US Pharm. 2007;32(12):74-76.


It's not immoral to make sure that prescription drug pharmacists don't overcharge the system."
–President George W. Bush,
February 8, 20061

"Vigilance in protecting beneficiaries and taxpayers from waste, fraud and abuse is one of
our top priorities in Medicare."
–Centers for Medicare and Medicaid Services (CMS) Administrator Mark B. McClellan, MD, PhD, October 12, 20062

When Medicare Part D went into effect, CMS issued regulations mandating that Plan Sponsors have procedures in place to detect "Fraud, Waste and Abuse."3 Many of these programs' efforts were aimed directly at pharmacies based on the fear that pharmacies might engage in price manipulations to garner higher reimbursements than allowed under law.4 In reality, however, the potential of pharmacy abuses is but a footnote, because the vast majority of fraudulent activity rests with manufacturers of health care products that include drugs and medical devices. Of the $2.1 billion recovered by the Department of Justice (DOJ) in fiscal 2007 (ending September 30) in fines, penalties, and settlements related to health care fraud, $1.5 billion came from pharmaceutical and device manufacturers following charges of price inflation and kickbacks.5 Perhaps as interesting, $1.48 billion of the $2.1 billion total was derived from whistleblower-initiated claims under the qui tam provisions of the False Claims Act (FCA). These figures might actually be too conservative, because they do not include billions of dollars in civil fines sent to the states or criminal penalties recovered in FCA prosecutions.6

In 1986, Congress expanded the existing FCA to permit DOJ to bring charges against any person or entity that knowingly submits fraudulent claims to the U.S. government.7 The qui tam provisions authorize individuals, known as "relators," to file suit on behalf of the United States against those who have falsely or fraudulently claimed federal funds. If the United States intervenes in the action, the person filing the suit can recover from 15% to 25% of any settlement or judgment attributable to the fraud identified by the whistleblower. The percentage increases to 30% if the United States declines to intervene and the whistleblower pursues the action alone.8 In a recent year, whistleblowers recovered more than $319 million in rewards under the FCA.9 The statistics released by DOJ do not reveal the identities of the whistleblowers, but it is known that at least a few of the actions were initiated by pharmacists who in good faith believed that their employers were falsely inflating claims. From 1986 until the present, DOJ has extracted more than $20 billion from vendors.

Of the $1.5 billion recovered from drug- and device-makers in 2007, settlements with just six companies--Bristol-Myers Squibb (BMS), Medco Health Solutions, InterMune, Aventis (Sanofi-Aventis) Pharmaceuticals, Purdue Pharma, and Purdue Frederick--accounted for more than $800 million, or about half of the total recovery for the year.10 The companies were charged with a wide variety of fraudulent activities.

BMS and its generic division, Apothecon, paid $328 million under the FCA and another $187 to state governments stemming from charges of off-label marketing, kickbacks, and pricing violations associated with inflated average wholesale pricing (AWP) schemes. More than 50 drugs and seven qui tam actions were involved. 11 The allegations included paying kickbacks to physicians and health care providers between 2000 and mid-2003 to induce purchases of the companies' products.12 BMS also was charged with promoting off-label uses of Abilify, misrepresenting the price of Serzone, and inflating prices of oncology and generic drugs. The kickbacks to physicians were often disguised as "consulting fees" and expenses for attending consulting training meetings at posh locations. Between 2002 and 2005, BMS was charged with promoting Abilify for off-label uses by targeting child psychiatrists and urging them to prescribe the drug for child dementia; $25 million of the settlement was for this wrongful activity alone. Between 1994 and 2001, Apothecon offered pharmacies and wholesalers rewards in the form of rebates, free goods, and other means of illegal remuneration to secure greater sales of its drugs. 13 BMS also was charged with misrepresenting its "best price" for Serzone under the Medicaid Drug Rebate Statute.14 The seven whistleblowers involved in uncovering these fraudulent activities will receive a total of $50 million for their efforts. In addition to the monetary payments, BMS had to enter into a "Corporate Integrity Agreement" with the Office of Inspector General of the Department of Health and Human Services. Under the agreement, BMS must report its average sales prices and manufacturer prices for all of its medications covered under the Medicare and Medicaid programs.

Medco shelled out $155 million to settle charges of shorting prescriptions, canceling prescriptions to avoid paying late fees for underperforming, soliciting and accepting kickbacks from drug companies to favor their products over less expensive generic drugs, and paying kickbacks to health plans to attract business.15

Aventis paid $190 million to settle claims by the federal and state governments that it inflated its AWP for Anzemet. Approximately $180 million will go to the federal government for FCA violations, and the rest will go to state Medicare and Medicaid agencies. The whistleblower who reported Aventis to DOJ will take a $32 million cut out of the settlement.16

Purdue Pharma and Purdue Frederick had to pay back a total of $634.5 million on charges that the companies made false and misleading claims that their pain-killing drugs were less addictive than they really are. This amount involves payments to both the federal and the state government to resolve charges for inflating prices in government employee-benefit programs. InterMune had to contribute $36.8 million for its unlawful off-label promotion of Actimmune.

In the medical-devices arena, combined settlements of $311 million were recovered by DOJ from four orthotics manufacturers on charges of paying kickbacks to physicians, hospitals, and health care systems. Between 2002 and 2006, the companies paid hundreds of orthopedic surgeons by using consulting agreements; however, the physicians did little or no work to earn the lucrative kickbacks in exchange for exclusively using the paying company's products.17 The DOJ claims that none of the doctors involved in the scheme revealed payment to the hospitals or patients they worked with. The companies involved in the payments are Smith & Nephew, Biomet, Zimmer Holdings, and Johnson & Johnson's Depuy Orthopaedics. Zimmer Holdings, the largest orthopedics manufacturer, reported 21 instances of payments exceeding $1 million.18 Massachusetts General Hospital was paid $8.7 million in kickbacks. The company had to pay $165.5 million in restitution and be monitored for compliance for 18 months by former U.S. Attorney General John Ashcroft.19 Depuy Orthopaedics admitted to paying $48.8 million to its "consultants." One payment of $6.75 million was paid to the chairman of a Boston hospital. The company will repay the government $84.7 million and be subject to government monitoring. Biomet reported that it had paid at least $19.6 million in kickbacks. Its settlement of charges with the government will cost $26.9 million. The UK-based Smith & Nephew admitted that it had paid $19.3 million in kickbacks. It will pay the government $28.9 million for its misdeeds.20 A fifth company, Stryker Orthopedics, did not agree to pay any civil fines, but it did agree to be monitored for 18 months because it paid out at least $26.8 million in what it characterized as licensing and consulting fees to surgeons for "inventions" and improvements to existing products. The company may still have to pay civil fines. Together, these five companies account for about 95% of the hip- and knee-replacement market.21

According to a DOJ press release, surgeons received "tens to hundreds of thousands of dollars per year for consulting contracts and were often lavished with trips and other expensive perquisites."22 Apparently, the surgeons didn't disclose these payments to their hospitals or patients. In a separate case, HealthSouth Corporation agreed to repay $4 million and forego $13 million in Medicare payments to settle charges for billing Medicare for medically unnecessary power wheelchairs.

In contrast to the widespread and outlandish schemes by manufacturers, there is only one pharmacy appearing on the DOJ fraud rolls for fiscal 2007. Omnicare's Specialized Pharmacy Services in Michigan agreed to repay $52.5 million for improperly billing Medicare for drugs that were returned or dispensed after a nursing-home patient was deceased. It should be noted that this pharmacy is the largest Medicaid biller in the state of Michigan and serves the largest number of Medicaid patients in nursing homes in the state. The parent company, Omnicare, also agreed to pay Medicare $49.5 million for charges associated with improperly switching nursing-home and other institutionalized patients from a generic pill form of ranitidine to a capsule form of Zantac. While this conduct is by no means excusable, it is more in the form of accounting errors associated with the dispensing of and billing for millions of prescriptions.

Contrast this misbehavior with the other examples of outright intentional fraud. Maybe it is not the pharmacists and pharmacies of this country that the government should really worry about. Yet the time and effort and attention that have to be devoted to the detection of Medicare Part D fraud waste and abuse are costly and, perhaps, unnecessary. For those interested in seeing the complete array of scofflaws caught with their hands in the cookie jar, the list is chock-full of other health care providers. The list includes plenty of other entities, like health care systems; lots and lots of hospitals, including private for-profit, public, and charitable nonprofits, along with some religious institutions; medical clinics; a couple of universities; case-management companies; plenty of individual physicians and physician groups; biomedical manufacturers; an ambulance company; an optical company that misbilled the Veterans Administration for eyeglasses; more nursing-home operators; and health care vendors of various and sundry goods and services. But not one more pharmacist and no more pharmacies are included in the extensive list. No CVSs, no Walgreens, no Rite Aids, no Wal-Marts, no mom-and-pop independent pharmacies, no pharmacy organizations. Take a look at the list for yourself. It's all over the Internet, but here is one very easy-to-navigate and straightforward site: total2007.htm.

Maybe one of the most trusted and ethical professionals, pharmacists, ought to get some praise and glory instead of snarly stares and warnings of bad conduct from the regulators (and the President of the United States) who think we are out there to rip off the taxpayers every chance we get. Show some pride in your profession. We're the good guys, and we should let everybody know about it


1. Pear R. Pharmacists say drug plan threatens their livelihood. New York Times. March 13, 2006. Available at: 13medicare.html?_r=1&pagewanted=print&oref=slogin. Accessed November 11, 2007.

2. Medicare finds billions in savings to taxpayers: health insurance and Medicare fraud. Available at: Accessed November 13, 2007.

3. Centers for Medicare and Medicaid Services. Part D reference guide for pharmacists. Prescription drug benefit manual. Chapter 9 – program to control fraud, waste and abuse. Available at: and

Chapter9_FWA.pdf. Accessed November 6, 2007.

4. 42 C.F.R. § 423.504(b)(4)(vi)(H). Available at:

Downloads/PDBManual_Chapter9_FWA.pdf. Accessed November 6, 2007.

5. James B. Health care cos. took $1.5B hit from DOJ in 07. Available at:

Secure/printview.aspxz?id=39079. Accessed November 2, 2007; subscription required. See also: Justice Dept. civil fraud recoveries total $2.1 billion for FY 2003; False Claims Act recoveries exceed $12 billion since 1986. Available at: 2003/November/03_civ_613.htm. Accessed November 7, 2007.

6. Taxpayers Against Fraud Education Fund. Available at: Accessed November 7, 2007.

7. 31 U.S.C. § 3729 et seq.

8. See note 3, supra.

9. Justice Dept. civil fraud recoveries total $2.1 billion for FY 2003; False Claims Act recoveries exceed $12 billion since 1986. Available at: opa/pr/2003/November/03_civ_613.htm. Accessed November 7, 2007.

10. See note 3, supra.

11. Taxpayers Against Fraud Education Fund. Available at: Accessed November 7, 2007.

12. Ernst A. BMS, Apothecon pay $515M to settle pricing claims. Available at: Accessed November 2, 2007; subscription required.

13. No instances of wrongdoing claims against pharmacists who were alleged to have received illegal payments from Apothecon have been located.

14. Pub. L. No. 101-508, §4401, 104 Stat. 1388, 1388-143-161 (codified at 42 U.S.C. §1396r-8 [2000]).

15. Id.

16. Caulfield C. Sanofi-Aventis pays $190M to settle drug price case. .aspx?id=34404. Accessed November 2, 2007; subscription required.

17. Ernst A. Orthopedic cos. pay $311M to end kickback probe. Available at: Accessed November 2, 2007; subscription required.

18. Chow E. Joint makers paid more than $200M in kickback probe. Available at: Accessed November 5, 2007; subscription required.

19. See note 14, supra.

20. Id.

21. Anstett P. Knee, hip docs got payments: names made public after companies settle kickback cases. Detroit Free Press. November 6, 2007. Available at: Accessed November 6, 2007.

22. See note 9.

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