In Compliance and In Court

by John B. Reiss, Ph.D., and William M. Janssen

his article examines various fraud and abuse cases is the simultane- violated the Anti-Kickback Statute. Tlegal issues facing the medical ous fi ling of charges. Under the government’s theory, these device, pharmaceutical, and biologics Because the False Claims Act permits inducements resulted in an illegal use industries; court decisions or settle- fi nes of up to three times the amount of the drugs, and claims fi led for these ments over the past year; and suggested of the claim—and penalties of between uses were thus false. Also brought actions. New guidelines set standards $5,500 and $11,000 per claim—penal- into focus by this case were the False that industry leaders should consider as ties can add up quickly to billions of Claims Act’s qui tam provisions, which they plan product development, sales, dollars, giving the government an enor- allow whistleblowers to participate in and marketing strategies. mous “hammer” with which to exact up to 25% of the government’s recov- settlements. ery. A majority of the recent cases have Fraud and Abuse and the The complexity of the application resulted from whistleblower fi lings. False Claims Act of these laws is demonstrated by the TAP Pharmaceuticals made an Fraud and abuse issues dominated Warner-Lambert case.1 The primary $875 million payment in October 2001, the headlines during 2004. The U.S. allegation involved the company’s partly as the result of its guilty plea for Attorney and the Department of Health off-label marketing of its epilepsy violating the Prescription Drug Market- and Human Services (DHHS) Offi ce of drug, Neurontin®, in violation of the ing Act.2 The government also alleged Inspector General (OIG) continued a Federal Food, Drug, and Cosmetic Act manipulation of the average wholesale high level of activity, and states’ attor- (FDCA). The government also alleged price (AWP), as well as Medicaid neys general have become more active. that the company provided inducements rebate violations. A number of TAP A major diffi culty facing compa- to physicians to prescribe the drug employees were indicted and came to nies dealing with the government on for off-label uses, which inducements trial in 2004. The jury acquitted eight

Dr. Reiss is a Partner & Mr. Janssen is a Litigation Chair of the Health Law Partner & Chair of the Life Department, Saul Ewing LLP, Sciences Group, Saul Ewing LLP, Philadelphia, PA. Philadelphia, PA.

4 UPDATE March/April 2005 www.fdli.org In Compliance and In Court current and former employees on all laneous code, without disclosing the the SEC’s charges—paid monetary charges of kickbacks, conspiracy, and nature of the product, which previously penalties and disgorgement of $150 drug pricing violations.3 TAP sales ex- had been refused coverage by Medi- million, and consented to a permanent ecutives were charged with giving free care Intermediaries. The company was injunction and various remedial mea- samples of Lupron® and urging physi- found guilty of Medicare fraud, as were sures.11 The proceeds were transferred cians to claim reimbursement, and with a number of the corporate offi cers who to the claims administrator in a related paying kickbacks. Successful criminal were subject to imprisonment and fi nes.8 class action suit in which the plaintiffs prosecutions require a higher standard This case suggests that a company already had recovered $300 million.12 of proof than do civil actions, so the should be careful about aggressively The SEC fi led a civil injunctive failure of prosecutors to convince a jury using miscellaneous code categories. action against Vaso Active Pharma- to convict on criminal charges should Other cases involve hospitals billing for ceuticals and its president on the basis not give companies comfort with experimental devices without disclosing of material misrepresentation and respect to their exposure under the civil the experimental nature of the device omissions in public statements falsely provisions of these statutes. and/or not complying with the appropri- claiming Food and Drug Administra- Companies that settle with the ate Medicare rules for reimbursement.9 tion (FDA) approval for company government often face follow-up civil In another whistleblower suit, an ortho- products that were not FDA-approved. cases in which other customers allege pedic surgeon claimed that Zimmer and The resulting fi nal judgments enjoined violation of state statutes.4 Here, there is Mercy Health System paid kickbacks of the company from future violations of a little good news. A North Carolina trial cash discounts to physicians to encour- the statute, barred the president from court certifi cation of a nationwide class age them to use Zimmer products. The acting as an offi cer or director of any action over drug pricing was rejected on court held that suffi cient allegations public company for fi ve years, and appeal due to insuffi cient justifi cation were made for the case to go forward.10 required him to pay an $80,000 civil that issues of law common to the class penalty.13 In another case, the SEC fi led were covered by North Carolina law.5 SEC Issues an enforcement action against Sher- This suit derived from the TAP settle- The Securities and Exchange Com- ing-Plough Corporation for violating ment, and involved a number of compa- mission (SEC) undertook a number of the Foreign Corrupt Practices Act. The nies selling Lupron®. To the extent that enforcement actions in 2004 against SEC alleged that the company paid this court decision raises questions about medical device and pharmaceutical $76,000 to a charitable foundation to the applicability of state law, the burden companies that, through unregistered induce its director—who also headed facing plaintiffs could rise; still, this is securities offerings, allegedly de- a health fund that either purchased or only one case, and not a trend. frauded investors because they used was responsible for infl uencing the There are a host of cases being the proceeds for personal use or other purchases of pharmaceuticals—to brought against pharmaceutical com- clearly improper purposes. promote its products. The payments panies—by whistleblowers and states’ Of greater interest are enforce- were not refl ected on the company’s attorneys general—involving the failure ment actions the SEC took for alleged books. Without admitting or denying of companies to properly implement the violations of securities laws, such as the allegations, Schering-Plough paid a Medicaid drug rebate program, includ- that involving Bristol-Myers Squibb $500,000 civil penalty.14 ing manipulating the AWP.6 For exam- Company. The SEC charged that the In addition to SEC actions, inves- ple, the Texas Attorney General entered company sold excessive amounts of tors may bring securities fraud suits into a settlement with Schering-Plough pharmaceutical products to wholesalers when a company’s acts (or failures to Corporation for $27 million to settle ahead of demand, thereby improperly act) result in falling stock prices. One a lawsuit alleging the company had recognizing revenue of $1.5 billion. example involves Bayer AG and its infl ated prices for prescription asthma The company gave incentives to U.S. subsidiary, Bayer Company, in products to the Texas Medicaid program wholesalers to purchase drugs to help which a suit alleged fraudulent mis- by falsifying wholesale pricing.7 the company meet its earning projec- statements about the introduction and A medical device company sold a tions. In the settlement, Bristol-Myers withdrawal of Baycol®.15 In discussing wound-care product under a miscel- Squibb—without admitting or denying motions to dismiss the case, the court

FDLI March/April 2005 UPDATE 5 In Compliance and In Court

found that plaintiffs adequately pled engaged in other enforcement actions led to an eight-month delay in the that most of the alleged misstatements designed to reduce the time for bring- introduction of generic competition to were material, and permitted the case ing generic competition into effect. Remeron®. The proposed settlement to go forward. The allegations included The FTC recently decided that awaits court approval; the FTC has is- that, during an internal discussion of patent litigation settlement agreements sued a Closing Letter.20 adverse event reports, the company between Schering-Plough Corporation developed a consensus that Baycol®’s and two potential generic competi- Products Liability dangers were putting the brand at risk. tors—Upsher-Smith Laboratories and Pharmaceutical and medical device Failure to disclose that determination American Home Products Corpora- products drew growing litigation atten- created a material risk of loss for the tion—violated section 5 of the FTC tion in 2004. This growth spiked in late investing public. During the withdrawal Act.16 While these agreements were not 2004, with many results favorable to of Baycol®, the company attempted to held to be illegal per se, their legiti- the industries. reassure the investing public that any macy depended upon the defendant’s In briefs fi led with the Third Circuit product liability would be unfounded, ability to demonstrate that the anti- Court of Appeals in Philadelphia, FDA and that there was no need to establish competitive delay in market entry was reversed its position on the preemption As in other legal arenas, class action suits have been fi led concerning the issue of conspiracies to prevent generics from coming to market.

reserves. Four months later, Bayer ancillary to a legitimate pro-consumer clause in the Medical Device Amend- discussed in an SEC fi ling that if the agreement, such as settlement of a ments to the FDCA. In July 2004, product liability litigation were suc- patent dispute. There was no such pro- the court applied express preemption cessful, damages would be material to consumer agreement here. The FTC did principles to common law claims lev- its results of operations and cash fl ows. permit an arrangement for Teva to share eled against a PMA-approved medical While these cases have not all come with Bristol-Myers Squibb exclusiv- device.21 In October 2004, a unanimous to conclusion, they make it clear that ity for Carboplatin® in settlement of federal court of appeals in St. Louis companies’ marketing strategies can a patent dispute, where there were no relied on implied preemption precedent expose them to more than fraud and payments to Teva in exchange for Teva to confi rm broad, statutory immunity abuse claims, and that companies need not entering the market.17 The FTC en- under Michigan law for FDA-approved to be proactive in providing informa- tered a similar case by fi ling a “friend products, and to refuse to allow plain- tion about product recalls, including in- of the court” brief supporting an appeal tiffs to defeat this immunity by arguing ternal discussions that identify product by Teva as it tried to bring a generic that the manufacturer had misled FDA risk. Given the increased scrutiny FDA version of Zoloft® to market.18 at the time the product was approved.22 likely is to be giving drug risks in light As in other legal arenas, class action In January 2004, in a surgical of the Vioxx® withdrawal, drug risk suits have been fi led concerning the is- drill case, a federal trial court in Iowa assessment and appropriate disclosure sue of conspiracies to prevent generics turned back another plaintiff’s attempt should be high on companies’ agendas. from coming to market.19 to avoid a statutory limitations period. While the FTC uses its author- Although more than fi fteen years had FTC Issues ity under the antitrust statutes fairly passed since the drill was fi rst used The Federal Trade Commission frequently, it also uses its “unfair or (thus statutorily barring an Iowa prod- (FTC) and some states have been active deceptive acts or practices” authority ucts liability claim), the plaintiff argued in preventing generic drug makers from under section 5(a) of the FTC Act. Both that the drill had been “refurbished” entering into agreements with brand- the FTC and several states attorneys and a new limitations period should name patent holders to keep generic general alleged that Azko Nobel, N.V., apply. The federal court found no basis products off the market, absent compel- made fraudulent misrepresentations for granting such an exception under ling requirements such as settlement to FDA concerning claims of a patent Iowa law, and granted defendant’s sum- of a patent dispute. The FTC has been listed in FDA’s Orange Book, which mary judgment.23

6 UPDATE March/April 2005 www.fdli.org In Compliance and In Court

In February 2004, the Missis- Private Standards the principles of voluntary informed sippi Supreme Court rejected a trial Trade associations for the pharma- consent. court’s attempt to reduce its backlog of ceutical and medical device industries • Payments to clinical investigators Propulsid® lawsuits by joining together have issued codes of conduct concern- should be based on work performed 56 plaintiffs in one lawsuit.24 Rightly ing marketing activities; the pharma- by the investigator and the investiga- concerned that claimants’ allegations ceutical industry also has issued such tor’s staff, not on any other consider- comprised different individualized facts codes regarding clinical trials. These ations. and medical circumstances, the court codes are similar to the American Med- • Agreements should be in writing. ruled that “grouping” together multiple, ical Association’s Ethical Standards and • Clinical investigators should not have disparate plaintiff claims was improper to the Pharmaceutical Guidance issued an ownership interest in the product and prejudicial. A few months later, by the DHHS OIG. While these codes being studied or be compensated by the same court tossed out the fi rst U.S. are not associated with any enforce- company stock or stock options. Propulsid® verdict in a ten-claimant ment mechanisms, they likely will be • Trial outcomes should have no effect “grouped” trial, reaffi rming its earlier viewed as minimum industry standards on the investigator’s compensation. conclusion that such combined trials in any potential litigation. The Accreditation Council for were inappropriate.25 The AdvaMed Code of Ethics on Continuing Medical Education: CME In a 1999 direct-to-consumer Interactions with Healthcare Pro- Standards for Commercial Support has (DTC) marketing decision by New fessionals, the Pharmaceutical Re- established standards for commercial Jersey’s Supreme Court,26 the learned search and Manufacturers of America support that require disclosure of any intermediary doctrine came under (PhRMA) Code on Interactions with fi nancial interest when an organization sharp assault. Although the doctrine is Healthcare Professionals, and PhR- is providing CME. For example: important in the defense of pharmaceu- MA’s Principles on the Conduct of • The CME provider must make inde- tical and medical device products cases, Clinical Trials establish standards pendent decisions, regardless of the the New Jersey decision questioned the for fi nancial support, educational source of funding for the CME. vitality and appropriateness of the doc- activities, consultants and speakers at • The education purpose must be pri- trine in the case of widely-advertised training meetings, and in trials. These mary. drug products. Since then, no jurisdic- codes are designed to set minimum • Associated commercial promotion tion has followed New Jersey’s lead. In standards for compliance with the must be separated from the CME 2004, two more jurisdictions joined the Anti-Kickback Statute and similar activities. overwhelming majority that imported state laws. The codes establish that, • Educational materials cannot contain the doctrine into their local laws. In when it is appropriate to pay indi- advertising, trade names, or product May 2004, a federal appeals court viduals for speaking at seminars, for messages. predicted that North Dakota would fol- consulting services, or otherwise for • CME content must be without com- low the learned intermediary doctrine giving value to a corporation, the mercial bias. on tragic facts involving an infanti- payment must be at fair market value • Participants must be informed of any cide and attempted parental suicide.27 and cannot include ancillary payments fi nancial interest held by people with A month later, Kentucky’s Supreme for others. The codes emphasize that control over that content. Court adopted the doctrine after an payments for meals or gifts to health- • The source of support from commer- elaborate discussion of its rationale and care professionals should be modest. cial interests must be disclosed. criticisms.28 In July 2004, the Meridia These standards are consistent with the Products Liability Federal Multidistrict OIG’s guidelines. PhRMA’s Principles Conclusion Litigation, situated in Ohio, formally on the Conduct of Clinical Trials and The overriding theme to be derived rejected an invitation to apply the New Communication of Clinical Trial Re- from this review of cases, settlements, Jersey Perez approach, either broadly sults establish voluntary standards for and standards is the need for pharma- (throughout the inventory of nation- the industry. For example: ceutical, medical device, and biologics ally-fi led cases) or narrowly (to New • Payments to patients participating in companies to have aggressive corpo- Jersey-based cases alone).29 research should be consistent with rate compliance plans that establish

FDLI March/April 2005 UPDATE 7 In Compliance and In Court

a culture of compliance throughout Mass.) (verdict July 14, 2004). (S.D.N.Y. Sept. 30, 2004). 4 For example, class action lawsuits over Neurontin® 16 In the matter of Schering-Plough Corp. et al., Dkt. No. the panoply of activities undertaken following the Warner-Lambert settlement; Stilphen 927 (FTC Dec.18, 2003). by those companies. Companies face v. Pfi zer Inc., BC-318587 (Cal. Super. Ct. July 16, 17 Bristol-Myers Squibb Co. v. The Pharmachemia, No. 2004); In re Neurontin Marketing and Sales Practices 03-1077 (Fed. Cir. 2004). Litig., 342 F. Supp. 2d 1350 (Oct. 26, 2004) (Judicial special risks in this arena, but they can 18 Panel on Multidistrict Litigation). Teva Pharm. USA v. Pfi zer Inc., No. 004-1186 (Fed. mitigate exposure to liability under the Cir., fi led Mar. 31, 2004). 5 Stetser v. TAP Pharm. Prods., Inc., No. 03-901 (N.C. 19 topics covered in this brief review if Ct. App. July 6, 2004). In re Terazosin Hydrochloride Antitrust Litig., No. 99- MDL-1317, at 4804 (S.D. Fla. Apr. 8, 2004). 6 E.g., In re Pharm. Indus. Average Wholesale Price all of their personnel focus on fulfi lling 20 Litig., 321 F. Supp. 2d 187 (June 10, 2004); State Letter from Susan A.Creighton, Director, FTC to their jobs in compliance with the many of Wisconsin v. Abbot Labs. et al., 341 F. Supp. 2d Joseph Rebein, Shook, Hardy & Bacon, L.L.P. 1057 (W.D. Wis. Oct. 5, 2004); Ohio v. Dey, Inc., No. available at http://www.ftc.gov/os/closings/staff/ special provisions governing partici- A0402047 (Ohio Ct. Com. Pl., fi led Mar. 9, 2004). 041020azko.pdf (last visited Mar. 28, 2005). 21 pants in the U.S. healthcare delivery 7 Texas ex rel. Ven-a-Care of the Florida Keys, Inc. v. Horn v. Thoratec Corp., 376 F.3d 163 (3d Cir. 2004). Warrick Pharm. Corp., No. GV002327 (Tex. Dist. Ct.) 22 Garcia v. -Ayerst Labs., 385 F.3d 961 (8th Cir.

system. FDLI (settlement Apr. 20, 2004). 2004). 8 United States v. Arizant, Inc., No. CR03-30023 (D. 23 Alley v. Johnson & Johnson, 2004 WL 180256 (S.D. Minn.) (guilty plea July 1, 2004). Iowa Jan. 5, 2004). With thanks to Timothy Hoeffner, 9 In re Cardiac Devices Qui Tam Litig., 221 F.R.D. 318 24 Janssen Pharmaceutica, Inc. v. Armond, 866 So.2d Esq., for reviewing the SEC section (D. Conn. Mar. 12, 2004). 1092 (Miss. 2004). 10 United States v. Zimmer, Inc. et al., 386 F.3d 235 (Oct. 25 Janssen Pharmaceutica, Inc. v. Bailey, 878 So.2d 31 and to Judith Abriss for major research 6, 2004). (Miss. 2004). assistance. 11 SEC v. Bristol-Myers Squibb Co., Civ. No. 04-3680 26 Perez v. Wyeth Labs., Inc., 734 A.2d 1245 (N.J. 1999). (D.N.J. Aug. 4, 2004). 27 Ehlis v. Shire Richwood, Inc., 367 F.2d 1013 (8th Cir. 12 1 United States ex rel. Franklin v. Parke-Davis, No. In re Bristol-Myers Squibb Sec. Litig., Master File No. 2004). 02-CV-2251 (LAP) (S.D.N.Y. July 30, 2004). 96-CV-11651-PBS (D. Mass.) (settlement announced 28 Larkin v. Pfi zer, 2004 WL 1361954 (Ky. June 17, May 13, 2004). 13 SEC v. Vaso Active Pharm., Inc., Civ. No. 04-CV- 2004). 2 01395 (RJL) (D.D.C. Aug. 17, 2004) See U.S. Dept. of Justice, Release #513 (Oct. 3, 2001), 29 In re Meridia Prods. Liab. Litig., 328 F. Supp. 791 available at http://www.usdoj.gov/opa/pr/2001/ 14 SEC v. Schering-Plough Corp., Civ. No. 1:04-CV- (N.D. Ohio 2004). october/513civ.htm (last visited Mar. 28, 2005). 00945 (PLF) (U.S. Dist. Ct. June 9, 2004). 3 United States v. MacKenzie, No. 01-CR-10350 (D. 15 In re Bayer AG Sec. Litig., No. 03-CV-1546 (WHP)

8 UPDATE March/April 2005 www.fdli.org

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