Last Updated Jan 18, 2010 4:14 PM EST
On Jan. 15, 2010, the Department of Justice sued J&J, alleging that rebates for drugs such as the antipsychotic Risperdal were illegal kickbacks that artificially increased Omnicare's annual purchases of J&J drugs from approximately $100 million to more than $280 million. Much of the purchases were reimbursed by Medicaid, the suit alleges, and J&J's drugs made huge gains in market share as Omnicare, the dominant pharmacy supplier for nursing homes, pushed J&J brands at the expense of their competitors. J&J said in a statement:
"We are reviewing the complaint filed today and will address the government's lawsuit in court. We believe airing the facts will confirm that our conduct, including rebating programs like those the government now challenges, was lawful and appropriate. We look forward to the opportunity to present our evidence in court."More than a decade earlier, on Sept. 13, 1999, J&J business group account director Bruce Cummins wrote a long email to his colleagues describing a tense series of negotiations with Omnicare (see page 252 of the complaint). The two companies had fallen out in part because Omnicare's copy of the contract was missing pages when it was signed. The upshot was that Omnicare believed it was owed about $700,000 in rebates that it had not received. It was Cummins' job to convince Omnicare that it was mistaken; only half of that sum was owed.
Part of his argument was that if additional "overlays" were paid to Omnicare they may violate the contract, Cummins told his colleagues. "Based on the continuing scrutiny regarding abuse in our industry, we must follow contractual issues to the letter. No overlay's will be paid for 97-98 or 98-99," he wrote. However, Cummins indicated that Omnicare could be paid extra in other ways, "outside the JJHCS contract to see if anything can be done..."
Cummins then went on to describe an angry exchange he had with Omnicare's director of purchasing, Dan Maloney, in which the Omnicare man demanded money. Cummins told him, "I wasn't going to go to jail for Dan, Omnicare, or for that matter J&J":
(Click to enlarge images.) Cummins' position was backed by Martine Grant, a colleague within J&J's Health Care Systems division. She had written to colleagues on May 19, 1999, that "going above the contract put us at risk for fraud and abuse":
On July 11, 2000, a solution was proposed. J&J would pay Omnicare "consultant services revenue" to replace the lost "overlay" money:
A $750,000 contract was eventually signed in October 2000, according to the DOJ's complaint (see page 276).
That contract, however, triggered a new problem for J&J. Now that it was paying Omnicare the extra money, J&J had to make sure the performance on the contract was documented to make sure it met with their own compliance standards -- and didn't look like a kickback to make sure Omnicare promoted Risperdal. On July 22, 2002, Petro Thomas from J&J's HCS group emailed his colleagues to warn them that they were "under heavy scrutiny from the corporate legal team" and that they should make up the rebates "in another way":
By September 2003, it became clear that to properly document the consulting contract, J&J would need to show what it received from Omnicare in return for its money. Charles Chartier, an account director at J&J, emailed his colleagues in a search for "any lists" Omnicare might have given J&J, even if only "randomly," or if the information was written on "scratch pads":
The effort appeared to work, the emails show. In 2002, J&J's Levaquin antibiotic saw a 19 percent share gain in five months. The reaction of one executive, informed of the news in an email was that it was "scary" that the company had such power: