U.S. Levies Record Fine in Medicare Fraud Case

A government crackdown on Medicare fraud produced its biggest catch Wednesday when a drug company agreed to pay $875 million and plead guilty to criminal charges that it engaged in a kickback scheme with doctors in marketing its prostate cancer drug.

The penalties levied on TAP Pharmaceuticals, a joint venture of Abbott Laboratories and Takeda Pharmaceuticals of Japan, are the largest ever against a health-care company. The government said criminal fraud against Medicare and Medicaid in the TAP case cost taxpayers $145 million.

But the settlement does not end the investigation of TAP. Additional indictments of former TAP employees and doctors who participated in the fraud could follow.

The agreement is part of a broader investigation of alleged drug-pricing fraud. Prosecutors have asked several large drug makers to turn over documents relating to Medicare pricing.

The crackdown is taking place amid general frustration over prescription drug prices. Spending on drugs rose 14.9% in 2000 for a variety of reasons beyond fraud. But the government said Wednesday’s action signals its resolve to wipe out Medicare rip-offs, which is believed to cost up to $100 billion annually.

TAP’s penalty exceeds the previous record fine of $840 million, imposed last year on hospital operator HCA Healthcare Corp.

TAP, based in Illinois, agreed to plead guilty to one count of criminal conspiracy to violate the Prescription Drug Marketing Act, for which it paid $290 million of its total fine. The government said the size of the criminal fine also is a record in health-care fraud.

TAP also agreed to settle, without admitting guilt, civil charges that it bilked the Medicare program and the Medicaid program in all 50 states and the District of Columbia.

TAP President Thomas Watkins said the company regrets the actions that led to the criminal plea and has taken steps to prevent them in the future. But the company settled the civil allegations, and agreed to pay the record-setting fine, to avoid having its drugs dropped from the federal Medicare program, he said.

“The settlement is obviously a very large number and the size has been driven to a large degree by the threat of exclusion,” Watkins said in an interview.

The indictment, unsealed Wednesday in federal court in Boston, details a conspiracy in which TAP salespeople used an array of freebies, ranging from ski trips to VCRs, to entice urologists to prescribe Lupron, a prostate cancer drug with sales of about $800 million last year. TAP employees gave doctors free samples of Lupron knowing the doctors would prescribe the samples for patients and fraudulently bill Medicare for them.

According to the indictment, TAP employees promoted the program as a way to help physicians raise money to pay their past-due Lupron accounts.

The government also announced indictments of six present and former TAP employees, including Alan MacKenzie, currently president of Takeda’s U.S. operations. MacKenzie on Wednesday took a leave of absence from that post to focus on fighting the allegations, a company spokesman said.

One Massachusetts doctor also was indicted Wednesday. Four other doctors previously were indicted for their role in the conspiracy, and three of them have pleaded guilty.

The civil complaints alleged that TAP manipulated the formula used to set Medicare reimbursement rates. It said TAP charged physicians a lower price for Lupron than the price it reported to regulators. Medicare reimbursed doctors at the higher price, which is based on the average price companies say they charge wholesalers.

The indictment said TAP offered the low prices to make Lupron more enticing to physicians than competing medications. Memos released last year by the House Commerce Committee showed that in 1997 TAP sold a 7.5-milligram dose of Lupron to doctors for $412, while Medicare reimbursed them $515.

The complaint does not allege that any patient suffered health problems as a result of receiving Lupron instead of another drug.

TAP’s Watkins insisted that the discounts and rebates TAP offered physicians and HMOs were legal and in line with industry practices. He said the company “vigorously contests” any allegation of wrongdoing in connection with its pricing practices.

As part of the settlement, he said, TAP agreed to file with regulators its average selling price that will be based on the actual prices charged to all customers. Watkins said that during the period under investigation, 1991 to 1998, some customers did pay the price it filed with Medicare.

Of TAP’s total penalty, about $560 million will go to the federal government and $25.5 million will go to the states. The criminal penalty will go to the federal crime victims fund.

As part of the settlement, TAP agreed to conduct ethics training for its employees and to take other measures to induce proper conduct, such as tying employee compensation to adherence to a code of ethics.

The government said the investigation began when a urologist at Tufts Assn. Health Maintenance Organization in Massachusetts told law enforcement officials that a TAP employee offered him an “educational grant” of $65,000 to switch to Lupron from a competing, lower-price drug.

TAP employees told Dr. Joseph Gerston he could use the money however he liked if he would have the Tufts HMO cover Lupron instead of the cheaper Zoladex.