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WASHINGTON, D.C.- Bayer Corporation has agreed to pay $14 million to the United States and 47 states to settle allegations under the federal False Claims Act that the company caused physicians, pharmacists and home health companies to submit fraudulently inflated reimbursement claims to the Medicaid programs of the states, the Justice Department announced today. The lawsuit, in which the Justice Department has partially intervened, has also reached a tentative agreement with a team of state negotiators from Maine, Nevada, New York and Washington representing the National Association of Medicaid Fraud Control Units.

The government's investigation of the allegations revealed that Bayer beginning in the early 1990's falsely inflated the reported drug prices - referred to by the industry as the Average Wholesale Price (AWP), the Direct Price and the Wholesale Acquisition Cost - used by state and federal governments to set reimbursement rates for the federally and state funded Medicaid program. By setting an extremely high AWP and, subsequently, selling the product to doctors at a dramatic discount, Bayer enabled physicians to receive excess reimbursement from private and government insurers. The Bayer AWPs, at issue in the investigation, involved several of Bayer's biologic products such as Kogenate, Koate-HP, and Gamimmune, which are widely used in treating hemophilia and immune deficiency diseases.

The investigation further revealed that Bayer was engaging in a practices referred to as "marketing the spread" that also has the effect of discouraging market competition from companies that do not inflate AWPs as a way of attracting doctors to their products. The department's probe also showed that some physicians and home health companies ignore the products of companies that refuse to create these profit windfalls for customers.

The parties also are settling allegations that Bayer knowingly underpaid the Medicaid program for rebates owed by it to the states. The Medicaid Rebate program was initiated in 1991 to require drug companies to pay quarterly rebates to states in a way that accounts for discounts that drug companies give to customers. Under the program, Bayer was required to report the best price offered to any commercial, for-profit customer to the government and calculate a quarterly rebate based, in part, upon that best price. The investigation revealed that certain of Bayer's customers received discounts unaccounted for by the multi-national pharmaceutical company in its quarterly best price calculations thereby allowing Bayer to underpay the rebates it owed.

"The Medicaid program was created to help ensure that those with lower incomes receive medical treatment - not to enrich doctors or drug companies," said David W. Ogden, Assistant Attorney General for the Justice Department's Civil Division. "This tentative agreement with Bayer will help us bolster Medicaid's primary mission by reinforcing the government's long-standing objective of paying providers for the reasonable costs of the drugs they administer."

Ven-A-Care of the Florida Keys, Inc., the qui tam relator or whistleblower which filed the suit on behalf of the United States, will receive 20% of the federal government's share of the recovery.

In addition to the $14 million payment, Bayer has reached a tentative agreement with the Department of Health and Human Services' Office of Inspector General that the company's conduct will be monitored by the government under a five-year corporate integrity agreement. Under the compliance agreement, Bayer will provide the state and federal governments with the average selling prices of its drugs in order to assist the government in setting fair, reasonable reimbursement rates for Bayer's products and, potentially, the products of any competitors that may try to take advantage of Bayer's cooperation and compliance on price reporting.

"Bayer's agreement to enter into a corporate integrity agreement under which it agrees to change its drug pricing practices was a cornerstone component of this settlement. This prospective change is so important because our investigation has revealed serious misrepresentation by drug manufacturers which not only impacted the Federal health care programs but also our most vulnerable citizens," said Inspector General June Gibbs Brown.

The proposed settlement agreement must still be submitted to individual states for their review and approval, a process that may take several weeks.

The government's investigation was assisted by the United States Attorney's Office for the Southern District of Florida and the Office of Inspector General of the Department of Health and Human Services.