Bayer To Pay $257.2 Mil. In Medicaid Rebate Settlement

Bayer expects a Medicaid rebate settlement with the Boston U.S. attorney's office to involve a fine totaling about 10% of its annual North American pharmaceutical sales.

Bayer is setting aside $257.2 mil. after reaching an agreement in principle with the U.S. Attorney's Office for the District of Massachusetts regarding rebates for certain drug products. Bayer's North American Rx sales were about $2.7 bil. in 2001.

The agreement in principle, announced Dec. 20, relates to allegations that Bayer "improperly underpaid rebates, particularly under the U.S. Medicaid Rebate Program, during a period of 1995 to 2000," Bayer said. HHS is assisting in the investigation.

Bayer describes the investigations in a June 24 filing with the Securities & Exchange Commission, saying that the findings "could lead the government to bring criminal or civil actions," and adding that subsequent penalties could be "substantial."

"Although we believe this outcome to be unlikely, in the worst case a conviction or adverse verdict could result in the exclusion of Bayer Corporation from participation in federal health programs."

"Bayer Corporation believes that its practices complied in all material respects with all applicable laws and is therefore seeking to persuade the government to discontinue its investigation," the filing states.

The tentative agreement appears to be related to a Boston grand jury investigation into prescription drug repackaging practices. Bayer was among the companies subpoenaed by the U.S. attorney's office in Boston in 2000 (¹ (Also see "SmithKline, Bayer Subpoenaed In Medicaid Repackaging Investigation" - Pink Sheet, 6 Nov, 2000.), p. 3).

The Boston rebate settlement will be substantially more than the $14 mil. Bayer paid in 2000 to settle allegations that it "marketed the spread" between AWP and the actual cost of Kogenate , Koate-HP and Gamimmune (² (Also see "Bayer Drug Prices To Be Monitored By HHS Under Medicaid Fraud Settlement" - Pink Sheet, 25 Sep, 2000.), p. 23).

Bayer is facing seven lawsuits stemming from the AWP settlement; six of the actions are expected to be consolidated in Massachusetts, while the seventh, from Nevada, has been moved to federal court.