In early 1999, an executive of Omnicare, a nationwide company providing pharmacy services to nursing homes, approached a vice president of Miami drugmaker IVAX and offered a deal: For a large ``signing bonus,'' Omnicare would push doctors to use IVAX's generic drugs in its nursing homes.

Over the next several months, the companies discussed with their lawyers whether such a deal was legal under federal kickback statutes. Finally, over the vehement objections of at least one attorney, they decided it was. IVAX paid Omnicare $8 million.

This week, a decade after the transaction, federal prosecutors announced Omnicare had agreed to pay $98 million and IVAX $14 million to settle allegations that the companies had engaged in kickbacks. The firms agreed to pay without admitting any wrongdoing.

Former IVAX Chief Executive Phillip Frost was traveling Wednesday and could not be reached for comment. There is no indication in court documents that he was personally involved in the deal with Omnicare. At the time, he was overseeing a company with annual revenue of $650 million.

In an industry where allegations of pricing abuse and physician payoffs are made frequently, the Omnicare-IVAX case serves as a distinctive example of how firms understand the dangers of federal laws and how they maneuver around them.

The case was brought as a whistle-blower lawsuit, originated in 2005 in a Massachusetts federal court by David M. Kammerer, an Ohio resident and former Omnicare employee.

Omnicare, then as now, is a Covington, Ky., company that is the nation's largest specialist in providing pharmaceutical supplies to nursing homes.

``During 1998 and 1999, Omnicare's director of purchasing, Dan Maloney, and its senior vice president of purchasing. . . Tim Bien realized that the patents on many major branded drugs soon would be expiring, thereby permitting the entry of generic competitors,'' according to the complaint.

`` . . Because Omnicare itself was a large buyer of drugs, Maloney and Bien understood that a generic drug manufacturer would place value on having a future purchase commitment from Omnicare before launching a new generic drug. Maloney and Bien then set out about trying to extract the value for Omnicare's benefit,'' said the complaint.

In early 1999, Maloney talked with Kim West, IVAX's vice president of sales and marketing: In return for a multimillion-dollar payment, Omnicare would encourage physicians to use IVAX drugs. Several letters detailed the arrangement, according to court documents.

West, Maloney and Bien could not be reached for comment on Wednesday.

LEGAL ADVICE

In May 1999, Omnicare sought advice on the deal from ``a healthcare attorney at a large national law firm,'' according to the complaint, which identifies him only as Attorney No. 1.

In a 15-page memo, Attorney No. 1 warned that the deal ``on its face has all the characteristics of a kickback. It involves a lump sum cash payment . . . intended as an incentive to win Omnicare's business.''

Omniare continued with the deal. In July 1999, West faxed a term sheet in which IVAX would pay Omnicare $8 million over three years on condition that Omnicare buy $50 million in drugs from the Miami company.

Attorney No. 1 objected to those terms and several subsequent versions. Twice, according to the complaint, Attorney No. 1 spoke directly to ``IVAX's associate general counsel concerning the fraud and abuse issues raised by the proposed contract.'' The counsel is not named in the complaint.

After hearing several more warnings, Omnicare executives sought out another attorney. The new attorney was told that the payments were intended solely as upfront discounts. Attorney No. 2 decided the deal was legal.

The two companies signed a contract on Dec. 21, 1999, backdated to April 1, for purposes of Omnicare's revenue reporting, according to the complaint.

In internal accounts, IVAX treated the payments as a reduction in overall profit, not a discount in price.

``IVAX instructed its financial analyst: `Do not factor into price or revenue;' take off total profit line,'' according to court documents. ``IVAX later described the payments internally as `upfront money.' ''

`FRAUDULENT'

By June 30, 2004, according to the complaint, Omnicare had purchased the required $50 million in drugs from IVAX. Because the pharmaceutical supplier submitted thousands of claims for IVAX drugs to Medicaid, those claims ``were false or fraudulent due to the illegal kickbacks,'' according to the complaint.

In mid-2005, it was announced that IVAX was being sold to Teva Pharmaceutical Industries, an Israeli firm, for $7.4 billion. Teva agreed this week to pay the IVAX fine but acknowledged no wrongdoing.