Johnson & Johnson Settles Texas Medicaid Fraud Suit for $158 million

by Janet Elliott, Contributing Writer

AUSTIN (January 19) – Johnson & Johnson reached an agreement Thursday to settle Texas’ Medicaid fraud lawsuit for $158 million, halting a trial that exposed the drug company’s marketing of a powerful antipsychotic for unapproved use in children while downplaying its serious side effects.

The settlement was reached during the second week of trial in which Texas officials and a whistleblower had jointly sued Johnson & Johnson and its subsidiary, Janssen Pharmaceuticals, Inc. for falsely marketing its prescription medication Risperdal to doctors for off-label treatments not approved by the U.S. Food and Drug Administration.

Tom Melsheimer, a partner at Fish & Richardson in Dallas who represents the whistleblower, Allen Jones, said the $158 million agreement is the largest Medicaid fraud settlement in Texas history. But he believes the real legacy of the case will be the evidence that was introduced about marketing tactics, which included manipulation of data from clinical trials to make it appear that Risperdal caused fewer incidences of diabetes than competing drugs.

“I think it has opened a window to the pharmaceutical industry in a way that no other case has ever done,” he said.

Settlement talks had been on-going since the jury was picked on Jan. 9 in state District Judge John Dietz’s court, Melsheimer said. Those negotiations accelerated Wednesday night after testimony from one of the state’s expert witnesses.

Dr. Joseph Glenmullen, a Harvard psychiatrist, testified that Janssen removed all Hispanics, Asians and females from a clinical study in order to produce data showing Risperdal had fewer incidences of diabetes than a competing drug, Melsheimer said.

“It was scientific testimony, but also testimony that a lay jury could understand. Janssen, in effect, cooked the books,” Melsheimer said.

The Risperdal settlement was far less than the $579 million in damages sought by Texas and Jones. The state sought another $500 million in penalties against Johnson & Johnson, which is the world’s largest health care products company.

Jones said even if the case had settled for $1 billion, it would still be far less than the $34 billion that Janssen made selling Risperdal in Texas and around the world.

“The industry will not change its behavior until executives are prosecuted, until executives go to jail,” Jones said after the settlement was reached.

The money will be split between state and federal government agencies, with the whistleblower eligible to receive as much as 25 percent. Melsheimer said that after attorney fees and expenses are deducted, the money will be distributed to each party.

In December, the state secured an $84 million agreement with Actavis Mid-Atlantic, LLC and a co-defendant after a Travis County jury found the company falsely reported the price of its drugs to the Medicaid program. In that case, the state recovered $29.23 million.

“Today’s agreement sends a strong message that the State will pursue those who defraud Texas taxpayers,” Texas Attorney Greg Abbott said in a statement. “Johnson & Johnson’s scheme to profit from the Medicaid program by overstating the safety and effectiveness of an expensive drug and improperly influencing officials ended up costing taxpayers millions of dollars.”

Janssen officials released a statement saying the settlement resolves all claims in Texas.

“This settlement represents a resolution to claims brought by the State in 2004 for alleged Medicaid overpayment during the years 1994-2008, and will circumvent potentially lengthy and costly appellate activities,” the statement read. “Settlements frequently are reached to bring to a conclusion a long-standing litigation where the potential financial exposure to the Company is significant, the outcome is uncertain despite the facts and where there are likely to be long and expensive appellate activities regardless of the outcome at trial.”

An emotional Jones told reporters that he is relieved to be able to talk about the scheme he uncovered nine years ago when he was an investigator working for the Pennsylvania Office of Inspector General.

Lawyers for Jones and the state said Janssen put profit ahead of everything else, using payments and gifts to convince Texas decision-makers that Risperdal was better and safer than the much cheaper older drugs used to treat Medicaid patients suffering from schizophrenia and bipolar disease.

“They subverted science and they induced others to betray people they were supposed to be take care of, and to me that is reprehensible,” Jones said.

Jones was fired from his job in Pennsylvania and now lives in a wooded area in the central part of that state. He said he works as a stonemason and consultant to other lawyers in whistleblower cases.

Other states have gone to trial against Johnson & Johnson over Risperdal, although this was the first case involving Jones. A Pennsylvania judge dismissed that state’s lawsuit. A Louisiana jury ordered the company to pay $257.7 million for making misleading safety claims and a South Carolina judge upheld a $327 million jury verdict for deceptive marketing.

Assistant Attorney General Cynthia O’Keeffe said that in 2004, Risperdal cost $4.57 a dose, compared to 10 cents for a similar drug that had been on the market for decades. The AG’s investigation revealed that Johnson & Johnson carried out its campaign to market Risperdal as the superior drug of choice by improperly urging physicians to prescribe it to children and the elderly for schizophrenia and dementia, despite the fact that the drug had not been approved by FDA at the time for those uses.

In opening statements, the defense said it would present “real world” evidence that Risperdal was widely prescribed because it works better than competing drugs. Steve McConnico told jurors that Risperdal was a step forward from the previous generation of antipsychotics that often caused debilitating facial tics, shuffling gaits and nervous mannerisms. Additionally, he said that the older drugs did not help with a lack of motivation that accompanies serious mental illnesses such as schizophrenia and bipolar disease.

McConnico, a partner at Scott, Douglass & McConnico in Austin, led the defense for Johnson & Johnson, which is also represented by Locke Lord in Dallas.

Jones also was assisted by Tommy Jacks, who is of counsel to the Austin office of Fish & Richardson. The Texas Attorney General’s civil Medicaid fraud trial team consisted of: Cynthia O’Keeffe, Patrick Sweeten, Eric Brown, Jonathan Bonilla, Reynolds Brissenden, Eugenia Krieg, Sinty Chandy and Hanz Wasserburger.