Bayer in Settlement Talks on Overbilling Charge
Bayer Pharmaceuticals, a U.S.-based unit of Bayer, Germany’s biggest drug maker, has begun settlement talks with federal and state officials about allegations that Medicare and Medicaid government health insurance programs have been overcharged for dozens of drugs.
More than a dozen drug makers, including Glaxo Wellcome and Bristol-Myers Squibb Co., have been subpoenaed in the 3-year-old Justice Department investigation. A 1997 federal Inspector General report said Medicare paid about $450 million too much for 22 prescription drugs in 1996 because of reliance on industry pricing lists.
The settlement talks come as Congress and President Clinton are considering expanding Medicare drug coverage, which would force drug makers to offer discounted prices. On Wednesday, Clinton and congressional Democrats offered a plan that would allow Medicare patients to defray prescription drug costs through a subsidized insurance option that would pay as much as half of drug costs up to $5,000. Beneficiaries would pay at least $26 a month in premiums.
Concerns about such legislative changes drove pharmaceutical stocks down earlier this year and are likely to do so again as the November presidential election approaches, analysts said.
On Wednesday, Bayer’s American depositary receipts fell 50 cents to close at $39.38; On the New York Stock Exchange, Bristol-Myers rose 6 cents to close at $53.69 and Glaxo Wellcome’s U.S. shares fell $1.80 to close at $58.07.
A settlement with Bayer could help the government force the industry to change its pricing practices, said William Sarraille, a Washington health lawyer.
“The government is looking to make an impact on changing the way [drug companies] sell and market their products,” he said.
Bayer is the only company so far to say it is in settlement talks.
“It was in the best interest of everyone to settle rather than litigate, which is expensive and counterproductive for everyone involved,” said Daniel McIntyre, a spokesman for Bayer Pharma North America. “We have always maintained that we operated within the letter and spirit of the law.”
Bristol-Myers, a maker of cancer drugs used by Medicare, has been contacted by government and state officials, said company spokesman Jane Kramer. She wouldn’t say whether the company is in settlement talks with the government.
A nationwide investigation by state and federal agencies revealed “a pattern of misrepresentations by some drug manufacturers of the average wholesale prices” of some of their products, the National Assn. of Medicaid Fraud Control Units said last month. The group comprises state Medicaid fraud unit directors.
The government doesn’t pay drug makers directly for the cost of medicines administered by doctors and other health-care professionals. The health-care providers buy the drugs at a discount for use on their patients and then get reimbursed by Medicare and Medicaid, based on average wholesale prices supplied by the drug makers.
Companies might be reluctant to settle the investigation given that drug makers haven’t sought to hide their pricing practices, said Marc Raspanti, a health-care fraud lawyer in Philadelphia who helped the government win a $325-million Medicare fraud settlement against SmithKline Beecham to settle allegations of overbilling for lab tests.
Still, federal investigators are looking into whether the drug companies supplied lists of inflated prices to the government, increasing reimbursements to doctors and other health-care providers and giving them incentive to choose products from the drug companies that can guarantee the highest reimbursements.
