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Company Founded By Kilgore Donor Faces Civil Penalty

Posted on: Thursday, 3 November 2005, 12:00 CST

By Christina Nuckols, The Virginian-Pilot, Norfolk, Va.

Nov. 3--RICHMOND -- The pharmaceutical company founded by a top political donor to gubernatorial candidate Jerry W. Kilgore agreed this week to pay $124.1 million to resolve claims it overcharged the government for drugs.

The U.S. Department of Justice released a statement Tuesday saying that King Pharmaceuticals of Bristol, Tenn., engaged in "systematic and widespread misreporting of its drug prices to the government" from 1994 through 2002.

The payment will be divided between federal agencies and states that purchased drugs from King during that period. Emily Lucier, a spokeswoman for Virginia Attorney General Judith Jagdmann, said the state will collect $1 million as its share of the King payment.

King founder John M. Gregory, also of Bristol , served as chairman and CEO of the company until he retired in 2002.

Gregory has contributed $325,000 to Kilgore's campaign since 2002 through personal contributions and donations made through an investment company he owns.

Democrat Timothy M. Kaine has run television ads criticizing Kilgore for accepting gifts from Gregory. Kaine spokeswoman Delacey Skinner said Kilgore should have initiated a state-level investigation of King.

A spokesman for Kilgore said Virginia did participate in the investigation through the National Association of Medicaid Fraud Control Units.

Tim Murtaugh noted that the donations to Kilgore were made by Gregory as an individual and did not come from King Pharmaceuticals.

"John Gregory is an outstanding philanthropic Virginian who has chosen to support candidates who reflect his own faith-based beliefs," Murtaugh said.

Gregory did not return telephone calls to his home and business. He has given to several Republican candidates in Virginia and Tennessee, primarily those who have publicly identified themselves as conservative Christians.

Charles Miller, a justice department spokesman, said the payment announced this week is a civil penalty, and no criminal charges are being filed against the company or any current or former officer.

Miller said a whistle-blower alerted federal investigators to inaccurate pricing of the company's products. He said the whistle-blower will receive a share of the King payment, but that amount has not yet been determined.

Other companies that have faced federal scrutiny for their marketing practices also are contributing to the governor's race. GlaxoSmithKline and Eli Lilly and Co., have given Kaine $3,000 and contributed another $15,000 to a political action committee that supports him and other Democratic candidates. Those two companies have given Kilgore $30,000.

GlaxoSmithKline paid $150 million last month to resolve an investigation into its pricing of drugs for the Medicare program. A federal investigation into Eli Lilly's marketing practices is ongoing.

According to the justice department's release, King is accused of overcharging for drugs sold to the Veterans Administration and to Medicaid, a health care program for low-income people funded by the federal and state governments. Half of the $124.1 million payment represents the amount King and federal investigators have agreed is owed to government programs. The remaining half is penalties and interest.

Drug companies are required to set prices charged to government programs based on a formula that incorporates the average price charged to all customers and the lowest price. According to the settlement agreement with King, the firm knowingly miscalculated the formula, and didn't properly train employees to make those calculations.

Brian A. Markison, president of King, issued a statement saying that "none of these issues resulted from intentional misconduct." He said the company "has cooperated fully with the government" in the investigation and reported its own findings of internal control problems.

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Copyright (c) 2005, The Virginian-Pilot, Norfolk, Va.

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LLY, KG,

Source: The Virginian-Pilot

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