Ex-WellPoint VP sues, says he was axed for testifying in drug case

WellPoint Inc. prides itself on working to hold down the rising cost of health care. But to hear one of its former vice
presidents tell it, the company retaliated against him when he worked to do just that.

In a lawsuit against WellPoint, Dr. Randy Axelrod
claims his former employer forced him out when he tried to curtail a drugmaker’s controversial pricing
strategy that was costing WellPoint money.

Axelrod says the Indianapolis-based health insurer dismissed him for testifying in court against pharmaceutical company Amgen
Inc. He even claims California-based Amgen, through its board member Leonard D. Schaeffer, "induced" WellPoint to
get rid of Axelrod.

Schaeffer was chairman of WellPoint Inc. from November 2004 until November 2005.

"Amgen bragged about and expressed great pleasure in taking responsibility for [Axelrod’s]
termination," wrote Axelrod’s attorney, Mark Waterfill, in a court filing.

Axelrod, 51, sued WellPoint last year in Marion
County, charging wrongful termination. He sued Amgen in March in federal court in Virginia, charging
wrongful interference with his employment. The cases recently were combined in Marion Superior Court.

Axelrod wants his old job back, pay he would
have received, and punitive damages.

Representatives of both Amgen and WellPoint declined to comment for this story. Amgen did not respond to a request to speak
to Schaeffer, and he could not be reached through other means.

What isn’t clear in Axelrod’s story is why WellPoint would do a favor for Amgen that seems to
go against WellPoint’s own interests. It’s also unclear how Axelrod learned about Amgen’s influence.

In an interview, Axelrod didn’t directly answer
either question. But, he said, "I would certainly not go to the expense and the time and the effort
to file cases both in Virginia and now Indianapolis if I didn’t have what I felt like was compelling
information."

Axelrod
was vice president of health care management for WellPoint’s east region. Working out of Virginia, he helped to set
the prices WellPoint agreed to pay to doctors and pharmaceutical companies in such states as Connecticut, Maine, New York
and Virginia.

In 2005,
while reviewing claims from WellPoint’s customers, Axelrod concluded that Amgen was selling three of its cancer drugs
to doctors in a bundle and giving rebates to doctors for buying them that way. The approach, Axelrod said, encouraged doctors
to prescribe more of one of the drugs–a drug that faced fierce competition from a competitor.

This plan was costing WellPoint more money, Axelrod contends. Amgen’s Aranesp drug for boosting
red-blood-cell counts in chemotherapy patients cost anywhere from 19 percent to 52 percent more than
a competing drug called Procrit, according to studies later revealed in court documents. Those studies
were highlighted by the maker of Procrit, New Jersey-based Ortho Biotech Products LP, a unit of Johnson
& Johnson.

Amgen vigorously
denied these analyses. It argued that Aranesp cost less per unit than Procrit. The two companies fought each
other for nearly three years in a lawsuit brought by Ortho Biotech charging the pricing strategy violated anti-trust law.
They settled in July, with Amgen paying Ortho Biotech $200 million, but admitting no wrong.

But while the litigation was still hot, officials from Ortho Biotech asked Axelrod to testify
on the company’s behalf. Axelrod said he checked with a WellPoint attorney before saying yes.

When he testified at a deposition in May 2006,
WellPoint sent one of its attorneys on Axelrod’s behalf.

Axelrod testified again on June 14, 2006, at a court hearing before a federal judge in Newark,
N.J.

Less than a month
later, on July 9, 2006, Axelrod’s boss at WellPoint told him she was replacing him in his position, he said.
And the next day, Axelrod claims, a WellPoint human resources officer told him he could not reapply for another job within
WellPoint.

The news stunned
Axelrod, who claims he had received several promotions and glowing performance reviews during his time at
WellPoint. In his lawsuit, he quotes a former boss’s evaluation, saying Axelrod’s performance that year "was without
question a stellar one."

Axelrod left WellPoint in August 2006, but not before a fight over his separation agreement. Axelrod
claims WellPoint asked him to sign a form that stated he was resigning. When Axelrod refused to sign
because he was, in fact, not resigning, he claims WellPoint withheld his severance compensation and fully
vested pension funds.

WellPoint attorneys Kenneth Yerkes and Hannesson Murphy, in a brief filed in Marion County, deny all of Axelrod’s claims about
his separation agreement.

After leaving WellPoint, Axelrod said, he caught wind that Amgen had pushed for WellPoint to terminate him. But he declined
to reveal the nature of his evidence because of his pending lawsuit.

"The specifics of those have not even been vetted in depositions. And I think that would
be more appropriate," he said.

Explosive issue

Whether Axelrod’s version of events is true or not, it’s clear his testimony touched on an explosive issue between Amgen and
Ortho Biotech.

The cancer
drugs Amgen and Ortho Biotech were fighting over were huge moneymakers. In 2006, Aranesp raked in $4.1 billion
in sales–just four years after it hit the market.

And since the introduction of Aranesp, annual sales of Procrit had declined 25 percent, to less
than $3.2 billion.

The
drugs boost red blood cells while patients are going through chemotherapy. Cancer doctors buy these intravenous drugs
and administer them to their patients in their clinics. Then the doctors bill an insurance company or Medicare for reimbursement.

One dose of the drugs ranges in cost from $1,500
to $3,000, according to prices listed on drugstore.com.

But the pricing is far more complex than that. Companies like Amgen and Ortho Biotech offer a
web of rebates and volume discounts to cancer doctors, according to Steve Bainaka, executive director
of oncology for American Health Network. He handles contracting for eight cancer doctors that are part
of the Indianapolis-based doctor network.

"There’s so much variability out there," he said.

The federal Medicare program tries to aggregate all those pricing contracts into an average sales
price figure, or ASP. It updates that number for each drug every quarter.

The ASP determines the amount of money Medicare will reimburse doctors for the cost of drugs.
Most private health insurers use Medicare’s reimbursement rates as a guide to set their own rates.

Medicare reimburses cancer doctors for cancer
drugs at the ASP plus 6 percent. WellPoint pays what Medicare pays plus another 5 percent.

What Amgen did, beginning in January 2005, was
to offer rebates on its drugs Neulasta and Neupogen, both of which boost white-blood-cell counts, if
cancer doctors bought a certain volume of Aranesp.

Because Amgen faced no competition for Neulasta and Neupogen, it could price those drugs profitably,
even after the discounts, argued Ortho Biotech in court documents. And because Aranesp had no rebates
directly, its average sales price stayed high. That meant higher profit margins both for doctors and
for Amgen.

Because cancer
doctors typically prescribed both Neulasta and Aranesp to their patients at the same time, they received greater
reimbursement from Medicare and insurers like WellPoint if they prescribed both Amgen drugs. If they prescribed more of Ortho
Biotech’s Procrit, they jeopardized their rebates on Neulasta.

"It’s difficult to financially break even if you’re using part of one product and part of
another product," Bainaka said. American Health Network’s oncologists use mostly Aranesp now, he
said, but they do so because it does not need to be administered as frequently as Procrit.

Axelrod concluded that Amgen’s deal was increasing
the market share for Aranesp while keeping its price higher than Procrit. And that was costing WellPoint
money, he determined.

He helped to implement a pricing policy that increased WellPoint’s reimbursement for Procrit to ASP plus 35 percent, according
to court documents.

However,
it does not appear that WellPoint applied that policy across the country. Bainaka said he did not see that offer
from WellPoint, which he said would have been "pretty unusual."

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