That, the Department of Justice alleges, is what Johnson & Johnson (JNJ) did regarding Levaquin, an antibiotic. A J&J-authored PowerPoint show filed with the case shows a profit-and-loss breakdown with -- and without -- the alleged scheme.
The DOJ sued J&J alleging that rebates for drugs such as Levaquin were paid to Omnicare (OCR), a pharmacy services company that dominates nursing home care. The rebates were illegal kickbacks that artificially increased Omnicare's annual purchases of J&J drugs from approximately $100 million to more than $280 million, the DOJ claims. Much of the purchases were reimbursed by Medicaid, the suit alleges, and J&J's drugs made huge gains in market share as Omnicare pushed J&J brands at the expense of their competitors.
The PowerPoint, prepared by the National Accounts group in J&J's Ortho-McNeil division, is titled "LTC Levaquin & Ditropan XL Pricing review" (LTC stands for "long term care"). Slide 15 of the presentation describes the "Levaquin Profitability Model: Omnicare with Share Shifts." It shows that under the Omnicare contract Levaquin had annual sales of $24 million through Omnicare, "Less Rebates (15% Investment)" at $3.6 million and "Less Medicaid Rebate" at $7 million:
(Click to enlarge.) The slide then gives the same information without the Omnicare contract, and shows no rebate under the Omnicare contract. Sales revenue is drastically lower, and so is profit. The bottom line, titled "gross margin," gives the differing results:
- Gross margin with contract: $8.1 million
- Gross margin with no contract: $3.4 million
While "double dipping" has a substantial negative effect on LTC profitability, given the large share delta and cost structure, this still appears a wise investment. This needs watchful monitoring given trends in Medicaid.I'm guessing the feds and J&J have different explanations for what that caption means.