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Post date: January 23 2001

Spitzer Recovers $1.3 Million For Medicaid Program

Attorney General Spitzer today announced that New York State will receive more than $1.3 million in restitution as its share of a national settlement with the Bayer Corporation. In total, Bayer has agreed to pay $14 million to the federal government and 45 states to settle charges in a whistleblower lawsuit alleging that the company overstated the price of its drugs, causing doctors and pharmacies to submit fraudulently inflated claims to the Medicaid program.

Spitzer said, "This settlement is a significant victory, and sends a strong message to other pharmaceutical manufacturers and healthcare providers that we will not allow them to enrich themselves at the expense of taxpayers and those most in need. The recovered funds will be returned to the State’s Medicaid program that was the victim of Bayer’s conduct."

According to the government’s investigation, since the early 1990s, Bayer artificially inflated the price it reported – referred to by the industry as the Average Wholesale Price (AWP), Direct Price, and Wholesale Acquisition Cost – for certain of its pharmaceutical drugs. The reported AWPs are then used by state governments to set reimbursement rates for their Medicaid programs.

By setting extremely high AWPs and then selling the drugs to physicians, pharmacies and other healthcare providers at sharply discounted prices, Bayer enabled providers to pocket "cash bonuses" from the reimbursement paid to them by the Medicaid program. The investigation focused, in part, on the AWPs for the Bayer products Kogenate, Koate-HP, and Gamimmune, which are used in the treatment of hemophilia and immune deficiency diseases.

The investigation further revealed that Bayer engaged in the practice of "marketing the spread" that, in effect, discouraged providers from purchasing drugs from companies that did not inflate AWPs.

Deputy Attorney General José Maldonado, Director of Attorney General Spitzer’s Medicaid Fraud Control Unit, said, "With Medicaid prescription costs in this state now exceeding $2.5 billion a year, it is unconscionable that this renowned drug maker would inflate the cost of its products and stick state taxpayers with the bill." He noted that New York’s settlement share was the single largest of any state.

As part of the settlement, Bayer also agreed to enter into a five-year corporate integrity agreement under which the company will provide state and federal governments with the average selling price of its drugs in order to assist the government in setting fair reimbursement rates for Bayer’s products.

The settlement is the result of a nearly two year federal-state investigation of the Pittsburgh-based Bayer company. Attorney General Spitzer’s Medicaid Fraud Control Unit (MFCU) led the team of state negotiators representing the National Association of Medicaid Fraud Control Units in the settlement. The team also included representatives from the Maine, Nevada, and Washington MFCUs.

Joining the MFCUs in the settlement were the Department of Justice, the United States Attorney for the Southern District of Florida, and the Office of the Inspector General for the Department of Health and Human Services.

Assistant Deputy Attorney General Thomas F. Staffa and Special Assistant Attorney General Patrick E. Lupinetti, Director of the MFCU’s Special Projects Unit, participated in the settlement on behalf of the Attorney General’s Medicaid Fraud Control Unit. All MFCU cases are handled under the direct supervision of Deputy Attorney General José Maldonado.