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Feds Target Health Care Provider For Fraud

When Beatrice Schiff died at the age of 98, she was laid to rest in peace — but her bill for prescription drugs lived on for nearly five months, CBS News chief investigative correspondent Armen Keteyian reports. An Omnicare subsidiary charged Medicaid for her drugs.

Schiff was not alone. Her case was among 150 counts of fraud and racketeering brought by Michigan Attorney General Mike Cox.

Although it has never admitted any wrongdoing, in the last two months alone, Omnicare has agreed to pay $102 million to settle Medicaid fraud cases in 42 states, including the largest civil fraud settlement in the history of the state of Michigan: $52.5 million.

"They're ripping off the taxpayers, there's no question about it," says Jim Moorman, a former assistant U.S. Attorney General and the president of Taxpayers Against Fraud.

For years, Moorman has studied the way Omnicare does business — acting as a middleman between manufacturer and long-term care facilities.

"The business plan of Omnicare is to pump as much money as they can out of the federal government and the state government, without regard to consequences," Moorman says.

In addition to the most recent settlements, since 1998, Omnicare has agreed to pay more than $12 million to settle other Medicaid fraud cases. The charges include that the company re-sold leftover pills that the state of Illinois had already paid for, and that it illegally switched patients from tablets to far more expensive capsules to get higher reimbursement from the state of Maine.

These fines are small change compared to the company's revenues, which skyrocketed to more than $5 billion last year. Omnicare's lucrative strategy is to buy up more than two dozen smaller pharmacies with contracts to nursing homes. CBS News has learned that one of those purchases is under investigation by the Illinois attorney general for a kickback scheme.

Sources say the inquiry focuses on whether Omnicare CEO Joel Gemunder conspired in 2004 to defraud Medicaid by paying a grossly inflated price for a company called Total Pharmacy — in exchange for lucrative nursing homes drug contracts 10 times longer than the industry average.

"That's a huge red flag," says a health care insider, who asked that her identity be protected. She has intimate knowledge of Omnicare and explains what would induce a nursing home owner to sign a long-term deal.

"The only thing that would induce a nursing home owner to sign a long-term contract is cash — money," she explains. "Kickback. There's no other reason."

The company, which declined to speak on camera, told CBS News that it is committed to being a good corporate citizen and delivering drugs "cost effectively." But given the case of Beatrice Schiff and so many other, critics just aren't buying it.

"They're ripping off the Medicaid program, and they're harming the people who depend on it," Moorman says.

How big of a rip-off is it? Estimates are that up to 10 percent of government spending on Medicaid and Medicare is lost to fraud every year. That's about $50 billion of your tax dollars.

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