Big Pharma was actually able to get legislation passed that was specifically designed to cover-up fraud

Thursday, December 6, 2007

The Old "Two Sets of Books" Scam

With some help from their politician friends, Big Pharma pushed an important item into the Medicare Modernization Act (MMA). This little item allowed Pharma Manufacturers to send one set of drug price data to the federal government, and another set to the States.
The MMA requires Pharma Manufacturers to report average drug prices to the Federal Government, but the Federal Government is not allowed to give this pricing information to the States. There is only one reason that Big Pharma pushed through such a ridiculous clause; to defraud the government.
Big Pharma sends false drug prices to the federal government, the States send utilization data to the federal government, and the federal government verifies the URA (Unit Rebate Amount), calculated by the Manufacturers; a calculation that is based on the Pharma Manufacturers phony prices.
So what have we learned so far? Big Pharma was actually able to get legislation passed that was specifically designed to cover-up fraud.
A recent document made public in Re: Pharma Industry AWP Litigation, reveals Abbott's use of "two sets of books" (For additional background, review my post; The Five Sets of Books Methodology for Covering-up Fraud and Hiding Drug Diversion).
Recently, the DOJ issued a subpoena seeking unit, price, and rebate data for several drugs made by Abbott. The State of Texas had previously served Abbott with a subpoena in which they requested and received the same data. But guess what; Abbott sent one set of data to Texas, and a different set of data to the Feds.
That's right folks, it's the old "two sets of books" scam.
Abbott didn't include their "projected" rebates in the data they sent to the feds.
It doesn't take a genius to figure out that the Texas data set includes actual discounts, and that these discounts weren't included in the data used by the Feds to calculate "Best Prices", and to determine Medicaid rebates.
Here's an excerpt from a letter to Abbott from the DOJ:
We write concerning the transactional data Abbott produced to the United States via letter dated November 5, 2007, which the United States received on or about November 7 (federal data).
It has taken Dr. Duggan through the Thanksgiving holiday to work with this latest set of transactional data. The United States has been informed this past weekend of what appears to be discrepancies in this data as compared to the data Abbott has provided the State of Texas on the same NDCs (Texas data), data which was the subject of numerous motions to compel and an order granting sanctions against Abbott by the judge in the Texas case. As we send this letter, we are still trying to sort out questions we have about this data set, and the reasons it appears to be different from the data set Abbott provided the State of Texas (Exhibit 1).
PF: So our good friend Dr. Duggan gave up his Thanksgiving weekend to review Abbott's data, and it turns out that Abbott sent him data from their bogus set of books. Now if you recall, I gave the PharMafia the Thanksgiving weekend off. And this is how they return my favor?
Exhibit 1 - According to the testimony of Abbott’s corporate designee, Bruce Stowell, on July 19, 2006, this variable represents “an accrual in anticipation of paying a chargeback.”
The same Excel spreadsheet reveals what appears to be another significant deficiency in the data Abbott provided, though in this case the deficiency is in the data Abbott provided Texas. For several of the products, the number of transactions and the total sales are significantly greater in the data provided in the federal case than in the data provided in the Texas case. For example, from 1994Q3 to 2001Q4, the number of transactions in the federal data for product 00074613802 was 92,063, with total sales of $11.248 million. The corresponding numbers in the Texas data are 469 and -$0.003 million. Thus, it appears that the data provided to the State of Texas were incomplete for several products.
PF: I'm gonna take a wild guess here, and say that the "additional transactions" represent discounts, provided in the form of "free goods."
Of course the "two sets of books" scam is an oldy but a goody. James Alderson discovered this same type of fraud almost ten years ago, when He Blew the Whistle, And Health Giants Quaked: 'The companies kept two sets of records for reporting healthcare costs for Medicare patients - one an inflated ledger that was sent to the federal government for reimbursement, and another that detailed actual costs of hospital operations, according to the government's complaint."
This article; Bill Frist's long record of corporate vices, shows that this type of fraud is perfectly acceptable among some politicians.
"The government's case was that HCA kept two sets of books and fraudulently overbilled the government. The deal meant that HCA agreed to pay the government $631 million for its lucrative scams -- which, on top of previous fines, brought the total government penalties against the health-care conglomerate to a whopping $1.7 billion, the largest fraud settlement in history, breaking the old record set by Drexel Burnham."
The "two sets of books" fraud is not exclusive to Big Pharma; Sullivan: Two Sets of Books to 'Hit The Numbers': "Scott Sullivan, the former finance chief at WorldCom, testified that Ebbers pushed him every quarter from 2000 to 2002 to hit the marks set by Wall Street analysts -- regardless of the company's performance. He also testified that he helped create two sets of accounting books as part of his plans to inflate revenues."
Firm Faces Rebate Fraud Allegations: 'Essentially, the $1.6-billion electronic components distributor is alleged to have fraudulently obtained millions of dollars in rebates and debits from its suppliers allowing it to undercut competitors. Court documents claim Future Electronics covered its tracks by mailing and wiring false sales and inventory reports to its suppliers.'
The PharMafia's business practices can best be described with the words of attorney, Scott Edelman in Intertainment Licensing GMBH v. Franchise Pictures:
“It turned out Franchise had kept two sets of books. These folks are shameless,” Edelman told the jury. “They are absolutely shameless. They will do it and do it and do it until they can’t get away with it anymore."

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