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Qui Tam Stories:

Bayer - $251 million, 2003
GlaxoSmithKline - $88 million, 2003

Both settlements arose from a qui tam case filed in 2000 by a Bayer marketing executive, George Couto, in the District of Massachusetts. Mr. Couto was
represented by Getnick & Getnick LLP.
Read the case study from the Getnick & Getnick LLP Web site

The Practice: Concealment of Best Price (Private Labeling)

In 1990 the government introduced the Medicaid Rebate program, requiring drug makers to give Medicaid the same discounts they give big commercial customers like HMOs, hospitals and chain pharmacies. Drug companies have to report to the government their Best Price, or lowest discount price, for each Medicaid-covered drug on a quarterly basis, and pay a rebate to Medicaid based on that Best Price and the Medicaid utilization.

In 1995, Bayer wanted to give the California-based HMO Kaiser Permanente a 40% discount on its popular antibiotic Cipro. In order to avoid giving Medicaid a matching discount (which would have involved a substantial Medicaid rebate liability), Bayer engaged in what they called "private labeling." Bayer changed the labels on the bottles of Cipro tablets sold to Kaiser and then claimed that "private labeled" Kaiser Cipro was no longer their responsibility for the purpose of Medicaid rebate. The only change that Bayer made to the label was to put Kaiser's four digit National Drug Code (NDC) number on the label instead of Bayer's, and to put "Distributed by Kaiser" in fine print on the side of the bottle. Other than that, the two labels were identical in all respects, and the tablets in the bottle were identical in all respects. Notwithstanding the 40% discount that Bayer was giving Kaiser, it reported to the government a Best Price corresponding to a discount of around 15%.

Bayer then "private labeled" an additional drug for Kaiser, the anti-hypertensive Adalat CC. In the civil settlement agreement, the United States alleged a number of civil violations including, amongst other things, that Bayer knowingly misreported its Best Price and underpaid its Medicaid rebates by omitting the Kaiser "private label" prices for Cipro and Adalat CC. The United States also alleged that Bayer, during an audit conducted by federal regulators in 1999, falsely stated that the actual price at which Bayer sold Cipro to Kaiser was higher than Bayer's reported Best Price. In addition to the $251 million civil settlement, Bayer pled guilty to concealing the Cipro discount from the Food and Drug Administration ("FDA") (a violation of the Food, Drug and Cosmetic Act) and paid a $5.6 million fine.

The $88 million settlement paid by GlaxoSmithKline ("GSK") also arose from George Couto's qui tam case. The "private labeled" drugs in question were the anti-depressant Paxil and a nasal spray, Flonase. Again, discounts given to the HMO Kaiser were not reported by GSK in its Best Price reporting.

The Whistleblower

George Couto was a 37-year-old Bayer marketing executive when he filed his qui tam case in early 2000. A former staff pharmacist for the CVS drugstore chain with a degree in Pharmacy, Mr. Couto had joined Bayer in 1993 and been rapidly promoted, becoming a Senior Executive of Corporate Marketing in 1997. In early 1999, Mr. Couto and his colleagues attended mandatory ethics training -- the first such training conducted by Bayer - and were admonished by Bayer's U.S. head to obey not only the letter of the law but the spirit of the law. Mr. Couto was troubled by what he knew of the company's "private labeling" program, which Bayer purported to justify (in the words of one in-house counsel) as "operationally legal." Shortly after the ethics seminar, Mr. Couto wrote a confidential memo to his boss: "According to the class on ethics training that I attended 2/9, Wehmeier's video calls for obeying 'not only the letter of the law, but the spirit of the law as well.' I am wondering how this should be interpreted regarding Pharma's continued and expanded private labeling activities?" His memo never received a response. During 1999, he heard of plans to expand "private labeling" to additional drugs and additional HMOs. Eventually, he became convinced that top management would neither halt the "private labeling" scheme nor protect him from retaliation if he pushed his objections internally. Wehmeier's admonition notwithstanding, he came to the view that the culture of Bayer was not conducive to resolving ethical concerns internally -- as evidenced, for example, by the laughter that had erupted when Wehmeier had urged employees at the ethics training to report any such concerns directly to him, and the fact that his compliance inquiry had never received a response.

Shortly after filing his qui tam case in early 2000, Mr. Couto resigned from Bayer and relocated his family from Connecticut to Boston where he took a job with a smaller pharmaceutical company. Two years later, he was diagnosed with pancreatic cancer, a condition that is terminal in all but a handful of cases. In the summer of 2002, while undergoing chemotherapy, he gave a videotaped deposition over four days in order to preserve his testimony. Despite his medical condition, he withstood Bayer's blistering cross-examination. He died three weeks before settlement-in-principle was achieved. His estate received a 24% qui tam share of the federal portion of the settlement with Bayer.

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