Federal and state prosecutors are turning up the heat in civil and criminal probes into allegations that giant pharmaceutical companies engaged in illegal pricing schemes to boost sales of physician-administered drugs.
The focus of the investigations is the "spread," or the difference between the money a physician receives from Medicare and Medicaid for the drugs--payments based on published price indices--and the actual cost of the drugs sold to those physicians by the drug companies.
Last fall, Rep. Fortney "Pete" Stark (D-Calif.) railed at a host of drug companies over what he described as an industry practice of inflating average wholesale prices on which Medicare reimbursements for selected drugs are pegged.
Under the scheme, the drug companies sell the same drugs to physicians at prices dramatically lower than their reported AWPs, Stark says.
The physicians, who under Medicare are reimbursed for the drugs at 95% of AWP, pocket the difference.
By manipulating both ends of the spread, drug companies lure doctors to their drugs using tax dollars and patient copayments as a draw, according to Stark's congressional testimony. Drugmakers also give doctors free samples and encourage them to apply for reimbursements, Stark said.
Billing for these freebies is at the heart of a federal probe in Boston, where criminal charges have been brought against three urologists.
Boston-based U.S. Attorney Donald Stern charged three urologists--two from Connecticut and one from Indiana-in federal court with conspiracy to receive kickbacks involving the drug Lupron. All three have pleaded guilty; they face fines of up to $25,000 and a maximum of five years in prison.
Those physician cases are "just the tip of the iceberg," according to one insider familiar with the state and federal probes targeting drug companies and doctors.
Lupron is made by TAP Pharmaceutical Products of Lake Forest, Ill., a joint venture of Abbott Laboratories of North Chicago, Ill., and Takeda Chemical Industries of Japan. In its recent 10-K filing, Abbott notified stockholders of investigations by federal officials and by state attorneys general in Texas, Nevada, California, Illinois and Florida.
Investigators are looking at possible Medicare and Medicaid fraud, Abbott said.
In September, Bayer agreed to pay $14 million to federal and state governments in a civil settlement that said the company "enabled physicians to receive excess reimbursement from private and government insurers" on drugs.
In February, Bristol-Myers Squibb of New York City, also a maker of oncology drugs, confirmed to the Wall Street Journal that it had been served late last year with federal subpoenas in the drug marketing probe. And last month, a spokesperson for Schering-Plough of Kenilworth, N.J., told the Associated Press that it, too, was facing a federal investigation of its drug pricing.
State investigators also are looking into the spread. Texas got a $1 million chunk of the Bayer settlement. With similar suits pending against three other drug companies, "it looks like 2001 is going to be a big year for that type of thing," says Tom Kelly, spokesperson for Texas Attorney General John Cornyn.
Mark Schlein, head of the Florida attorney general's Medicaid fraud division, says his office has civil and criminal investigations pending. "The pharmacy industry is knowingly ripping off state and federal Medicare and Medicaid programs," Schlein says. The scheme involves "virtually every major pharmaceutical manufacturer that's operating in America," he says.
Civil actions also are being contemplated, says David Ignatius, the director of national anti-fraud activities for the Chicago-based Blue Cross and Blue Shield Association. "I know several of our plans are taking a hard look at it," Ignatius says.
Last summer, HHS tried to change the Medicare reimbursement system for infusion drugs, but the plan met strong opposition led by the 14,000-member American Society of Clinical Oncology. The society said low Medicare reimbursement to doctors for administering the drugs required doctors to make up the difference in drug payments.
"Until Medicare rectifies the payment amount for chemotherapy administration, physicians will need to rely on drug payments to help cover the true costs of delivering this treatment," according to a June ASCO statement.
In a report released in January, the HHS' office of inspector general concluded Medicare and its beneficiaries would save $1.6 billion a year if the spread were eliminated on just 24 drugs studied.