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KEYCODE BAYER #80

Corporate Crime Reporter, APRIL 21, 2003

BAYER PLEADS GUILTY IN MEDICAID FRAUD CASE

TO PAY $5.5 MILLION CRIMINAL FINE, $251 MILLION TO SETTLE CIVIL CASE

On February 9, 1999, George Couto, a Bayer Corporation marketing executive, attended a mandatory ethics training session at a Bayer office in Connecticut.

The training session was kicked off by a video address by Helge Wehmeier, the head of Bayer’s entire U.S. operation.

“Everyone is expected to obey the law – not only the letter of the law, but the spirit of the law as well,” Wehmeier told the assembled Bayer executives. “You will never be alone to adhere to the high standards of the law. Should you feel prodded, speak with a lawyer, or call me. I’m serious about that.”

The assembled employees in the room erupted into laughter.

But Couto had something on his mind. He knew that Bayer had engaged in an elaborate scheme to defraud the Medicaid program out of $100 million.

On February 11, 1999, two days after the ethics training class, he wrote his boss a one paragraph memo asking how the company reconciled the Medicaid scheme with the company’s expectation to adhere to the spirit and letter of the law. No one ever got back to him.

So, Couto decided to pursue the matter elsewhere. He sought legal assistance from Neil Getnick and Lesley Skillen – partners at Getnick & Getnick in New York City, and Scott Tucker of Boston – and filed a qui tam lawsuit against Bayer. That lawsuit was filed in early 2000.

He quit Bayer soon thereafter.

The case was filed under seal. In April 2002, Couto, age 39, was diagnosed with pancreatic cancer. He knew he was going to die, but wanted to make sure that the case would not die with him.

So his lawyers, over the strenuous objections of Bayer’s lawyers, demanded that Couto be deposed on videotape. In August 2002, he was deposed, and withstood a grueling cross-examination.

“In my view, all that crossexamination did was to underscore the strength of the case and demonstrate what an extraordinary person George was,” said Getnick. “As a litigator, I came to the conclusion – and I believe everyone in that room where the deposition was taken came to the same conclusion – that no defendant company would ever had wanted that videotape played before a jury at trial. The success of George in delivering his testimony is what accounted for this case resolving itself within months thereafter.” (See Interview below)

Couto died in November 2002. But last week, his wishes came true, as Bayer pled guilty to one federal criminal count and agreed to pay a $5.5 million criminal fine.

The company also agreed to pay $251 million to settle Couto’s civil False Claims Act case.

Couto’s estate will get a $34 million relator’s fee. GlaxoSmithKline, which engaged in a similar fraud against Medicaid, will pay $87 million to settle its case.

Bayer was charged with knowingly providing Medicaid incorrect data regarding pricing of prescription drugs, preventing Medicaid from receiving discounts to which it was entitled.

Couto, who began his career as a store pharmacist with a drugstore chain, brought Bayer's actions to light in 2000.

“At great risk to himself, his career, and quite probably his health, George Couto decided to do the courageous, ethical thing," Getnick said. “He is an inspiration to any corporate employee – from the mailroom to the boardroom – who is aware of corporate wrongdoing and takes steps to stop it.”

Under the Medicaid Drug Rebate Program, pharmaceutical manufacturers that sell drugs to Medicaid – ultimately for distribution to the poor – are required to give the government its best available price on each drug. That best price is the same price the manufacturers charge their best commercial customers, usually hospitals, HMOs and pharmacy chains. Couto reported that to skirt the best prices requirement and avoid paying Medicaid the 40 percent rebates it was giving its largest customers on the antibiotic Cipro and the antihypertension drug Adalat CC, Bayer engaged in what is known as private labeling, a complicated pricing scheme designed to curry favor with the company's largest customers.

By making nominal changes to the labels on the bottles of pills sold to the commercial customers, Bayer made it appear that they were the customers' own private label drugs. Prosecutors callthese schemes “lick and stick.”

The government alleged that by not including the private labeling deals in its best prices reports to the government, Bayer fraudulently created the illusion that its rebate obligation to Medicaid was only 15 percent.

Over time, the difference in the rebates that Bayer owed and the rebates it paid grew to more than $100 million.

Bayer pled guilty to charges that it violated federal drug laws by failing to notify the Food and Drug Administration (FAD) of its production of private label Cipro for Kaiser. The company admitted that it engaged in the conduct with intent to defraud or mislead.

“We are experiencing a time of skyrocketing prices for prescription drugs, where state and federal budgets are stretched to the breaking point. The effect of leading corporations seeking to avoid paying millions of needed dollars to our nation’s health care programs can be devastating,” said U.S. Attorney Michael Sullivan in Boston. “Socalled lick and stick schemes rob the federal and state taxpayers that fund Medicaid, our system which provides drug coverage for our nation’s poor. Such conduct by pharmaceutical companies is intolerable and we in law enforcement will remain focused on protecting our nation’s Medicaid program.”

"People like George have become the new heroes of corporate America," Getnick said. "George was unable to get his concerns addressed internally. More and more whistleblowers are corporate executives just like George – people with a huge investment in remaining loyal to the company. People like that are driven to go outside the company not primarily by outside forces, but by an inability or unwillingness on the company's part to address illegal or unethical conduct internally. The message for corporate America is that by championing integrity and transparency, corporations can improve their bottom line, maintain a positive image, and avoid legal problems."

INTERVIEW WITH NEIL V. GETNICK, GETNICK & GETNICK, NEW YORK, NEW YORK

Through this life I've wandered, I've seen lots of funny men, some will rob you with a six gun, and some with a fountain pen – Pretty Boy Floyd

Did Pretty Boy Floyd know Bayer AG, or what?

Here you have a major multinational corporation, literally robbing Medicaid for $100 million. Cold. The largest Medicaid fraud in history.

And pleading guilty to some mislabeling crime. (See Bayer Pleads Guilty in Medicaid Fraud Case, page one)

Will anybody spend any time in jail for this? Probably not.

Will Bayer be debarred from doing business with the federal government? Probably not.

But Bayer will pay $251 million to settle civil charges, plus a $6 million criminal fine. Bayer was forced to settle the case because of the courageous efforts of one man, George Couto, a senior marketing executive at Bayer, and his lawyers at Getnick & Getnick.

Couto blew the whistle on his employer after he tried to get his superiors to resolve the issue internally. His superiors ignored him.

So, he hooked up with Neil Getnick and Lesley Skillen of Getnick & Getnick. And the rest is recent history.

To gain some understanding of the case, we called on Getnick, a lawyer specializing in business integrity practices and antifraud litigation.

We interviewed Getnick on April 17, 2003.

CCR: What is the practice of your firm?
GETNICK: Our practice is a dedicated business integrity, antifraud and anticorruption law practice.
CCR: How long have you been in business?
GETNICK: The firm is celebrating its 20th anniversary this year.
CCR: What kinds of cases do you take?
GETNICK: We have effectively four areas of concentration.
The first is complex fraud investigation and litigation. We typically are brought in by an individual or company that is the victim of some kind of criminal fraud or wrongdoing. We investigate that case, and engage in both civil litigation and encourage parallel prosecution.
The second area is federal and state whistleblower cases, typically under the federal False Claims Act and its state equivalents, where we represent whistleblowers who have knowledge of fraud against the federal or state governments.
The third area is internal investigations and independent monitoring. We may be brought in voluntarily by a company, asking us to investigate a situation involving potential wrongdoing. In the area of independent monitoring, we are brought in by a governmental entity to supervise the activities of a company with a public contract, to make sure that it is fulfilling that contract honestly and well.
Finally, the fourth area is business integrity, transparency and compliance counseling, where we work with companies to help them develop robust compliance programs, codes of conduct, and ways of doing business that reflect both integrity and transparency principles. We are now expanding that activity internationally, and some of the most exciting work that we are doing is in Russia.
CCR: Bayer is the biggest settled case in your firm’s history, right?
GETNICK: It is. We had the good fortune in 1997 to settle what was then the largest case ever under the federal False Claims Act. It was a case involving Roche Biomedical Laboratories, which is now Lab Corp. That case involved allegations of fraud in the blood diagnosis area.The settlement in that case was $182 million.
That was a precedent-setting case. Since then, there have been a number of health care fraud settlements that have matched or topped that. The Bayer case is the largest Medicaid fraud case in history, with Bayer paying $251 million in the civil settlement, and then a $6 million criminal fine on top of that.
CCR: How did this case come in the door?
GETNICK: We were contacted by George Couto, an executive at Bayer who had read about our firm’s work. He felt that our approach matched his concerns. We met together. We felt that the case he brought, and that he personally, were right for the firm. We teamed up together and brought in this result.
CCR: When did George Couto approach the firm?
GETNICK: He approached the firm at the end of 1999. We filed his case in February, 2000.
CCR: When you first met with him, what did he tell you?
GETNICK: The interesting aspect of his story is that it is reflective of so many of the whistleblowers that we meet. He became concerned about a practice in his company which he felt skirted the law. And he first attempted to resolve that through the internal compliance program at his company.
Only after that program failed to respond did he then seek to go elsewhere.
CCR: What was his position at the company?
GETNICK: He was a senior marketing executive at Bayer.
CCR: What was the problem that he observed?
GETNICK: In the sale of Cipro, and then Adalat CC, the company engaged in a practice called private labeling in order to give a tremendous price break to one of its best customers, the big HMO – Kaiser.
Under the Medicaid program, a manufacturer is required to give the federal government the benefit of whatever its best price is. That is accomplished through a rebate at the end of each quarter in terms of the differential charged to the best customer versus the price to Medicaid.
In this case, Bayer made a minor change on the label and pretended that Kaiser was manufacturing the drug, and therefore, no rebate was paid.
CCR: How much did Bayer save on this scheme?
GETNICK: By its own calculation, Bayer saved over $100 million prior to this case getting underway. That was over a period of four years or so.
CCR: George Couto, when he learned about this, what did he do?
GETNICK: In early 1999, George was asked to attend a mandatory ethics training session, which was being held by Bayer Corporation for its employees in the pharmaceutical division in Connecticut. In his six years at Bayer, he had never attended such a session before. The meeting took place on February 9, 1999. The training session was kicked off by a video address by Helge Wehmeier. He was the head of Bayer’s entire U.S. operation. He said this: “Everyone is expected to obey the law – not only the letter of the law, but the spirit of the law as well. You will never be alone to adhere to the high standards of the law. Should you feel prodded, speak with a lawyer, or call me. I’m serious about that.” The assembled employees in the room erupted into laughter. It was quite a moment.
CCR: Was George Couto aware at that time of the mislabeling problem?
GETNICK: Yes he was. Two days after the ethics training session, George wrote a memo to his boss saying that according to the ethics training class, Bayer’s policy apparently called for obeying not only the letter of the law, but the spirit as well. And he questioned the pharmaceutical division’s continued and expanded private labeling activities.
CCR: What was the name of his boss?
GETNICK: Len Labonia, who was the vice president of Bayer Health Care Partners.
CCR: How long was the memo?
GETNICK: One paragraph. It was to the point. There was no room for misinterpretation. And it never was responded to.
CCR: What was the date of the memo?
GETNICK: February 11, 1999.
CCR: What was the response to the memo?
GETNICK: There was never any response.
CCR: What did he do after not receiving a response?
GETNICK: He continued to grow concerned about the situation. He did make some attempt to contact the government. When he did so, he received a message on a recorded phone line. He was not comfortable leaving a message on the tape machine.
CCR: Who did he call?
GETNICK: One of the government reporting lines – it was one of the health care fraud recording lines. He was not comfortable leaving the message. So, he did some research on his own. And that is what brought him to us.
CCR: Did he resign from the company before he went to you?
GETNICK: No, he didn’t. He resigned from the company shortly after coming to us.
CCR: Even though this lawsuit was going to be filed under seal, and the company wouldn’t know about it, right?
GETNICK: That’s correct.
CCR: Then why did he resign?
GETNICK: Around the time that he filed the lawsuit, this relabeling practice came under some government scrutiny. A Congressional investigation was launched. A process began in which Bayer executives were going to be brought into meetings with counsel. It created a conflicted situation for George. On the one hand, he was responsible for full disclosure to the government. On the other, he’d be talking with Bayer lawyers.
CCR: When did he resign from the company?
GETNICK: Within a couple of months of his filing of the lawsuit.
CCR: He was a young man. He passed away in November 2002. He was only 39.
GETNICK: In April 2002, he was diagnosed with pancreatic cancer. It is considered to be an almost certain death sentence. He had to make some serious decisions about how he wanted to proceed.
After he was able to stabilize his condition, he made it known in no uncertain terms that he wanted to see this case through to the end. As a result, we as his attorneys began a process, which was joined in by the U.S. Attorney’s office, to preserve his testimony in the form of a videotaped deposition.
Over the strenuous objections of the attorneys for Bayer, the federal district court in Boston ordered that trial deposition to go forward.
Last August, during the hottest week of the year, in an unairconditioned room, he was able to deliver his testimony on direct and then undergo and stand up to four grueling days of cross examination.
CCR: Who were the attorneys representing Bayer?
GETNICK: The law firm representing Bayer was and is Sidley Austin. The lead litigation attorney was Tom Green.
CCR: Mr. Green has a reputation. Did he live up to it?
GETNICK: I’m not going to comment on Mr. Green and his reputation.
George Couto lived up to his reputation as someone who could be counted on to not only do the right thing, but to do so with great courage.
CCR: When you first heard these accusations, you must have realized that Bayer was just plain stealing from the federal government.
GETNICK: That’s a fair summary of what took place.
CCR: When you realize that there is criminal liability in a qui tam kind of case, who do you call?
GETNICK: I want to be careful about the use of terminology here –
CCR: They pled guilty to a crime, right?
GETNICK: I just want to be specific. At the early stage of a case, when you gather the evidence, you form an impression. Our assessment of this case from early on was that it involved activity in violation of both civil and criminal laws.
As counsel, you want to make sure that you are going forward in a way that will allow the government to pursue the case as it sees fit, and preferably on both tracks.
We had the good fortune to bring this case to the Boston U.S. Attorney’s Office, which enjoys a formidable reputation for its ability to handle health care fraud matters.
CCR: Who did you deal with there?
GETNICK: Michael Loucks and Susan Winkler, the chief and deputy chief of their health care fraud unit.
CCR: It’s their call whether to bring a criminal charge, right?
GETNICK: It’s their call on whether or not to bring a criminal case, and it is their call on whether or not to intervene and join in the civil case.
CCR: Do they have to go to main Justice to get clearance on this, or can they go it alone?
GETNICK: During the investigative stage, it is within the discretion of the local U.S. Attorney’s office to pursue that.
Ultimately, if a decision is going to be made to intervene in the case on behalf of the Justice Department, then main Justice is very much involved in that decision making process.
Here, I can say that this was the ideal partnership between our firm and the government.
And it was also an ideal partnership between the various federal and state governmental agencies that were involved in this case – including the Boston United States Attorneys Office, main Justice, the Federal Bureau of Investigation, Health and Human Services, and the state Attorneys General and Medicaid Fraud Control Units.
That being said, there would have been many opportunities for this to have fallen off track if people weren’t able to get along and support one another.
CCR: In the GlaxoSmithKline case, who was the whistleblower?
GETNICK: That case also came under investigation because of the case that George filed. George pointed out in his complaint, in his disclosure statement, and in his communications with the government that if you look at the modus operandi that existed in Bayer’s dealings with Kaiser, and then looked at the national drug code numbers on other prescription drugs for other companies, one could reasonably infer that this practice was not limited to Bayer on these two drugs.
One of the companies that was brought to the attention of the government by George in his initial complaint was GlaxoSmithKline.
That led the government to open an investigation into that matter. And that resulted in the settlement we saw yesterday.
The GlaxoSmithKline settlement was $87 million. The Bayer settlement was $251 million for the settlement of the civil portion of the case, and then the additional $6 million criminal fine.
The company pled guilty to failing to list private label Cipro with the Food and Drug Administration.
CCR: At one point, when Couto was discussing this matter with his boss, his boss joked “we’ll all look good in stripes.”
GETNICK: When the news of the government’s probe began to appear in early 2000 –
CCR: What probe?
GETNICK: I mentioned earlier that around the time that George came to the government and filed his case, there was a Congressional investigation getting under way.
When the news of that probe began to appear in the press, there was a good deal of talk in the company about this, and it was sprinkled with the customary black humor.
So, for example, an account manager at Bayer left a voice mail for Ken Labonia – George’s boss. In that voice mail, the account manager referred to press reports and said “I think as we probably understood when this was done that someday we would, may – have to pay the piper or would have to reconcile this.”
In the process of documenting the private labeling practice Bayer ran an analysis which was completed in February 1999 calculating the “savings” of this program. And by that point, the number had already reached $97 million.
When one of the Bayer analysts saw the result of the study, he observed “all they have to do is find that document and it is all over.”
CCR: Did Couto have that document?
GETNICK: Yes he did. And it was one of the documents that he turned over to the government.
Another analyst joked to George when they were flying back home after a business trip about having a pinstriped shirt on.
This type of banter was the type of coded language passing back and forth between executives which became a tacit acknowledgment of the problematic nature of this program.
CCR: The New York Times reporter, Melody Petersen, wrote a very detailed article about this case and it ran in this morning’s paper.
She quotes Dr. Stephen Schondelmeyer, a professor of pharmaceutical economics at the University of Minnesota. He found that the number of medicines that had been relabeled had grown from 791 in 1990 to 20,801 this year.
GETNICK: I’m not familiar with the professor’s study and his conclusions. It is important to make the distinction between legitimate repackaging and illegitimate private labeling.
It is a legitimate practice for a company to sell to a repackager and for that repackager to then go on and resell the drug. That is a practice that takes place in the distribution network.
That doesn’t constitute a problem, because the repackager is a seller of drugs and under its national drug code number, is required to make the appropriate Medicaid rebate. So, there is no theft from the Medicaid system.
The problem with private labeling as carried out by both Bayer and Kaiser is that both companies knew that Kaiser would never be reporting anything back to the federal government, and would never be making a rebate. So the rebate was entirely lost to the system. And that was understood by everyone right from the outset.
Having said that, I certainly do not believe the problematic practice of private labeling is limited to Bayer and GlaxoSmithKline.
Hopefully this case will be part of a continuing investigation by the health care fraud investigators in this country. And second, hopefully, it will prove to be a wakeup call to the industry to cease and desist from engaging in these practices in the future.
A very significant part of what was accomplished yesterday goes beyond the civil and criminal settlements. It is the corporate integrity agreement that Bayer was required to sign, which means that it will now be monitored by the federal government to ensure that it will engage in appropriate practices from this moment forward.
CCR: Is it safe to say that but for the ethics program that Couto attended he would not have acted on this?
GETNICK: It is difficult to say that. There is so much pressure on executives not to do the right thing. It is difficult to know exactly what triggers an individual to fight the system.
CCR: But from your conversations with him –
GETNICK: George had become increasingly uncomfortable with what had taken place. The ultimate impetus to him was the study undertaken by Bayer showing that this had already expanded to a $97 million situation.
In addition, the ethics training also pushed him to act.
Those two factors coming together at about the same time created an environment where he was persuaded to seek a resolution.
First he tried to get an internal answer. Failing that, he decided to go outside to resolve it.
CCR: What was the company trying to show on crossexamination?
GETNICK: In my view, the tactic was to portray George as someone who was disloyal to the company, greedy, and therefore someone who should not be fully trusted in the testimony that he gave. That is typical of the type of crossexamination that we see. It was difficult to watch someone who was physically debilitated subjected to that sort of crossexamination.
This was the classic case of the truth standing up to all attacks. The fact of the matter is that this was not something that George was relating on his own. There was hard documentary evidence that had been turned over by that time by George to the government.
And in fact, the Bayer company itself had documented their practice internally, both in terms of what they did and how much it cost the government.
So, in my view, all that crossexamination did was to underscore the strength of the case and demonstrate what an extraordinary person George was.
As a litigator, I came to the conclusion – and I believe everyone in that room where the deposition was taken came to the same conclusion – that no defendant company would ever had wanted that videotape played before a jury at trial.
The success of George in delivering his testimony is what accounted for this case resolving itself within months thereafter.
CCR: The $34 million relator’s fee goes to his estate. Does he have children?
GETNICK: At the request of the family, I’m not in a position to give any details with respect to that, other than to say that he does leave a large extended family behind.
CCR: What is Kaiser’s liability in this case?
GETNICK: That remains to be seen. But it is certainly an area of potential future investigation, either by the federal government, or by the state of California. The government said yesterday that the investigation is continuing.
CCR: Do you know whether individuals are targets of the investigation?
GETNICK: I do not, and if I did, I wouldn’t comment on it.
CCR: Do you have other cases pending in this mislabeling area?
GETNICK: One of the frustrations of practicing in the False Claims Act area is that you never get to talk about your cases unless and until they come out from under seal.
CCR: You said Couto knew about your firm’s work. How did he know about your firm’s work?
GETNICK: I believe that he read an article in a pharmaceutical or other health care journal, making reference to our ongoing work in this area.
If you remember, I was interviewed by the Corporate Crime Reporter back in mid1992, when the False Claims Act had not yet really expanded to the health care area.
One of the things we discussed back then was that Getnick & Getnick was forming the equivalent of a private economic crime unit to deal with health care fraud through the False Claims Act.
Coincidentally, the following year, that whole practice area took off.
And we were at the forefront of that area, right from the start.
CCR: The $34 million award to Couto’s estate – how was that arrived at?
GETNICK: In False Claims Act cases, relators are awarded a share of between 15 and 25 percent of the recovery.
Because of George’s enormous contribution to this case, particularly in the final months of the case, the federal government agreed to award him a 24 percent share of the federal portion of the recovery.
This equals the highest percentage ever voluntarily approved by the Department of Justice in a qui tam lawsuit where the recovery exceeded a hundred million dollars.
Some strategic decisions had to be made to narrow the case sufficiently to allow it to come to a conclusion within his lifetime.
So, around August 2002, a decision was made to focus on the Bayer portion of the case, allowing us to go forward with the preservation of the testimony as to that one defendant, and to allow the government to pursue the remaining matters on their own, independently of him.
CCR: But the case wasn’t resolved in his lifetime –
GETNICK: It was not, but his testimony with respect to the Bayer portion of the case was preserved, so that even after his death, had Bayer decided to take the case to trial, his testimony would have been played for the jury because Bayer had the right to cross examine him and did so.
CCR: Do you believe that after his testimony he was clear in his mind that this case would be resolved in his favor?
GETNICK: He knew that he had done everything that needed to be done to ensure a successful outcome.

(Contact: Neil V. Getnick, Getnick & Getnick, Rockefeller Center, 620 Fifth Avenue, New York, New York 100202457. Phone: (212) 3765666. Email: ngetnick@getnicklaw.com . Web site: www.getnicklaw.com)