Dust Storm: Omnicare Accused of Selling Contaminated Drugs to Nursing Homes

Omnicare (OCR), the nation's dominant pharmacy supplier to nursing homes, served contaminated drugs to its 1.4 million elderly customers because it did not want to spend $500,000 to install a closed air circulation system in its penicillin repackaging plant, according to a whistleblower lawsuit.

The suit was brought by Omnicare's former senior director of operations at its Heartland Repack Services unit in Toledo, Ohio. It tells a classic tale of how nickel-and-dime policies at the company allegedly led to liabilities in the millions of dollars. About 54 percent of Omnicare's $6.5 billion in annual revenues at the time came from Medicare and Medicaid reimbursements. Part of those sales are now at risk, the suit claims, because it is illegal to sell contaminated drugs to the government. The suit was unsealed July 29 at Omnicare's request, so that it may oppose the claim. UPDATE: Omnicare declined to comment.

Omnicare takes in up to 200 million doses of penicillin through its Heartland repack unit annually, according to the plaintiff, Barry Rostholder. It repacks pills and powder into its own blister packs, which -- in theory -- are quicker and safer to administer in nursing homes. Because the packs speed Omnicare's operations, it can process more drugs and increase the gross amount of reimbursement it ultimately gets from taxpayers, Rostholder says. The problem is that the repackaging kicks up penicillin "beta-lactam" dust, which coats everything inside the plant. As Omnicare is packaging other drugs in the same plant, all those products were contaminated with the penicillin dust, he alleges.

In 2004, Omnicare svp Denis Holmes asked Rostholder to figure out the logistics of repackaging penicillin at their plant. Rostholder did some research and discovered that another nearby Omnicare unit, Heartland Healthcare Services, was already doing it. He also discovered that under federal law 21 C.F.R. § 211.42(d), penicillin may not be packaged in the same facility where other non-penicillin drugs are packaged for human use.

The cost of making Heartland compliant -- by installing a ventilation system that provided an separate air supply for the penicillin operation -- was about $500,000, Rostholder told his boss in a memo that year.

His memo was ignored, the suit claims, and Omnicare began repackaging penicillin in Rostholder's facility in addition to its other facility. The site's garage doors were kept open about 25 percent of the time, and workers shared common break areas, entrances, exits, and the same ventilation and heating/cooling system. Penicillin dust floated everywhere, he claims.

Dust "on every horizontal surface"

Disgusted, Rostholder resigned in February 2006 and literally dropped a dime on his former employer: Using a payphone at the Cleveland Hopkins airport in Ohio he called the FDA to tell them what was happening at Omnicare. The FDA's response, at least at first, was comically inept: Inspectors visited the plant and asked if Omnicare was repackaging penicillin. Upon being wrongly told no, they left, the suit says:

Acting on Relator's tip, FDA inspectors visited Heartland Repack to determine if penicillin was being repackaged alongside other drugs. Employees in the repackaging unit responded that "no penicillin was being repackaged in the Repackaging Division" â€" a statement that was misleading because it failed to disclose that penicillin was being repacked in the pharmacy located in the same building, with a common air-handling system, common doorways and other facilities. Hearing this response, the FDA representatives left the premises.

... this Warning Letter is being issued because your corrective actions have not yet been completed, and because of your firm's compliance history (including inspections in 1996, 1997, 2004, and 2006 that documented CGMP deficiencies and multiple recalls resulting from poor CGMP controls), the serious nature of the observed violations, and the significant risk to consumers associated with the CGMP deviations involving potential product contamination and product mix-up.

It's not clear how big Omnicare's potential liability in the case is -- that would depend on how many prescriptions from Heartland's sites were reimbursed by Medicare and Medicaid. Previously, Omnicare has spent $168.5 million settling overbilling claims.

Even if the cost is merely limited to the write-down of $19 million in inventory, the additional legal cost of complying with the FDA's demands will now far exceed the $500,000 it would have taken to do the job right the first time around.

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