RPT-INSIGHT-Valeant played a key role in building, operating Philidor RX

(Repeating for additional clients without changes to text)
By Carl O'Donnell
NEW YORK, Nov 11 (Reuters) - A small cadre of employees at
Valeant Pharmaceuticals (N:VRX) International were deeply
involved in directing the daily operations of a specialty
pharmacy that has drawn scrutiny for its billing practices,
according to four former employees at the pharmacy and company
documents reviewed by Reuters.
The Valeant employees worked with the founders of the
pharmacy, Philidor Rx Services, to set up the business in 2013
and expand its operations, three of the former employees said.
The Valeant employees then remained closely involved in details
of running the pharmacy.
At different points in the company's evolution, their roles
included interviewing job applicants and involvement with
billing. And the most senior of the Valeant employees, Gary
Tanner, traveled frequently between Philidor's offices in
Pennsylvania and Arizona and Valeant's U.S. headquarters in New
Jersey, three of the former employees said.
Valeant first disclosed its ties to Philidor late last
month, and concerns over the pharmacy's tactics to get insurers
to pay for Valeant medications have helped push the drugmaker's
shares more than 50 percent lower.
The new accounts of former Philidor employees and two emails
provided by one of them raise questions about the degree to
which Valeant was aware of the specialty pharmacy's methods.
For example, two Valeant employees were copied on a November
2014 email with an attachment explaining how Philidor employees
could bill the highest amount an insurance company was willing
to pay by resubmitting rejected claims at different price
points. The email, reviewed by Reuters, was sent to Tanner and a
colleague, Bijal Patel, who both used pseudonyms for their
communications within Philidor, the former employees said.
Two of the former employees said they were sometimes told by
their supervisors, also Philidor employees, to change
prescriptions from doctors to allow the pharmacy to dispense a
Valeant drug instead of a cheaper generic version.
Altering a physician's script to bill a payer for a more
expensive drug could fall afoul of some federal and state laws
designed to curtail insurance fraud and could also violate
regulations established by state boards of pharmacy, according
to Nicole Hughes Waid, an attorney at FisherBroyles LLP.
Reuters also reported last week that employees responsible
for billing insurers were told to resubmit claims rejected by a
major U.S. pharmacy benefits manager by using the billing
identification numbers of other pharmacies. That practice might
violate state pharmacy laws if it were not clear which pharmacy
was actually dispensing the drug.
In a statement, Philidor said its employees "behaved
ethically and in keeping with the highest business standards"
and that it is deeply disappointed that its ties to Valeant have
come to an end.
Valeant said that it would not address specific questions
about Philidor's practices while it conducts an internal review
of the two companies' ties. In October, Valeant told investors
it had not invested or lent money to Philidor and said it did
not "own or control" the pharmacy, though it did pay $100
million for an option to purchase it.
The former Philidor employees identified Gary Tanner as a
key figure in the pharmacy's operations. Tanner joined Valeant
in 2012, when the drugmaker bought his employer, Medicis
Pharmaceutical Corp, a maker of dermatology products, including
acne medications Solodyn and Ziana.
CNBC reported this week that a Valeant spokeswoman had
confirmed that Tanner was "Valeant's liaison with Philidor" and
that he was supervised by Laizer Kornwasser, a top Valeant
executive who reported to Chief Executive Michael Pearson (L:PSON).
Reuters could not independently confirm that report or determine
whether Kornwasser, who left Valeant in July, had any role in
Philidor's operations. Kornwasser could not be reached for
comment.
Valeant has said its interest in working closely with a
specialty pharmacy to make its drugs available to patients was
based on a pilot program run by Medicis before it was acquired.
Tanner and several other Medicis employees retained by
Valeant, including Bijal Patel and Alison Pritchet, had been
responsible for building relationships with specialty pharmacies
for Medicis prior to its purchase. After Valeant took over, all
three collaborated with Andy Davenport, who headed a marketing
firm that did work for Medicis, to establish Philidor. Davenport
is currently Philidor's CEO.
Tanner, Patel, Davenport and Pritchet did not respond to
requests for comment.
Tanner had authority "over all the people who worked at
Valeant first and then came over to Philidor," said one Philidor
former employee. Tanner worked much of the time out of
Philidor's Phoenix-area office, though he frequently visited
Valeant's offices in Bridgewater, New Jersey, the former
Philidor employees said.
In September, Philidor began requiring employees to sign
confidentiality agreements empowering the pharmacy to sue
workers who divulged information about its activities, according
to a copy of the agreement reviewed by Reuters.
Valeant provided details of its relationship with Philidor
after influential short-seller Citron Research on Oct. 21
accused the drugmaker of using Philidor to inflate revenue from
its medicines by stockpiling drugs at the pharmacy.
Valeant denied the allegation and said it was unaware of any
illegal activity at Philidor. On Oct. 26, Valeant told investors
that a committee of its directors would review the interaction
between the two companies. That review is still pending.
A few days after its investor call, Valeant said it was
severing ties with the specialty pharmacy, saying it had "lost
confidence" in Philidor after questions about its business
practices.
At least three major insurers have cut off their business
dealings with Philidor, one of them citing violations of their
contract with the pharmacy.
Separately, state prosecutors in New York and Massachusetts
are investigating Valeant over its drug pricing and programs
that provide financial assistance to help patients cover
out-of-pocket expenses for their medications.
The U.S. Department of Justice has subpoenaed the company
regarding payments and agreements by its Bausch & Lomb division
with healthcare providers, while the Federal Trade Commission is
looking into whether it illegally cornered the market for
certain contact lens components.