Omnicare Inc. (OCR), a supplier of drugs to nursing homes, agreed to settle a lawsuit claiming it paid a kickback in buying a pharmacy company, and that it submitted false claims for reimbursement to government health insurers.
Lawyers told a federal judge in Chicago yesterday that they reached a “settlement in principle” to resolve a 2007 lawsuit by whistle-blower Maureen Nehls, a court docket entry shows. The terms, if final, weren’t entered into the docket. U.S. District Judge John J. Tharp Jr. set a hearing for Sept. 25.
Nehls claims Omnicare’s $25 million purchase of Total Pharmacy Services LLC in 2004 included a kickback to one of its owners, Philip Esformes, and his father, Morris. That payment helped Omnicare win contracts with nursing homes owned or controlled by Morris Esformes and gave the company thousands of elderly and disabled customers, according to the complaint.
“Omnicare capitalized on the illegal kickback arrangement at the heart of Total Pharmacy’s operations,” Nehls attorney Matthew Organ said in a March 21 filing. “As Total Pharmacy held no assets, aside from a small inventory, virtually all of the $25 million that Omnicare ultimately paid to purchase Total Pharmacy amounted to a kickback” for long-term contracts.
Omnicare, based in Covington, Kentucky, has denied wrongdoing in court papers. Ed Loyd, an Omnicare spokesman, declined to comment in an e-mail.
David Chizewer, an attorney for Nehls, declined to comment on the settlement. He said that Nehls, who once worked at Total Pharmacy, is now pursuing a nursing degree.
Nehls initially filed a complaint in 2006 with another whistle-blower, Adam Resnick. He pleaded guilty that year to siphoning $10.2 million from Universal Federal Savings Bank in 2001 and 2002, court records show. Universal collapsed as a result and was taken over by the Federal Deposit Insurance Corp.
Resnick was sentenced in 2007 to 42 months in prison. In December 2010, Resnick withdrew from the lawsuit being settled.
The settlement doesn’t include the Esformes, Philip’s lawyer, Michael Pasano of Miami, said in an e-mail. The father and son rejected Nehls’s offers to resolve the case, he said.
“Philip Esformes understands that Omnicare made a business judgment to reach a settlement in this case,” he said. “That settlement in no way speaks to Mr. Esformes’s position, and Mr. Esformes continues to emphatically emphasize he has done nothing wrong and is in no way liable in this matter.”
Last year, U.S. District Judge Amy St. Eve, who oversaw the case, denied Philip Esformes’s request to dismiss Nehls’s fifth amended complaint. He filed an answer denying wrongdoing.
“Omnicare’s purchase of Total Pharmacy Services LLC was the result of an arm’s-length negotiation,” his lawyers said in that April 2011 filing. “Omnicare paid the reasonable market value for Total Pharmacy Services LLP and therefore, no kickback was paid and no violation of federal and state anti-kickback laws can be alleged in connection with the purchase.”
In a separate filing, Morris Esformes also substantially denied the allegations against him.
One of his lawyers, Harvey Tettlebaum of Husch Blackwell LLP, declined to comment on the Omnicare settlement, saying he hadn’t seen the documents. Tettlebaum said his client “continues to insist that he’s done nothing wrong,” and would file a motion seeking a judgment in his favor.
Nehls sued in Boston with Resnick under the U.S. False Claims Act, which lets whistle-blowers sue on behalf of the government and share in any recovery. The U.S. Justice Department declined in January 2010 to join the case. They also sued under false claims laws in Illinois and Florida.
On May 11, Omnicare settled a case with the Justice Department for $50 million. The agency called it the “largest controlled substance settlement in history,” and said Omnicare gave nursing home residents medicines without a prescription, with missing prescription information or without documentation.
Omnicare agreed in November 2009 to pay $98 million to settle civil allegations by the U.S. government and various states that it took kickbacks from Johnson & Johnson. (JNJ) Omnicare, which didn’t admit liability, entered into a five-year corporate integrity agreement as part of the settlement.
Omnicare also settled part of the Resnick whistle-blower lawsuit that month for $19.9 million, according to court records. Resnick was awarded $2 million for the federal portion of the settlement. The portion of the lawsuit relating to the Total Pharmacy transaction was transferred to Chicago in 2007, court records show.
Resnick, who owed $10 million in restitution for his Universal crimes, was sued by the federal government, which sought his whistle-blower award to pay depositors.
Resnick said he stole the money from Universal partly because he was a gambling addict, according to court papers. He wrote a book called: “Bust: How I Gambled and Lost a Fortune, Brought Down a Bank -- and Lived to Pay for It.”
On June 11, Omnicare’s chief executive officer, John Figueroa, resigned after 18 months on the job. That day, the shares fell the most in 18 months. John Workman, Omnicare’s president and chief financial officer, took over as interim CEO while the company looks for a permanent replacement.
The case is United States of America v. Omnicare Inc., 07- cv-5777, U.S. District Court, Northern District of Illinois (Chicago).
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