U.S. Files Suit Against Discount Owner for Accepting Kickbacks

The U.S. Department of Justice filed a civil suit against Rubin Schron, one of the members of group of controlling ownership of Israel Discount Bank, accusing him, companies in his control and his advisers and associates for accepting kickbacks in return for pharmacy services contracts with his nursing-home chains. The government is continuing to investigate the two nursing home chains, Mariner Health Care and SavaSeniorCare Administrative Services, and the heads of the businesses, Leonard Grunstein, Murray Forman, and Schron. Schron, along with the Bronfman family, owns the controlling 26% of Discount. He owns 9% of Discount shares.

Israel's Teva Pharmaceuticals is also involved in the case, as its Ivax Pharmaceuticals subsidiary has agreed to pay $14 million to settle its part in the case.

Omnicare, the largest U.S. provider of pharmacy services to nursing homes, will pay $98 million and Ivax will pay $14 million to settle allegations of kickbacks, the Justice Department announced earlier this week. The suit against Schron and his associates was actually filed in Boston in May of this year, but was only unsealed Tuesday after an agreement was reached with Omnicare and Ivax.

The department said Omnicare both solicited and paid kickbacks. Omnicare allegedly asked Ivax to pay $8 million in exchange for agreeing to purchase $50 million in Ivax drugs, the DOJ said. It also accused Omnicare of soliciting kickbacks from Johnson & Johnson.

According to the government's complaint against Schron and his companies and associates: "The defendants attempted to disguise the $50 million kickback as a payment to acquire a small Mariner Health Care business unit that had only two employees and was worth far less than $50 million. After they became aware of the government's investigation, Grunstein, Forman, and Schron allegedly created backdated documents in a further attempt to hide the kickback." These allegations are detailed in a separate complaint that was unsealed on Tuesday.

Omnicare denies the government's claims and denies any liability but said it cooperated with the review. It agreed to the basic terms of the settlement in late June and finalized it on Tuesday. The investigation began as a whistleblower lawsuit in 2002. Omnicare said it settled the allegations without admitting any wrongdoing. Ivax also denies any liability and Teva did not immediately respond to a request on the matter.

Amnon Lorch of the Yigal Arnon law firm said yesterday: "The civil suit that was filed in Boston in May 2009 relates to a deal from 2004 without any conflict of interests whatsoever, that even according to the claims in the suit in the U.S. passed a thorough investigation and was approved by a range of experienced lawyers and advisers. Mr. Rubin Schron believes he acted according to the law and in good faith based on the advice of professional experts, in a good-faith deal for a fair price," said Lorch.

"Omnicare and other nursing home pharmacies specialize in providing drugs to elderly patients who are often suffering from Alzheimer's disease or dementia and who have little or no control over the drugs they receive," said Michael Loucks, Acting U.S. Attorney for the District of Massachusetts. "Today's settlement provides a strong message to these pharmacies, as well as to pharmaceutical companies and nursing homes, that the government will not tolerate the payment of kickbacks which can distort proper medical judgment and put profits ahead of good medical care."

Of the $112 million settlement, $68.5 million will be paid to the U.S. government, and $43.5 million will go to Medicaid to cover claims by states that were affected.