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Pharmaceutical Industry ......... Pharmaceutical Fraud

The many extracts on this page are from copyright material. They are reproduced here for educational purposes and to stimulate public debate about the provision of health and aged care. I consider this to be "fair use" in the common interest and for the common good. They should not be reproduced for commercial purposes. The material is selective and I have not included denials and explanations. I am not claiming that all of the allegations are true. The intention is to show the general thrust of corporate practices as well as the nature and extent of the allegations of dysfunctional conduct made.

Fraud and the Pharmaceutical Industry




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Drug companies have paid a total of $1.6 billion since 2001 to settle seven suits brought by whistle-blowers that accused them of marketing fraud and overbilling Medicare and Medicaid, according to a report released yesterday by an advocacy group.

More fines are in the offing, the Washington-based group, Taxpayers Against Fraud, said in its report.
Each of the seven cases was initiated by whistle-blowers and eventually joined by government lawyers. The defendants were AstraZeneca, Bayer, Dey, GlaxoSmithKline, Pfizer and TAP Pharmaceuticals.
Drug Companies Settle 7 Suits for $1.6 Billion New York Times November 6, 2003

There are multiple humanitarian and cost issues surrounding the large drug companies. Some of these are referred to on a companion page which looks broadly at recent adverse publicity surrounding the drug giants.

CLICK HERE to go to the Pharmaceutical Industry web page

The page below more specifically examines the propensity of the drug giants to indulge in fraud. In this they differ from other health care sectors only in the size of the fraud and its extent - a reflection of the size of the companies and their global breadth.

The pharmaceutical businesses have gone through the same consolidation by merger and takeover that has characterised the entire health care arena. We are left with a number of megacorps and some smaller players. As we have seen in hospital care (e.g. Tenet and HCA), in aged care, in rehabilitation, and even on Wall Street this situation creates pressures for dysfunctional practices that seem to be irresistible.

While overservicing can result in increased morbidity from side effects and even deaths this is more likely to be a consequence of unprincipled marketing than fraud. In the pharmaceutical frauds the bulk of the fraudulent practices have been directed to government funds and the hip pocket of consumers.

I have gone through the limited information in my data base and included extracts from the material there. To explore the world's data bases for all the information available would be a formidable task. There are likely to be major omissions and some of the allegations made may be contentious. My intention is simply to show that the pharmaceutical sector of the health care marketplace is as profit driven, as ruthlessly uncaring, and as fraud prone as the other sectors of the health care marketplace. I am not claiming that every allegation of unsavoury conduct is true, simply that they have been made, there are a lot of them, and with so much smoke there must be a big fire. Decide for yourselves.

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Roche and the global price fixing cartel
Vitamins and other chemicals


In the price-fixing case involving vitamins, investigators concluded that more than $5 billion in commerce was affected. The cartel, which included industry giants like F. Hoffmann-La Roche and BASF AG, reached agreements on prices and production levels, directly victimizing corporate giants like General Mills, Kellogg, Coca-Cola, Tyson Foods and Procter & Gamble. Prosecutors say those companies, in turn, passed on billions of dollars in inflated costs to American consumers -- anyone who took a vitamin, drank a glass of milk or ate a bowl of cereal. Corporate cartels come under heavier fire; Chattanooga Times Free Press (Tennessee) June 10, 2001

The cartel selling vitamins and related drug products perpetrated a truly massive fraud involving well over a dozen of the world's largest pharmaceutical and chemical companies. Every citizen in the developed world probably paid considerably more than they needed to for many foodstuffs and vitamins. The agricultural sector which uses large volumes of these products and includes them in food bore the brunt of the fraud.

The companies have probably paid out somewhere in the region of US $ 10 billion to settle the criminal and civil actions which resulted. The first exposures occurred in 1997. Class actions in the USA and Australia are ongoing.

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The 1997 prosecutions

Europe was far less strict about price fixing than the USA and there was little surveillance. Commercial arrangements consequently flourished in Europe and then spread globally. The price fixing cartels were all international megacorporations. The USA was more sensitive about collusive practices. The cartels were first exposed in the USA.

The first companies were prosecuted in 1997 after a whistle blower helped the FBI to tape meetings. The substances traded through cartels exposed in 1997 included Methionine (chicken feed), Sorbates, Monosodium glutamate (MSG), Bromine, lysine and citric acid.

The ring leader Roche pleaded guilty in 1997 to collusively trading citric acid. It paid US $14 million and gave undertakings of good behaviour. When asked Roche executives specifically denied price rigging in their vitamin trade, even though those denying were actively involved at the time. 

Note that those involved in this fraud saw what they were doing as "justifiable", even though they knew it was criminal. It is not surprising that they took no action after they were fined and that the fraud continued.

This same phenomenon was seen with the needless imprisonment of children (1991) by NME (now Tenet Healthcare), unnecessary cardiac procedures (2002) by Tenet Healthcare, the neglect of the elderly by understaffing in aged care, aggressive Pacman practices (1996) by Columbia/HCA, Medicare fraud (1997) by Columbia/HCA, accounting fraud (2003) by HealthSouth, denial of care by managed care companies, price fixing (1994) by Mayne Nickless', and even the deception of investors by Citigroup analysts - not to mention the use of structured finance to facilitate fraud by the same company. This blindness to the way others see their actions is industry wide, even market wide. This is not a problem of individual criminals but a normal human response of people to the situation in which they find themselves. It is a problem with the system. It is not surprising that Tenet/NME re-offended or that care has not improved in corporate nursing homes. One should expect unsavoury practices to be an ongoing and recurrent problem in the drug 8industry until such time as the market itself changes.

It is my view that we will not get a functioning health system until we examine the way people develop patterns of thinking in response to the situations in which the find themselves - e.g. the corporate marketplace applied to social services like health and aged care.

The take got a $ 100 million boost in 1997 after Justice cracked its first major international price-fixing cartel, involving animal feed additive lysine and food additive citric acid. It's a case of being blessed with a whistleblower and using spy technology.
The FBI moved a lamp holding a hidden audio-video recorder to meetings across the USA as ADM executive and whistleblower Mark Whitacre, Vice President Michael Andreas (Dwayne's son) and other international firms' executives decided prices and divvied up production.

The tapes, reviewed by USA TODAY, show the participants knew they were breaking the law and worried about getting caught, yet saw their venture as justifiable and their fellow price fixers as their only friends in the business world.
"Top executives at ADM and its Asian co-conspirators throughout the early 1990s spied on each other, fabricated aliases and front organizations to hide their activities, hired prostitutes to gather information from competitors, lied, cheated, embezzled, extorted and obstructed justice," wrote Federal Judge Michael Kanne. Don Klawiter, - - - - says even experienced antitrust lawyers are shocked by the ADM tapes: "People literally could not believe how direct and brazen it all was."
Justice uses spy tactics to unlock global price fixing Whistleblowers, bugged lamps, FBI raids reveal plots that cost consumers USA TODAY July 10, 2000

1997 F. Hoffmann-La Roche Citric acid $14 million
1997 Haarmann & Reimer Citric acid $50 million
1997 Archer Daniels Midland Lysine and citric acid $100 million
FROM Ongoing price-fixing investigations USA TODAYJuly 10, 2000

- - - , cartel participants tend to be recidivists. The most notorious example is Hoffmann-La Roche, which continued its participation in the vitamin conspiracy even as it was entering into a plea agreement for its participation in the citric acid cartel.
Cases in point Daily Deal (New York, NY) May 3, 2002

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The Vitamin Scandal exposed 1999

The vitamin scandal was finally exposed and prosecuted when one of the companies rolled over and gave evidence in exchange for forgiveness in the criminal actions. They were not protected from civil class actions by those defrauded. There were well over a dozen companies involved in the USA, Canada, Europe and Australia. Thereports suggest that the ring leader was Roche, the company which had made denials and given undertakings in its 1997 guilty plea. The matter was prosecuted through a series of court actions in the USA, Canada, Europe and Australia. In addition costly class actions were taken by the companies and the citizens who had been defrauded in these countries.

The costs for these companies was enormous. Roche kept adding to its reserves to settle the actions reaching US $6.8 billion in 2003 and the cases were still coming. Without the cartel it could no longer make the profits its shareholders needed and it sold the business for US $2.21 billion.

The giant chemical and pharmaceutical maker Roche Holding said today that an image-bruising vitamin price-fixing case from the 1990's was taking a growing toll on its finances.

The company surprised analysts by announcing that it would set aside an additional 1.2 billion Swiss francs ($810 million) to cover the costs of lawsuits in the matter, and its chairman said he would not rule out additional increases in the reserve, now 4.5 billion Swiss francs ($3.04 billion). Roche Increases Reserves For Price-Fixing Lawsuits The New York Times October 11, 2002,

The company also will take an additional $420 million in provisions for U.S. litigation over a vitamin price-fixing scandal of the early 1990s, bringing total provisions to nearly $6.8 billion
Roche cuts price of vitamin unit The Record (Bergen County, NJ) February 11, 2003

Swiss drug giant Roche will sell its vitamin division, which employs 650 people in New Jersey, for $2.21 billion to Dutch Life Science and Performance Materials DSM.
Roche said it would remain responsible for all present and future liabilities resulting from vitamin price-fixing litigation.
Roche pioneered the industrial synthesis of vitamin C in 1934, and has been the leading manufacturer of vitamins ever since, with annual sales of 3.5 billion Swiss francs ($2.34 billion). Its vitamin and fine-chemicals division employs 7,500 people.
Roche vitamin division to be sold The Record (Bergen County, NJ) September 4, 2002

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Once one of the companies in the cartel agreed to spill the beans the others all admitted their guilt and were fined. A number of executives pleaded guilty and were sentenced to prison sentences. The two Swiss and German companies pleaded guilty and paid US $725 million in fines. Three Japanese companies pleaded guilty 4 month later and paid US $137 million. Individuals paid smaller fines. Those most involved were the largest and most successful. They controlled 95% of the market.

There were four sets of actions in the USA.

In addition to this some victims preferred to maintain good business relationships and negotiate compensation outside the courts.

The details are in the extracts

Criminal prosecutions $ 850 million 

Largest fines from Sherman Act violations
1999 F. Hoffmann-La Roche ----- Vitamins --- $500 million
1999 BASF ------------------- Vitamins -----$225 million
1999 Takeda Chemical Industries - Vitamins ----- $72 million
1999 Eisai ------------------- Vitamins ---- $40 million
1999 Daiichi Pharmaceutical ----- Vitamins ---- $25 million
1999 Pfizer ----- Maltol/sodium erythorbate --- $20 million
FROM Ongoing price-fixing investigations USA TODAY July 10, 2000

Every year around August or September, the senior executives from the world's largest producers of vitamins would gather clandestinely for a few days at a European hotel or an executive's home for what some called the "summit conference" to plan "the budget for Vitamin Inc.," federal prosecutors said Thursday.

They said the meeting set production quotas, prices and distribution for vitamin ingredients that were used to enrich products in every refrigerator and pantry in America, from supplemental pills to enriched milk and juice, fortified cereals, breads, butters and meats.

Two vitamin industry giants agreed to pay record criminal fines Thursday totaling $725 million for price-fixing.
Reno and her aides described in detail a decade-long vitamin cartel that they said had been shattered in one of the largest criminal prosecutions made by the Justice Department. In a federal court in Dallas, F. Hoffman-LaRoche Ltd., the Swiss pharmaceutical giant, pleaded guilty to one criminal count of violating the Sherman Antitrust Act and agreed to pay a $500 million penalty, the largest criminal fine imposed by the Justice Department. A second company, BASF of Germany, has agreed to pay a $225 million fine for its role in the conspiracy
Justice Department officials said that the director of worldwide marketing for the vitamins division of Hoffman-LaRoche had agreed to travel from his home in Switzerland to the United States to plead guilty to antitrust and cover-up charges, pay a $100,000 fine and serve a four-month prison term.

Investigators were said to have been particularly angry at the executive, Kuno Sommer, because they said he had lied about the existence of the vitamin cartel and his role following Roche's guilty plea in another antitrust price-fixing case two years ago. In that case, involving citric acid, Roche paid a $14 million fine and promised to cooperate with investigators.

Sommer, who had lived in New Jersey when he served as North American regional manager for Roche, denied in a 1997 interview with investigators that there was a vitamin cartel and said he was not aware of any meetings or conversations involving price-fixing in that market, according to court papers filed by the government Thursday that are part of his plea agreement. In fact, at that time, he was still playing an important role in setting vitamin prices and allocating market share, according to a plea agreement filed on his behalf Thursday in federal court in Dallas. Vitamin cartel cost consumers millions, U.S. says Austin American-Statesman (Texas) May 21, 1999, Friday

"On a daily basis for the past 10 years, every American consumer paid to eat and drink or use a product whose price was artificially inflated," Reno said.

The vitamin cartel was the "most pervasive and harmful criminal antitrust conspiracy ever uncovered," said Assistant Attorney General Joel I. Klein, Reno's antitrust chief. Drug Makers To Pay Top Fine in Price Fix Chatanooga Times Free Press (Tennessee) May 21, 1999, Friday

The two companies -- Hoffman-LaRoche Ltd., a Swiss company, and BASF AG, a German company -- reportedly controlled more than 60 percent of the vitamin market.

Rhone-Poulenc SA, a French company reported to control 15 percent of the world market, also participated in the conspiracy, but is not expected to be charged because it cooperated with federal investigators.

Vitamins are added to milk, cereal and hundreds of other products. They are added to animal feed. And they are a raw material in vitamin pills and other nutritional supplements. Vitamin Price-Fixing Shocks Utah's Nutrition Industry Salt Lake Tribune (Utah) May 27, 1999

The fines were the largest and second-largest financial penalties the Justice Department had ever levied in antitrust cases. (See 1997, pp. 633B3, 321B1)
Vitamin Firms Fined for Price Fixing; Other Developments. Facts on File World News Digest July 8, 1999

Besides agreeing to pay a $150,000 fine, Broennimann, who left the company in May, agreed to serve a five-month prison term, the U.S. Justice Department said. Kuno Sommer, former worldwide marketing director for the vitamins and fine-chemicals division, was fined $100,000 and sentenced to four months in prison for his July 23 guilty plea to price-fixing.
Second Roche exec guilty: Five-month term, $150,000 fine for price-fixing The Gazette (Montreal, Quebec) August 20, 1999

Three Japanese companies are the latest to face criminal fines for plotting to raise and fix the prices of vitamins used in nearly every American home.

The Justice Department announced Thursday that the companies had agreed to plead guilty and pay $137 million in fines for taking part in a worldwide conspiracy to control the prices of vitamins.
The companies fined were:

  • Takeda Chemical Industries of Osaka, $72 million for conspiring to fix the price and allocate the sales of vitamins B2 and C.
  • Eisai Co. of Tokyo, $40 million for conspiring to fix the price and allocate sales of vitamin E.
  • Daiichi Pharmaceutical Co. of Tokyo, $25 million for fixing the price and allocating the sales of vitamin B5.

3 Companies Fined in Fixing Vitamin Prices Chatanooga Times Free Press (Tennessee) September 10, 1999

The Justice Department's criminal investigation has produced more than $ 850 million in fines and 13 convictions, including two former Roche executives who have agreed to serve prison terms of three months and five months respectively. A former Takeda executive could also be prosecuted under the terms of the agreement with the company.
Vitamin makers to pay $ 1.1 billion settlement Arkansas Democrat-Gazette (Little Rock, AR) October 30, 1999, Saturday

Past empirical studies of price-fixing cases found that multiple instruments of coordination are frequently employed. Our multinational cartel cases over the last seven years found this pattern continues. The vitamin cartel of the 1990s (whose prosecution led to the largest Sherman Act fines in history), for example, included price-fixing, bid-rigging, customer and territorial allocations and coordinated total sales. Cases in point Daily Deal (New York, NY) May 3, 2002

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State civil actions US $335 million. State attorney generals banded together and took action to recover funds for their communities.

Wisconsin will receive $5.7 million for health and nutrition programs as part of a $335 million settlement in a vitamin price-fixing case, Attorney General James Doyle announced Tuesday.
The companies, which have 95% of the bulk vitamin market, were accused of meeting in secret around the world for more than a decade to fix prices on vitamins and vitamin products.
Doyle said Wisconsin, 20 other states, the District of Columbia and Puerto Rico would split $225 million in a settlement reached by the companies, Doyle and other state attorneys general.

Added to that, California is expected to collect an $80 million settlement, Doyle said. And 43 state governments, the District of Columbia and Puerto Rico are to receive $30 million for overcharges on government purchases of products containing the vitamins, he said. Vitamin case yields $5.7 million; State shares in settlement of allegations that 6 firms fixed prices Milwaukee Journal Sentinel (Wisconsin) October 11, 2000

Floridians will benefit from more than $ 19.6 million in payments under agreements that put an end to an investigation into price-fixing by three European and three Japanese companies.
Its a novel approach, said Florida assistant attorney general Liz Leeds, who handled the case The settlement is structured with two separate funds. One is for consumer claims and the other is for business claims. The consumer claims will be administered by individual state courts. The business pot will be administered by the Washington, D.C., court
The European companies involved in the settlement are Hoffman-La Roche of Switzerland, Frances Aventis, once known as Rhone-Poulenc; and BASF, based in Germany. The Japanese firms are Takeda Chemical Industries Ltd., Eisai Co. Ltd. and Daichi Pharmaceutical Co. Because they have operations in this country, all are subject to prosecution in the United States,
Good medicine; Unique settlement in vitamin price scam calls for multistate oversight; Florida businesses and consumers will recoup millions overpaid because vitamin companies fixed prices BROWARD DAILY BUSINESS REVIEW October 20, 2000

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Class actions In 1999 the companies settled a class action taken by those who had purchased their products for US $1.17 billion. This was followed by another US $242 million in 2000. A large number of companies considered the Class action settlement too low and prosecuted their cases independently. Others have negotiated settlements out of court in order to maintain harmonious relationships. The final sums will not be known.

Another blow for the companies came in January 2003 when an appeal court overruled a previous decision and allowed a class action by persons and companies which had purchased vitamins outside the USA to proceed in that country. This is likely to cost the companies billions more.

But investigative work by 'a small army of lawyers' in the case is believed to have unearthed damaging evidence about the operation of the cartel, which dubbed itself Vitamins Inc.

In particular, those familiar with the talks say evidence of former employees of the chemical and pharmaceutical giants have helped to boost the lawsuits.

Executives controlling the cartel are thought to have ignored legal advice warning that their conspiracy was illegal. Instead, according to those close to the investigations, the executives transferred their meetings outside the Unites States in an effort to avoid antitrust laws. European drug companies face U.S. class action: Vitamin cartel National Post (Canada) June 29, 1999

It seemed as though the fighting was over when seven of the world's largest drug companies agreed on Nov. 3 to pay $ 1.17 billion to settle a class action stemming from a global plot to fix the price of bulk vitamins mixed into everything from breakfast cereal to animal feed. But among plaintiffs' lawyers involved in the case, the infighting has actually just begun.

Among class actions, this one is unusual because all the class members are companies, many of them large corporations with brand names like Tyson Foods Inc. and Kellogg Co. About 100 companies may opt out of the settlement to pursue individual suits for more in damages. $ 1.17B vitamin settlement: Now the fight begins Facts on File World News Digest December 23, 1999

They still face separate claims by large corporate buyers of vitamins, such as cereal makers Quaker Oats Co. and Kellogg Co. Poultry companies including Springdale-based Tyson Foods Inc., the largest U.S. poultry processor, Siloam Springs-based Simmons Foods Inc. and Springdale-based George's Inc., and the two cereal companies have said they would pursue separate lawsuits to receive a better settlement.
Vitamin makers to pay $ 1.1 billion settlement Arkansas Democrat-Gazette (Little Rock, AR) October 30, 1999

A federal judge approved a $ 242 million settlement of class-action claims that Roche Holding AG and five other major world drugmakers fixed the prices of vitamins used to fortify animal feeds and processed foods.

The approval by U.S. District Judge Thomas F. Hogan in Washington Tuesday closed a long chapter in the continuing legal saga of an international price-fixing cartel nicknamed "Vitamins Inc." by U.S. prosecutors.

Roche, Rhone-Poulenc SA, BASF AG and three Japanese vitamin companies that admitted conspiring to illegally raise prices agreed last year to a $ 1.17 billion settlement to end the civil litigation. MORNING BRIEFING : $ 242 million settlement is reached in drug price-fixing St. Louis Post-Dispatch (Missouri) March 29, 2000

Roche chief Franz Humer said litigation is still outstanding in the United States because some plaintiffs there chose to opt out of the 1999 settlement. He said it was not yet clear whether the company would have to make further provisions to settle.
Roche agrees to sell vitamins division Chattanooga Times Free Press (Tennessee) September 4, 2002

The one big stick with no matching carrot, however, is civil damage exposure in the U.S. Ironically, this stick is usually the most punishing, but it is easily overlooked in the rush for amnesty. For example, global vitamin cartel participants paid almost $2 billion in fines worldwide but will likely pay much more to settle civil suits in the U.S.
DEW line Daily Deal/The Deal July 4, 2003 Friday

Roche Holding AG, Aventis SA, BASF AG and more than a dozen other participants in a global cartel to fix vitamin prices must face claims from non-U.S. customers that could amount to billions of dollars, a U.S. appeals court said yesterday.

The court revived lawsuits by Australian, Ukrainian and South American customers that had been dismissed because the purchasers didn't buy the vitamins in the U.S. Roche, Aventis, BASF face foreign price-fixing claims The Gazette (Montreal, Quebec) January 18, 2003

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The Canadian authorities followed on with their own court actions against the same and several additional companies securing $95.5 million in guilty pleas and settlements. A number of corporate officials were fined. Canadian consumers then launched a class action asking for $ 2 billion.

Criminal actions

A Toronto company was fined $2.25 million yesterday for its part in an international cartel to fix prices and share markets for choline chloride, an additive used in animal feeds.

The federal Competition Bureau said it sought a reduced sentence against Chinook Group Ltd. because of the company's early and valuable co-operation in its investigation of offences between January 1988 and September 1998.

This week, five companies, including F. Hoffmann-La Roche Ltd. of Switzerland, were fined $88.4 million in related cases for price-fixing involving several vitamin additives, including choline chloride, also known as B4.

The bureau said parties to the conspiracy secured most of the world supply of choline chloride. Chinook was able to maintain position as the dominant supplier in Canada. Chinook draws fine in price-fixing case The Gazette (Montreal, Quebec) September 25, 1999

Swiss drug giant F. Hoffmann-LaRoche Ltd. was fined $50.9 million Wednesday for its part in an international price-fixing conspiracy affecting everything from consumers' milk to bread. Four other multinationals also pleaded guilty in Federal Court in Toronto to price-fixing and were fined between $2 million and $19 million to bring the total up to $88.4 million.
The guilty pleas were part of a settlement agreement with the federal Competition Bureau, which investigated after price-fixing allegations arose in the United States.
Price-fixing drug giant convicted Calgary Herald (Alberta, Canada) September 23, 1999

F. Hoffman-La Roche Ltd., BASF AG, Rhone-Poulenc S.A., Eisai Co. Ltd. and Daiichi Pharmaceutical Co. Ltd. said that, between 1991 and 1999, they acted together to fix prices and divvy up the Canadian markets for a series of vitamins, which is illegal under the country's competition act.
The total amount of fines levied is five times as large as the next biggest in Canadian competition history
Drug giants admit price fixing: $88.5M settlement in vitamin case is new record for Canada The Ottawa Citizen September 23, 1999

Dr. Roland Bronnimann of Switzerland has also agreed to pay fines of $250,000 to settle charges related to the conspiracy. Former drug exec pleads guilty Calgary Herald (Alberta, Canada) October 26, 1999

The federal Competition Bureau said yesterday that Andreas Hauri, Swiss citizen and former head of global marketing for the vitamins and fine- chemicals division of F. Hoffman-La Roche Ltd., was fined $250,000 for his part in two price-fixing cartels in bulk vitamins and citric acid products.

From 1990 to mid-1994, Hauri met and conspired with senior executives of several multinational vitamin producers, including BASF, Rhone- Poulenc and several Japanese and European companies to illegally fix prices and allocate sales volumes for numerous bulk vitamins and related products.
Between 1991 and mid-1994, Hauri also took part in a conspiracy to fix prices and sales volumes for citric acid, an additive used in foods, beverages and detergents.
Another fine levied in price-fixing Fine levied in vitamin scam The Gazette (Montreal, Quebec) October 28, 1999

The Federal Court slapped a $1-million fine on German pharmaceutical giant Merck KGaA Thursday for its role in a price-fixing cartel that artificially inflated prices in the $700-million-a-year bulk vitamin C market.
Merck fined $1M for role in vitamin price-fixing Calgary Herald (Alberta, Canada) March 31, 2000

The Federal Court of Canada imposed almost $4 million in fines yesterday on four U.S. and European vitamin-makers that pleaded guilty to illegally conspiring to fix prices and allocate market shares for nearly a dozen vitamins and food additives sold in Canada.

Four companies - Degussa AG of Germany, Lonza AG of Switzerland, and Nepera Inc. and Reilly Industries Inc. of the United States - face fines totaling $3.88 million after the federal Competition Bureau made its case that the four had conspired to divide up the Canadian market for Vitamin B3 and 10 other vitamin and food products between January 1992 and March 1998.

The guilty pleas were the last act in a string of prosecutions resulting in fines to eight companies totaling $95.5 million, Vitamin makers fined $4 million: 4 companies pleaded guilty to fixing prices The Gazette (Montreal, Quebec) October 17, 2002

Civil actions

Two Canadian consumers have launched a class-action lawsuit seeking $2 billion in damages over a vitamin price-fixing scheme involving three of the world's largest companies.
Consumers file $2-billion vitamin suit The Gazette (Montreal, Quebec) June 19, 1999

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The staggering extent of the fraud is apparent from the European documentation. In November 2001 eight companies were charged with one set of cartel operations and two weeks later another nine were charged in regard to another cartel. Many were different companies to those prosecuted in the USA. In addition to that another five were not charged because they had not been involved in the preceding 5 years. In Europe this was not a crime and no one went to prison.

This was blatantly systemic fraud extending across the whole pharmaceutical market sector and the whole world. Many must have known what was happening yet it was 10 years before it was detected. Business could not be conducted successfully unless companies participated, and if they did so they were richly rewarded. It is staggering that during this time no one spoke out yet large numbers must have known. This reluctance on the part of large sections of our society to respond appropriately to unsavoury and illegal practices says something really disturbing about our society at a global level. The problem in social control lies not only in the way the marketplace defines its world but also in the willingness of society to accept that definition and ignore the dystocian conduct which so often results.

Civil actions

Swiss investigate vitamin cartel The Swiss competition authority said on June 29 that it will do its own investigation into the global price-fixing cartel by vitamin manufacturers. The Swiss authority said that Roche Holding AG has declared its willingness to cooperate. Following investigations by the US government and the European Union Roche and BASF, AG have agreed to pay fines totalling US$725 million to avoid US price-fixing charges (see Lancet 1999; 353: 1862 ). News in brief - Swiss investigate vitamin cartel LANCET Policy & People Volume 354, Number 9172 July 3, 1999

The European Union has levied a record $752-million-US fine against eight chemical and drug companies for fixing vitamin prices.

The executive commission said yesterday the firms had been under investigation since 1999 for colluding to eliminate fair competition for vitamin pills and overcharge consumers
The highest fine -- $406 million -- was for F. Hoffmann-La Roche AG of Switzerland, which the EU fingered as the "prime mover and main beneficiary" of the cartel arrangements.

The second-largest fine -- $260 million -- was levied against Germany's BASF AG, the world's No.2 vitamin maker after Hoffmann-La Roche.
The EU also fined Aventis SA (France); Solvay Pharmaceuticals BV (Netherlands); Merck KgaA (Germany) and Daiichi Pharmaceutical Co. Ltd, Esai Co Ltd., and Takeda Chemical Industries Ltd., all of Japan.
It said the cartel had a "formal structure and hierarchy" and included a regular exchange of sales figures and pricing data.
Drug firms fined $752m for price-fixing vitamins The Vancouver Province November 22, 2001

Five more companies were involved in the cartels but not fined, because their involvement ended five years or more before the commission opened its investigations. They were identified as Lonza of Germany and four Japanese companies: Kongo Chemical, Sumitomo Chemical, Sumika Fine Chemicals and Tanabe Saiyaku. Vitamin Producers Fined $752 Million The New York Times November 22, 2001

This is the most damaging series of cartels the commission has ever investigated due to the sheer range of vitamins covered which are found in a multitude of products from cereals, biscuits and drinks to animal feed, pharmaceuticals and cosmetics,'' the EU competition commissioner, Mr Mario Monti, said.
EU Levies Record Fine On Cartel Australian Financial Review November 23, 2001

The conspirators met secretly in a series of cartels that involved vitamins A, B1, B2, B6, D3, C, E, and beta carotene.
The fines are on top of more than (pounds) 1.4bn the conspirators have paid in the United States to the federal government, individual states, and private plaintiffs. Further lawsuits are pending.

The firm that worked most closely with the commission was Aventis of France, which blew the whistle on the others. It was granted full immunity in regard to its participation in the cartel in vitamins A and E because it was the first company to co-operate with the EU's executive and provided decisive evidence in the case of these two products. EC fines cartel for fixing prices of vitamins ;Eight drug companies must pay back (pounds) 500m The Herald (Glasgow) November 22, 2001

The problem, even after such a large fine, is that critics say the EU should have the power to levy criminal sanctions for price-fixing as is the case in the US, Canada and Japan, and soon Great Britain. Vitamin company executives have been jailed in the US over this same case and companies have been fined a record $26 million in Australia by the Federal Court.
Trade-offs In Trade Practices Australian Financial Review November 23, 2001

The European competition watchdog hit nine companies yesterday with fines totalling EURO 230 million ($395 million) for operating illegal cartels.

Some had recently been fined millions for participating in different cartels.

Swiss firms Roche Holding and Jungbunzlauer, US firms Archer Daniels Midland and Haarman and Reimer, and the Dutch company Cerestar Bioproducts were fined a total of EURO 135 million for conspiring to fix the price of citric acid, the most widely used preservative in soft drinks, jams and tinned vegetables and fruit.

Roche's fine of EURO 63.5 million came on top of the EURO 462 million it was recently fined by the EU for its part in the global vitamins cartel.

ADM was fined EURO 10 million in October for its part in price-fixing arrangements for sodium gluconate, a cleaning agent, and EURO 47 million in 2000 for another scheme involving lysine, an animal food additive. - - - - It held regular meetings, devised sophisticated monitoring system and co-ordinated a price war to drive Chinese suppliers out of European markets. Firms Operating EU Cartels Fined $395m Australian Financial Review December 7, 2001

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 Australia's population is smaller and the fines consequently less. Criminal convictions were followed by a class action.

Criminal conviction

Three international conglomerates controlling Australia's $200 million animal vitamin supply market face a record penalty for participating in a global price-fixing conspiracy.

The Australian Competition& Consumer Commission is seeking a $26 milllion penalty from Roche Vitamins Australia Pty Ltd ($15 million), BASF Australia Ltd ($7.5 million) and Aventis Animal Nutrition ($3.5 million), formerly Rhone-Poulenc Animal Nutrition, for their role in the cartel which lasted for at least four years.
The companies' supply of vitamins A and E to animal feeds in Australia's poultry, swine and ruminant industries was controlled from Singapore, and had affected the price of food for consumers
Vitamin Firm Price-fixers Face Record Court Fines Australian Financial Review December 6, 2000

Australia's competition watchdog had a major win in its pursuit of international cartels yesterday when the Federal Court ordered a record $26 million fine for a price-fixing and market-sharing agreement between three vitamin companies. - - - - - - - - the highest penalty in the history of trade practices proceedings in Australia over their involvement in a cartel arrangement to supply animal vitamins.
Vitamin Companies Fined $26m For Fixing Australian Financial Review March 1, 2001

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Class action

A class action potentially the largest ever launched in Australia is to be brought against three European pharmacuetical manufacturers for conspiring to fix the price of bulk vitamins.
"All Australians have paid too much because of the greed of senior pharmaceutical industry executives in France, Switzerland and Germany," Maurice Blackburn Cashman partner Mr Bernard Murphy said.

The action names pharmacuetical giants F. Hoffman La Roche, BASF AG and Rhone Poulenc SA. Drug Giants' Vitamin Cartel Spawns Huge Class Action Australian Financial Review July 9, 1999

Australia's $1 billion-a-year vitamin industry has been implicated in an alleged international conspiracy to fix the price of vitamins with local subsidiaries of four international pharmaceutical giants being named in a $100 million class action.
The lawyers claim hundreds of thousands of Australian consumers, businesses and primary producers could potentially form part of the class action after paying inflated vitamin prices for 10 years.
Drug Majors Face Price-fixing Claim Australian Financial Review July 4, 2000

The Federal Court's decision was welcomed by lawyers representing businesses and consumers in a $100 million class action against the price-fixing companies.

Maurice Blackburn Cashman lawyer David Roche said thousands of Australian businesses would now be able to claim compensation. Vitamin Giants Fined A Record The Age (Melbourne) March 1, 2001

The latest chapter in the long-running legal saga over vitamins price fixing was played out in Melbourne this week, where the Federal Court allowed a class action to proceed.

Several international companies attempted to dismiss the class action against them worth tens of millions of dollars over claims they colluded to illegally fix vitamin prices in the 1990s. Healthy Result For Class Action Australian Financial Review July 18, 2003


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Bayer and others defraud Medicaid

Bayer has paid US $ 271 million for defrauding Medicaid. Other companies are still being investigated and prosecuted.

In January 2001. Bayer became the first of 21 drug companies investigated over a 3 year period to pay a US $14 million fine for overcharging federal and 45 state Medicaid services for drugs. They did this by overstating the wholesale price on which the payments were based. This meant that Medicaid for the poor and destitute was paying more than Bayer's wealthier commercial customers which was illegal. Government requires drug companies to match their lowest prices when Medicaid was paying. Once again the case was whistleblower initiated.

COMPANY/PERSON: Bayer Corporation
ALLEGATIONS: Bayer allegedly caused health care providers to submit inflated claims for reimbursement for pharmaceutical products, by inflating its average wholesale price and marketing the drugs to physicians at deep discounts. Bayer also allegedly underpaid rebates to 45 state Medicaid programs by failing to accurately report the best price offered to commercial, for-profit customers
AMOUNT: $14 million (Relator’s share: 20% of recovery to federal government)
Source www

Deputy Attorney General Jose Maldonado, director of the Medicaid fraud control unit in New York, said, "With Medicaid prescription costs in this state now exceeding $2.5 billion a year, it is unconscionable that this renowned drug maker would inflate the cost of its products and stick state taxpayers with the bill."
Bayer to Pay $14 Million to Settle Charges of Causing Inflated Medicaid Claims

Later in 2001 Bayer was forced to recall one of its major cholesterol lowering drugs because of serious complications and deaths mostly from drug interactions. It lost US $525 million in profits and shares slumped. I have no information about the extent and independence of its prerelease clinical trials.

It seems that the Mediciad fraud in 2001 was only the tip of the iceberg. In April 2003 Bayer agreed to a criminal conviction and to pay US $257 million for inflating prescription drug prices for Medicaid. This was the largest ever Medicaid fraud payment. The racket was run in cooperation with the HMO Kaiser Permanente who hid the fraud by relabelling the drugs with their name - so called lick and stick. The estate of the deceased whistle blower who exposed this was paid US $34 million.

Bayer had decided to go it alone. It refused to merge with others and was becoming less competitive. It had suffered severely when forced to withdraw drugs. It had been underbid by another company. Bayer was desperate to keep the contract with Kaiser. The reports indicate that Kaiser suggested the fraud.

Although it is not for profit Kaiser is one of the most ruthless and hated of the HMOs in the USA. It adopted the corporate model in order to compete. There are many allegations of unsavoury practices and denial of care..

For a drug maker to take part in the joint state-federal Medicaid program, which covers roughly 36 million needy children, adults and disabled people, it must offer the government the "best price" on its pharmaceuticals.

"They must have the goods on these guys because the way that statute was written provides a good amount of wiggle room" for drug companies to set prices, said Ira Loss, a health care expert at Washington Analysis. Glaxo and Bayer Settle U.S. Medicaid Fraud Charges The New York Times April 16, 2003

In the largest Medicaid fraud settlement, Bayer agreed yesterday to pay the government $257 million and pleaded guilty to a criminal charge after engaging in what federal prosecutors said was a scheme to overcharge for the antibiotic Cipro
The fraud involved selling Cipro to Kaiser at prices lower than the company was charging Medicaid, in violation of a federal law that requires drug makers to give the Medicaid program the lowest price charged to any customer. To cover up the fraud, the Cipro bottles sold to Kaiser were relabled with Kaiser's name and given a different drug identification number.
Bayer's Cipro scheme began in 1995 when Kaiser threatened to stop buying the antibiotic after Johnson & Johnson offered its medicine, Floxin, at a much lower price, according to documents, including internal memos, that Mr. Couto gave to prosecutors.

Bayer was desperate to keep the business of Kaiser, a nonprofit health insurer with eight million members, according to documents. Kaiser was buying about $7 million of Cipro each year. In addition, other health groups often follow Kaiser's lead in drug-buying decisions.

But if Bayer offered to beat the price offered by Johnson & Johnson, Cipro's new price would fall below what Bayer was charging Medicaid, forcing it to pay tens of millions of dollars in additional rebates.
Mr. Couto told prosecutors that Clive Frith, a purchasing manager for Kaiser, had told him that this was not the first such deal that he had put together for Kaiser. "I do this all the time," Mr. Frith had said.

According to F.D.A. records, Kaiser has its own national drug code numbers for dozens of relabeled medicines.
Medicaid fraud investigators and other experts say similar relabeling has been done by many drug companies to hide the deeply discounted prices they charge special customers.
The (ethics) class began with a video address by Helge H. Wehmeier, who was then in charge of Bayer's United States operations. Mr. Wehmeier said that Bayer executives were expected to obey "not only the letter of the law, but the spirit of the law as well." And he urged them to call his office if they learned of violations. Mr. Couto recalled how the room had erupted with laughter.

Within days of the class, Mr. Couto wrote a memo to his boss, asking how he should react to Mr. Wehmeier's comments given the Kaiser relabeling deals, which he had come to believe were illegal. Mr. Couto said he received no response.

In February 2000, Mr. Couto and his lawyers, the firm of Getnick & Getnick in Manhattan, presented his case to federal prosecutors
Bayer Agrees to Pay U.S. $257 Million in Drug Fraud The New York Times April 17, 2003

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Other companies

Bayer was the principal offender but many other companies were investigated. GlaxoSmithKline paid a fine of US $87.6 million. In Montana the attorney general lodged a court action against 18 companies in 2002 claiming that by inflated their wholesale prices they charged Medicaid patients many times the amount paid by other purchasers in the state. These purchasers were given a large number of discounts including free products when they purchased the company's drugs. The conduct of the company Bristol was used as an example.

A maker of blood-clotting factors and its pharmacy unit (Alpha Therapeutics) is suing officials of Medicaid control units for allegedly attempting to set Medicaid rates for certain pharmaceuticals in violation of federal law.
The companies' action follows an investigation of drug pricing practices led by the Drug Pricing Team of the National Association of Medicaid Fraud Control Units (NAMFCU). -- - - - - Based in part on that information, the Health Care Financing Administration (HCFA) is in the process of overhauling its drug reimbursement procedures for dozens of covered prescription drugs.
As Reuters Health has reported, the NAMFCU-led drug pricing probe revealed that some drug manufacturers were artificially inflating the "average wholesale prices'' (AWP) of certain drugs, mostly infusion, inhalation and injectable products, resulting in massive government overpayments.
Company Sues Medicaid Fraud Fighters Over Drug Pricing Issue Reuters August 14, 2000

Prosecutors also announced yesterday that GlaxoSmithKline had agreed to pay $87.6 million to settle civil charges that it had overcharged the Medicaid program for Paxil, an antidepressant, and Flonase, an allergy spray. That deal also involved relabeling medicines for Kaiser, prosecutors said.
Bayer Agrees to Pay U.S. $257 Million in Drug Fraud The New York Times April 17, 2003

Germany's Bayer AG and GlaxoSmithKline Plc earlier this month settled charges they cheated the federal and state governments by giving sweeter deals to giant nonprofit HMO Kaiser Permanente.
States Heat Up Medicaid Probes of Drug Makers The New York Times April 30, 2003

Cash-poor U.S. states are stepping up probes into whether prescription drug makers are bilking the government Medicaid health plan for the poor, officials and analysts said.
Along similar lines, Merck & Co. is accused of defrauding Medicaid by charging hospitals 10 cents a pill for its ulcer drug Pepcid while Medicaid pays $1.65 per pill.
Spitzer (Attorney General of N.Y.) is accusing Glaxo, Pharmacia, recently acquired by No. 1 drugmaker Pfizer Inc., and French drugmaker Aventis SA AVEP.PA with inflating prices charged to Medicaid and Medicare, the federal health plan for the elderly.
In that case, still working its way through the courts, Spitzer accuses the firms of bribing doctors by selling them drugs at a cheaper price than they get reimbursed from government health plans.
States Heat Up Medicaid Probes of Drug Makers The New York Times April 30, 2003

Three drug companies were accused Thursday of defrauding the Texas Medicaid program of more than $20 million over the last five years.

In a lawsuit filed in Austin, Texas Attorney General John Cornyn leveled the fraud allegations against Warrick Pharmaceuticals Corp. of Reno, Nev.; Dey Inc. of Napa, Calif.; and Roxane Laboratories Inc. of Columbus, Ohio.
In addition to reimbursement of more than $20 million, the attorney general is asking an Austin judge to impose penalties totaling more than $58 million against the companies.
Pharmacies sometimes harvested profits of more than 200 percent over the prices they paid the three firms for drugs used to combat asthma and other respiratory ailments, he said.
Cornyn accuses 3 companies of Medicaid fraud Firms deny lawsuit's allegations The Dallas Morning News September 8, 2000

Against: 18 companies involved in manufacturing, marketing and selling prescription pharmaceuticals in the State of Montana, and a number of as yet unknown companies that participated in the illegal conduct, within both the U.S. and foreign countries.
Charges: That the drug companies engaged in Medicaid fraud; caused false claims to be made to the State and participated in deceptive trade practices by manipulating or misstating the average wholesale price (AWP) of drugs, forcing the state, consumers and others to grossly overpay for prescription drugs.
AWP Scheme: Numerous drug companies have reported inflated Average Wholesale Prices, so that the reported AWP for certain drugs has little or no relationship to the price physicians and pharmacies actually paid for those drugs. This fraudulent scheme has gouged consumers, taxpayers and the Medicare and Medicaid programs.
Summary of Montana Drug Pricing Lawsuit : Charging Drug Companies with Consumer Fraud and False Claims February 25, 2002 Filed by: Montana Attorney General Mike McGrath


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Bayer and others sell AIDS infected products?

 The argument that Bayer's misconduct was in response to extreme market pressures does not hold up completely. A report in the New York Times suggests that the company has a long culture of deception and a disregard for the lives of its customers. A Bayer subsidiary Cutter Biological was one of a number of companies that extracted clotting factors for treating haemophiliacs from pooled plasma. In 1992 the first cases of AIDS in haemophiliacs due to the medication appeared. The matter came to the attention of the Food and Drug Administration. The companies agreed to withdraw the product from the market which they did in the USA but not internationally. The administration went along with the companies in keeping the extent of the problem from the public. When they learned of the continuing international trading they also remained silent.

Bayer had already paid for donors and for preparation of the products. It had US $4 million of concentrate in stock. In spite of their undertaking to withdraw the product these companies did not stop selling internationally. Most countries in Europe read the literature and switched to the heated product. France was the only exception and those responsible were subsequently imprisoned for not acting responsibly.

Bayer and the other companies continued to sell to the East, to South America and probably other developing countries for at least a year. They even continued manufacturing the old product, possibly because it was cheaper to produce.

Bayer failed to adequately warn patients of the risks and played them down to its agents and to doctors. It asked them to use up stocks. Figures from Hong Kong and Singapore suggest that close to 50% of patients developed AIDS and many have died. Across the world it is likely that thousands were infected and died.

That this had happened was only exposed when reporters independently sifted through material disclosed in US legal actions taken by infected patients against Bayer. The foreign documents had been ignored by prosecutors.

The documents reveal the culture, the denials and the rationalisations which were used to justify continued use, the reassurances given to agents, and the inadequate responses to those who questioned.

The same information was not available about Armour Pharmaceutical, Baxter International and Alpha Therapeutic. Reports suggest they also continued to sell untreated stock internationally.

In the USA thousands of patients have developed AIDS and the three companies have paid out US $600 million in settlements. The company has continued to deny and justify its actions in selling this material internationally.

A division of the pharmaceutical company Bayer sold millions of dollars of blood-clotting medicine for hemophiliacs - medicine that carried a high risk of transmitting AIDS - to Asia and Latin America in the mid-1980's while selling a new, safer product in the West, according to documents obtained by The New York Times.
"These are the most incriminating internal pharmaceutical industry documents I have ever seen," said Dr. Sidney M. Wolfe, who as director of the Public Citizen Health Research Group has been investigating the industry's practices for three decades.
Federal regulators helped keep the overseas sales out of the public eye, the documents indicate. In May of 1985, believing that the companies had broken a voluntary agreement to withdraw the old medicine from the market, the Food and Drug Administration's regulator of blood products, Dr. Harry M. Meyer Jr., summoned officials of the companies to a meeting and ordered them to comply. "It was unacceptable for them to ship that material overseas," he said later in legal papers.

Even so, Dr. Meyer asked that the issue be "quietly solved without alerting the Congress, the medical community and the public," according to Cutter's account of the 1985 meeting.
Whether Cutter was behaving ethically became an issue in internal company discussions. "Can we in good faith continue to ship nonheat-treated coagulation products to Japan?" a company task force asked in February 1985, fearing that some of its plasma donors might be H.I.V. positive. The decision, records show, was yes.

Taken together, the documents provide an inside view of Cutter's bottom-line strategizing and efforts to manage the flow of information amid growing public anxiety about the safety of its product.
Fearing a loss of customers, Cutter conceived a marketing plan that stopped well short of full disclosure. - - - - - - -

Several weeks later, Cutter tried to minimize the danger hemophiliacs faced when using blood products. "AIDS has become the center of irrational response in many countries," the company said in a June 1983 letter to distributors in France and 20 other countries. "This is of particular concern to us because of unsubstantiated speculations that this syndrome may be transmitted by certain blood products."
The new product, meanwhile, was selling briskly, leaving Cutter with a problem: "There is excess nonheated inventory," the company noted in minutes of a meeting on Nov. 15, 1984.
At the November meeting, the minutes show, Cutter said it planned to "review international markets again to determine if more of this product can be sold."
"It appears there are no longer any markets in the Far East where we can expect to sell substantial quantities of nonheat-treated," a Cutter official wrote in May 1985. Bayer said Cutter stopped shipping unheated concentrate in July 1985.
2 Paths of Bayer Drug in 80's: Riskier Type Went Overseas The New York Times May 22, 2003

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Abbott and others defraud Medicaid
Medical Equipment

Abbott seems to have been the prime mover in a scheme to defraud Medicare and Mediciad when selling medical equipment. In 2001 Abbott paid a US $560 million civil settlement, a US $290 million criminal fine, and US $25 million to the US states that were defrauded. It escaped conviction for price fixing in 1998 but paid a small fine in 2000.

The FTC's earlier effort, a 1992 case against Abbott Laboratories for alleged price-fixing of baby food formula, ended in failure when a judge ruled that the agency had not proved its case. In that suit, the FTC had sought a fine of $ 19 million. ANTITRUST REGULATORS CRACK DOWN ON HEALTH INDUSTRY; CONSUMERS: IN LATEST ANTI-MONOPOLY MOVE, FTC WILL SEEK $120 MILLION IN FINES AGAINST DRUG COMPANY MYLAN. Los Angeles Times December 22, 1998

COMPANY/PERSON:Abbott Ambulance, Inc.
ALLEGATIONS:Billing federal health care programs for Medically unnecessary transports and other non-covered trips
AMOUNT:$5.4 million

COMPANY/PERSON: Takeda Abbott Pharmaceuticals/ TAP Pharmaceutical Products Inc.
ALLEGATIONS: Allegedly false pricing of Average Wholesale prices; illegal marketing and sales practices
AMOUNT: $559,483,560 in civil FCA damages and penalties. Total award to relators (divided among two individuals and Tuftâs Associated HMO): 17%, or approximately $95 million. TAP also paid a $290 million criminal fine and paid more than $25 million to settle claims with the 50 states and the District of Columbia relating to allegedly false Medicaid claims.

Fried, Frank, Harris, Shriver & Jacobson

The United States Attorney's office in Boston has widened its five-year investigation into the sales practices of prescription-drug companies, subpoenaing records involving the distribution of a best-selling drug, Prevacid, made by TAP Pharmaceuticals.

TAP, a joint venture of Abbott Laboratories and Takeda Chemical Industries of Japan, and two managed care drug distributors, Caremark Rx and Express Scripts, said that they had received subpoenas in the last 10 days.
Last October, TAP paid $875 million to settle criminal and civil charges that the company had defrauded Medicare and Medicaid, the government insurance programs for elderly, disabled and low-income people. As part of that settlement, TAP admitted that its sales people had helped doctors charge the government for free samples of Lupon. The agreement was the largest health-care fraud settlement.
Inquiry Into Drug-Sales Practices Is Widened The New York Times May 13, 2002

Tap Pharmaceuticals agreed to pay $875 million, including a $290-million criminal fine.
Warning: The P3s are coming! Winnipeg Free Press Jul 21, 2002

The subsidiary, CG Nutritionals, pleaded guilty to obstructing a criminal health care investigation Wednesday in federal court, after a sweeping federal investigation into fraudulent sales of medical equipment.
Abbott admitted that its employees provided undercover "buyers'' information aimed at helping them overcharge Medicaid and Medicare, the federal health insurance programs for the elderly and indigent.
Abbott Laboratories to Pay $600M in Fines New York Times July 24, 2003

The U.S. attorney's office for the Southern District of Illinois in August 2001 launched an investigation into whether Ross, an Abbott division that manufactures liquids and pumps used to feed individuals with serious illnesses, and other medical product manufacturers -- such as Novartis, the Kendall division of Tyco International and Zevex International -- worked with providers to defraud Medicare and Medicaid. The companies allegedly offered a discount to nursing homes, hospitals and home health care providers to encourage them to purchase pumps and related supplies. Providers allegedly billed the products to CMS at higher prices.
Last month, Abbott became the first company to announce a settlement in the case and allocated $622 million to cover the cost of the agreement (Kaiser Daily Health Policy Report, 7/23). Under the settlement, CG Nutritionals will pay $200 million in criminal fines and can no longer participate in Medicare or Medicaid.
Abbott Laboratories Subsidiary Pleads Guilty to Felony Charge From the www somewhere July 2003

In June, AstraZeneca paid $355m in criminal fines and an out-of-court settlement. Schering-Plough said in May that it was likely to face criminal charges over sales and pricing practices, and document destruction. Earlier, Bayer pleaded guilty and paid $257m to resolve criminal and civil claims.

Drugs companies have complained that the medical billing system in the US is arcane and complex. But Neil Getnick, attorney of Getnick & Getnick, a law firm specializing in whistleblower cases and anti-fraud litigation, said that was not the entire problem.

"There is a very troubling pattern in the industry that is systemic and not aberrational," Mr. Getnick said. Health-care fraud convictions rise FINANCIAL TIMES August 10,2003

Investigators want to know whether Ohio customers of Columbus-based Ross Products filed fraudulent Medicaid claims for internal feeding equipment, said John Guthrie, head of the attorney general's health-care fraud section
Guthrie said customers, including nursing homes and medical equipment suppliers that sought improper reimbursement, also should be punished.

"Ross was the one that initiated this, but the nursing homes and supply companies that actually submitted the bills have culpability as well," he said. Guthrie said investigations are expected in other states and other companies that make similar products also face scrutiny.
Ross employees then counseled their customers to submit claims for reimbursement for the products they bought and the pumps they received free, prosecutors said. The company also is accused of offering up-front payments to customers who agreed to contracts, in violation of federal anti-kickback statutes, authorities said.

Tom Weager, warehouse manager for Miesse Medical Supply of Columbus, said Ross and other vendors offered free feeding equipment in Ohio until about two months ago - approximately when Ross officials reached their settlement with federal authorities. Ohio AG to investigate Medicaid claims related to equipment The Associated Press State & Local Wire September 15, 2003

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Diagnosing for profit

Ciba-Geigy and Sandoz merged to form Novartis. It is accused of fuelling the misdiagnosis of Attention Deficit Disorder through its close association with psychiatric associations and its presentations at their meetings.

Novartis is also one of the companies accused of defrauding Medicare and Medicaid when selling infusion equipment. Abbott has already paid US $600 million for this offense.

Drug company Novartis now No. 1 in sales. Swiss-based Novartis, the drug company formed by last December's merger of giants Ciba-Geigy and Sandoz, ranked No. 1 in worldwide drug sales for 1996 with 4.4% market share, bumping previous leader Glaxo Wellcome, based in Great Britain, to second place FOR THE RECORD Modern Healthcare May 5, 1997

The class-action lawsuit that was filed last week in California and New Jersey names Novartis and the APA as defendants for conspiring to create a market for Ritalin by targeting millions of children and misdiagnosing them with ADD/ADHD for the strategic purpose of expanding use of the drug.

Both the APA and Novartis have a great deal at stake professionally and financially. To fight the claim that children have been and still are being misdiagnosed with ADD/ADHD, the APA - the nation’s leading psychiatric professional group - will be required to cough up its medical and scientific data to support the ADD/ADHD diagnosis. This may be difficult given the growing number of physicians, scientists and even psychiatrists who long have argued that the diagnosis of ADD/ADHD is not based in science - that the diagnosis is a fraud based on subjective assessments.
According to Mosher, "The APA receives a huge amount of money from the pharmaceutical companies through grants, but the most obvious and obnoxious examples are the two meetings the APA has each year. At both, the drug houses basically lease 90 percent of the exhibition space and spend huge sums in giveaway items. They have nearly completely squeezed out the little guys, and the symposiums that once were dedicated to scientific reports now have been replaced by the pharmaceutical-industry-sponsored speakers.
"Writing May Be on Wall for Ritalin October 16, 2000

COMPANY/PERSON:Novartis Pharmaceuticals Inc.
ALLEGATIONS:Failure to provide accurate pricing information for pharmaceuticals sold to the Department of Veterans Affairs
AMOUNT:$2.5 million CIA: $8 million
Fried, Frank, Harris, Shriver & Jacobson www site accessed Feb 2003

The U.S. attorney's office for the Southern District of Illinois in August 2001 launched an investigation into whether Ross, an Abbott division that manufactures liquids and pumps used to feed individuals with serious illnesses, and other medical product manufacturers -- such as Novartis, the Kendall division of Tyco International and Zevex International -- worked with providers to defraud Medicare and Medicaid.
Abbott Laboratories Subsidiary Pleads Guilty to Felony Charge taken from www somewhere July 2003

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Glaxo Wellcome and SmithKline Beecham
Medicaid fraud and other issues

Glaxo was one of the companies which settled allegations of defrauding Medicare. It sold two of its drugs to Kaiser in a similar lick and stick scam as Bayer (see above). It paid up US $87.6 million but continued to deny it had done anything wrongs. It is currently the subject of another Medicaid fraud lawsuit by the New York Attorney General. Medicaid is the cash poor fund which struggles to help the destitute.

Glaxo has merged with SmithKline Beecham the company which has a few years ago paid a US $325 million settlement for laboratory fraud.

Glaxo has been a large contributor to political lobbying and marketing. It used strong arm tactics and threats when it did not get its way in the UK.

Glaxo has been criticised by Oxfam and others for its policies regarding pricing and patents for drugs needed to treat AIDS and other poor third world patients - also for their failure to devote research funds to the treatment of unprofitable third world diseases when contrasted with the diseases of affluence.

Glaxo is one of the few companies in the UK where shareholders have blocked excessive executive remuneration.

SmithKline Beecham, - - - paid the government $325 million last year to settle allegations of Medicare billing fraud (March 3, 1997, p. 28). SmithKline also paid the government $1.5 million in 1989 to settle allegations of illegal Medicare kickbacks stemming from its management of three physician-owned laboratories in California. EFFORT TO COOL FRAUD PROBES STARTS SLOW MODERN HEALTHCARE Feb. 2, 1998

Attorney General Eliot Spitzer's lawsuits against Pharmacia Corp. and GlaxoSmithKline allege consumer fraud, commercial bribery and making false statements concerning wholesale prices to government-operated subsidized health plans. Spitzer said he also has sent a "pre-litigation notice" to Aventis accusing that company of the same activity.

Similar lawsuits are pending in California and Texas. Drug company officials say their practices are legal and that the states are overreaching.
For just seven drugs in 2001, the practice added $141 million to what the state paid and $28 million to what New York consumers paid, Spitzer said. Overall, he estimated the practice costs consumers up to $100 million, but did not have an estimate Thursday of the state's total cost. 
N.Y. Attorney Gen. Accuses Drug Companies Yahoo! News (Associated Press) Feb 13, 2003

United Kingdom
An ominous silence has descended on the National Institute for Clinical Excellence, or Nice - the controversial institution charged with "rationing" NHS drugs.

At the end of this month the institute will be a year old, yet it has only made one decision so far: a thumbs down for Glaxo Wellcome's flu drug Relenza.

That recommendation triggered a storm of protest last October, including a threat from Glaxo chairman Sir Richard Sykes to move the company overseas. It is tempting to assume that Nice has been afraid to open its mouth ever since.
When Nice decides a product is not worth the money, doctors are "strongly guided" against prescribing it. For manufacturers, the implications are immense.
Make or break for the medicine examiners Institute faces a rough ride from industry in its quest to find value for money NHS treatments The future of the NHS: special report Guardian March 24, 2000

Oxfam's report Dare to Lead urges the newly formed Anglo-US company GlaxoSmithKline to play a central role in reforming this situation. It argues that GlaxoSmithKline has a moral duty "to forgo [intellectual property] privileges in developing countries, if [these] are likely to lead to an increase in prices" and should donate to an international research fund controlled by the World Health Organization. Oxfam criticises current industry programmes to give low cost and free medicines to developing countries for being too small scale and perpetuating the system of intellectual property protection enshrined in the World Trade Organisation's current rules (the trade related aspects of property rights (TRIPS) agreement).
Editorials : Poor world health and rich world wealth Commercial companies alone can't solve the health problems of developing countries BMJ 2001;322:629-630 (17 March 2001).

Shareholders of GlaxoSmithKline voted today to reject the proposed pay package for the company's chief executive, Dr. Jean-Pierre Garnier, and other top executives.
A steady stream of them took the microphone at the company's two-hour public meeting and called Mr. Garnier's compensation "disgraceful" and "appalling." One shareholder said the term "golden parachute" did not seem to do it justice: "If you jump off a gravy train, what do you use?" he wondered, to general laughter.
Glaxo Shareholders Revolt Against Pay Plan for Chief The New York Times May 20, 2003

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Baxter and its home infusion record.

Baxter has escaped the limelight by obscuring its past involvement in unsavoury conduct. It was involved in the AIDS/Haemophiliac scare, in the US $161 million Caremark home infusion fraud, and in a large number of deaths in its dialysis service.

Like Bayer it continued to sell potentially AIDS contaminated clotting factors for haemophiliacs internationally after the problem was identified in 1984. There is little information and Baxter was not forthcoming.

One of the major fraud scandals in the early 1990s was Caremark, at that time a home infusion subsidiary of Baxter. It was conveniently spun off from Baxter in 1992 probably around the time investigations commenced. Caremark pleaded guilty to criminal conduct and paid US $161 million, one of the largest settlements at that time.

Caremark was subsequently purchased by Medpartners, part of Richard Scrushy's HealthSouth stable of companies. Its activities and the fraud are more fully described on another page

Caremark has had a stormy existence even from the time it was part of Baxter. Caremark previously operated a home-infusion business in which it administered intravenous antibiotics, medicines and nutrition to patients at their homes.
That part of Caremark's business was the focus of a criminal investigation by the Federal Bureau of Investigation and the inspector general's office of the U.S. Department of Health and Human Services that dealt with alleged payoffs to doctors for steering business to the company. Ultimately, Caremark pleaded guilty to federal felonies in connection with the inquiry and agreed to pay civil damages and criminal fines of $161 million to settle the case.
MedPartners Proposed Buy of Caremark Would Be the Latest in a Series of Acquisitions The Wall Street Journal Europe May 15, 1996

There have been serious problems in care and also fraud in the for profit dialysis business in the USA which I have not explored. It is one of the areas where standards of care have been compromised. I do not have a lot of information about this. Groups in Canada became alarmed in 2003 when a provincial government contracted dialysis services to Baxter as the first step in a wider policy. They pointed to recent failures with many deaths.

Baxter was chosen by the two BC health authorities last December under a far-reaching contracting-out scheme designed to save money in the Fraser Health Authority. The kidney services are currently managed and delivered directly to patients by the Health Authority. The two authorities continue to negotiate with Baxter and hope to finalize a contract by March 30.
In the Journal of the American Medical Association study, P. J. Devereaux of McMaster University in Hamilton, Ont. found the overall death rate for kidney patients was 8 per cent higher in for-profit facilities. Dr. Devereaux said for-profit dialysis clinics tend to cut corners such as using technicians, rather than Registered Nurses, and the time patients spend on dialysis is shorter than in not-for-profit facilities.
Nurses demand halt to talks with US health giant linked to patient deaths British Columbia Nurses Union March 24, 2003

"Investors slashed more than $3.5 billion (US) from the market value of Baxter International Inc. yesterday after the blood products giant lowered its profit and sales targets for 2003 and disclosed that the US Justice Department has subpoenaed documents in a probe of the deaths of 53 patients who had used its dialysis machines.

"Deerfield Ill.-based Baxter is already a defendant in six civil lawsuits seeking damages from the company and, in a filing with the US Securities and Exchange Commission, it warned that it may face more lawsuits and claims in the United States and elsewhere"

"In a Securities and Exchange Commission filing, Baxter said it has already reached settlements with a number of families of patients who died in Spain, Croatia and the United States after undergoing treatment on the Baxter Althane series of dialyzers."
FROM Globe and Mail Report on Business March 14, 2003 quoted by British Columbia Nurses Union March 24, 2003

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Bristol-Myers Squibb and others
Market abuses, tax issues

Bristol was a prime target of a lawsuit lauched against 18 companies by the Montana attorney general alleging the Medicaid fraud by overstating wholesale prices. There are a number of other indicators that Bristol-Myers and others have not conducted themselves with the integrity and ethical commitment we would expect from those in health care. Extracts are supplied.

The US National Organization for Women (NOW) has announced that it will lead a class action suit against Bristol-Myers Squibb for tactics it used to prevent patient access to lower-priced generic versions of Taxol, a treatment for breast and ovarian cancer. A federal court ruled in March of last year that the tactics included "an intent to deceive" the government.

The US Gray Panthers SPAN Coalition of over 35 organizations representing seniors, consumers and patients is preparing similar suits against a range of pharmaceutical manufacturers including AstraZeneca and Abbott Laboratories. SPAN is establishing a national registration process to enable consumers to identify market abuses and sign up to be included in the lawsuits. SPAN is organising regional meetings and seminars to educate consumer and patient advocacy groups about pharmaceutical industry abuses, and to provide outreach to potential plaintiffs. PBS-PBAC Resource Update from List server

In the 2000 edition of the Red Book, defendant Bristol reported an AWP of $1,296.64 for one 20mg/ml, 50ml vial of Vepesid (Etoposide) for injection. At the same time, the defendant sold exactly the same drug to a GPO for $70 - a difference of $1,226.64 between Bristol's falsely inflated AWP and the real price.

Bristol employed a number of other financial inducements to stimulate the sales of its drugs at the expense of the Medicare and Medicaid Programs. - - - - - - - For example, Bristol provided free Etopophos to two Florida oncologists in exchange for their agreement to purchase other Bristol cancer drugs. Summary of Montana Drug Pricing Lawsuit : Charging Drug Companies with Consumer Fraud and False Claims February 25, 2002 Filed by: Montana Attorney General Mike McGrath

The U.S. attorney's office in Boston is the only one in the nation with a separate health care fraud unit, which was established 16 months ago by U.S. Attorney Michael Sullivan and is staffed by six prosecutors working solely on health cases, and it currently is expecting settlements from Schering-Plough for the illegal inflation of drug prices and from Pfizer for the illegal marketing of a drug. The office also is investigating Bristol-Myers Squibb for illegal marketing and pricing and AstraZeneca for illegal sales and marketing, according to the Globe.
Boston Area Leads Nation in Combating Health Care Fraud Boston Globe, May 13, 2003

Squibb Company said yesterday that it had received a subpoena from the United States attorney in Boston over pricing and marketing of drugs covered by Medicare and Medicaid.
Bristol-Myers Says It Has Been Subpoenaed The New York Times August 9, 2003

Drugmakers American Home Products and Bristol-Myers Squibb on Thursday reported double-digit profit jumps for the third quarter, citing healthy increases in worldwide sales, while Eli Lilly said profits rose 6 percent.
A year earlier, the company (American Home Products) reported a net loss of $2.87 billion, or $2.20 per share, mainly due to a charge of $3.29 billion after taxes to settle lawsuits charging its diet drug fenfluramine, sold under the brand names Pondimin and Redux, caused serious heart problems. The class-action settlement, which covers future medical screenings to detect health problems in patients who took the drugs, was approved Aug. 28 by a federal judge.
Drugmakers Post Healthy Gains The New York Times October 19, 2000

Following the accounting fraud at companies like Enron, Worldcom and HealthSouth government has started reviewing accounting practices. They have given the companies an opportunity to quickly reveal their conduct with the possibility of paying smaller penalties or even being forgiven as a result. Bristol-Myers Squibb is one of them.

But companies continue to issue major restatements of financial results. In recent weeks, Tyco International Ltd., Charter Communications Inc., Gateway Inc, Bristol-Myers Squibb Co., and Royal Ahold NV, all of which have been under investigation by federal authorities, have disclosed that they had inflated revenue or revealed other fresh accounting problems.
''The cloud isn't off the market at all,'' said D. Quinn Mills, a professor at Harvard Business School and author of the new book ''Wheel, Deal, and Steal: Deceptive Accounting, Deceitful CEOs, and Ineffective Reforms.''

''People are only beginning to realize just how fraudulently Wall Street operates,'' he said. FBI takes up heavy load of corporate fraud probes The Boston Globe May 6, 2003
Citigroup pages on this site for a discussion of Wall Street fraud and the role of Wall Street financiers in fraud committed by their customers.)

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Merck and others
Pharmacy Benefit Manager scams
other issues

Merck & Company is another group skating close to the law. Like Bayer it is caught up in allegations of defrauding Medicaid, apparently selling pills to Mediciad for $1.65 while hospitals paid 10 cents. A subsidiary paid a US $18.5 million fine in Texas.

Dey, Inc., a manufacturer of prescription drugs for the treatment of allergies and respiratory diseases, has agreed to pay the United States and the state of Texas $18.5 million to settle allegations of health care fraud, the Justice Department and the Attorney General of the State of Texas, announced today.
The remaining defendants are scheduled for trial in August of this year. - - - - - The United States is continuing to investigate Dey's activities with respect to other states' Medicaid programs.

Merck seemed to be at the centre of an alleged fraud involving Pharmacy Benefit Managers (PBMs). It had a partnership with or owned the PBM, Medco Managed Care. PBMs seem to be another layer of profit taking sitting between the pharmacy companies and the HMOs, hospitals and doctors. Fraud was only one of a number of concerns. The problems extended to several other companies which are also being investigated or prosecuted.

A few years ago, pharmaceutical manufacturers were buying up the biggest pharmacy benefit managers, because drug companies planned to capture the PBMs' ability to influence doctors' prescribing patterns and increase sales of their own drugs.
Another problem is the increasing number of government investigations into the relationship between drug makers and PBMs (Pharmacy Benefit Managers), which has cost the companies millions of dollars in court-related expenses. In August 1998, nearly five years after the acquisition was announced, Merck finally resolved its differences with the Federal Trade Commission, which claimed that Merck's partnership with Medco Managed Care cut into competition in the manufacture and sale of pharmaceuticals and led to higher prices and lower quality.

In June 1998, the City of Toledo (Ohio) filed suit against Eagle Managed Care, a PBM subsidiary of Rite Aid, and Pharmacy-Care Inc., an Eagle acquisition, claiming that the PBM wasn't "forthcoming about its revenue streams," in violation of its contract. Also in June, federal prosecutors began an investigation into rebate arrangements, otherwise known as "kickbacks," between drug makers and PBMs. In addition, the Federal Drug Administration recently tried, but failed, to regulate PBM promotions and communications to physicians and patients after contending that some PBM marketing efforts violated federal prohibitions. PHARMACY BENEFIT MANAGERS ARE THREATENED WITH EXTINCTION UNLESS THEY CAN EVOLVE BEYOND JUST A CLAIMS-PROCESSING FUNCTION Medical Industry Today February 10, 1999

The Justice Department yesterday accused Medco Health Solutions, a large pharmacy benefit manager, of cheating the federal employees' health plan.

The government action, based on a four-year inquiry, accused Medco's mail-order unit of promoting the use of expensive drugs, charging for pills that were not delivered and favoring expensive drugs made by Merck & Company, which owns Medco, over less costly products.

Patrick L. Meehan, the United States attorney in Philadelphia, said the government was joining two whistle-blower civil lawsuits filed by two former Medco pharmacists and a physician, under federal and state false-claims laws.
As summarized in a statement by Mr. Meehan's office, the charges also include destroying mail-order prescriptions to avoid penalties in meeting deadlines for filling the orders; changing prescriptions based on "misleading or false information provided to treating physicians"; and failing to comply with state laws requiring reviews of potential harmful interaction among drugs.
Mr. Spitzer's office had said earlier that it and a number of other state attorneys general were coordinating inquiries into Medco and other drug plan managers along with federal officials in Philadelphia. Regulators have also questioned Caremark Rx. Officials said the formal complaint against Medco would be filed in September. No charges have been filed against the other drug plan managers.

Merck, which has announced plans to spin off Medco to Merck shareholders, has agreed to a $42.5 million settlement in a separate civil lawsuit in Federal District Court in White Plains that raises similar issues; despite settling, the company rejects charges of wrongdoing. Some of the plaintiffs' lawyers have asked Judge Charles L. Brieant to reject the settlement, which they say is too small.
U.S. Accuses Merck Unit of Cheating Health The New York Times June 24, 2003

The new count against Medco accuses the company of making improper payments to health plans to induce them to select the company as a pharmacy-benefits manager for government contracts.

The move, announced by U.S. Attorney Patrick L. Meehan in Philadelphia, follows the filing of the government's initial false-claims complaint against Medco on Sept. 29. The original complaint arose from two whistleblower lawsuits against the company.

In the initial complaint, the government laid out a long list of alleged violations, accusing Medco of destroying patients' mail-order prescriptions to avoid penalties for delays in filling and mailing prescriptions, and mailing prescriptions with fewer pills than ordered, overcharging both patients and health plans.

Federal authorities also said Medco created false records showing that doctors had been contacted to discuss the proper drug or dosage when they hadn't been, and that the company intimidated pharmacists to certify new prescriptions without direct contact with the doctor.
However, these allegations suggest that, somewhere along the line, the focus became the profit instead of the patient," Mr. Meehan said.
U.S. Accuses Medco of Paying Huge Kickback to Health Insurer Yahoo & Associated Press December 9, 2003

The pharmacy benefit companies that manage drug coverage for most working Americans commonly offer millions of dollars in payments to important customers when contracts with them are signed, according to industry executives and consultants.
Jeffrey Simek, a Medco vice president, said the upfront payments "are not unique to Medco, and they are considered standard across the P.B.M. industry."
Payments by Managers of Drug Plans Face Scrutiny New York Times December 11, 2003

A number of other PBMs are under regulatory scrutiny for similar practices. These will be the people President George Bush will trust when he pushes more Medicare patients into HMOs where they will get drug coverage.

The companies have been accused of, and have generally denied, taking payments from drug manufacturers in return for promoting the latest, most expensive drugs.

The pharmacy benefit management companies would have an important role as intermediaries in delivering prescription drugs to elderly and disabled Americans under proposals in Congress to expand the federal Medicare program.

Last Friday, Express Scripts, a big pharmacy benefit manager based in St. Louis, said it had received a subpoena from Eliot Spitzer, the New York attorney general. Stephen Littlejohn, a spokesman for Express Scripts, said the company could not comment on whether it was a target of the investigation. He added that "our business model aligns our interests with those of our clients." U.S. Accuses Merck Unit of Cheating Health The New York Times June 24, 2003


Merck's profitability

The financial outlook for the prescription drug industry has never been healthier. In 2000, the 11 largest drug companies netted $28 billion in profits - a 15 percent increase in their return on revenue over 1999. The profits of one drug company, Merck ($6.8 billion), were larger than the combined profits of all the Fortune 500 companies in each of the following industries: airline, entertainment, metals, food production and hotel/casino/resort industries. Rx R&D Myths: The Case Against The Drug Industry’s R&D "Scare Card" Public Citizen Web site accessed July 23, 2001

Merck and the Price fixing cartel. Merck was involved with Roche in the international vitamin price fixing cartel

The Federal Court slapped a $1-million fine on German pharmaceutical giant Merck KGaA Thursday for its role in a price-fixing cartel that artificially inflated prices in the $700-million-a-year bulk vitamin C market. Merck fined $1M for role in vitamin price-fixing Calgary Herald (Alberta, Canada) March 31, 2000

The EU also fined Aventis SA (France); Solvay Pharmaceuticals BV (Netherlands); Merck KgaA (Germany) and Daiichi Pharmaceutical Co. Ltd, Esai Co Ltd., and Takeda Chemical Industries Ltd,, all of Japan Drug firms facing fines for fixing vitamin prices Hamilton Spectator (Ontario, Canada) November 22, 2001

Exploiting tax loopholes

Led by General Electric, which finagled just under $7 billion in tax breaks in 1998, at least 25 corporations, including Ford, First Union, AT&T, Bell Atlantic, Merck, Microsoft, Bristol Myers-Squibb and Exxon -- exploited tax loopholes to gain at least $1 billion in tax breaks, according to CTJ. Corporate Taxes Under Attack 25 May 2001

Accounting fraud? Caremark and Merck are two companies which have employed a frowned on off balance sheet accounting method. A class action claims that this led to Merck falsely overstating revenue by US $4.6 billion so artificially inflating stock.

On June 21, 2002, The Wall Street Journal published an article that revealed that Merck had boosted its reported revenues by roughly $4.6 billion in year 2001 alone by improperly including as revenue the value of co-payments made by consumers with a prescription-drug card to their pharmacies to cover their portion of the cost of a prescription under an insurance plan. WOLF POPPER LLP FILES CLASS ACTION COMPLAINT AGAINST MERCK & CO., INC. NEW YORK, July 3, 2002

Merck is another health care company that has employed off balance sheet accounting in similar ways with its Medco unit, but some investors frown on the behavior. Competitors like AdvancePCS and Express Scripts do not recognize co-payment proceeds as revenue. Scrushy Is Part of Caremark's Story April 10, 2003

Disturbing friends. It seems that Merck partnered with ImClone a biotech company whose practices earned it a hot seat in front of the House Energy and Commerce Committee with Enron, WorldCom and other nasties whose conduct was the subject of so much concern. New York Stock Exchange board member and home care icon, Martha Stewart's selling of ImClone shares has earned her a criminal charge with a possible 30 year prison sentence.

Nasdaq may delist ImClone because of delays in filing its annual report. The New York biotechnology company said in April it would restate its results going back to 2001 to account for its failure to withhold taxes on stock options exercised by several officers, including two chief executives and a chairman who have resigned. The threatened delisting follows nearly two years of scandal surrounding ImClone that led to the arrest of former chief executive Samuel Waksal for insider trading and fraud. The charges came after U.S. regulators refused to review the drug, citing flaws in the clinical trial. The decision sent the stock plummeting to less than $10 from a high of $75.45.
ImClone's European partner, Merck KGaA will present the results of its own trials of Erbitux on June 1 at the annual meeting of the American Society of Clinical Oncology
ImClone Fights Delisting, Awaits Data Yahoo! News (Reuters) May 12, 2003

The committee (House Energy and Commerce Committee) has played an aggressive role investigating corporate scandals in the past 15 months. Since January of last year, the committee has dragged a stream of executives from Enron, Arthur Andersen, Qwest, Global Crossing, ImClone and WorldCom into its chambers for questioning. House joins Justice, SEC in HealthSouth scrutiny USA Today April 23, 2003

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Mylan and others
Another drug cartel

Mylan, a maker of generic drugs was accused of price fixing with its suppliers pushing up the cost of some medicines 3000%. Authorities were looking for US $ 120 million. I don't know what happened.

The latest and most dramatic example came Monday, when the Federal Trade Commission voted to seek an unprecedented $ 120 million in damages against the nation's second-largest producer of generic drugs.
The company is accused of raising prices by more than 3,000%.
Federal regulators expect to be joined by 10 states, whose attorneys general say they will file suits this week. And Mylan's attorney said the company learned Monday of two class-action cases filed in California and Florida.
On Monday, the FTC charged that Mylan--along with Cambrex Corp. of East Rutherford, N.J.; Cambrex's Italian subsidiary, Profarmaco; and Gyma Laboratories of America Inc. of Westbury, N.Y.--cornered the market on the chemicals needed to make the drugs and then raised prices.

The wholesale price of the anti-anxiety medication lorazepam, the generic version of Ativan, increased from $ 7.30 for a bottle of 500 tablets to $ 190, the FTC charged. The price for clorazepate, the generic for Tranxene, rose from $ 11.36 to $ 377 for a bottle of 500, according to the FTC.
Consumer advocates warned that Mylan's decision to raise prices is a harbinger of things to come if consolidation in health care is not slowed.

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Wealth and power

Pfizer is by far the largest and most powerful of the multinational drug companies. Its wealth exceeds that of many countries. It probably exerts the greatest political influence. It was accused of influencing the Australian Minister for Health's office and undermining the activities of the PBAC, the body which controls the listing of drugs for Medicare payments and their pricing in Australia. Pfizer was in dispute over some of its drugs. Two government officials from the minister's department later joined Phizer.

Pfizer paid out US $49 million to settle allegations of defrauding Medicaid. In May 2003, Boston was waiting for a settlement from Pfizer. Pfizer has set aside US $403 million to settle this. Pfizer recently purchased Pharmacia, which is the subject of a Medicaid fraud investigation in New York.

Pfizer paid US $20 million in 1999 for involvement in an international price fixing cartel.

The global pharmaceutical industry is increasingly divided into two camps: Pfizer and everyone else.
And Pfizer is making Wall Street a promise it loves to hear - that it will only get bigger. In a meeting with analysts this week, the chairman and chief executive, Henry A. McKinnell Jr., promised revenue growth of at least 10 percent this year and next, "with continued strong revenue growth" beyond 2004.
The company has the cash to buy drugs, even if its research apparatus - which is bigger than the National Institute of Health's - fails to produce blockbusters. It has an army of sales representatives that dwarfs those of competitors. And should sales lag, Pfizer's sheer size means that it can keep profits growing by dispensing with some of those researchers and sales representatives.
A Drug Giant Thinks It Can Grow Still Bigger New York Times June 19, 2003

Among the nine pharmaceutical companies, the highest-paid executive in 2000 was William C. Steere, Jr., Chairman of Pfizer. His compensation exclusive of unexercised stock options was $40,191,845.
Pay, Profits and Spending by Drug Companies A REPORT BY Families USA July 2001

COMPANY/PERSON: Pfizer Corporation and its subsidiaries, Warner-Lambert and Parke-Davis.
ALLEGATIONS: Avoided paying fully the rebates owed to the state and federal governments under national drug Medicaid Rebate program for the cholesterol-lowering drug Lipitor.
AMOUNT: $49,000,000. The United States will receive $27,915,300 plus accrued interest. The remainder of the settlement amount, $21,084,700 plus accrued interest, will be shared among 40 states. (21.3% of the federal government's portion of the recovery, or $5,945,958.90, to relator)

Fried, Frank, Harris, Shriver & Jacobson web site

U.S. attorney's office in Boston - - - - - currently is expecting settlements from Schering-Plough for the illegal inflation of drug prices and from Pfizer for the illegal marketing of a drug.
Boston Area Leads Nation in Combating Health Care Fraud Boston Globe, May 13, 2003

Pfizer Inc. indicated it is closer to settling allegations of drug fraud charges, saying it has set aside $403 million for federal and state prosecutors over its promotion of what has become the country's top-selling epilepsy drug, Neurontin. - - - - - - - as well as a civil whistle-blower lawsuit brought by a former Massachusetts employee.

If Pfizer settles the criminal and civil cases for close to that amount, it would be one of the largest settlements for drug fraud in US history
In the Neurontin investigation, federal and state prosecutors have accused the company of illegally promoting the drug to doctors through a variety of methods including kickbacks.
Former Warner-Lambert employee David Franklin and his attorney Thomas Greene filed the whistle-blower lawsuit more than six years ago, saying the company gave doctors illegal financial incentives to prescribe Neurontin and illegally promoted the drug for uses that were not approved by federal regulators.
Pfizer sets aside $403m for possible settlement 4th-quarter charge is aimed at closure in drug fraud cases Globe Newspaper January 23, 2004

1999 Pfizer Maltol/sodium erythorbate $20 (million)
FROM Ongoing price-fixing investigations USA TODAY July 10, 2000

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Eli Lilly
Playing it tough

I do not have any reports of fraud by Eli Llly. It is apparent that it is one of the more active companies in political activity through marketing, donations and lobbying. It is so well positioned that it can heavy political decisions even to the extent of having its products kept on subsidised drug plans over the advice of experts.

In 1992, the drug giant Eli Lilly Canada Inc. threatened to cancel a planned expansion of its Scarborough manufacturing plant if the Ontario government went ahead with plans to remove Ceclor, one of the firm's high-profile anti-infectives, from the list of pharmaceuticals subsidized by the provincial drug plan.

Bob Rae, Ontario premier at the time, bowed to the pressure, overruled his own experts and kept Ceclor in the drug formulary. Medicare still doesn't cover drugs, and governments are torn between pleasing voters or the multinational pharmaceuticals Toronto Star July 7, 2001 (Canada)

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Direct to Customer Advertising
Quality Control Issues

The company is distinguished by the aggressiveness with which it has embraced Direct to Consumer (DTC) advertising and by a US $500 million settlement of quality control issues.

One blockbuster drug was hyped more than Coke and Bud: After the FDA relaxed its rules on TV advertising in 1997, Schering-Plough spent $136 million in 1998 advertising its allergy drug Claritin. That’s more than Coca-Cola Co. spent advertising Coke, or Anheuser-Busch spent advertising Budweiser that year.

Prior to the FDA’s relaxation of the DTC standards the drug industry spent $791 million on advertising in 1996. It is estimated that DTC spending totaled $2.5 billion for the year 2000, an increase of 216 percent over 1996 and 39 percent over 1999.
Rx R&D Myths: The Case Against : The Drug Industry’s R&D "Scare Card" Public Citizen July 23, 2001

Schering-Plough Corp. will pay the U.S. Food and Drug Administration $500 million. Warning: The P3s are coming! Winnipeg Free Press Jul 21, 2002

The FDA fined Schering-Plough Corp. $500 million last year for quality control problems at its facilities.
HealthSouth Scandal the Latest in Health Care Ills : SCANDALS AT FOR-PROFITS MAKE HEADLINES Reuters November 5, 2003

The U.S. attorney's office in Boston is the only one in the nation with a separate health care fraud unit, which was established 16 months ago by U.S. Attorney Michael Sullivan and is staffed by six prosecutors working solely on health cases, and it currently is expecting settlements from Schering-Plough for the illegal inflation of drug prices and from Pfizer for the illegal marketing of a drug. Boston Area Leads Nation in Combating Health Care Fraud. Boston Globe, May 13, 2003

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Controlling research results

Avotek is an example of the lengths to which some drug companies have gone to tie researchers into confidentiality agreements and so prevent publication of data which challenges the effectiveness or safety of their products. In the Olivieri case in Canada both the university and the hospital which employed Olivieri were beneficiaries of Avotek research money. When she refused to remain silent about her adverse findings she was hounded by Avotek. The university and hospital did not support her. There are other examples where researchers have been harried by corporations primarily concerned for their bottom line.

Although research partnerships between medical academics and private companies are proliferating, these partnerships do not always go smoothly. When the company does not like the research findings, it may try to keep them secret. And if the company is also a major philanthropic force in the community, there is the potential for conflicts of interest for the institutions involved.
Internist Nancy Olivieri of the Hospital for Sick Children (HSC) and the University of Toronto partnered with a pharmaceutical company, Apotex Inc., to test a drug. Barry Sherman, the head of Apotex, is a generous donor to causes in Toronto and across the country. A dispute developed between Olivieri and Apotex when the company objected to her claims that a drug it had in development was ineffective and possibly dangerous. The company threatened to sue if she made her findings public.
Apotex, meanwhile, is one of Canada's leading producers of generic drugs. Its owner, Sherman, has a reputation as a successful entrepreneur and he also heads one of Canada's 10 biggest private charitable bodies, the Apotex Foundation.
Olivieri contends that she received little support from the university or the hospital. As recently as May, 1998, her department chair wrote to accept her resignation, even though she had not tendered it.

When she said she wanted to alert the patients, Apotex vice-president Michael Spino threatened legal action if she broke a confidentiality clause in her contract with the drug company.
It pits the 44-year-old Olivieri, backed by a prestigious group of scientists at the hospital and elsewhere, against Apotex and her own hospital administration, which failed to back her. Sick Children's CEO Michael Strofolino rejects the notion that his hospital -- with a $ 60 million research budget -- has sold out to Apotex, from which it received $ 300,000 in research grants last year.
Olivieri says she has received many legal threats from Apotex, suffered frequent harassment at work, lost 20 lb. from her slight frame and been the subject of vicious rumors and innuendo. In a display of the lengths Olivieri's critics will go to to blacken her name, three people telephoned Maclean's last week to complain about her character.
WHISTLE-BLOWER Maclean's November 16, 1998

Concerned by what they perceive as growing corporate and governmental interference, 12 of the world's most prominent medical journals are banding together to block publication of health research that does not come with a guarantee of scientific independence.
"The prestigious medical journals of the world have agreed not to publish any research sponsored by a pharmaceutical company, or a government agency, where the author of the study can't state that they had access to the entire data and an entirely free hand in writing it," John Hoey, editor of the CMA Journal, said yesterday.

The landmark decision has been sparked by several recent conflicts between drug companies and scientists, he said, including the epic battle between Nancy Olivieri, a hematologist at Toronto's Hospital for Sick Children, and Apotex Inc.
Journals push back at drug giants Medical publications to insist research be uncensored National Post August 13, 2001

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Secondly, the Food and Drug Administration, because of safety problems, shut down vaccine production at Parkedale Pharmaceuticals, one of four companies that make vaccine. The FDA then cited another company, Wyeth-Ayerst Laboratories, with manufacturing violations, which delayed its production for several months. Fluke flu year highlights pitfalls of vaccine distribution system CNN November 10, 2000

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Wider issues currently surrounding the drug industry are documented on another page.

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