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Omnicare Settles Drug Kickback Cases for $98M (November 3, 2009)

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BOSTON, MA - Acting United States Attorney Michael K. Loucks and Tony West, Assistant Attorney General for the Justice Department’s Civil Division announced today the Government has reached settlements of $98 million with Omnicare, Inc. (“Omnicare”), of Covington, Kentucky, and $14 million with IVAX Pharmaceuticals, Inc. (“IVAX), of Weston, Florida, to resolve the allegations of multiple whistleblowers that Omnicare engaged in kickback schemes with several parties, including IVAX. At the same time, the United States announced the unsealing of its Complaint against two large nursing home chains, Mariner Health Care, Inc. (“Mariner”), SavaSeniorCare Administrative Services, LLC (“Sava”), both of Atlanta, Georgia, and their principals, Leonard Grunstein, Murray Forman and Rubin Schron.

The settlement with Omnicare, the nation’s largest pharmacy that specializes in dispensing drugs to nursing home patients, resolves allegations that the company solicited and/or paid four different types of kickbacks:

First, the United States contends that Omnicare solicited and received kickbacks from Johnson & Johnson (J&J), a pharmaceutical manufacturer, in exchange for agreeing to recommend that physicians prescribe Risperdal, a J&J antipsychotic drug, to nursing home patients. The Government contends that J&J’s kickbacks to Omnicare took multiple forms, including: market share rebates that were conditioned on Omnicare engaging in an “Active Intervention Program” for Risperdal; payments disguised as fees for the purchase of data; payments disguised as educational grants; and fees to attend Omnicare meetings. Omnicare then used its consultant pharmacists to encourage physicians to prescribe Risperdal for their nursing home patients, but failed to disclose to physicians that the recommendations were a condition of Omnicare receiving the rebate payments from J&J. After the conduct at issue, the Food and Drug Administration mandated that the label for Risperdal carry a “black box” warning that “Elderly Patients with dementia-related psychosis treated with atypical antipsychotic drugs [including Risperdal] are at an increased risk of death compared to placebo.”

Second, the United States contends that Omnicare regularly paid kickbacks to nursing homes by providing them with consultant pharmacist services at rates below Omnicare’s cost and below the fair market value of such services when they are provided independently of dispensing pharmacy services. By law, nursing homes must retain consultant pharmacists to review patients’ drug regimens at least once a month. This requirement arose from a Congressional mandate that nursing homes “protect and promote the rights of each resident, including . . . the right to be free from . . . chemical restraints imposed for purposes of discipline or convenience and not required to treat the resident’s medical symptoms.” The Government contends that Omnicare offered its consultant pharmacist services to nursing homes at below cost and below fair market value in order to induce the homes to refer their patients to Omnicare for dispensing pharmacy services.

Third, the United States has alleged that Omnicare solicited, and IVAX paid, $8 million in kickbacks in exchange for Omnicare’s agreement to purchase $50 million in drugs from IVAX. In soliciting the kickbacks, Omnicare touted its ability to drive utilization of IVAX drugs through drug-switching programs. Omnicare’s regular outside counsel on healthcare regulatory matters advised both Omnicare and IVAX against proceeding with the transaction, but Omnicare and IVAX went forward after Omnicare secured a more favorable opinion from a second attorney who was unaware of the first attorney’s warnings to the parties. The Government’s allegations against Omnicare and IVAX, now a subsidiary of Teva Pharmaceuticals Industries, Ltd., are further detailed in a separate Complaint that was unsealed today.

Finally, the United States has alleged that Omnicare, Mariner, Sava, Grunstein, Forman, and Schron conspired to arrange for Omnicare to pay the nursing home chains $50 million in exchange for the right to continue providing pharmacy services to the nursing homes, which together constituted one of Omnicare’s largest customers. The Government alleges that the parties attempted to disguise the $50 million kickback as a payment to acquire a small Mariner business unit that had only two employees and no tangible assets apart from accounts receivable valued at less than $3 million. The Government further alleges that, after the parties became aware of the government’s investigation, Grunstein, Forman, and Schron created backdated documents in a further attempt to hide the kickback. The Government’s allegations against Omnicare and the Mariner defendants are further detailed in a separate complaint that was unsealed today. Today’s settlement resolves the allegations against Omnicare. The Government will proceed with its case against the Mariner defendants.

“Nursing home pharmacies specialize in providing drugs to elderly patients who are often suffering from Alzheimer’s Disease or dementia, and who have little or no control over the drugs they receive. Today’s settlement provides a strong message to these pharmacies, as well as to pharmaceutical companies and nursing homes, that the Government will not tolerate the payment of kickbacks which can distort proper medical judgment and put profits ahead of good medical care,” said Loucks.

“These types of arrangements can subvert the medical judgment of health care professionals and result in patients being provided medications they neither need nor benefit from. They also drive up the costs of health care at a time when those funds are sorely needed to provide care to our nation’s most vulnerable populations – the elderly and the poor,” said Tony West, Assistant Attorney General for the Justice Department’s Civil Division.

As part of the settlement, Omnicare has agreed to enter into an amended and restated corporate integrity agreement with the Office of Inspector General of the Department of Health and Human Services, while IVAX also has agreed to enter into a corporate integrity agreement. Those agreements provide for procedures and reviews to be put in place to avoid and promptly detect conduct similar to that which gave rise to this matter.

Whistleblower lawsuits filed under the qui tam provisions of the False Claims Act that are pending in the District of Massachusetts triggered this investigation. The payments to the whistleblowers from the federal share of the civil recovery have not been finalized yet.

The cases were investigated by the Chicago, St. Louis and Boston units of the Office of Inspector General of the Department of Health and Human Services, the Chicago unit of the Food and Drug Administration Office of Criminal Investigations and the Federal Bureau of Investigation. The cases are being handled by Gregg Shapiro and Christine Wichers in Loucks’ Civil Division and Laurie Oberembt in the Justice Department’s Civil Division.

The Department of Justice News Release is posted at:

Associated Press

Omnicare will settle kickback cases for $98M

By MARLEY SEAMAN (AP) – November 3, 2009

NEW YORK — Omnicare Inc., which dispenses drugs to nursing homes and long-term care facilities, will pay $98 million to settle allegations it paid kickbacks to nursing homes to gain their business, and also received kickbacks for buying and recommending drugs.

The U.S. Department of Justice said the Covington, Ky., company paid a $50 million kickback to two Atlanta nursing home chains so the businesses would continue to use Omnicare.

The government also said Omnicare asked for, and received, $8 million in kickbacks from Ivax Pharmaceuticals, and in return, Omnicare bought $50 million in drugs from Ivax. Omnicare also allegedly asked for and received a kickback from Johnson & Johnson in return for recommending Johnson & Johnson's anti-psychotic drug Risperdal to physicians who took care of nursing home patients.

Omnicare denies the government's claims and denies any liability but said it cooperated with the review. It agreed to the basic terms of the settlement in late June and finalized it on Tuesday. The investigation began as a whistleblower lawsuit in 2002.

Ivax, which is now a unit of Teva Pharmaceutical Industries Ltd., will pay $14 million to resolve the investigation into its behavior. Ivax also denies any liability.

The government said it is continuing to investigate the two nursing home chains, Mariner Health Care and SavaSeniorCare Administrative Services, and the heads of the businesses, Leonard Grunstein, Murray Forman, and Rubin Schron, for accepting Omnicare's kickbacks.

"Illegal conduct like this can undermine the medical judgments of health care professionals, lead to patients being prescribed medications they do not need, and drive up the costs of health care," said Tony West, Assistant Attorney General for the Civil Division of the Department of Justice. The agency added that Omnicare specializes in providing drugs to homes caring for dementia and Alzheimer's patients, who have little control over their medications.

Of the $112 million settlement, $68.5 million will be paid to the U.S. government, and $43.5 million will go to Medicaid to cover claims by states that were affected. Both Omnicare and Ivax made corporate integrity agreements with the Department of Health and Human Services.

The Justice Department said Omnicare, Mariner, SavaSeniorCare, and Grunstein, Forman, and Schron covered up the kickback by arranging for Omnicare to pay $50 million for a Mariner business unit that had only two employees. In return Omnicare continued to provide pharmacy services to the two chains.

The payments to Johnson & Johnson were disguised as data fees, educational grants and fees to attend Omnicare meetings, the government said. Johnson & Johnson said some of its employees were subpoenaed in the investigation, but did not comment on the government's allegations that it paid Omnicare for recommending Risperdal.

J&J, which is based in New Brunswick, N.J., said it was served with two whistleblower lawsuits in April that were connected to its marketing of several drugs to Omnicare. The company would not comment on Tuesday's announcement.

In afternoon trading, Omnicare stock rose 2 cents to $21.91.