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The Kickback, Fraud and Drug-Switch Claims That Ail a Louisville Pharmacy Company

Money in medical field
Getty Images/iStockphoto
Money in medical field

Like no other place, American nursing homes house people with age-weakened bodies, multiple ailments and, often, severe mental impairment. Many are overmedicated. Many have no visitors. A third of them will die within a year of admission.

From the pharmaceutical industry’s perspective, that makes nursing homes fertile ground to sell more drugs.

The drug maker Abbott Laboratories knew that. It paid millions of dollars in “rebates” to get pharmacy companies to pump up prescriptions of an anti-seizure drug to agitated dementia patients in nursing homes, a use not approved by the Food & Drug Administration. Medicaid payments for the drug, Depakote, went on to top $7 billion. Thanks to a whistleblower lawsuit, the Justice Department caught on. Abbott pleaded guilty in 2012 to a criminal charge, settled civil kickback and fraud claims and paid $1.5 billion in fines.

The drug giant Amgen Inc. also saw a bonanza in the nursing home channel. Flashing financial incentives, it enlisted the same pharmacy companies to promote its Aranesp anemia drug for uses beyond its FDA approval. Again alerted by a whistleblower suit, the Justice Department stepped in. Amgenpleaded guilty to the crime of drug misbranding, settled civil kickback and fraud charges and paid a total of $762 million in fines.

Those two deals brought the government hammer down on the companies that hatched the sales-boosting schemes. But what happened to the folks on the receiving end of the payoffs -- the two pharmacy companies accused of pocketing the money and switching nursing home patients to different drugs?

The defendant remaining in both civil cases is called PharMerica Corp., of Jeffersontown, outside Louisville. PharMerica has no retail stores, but is the second-biggest operator of nursing home pharmacies in the country. It has about 6,000 employees in 45 states, about 200 at its headquarters in a forested office park off Blankenbaker Parkway. With $1.9 billion in revenue last year, it is the 10th-biggest publicly traded company in Kentucky, according to rankings by The Lane Report.

PharMerica was formed by a merger in 2007. Before that it existed as the institutional pharmacy divisions of Kindred Healthcare, a Louisville company, and AmerisourceBergen of Chesterbrook, Pa. It hired Gregory Weishar (pronounced WISH-er) as chief executive in 2007. He has run the company ever since.

Companies like PharMerica, and its larger competitor Cincinnati-based Omnicare Inc., occupy a strategic place in the flow of drugs to nursing home patients. Acting on behalf of the homes, they buy drugs from the pharmaceutical companies in bulk, often repack them in foil packs, or “bingo cards,” and dispense them under the supervision of employees known as consultant pharmacists. PharMerica says it has a 15 percent share of the U.S. market. It calls its performance “industry-leading.”

“PharMerica provides the right medication at the right time,” states the company’s website.

But does it? The Abbott Labs and Amgen lawsuits assert otherwise. The civil suits accuse PharMerica of giving certain drugs to nursing home patients in return for drug company kickbacks, not because they were the “right medication.” The suits were filed by drug company insiders who claim to have knowledge of payoffs disguised as “rebates” or “discounts.” PharMerica denies the claims.

Paying kickbacks appear to be standard practice in the pharmaceutical industry. The Justice Department doesn’t keep count, but kickbacks are a common theme in the many Medicare and Medicaid cases involving aggressive new-drug rollouts and off-label switcheroos.

Five additional closed cases raise further questions about PharMerica’s priorities. Since 2005, it has agreed to pay $40 million in fines to settle federal complaints. Last week, the Justice Department said PharMerica will pay $31.5 million to settle allegations that it dispensed addictive painkillers to nursing home patients without prescriptions, then falsely billed Medicare.

In that case, three PharMerica pharmacists in Wisconsin and Florida civilly accused the company of regularly dispensing painkillers, such as fentanyl patches, to nursing home patients without prescriptions from 2007 through 2009. The Justice Department took over the case in 2013, and as part of the settlement, PharMerica agreed to a five-year "corporate integrity agreement," a probation-like deal that places burdensome compliance obligations on corporate fraudsters.

In earlier settlements, three of its Virginia pharmacies were accused in two civil suits of giving painkillers to nursing home patients without prescriptions on 1,233 occasions. Separately, it was accused of billing the Tennessee Medicaid program for more drugs than it actually dispensed. And, again in Virginia, the U.S. Department of Health & Human Services’ Office of Inspector General accused PharMerica of paying an exorbitant amount for a newborn pharmacy in return for the lucrative meds business of the pharmacy owner’s 25 nursing homes.

The last case was deemed so flagrant that the IG sought to ban PharMerica from federal healthcare programs for 10 years. It settled, in 2005, for a $6 million fine and a five-year corporate integrity agreement.


PharMerica declined to make any of its executives available for an interview with the Kentucky Center for Investigative Reporting. It cited the ongoing court cases, but also would not take questions about its business practices or its corporate culture.

“PharMerica is committed to outstanding compliance and the highest standards of ethical conduct, and we are diligent in ensuring that we comply with all applicable law and regulation,” the company said in a statement.

Patrick Burns, co-director of Taxpayers Against Fraud, a non-profit advocacy group in Washington, D.C., had no reservations talking about PharMerica.

Burns said the pipeline from pharmaceutical companies to nursing homes is flush with monetary incentives to promote certain drugs and to sell more of them. Ultimately, he said, drug sales greased by kickbacks at the expense of nursing home residents, Medicare and Medicaid amount to profiteering.

“That’s the perversion of the system,” Burns said. “At the end of the day, our oldest, sickest and poorest become cash cows.”

Reuben Guttman, a Washington, D.C., lawyer who represents Amgen whistleblower Frank Kurnik in his suit against Amgen, PharMerica and Omnicare, said drug companies pay kickbacks because it expedites business.

“I assume they could have done what they did by sending out the ground troops and going (nursing) home to home to home, but it was a lot easier for them to pay kickbacks to PharMerica, and PharMerica solicits kickbacks because that’s one of the ways they make money,” Guttman said. “They bonus people up and down the food chain who participate in the scheme.”

PharMerica’s involvement in the Abbott Labs-Depakote affair was rooted in a 1997 deal in which it agreed to a “therapeutic interchange program to convert prescriptions from non-Abbott drugs to Abbott drugs,” according to the initial whistleblower suit filed by former Abbott manager Thomas Spetter Jr. in 2007. Although Depakote was FDA-approved to treat seizures and bipolar mania and prevent migraines, Spetter’s suit claimed that Abbott ghost-wrote medical articles and paid medical “opinion leaders” touting Depakote’s effectiveness in treating agitation and aggression in dementia patients.

PharMerica and Omnicare helped the cause, Spetter alleged in his suit, by pitching Depakote to nursing homes and doctors through “lunch ‘n learns,” “round tables” and speaker programs. He said the pharmacy companies did “chart reviews” of nursing home patients’ drug histories to find opportunities to persuade doctors to “convert” those patients to Depakote products. He cited two occasions when PharMerica hosted dinner events, in Hawaii and California, where doctors spoke about alternative, non-FDA-approved uses of Depakote.

The government joined the case and reached a $1.5 billion out-of-court settlement with Abbott in May 2012. Of the $239 million that Abbott agreed to pay for defrauding state Medicaid programs, about $3 million went to Kentucky. PharMerica, too, is settling, according to a Dec. 4 court filing by the government. No settlement terms were disclosed, only that non-monetary issues need to be resolved by federal agencies and the states.

The role PharMerica and Omnicare played as middlemen between drug companies and nursing homes was similarly depicted in the lawsuit filed by whistleblower Frank Kurnik in 2011. Kurnik was Amgen’s director of long-term and home-health care. He left the company on his own in 2013.

Amgen wanted to sell more of its anemia drug Aranesp, but Johnson & Johnson’s Procrit brand was in the way. Amgen, according to Kurnik’s suit, unleashed its marketing staff and, from 2002 to 2007, promoted Aranesp beyond its FDA approval for kidney-related anemia.

Kurnik claimed Amgen agreed to pay rebates -- kickbacks, he called them -- to PharMerica at rates based on the amount of Aranesp it bought. To make sure that key PharMerica decision-makers were “induced” to champion the expanded use of Aranesp, Kurnik claimed in court documents, Amgen treated them to “perks” tailored to their desires.

Two of those PharMerica employees sat on PharMerica’s Pharmacy & Therapeutics Committee, which oversaw its list of approved drugs, also known as its formulary. To curry the favor a former senior vice president and chief clinical officer, Amgen allegedly lavished her with dinner outings, typically with steak and lobster.

Another P&T Committee member “who stood to gain from kickbacks” was PharMerica’s former vice president of clinical program development and the person in charge of therapeutic interchanges, Kurnik claimed in court filings. He was paid to speak at Amgen sales meetings and was treated to golf outings paid for by Amgen, Kurnik stated.
Amgen entered its guilty plea to drug misbranding and agreed to pay $762 million in December 2012. Fourteen months later, co-defendant Omnicare -- the nation’s biggest supplier of drugs to nursing homes -- itself paid $4.2 million to settle kickback and Medicaid fraud charges with the Justice Department. That left PharMerica as the sole remaining defendant in the case.

AARP, which represents 38 million Americans 50 and older, denounces the practice of financially induced drug-switching.

“Such behavior is particularly troubling when the prescription drugs in question are being used in a manner that is inconsistent with the product labeling,” said Leigh Purvis, director of health services research at AARP’s Public Policy Institute. Prescribing should be based on what is clinically appropriate for a given patient, not financial incentives.”

Burns, of Taxpayers Against Fraud, said the spoils of such kickback schemes trickle down to the managers of the companies that engage in them.

“They hold on to their jobs first of all, because they met their sales quotas. They got bonuses, maybe they got stock options, because they exceeded their sales quotas,” he said. “So everybody at the end of the year is walking away with a bigger pay package because they oversold, overmedicated, took kickbacks or delivered kickbacks.”

Weishar has fared well as the chief shot-caller of an enterprise accused of being in the middle of four drug kickback schemes now being contested in federal courts. In his eight years as CEO, he has received $33.6 million in total compensation, or an average of $4.2 million a year.

Jan Scherrer, vice president of Kentuckians for Nursing Home Reform, a non-profit advocacy group in Lexington, said CEOs of companies involved in the kickback schemes should be held personally accountable.

“I don’t understand why the CEOs of these companies aren’t being prosecuted. Why aren’t they being put in jail?” she said. “These are not victimless crimes. There are people in these nursing homes who are dying because they are being given these drugs.”

“It’s the same players -- PharMerica and Omnicare,” Scherrer continued. “They keep doing this over and over and over, and all they get is a fine. And for them that fine is nothing more than the cost of doing business.”

Omnicare was a Kentucky company before before moving its headquarters from Covington to Cincinnati in 2012. It serves as a roadmap of what might lie ahead for PharMerica for its alleged use of kickbacks as a business tactic.

Between 2006 and 2014, Omnicare paid more than $275 million to settle civil allegations that it defrauded Medicare and Medicaid through systematic kickback programs. Three times -- in 2006, 2007 and 2009 -- it signed corporate integrity agreements with the U.S. Department of Health & Human Services. The pacts required Omnicare to establish a code of conduct, hire a chief compliance officer and pay for an annual compliance audit by an outside company.

But with six months left in its 2009 agreement, Omnicare found itself back on the feds’ carpet. In June 2014 it agreed to pay $124 million to settle civil allegations that it committed fraud by paying kickbacks to nursing homes, in the form of below-cost drug pricing, in return for their business. (PharMerica is still a defendant in the case.) Although a “material breach” of the corporate integrity agreement constituted grounds for banning Omnicare from federal health care programs, no such ban occurred.

Larry Goldberg, a former HHS assistant inspector general, said the lack of harsher action points to the government’s dilemma of being a tough watchdog.

“Often, particularly with pharmaceutical companies, although the company will engage in kickbacks and off-label marketing with respect to a certain drug or drugs, it may manufacture many others that are of significant benefit to consumers, and which may not be available elsewhere,” said Goldberg, now a partner at ADA One, a disabilities law consulting firm in Silver Spring, Md. “This is a constant tension as the government attempts to determine the most appropriate resolution in any particular case.”

States can exercise their own law enforcement options, generally on the civil, not criminal side. Kentucky Attorney General Jack Conway’s office has participated in four kickback cases involving Omnicare and obtained $1.6 million in restitution for the state. It has not, however, joined any of the three kickback cases pending against PharMerica. The Abbott Labs case, said spokesman Leland Hulbert, isn’t ripe for state intervention. In the two other cases, including the Amgen case, both the government and all other states chose not to intervene.

Eight current and former PharMerica executives, including Weishar, and Weishar’s wife Hollis altogether donated $6,200 to the election campaign of Gov. Steve Beshear between 2009 and 2011, according to the Kentucky Registry of Election Finance. State records show no money from PharMerica employees going to Conway. A Conway spokesman said the attorney general has not received any instruction or guidance from Beshear’s office as to pursuing claims against PharMerica. Beshear’s office said it has no records reflecting any such communication.

States have further remedies in dealing with rogue pharmacies and pharmacists. State boards of pharmacies can suspend or revoke licenses. They can assess fines.

But settlements of federal lawsuits, where companies typically pay large fines without admitting to allegations, don’t appear to trigger state disciplinary actions. For example, in Virginia, where PharMerica paid $1.2 million in fines in early 2014 for dispensing painkillers without prescriptions at three locations, the company has yet to be sanctioned publicly by the state Board of Pharmacy.

In Kentucky, disciplinary actions in other states can escape notice altogether. Mike Burleson, the Kentucky Board of Pharmacy’s executive director, said he was not aware that Omnicare paid $4.2 million last year to settle claims that it accepted Amgen money in exchange for switching nursing home patients to Aranesp.

“Unless it came across our desk, I don’t know that we would have necessarily seen that,” he said. “I can’t remember that case.”

Burleson said no formal notice is given when Kentucky-licensed entities are involved in enforcement actions elsewhere. Now that he knows about the Omnicare settlements, he said he will see if the Kentucky Pharmacy Board needs to consider disciplinary actions.

For the state board to punish a licensee for taking bribes to switch patients’ drugs, Burleson said, it would have to establish that the acts took place in Kentucky.

“If a company is just doing it in Texas and the region around it, probably Kentucky would not look at that necessarily unless it would have affected drugs shipped into Kentucky and we could show proof of it being changed without approval or something of that nature,” he said.

Karl Williams, a professor of pharmacy law and ethics at St. John Fisher College in Rochester, N.Y., said state pharmacy boards should be disturbed by kickback-fueled drug-switching by the corporate pharmacies they license.

“I think you have an ethical responsibility to seek the best care for your patient, and if what you’re doing is based on monetary gain, then it’s a misguided thing,” said Williams, who writes about pharmacy law for the Journal of Pharmacy Practice. “It’s the very basis for the anti-kickback law, but it’s rooted in an ethical obligation going back to Hippocrates.”

In 2011, the U.S. Centers for Medicare and Medicaid Services proposed a new rule requiring that long-term care centers obtain their patients’ medications from an independent pharmacist, not a drug distributor. CMS dropped the idea and encouraged nursing homes to follow voluntary guidelines to prevent “inappropriate prescribing.”

PharMerica has guidelines of its own to keep its employees on the straight and narrow. Its “code of business conduct and ethics” makes it “essential” that all employees, including executives, abide by a “high standard of ethics” and transact business with “honesty and integrity to make the right decisions and take the correct actions.” Accepting steak and lobster dinners is OK if the donor or a representative joins in, according to that code. Golf outings and gifts worth more than $250 require written approval from CEO Weishar.

And if Weishar violates the company code? Enforcement falls to the audit committee of the PharMerica board of directors. Weishar, too, is a member of the board -- the same board that thought enough of him to give him a three-year contract extension last year.

Burns, of Taxpayers Against Fraud, says corporations that engage in corrupt practices pay lip service to ethical guidelines.

“There are things you can do to promote integrity in a company,” he said. “They’re not actually interested in stopping fraud.”

Reporter James McNair can be reached at jmcnair@kycir.org and (502) 814-6543.

Editor's note: Shortly before publication, a legal case involving PharMerica settled in Wisconsin federal court. The article and accompanying graphic have been updated to reflect the latest settlement.