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Why Do Biologic Companies Abhorrence This Man? Maybe because he’s declared absolute war on cheats in the biologic industry.

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(FORTUNE Magazine) – Imagine Yankees skipper Joe Torre carrying the keynote emphasis at a acquisition of berserk Red Sox fans. That’s the affectionate of acrimonious skepticism Michael Loucks faced beforehand this ages as he stepped to the belvedere at the Biologic Business Congress in Philadelphia. In the admirers were about 350 biologic industry executives, sales reps, and consultants–in added words, the bodies Loucks spends his canicule investigating.

The army clapped politely, but they did not like what they heard. In his early-morning speech, Loucks, arch of the Justice Department’s Boston-based health-care artifice unit, arise himself as a man on the warpath, awkward off a account of contempo acknowledged accomplishments adjoin biologic companies: Since 2000, he noted, AstraZeneca, Bayer, GlaxoSmithKline, Pfizer, and added drugmakers had coughed up added than $2.2 billion to achieve such civilian and bent violations as kickbacks to doctors, overcharging, and business drugs for crooked uses. Though none of that was account to the attendees, some of whom were acutely convalescent from a night of assemblage revelry, Loucks formed home his credibility with 37 PowerPoint slides. “No added breadth of the health-care industry,” he said, “has anytime paid agnate amounts in health-care artifice investigations in so abbreviate a time.” The feel wagging did not stop there. “Frequently I apprehend the alibi that ‘Everyone abroad is accomplishing it.’ I acquire two boyish daughters, and that’s the aboriginal affair out of their mouths back they’re accomplishing article wrong. I don’t acquire that alibi from kids. And I’m not activity to acquire it from a aegis lawyer.”

Michael Loucks is one of the attorneys who acquire fabricated the U.S. Attorney’s appointment in Massachusetts the biologic industry’s atomic admired address. Of the 94 U.S. Attorney’s offices, Massachusetts has become the Department of Justice’s primary antecedent for investigating and prosecuting biologic sales and business misconduct. Since 2000, biologic aggregation cases acquire contributed added than $1.2 billion in fines and acknowledged settlements to federal coffers. Contempo settlements accommodate a almanac $885 actor civilian and bent activity adjoin TAP Pharmaceuticals in 2001, aftermost spring’s $257 actor win adjoin Bayer Corp., and addition adjoin GlaxoSmithKline for $87 million.

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As a aftereffect of those cases, Loucks’s boss, Michael J. Sullivan, the U.S. Attorney for Massachusetts, has become a feared man amid biologic aggregation executives. A Boston-area built-in who formed his way through Boston College and Suffolk University Law School, Sullivan, 49, entered government in 1990, acceptable acclamation as a Republican to the Massachusetts House of Representatives. He served three agreement afore actuality appointed District Attorney of Plymouth County, which covers Boston’s southern suburbs. In 2000 he laid the background to challenge Ted Kennedy’s U.S. Senate seat, but alone out, citation abhorrence for fundraising, and was appointed to his accepted job the afterward year.

For a man with broader political ambitions, which Sullivan absolutely has, alive medical-related artifice is a no-brainer. In 2002 the boilerplate American incurred $5,037 in medical expenses. By 2010 that cardinal is accepted to jump 66%, to $8,368. As abundant as 10% of that pricetag, experts believe, is fraud.

Critics who allegation that the Bush administering is bound to big business may acquisition Sullivan’s assailment odd. He doesn’t. “There’s no inconsistency,” he says. “We charge to ensure that consumers acquire a base for assurance in the articles and casework they’re spending billions of dollars on.” His capital affair is that biologic companies are allurement medical acumen by advantageous off doctors, again casual on those costs to consumers. Strict oversight, he argues, is “pro-business.”

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Sullivan took the job aloof as Michael Loucks and his partner, abettor U.S. Attorney Susan Winkler, were acute to dness their three-year artifice case adjoin TAP Pharmaceuticals. In a bare-knuckles sales war adjoin AstraZeneca’s prostate blight analysis Zoladex, TAP sales assembly in 1995 began alms doctors chargeless biologic samples to actuate them to appoint TAP’s aggressive drug, Lupron. The pharma reps assertive doctors that they could administrate the samples to patients and bill their insurers for the abounding bulk of the drug, axis the chargeless doses into authentic profit.

The aboriginal antecedence for Sullivan, appointed aloof three canicule afterwards the agitator attacks of Sept. 11, 2001, was to investigate agitation in the Boston breadth and the challenge that led to the planes that hit the Apple Trade Center actuality hijacked from the city’s Logan Airport. Alike so, he fabricated time in his aboriginal few weeks to allocution about TAP. As Loucks, Winkler, and others categorical the case in a affair allowance overlooking the Boston Harbor, they had no agitation accepting permission to move advanced with the settlement. “He was alone affronted by what the doctors and reps had done,” recalls above abettor U.S. Attorney Suzanne Durrell. “‘You’ve got to be badinage me,'” Durrell quoted Sullivan as adage in his Boston accent. “‘They absolutely did this?'”

Four months afterwards Sullivan created the health-care artifice assemblage and added the cardinal of prosecutors alive cases from four to 11. He additionally accustomed Loucks and Winkler to assignment alone on medical cases. “You couldn’t avoid this, alike in ablaze of 9/11,” he says. The U.S. Attorney’s appointment in Massachusetts is now one of bristles Justice Department health-care artifice units. As a aftereffect of its contempo clue record, Washington steers abounding cases to Boston, alike back the declared crimes action in added states.

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As abomination fighters go, Winkler and Loucks accomplish a activating duo. Winkler, who concluded up in government afterwards a abrupt assignment with Boston white-shoe law close Hale & Dorr in the aboriginal 1980s, says her capital backbone is demography a “divining rod” to mounds of accumulated banking data. As for Loucks, she says he “has a bigger faculty of the big picture.” Winkler and Loucks disagree on politics–she’s a advanced Democrat and he’s a Republican. Still, they allotment a acceptance in their roles as accessible servants. Winkler says that back she aing the government, she anon acquainted at home “serving the accessible acceptable and accomplishing what’s right…rather than accomplishing what’s acceptable for whichever applicant is advantageous you.”

The brace additionally allotment a abidingness that is capital to their work. These are not band-aid investigations. Instead, medical-fraud cases tend to be paper-driven and tedious, demography an boilerplate of four years to conclude. In one accepted case, the agents has accumulated hundreds of boxes of accumulated e-mails, articulation messages, spreadsheets, centralized memos, videoconferencing transcripts, and sales training manuals. The actual is housed in its own 800-square-foot appointment in the Massachusetts federal building. “Eventually we’ll get to aggregate in every box,” says Winkler. “And if they did the crime, it’ll arise bustling out.” The alone borderline is the five-year statute of limitations.

Several biologic firms, including Bristol-Myers Squibb, Pfizer, and Schering-Plough, acquire arise to investors that they are beneath analysis by the Massachusetts U.S. Attorney’s office. For others, the alone alleviation may be that Sullivan’s health-care team, which includes three civilian prosecutors, eight bent lawyers, and a scattering of FBI agents, is alive with alive cases. The assemblage additionally investigates analytic laboratories, outpatient-service providers, medical-device makers, hospitals, doctors, and pharmacists. There are little targets too. Loucks, in fact, fabricated a name for himself aboriginal in his career block ambulance casework that billed hospitals for emergency calls they never answered. He brags about the contempo case of a clandestine assistant who overcharged patients for $3,000 account of analysis visits she didn’t make. “If we don’t do little cases, bodies will bluff for little dollars,” he says.

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If Loucks, 48, sounds like Wyatt Earp with a calculator, well, he apparently wouldn’t apperception the comparison. Far from physically intimidating, he is alpine and attenuate with the angular yet amiable facial contours of a Doonesbury character. But he sees his able apple as a mural in atramentous and white. Companies are either cheating or honest, constant by the law or breaking it. Aren’t the laws complicated and ambagious to follow? Loucks doesn’t appetite to apprehend it.

It’s an access that has becoming Winkler and Loucks the account of their adversaries. “Though I generally disagree with their positions, they are hard-working, intelligent, and artistic prosecutors,” says Nicholas Theodorou, a aegis advocate with Boston’s Foley Hoag, who has represented companies such as Blue Cross/Blue Shield in cases brought by the office.

That moral accuracy may additionally be allotment of the acumen bodies with a account to acquaint feel adequate calling: 85% of Boston’s investigations are accomplished by the public. Sometimes that accessible captivation takes the anatomy of phone-in tips, but more cases are accomplished by informants and their “qui tam” lawyers. Qui tam is a accouterment of the False Claims Act active into law by Abraham Lincoln in 1863. To baffle Civilian War profiteers, assembly encouraged citizens who knew about attempts to bamboozle the government to book civilian clothing in the government’s name. As a reward, informants got allotment of the adjustment recovery. The law fell into obscurity and was rarely acclimated until 1986, back Congress revised it to accord with military-procurement fraud. Since then, informants acquire accustomed an boilerplate of about 16% of recovered funds. In bristles contempo cases, Loucks told the Philadelphia conference, whistleblowers pocketed $330 actor of adjustment spoils. The cardinal of anniversary qui tam cases filed with the Justice Department grew from 82 in 1990 to 320 in 2002.

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One almsman was George Couto. In the winter of 2000, Couto and his lawyer, Neil Getnick, filed a qui tam accusation adjoin Bayer in Massachusetts, alive that the case would be assigned to Sullivan’s crew. Couto, a above midlevel business controlling with Bayer, declared that the aggregation had overcharged Medicaid $97 actor for Cipro, an antibiotic, and Adalat, a hypertension drug, during the antecedent three years.

Understanding what Bayer did amiss requires a little ability of how Medicaid works. The federal government’s bloom allowance plan for the poor, Medicaid covers amid added things the bulk of beneficiaries’ decree drugs. In 1990, Congress allowable a law to ensure that biologic companies were announcement the government the best bulk that they offered to barter like hospitals or HMOs. Beneath the law companies are answerable to affair a anniversary address advertence the everyman bartering abatement or “best price” for anniversary drug. The government again uses the letters to account the aberration amid the bulk paid by a manufacturer’s lowest-paying barter and the bulk Medicaid patients paid. The aggregation refunds any aberration to the government. Bayer’s $97 actor blackmail represented the bulk Bayer would acquire paid the federal government in rebates if it had been accouterment Medicaid with the actual appraisement data. But it wasn’t. In California, for example, Bayer relabeled bales of Cipro and Adalat with new bar codes that fabricated them arise to be “private label” medicines; that accustomed it to accord a 40% abatement to Kaiser Permanente, an HMO. The shipments were recorded as sales but never appear to the government as such. And no, Medicaid didn’t get the aforementioned deal.

Couto aboriginal sat bottomward with Susan Winkler in the bounce of 2000. He had recorded his conversations with Bayer co-workers, and adored e-mails and added abstracts pertaining to Bayer’s private-labeling program. As a result, Winkler was able to aught in on added key pieces of abstracts in her subpoenas. In April 2002, however, Winkler abstruse that Couto had been diagnosed with pancreatic cancer; doctors gave him six to 12 months to live. To bottle his testimony, the adjudicator in the case agreed to a videotaped degradation with the compassionate that Bayer aegis attorneys could cross-examine. For three canicule that August, Winkler deposed Couto afore a videocamera. Couto died in November 2002 at age 39; three months afterwards Bayer acclimatized the case. Beneath the adjustment the biologic behemothic pleaded accusable to bent and civilian delinquency and agreed to pay the government $257 million. Couto’s three accouchement accustomed $34 actor as their allocation of the settlement.

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Whistleblower awards are enticing, but they are far from the government’s alone weapon adjoin health-care fraud. Sullivan and his health-care artifice assemblage can additionally seek to ban a aggregation from federal programs if it’s begin accusable of ambidexterity Medicaid or Medicare–an able afterlife sentence. No biologic aggregation has had to face that anticipation yet, but accumulated attorneys who’ve gone up adjoin Sullivan’s aggregation accuse that the blackmail is so astringent that it encourages companies to achieve rather than challenge charges. Sullivan sees the ban as a way to akin the arena acreage adjoin companies that can generally outspend the government on acknowledged resources.

With an amaranthine beck of cases to accumulate them busy, the beyond catechism for Sullivan is whether they are authoritative a difference. Though $2.2 billion in fines and settlements over three years sounds like a lot of money, it absolutely isn’t for an industry with $200 billion in anniversary U.S. sales. Biologic industry admiral are afraid to allege out about the accretion analysis for abhorrence of influencing accepted or approaching investigations; none would allege to FORTUNE on the record. But a abounding of them bickering that Sullivan’s absolute accomplishment is misplaced, instilling abhorrence after alteration the way companies operate.

Those sentiments were echoed by some of Loucks’s admirers in Philadelphia. “It’s so accessible he was trolling for whistleblowers,” says Kathleen Kaa, an controlling at the Lash Group, a Charlotte, N.C., health-care consulting company. Says addition attendee, Mick Kolassa, managing accomplice of drug-pricing adviser Medical Business Economics: “Drug companies are the villain du jour. With TAP and Bayer you had some agitable artefact teams accomplishing brainless things. But the industry isn’t evil. I’m consistently anxious back attorneys anticipate they’re activity to be our salvation.”

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Sullivan absolutely isn’t bamboozled abundant to see himself as a savior. Neither is he apologizing. He angle the law’s role in the biologic exchange as critical–and positive. “I’m acquisitive the aspect of abuse will be a bridle to companies. The ultimate objective,” Sullivan says, “is that they’ll ameliorate themselves.”

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