April 2003

Bayer and GalxoSmithKline Settle
Medicaid Fraud Allegations for $344 Million

On April 16, 2003, the Department of Justice announced that Bayer Corp. and GlaxoSmithKline (GSK) had agreed to pay over $344 million to settle allegations of Medicaid fraud. Bayer will pay a total of $257,200,00 and GSK will pay $87,600,922. This represents the largest Medicaid fraud settlement in history. The settlement proceeds will be shared by the Federal Government, 49 states, the District of Columbia, and Public Health Service entities.

The Government alleged that Bayer and GSK, in a scheme referred to as "lick and stick," sold re-labeled drugs to an HMO at deeply discounted prices, and then concealed this information in order to avoid their obligation to pay millions of dollars in additional rebates to the Medicaid program. The Medicaid Rebate program requires drug manufacturers to report to the Government's Center for Medicare and Medicaid Services the best price they offer to any commercial, for-profit customer, and to pay a quarterly rebate based on that best price. According to the Government, Bayer and GSK provided discounted prices to Kaiser Permanente Medical Care Program, a private HMO, and affixed slightly altered labels to those products to avoid having to report the discounts to the Government. The drugs involved included Bayer's Cipro, an antibiotic, and Adalat CC, an antihypertensive, and GSK's Paxil, an antidepressant, and Flonase, a nasal spray.

Whistleblower George Couto, a former marketing executive at Bayer who is now deceased, filed the qui tam action against Bayer in 1999. That case is captioned United States ex rel. Estate of Couto v. Bayer Corp., No. 00-10339 (D. Mass). The relator's share of the Bayer portion of the settlement is $34 million, which will go to Couto's estate. Neil Getnick and Lesley Ann Skillen of Getnick & Getnick (New York) represented the relator. The FBI, HHS OIG, and FDA's Office of Criminal Investigations investigated this matter. Susan Winkler, Deputy Chief of the Health Care Fraud Unit of the U.S. Attorney's Office in Boston, as well as Assistant U.S. Attorney George Vien of the same office handled the matter for the Government.