Bayer agrees to settlement with Department of Justice

Bayer agrees to settlement with Department of Justice

Last week while everyone was getting ready for the Thanksgiving holiday, Bayer announced they had agreed to a $97.5 million settlement with United States Department of Justice over allegations that they paid kickbacks to diabetic suppliers. According to a press release issued by the DOJ last Tuesday;

“Between 1998 and 2002, Bayer allegedly paid Liberty Medical Supply Inc., one of the largest direct-to-patient diabetic suppliers, approximately $2.5 million to convert its patients to Bayer supplies. The alleged kickbacks were based on the number of patients that Liberty successfully converted to Bayer supplies and were disguised as payments for advertising. In addition, Bayer allegedly paid kickbacks of approximately $375,000 to 10 other diabetic suppliers to convert patients to Bayer supplies.”

The release goes onto to state; “The settlement resolves claims submitted to Medicare by the 11 suppliers for Bayer supplies from 1998 through 2007. Under the terms of the settlement, Bayer agreed to enter into a corporate integrity agreement with the Office of Inspector General for the Department of Health and Human Services (HHS).”

While it’s unknown who brought this matter to the attention of the DOJ, this is not the first time Liberty Medical Supply has been involved with the DOJ. Prior to being acquired by Medco (NYSE:MHS), Liberty was the target of a different DOJ investigation which was also settled.

Diabetic Investor is hardly shocked by the settlement given that Liberty Medical is the largest mail-order diabetes supply company with over 1 million patients. It’s well known within the industry that Liberty can greatly influence which meter a patient uses and has the power to demand favorable terms from vendors anxious to capture this market segment. Given that Bayer was the target of the investigation and not Liberty, Diabetic Investor suspects that it was a competitor who snitched to the DOJ.

This settlement is further evidence of just how competitive the blood glucose monitoring market has become. Gone are the days of double digit market growth forcing BGM companies to compete fiercely to gain and maintain market share. It’s understandable that Bayer would try and bury this news as up until know the company has done an outstanding job of reinventing themselves. As Diabetic Investor has commented on several occasions, at one time Bayer had one foot in the grave and everyone, including Diabetic Investor, thought it was only a matter of time before the diabetes unit would be sold. Under new management this unit has experienced a renaissance, remerging from the ashes surpassing Abbott (NYSE:ABT) to take the number three position in the market with their sights set on overtaking the number two player Roche.

Although Diabetic Investor is disappointed with Bayer, we suspect they weren’t the only company forced to play this game. It should also be noted that the settlement covers payments made to Liberty between 1998 and 2002 when Liberty was still owned by PolyMedica. It’s highly unlikely that their new owner would put up with these shenanigans as with Liberty Medco now has nearly 4 million patients with diabetes. This commanding market presence demands that all the BGM companies sharpen their pencils when negotiating with Medco rather than risk losing even more valuable market share.

There is no question the game has changed in the BGM market, let’s just hope that everyone is playing by the same set of rules.