schering-Plough, said, ''We are vigorously defending ourselves.''

Pharmacists weren't the only ones accused of cashing in on drug company sales strategies. At a California hospital, doctors allegedly pressured TAP Pharmaceutical Products to pay $30,000 to get its heartburn remedy on the list of drugs the hospital turned to first. The doctors explained that a competing company had already paid that much, according to a Boston federal indictment.

Investigators nationwide are also looking at whether perks that drug companies have long given doctors - such as golf outings, consulting contracts, expensive dinners, and educational grants - were illegal kickbacks used to woo business.

Doctors, hospitals, and drug companies are all targets of a ''long-term investigation'' underway in Boston, said Charles Prouty, the special agent in charge of the FBI's Boston office, who is working with the US attorney and the Department of Health and Human Services. Prouty said health-care fraud is an FBI priority.

''Probably the most serious victim is the patient,'' Prouty said. ''Instead of the doctor prescribing what he may believe is the best drug, he is being induced by these kickbacks to prescribe the drug that these companies are manufacturing. It shakes your faith in the medical profession.''

In addition to the government action, 20 suits filed by citizens and states across the country were recently combined in federal court in Boston. The case alleges that two dozen companies inflated the prices the government paid for prescriptions for the elderly and disabled through the Medicare and Medicaid programs.

The companies targeted in Boston and elsewhere have denied any wrongdoing, saying that discounts and rebates are a legitimate form of marketing. Ethan Posner, a Washington, D.C., lawyer who represents some of the companies under investigation, called the pricing suits ''an effort by the state governments to litigate policy choices that are now before Congress.''

Congress has periodically debated how much the government should reimburse drug companies, pharmacies, and doctors for prescription drugs provided through Medicare and Medicaid. Lawmakers are currently discussing expansion of the Medicare program to cover all drugs for seniors. A congressional report last fall estimated that taxpayers and seniors were paying $1 billion a year in inflated drug prices because of fraud and loopholes in the Medicare system.

Posner said the government has been aware for years of the discrepancy between the published ''average wholesale price'' for drugs and the actual price paid by pharmacies and doctors. ''The government is not getting deceived,'' he said.

But Stephen Schondelmeyer, a University of Minnesota professor who studies the drug industry, said the suits and investigations grow out of a drug market characterized by secrecy and lack of accountability. ''This market is structured to create reverse and perverse economics, such as doctors being paid more for doing the wrong thing,'' such as prescribing a higher-priced drug. ''The suits are one piece of an appropriate response.''

Boston lawyer Thomas Sobol, who represents the consumer coalition and Nevada and Montana in the consolidated Boston civil case, said he is seeking reimbursement, estimated to be in the hundreds of millions, for overcharges to the elderly and disabled in the form of copayments, Sobol said.

Some of the companies under scrutiny in parallel investigations by federal and state prosecutors in Boston include:

Pfizer, for the way it promoted its epilipsy drug Neurontin with doctors and for pricing of its popular cholesterol drug Lipitor.

Bristol-Myers Squibb, for its marketing and billing practices regarding anticancer drugs.

Serono, for the way it promoted its growth hormone Serostim with doctors.

The state has also subpoenaed records from Barr Laboratories and Eli Lilly, and federal officials subpoenaed three health maintenance organizations and two pharmacy benefit managers in the spring for records on their dealings with TAP.

All the companies have denied any wrongdoing.

A Texas official, who requested anonymity, said the investigations have much in common nationwide. ''The fraud may not be exactly the same in every state, but manufacturers will do whatever they can to compete on something other than market price,'' he said.

This story ran on page A1 of the Boston Globe on 8/8/2002.
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