Medicaid Fraud Control Unit Recovers $171 Million

Attorney General Spitzer announced today that Serono, Inc., a Massachusetts-based pharmaceutical manufacturer, has agreed to pay $171 million for losses to New York State’s Medicaid program. This resolves allegations that Serono unlawfully boosted sales of the drug Serostim by paying kickbacks to doctors and pharmacies and marketing the drug for purposes not approved by the federal Food and Drug Administration ("FDA").

As a result of today’s agreement, New York State and its counties will recover over $80 million, with the remainder going to the federal government for its share of those losses. Serono has also agreed to cooperate with the Attorney General’s office in future investigations.

The settlement follows multi-year federal and state investigations that also resulted in settlements with forty other states and the United States Department of Justice ("DOJ"). New York’s Medicaid Fraud Control Unit ("MFCU") led the states’ investigation and negotiation team, which resulted in a total civil settlement figure of $567 million. The parallel federal investigation was led by DOJ and the United States Attorney’s Office in Boston.

Serostim – approved for the treatment of AIDS wasting – is frequently illicitly used by bodybuilders and other athletes seeking to increase their muscle mass. Over the years, MFCU has prosecuted a number of Serostim cases, which included the conviction and imprisonment of a hospital employee who was forging prescriptions.

New York and the other states and DOJ alleged that Serono violated FDA rules and illegally promoted the drug to increase its sales. In particular, it is alleged that Serono illegally marketed Serostim by:

• Promoting Serostim for uses not approved by the FDA;
• Engaging in illegal kickbacks to pharmacists and physicians in an effort to increase prescriptions. The kickbacks included payments and trips, including trips to Cannes, France.

The civil settlements with Serono Inc. additionally require the company to enter into a Corporate Integrity Agreement with the Office of Inspector General, U.S. Department of Health and Human Services to ensure future compliance with the law. Also announced today was a related criminal action in federal court.

Today’s announcement is the latest example of a growing roster of multi-state "global" cases that are the result of the collaborative efforts of the federal government and the states, including New York. Barbara Zelner, counsel to the National Association of Medicaid Fraud Control Units, has repeatedly commended MFCU’s staff for their contributions to these cases, and has recently testified in State legislative hearings about the critical role that the New York Unit has played.

Like the Serono investigation, these global cases are typically commenced as "qui tam" whistleblower lawsuits filed under seal under the federal False Claims Act, which provides for substantial monetary incentives for whistleblowers. To date, the federal qui tam actions have been extraordinarily successful in exposing fraud and recovering millions in lost government dollars.

For years, the Attorney General has proposed that New York enact a State False Claims Act, but his proposal has languished in the State legislature. New York City enacted its own version of the law earlier this year.

With today’s settlement included, global Medicaid fraud cases under Attorney General Spitzer will have produced recoveries of over $286 million.

The investigation and negotiations were conducted by Special Assistant Attorney General Patrick Lupinetti.