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The Boston Globe OnlineBoston.com
Boston Globe Online / Nation | World
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Drug firm to pay $875m fine for fraud

US alleges bribery, price manipulation

By Alice Dembner, Globe Staff, 10/4/2001

A major US drug manufacturer agreed to pay a record $875 million fine yesterday to settle criminal and civil charges that the company inflated the price of a top-selling prostate cancer drug and used government money to bribe doctors to prescribe it.

TAP Pharmaceuticals of Illinois agreed to plead guilty to health care fraud, settling charges by the US attorney's office in Boston that the company allegedly manipulated the price used for government reimbursement to ensure doctors would make at least $100 in profit per dose - a shot good for a few months - of the drug Lupron.

And the investigation is not over: Also yesterday, a Boston grand jury indicted six current or former company employees as well as a Plymouth physician on new charges that they participated in a kickback scheme involving Lupron. Prosecutors said similar investigations of the drug pricing practices at other companies are continuing in Boston and across the country.

Prosecutors announced the settlement at a news conference in Boston on the heels of a report by government investigators to Congress that taxpayers are shelling out as much as $2 billion a year in inflated drug prices because of fraud and loopholes in the billing system for the federal Medicare and state Medicaid health insurance programs.

''We expect this settlement will have a deep impact on the pharmaceutical prices of the entire industry,'' said US Attorney Michael Sullivan.

''Pharmaceutical companies, their employees, and doctors have been sent a loud message: The medical judgment of physicians must not be compromised by improper or illegal inducements,'' added Joseph Morasky, regional inspector general for the federal Department of Health and Human Services.

Investigators unravelled the case with the help of a doctor from the Tufts Health plan HMO who refused a $40,000 bribe from TAP salespeople and then allowed prosecutors to bug his office when the salespeople came calling again. Tufts Health Plan and Dr. Joseph Gerstein, its medical director of pharmacy, will share a reward of $17 million for alerting prosecutors to the fraud. Tufts officials said they will donate their portion to charity.

A former sales vice president at TAP, who also blew the whistle, will get $78 million for his aid to prosecutors.

A separate civil suit brought by patients taking Lupron is still pending in US District Court here. The patients are suing TAP to recover the 20 percent copayment they made for the drug under the Medicare program, an amount that can reach $1,000 a year.

TAP pleaded guilty to participating in a criminal conspiracy by providing doctors with thousands of free samples of Lupron for which the doctors billed Medicare and their patients. The samples were worth as much as $500 each and were used as an incentive to get doctors to prescribe Lupron over a competing drug called Zolodex, which was less expensive. Lupron is a hormone injection that blocks the body's production of testosterone and helps halt the progression of prostate cancer.

''TAP chose not to compete on price. TAP employees chose to compete by providing kickbacks,'' said Michael Loucks, the assistant US attorney who led the criminal investigation. Loucks said TAP bilked the government out of $145 million over the past decade. TAP agreed to pay a $290 million criminal fine.

To settle allegations that the company violated the civil False Claims Act by inflating its list price and marketing the drug based on a discounted price, TAP agreed to pay another $559 million to the federal government and $25.5 million to states including Massachusetts. Together, the fines are the largest ever in a health care fraud case.

Despite the record fine, TAP's president yesterday defended the company's pricing practices. ''The company does not believe it has done anything inappropriate in the way it has priced or reported pricing to the government,'' said Thomas Watkins. He said the company agreed to the settlement because it was worried about having its drugs excluded from the Medicare and Medicaid programs. ''We could not afford that,'' he said.

In addition to the fines, the company agreed to report the true price of the drug to the government and to allow regular auditing of its sales and marketing practices.

Two of the seven people charged in the new indictment are still working at TAP. Four others have left the company, including two from Massachusetts - Janice Swirski of Chestnut Hill, a former national account manager, and Kimberlee Chase of Dover, a former district manager. Also included in the indictment was Dr. John Romano, a urologist in Plymouth.

The indictment alleges that the salespeople and managers called on doctors in Massachusetts and other states and offered them bribes including trips to resorts, debt forgiveness, TVs and VCRs, and cash in the form of ''educational grants,'' as well as free drug samples. Romano is charged with participating in the conspiracy and accepting and selling free samples to patients.

Bruce Singal, Romano's attorney, called the charges ''factually baseless and legally deficient,'' adding that Romano ''absolutely committed no criminal offense.'' None of the other defendants or their attorneys could be reached for comment.

According to the indictment, Swirski, a local TAP employee, first offered the Tufts medical director of pharmacy $40,000 in grants that he could use for any purpose if he would reverse a decision to make Zolodex the preferred Tufts drug. Tufts general counsel James Roosevelt Jr. said Gerstein was outraged by the offer and with the support of Tufts went directly to prosecutors. Swirski and Chase then increased their offer to $65,000, according to the indictment, an offer that Gerstein and prosecutors allegedly caught on tape. Gerstein was travelling yesterday and could not be reached.

The other whistleblower, Douglas Durand, quit his job with the company in early 1996 after being asked to participate in marketing ventures he considered unethical, his attorney said yesterday. He provided prosecutors with detailed accounts of how the company allegedly manipulated the average price used for government reimbursement.

Four other doctors had earlier pleaded guilty to charges of health care fraud and have cooperated in the investigation.

This story ran on page A1 of the Boston Globe on 10/4/2001.
© Copyright 2001 Globe Newspaper Company.

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