Medicare Compliance & Reimbursement

Pharmaceutical manufacturers Bayer AG and GlaxoSmithKline will pay the federal government, all states except Arizona, and the District of Columbia the largest amount ever negotiated in a Medicaid fraud settlement. Bayer will pay well over $250 million and Glaxo nearly $88 million for failing to offer Medicaid programs the lowest prices that they charged to any customer for prescription drugs.

Bayer's fines include both criminal and civil penalties and relate to its sales of a hypertension medicine and the antibiotic Cipro. Glaxo will pay only civil fines relating to sales of its antidepressant Paxil and a nasal allergy spray.

Federal law requires drug companies to report all their prices and pay rebates to Medicaid programs if any other payers receive lower prices than Medicaid. In the case of Bayer and Glaxo, both companies offered large discounts to the health maintenance organization Kaiser Permanente and then used a widely known ploy of repackaging the drugs under Kaiser's name or the name of another middleman company to get around the reporting requirement.

Glaxo has not admitted any wrongdoing and says the charges resulted from the company's having a different understanding of an "ambiguous" provision in the reporting law. Bayer pled guilty to a violation of the Prescription Drug Marketing Act but also generally maintains that its marketing and pricing have been conducted in good faith.

Part of the Bayer settlement will go to heirs of George Couto, the whistleblower who kicked off the investigation. Couto, a former Bayer executive who was responsible for marketing Cipro, alleged the company hid its Kaiser discounts from government agencies to avoid offering similarly large discounts to Medicaid. He pushed his allegations forcefully and testified against the company even after he was diagnosed with terminal pancreatic cancer. He died in 2002.