US, States Won't Intervene In Fraud Lawsuit Vs Drug Cos

By Peter Loftus, Of DOW JONES NEWSWIRES

PHILADELPHIA -(Dow Jones)- The government has declined to intervene in a whistleblower lawsuit accusing AstraZeneca PLC (AZN) and Bristol-Myers Squibb Co. (BMY) of bribing a pharmacy-benefits manager to purchase their drugs and hiding price discounts from the government.

The suit was brought by a former vice president of Medco Health Solutions Inc. (MHS) on behalf of the U.S. government, 11 states and the District of Columbia. The former Medco employee plans to continue with the case even though the Justice Department and state officials declined to get involved, AstraZeneca disclosed Thursday.

It wasn't clear why the government didn't get involved. A spokeswoman for the office of the U.S. Attorney for the Eastern District of Pennsylvania declined immediate comment, and a lawyer for the former Medco employee declined immediate comment.

"AstraZeneca believes the case is without merit and intends to defend itself vigorously," said spokeswoman Laura Woodin. A Bristol-Myers spokeswoman declined to comment.

Karl Schumann, of Ringwood, N.J., filed the suit in federal court in Philadelphia in 2003, under seal in accordance with a law designed to protect would-be whistleblowers and to give the government time to investigate. Because the government has now declined to intervene, the suit was unsealed in June and AstraZeneca and Bristol-Myers were served with the complaint earlier this month.

Schumann previously handled pharmaceutical contracting for Medco of Franklin Lakes, N.J., one of the biggest companies that manage drug plans for employers and insurers. Schumann also was one of the whistleblowers behind Medco's $155 million settlement of federal fraud claims in 2006. He received a portion of that settlement along with other whistleblowers, and stands to do the same if his newly disclosed suit results in a settlement.

Medco isn't a defendant in the newly disclosed lawsuit, however. A Medco spokeswoman declined to comment.

According to the lawsuit, New York-based Bristol-Myers wanted Medco to buy its anticoagulant drug Coumadin for use in Medco's mail-service pharmacies, rather than buy cheaper generic versions. As an incentive, Bristol allegedly offered a steep discount to Medco by paying "sham rebates and data fees," the lawsuit said. These rebates and fees also served the purpose of disguising the discount so that Bristol could avoid more onerous rebates to the federal Medicaid health program for the poor, the lawsuit alleged.

Chemical giant DuPont Co. (DD), based in Wilmington, Del., also was named as a defendant in the lawsuit because its former pharmaceutical unit previously marketed Coumadin; the unit was sold to Bristol in 2001. A DuPont spokesman couldn't immediately be reached for comment.

The lawsuit accuses U.K.-based AstraZeneca of using similar tactics to induce Medco to purchase heartburn drugs Prilosec and Nexium, and of hiding price discounts from the government. Nexium was the third best-selling prescription drug in the world last year, with $7.8 billion in global sales, according to data-provider IMS Health.

The drug makers' actions caused false and fraudulent claims for their drugs to be submitted to government programs for reimbursement in the 1990s and earlier this decade, violating state and federal false-claims laws, the lawsuit alleged.

Similar allegations have been made by other whistleblowers against several drug makers. In 2004, for example, Schering-Plough Corp. (SGP) paid $345.5 million to settle criminal and civil charges that it overcharged Medicaid by offering discounts to private purchasers but hiding the discounts from Medicaid.

The 11 states that declined to intervene in Schumann's suit are California, Delaware, Florida, Hawaii, Illinois, Louisiana, Massachusetts, Nevada, Tennessee, Texas and Virginia.

The government generally won't intervene in a whistleblower case if it isn't convinced that liability can be proven at trial, according to a book on such cases by Robin Page West, published by the American Bar Association. Also, due to resource constraints, the government can't intervene in all whistleblower cases.

-By Peter Loftus, Dow Jones Newswires; 215-656-8289; peter.loftus@dowjones.com

(Dinah Wisenberg Brin contributed to this report.)

  (END) Dow Jones Newswires
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