Bayer pays $242 million for knowingly misreporting its "best price" to HCFA and underpaying its Medicaid rebates for private labels for Kaiser

Bayer has agreed to pay $242,126,570 in damages and penalties to the federal and state governments for knowingly misreporting its "best price" to HCFA and underpaying its Medicaid rebates for Cipro and Adalat CC that was private labeled for Kaiser and PacifiCare from its determination of "best price.

CURRAN ANNOUNCES OVER $300 MILLION NATIONAL
SETTLEMENT WITH DRUG MANUFACTURERS
Maryland to Receive Approximately $2 Million
Maryland Attorney General
April 16, 2003

Attorney General J. Joseph Curran, Jr. announced today that his Medicaid Fraud Control Unit is among 48 Units nationally to reach settlements, in principle, with GlaxoSmithKline GSK and Bayer Corporation for violating the federal Medicaid drug rebate statute by failing to report "best price" information and their resulting failure to pay sufficient rebates to the state Medicaid programs in connection with their private labeling of certain drugs for health maintenance organizations.

In addition to the civil settlement, amounting to $87,600,922 in damages and penalties to the federal government and the states, GSK will enter into a Corporate Integrity Agreement with the U.S. Department of Health and Human Services, Office of Inspector General. At the insistence of the National Association of Medicaid Fraud Control Units, GSK will be required to certify its "best price" methodology. This will add a new responsibility for the manufacturer and will enhance future state enforcement.

Bayer has agreed to pay $242,126,570 in damages and penalties to the federal and state governments for knowingly misreporting its "best price" to HCFA and underpaying its Medicaid rebates for Cipro and Adalat CC that was private labeled for Kaiser and PacifiCare from its determination of "best price." Bayer will plead guilty to a charge of violating the Food, Drug and Cosmetics Act in federal district court in Boston. The government will recommend that Bayer pay a fine of $5,590,800. An addendum with new obligations will be added to Bayer’s current Corporate Integrity Agreement with the U.S. Department of Health and Human Services, Office of Inspector General. At the insistence of the National Association of Medicaid Fraud Control Units, the CIA will require Bayer to certify its "best price" methodology. This new responsibility will enhance future state enforcement.

The National Association of Medicaid Fraud Control Units represents the 48 federally certified Medicaid Fraud Control Units that investigate and prosecute Medicaid provider fraud.

These settlements, which include 49 states and the District of Columbia, together with two major drug manufacturers represent the largest national Medicaid fraud settlements ever.

Both Bayer and GlaxoSmithKline sold products to HMOs at deeply discounted prices, and then concealed and avoided their obligation to pay additional rebates to the Medicaid programs. This was accomplished by re-labeling or re-packaging these drugs under the HMO’s private label. This fraud scheme is referred to as "lick and stick."

The federal Medicaid drug rebate statute is designed to return money to the Medicaid program in the form of rebates from drug manufacturers. Under the statute, in order to have the pharmaceuticals eligible for Medicaid payment, all pharmaceutical manufacturers must provide "best price" information to the Centers for Medicare and Medicaid Services (formerly HCFA). "Best price" is the lowest price that a manufacturer offers its products for sale to commercial purchasers. CMS uses this "best price" information to calculate rebates payable to the state Medicaid programs under the statute.

GlaxoSmithKline

The U.S. Attorney’s Office for the District of Massachusetts conducted an investigation into alleged improprieties relating to the reported "best price" for Flonase, a nasal spray, and Paxil, an anti-depressant. Flonase was manufactured and sold by Glaxo Wellcome and Paxil was manufactured and sold by SmithKline Beecham. These two companies merged and became GlaxoSmithKline in December 2001.

Through a private labeling agreement with Kaiser Permanente, an HMO in California, Glaxo Wellcome manufactured, packaged and shipped Flonase to Kaiser, but substituted the Kaiser unique identifying number for the Glaxo Wellcome unique identifying number on the label. The purpose of the private labeling arrangement was to provide Kaiser additional price discounts on Flonase without having to report the discounted price as Glaxo Wellcome’s "best price", thereby avoiding the obligation to pay additional rebates to Medicaid under the Medicaid rebate program. Similarly, SmithKline began private labeling Paxil for Kaiser. Paxil was manufactured, packaged and shipped by SmithKline to Kaiser, but SmithKline substituted Kaiser’s unique identifying number for SmithKline’s unique identifying number on the label. SmithKline provided Kaiser additional price discounts on Paxil without reporting the newly discounted price to the Medicaid rebate program, thereby avoiding payment of additional rebates.