JANUARY 16, 2010 J&J Is Accused Of Kickbacks To Omnicare On Drug Sales By JONATHAN D. ROCKOFF In the latest case in the government's campaign against abusive drug-marketing practices, the Justice Department charged Johnson & Johnson with paying "tens of millions of dollars in kickbacks" to a nursing-home pharmacy company to boost sales of J&J drugs to nursing-home patients. Proscutors, in a complaint filed in federal court in Boston Friday, accused J&J of illegally paying Omnicare Inc. to buy J&J medicines and recommend their use to nursing homes. Under the arrangements, prosecutors alleged, Omnicare's annual purchases of J&J medicines nearly tripled to more than $280 million. The drugs included the blockbuster antipsychotic Risperdal, which was prescribed to control anxiety among patients with dementia and Alzheimer's, prosecutors said, though the drug isn't specifically approved for those uses. Medicaid bought the J&J medicines, prosecutors said, increasing the government's overall drug spending. The allegations, detailed in a 34-page complaint, shed light on the workings of a lucrative marketing channel for drug makers that can help drive sales of major drugs: the middlemen like Omnicare that process prescriptions, distribute medicines and manage insurance coverage. The alleged kickbacks took place from 1999 to 2004 and included payments for the pharmacy's physician prescriber data, which Omnicare had previously provided at no charge, according to prosecutors. J&J also paid rebates each quarter based on Omnicare's success switching patients from competitors' drugs, according to the complaint. J&J, of New Brunswick, N.J., said its conduct was "lawful and appropriate" and that it looks forward to "airing the facts" in court. It declined to elaborate. Drug makers commonly pay rebates on the prices of drugs sold to middlemen, and the practice is legal unless government programs like Medicaid don't get the benefit of the rebate. Under a 1990 federal law, drug makers are supposed to file quarterly reports showing that Medicaid programs got the same rebates as other big purchasers. In this case, prosecutors allege that J&J tried to avoid reporting rebates to Omnicare, disguising them, for example, as the physician-prescriber-data payments. The complaint also reflects recent government scrutiny of aggressive marketing of Risperdal and other so-called atypical antipsychotic drugs by Congress, regulators and law enforcement because of high use among children and the elderly, often for unapproved, or "off label," conditions. A year ago, Eli Lilly & Co. agreed to pay the government $1.4 billion for off-label promotion of its antipsychotic Zyprexa, and AstraZeneca PLC has set aside $520 million to cover an agreement in principle over its marketing of Seroquel. That settlement hasn't been finalized. In 2005, the FDA required that all of the atypicals carry a "black box" warning that their use increases the risk of death among elderly patients with dementia. The practices alleged in the Justice Department complaint against J&J predate that action. The alleged Risperdal scheme appears to have been an unintended side effect of the U.S. efforts to curb the excessive use of antipsychotic medicines in understaffed nursing homes. An Institute of Medicine report highlighted the problem in 1986, prompting Congress to order the homes to protect the rights of residents. The mandate was interpreted as requiring homes to have licensed pharmacists review residents' prescriptions at least once a month. Omnicare, the nation's largest pharmacy serving nursing homes and other long-term-care facilities, provides those consulting services in addition to dispensing drugs. Such companies can have an outsize influence on drugs' market shares in part because their decisions can affect prescriptions for millions of patients. "They are key accounts. They control so much muscle in terms of volume," said Bill Trombetta, a marketing professor at St. Joseph's University in Philadelphia who teaches a course on the subject. Based in Covington, Ky., Omnicare was formed in 1981 and grew through acquisition, buying its biggest rival in 2005. Then it claimed to cover about half the nursing-home beds in the U.S. It had $6.3 billion in revenue in 2008. State and federal Medicaid programs for the poor are major customers. The pharmacy has faced several Medicaid probes and in recent years has agreed on several occasions to pay states and the federal government to settle accusations of overbilling and other practices without admitting wrongdoing. In November, Omnicare agreed to pay $98 million to settle charges related to the alleged J&J kickback scheme. IVAX Pharmaceuticals, a unit of Teva Pharmaceutical Industries Ltd., agreed to pay $14 million to settle related allegations. J&J recognized that Omnicare had a pivotal role in nursing-home prescriptions, prosecutors said in Friday's complaint. The complaint quoted from a J&J presentation in 2003 noting the "high degree of impact on product selection" that Omnicare pharmacists have at nursing-home clients. In a 2003 e-mail, a J&J manager said that paying Omnicare $3 million in rebates resulted in $9 million in sales and a net return of $4.8 million, the complaint said. Both companies described the efforts of Omnicare pharmacists to switch nursing-home residents to another drug as an "intervention," the complaint said. A 1997 agreement between the companies called for J&J to pay Omnicare rebates for drugs with an "Active Intervention Program" designed to shift patients to J&J products. The products also included Propulsid, Levaquin, Procrit, Duragesic and Ultram. Still, the effort on behalf of Risperdal was the biggest, prosecutors said, and the companies called it the "Risperdal Initiative." As part of the program, Omnicare sent out faxes asking physicians to convert patients to Risperdal and mailed forms to doctors authorizing the switches, the complaint said. Risperdal was among J&J's best-selling drugs, achieving peak annual sales of $3.4 billion before it lost patent protection in 2008. For the first nine months of 2009, sales of branded Risperdal and an authorized generic version were $706 million, down 62% from a year earlier because of generic competition. All of its rebates were "incentives to Omnicare to advocate appropriate use of J&J products," according to a company document quoted by prosecutors. At one point, in 1999, Omnicare said J&J owed it about $700,000 in rebates for six months in 1998 and 1999, the complaint said. A four-year agreement signed in 2000 provided for J&J to pay Omnicare a total of $4.65 million. J&J also sponsored Omnicare's annual national managers meeting at a Florida resort, spending as much as $50,000 each year from 1999 to 2004, the complaint said. In return, J&J sales managers could play golf with Omnicare managers and talk about why the pharmacy should buy more J&J drugs, the complaint said. The complaint was prompted by whistleblowers Bernard Lisitza and David Kammerer, former Omnicare employees who no longer work at the company, said Mr. Lisitza's lawyer, Michael Behn.