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J&J on Hook for "Hundreds of Millions" Over Technicality in Anemia Drug Case

By Jim Edwards

Updated on: June 22, 2010 / 12:25 PM EDT / MoneyWatch

The U.S. Supreme Court's decision to keep alive a whistleblower suit alleging that Johnson & Johnson (JNJ) defrauded Medicare of "hundreds of millions" for its Procrit anemia drug shows how even obscure decisions on the technicalities of the law can dramatically change a company's fortunes.

J&J and its Ortho Biotech unit had every reason to believe this case might go away. It was dismissed at the trial court because the plaintiff wasn't the first person to raise the allegations (you can't succeed as a whistleblower if you're merely jumping on the bandwagon). It was reinstated on appeal, but the issue of who can file and who can't has produced contradictory court decisions even though it is crucial for companies involved in controversial industries that do billions of dollars in business with the government. So it was plausible that the Supremes would take the case and, months later, perhaps dismiss it. Now, it goes to trial.

The suit alleges that 80 percent of Procrit's sales are fraudulent; the drug makes $2.2 billion a year for the company. It also names dozens of doctors who went along with J&J's alleged scheme to rook the government for more money than Procrit was worth.

The First Circuit Court of Appeals ruling describes how Ortho Biotech staged a Procrit drug trial in 1997:

... OBP allegedly paid physicians to dose Procrit at 40,000iu in a once per week dose instead of the FDA approved dosage of 10,000iu three times per week dosage in cancer-chemotherapy patients. The trial was very successful and the once per week dosage is now universally accepted among oncologists. The trial's success also resulted in Medicare Part B paying for 40,000iu/week of Procrit in cancer chemotherapy patients instead of 30,000iu/week -- an increase in 33% in payments for each Medicare Beneficiary receiving Procrit for treatment of their chemotherapy related anemia.

... starting in around 1999 Medicare began reimbursing for Procrit at a one-third higher dosage than it had previously, without FDA approval for this dosage and contrary to the Medicare Act's rules for reimbursement of cancer drugs. The injury to the Medicare program alone is in the hundreds of millions.

Doctors and hospitals were allegedly persuaded to go along with this because OBP ran an average wholesale price scam that lowered their costs compared to the rate they were being reimbursed by the government. OBP provided free samples, "non-public financial inducements," such as rebates, discounts, unrestricted education grants, and "phony drug studies," the case alleges.

J&J argued that the plaintiffs, former pharmaceutical sales reps Mark Duxbury and Dean McClennan, had not identified specific drug sales that were fraudulent, and that merely surmising that the sales must have been made because the pair had evidence of other questionable activity was not enough to sustain their case.

The allegation that the case involves "hundreds of millions" of dollars is probably true: In a related case, AstraZeneca (AZN) settled related charges for $103 million a few days ago.

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Image by Flickr user euthman, CC.