Omnicare Qui Tam Whistleblowers

Boston, MAOmnicare has deep pockets when it comes to qui tam whistleblower lawsuits. In the past few years, the nation's largest pharmacy for nursing homes has been involved in a number of lawsuits involving claims that it paid kickbacks and made improper medication substitutions for patients. It has already paid millions upon millions of dollars to settle suits filed by whistleblowers and the US government under the False Claims Act (FCA).

In November 2009, Adam Resnick, a Chicago-based healthcare entrepreneur, exposed Omnicare for Medicare and Medicaid fraud. Omnicare agreed to pay the federal government and several states $98 million to settle several charges. In September 2010, it paid $21 million to settle fraud allegations to Medicaid programs of Massachusetts and Michigan. (Omnicare made a deal with the Securities and Exchange Commission that claims included in qui tam litigation pending in Illinois would be dismissed.)

According to Resnick's lawyers, Omnicare was involved in a highly sophisticated kickback scheme. "In all likelihood, the government never would have uncovered this scheme without the assistance and persistence of Mr. Resnick," said attorney Tim McCormack.

Resnick's qui tam lawsuit, which the government joined, alleged that Omnicare paid a $50 million kickback to Mariner Health Care, a nursing home chain, disguised as a purchase of a small business unit of Mariner. On the same day that Omnicare paid Mariner $50 million for a business unit that had only $2 million to $3 million in assets, Mariner signed a 15-year contract with Omnicare to refer all of its nursing home patients to Omnicare for the patients' drug purchases, including drug purchases covered by Medicare and Medicaid.

According to Chicago Breaking News Center, Resnick would be paid $1 million to $2 million of his reward money, as provided to whistleblowers under the FCA. "I believe this settlement is a testimonial to what I have always stood for and is proof that addicts can make mistakes but certainly can turn their lives around," Resnick said "Kickback deals can hurt Medicare and Medicaid patients because they influence decisions to provide drugs that could be medically unnecessary, of poor quality or even harmful."

So the kickbacks continued: According to Bloomberg in January 2010, the US government said in a lawsuit that Johnson & Johnson paid kickbacks to Omnicare Inc. to push prescriptions for its antipsychotic drug Risperdal for elderly patients. Bernard Lisitza, a former pharmacist for Omnicare (he says he was fired after complaining when his employer switched patients' prescriptions to J&J drugs) and one of the whistleblowers in the claims against J&J, claimed the two companies conspired to switch patients' drugs to drugs that cost Medicaid more money. Even more insidiously, the drugs were used "off-label" without any consideration for the health and safety of patients.

It never ends: this past summer an action filed under the FCA whistleblower provisions on behalf of the federal and several state governments was unsealed. Omnicare's former internal auditor, John Stone, filed a whistleblower action accusing the company of even more Medicare and Medicaid violations.

In a qui tam lawsuit, Stone claims that Omnicare filed reimbursement claims for ancillary services that didn't conform with the Centers for Medicare and Medicaid Services regulations, that reimbursement claims from newly acquired pharmacies violated CMS regulations, and that storage and handling of "a particular drug" violated the US Food and Drug Administration regulations. What's more, Omnicare "violated certain Medicaid billing regulations relating to usual and customary charges." Stone also filed a "retaliatory discharge" claim related to his leaving the company.

The US Department of Justice and the state governments declined to take up the case, but Stone can still pursue the case with his attorneys.

Still, Omnicare admits no liability and carries on. What must its investors think?

In 2008, Omnicare earned $156.1 million on revenue of $6.3 billion. According to Business Wire, Omnicare reported financial results for its second quarter ended June 30, 2010: Sales were $1,519.1 million as compared with $1,540.5 million.

"The reduced [prescription] volumes also affected our ability to leverage our scale effectively through our drug purchasing contracts and operating infrastructure," said John L. Workman, Omnicare's Executive Vice President and Chief Financial Officer. "We are committed to devising strategies for growing our customer base more effectively, which we believe can increase prescription volumes irrespective of soft utilization and facility census trends."

The False Claims Act allows private citizens to file qui tam lawsuits against companies and individuals defrauding the government and to recover funds on the government's behalf. Whistleblowers are entitled to between 15 and 25 percent of the amount recovered as a result of their lawsuits.