CORPORATE CRIME REPORTER
Did Justice Department Seek to Bury Novartis Unit's Criminal Plea?
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Corporate Crime Reporter 9(3), February 24, 2005
Let’s compare two False Claims Act cases from earlier this month.
In one, Florida International University (FIU) agrees to pay $11.5 million to
settle civil allegations that it mischarged costs and overbilled the government
under several contracts and grants with the Department of Energy.
In another, a unit of the giant multinational drug company, Norvatis Corporation,
pleads guilty to nine felony counts of obstructing an audit, and is hit with
a $4.5 million fine and pays $44 million to settle civil False Claims Act charges.
Now, which case is worthy of notifying the national media?
The Department of Justice thinks it’s the FIU case.
Through its national web site, it alerted all national media to the FIU settlement.
But the national media was not alerted to the Novartis criminal case.
And the U.S. Attorney in the southern district of Illinois, where the case was
prosecuted, didn’t put it on his web site.
Bloomberg News ran a short piece on it, apparently out of a bureau in Europe.
Novartis is based in Switzerland.
And Michael Shaw, a reporter for the St. Louis Post Dispatch, who has been covering
Medicare fraud, wrote a story.
And that was it.
“This is a classic case where the Department of Justice – having
done good work – continues to keep the public in the dark about the power
of the False Claims Act and the good that can come through anti-fraud enforcement,”
said Patrick Burns of Taxpayers Against Fraud. “One of the jobs of the
Department of Justice in settlement is to make sure that these cases get as
little publicity as possible. This gives solace to the companies that are cheating
America.”
Randy Massey, an Assistant U.S. Attorney, said that a press release was sent
out to 150 press outlets on February 11, 2005.
When asked why a press conference wasn’t held to announce the criminal
plea, Massey said – “we issued a press release – we thought
a press release was appropriate.”
When asked whether government lawyers negotiated with Novartis lawyers over
how the press would be handled, Massey said – “that’s not
something I can comment on.”
Novartis criminal defense attorney Lee S. Richards of Richards, Spears, Kibbe & Orbe in New York did not return calls seeking comment.
In its press release, issued February 11, 2005, the U.S. Attorney said that
OPI Properties, Inc., a unit of the giant drug maker Novartis Corporation, pled
guilty to nine felony counts of obstruction of a federal audit.
OPI was fined $4.5 million and put on five years of probation.
And another Novartis unit, Novartis Nutrition Company will pay $44,654,229 million
to settle federal False Claims Act charges brought by the Justice Department.
The Novarits’ unit plea marks the 11th criminal conviction, including
three by corporate subsidiaries of major health care providers, arising from
Operation Headwaters.
Operation Headwaters was an undercover investigation in which federal agents
created an entity known as Southern Medical Distributors (SMD).
SMD acted as a distributor of medical supplies, and was approached by various
manufacturers and distributors who offered inducements to undercover personnel
to purchase enteral products.
To date, including this case, Operation Headwaters’ probe of the enteral
industry has recovered over $670 million.
“With this plea and sentence, we take another step toward cleaning up
the enteral industry, changing the way the industry markets tube feeding equipment
to our nation’s seniors,” said United States Attorney Ronald J.
Tenpas in Fairview Heights, Illinois. “We are committed to ensuring that
practices in the enteral industry are transparent, allowing federal regulators
to accurately determine the cost and charges incurred. This transparency is
essential to an effective Medicare reimbursement system.”
According to the press release, OPI and NNC were engaged in the manufacture,
marketing, and sale of medical nutrition products, including enteral nutritional
products to customers, including nursing homes.
Enteral nutrition products are health care products intended to assist patients
who, because of disease or other disorder, are not able to digest and absorb
an oral diet.
Enteral nutrition therapy products provide liquid nutrition through a tube into
the stomach or small intestine of such patients.
Nursing homes would then provide the products directly to eligible Medicare
beneficiaries, and, for patients covered by Part B of the Medicare program,
submit claims to the Medicare program on behalf of the beneficiaries for reimbursement
from Medicare.
Medicare, from time to time, audited the records of nursing homes and other
suppliers to evaluate medical necessity and the amount of reimbursement to be
provided for durable medical equipment including enteral products.
Medicare also audited nursing homes and other suppliers to search for illegal
remunerations, kickbacks, bribes and rebates that were provided to suppliers
in violation of the Medicare anti-kickback statute.
Several managerial employees of NNC who had nationwide or regional responsibilities
marketed enteral products to SMD.
NNC and others marketed the staff-saving benefits of enteral pumps to nursing
homes, and offered to provide dieticians and support personnel to review the
medical records of nursing home residents in connection with the suppliers’
claims for Medicare reimbursement for enteral products provided to such residents.
Novartis admitted that NNC employees engaged in conduct at SMD that violated
material parts of Novartis’ Code of Conduct.
In one instance cited by federal prosecutors, OPI shipped approximately 95 enteral
pumps to SMD in Swansea, Illinois.
OPI characterized the enteral pumps to SMD as no charge items, provided “free”
of charge.
Federal officials alleged the enteral products shipped to SMD were items for
which payment was ultimately to be made in whole or in part under the Medicare
program.
OPI cited lucrative Medicare reimbursement for the pumps as reasons for SMD
to buy products.
On occasion, an employee of NNC counseled customers regarding how Medicare reimburses
suppliers for enteral products, and suggested to SMD that it submit charges
to Medicare of $162.99 per each enteral pump per month over the fifteen months
that Medicare will provide reimbursement for an enteral pump.
(For more details on this case, see print edition)
Corporate Crime Reporter
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