Last week's indictment of Caremark International by a federal grand jury in Minneapolis on charges of paying illegal kickbacks to a physician may be the first of several such cases the company will have to confront, sources said.
The company also is under investigation by federal authorities in Ohio and about a dozen cities nationwide, according to sources familiar with the probes. The inquiries center on whether Caremark offered physicians improper incentives for steering business to the Northbrook, Ill.-based home-care provider.
Company spokesman Les Jacobson declined to discuss any further investigations. But he added, "The scope and timing of the (government's) investigation is out of Caremark's control."
The Minneapolis grand jury last week indicted Caremark and five individuals, accusing them of paying more than $1.1 million in illegal kickbacks to a Minneapolis physician.
Named in the Aug. 4 indictments in U.S. District Court in Minneapolis were Caremark; David R. Brown, M.D., 51, a Minneapolis pediatric endocrinologist; Caremark vice presidents James R. Mieszala, 43, and Joseph L. Herring, 38; and former Caremark Minneapolis General Manager Judy F. Giel, 39.
Also indicted was Edmon R. Jennings, 47, vice president of sales and marketing at Genentech, a South San Francisco-based pharmaceutical manufacturer.
Caremark, in a press release issued the day before the indictment was announced, denied any illegal activities and said it would be vindicated in court.
"Caremark absolutely denies any wrongdoing and believes it will be vindicated when all the facts are evaluated in an unbiased forum," said General Counsel Thomas Schuman. "Compliance with the law has always been, and continues to be, a priority at Caremark."
The indictment resulted from a joint investigation by HHS' inspector general's office, the FBI and the Minnesota Health Care Fraud Task Force.
Anti-kickback provisions of the Medicare and Medicaid fraud and abuse laws bar any form of remuneration to induce patient referrals. Criminal violations are punishable by fines and possible imprisonment. Civil violations are punishable by expulsion from the Medicare and Medicaid programs.
If convicted in this case, the defendants face a maximum penalty of five years in prison and/or a $250,000 on each count of the 51-count indictment.
According to the indictment, Caremark, along with Messrs. Mieszala, Herring and Jennings, and Ms. Giel, conspired between 1986 and early 1994 to pay kickbacks to Dr. Brown to induce him to prescribe Protropin to his juvenile patients. Protropin is a synthetic growth hormone manufactured by Genentech and distributed to physicians exclusively by Caremark.
The indictment also alleges that between 1986 and 1987, Mr. Jennings and Caremark Home Health Care of America, the home infusion subsidiary of Caremark International, entered into an agreement with Dr. Brown to pay him an amount equal to 5% of the annual gross revenues for the sale of Protropin generated by his prescriptions for his patients.
After paying Dr. Brown more than $138,000 as part of the agreement, Caremark and the defendants restructured payments to the physician. From 1988 to 1993, Caremark paid Dr. Brown $509,000 for the work allegedly done under the guise of "research grants." However, the payments in question were actually to induce him to prescribe more Protropin to his patients, the indictment alleges.
As an example of the arrangement, the indictment charges that from January 1989 to April 1990, Caremark invested $100,000 in Dr. Brown through research grants and received a return on its investment of $4.37 million in referral revenue, it said.
The indictment also alleges that Genentech's Mr. Jennings conspired with Caremark and its employees to pay Dr. Brown over $224,000 in Genentech funds to induce him to continue prescribing Protropin for his patients.
Dr. Brown was one of the country's largest prescribers of Protropin, according to the indictment.
At deadline, the defendants other than Caremark couldn't be reached for comment.