Lawsuits & Settlements

FOR IMMEDIATE RELEASE
Friday, March 20, 2009
Contact: Office of the Attorney General - Christine Gasparac (916) 324-5500
Cotchett, Pitre & McCarthy - Niall McCarthy (650) 697-6000

Brown Sues to Recover Hundreds of Millions of Dollars Illegally Diverted from Medi-Cal

LOS ANGELES – Responding to a whistleblower’s allegation of “massive Medi-Cal fraud and kickbacks,” Attorney General Edmund G. Brown Jr. joined legal action against seven private laboratories to recover hundreds of millions of dollars in illegal overcharges to the state’s medical program for the poor.

“In the face of declining state revenues, these medical laboratories have siphoned off hundreds of millions of dollars from programs intended for the most vulnerable California families.” Attorney General Brown said. “Such a pattern of massive Medi-Cal fraud and kickbacks cannot be tolerated, and I will take every action the law allows to recover what is owed,” Brown added.

According to whistleblower Chris Riedel, the CEO of Hunter Laboratories, “I confirmed with the California Department of Health Care Services that these practices were illegal. We then had a choice--either join the other labs in violating the law or be unable to compete for business. We choose to suffer the financial consequence, and follow the law.”

The lawsuit, which is pending in San Mateo Superior Court, contends that the 7 medical labs systematically overcharged the Medi-Cal program over the past 15 years.

The defendants include:
• Quest Diagnostics, Inc., based in Madison, NJ; its affiliate Specialty Laboratories, Inc., based in Valencia, CA; and 4 other Quest affiliates.
• Health Line Clinical Laboratories, Inc., now known as Taurus West, Inc., based in Burbank, CA.
• Westcliff Medical Laboratories, Inc., based in Santa Ana, CA.
• Physicians Immunodiagnostic Laboratory, Inc., based in Burbank, CA.
• Whitefield Medical Laboratory, Inc., based in Pomona, CA.
• Seacliff Diagnostics Medical Group, based in Monterey Park, CA.
• Laboratory Corporation of America, based in Burlington, NC.

California law states that 'no provider shall charge [Medi-Cal] for any service…more than would have been charged for the same service…to other purchasers of comparable services…under comparable circumstances.' Yet, these medical laboratories charged Medi-Cal up to six times as much as they charged some of their other customers for the very same tests. For instance,

• Quest Diagnostics, Inc. charged Medi-Cal $8.59 to perform a complete blood count test (CBC), while it charged some of its other customers $1.43 for the exact same test. This is one of the most frequently requested blood tests.

• Laboratory Corporation of America charged Medi-Cal $30.09 to perform a Hepatitis C Antibody screening, while it charged some of its other customers only $6.44 for the test.

• Health Line Clinical Laboratories charged Medi-Cal $12.65 to perform an HIV Antibody screening, while charging some of its other customers $1.75 for the test.

These are not isolated examples. They are part of a pattern of fraudulent overcharging and kickbacks that developed over the past decade. Here’s how it worked:

• The defendant labs provided deep discounts when they were being paid directly by doctors, patients, or hospitals. Prices were often below the lab’s cost and sometimes free.

• In exchange for these steep discounts, the defendants expected its customers to refer all of their other patients (where the lab was paid by an insurance company, Medicare, and Medi-Cal) to its lab. Under California law, this amounted to providing an illegal kickback.

• These sharply reduced prices, however, were not made available to Medi-Cal. Instead of charging the discounted prices, the defendants charged Medi-Cal up to 6 times more than the defendant charged others for the same tests. In effect, defendants shifted the costs of doing business from the private sector to Medi-Cal.

• Additionally, defendants offered their clients who paid them directly (not through Medi-Cal or other insurance) deeper and deeper discounts in order to get a larger share of the lab testing business. This created an unfair playing field, and laboratories that followed the law could not effectively compete. These law-abiding companies were sometimes forced to sell or go out of business completely.

The case was filed under seal in San Mateo Superior Court under California's False Claims Act by a whistleblower and qui tam plaintiff Hunter Laboratories, which processes blood tests. Hunter Laboratories had found that it could not compete in a significant segment of the marketplace where many of the major players were offering referring doctors, hospitals, and clinics far lower rates than they were charging Medi-Cal.

After the whistleblowers filed the complaint, the Attorney General’s Bureau of Medi-Cal Fraud and Elder Abuse investigated the allegations and Attorney General Brown intervened under seal. The case became public this week.

Hunter Laboratories' attorney, Niall P. McCarthy of Cotchett, Pitre & McCarthy, commented that “At a time when California is laying off teachers and firefighters and is in a massive budget crisis, it is unconscionable that these defendants would bilk the system to the tune of hundreds of millions of dollars.”

Under California's False Claims Act, anyone who has previously undisclosed information about a fraud, overcharge, or other false claim against the state, can file a sealed lawsuit on behalf of California to recover the losses. They must notify the Attorney General as well.

Such a case is called a 'qui tam' case. If there is money recovery, the law provides that the qui tam plaintiff receives a share of the amount recovered if the requirements of the statute are met.

The lawsuit asks for relief in the amount of triple the amount of California’s damages, civil penalties of $10,000 for each false claim; and recovery of costs, attorneys’ fees and expenses. It is estimated that damages could amount to hundreds of millions of dollars.

The clinical testing field is a $50 billion industry nationwide. The defendants named in the lawsuit include some of the largest clinical laboratories in the country.

Quest Diagnostics is the leading provider of diagnostic testing, information and services in the United States, with more than 500 patient service centers in California.

Laboratory Corporation of America performs more than one million tests on approximately 400,000 samples each day and has more than a dozen patient centers in Los Angeles.

To report fraud or abuse, call the Bureau of Medi-Cal Fraud and Elder Abuse's hotline at (800) 722-0432.

Ventura -- Attorney General Edmund G. Brown Jr. and Ventura District Attorney Gregory D. Totten today clamped down on two companies -- Imergent, Inc. and Stores On Line – that “falsely promised” customers that they could earn full-time income by selling merchandise over the Internet.

“These companies falsely promised customers that they could get rich by selling merchandise over the Internet,” Attorney General Brown said. “In reality, many customers were left in deep debt, paying high up-front costs, and never earning a dime from their websites. This agreement allows these customers to get back some of their losses.”

These two companies sell website-based “stores,” in packages of three or six websites, at a cost of between $2,700 and $6,000. They market their products at seminars, which they advertise through postcards and other mailings often sent to senior citizens with limited Internet experience. They often offer seminar attendees a meal and a free gift such as an MP3 player.

The companies made statements such as:

“Are you ready to claim YOUR share of eBay’s annual $3.2 Billion in revenue? By attending our FREE 90-minute ‘eBay Entrepreneur Training’ Conference you will learn how eBay PowerSellers run successful Internet businesses and how an elite few use additional strategies to boost revenues way beyond the average seller. Learn how nearly half-a-million people create full-time incomes using eBay!”

At the seminars, the companies make tantalizing claims regarding the massive profits that can be earned by consumers who purchase their product. Often, however, these profits are never realized and the customer is left in serious debt.

One victim used the inheritance left by her father to purchase six websites, in hopes that they would help supplement her income after retirement. The victim spent over $10,000 in set up costs. Of the six websites the victim bought, only one has been set up, and it continues to cost more than it brings in.

In August of 2006, the California Attorney General’s Office and the Ventura County District Attorney settled a previous case against Imergent, Inc. and Stores On Line. That settlement barred the defendants from engaging in conduct that violated California’s laws governing Seller Assisted Marketing Plans.

The Attorney General’s office continued to monitor the companies’ business practices and discovered that they were violating the 2006 agreement and were continuing to sell Seller Assisted Marketing Plans without registering with the state.

A new action was brought in 2007 to enforce the prior judgment, and to seek penalties, restitution, and an injunction. Today’s agreement resolves the 2007 action.

The companies have agreed to the following terms:

• Pay $147,600 for full restitution to California consumers who have complained to the Attorney General’s Office, the Ventura County District Attorney, or directly with StoresOnLine.
• Pay $202,400 for restitution to California consumers who submit complaints within 90 days.
• Cancel all outstanding financing contracts for consumers who have complained.
• StoresOnLine will also send a letter to all California purchasers who have bought since January 1, 2008, offering them a 15-day period within which to cancel the transaction and receive a refund.
• Register with the state as a seller of Seller Assisted Marketing Plans
• Provide a 15-day right to cancel for purchasers over the age of 65
• Disclose clearly the circumstances under which StoreOnLine will charge consumers a web site hosting fee, and provide consumers the opportunity to opt out of hosting websites with Imergent, Inc. and Stores On Line.
• Provide the Attorney General’s Office with recordings of sales presentations and notify the Attorney General and Ventura County District Attorney’s Office when sales presentations take place in California, so they can be monitored.

These types of schemes are promoted on TV infomercials, on the Internet, by direct mail, at trade shows, at invitation-only seminars, and through ads that may appear in the classified sections of newspapers or magazines. The ads promise big earnings, and promise that no selling or other experience is necessary.

If you believe you are a victim and have not yet made a complaint to the Attorney General’s Office, you may be entitled to restitution if you submit a complaint within 90 days.

To submit a complaint with the Attorney General’s Office, please file a complaint online at http://ag.ca.gov/consumers/general.php or call the Public Inquiry Unit at 1-800-952-5225.

San Diego -- Attorney General Edmund G. Brown Jr. today filed a lawsuit to stop the Contractors Asset Protection Association, Inc. from engaging in a “sophisticated and fraudulent scheme” to cheat the state workers compensation system.

“This company falsely promised its clients that if they gave their employees empty titles and worthless shares of stock they could avoid tens of thousands of dollars in workers compensation premiums,” Attorney General Brown said. “But you can’t simply call a security guard a vice president and avoid complying with the law through a sophisticated and fraudulent scheme.”

This lawsuit seeks a permanent injunction barring Contractors Asset Protection Association, Inc. (ConAPA) and its founder-president, Eugene Magre from engaging in unfair and deceptive business practices in violation of sections 17200 and 17500 of the California code. The lawsuit also seeks restitution and civil penalties of no less than $300,000.

The lawsuit alleges that ConAPA sought to cynically exploit a legal exception to the workers compensation law, where directors of a corporation who are also the sole shareholders can exempt themselves from workers’ compensation coverage.

Under this scheme, ConAPA marketed and advertised an unlawful business plan urging employers to misclassify rank-and-file employees as “corporate officers” and issue them nominal shares of company stock so as to avoid paying workers’ compensation insurance premiums. For example, housekeepers, cooks, security guards, maintenance men, roofers, and construction laborers were named as “vice-presidents” and issued worthless shares of non-negotiable stock.

Despite the titles, many workers were not assigned any managerial or administrative duties and performed the same rank-and-file duties for the same pay that they performed prior to their “promotion.”

ConAPA ensured that its clients were able to prevent their new “officer-shareholders” from gaining control over the business. Employees were also required to sell their shares back to the company if they left the company.

Some ConAPA clients created “dummy” corporations populated by rank-and-file “officer-shareholders” that held no real assets, and existed solely for the purpose of offering their officers back to the original client company as rank-and-file workers who were ostensibly exempt from workers’ compensation.

ConAPA told its clients that this business model was legal, and implied that the program had been scrutinized and approved by several state authorities, which it had not.

The company has approximately 40 active clients, and has had as many as 200 clients in the past that employed their business model.

A copy of the complaint is attached.

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SACRAMENTO- Attorney General Edmund G. Brown Jr. today announced an agreement requiring Bayer Corporation to stop a “deceptive ad campaign” regarding an oral contraceptive, “Yaz,” and obligating the company to spend $20 million publicly correcting misleading assertions about the product.

“Bayer’s deceptive ad campaign led young women to believe that its oral contraceptive would cure symptoms for which it was not approved for use,” Attorney General Brown said. “This judgment modification forces the company to stop making those claims and spend $20 million correcting misleading assertions about the product.”

Bayer claimed the drug could treat symptoms related to premenstrual syndrome (PMS), and acne, in addition to anxiety, tension, irritability, moodiness, fatigue, headaches, and muscle aches. None of these claims have been approved by the Food and Drug Administration (FDA).

In a television ad, for instance, Bayer claimed that Yaz “can help keep your skin clear,” despite the fact that clinical studies have not concluded that taking Yaz results in acne-free skin.

The Attorney General’s Office contends that the advertisements for Yaz violated a 2007 agreement with Bayer after the company failed to adequately disclose safety risks associated with the use of Baycol, a drug used to lower cholesterol, which was pulled from the market in August 2001. The agreement required future marketing, sale, and promotion of pharmaceutical and biological products to comply with all legal requirements, and prohibited Bayer from making false or misleading claims relating to any products sold in the United States.

In addition to adhering to the 2007 judgment, the company agreed to:
• Conduct a $20 million corrective advertising campaign consisting of a television advertisement and a print advertisement that have been approved by the FDA’s Division of Drug Marketing, Advertising, and Communications (DDMAC) and reviewed by the Attorneys General involved in the suit.
• The television ad must be broadcast on national cable and network television.
• The print ad must be published in magazines with national distribution.
• Submit all new Direct to Consumer television ad campaigns for Yaz to FDA for pre-review.
• Cease any and all claims about the drug that are not FDA-approved.
• Submit an annual report to each participating attorney general’s office.

The States joining California’s agreement are; Arizona, Arkansas, Connecticut, Delaware, Florida, Idaho, Illinois, Iowa, Kansas, Kentucky, Maine, Maryland, Massachusetts, Michigan, Mississippi, Montana, Nevada, North Carolina, Ohio, Oregon, Pennsylvania, South Dakota, Tennessee, Texas, Washington, and Wisconsin.

The Modification of Judgment and the October 2008 Warning Letter are attached.

FOR IMMEDIATE RELEASE
Wednesday, February 2, 2009
Contact: Christine Gasparac (916) 324-5500

Brown Sues Drug Makers that Conspired to
Keep Generic Testosterone Supplements off Shelves

LOS ANGELES – California Attorney General Edmund G. Brown Jr. and the Federal Trade Commission today filed an antitrust lawsuit against four pharmaceutical companies that conspired to monopolize the sale of a testosterone supplement in a “predatory move” to reap huge profits at the expense of consumers.

“The companies plotted to keep cheap generic drugs off the market, costing consumers millions,” Attorney General Brown said. “This was a predatory move pure and simple, increasing drug company profits at the expense of critically ill patients.”

Testosterone supplements like AndroGel can prevent muscle loss, fatigue or erectile dysfunction in critically ill patients suffering from HIV/AIDS, diabetes, and advanced age.

The lawsuit contends that Solvay Pharmaceuticals illegally colluded with three other pharmaceutical companies -- Watson, Par and Paddock Laboratories -- to keep the three companies from producing generic alternatives to its testosterone supplement.

In return, Solvay agreed to pay Watson and the other drug manufacturers millions of dollars over several years. With this agreement, the drug companies sought to protect the monopoly position of AndroGel, forcing consumers to pay artificially high prices for the drug while the companies shared the extraordinary profits. Solvay Pharmaceuticals manufactures and distributes a testosterone supplement called AndroGel with annual sales exceeding $400 million in 2007.

Background
In 2003, Watson Pharmaceuticals and Par Pharmaceutical Companies, Solvay’s competitors, sought approval from the Food and Drug Administration to make and sell generic versions of AndroGel. These companies received final approval from the FDA. If they had begun to sell generic alternatives, Solvay would have seen a significant reduction in its profits from AndroGel sales. Typically, when generic alternatives are introduced in the market, the prices of brand name drugs are reduced by 50% to 80%. The price for AndroGel is $225.01 for a box of 150 individual units.

Without generics on the market, consumers and health insurance programs must pay more for branded medications. Pharmaceutical monopolies cost the state, its citizens and private insurers millions of dollars each year.

Attorney General Brown and the Federal Trade Commission filed a lawsuit in the U.S. District Court for the Central District of California in Los Angeles against the following pharmaceutical companies:

• Solvay Pharmaceuticals, Inc.
• Paddock Laboratories, Inc.
• Par Pharmaceutical Companies, Inc.
• Watson Pharmaceuticals, Inc.

Today’s lawsuit alleges that Solvay and the three pharmaceutical companies violated U.S. and California antitrust laws and laws banning unfair competition. The lawsuit seeks to:

• Declare the agreements between Solvay, Paddock, Par and Watson illegal and void.
• Permanently enjoin the defendants from similar and related conduct in the future.
• Fine the defendants $2500 for each prescription and user of AndroGel in California under the California Unfair Competition Act.

The lawsuit is attached.

SACRAMENTO- California Attorney General Edmund G. Brown Jr. today announced an agreement between 34 state attorneys general and Dell under which the company will provide restitution to customers who experienced problems with the company’s financing promotions, rebate offers, technical support and repair policies. The agreement comes after the company failed to “fairly and honestly” provide information and rebates to its customers.

“There is an obligation to ensure that advertised deals are fairly and honestly applied,” Attorney General Brown said. “This settlement provides great restitution to Dell customers who experienced difficulties with the company’s less-than-ideal customer service practices of not disclosing hidden credit fees and failing to fulfill warranty work on its products.”

An investigation into Dell’s sales practices showed the company had failed to deliver on the terms that buyers had agreed to. Some consumers applied for zero-percent financing then were charged higher interest rates, others had trouble obtaining warranty service on their Dell products.

Under the agreement, Texas-based Dell, Inc., and its subsidiary, Dell Financial Services LLC, agreed to pay $1.5 million in restitution to eligible consumers who file claims postmarked by April 13, 2009. Dell will pay an additional $1.85 million to the states for reimbursement of legal costs and investigative resources. California will receive $75,000 in attorneys’ fees and costs.

Consumers may be eligible for restitution if:
• Have a valid complaint concerning a product that was purchased between April 1, 2005, and April 13, 2009.
• Dell owes them money.

Dell agreed to the following:
• Disclose that the majority of consumers who apply won’t qualify for the best annual percentage rate (APR)
• Disclose the range of initial APRs that consumers who are not considered the “most qualified borrowers” are likely to receive.
• Inform consumers applying for promotional financing that the application is for a revolving open credit account, that minimum monthly payments are required and that approval of the account does not guarantee that the consumer will also qualify for conditional financing promotions (such as zero-percent interest for 90 days).
• Explain how finance charges are calculated, disclose any penalties and inform the consumer whether subsequent purchases made using the credit account will be subject to the same or different financing terms.
• At the time of credit acceptance, disclose whether the applicant has qualified for any conditional financing promotion.
• Fulfill its warranty obligations within 30 days from the date of notification or receipt of a defective product.
• Disclose whether phone-based troubleshooting or remote diagnosis is required before Dell will provide on-site repair or warranty-related service.
• If a rebate is available, provide the necessary rebate documentation at the time product is delivered or the service is provided
• Mail rebates within the specified timeframe, or within 30 days if no date is specified.

• Inform consumers of their right to cancel orders made with the Dell Credit Account within three days after receiving final credit approval and the written terms and conditions.

• Dell can use the term “award-winning” to describe its customer service only if the company received such an award within the past 18 months.

Consumers who believe they meet the requirements for reimbursement should contact the California Attorney General’s Public Inquiry Unit at 1-800-952-5225 or visit the website at www.ag.ca.gov/consumers/general.php to obtain the mandatory claim form attached below. Consumer then must return the completed claim form postmarked, or faxed to 916-323-5341, no later than April 13, 2009, to be eligible for reimbursement.

The amount of money issued to individual consumers depends on the number of eligible recipients and the total amount claimed.

The following states participated in the settlement: Arizona, Arkansas, Connecticut, Delaware, Florida, Illinois, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Utah, Washington, West Virginia, Vermont, and Wisconsin

A Claim Form and Frequently Asked Questions list are attached.

FOR IMMEDIATE RELEASE
January 22, 2009
Contact: Christine Gasparac (916) 324-5500

Attorney General Brown Sues Bakersfield Contractor for Violating Rights of Workers

BAKERSFIELD – California Attorney General Edmund G. Brown Jr. today filed a lawsuit to recover $4.13 million in lost wages, benefits and penalties from a drywall contractor who “cruelly and illegally” violated the rights of its workers by prohibiting them from taking rest breaks, denying overtime pay and forcing them to work without safety equipment.

“This company failed to provide safe working conditions for its workers and then cheated them out of overtime pay and benefits,” Attorney General Brown said. “Employees were cruelly and illegally forced to work long hours without state-required breaks or compensation.”

The lawsuit, filed in Kern County Superior Court against Bakersfield-based Charles Evleth Construction, alleges that because the firm did not pay its workers a fair wage or pay state taxes, Evleth had an unfair advantage over its competitors and could underbid them for jobs.

The lawsuit alleges that Charles Evleth Construction, Inc.:

• Failed to provide its employees with overtime pay, instead paying them a daily flat rate.
• Prevented its employees from taking breaks.
• Withheld wages from employees and used the savings for incentive pay for supervisors.
• Failed to provide its employees with work tools, forcing them to provide their own.
• Failed to properly provide workers’ compensation coverage for their employees.
• Denied its employees a correct, itemized written statement of their wages.
• Paid its employees with cash, avoiding state and federal taxes, state unemployment insurance and the state disability fund payments.
• Failed to provide its employees with required safety equipment.

Attorney General Brown seeks $3.13 million in restitution for workers and $1 million in civil penalties for violations of California law requiring employers to provide overtime pay, breaks, workers’ compensation and other benefits for employees. The lawsuit also seeks a permanent injunction against future violations.

The Underground Economy Unit of the Attorney General’s Office conducted the investigation. The Unit interviewed many of Evleth’s employees and found nearly 1,200 violations of California law.

Today’s action follows lawsuits filed last fall against trucking companies in Los Angeles and is part of the Attorney General’s ongoing crackdown on businesses that evade taxes and fail to provide employees with state-required benefits.

The lawsuit is attached.

FOR IMMEDIATE RELEASE
January 16, 2009
Contact: Christine Gasparac (916) 324-5500

Brown Joined by Eight States in Seeking to Thwart
Bush Administration Effort to Gut the Endangered Species Act

SAN FRANCISCO – California Attorney General Edmund G. Brown Jr.’s effort to overturn an eleventh hour move by the Bush Administration to gut provisions in the Endangered Species Act received a major boost today when eight states – Connecticut, Delaware, Maryland, Massachusetts, New Jersey, New York, Oregon, and Rhode Island – signed on to his lawsuit.

“There is broad and deep opposition to the Bush Administration’s effort to gut the Endangered Species Act,” Attorney General Brown said. “It is my hope that the new Obama Administration will take a fresh look at these rules and restore the independent scientific review of projects affecting endangered species, which has been a hallmark of the ESA for 35 years.”

The new regulations, initially proposed by the Departments of the Interior and Commerce in August 2008, largely eliminate a requirement in the Endangered Species Act that mandates scientific review of federal agency decisions that might affect endangered and threatened species and their habitats.

The changes allow the Fish and Wildlife Service to permit mining, logging, and other commercial activities to take place on federal land and other areas subject to federal regulatory control without review or comment from federal wildlife biologists on the environmental effects of such activities on endangered and threatened species and their habitat.

The new regulations are the most significant changes to the Endangered Species Act and its implementing regulations in over 20 years. Now that these regulations have been adopted, many decisions on whether to permit commercial activity on federal land or issue federal permits or licenses will be made at the sole discretion of federal agency project proponents, without input from biological experts at the federal wildlife agencies. Federal project agencies generally lack adequate biological expertise and have incentives to conclude that their projects will not have adverse affects on endangered and threatened species and their habitat.

The changes also eliminate the requirement to consider the effects of greenhouse gas emissions on species and ecosystems from proposed federal projects. Federal agencies now no longer need to consider the possible adverse impacts on species like the polar bear from commercial projects that require federal approval or funding such as highway construction and coal-fired power plants.

The lawsuit, which was filed last December in the U.S. District Court for the Northern District of California, alleges that the Bush Administration:

• Violated the Endangered Species Act by adopting regulations that are inconsistent with that statute;
• Violated the National Environmental Policy Act by failing to consider the environmental ramifications of the proposed new regulations; and
• Violated the Administrative Procedures Act by not adequately considering public comments submitted by the Attorney General and numerous other organizations and concerned citizens.

The Attorney General’s lawsuit follows three similar lawsuits challenging the regulations filed earlier by environmental groups.

Attorney General Brown’s amended complaint challenging the regulations and comments on the proposed regulations are attached.

SACRAMENTO- Attorney General Edmund G. Brown Jr. today announced that California will recover $112 million for its Medi-Cal program as part of a national settlement with Eli Lilly and Company for the unlawful off-label marketing of its anti-psychotic drug Zyprexa, which the company aggressively marketed for such unapproved uses such as treatment for depression, anxiety, irritability, disrupted sleep, nausea and gambling.

“This settlement means that Eli Lilly can no longer reap massive profits by aggressively marketing this drug for unapproved uses at the expense of state health care programs for seniors and the infirm,” Attorney General Brown said. “California’s Medi-Cal program will receive almost $112 million, which is more than welcome at a time when the state faces massive budget deficits.”

Eighteen percent of the $112 million recovered for the Medi-Cal program will go to relators (whistleblowers) – the remainder will be split between the State, which will receive $54 million and the federal government, which will receive $41 million.

Beginning in 2001, Eli Lilly launched a marketing campaign called “Viva Zyprexa!” which encouraged physicians to prescribe Zyprexa for children, adolescents, and dementia patients.

In October 2008, the California Attorney General entered a settlement with Eli Lilly over the Zyprexa marketing campaign. In his original complaint, Attorney General Brown alleged that Eli Lilly engaged in unfair and deceptive practices when it marketed Zyprexa for off-label uses and failed to adequately disclose the drug’s potential side effects (including diabetes and hyperglycemia) to healthcare providers.

Under this settlement, Eli Lilly agreed to change its marketing practices and to cease promotion of its off-label uses. Off-label uses are those not approved by the FDA when it approves the sale and use of a particular drug. Physicians are allowed to prescribe drugs for off-label uses, but federal law prohibits pharmaceutical manufacturers from marketing products for off-label uses.

The total settlement is $1.415 billion—the largest recovery in a health care fraud investigation in U.S. history. The settlement includes $800 million in civil damages to be paid to the States and $615 million as a result of criminal charges brought against the company for illegal marketing.

Although both California and the U.S. contribute 50% to the funding of the Medi-Cal program, California’s share is larger than the federal share due to the federal Deficit Reduction Act, which provides monetary incentives to states to use False Claims Acts to pursue Medicaid fraud.

SACRAMENTO—California Attorney General Edmund G. Brown Jr. today joined a lawsuit against the United States Department of Health and Human Services (DHHS) to halt the implementation of a Bush Administration “midnight regulation” that could potentially “endanger a woman’s right to contraception,” including emergency contraception given to rape victims.

“California has carefully and thoughtfully struck a balance between the right to use contraceptives and the right of healthcare providers to abstain from administering them,” Attorney General Brown said. “This illegal and stealth regulation threatens to erode women’s hard fought privacy rights.”

Poised to take effect on the day of President-Elect Barack Obama’s inauguration, the regulation undercuts state contraception laws and jeopardizes billions of dollars in federal public health money.

On December 19, 2008, DHHS issued the regulation, one of several highly controversial “midnight regulations” issued in the waning days of the Bush Administration. The regulation purports to implement three federal funding restrictions designed to force states to permit healthcare providers to refuse to provide certain health care to which the providers have a religious, moral or ethical objection. If California does not comply with the new federal regulation, it stands to lose millions, if not billions, in federal funding.

One of the most objectionable aspects of the new federal regulation is its failure to define the word “abortion.” An earlier draft contained a very broad definition that would have clearly included some forms of contraception, including emergency contraception. In comments filed with the DHHS in September, Attorney General Brown pointed out that the failure to include a definition of so critical a term would allow the term to be “improperly extended beyond the scope of the authorizing statutes and does not afford meaningful protection for a woman’s access to other healthcare services, including those involving contraception and fertility treatments.” Instead of addressing widespread concern about the term, the DHHS eliminated the definition entirely.

California law allows healthcare workers and providers to object to dispensing contraception or performing abortions for moral or ethical reasons if they notify their employer of their objection in writing. The new federal regulation would reduce the healthcare protections afforded to women in California by allowing a healthcare provider to refuse procedures or referrals to which the provider objects without notifying the employer, the facility or the patient.

In today’s lawsuit, California joins six other states in challenging the regulation on the grounds that it :
• Fails to define “abortion.” By failing to define the term, DHHS created unnecessary ambiguity, allowing the term to be interpreted as encompassing all forms of contraception.
• Deprives patients of the right to receive factual and objective medical information and access to medical information.
• Overrides states’ rights to promote the general health and welfare of their citizens.

“We applaud Attorney General Jerry Brown’s proactive stance in protecting patients’ access to vital health care services and information,” said Kathy Kneer, president and CEO of Planned Parenthood Affiliates of California. “This HHS regulation poses a serious barrier to the states’ enforcement of their laws protecting patients.”

The complaint and accompanying exhibits are attached.