Investigators from the Serious Fraud Office and NHS are believed to be closing the net on up to a dozen companies and their senior executives who are said to have cheated the NHS out of hundreds of millions of pounds.
A long-running fraud investigation into suspected price-fixing on some of the most commonly prescribed NHS drugs is understood to have reached a critical stage. Charges could be brought this year against cartels suspected of a scam that involved restricting the supply of vital drugs, thus forcing the health service to put them on an emergency procurement list and pay inflated prices.
The Department of Health has so far filed three claims seeking damages for more than £150m in relation to price fixing of the blood-thinning drug warfarin as well as a class of penicillin-based antibiotics and a generic version of the anti-ulcer pill Zantac.
NHS fraud investigators have said there remain a further 30 drugs, the supply and pricing of which are yet to be forensically examined and which may lead to many more claims. Top of the list are believed to be beta-blocker atenolol, hypothyroidism pill thyroxine, and hypertension pills bendrofluazide and frusemide.
Meanwhile a parallel investigation by the Serious Fraud Office is limiting its focus to the market for warfarin and penicillin between 1996 and 2001. Operation Holbein was made public in May 2002 after the SFO launched its biggest series of raids, seizing more than a million documents and computer drives from homes and offices of people associated with six firms.
The manufacturers put under investigation were Norton Healthcare, a subsidiary of American drugs group Ivax; the British arm of Indian multinational Ranbaxy Laboratories; Generics UK, part of German group Merck; London-listed Goldshield, and Regent-GM, owned by the General Mediterranean business empire of Nadhmi Auchi, a billionaire who was convicted of corruption charges in France two years ago. Regent has since been wound up. Wholesaler Kent Pharmaceuticals was also raided.
The Guardian has learned that a second tier of companies has also been the focus of the SFO investigation. They include Galen, which was formerly listed in London but has since changed its name to Warner Chilcott and been taken private by a consortium of private equity groups in a £1.6bn deal.
Other drug firms to have attracted investigators' attention are DDSA, which has since been acquired by offshore-registered Genethics; Cox, which has since been bought by New York-listed Alpharma; Lagap, since acquired by Swiss group Novartis, and APS/Berk, now part of the Israeli firm Teva Pharmaceuticals.
Since the raids took place, investigators have taken over an entire floor at the SFO's Elm Street headquarters in London. Little has been said publicly, but a stream of seized papers have been passed to the Department of Health, feeding into its programme of civil court claims.
The parallel investigations are piling pressure on companies and individuals, with several already understood to have broken their silence and provided information to investigators in the hope of receiving concessions from prosecutors or the courts.
In April, the British arm of Indian volume drugs manufacturer Ranbaxy became the first to reach a settlement with the NHS. The company did not admit liability but has paid £4.5m in compensation and agreed to "provide cooperation in the context of ongoing proceedings".
Meanwhile, SFO investigators have persuaded a substantial number of individuals with inside knowledge of alleged cartel agreements to provide information on how the suspected conspiracy operated. All are believed to have agreed to give evidence in a criminal prosecution, if and when charges are laid and a trial begins.
The SFO has made clear it is preparing to pursue charges of conspiracy to defraud before the end of this year. The defendants are thought likely to be senior executives as well as the companies themselves. However, even if it regards the evidence as compelling, the SFO is unlikely to judge the prosecution of companies which have settled with the NHS, such as Ranbaxy, to be in the public interest.
All the companies involved deny wrong-doing and, should charges be laid, defen dants are expected to launch an immediate legal challenge. Price-fixing rings have never before been prosecuted under the common law offence of conspiracy to defraud. The SFO is using this law because the alleged price-fixing ring predates the introduction of criminal cartel offences in the Enterprise Act, 2002.
Should such a challenge succeed, it would be a devastating blow to the SFO, not only because of the scale of the costs involved in Operation Holbein, but also because of the damage it would inflict on the fraud office's reputation as it struggles to raise its conviction rate.
In contrast, the NHS's Counter Fraud Services unit has been widely praised since it was established seven years ago, during which time it has saved the health service more than £670m. Multi-million-pound settlements with drugs firms would swell this pot, but the exact terms of deals under discussion remain confidential.
The Guardian has been told that negotiations have taken place despite the NHS not having calculated the total loss for the four years at the end of the 1990s during which suppliers are said to have orchestrated a dramatic spike in the prices of dozens of usually cheap generic drugs.
Moreover, as well as not knowing exactly how much each company has allegedly cheated the NHS out of, negotiators admit they do not expect the funds clawed back through settlements to match shortfalls.
This is in marked contrast to similar lawsuits in America, where state healthcare providers have pursued punitive damages against generic drug suppliers.
But here, in effect, the price-fixers will not have to pay back all the money stolen from the NHS. Settlements such as Ranbaxy's will cover the existing three NHS claims filed with the court and all future claims relating to late-1990s price-fixing.
These concessions have been offered because of the time and cost involved in investigating and fighting separate claims over dozens of drugs. "The NHS needs this money to spend on patient care," said Jim Gee, head of Counter Fraud Services. "If there are reasonable grounds to settle then we will do so".
