Feds Target Health Care Provider For Fraud
WASHINGTON, Dec. 5, 2006

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(CBS) When Beatrice Schiff died at the age of 98, she was laid to rest in peace — but her bill for prescription drugs lived on for nearly five months, CBS News chief investigative correspondent Armen Keteyian reports. An Omnicare subsidiary charged Medicaid for her drugs.

Schiff was not alone. Her case was among 150 counts of fraud and racketeering brought by Michigan Attorney General Mike Cox.

Although it has never admitted any wrongdoing, in the last two months alone, Omnicare has agreed to pay $102 million to settle Medicaid fraud cases in 42 states, including the largest civil fraud settlement in the history of the state of Michigan: $52.5 million.

"They're ripping off the taxpayers, there's no question about it," says Jim Moorman, a former assistant U.S. Attorney General and the president of Taxpayers Against Fraud.

For years, Moorman has studied the way Omnicare does business — acting as a middleman between manufacturer and long-term care facilities.

"The business plan of Omnicare is to pump as much money as they can out of the federal government and the state government, without regard to consequences," Moorman says.

In addition to the most recent settlements, since 1998, Omnicare has agreed to pay more than $12 million to settle other Medicaid fraud cases. The charges include that the company re-sold leftover pills that the state of Illinois had already paid for, and that it illegally switched patients from tablets to far more expensive capsules to get higher reimbursement from the state of Maine.

These fines are small change compared to the company's revenues, which skyrocketed to more than $5 billion last year. Omnicare's lucrative strategy is to buy up more than two dozen smaller pharmacies with contracts to nursing homes. CBS News has learned that one of those purchases is under investigation by the Illinois attorney general for a kickback scheme.

Sources say the inquiry focuses on whether Omnicare CEO Joel Gemunder conspired in 2004 to defraud Medicaid by paying a grossly inflated price for a company called Total Pharmacy — in exchange for lucrative nursing homes drug contracts 10 times longer than the industry average.

"That's a huge red flag," says a health care insider, who asked that her identity be protected. She has intimate knowledge of Omnicare and explains what would induce a nursing home owner to sign a long-term deal.

"The only thing that would induce a nursing home owner to sign a long-term contract is cash — money," she explains. "Kickback. There's no other reason."

The company, which declined to speak on camera, told CBS News that it is committed to being a good corporate citizen and delivering drugs "cost effectively." But given the case of Beatrice Schiff and so many other, critics just aren't buying it.

"They're ripping off the Medicaid program, and they're harming the people who depend on it," Moorman says.

How big of a rip-off is it? Estimates are that up to 10 percent of government spending on Medicaid and Medicare is lost to fraud every year. That's about $50 billion of your tax dollars.

Medicaid Fraud Investigations in Louisiana

December 6, 2006
Diagnosis: Fraud
CBS News, Katie Couric

The federal government spends upwards of $550 billion (with a B) a year on health care in this country, meaning taxpayers like you and me are anteing up staggering amounts of our hard-earned cash to cover Medicaid and Medicare expenses for the elderly.

Now don’t get me wrong: I’m a firm believer in taking care of our Greatest Generation because, frankly, my generation is not all that far behind. What fries my bacon, however, is the fact as much as 10 percent of that $550 (with a B) billion – or $50 Billion-plus – goes out the window due to fraud. Actually, not out the window. More like into the pockets of health care companies like Omnicare, the pharmaceutical giant which currently controls more than 80 percent of the prescription drug market for senior citizens in long-term care facilities in the United States and Canada.

CBS News has been investigating the Kentucky-based company for several months now. It began last spring the way a lot of investigations do - with a tip, in this case, from a health-care insider to a series of whistle-blower lawsuits filed against the company. The only problem: false claim acts, as they are officially known, are routinely sealed by the courts. So we put on our thinking caps and started calling around, finding, lo and behold, groups like Taxpayers Against Fraud and state attorney generals had Omnicare in their sights for a long time.

Sights are one thing…action quite another. It wasn’t until this fall when Michigan Attorney General Mike Cox indicted the head of a major Omnicare subsidiary, charging more than 150 counts of health care fraud, that the wheels of our story really began to turn, quickly picking up steam, in late October, when Omnicare decided to settle the case, paying $52.5 million, the largest civil fraud settlement in the history of the state of Michigan.

Yet we weren’t sure we had a big national story. That is, until the news last month of another Omnicare fraud settlement. This one was massive in scope -- 42 states and another $50 million or so. Good but something was still missing. I’ve always believed even investigative pieces need characters to build stories around. Readers or viewers are inundated with facts and figures every day – the number of dead in Iraq; the cost of reconstruction; the latest political poll. No, to be effective, to be memorable, stories must have humanity.

So say hello to Beatrice Schiff -- who died at the grand old age of 98 in Michigan but whose bill for prescriptions drugs from Omnicare had lived on for five more months. Thanks to the efforts of the Michigan AG and family members who supplied much-needed photos, which helped personalize our story; so did our whistle-blower, a woman with more than 30 years in the health care field, who took months to find and weeks to convince to be interviewed in shadow.

As a life-long caregiver she said she was appalled by the actions of Omnicare – the switching of tablets for far costlier tablets; the long-term contracts between Omnicare pharmacies and nursing homes that, she said, compromised choice and limited the quality of care. It was that kind of personal outrage that drove her decision to speak with us. To me, she was a crucial part of our story – an insider with intimate knowledge of how, she believed, companies like Omnicare manipulated the health care system to their full financial advantage.

Frankly, I’m not sure what the prescription for savings is when it comes to health care fraud in this country. Certainly, a more aggressive attitude by state attorney generals (like Mike Cox in Michigan) and U.S. Attorney’s office (like the one in Boston leading the federal investigation) is one solution. Perhaps the solution.

Because if I’ve learned one thing while reporting this story it is this: the opportunity for fraud is far too easy, far too lucrative – that’s 50 billion with a B -- to rely on a system for which there appears to be very little honor.