Update Covers C1-C4 Iss2 2005.Indd

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 False Claims Act 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.

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