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NMC said that it could bill the government for far more than the actual cost of the drugs. When Ven-A-Care declined the invitation, NMC began competing with them and a short time later, drove them out of business. But Ven-A-Care decided to check up on NMC’s business. Ven-A-Care’s lawyers discovered that NMC was prescribing drugs that weren’t needed, paying kickbacks to doctors, and billing Medicare and Medicaid far more than the actual cost of the products they delivered to patients. In 2000, NMC and its parent company, Fresenius Medical Care, settled the case by paying some $385 million. Ven-A-Care’s share was $44.8 million. But Ven-A-Care and its legal team was just getting started. Since taking on NMC, the four owners of Ven-A-Care, along with a fleet of lawyers, have become litigants in panoply of federal whistleblower lawsuits. The owners, who just a few years ago were forced out of the pharmacy business, have each earned millions of dollarssolely by applying the False Claims Act against the drug companies on behalf of the federal government. The drug companies dislike Ven-ACare’s entrepreneurial litigation. But O’Connell says that whistleblowers like them are an essential part of the fight against fraud. “They are following through on the fraud they discovered and that is what the statute is designed to do. The statute is designed to be financially beneficial; otherwise, whistleblowers won’t come forward.” For asthma sufferers, albuterol sulfate is a wonder drug. The drug, dispensed through an inhaler, relaxes the lung tissue and allows asthmatics to lead normal lives. Particularly when hit by an asthma attack, patients rely on albuterol to get their lungs back to normal function. Like many other generic drugs, albuterol is made by a number of different drug companies and is therefore a commodity. Drug makers cannot differentiate their albuterol from that made by their competitors, so they must compete on price. And that price competition opens the door to Medicaid fraud. Here’s how it works: Like other states, the Texas Medicaid program relies on drug companies to honestly report how much their generic drugs cost. This is often called the wholesale acquisition cost, or, in some cases, the average wholesale price. These prices are reported to several entities, who then publish those prices. The published prices for those generic drugs then become the accepted list price for that product. That list price is used as the basis for reimbursement from Medicaid. But here’s the catch: The drug makers can gain market share by inflating their published prices. Here’s why: Pharmacists are reimbursed based on a given drug’s list price. If a drug maker has a list price of say, $5, for a specific generic drug, but only charges the pharmacist $1 for that product, the pharmacist gets an easy $4 profit. If a competitor’s list price for that same drug is $2, but only charges $1, then that pharmacist only makes a profit of $1. Merck subsidiary, Dey Inc. used a similar pricing formula to entice pharmacists to sell their albuterol rather than the same drug made by a competitor. During litigation, the AG’s office found that in the year 2000, Dey was reporting to Medicaid a price of $16.24 for a package of albuterol. But the actual cost of that package was only $8.50. Indeed, documents obtained from Dey by the AG’s office showed that the company gave its salespeople a worksheet that they used to show pharmacists that they could get higher reimbursements by using Dey’s albuterol. Another Dey document showed that the company was paying its salespeople, in part, on their ability to get pharmacists to switch to Dey’s albuterol products \(using the of competitors’ albuterol. During the litigation with Dey, the state obtained a document dated May 30, 1995, which said that the company was, in essence, keeping two prices of its drugsone for internal use and the other was to be “used for calculation of reimbursement.” The memo went on to say that it had updated its prices so that they were comparable with those of a competing drug maker, Warrick. By doing so, the memo said, it would “level the playing field for Medicaid reimbursement.” The case against, Dey, which is based in Napa, California, is particularly instructive because it shows the lengths to which some companies are willing to go in order to maintain a certain level of profitability. Dey officials also tried to cover up their fraudulent schemes and even engaged in witness tampering. According to court documents, Robert Mozak, Dey’s executive vice president for sales and marketing, provided false testimony on a number of occasions. Mozak originally claimed he did not know anything about the May 30, 1995 memo regarding Dey’s efforts to “level the playing field for Medicaid reimbursement.” But when confronted in a later deposition, Mozak backtracked and tried to alter his earlier testimony. Mozak also said he did not know the whereabouts of a former Dey employee, Helen Burnham, even though he had been in touch with her during the time of the litigation. Mozak’s prevarications were laid bare on August 15, 2002, when the state deposed Burnham, who testified that Mozak “knew exactly where I was… in fact, he’s visited at my house before and he’s called me at home numerous times.” Furthermore, Burnham testified that Mozak contacted her after the state filed its lawsuit against Dey and that he tried to convince her to take the blame for the 1995 memoeven though she had prepared the memo at Mozak’s request. She said that Mozak told her that since she wasn’t working in the drug business, then “it would have no consequences for me if I took responsibility for having written this memo… and that he had a lot more to lose than I had, and it was unfair of me to think that he was going to take responsibility for knowing about this memo, and that it really should the blame should fall on me.” In addition, Dey refused to comply with the court’s discovery orders, delaying the production of some documents for nearly two and half years. continued on page 24 20 THE TEXAS OBSERVER MARCH 4, 2005