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J&J May Be Liable for Antipsychotic Kickback Scheme Despite "Legal" Contract

A federal judge's ruling today that Johnson & Johnson (JNJ) may be liable for paying kickbacks to nursing homes that prescribed the antipsychotic Risperdal is a reminder that just because you signed a contract doesn't mean the contract is legal.

J&J thought it could evade the anti-kickback statute because it signed an agreement that didn't directly involve sales of Risperdal. The judge, however, said that contract was merely a "subterfuge" to disguise kickbacks meant to encourage the prescribing of Risperdal.

The summary judgment in the case revolves around Omnicare (OCR), a company most people have never heard of but which plays an important role in long-term care of the elderly. The ruling says:

Omnicare is the largest provider of pharmacy services to the nation's nursing homes. It supplies prescription drugs to 1.4 million long-term care patients in forty-seven states.
Omnicare has over 900 consultant pharmacists who review patient charts monthly and make recommendations based on the formulary and Omnicare programs for physicians.
A "subterfuge" that was bad for patients
J&J and Omnicare signed agreements in 1997 and 2000 under which Omnicare received rebates from J&J if Risperdal took a certain share of Omnicare's market. This was good for J&J and Omnicare, but almost certainly bad for patients, the ruling says:
Plaintiffs allege that between 1999 and 2004, Omnicare's annual purchases of J&J's antipsychotic drugs nearly tripled to almost $300 million despite Congress's warning against the overuse of antipsychotic drugs by nursing home providers.
One patient ended up receiving 67 different prescriptions. In late 1999, J&J realized that the rebates were becoming so big that they would lower the average price of Risperdal, setting a new "best price" in the marketplace. Federal law requires that Medicaid always receive its drugs at the "best price" available. So, in 2000, J&J drew up a consulting agreement in which J&J paid $4.65 million for "physician data" that Omnicare had previously supplied to J&J free of charge. The judge didn't like that at all:
... rather than running the risk that Omnicare's earning of higher rebates might lead to a new "best price" for Risperdal, J&J resorted to a subterfuge, paying Omnicare $4.65 million for physician data that had no comparable value.
Other dubious fees outlined in the ruling included:
  1. a $300,000 "Program Fee" that J&J paid Omnicare in late 1999 to extol the benefits of Risperdal to nursing home;
  2. "grants" totaling $251,000 in 2000 and 2001 for an Omnicare program promoting the prescribing of J&J drugs, including Risperdal;
  3. "sponsorship fees" ranging from $27,000 to $50,000 that J&J paid from 1999 through 2004 to underwrite the costs of junkets taken by Omnicare managers to the Amelia Island Resort in Florida.
Tail wags the dog
The scheme was so lucrative for both J&J and Omnicare that the pharmacy tail began to wag the prescribing doctor dog:
Consultant pharmacists actively meet with physicians or correspond with them through the mail to obtain approval to make appropriate medication switches for all their applicable nursing home patients. ... Omnicare consultant pharmacists receive monthly "report cards" showing them their success in obtaining goals for therapeutic programs.
What is surprising about the ruling -- aside from the cynicism with which Omnicare was willing to switch old folks' meds based on cash rather than their symptoms -- is that the judge found J&J could be liable at all. Recent federal court rulings have required unusually specific (and in my opinion often impossibly specific) levels of evidence before allowing kickback and false claims cases to proceed. In some cases, judges have ruled that unless there is the equivalent of a signed confession from a defendant acknowledging that they knew what they were doing was wrong, cases cannot proceed.

In this case, the judge appears to have been persuaded by the exhibits attached to the case, one of which included an email in which a J&J exec, wrote to his colleagues about an argument over the Omnicare payments, "I wasn't going to go to jail for Dan, Omnicare, or for that matter J&J."

The ruling allows the case to proceed to trial; Omnicare previously settled with the feds for $98 million.


Image by Flickr user quaziefoto, CC.
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