July 6, 2009 – The U.S. Department of Justice’s recent settlement with Aventis Pharmaceuticals closed the books on the government’s inquiry into the company’s alleged practice of repackaging anti-inflammatory nasal sprays and selling them at discounted prices never reported to Medicaid. Federal prosecutors said that by entering into “private label sales contracts” with two health maintenance organizations – Kaiser Permanente Medical Care Program and its affiliate Group Health Cooperative – Aventis underpaid drug rebates to Medicaid and overcharged safety-net hospitals and clinics for drugs.
Under the settlement it brokered in late May, Aventis will pay about $49 million to the federal government, $40 million to states participating in Medicaid, and $6.5 million to healthcare facilities participating in the 340B drug discount program. The company will “use its best efforts to identify affected PHS entities and the amounts they were overcharged for purchases of Azmacourt, Nasacort, or Nasacort AQ,” the settlement document says. Checks were already being distributed by late June, pharmacists told the Monitor.
Aventis was the latest in a string of settlements with drug makers accused of engaging in similar repackaging, or “lick-and-stick,” schemes with Kaiser Permanente during the late 1990s and early 2000s.
The relabeling rap sheet
In 2003, GlaxoSmithKline and Bayer agreed to pay $87.6 million and $251 million respectively to settle allegations that they had entered into private-label arrangements with Kaiser, the nation’s largest health maintenance organization (HMO).
GlaxoSmithKline, at that time two separate companies – Glaxo Wellcome and SmithKline Beecham – allegedly manufactured, packaged and shipped the Flonase nasal spray and anti-depressant Paxil, switching its own National Drug Code numbers to Kaiser’s own label. The deep discount offered to the HMO was never reported as the manufacturers’ “best price” to Medicaid, as required by federal law. Public-health facilities captured $2.5 million in that settlement.
Bayer pleaded guilty to a criminal charge and paid what was then the largest Medicaid fraud settlement to date after overcharging the federal program for the antibiotic Cipro and Adalat CC, a drug used to treat chest pain. The company offered Kaiser a 40-percent discount on Cipro by relabeling bottles with the HMO’s name and drug identification number and by putting “Distributed by Kaiser” in fine print on the label. Meanwhile, the company continued to sell the drug to Medicaid at a 15-percent discount, according to Getnick & Getnick, the New York law firm representing the whistleblower in that case.
In 2006, Schering-Plough agreed to pay a $435-million settlement to the federal government, including $3.9 million to healthcare facilities covered by the 340B drug discount program, for improper marketing and sales practices that included private-label drug sales to Kaiser and several other HMOs. The drugs for which the company circumvented best-price reporting requirements were Claritin Reditabs, an allergy medicine, and K-Dur, a potassium chloride.
A year later, it was Bristol-Myers Squibb’s turn. The company was accused of misreporting its best price for an anti-depressant drug, Serzone, as part of its contract with Kaiser. Public health service entities recovered $124,000 as part of the company’s $515-million settlement.
“We will continue to be vigilant in investigating and prosecuting those who scam the Medicaid system – a system that is meant to benefit the poor,” said Michael Loucks, acting U.S. Attorney for the District of Massachusetts, which helped craft the Aventis settlement.
“When a drug company agrees to be a provider to the Medicaid programs, it agrees to sell its drugs to them at the same price it gives its best customers. We will, as here, pursue those who break their promises.”
Aventis has denied any wrongdoing or liability, saying in a statement that it believes it abided by the law at the time. The company chose settlement over a potentially protracted and costly litigation process.
Prosecutors finishing up the job?
Whether additional manufacturers will be called to task over their dealings with HMOs remains to be seen. A 2004 letter from the Health Resources and Services Administration (HRSA) to then-Senate Finance Committee Chairman Charles Grassley (R-Iowa) singled out Bristol-Myers Squibb, GlaxoSmithKline, Aventis and TAP Pharmaceuticals as having misreported their best prices to Medicaid after repackaging some of their drugs for private-label use. (SeeMonitor Dec. 2004.)
Considering that both Bristol-Myers Squibb and GlaxoSmithKline have already entered into large settlements over private-labeling of drugs to Kaiser, it seems highly unlikely that they would be tapped once again, said John Shakow, a Washington, D.C.,-based partner in King &Spalding’s FDA & Life Sciences team, which represents large drug makers. That leaves only TAP Pharmaceuticals on HRSA’s list of offenders, but the Justice Department declined to comment on whether any other lick-and-stick settlements are in the works.
In the Aventis case, Shakow noted, the alleged conduct ended just two months after the Centers for Medicare & Medicaid Services (CMS) issued its first specific guidance on private label sales and best price. That July 2000 Manufacturer Release said that sales to repackagers such as HMOs must be included in the best price.
The HHS Office of the Inspector General weighed in a year later with a consistent report, and a second similar CMS guidance followed in 2005. According to the settlement, Aventis stopped excluding private label sales from best price by the fourth quarter of 2000.
“I think the likelihood of anybody still doing this is very remote,” Shakow said. “The CMS guidance and settlements since Aventis’ alleged conduct made it pretty clear that this lick-and-stick practice is unacceptable.”