Bayer's Record Fraud

On February 9, 1999, George Couto, a Bayer Corporation marketing executive, attended a mandatory ethics training session at a Bayer office in Connecticut.

The training session was kicked off by a video address by Helge Wehmeier, the head of Bayer's entire U.S. operation.

"Everyone is expected to obey the law -- not only the letter of the law, but the spirit of the law as well," Wehmeier told the assembled Bayer executives. "You will never be alone to adhere to the high standards of the law. Should you feel prodded, speak with a lawyer, or call me. I'm serious about that."

The assembled employees in the room erupted into laughter.

But Couto had something on his mind. He knew that Bayer had engaged in an elaborate scheme to defraud the Medicaid program out of $100 million.

On February 11, 1999, two days after the ethics training class, he wrote his boss a one paragraph memo asking how the company reconciled the Medicaid scheme with the company's expectation of adherence to the spirit and letter of the law. No one ever got back to him.

So, Couto decided to pursue the matter elsewhere. He sought legal assistance from Neil Getnick and Lesley Skillen -- partners at Getnick & Getnick in New York City, and Scott Tucker of Boston -- and filed a qui tam lawsuit against Bayer. That lawsuit was filed in early 2000.

He quit Bayer soon thereafter.

The case was filed under seal. In April 2002, Couto, age 39, was diagnosed with pancreatic cancer. He knew he was going to die, but wanted to make sure that the case would not die with him.

So his lawyers, over the strenuous objections of Bayer's lawyers, demanded that Couto be deposed on videotape. In August 2002, he was deposed, and withstood a grueling cross-examination.

"In my view, all that cross-examination did was to underscore the strength of the case and demonstrate what an extraordinary person George was," says Getnick. "As a litigator, I came to the conclusion -- and I believe everyone in that room where the deposition was taken came to the same conclusion --that no defendant company would ever have wanted that videotape played before a jury at trial. The success of George in delivering his testimony is what accounted for this case resolving itself within months thereafter."

Couto died in November 2002. But in April, his wishes came true, as Bayer pled guilty to one federal criminal count and agreed to pay a $5.5 million criminal fine.

The company also agreed to pay $251 million to settle Couto's civil False Claims Act case.

Couto's estate will get a $34 million relator's fee. GlaxoSmithKline, which engaged in a similar fraud against Medicaid, will pay $87 million to settle its case.

Bayer was charged with knowingly providing Medicaid incorrect data regarding pricing of prescription drugs, preventing Medicaid from receiving discounts to which it was entitled.

Couto, who began his career as a store pharmacist with a drugstore chain, brought Bayer's actions to light in 2000.

"At great risk to himself, his career, and quite probably his health, George Couto decided to do the courageous, ethical thing," Getnick says.

Under the Medicaid Drug Rebate Program, pharmaceutical manufacturers that sell drugs to Medicaid -- ultimately for distribution to the poor --are required to give the government its best available price on each drug. That best price is the same price the manufacturers charge their best commercial customers, usually hospitals, HMOs and pharmacy chains.

Couto reported that to skirt the best prices requirement and avoid paying Medicaid the 40 percent rebates it was giving to the HMO Kaiser Permanente on the antibiotic Cipro and the anti-hypertension drug Adalat CC, Bayer engaged in what is known as private labeling, a complicated pricing scheme designed to curry favor with the company's largest customers.

By making nominal changes to the labels on the bottles of pills sold to the commercial customers, Bayer, as well as GlaxoSmithKline, made it appear that they were Kaiser's own private label drugs. Prosecutors call these schemes "lick and stick."

Kaiser was buying $7 million of Cipro annually at the time of the alleged fraud, and threatening to switch to substitutes if the price was not reduced. Bayer both wanted to maintain its sales to Kaiser, and to ensure the company did not establish a precedent for other buyers to substitute alternatives for Cipro.

The government alleged that by not including the private labeling deals in its best prices reports to the government, Bayer fraudulently created the illusion that its rebate obligation to Medicaid was only 15 percent.

Over time, the difference in the rebates that Bayer owed and the rebates it paid grew to more than $100 million.

Bayer pled guilty to charges that it violated federal drug laws by failing to notify the Food and Drug Administration (FAD) of its production of private label Cipro for Kaiser. The company admitted that it engaged in the conduct with intent to defraud or mislead.

"We are experiencing a time of skyrocketing prices for prescription drugs, where state and federal budgets are stretched to the breaking point. The effect of leading corporations seeking to avoid paying millions of needed dollars to our nation's health care programs can be devastating," says U.S. Attorney Michael Sullivan in Boston.

"So-called lick-and-stick schemes rob the federal and state taxpayers that fund Medicaid, our system which provides drug coverage for our nation's poor. Such conduct by pharmaceutical companies is intolerable and we in law enforcement will remain focused on protecting our nation's Medicaid program."

Thanking and praising Couto, Sullivan said, "Without the assistance of persons like Mr. Couto, it is much more difficult for law enforcement to investigate fraud and ultimately recover federal and state monies. These substantial resolutions should continue to send a very strong message to the pharmaceutical industry that we in law enforcement will aggressively pursue those who would cheat government healthcare programs that benefit the poor."

"People like George have become the new heroes of corporate America," says Getnick.

"George was unable to get his concerns addressed internally. More and more whistleblowers are corporate executives just like George -- people with a huge investment in remaining loyal to the company. People like that are driven to go outside the company not primarily by outside forces, but by an inability or unwillingness on the company's part to address illegal or unethical conduct internally."

-- Russell Mokhiber