New York Times, January 24, 2001
Bayer to Pay $14 Million to Settle Charges of Causing Inflated Medicaid Claims
A three - year investigation of price manipulation by American drug companies scored its first important victory today when the Bayer Corporation agreed to cooperate with prosecutors and to pay $14 million in restitution to the federal government and the states. Under an agreement with the Justice Department and 45 states, Bayer settled charges that it had caused doctors and hospitals to submit inflated claims for prescription drugs used by Medicaid patients.
Federal officials and lawyers for Bayer said the agreement might set a precedent for major changes in the way the federal government and the states were paid for drugs bought through Medicaid, the federal-state program for low-income people. Bayer said it would cooperate with law enforcement authorities investigating similar pricing practices of 20 other drug companies.
"This is the first settlement on the whole question of the prices paid for drugs by federal health programs," said Paul E. Kalb, a physician and a lawyer for Bayer from Sidley & Austin. "This is the case that charged drug manufacturers with defrauding the government by setting prices that were too high. Bayer has tried to respond constructively."
For at least seven years, the Justice Department said, Bayer overstated average wholesale prices for its drugs. Those prices are the benchmark used to set reimbursement rates under Medicaid and Medicare, the federal health insurance program for the elderly, though the settlement applies only to prices charged under Medicaid. In some cases, the federal government contends, Medicaid paid two to four times as much as commercial customers paid for selected drugs and blood products.
As part of the settlement, Bayer will provide the government with data on its average selling prices, showing what it actually charges most commercial customers. Medicaid officials said they could use the data to set lower, more appropriate reimbursement rates. Bayer will pay $7.8 million to the federal government and $6.2 million to the states, Dr. Kalb said. New York will receive more than $1.3 million, the largest share of the settlement paid to any state.
"This settlement is a significant victory," said Eliot L. Spitzer, the attorney general of New York. "It sends a strong message to other pharmaceutical manufacturers and health care providers that we will not allow them to enrich themselves at the expense of taxpayers and those most in need."
The money from Bayer "will be returned to the state's Medicaid program, which was a victim of Bayer's conduct," Mr. Spitzer said. Deputy Attorney General Josâ Maldonado, director of the Medicaid fraud control unit in New York, said, "With Medicaid prescription costs in this state now exceeding $2.5 billion a year, it is unconscionable that this renowned drug maker would inflate the cost of its products and stick state taxpayers with the bill."
A whistle-blower had sued Bayer and other drug manufacturers under the False Claims Act, and the federal government was investigating the allegations. In return for Bayer's $14 million payment, the government agreed to end its investigation and to relinquish claims it might have had against the company.
Dr. Kalb, the lawyer for Bayer, gave this example of how reimbursement works: "A manufacturer sells a drug to a customer for 30 cents a dose, but sets the average wholesale price at $1 a dose. Medicaid reimburses the doctor or hospital $1 a dose. Medicaid thus pays $1 for a product that the health care provider bought for 30 cents."
Charles S. Miller, a spokesman for the Justice Department, said, "We do believe that Bayer violated the False Claims Act." But Dr. Kalb said: "Bayer denies all liability. It denies that it violated the False Claims Act."
The Bayer Corporation, with headquarters in Pittsburgh, is the American unit of Bayer A.G., which is based in Leverkusen, Germany. The investigation focused on prices set by Bayer for Kogenate and Koate-HP, which are blood products used to treat hemophilia, and Gamimmune, which is widely used to treat immune deficiency diseases.