The Most Challenging Compliance Arena in Health Care: Pharmaceutical and Medical Device Manufacturing

Compliance Professionals Can Take Steps to Better Prepare Themselves and Their Companies to Deal with Allegations of Wrongdoing

Kirk Ogrosky / Allison W. Shuren

PHARMACEUTICAL AND MEDICAL DEVICE ENFORCEMENT OVERVIEW Through the use of the civil (FCA), the U.S. Department of Justice (DOJ) has settled cases net- ting $30 billion over the last 10 years.1 This $30 billion representsreepr ent nearlynearly 50 ppercentercent of all FCA recoveries since thehe law’sl w’s eenactmentnactment in 11863,863, and the majority of this sum is the result of qui tam cases initiated by whistleblowers against health care companies.2 While FCA settlements touch all sectors within health care, pharmaceutical and medical device manufacturers make up a disproportion- Kirk Ogrosky and Allison W. Shuren are partners in the Washington office ate share of the companies targeted by whistleblowers of Arnold & Porter Kaye Scholer LLP. and DOJ.3 Ms. Shuren serves as co-chair of the Life Over that same 10-year period, manufacturers have Sciences and Healthcare Regulatory made revolutionary advances in both drugs and devices Practice Group. Before earning her law degree from the University of that have improved the quality and length of life for Michigan, Ms. Shuren was a practic- millions. Yet, manufacturers continue to face expand- ing critical care pediatric nurse prac- ing internal or governmental investigations. There is titioner concentrating in pediatric no doubt that the profitability of manufacturers creates cardiovascular disease. She has served an opportunity for whistleblowers to advance personal as a principal investigator as well as a research coordinator for clinical trials financial interests, but with increased profits should come involving pharmaceutical and medi- the increase in the concomitant obligation to assure the cal device products. Before joining the highest levels of compliance. For these manufacturers, firm in 2010, Mr. Ogrosky served as compliance professionals serve to protect the interests the Deputy Chief for Healthcare in the Fraud Section of the Criminal Division of shareholders, management, governmental programs, within the U.S. Department of Justice and the patients the companies serve. Simply put, the from 2006 to 2010, and as Assistant U.S. cost of non-compliance includes the substantial risk of Attorney in the Southern District of repayment and penalties, the expenses of counsel, con- Florida from 1999 to 2004. Mr. Ogrosky sultants, monitors, as well as the impact on employee is as an Adjunct Professor of Law at Georgetown University where he morale and company reputation. Furthermore, excel- teaches Healthcare Fraud and Abuse. lence in compliance serves to protect companies and

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management from the threat of criminal efforts to educate physicians regarding the enforcement. benefits. After outlining specific risks faced by For manufacturers, recent investiga- manufacturers, this article addresses the tions and cases have centered on particu- governmental investigation process and lar issues that compliance officers would how compliance professionals may better be wise to explore. Those areas of concern prepare themselves and their companies include, but are not limited to, the follow- to deal with allegations of wrongdoing. ing: (i) patient assistance programs (PAPs) The one rule for handling allegations that and related patient access services, includ- rise to the level of interacting with gov- ing product adherence or reminder/refill ernment enforcement officials is simply initiatives; (ii) reimbursement support ser- maintain credibility with the government. vices; (iii) interactions, arrangements, and This means that the individuals dealing communications with specialty pharma- with the government on behalf of the cies; (iv) speaker programs; (v) consulting company have integrity and are known arrangements, including advisory boards; throughout the institutions for their hon- (vi) product pricing, including price report- esty. Each one of these traits is espe- ing, discounts, and rebates; (vii) field cially important when complex regulatory medical activities, including interactions and litigation issues require aggressive with managed care customers and payers advocacy. (pharmacoeconomic presentations), as well The United States spends roughly one- as interactions with internal commercial fifth of its gross domestic product (GDP) on personnel, and (viii) interactions with non- prprovidingrovvididding health care.4 GGiven the breadth traditional health care stakeholders, such off governmentalgovernm ntal spending,spend ng, iti is concern-coonc n- as ClinicalClinicaal PracticePract Guideline (CPG) com- iningng tthathat ssoo much of DDOJ’sOJ’s enenforcementfo cem nt mittees,mittees, compendia,commp clinical pathways, focuscuus hahas been placed on manufacturers, group purchasing organizations (GPOs), a narrow segment of companies within and patient or disease advocacy groups. our system. Key factors in DOJ’s interest Before addressing recent cases and public in manufacturers include the level of com- investigations, we set forth the legal frame- petition for market share, direct marketing work that should be familiar to compliance to prescribers, and perceived profitability. officers. Recent studies have reported that manu- facturers spent over $24 billion on market- LEGAL ENFORCEMENT FRAMEWORK ing directly to prescribers in 2012,5 and a Compliance professionals within manu- recently published study found that hospi- facturers should have a thorough under- tals that restricted manufacturer sales rep- standing of the FCA, anti-kickback statute resentatives’ ability to market to physicians (AKS), and the Federal Food, Drug, and led to a statistically significant increase Cosmetic Act (FDCA). While this article is in the use of more cost-effective generic not intended to provide a full overview of drugs.6 In short, the amount of money used the law, we provide a high-level overview by the industry to gain market share and as a starting point for the discussion of key drive sales, and the impact those efforts cases and investigations. have on prescribers, creates a ready envi- The FCA provides that any person who ronment for whistleblowers and DOJ to dig knowingly7 submits or causes the submis- deep into manufacturer conduct. Finally, it sion of a false claim8 to the government should not go without comment that man- is liable for three times the amount of the ufacturers spend billions on the research damage sustained plus mandatory penal- and development of new and improved ties.9 It imposes liability on any person who life-saving products that require substantial knowingly makes or uses, or causes to be

6 Journal of Health Care Compliance — July–August 2017 The Most Challenging Compliance Arena in Health Care made or used, false records or statements coat” marketing (where financial interests material10 to an obligation11 to pay money or biases are not clearly transparent);19 or property to the government, or know- and (vi) acts that result in unfair competi- ingly concealing or improperly avoiding or tion.20 These factors are often referred to as decreasing an obligation to pay money to the “prudential factors” because they cor- the government.12 How the FCA applies in respond with the underlying purpose of a given case depends on the theory of lia- the AKS — to avoid corrupting the doctor- bility being asserted by the enforcers. FCA patient relationship. allegations may be premised on “factually Unlike other participants in the health false” or “legally false” claims.13 “Legally care system, manufacturers also must false” allegations include theories based on comply with the FDCA and its regulations. express or implied false certifications. Unlike the FCA and AKS, the FDCA contains The AKS prohibits any person from an abundance of strict liability provisions knowingly and willfully paying remunera- that prohibit manufacturers from introduc- tion to any person with the intent to induce ing, delivering, or causing to be introduced that person to purchase, prescribe, recom- into interstate commerce a misbranded or mend, or refer a person for the furnishing adulterated drug,21 which includes, among of items or services payable under a federal other things, a “new drug”22 or an unap- health care program.14 DOJ routinely refers proved drug, including an unapproved use to the AKS as a law that covers any arrange- or indication of an approved drug. The ment in which one purpose, often referred FDCA prohibits labeling or advertising that to as a “single purpose,” of the remunera- is false or misleading and that causes a tiontion waswas tot induce prescriptions.p 15 While a drug to be “misbranded.”23 DOJ may seek criminalcrrimimininal statute,s ute, allegedalleged violationsviollations of thehe to imposemposee criminalcr mi and civil penalties for AKSAKS areare mmomost commcommonlymonlyy madmmadede iinn thehe con-n- FDFDCACA vioviolations.lation textxt offF FCA investigations and cases.16 To make matters more complicated, conduct RECENT ENFORCEMENT CASES that falls within a safe harbor or statutory AND INVESTIGATIONS exception may not be considered a viola- tion of the AKS.17 Allegations of AKS vio- Reimbursement Support Services lations are extremely serious and difficult Over the last several years, DOJ has taken to handle for manufacturers. Even in the a keen interest in certain “value added” ser- absence of any evidence of wrongful intent, vices provided by manufacturers to referral the chances of persuading an investigator sources. Given payer restrictions on cover- that a purpose of giving something of value age and the complexities of coding for new to a prescriber did not involve a desire to products, manufacturers regularly provide increase sales borders on impossible. and their customers demand reimburse- For arrangements outside of a safe har- ment support services. In 2003, the Office bor that “implicate” the AKS, enforcers seek of Inspector General’s (OIG’s) Compliance to ascertain whether the practice creates Program Guidance for Drug Manufacturers a risk to federal health care programs or explained that a manufacturer’s provision their beneficiaries. In assessing potential of “limited reimbursement support services risks, enforcers are most concerned with in connection with its own products” has arrangements that (i) interfere with clini- “no independent value.” Notwithstanding cal decision-making, (ii) increase costs to the guidance, a number of recent qui tam federal health care programs; (iii) increase complaints have asserted that reimburse- the risk of overutilization or inappropri- ment support services violated AKS and ate utilization; (iv) raise patient safety or FCA. The cases tend to focus on situations quality of care concerns;18 (v) entail “white where the government believes that the

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support services: (i) are comprehensive, regulations governing manufacturers’ instead of limited, thus having indepen- speech. In United States v. Caronia, for dent financial value; (ii) involve skewed or example, the Second Circuit applied Sorrell’s false clinical information being presented heightened scrutiny test to hold that the to payers by non-clinically trained com- FDCA and FDA’s implementing regulations mercial personnel; (iii) are likely to cause could not be interpreted to permit a mis- the submission of claims for off-label or branding conviction based on truthful and unapproved uses; and (iv) mislead pay- non-misleading speech alone, even if the ers regarding the identity of the organi- speech was off-label.35 The Second Circuit zation providing the support. Allegations explained that prohibiting truthful off- have been brought, and some cases settled, label speech by manufacturers fails even involving ISTA,24 Shire,25 Warner Chilcott,26 the intermediate scrutiny standard under Respironics,27 ,28 , and Central Hudson.36 Because off-label pre- Idec. scribing is not illegal, the court found that a complete ban on speech about off-label Speaker Programs and Consultants use simply does not advance a legitimate DOJ continues to aggressively pursue government interest.37 allegations of improper payments in the There have been two chief types of claims form of speaker payments, speaker train- lodged against manufacturers: (i) false and ing, honoraria, and associated expenses. misleading statements to payers, managed Recent cases have involved Biogen Idec,29 care customers and similar entities (e.g., Forest Labs,30 Cephalon,31 ,32 and withholding safety information, not provid- Teeva vaa. . 333 AllegationsA g that have interested ing adequate risk information, misstating DOJDOJ included:iinncllu d: (i) paymentspaayments to physiciansphyysic ns ffacts,cts ununsubstantiatedsuubstant superiority claims, et whow o werewwerre selectedses ected on theirthe r voluvvolumem raratherer cetcetera)ra) in orderorde to achieve favorable place- thananncl clinicallin knowledge, expertise, or repu- ment on a payer’s formulary; and (ii) pro- tation, (ii) payments to physicians to speak viding unlawful remuneration to payers, on duplicative topics, and (iii) payments to managed care customers, formulary com- physicians to speak to their own staff, and mittees (including individual members), payments for excessively expensive meals. and other individuals with influence into formulary decisions in return for favorable Off-Label Promotion placement on a payer’s formulary. Other While manufacturers may now be more cases have focused on manufacturer inter- comfortable that truthful, non-misleading actions and relationships with certain types representations should not lead to enforce- of health care stakeholders that may influ- ment activity, it remains an arena in which ence prescribing decisions or make recom- investigations are focused on the mechan- mendations regarding clinical treatment. ics, reliability, and veracity of promotional Specifically, several cases have included activities. In Sorrell v. IMS Health, Inc., the allegations that manufacturers have made Supreme Court held that content-based improper or unlawful payments to influ- or speaker-based restrictions on commer- ence: (i) quality measure organizations; cial speech are subject to “heightened judi- (ii) CPG entities; and (iii) clinical pathway cial scrutiny.” The Court observed that or treatment algorithm entities, as well as “[s]peech in aid of pharmaceutical mar- individual members of these entities. keting … is a form of expression protected by the Free Speech Clause of the First Specialty Pharmacies Amendment.”34 DOJ has been pursuing alleged improper Shortly after Sorrell, courts began apply- payments to specialty pharmacies for sev- ing this precedent in the context of FDA’s eral years. When a manufacturer’s conduct

8 Journal of Health Care Compliance — July–August 2017 The Most Challenging Compliance Arena in Health Care is alleged to direct prescriptions to phar- The first step when a potential issue macies based on refill and adherence rates, arises is to preserve, gather, and under- enforcers are likely to investigate the con- stand the facts.38 It is worth noting that duct. In addition, payments that may take every investigation is unique and there is the form of rebates and discounts to certain no single process for success. There are, pharmacies may draw added attention. however, basic principles that can help manufacturers build credibility while PILOTING GOVERNMENTAL INVESTIGATIONS addressing subpoenas, interview requests, Regardless of the origin of the investiga- and civil investigative demands. tion, compliance personnel must be pre- pared to effectively and efficiently address Investigatory Process issues as they arise. Given the enforcement When issues with the government arise, environment for manufacturers, nothing is most manufacturers have had previous more important than understanding how experience and understand the importance to present and promote integrity and cred- of initial contacts and representations. ibility during an investigation. In the FCA The first sign of an investigation is typi- context, manufacturers often find them- cally the service of a subpoena, although selves in the unenviable position of hav- in some more serious matters it may come ing to establish innocence to enforcers as to an employee’s attention that a former opposed to defending against unfounded employee has been approached by law allegations. enforcement. Whatever the initial contact, This section provides an overview of the manufacturer should focus on under- thethhe iininvestigatorynvese y pprocesss and puts for- standing the process and how to deal with wardward a fewffeew suggestionsuggestions forfor compliancecomp iannce andnd the enforenforcers.cers TThe initial response can set counselcoounseel toto considerc nsider whenwhen dealingdeealing with an the tone for wwhat may turn into a lengthy externalxteernnal investigation. Once again, the key investigation. point is that every manufacturer needs to Finally, if the manufacturer is aware establish and keep credibility with the gov- of the issues being investigated based on ernment attorneys and agents who control prior compliance work and suspects a and guide the investigation. Building cred- whistleblower may have filed an FCA case, ibility with the government does not mean it is worth noting that the enforcers prob- appeasement, but it requires adherence to ably are well aware of that internal process. the law, good faith, open communications, While tempting to attack a disingenuous and candor. whistleblower, it does little to advance the Counsel and compliance personnel who manufacturer’s position in the eyes of the lose credibility with the government draw government. added scrutiny, whereas those who estab- Given that enforcers are proceeding lish it will receive the benefit of the doubt. with limited information in the initial This is especially true in the long run, but stages that is skewed by a whistleblower, it is also important during initial encoun- it should not be surprising if the govern- ters when enforcers have a one-sided, trun- ment seems heavy-handed. As the investi- cated view of the facts. The most frequent gation progresses, the government should effort by compliance and counsel — and be striving to understand the facts and not the way the most damage is done to the simply extort a settlement based on the manufacturer’s credibility — is by failing costs associated with the investigation. to understand the facts. Any failure to fully When the government is open and willing understand the details of what happened to communicate, manufacturers can make and how it happened risks being perceived headway by guiding investigators through as an effort to mislead enforcers. documents and witnesses. Once again,

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every investigation is different, and these information, including name, agency, and suggestions are simply basic propositions phone number. that tend to hold true across matters. Counsel for the manufacturer should make clear to every individual interviewed Interviews and Initial Contacts that they represent the organization.40 In most investigations, law enforcement While the manner in which employees are officials will want to interview individuals. apprised of their rights may vary depend- When a former employee has been inter- ing on the circumstances, including the viewed without advance notice, those rep- number of employees involved, their posi- resenting the manufacturer need to acquire tions and locations, and the likelihood that as much information as possible about that the government may contact them before former employee and his role at the com- they can be interviewed by company coun- pany, what was asked of that person, and sel, it is worth assuring that employees what was relayed. If any misstatements understand some basic ground rules and were made, it is important to encourage how frequently the government conducts the witness to correct the statement. When investigations. a request is made in advance to interview a To cultivate credibility both inside and current employee, counsel and compliance outside the organization, requests for infor- have more work to do to assure that the mational interviews with key employ- interview is done appropriately. Assuming ees should be made quickly and done as the individual is willing to give an inter- confidentially as possible. Gathering the view and the subject matter is appropri- information necessary to gauge the seri- ate,atte, ccounselounsn should ppreparea the witness to ousness of the situation requires counsel truthfullytrruthhfhfuullylly andd complcompletelyletely ansanswerswe ththee qques-s- andd compliancecompliance experts who know the tionstionns thattthaat arear asked of him.him. investigatoryinvestiga ory pprocess, the manufacturer, its To prepare ppr for interviews, counsel will products, and market competition. Agents need to explore the legal issues with all who sense obstreperous conduct by coun- relevant documents and other knowledge- sel or compliance will respond by escalat- able individuals in order to understand ing the investigation. how best to prepare witnesses. In most situations, counsel can interview current Subpoenas employees with key documents in short Subpoenas to manufacturers raise a host of order. Employee witnesses are not the prickly issues, particularly for large orga- property of the government or the manu- nizations which possess millions of pages facturer,39 so counsel must be careful in of documents and substantial electroni- explaining rights and responsibilities to cally stored information (ESI). When the individuals. government is investigating allegations in All employees should be informed that good faith, subpoenas are used in an effort they are free to give an interview to a gov- to assure that materials are preserved and ernment agent if they choose, but if they critical materials — those that would allow go forward with an interview, all answers the enforcers to make decisions — are pro- must be truthful. Also, manufacturers duced. This does not mean that all subpoe- should explain to employees the benefits nas are created equal or are reasonably of preparing for an interview with the designed to further the investigation. On government and how using counsel to many occasions, subpoenas are overbroad assist in an interview may help. Further, and unduly burdensome, but most govern- employees should be advised that if they ment agents and attorneys are willing to are approached by an agent, they should be reasonable in narrowing the scope of request and retain the agent’s personal review.

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Subpoenas can be administrative, civil, shared widely between agencies, and DOJ or criminal, and they can be issued pur- claims that these subpoenas better enable suant to a variety of enabling statutes. parallel criminal and civil proceedings. For example, investigations of manufac- Unlike an IG subpoena, the receipt of an turers usually involve Inspector General AID directly from a criminal Assistant U.S. Subpoenas, Health Insurance Portability Attorney signals that there may be an ongo- and Accountability Act of 1996 (HIPAA) ing criminal investigation. Obviously, the subpoenas, grand jury subpoenas, or civil existence of a corporate criminal investiga- investigative demands (CIDs). The type tion should heighten the level of concern. of subpoena and how it is served provides Much like a HIPAA subpoena, a grand some information about the nature and jury subpoena is used by criminal prosecu- scope of the investigation. tors to obtain documents and compel testi- OIG is authorized to conduct health mony. Whereas a HIPAA subpoena could care fraud investigations related to fed- be used in a civil matter, a grand jury sub- eral payers. While the Inspector General poena cannot. Rule 6(e) makes it a criminal Act envisioned an independent authority, offense for the prosecutor to share mate- OIG typically acts as part of an investiga- rial with civil DOJ personnel absent a court tory team with DOJ advancing qui tam order. A grand jury subpoena reflects that cases. OIG has authority to issue admin- there is an open criminal investigation and istrative subpoenas pursuant to 5 U.S.C. that a federal prosecutor has been assigned app. 3 §6(a)(4). These are documentary to the matter. In addition, a grand jury sub- requests, and subpoena enforcement pro- poena for documents may be accompanied ceedingsceeeddidinngs area handled by DOJ.41 While the by a target letter. Most districts encourage auauthorizinguthorriiiziin statute doesd notn specifyspecifyy sanc-s c- prosecutorsprosecutors ttoo aadvise individuals and enti- titionsons foforr fafailureure to comcomply,mply, cocourtsu ts con-n- ties of theirtheir statuss a as a target.44 sistentlysteenttly enforce Inspector General (IG) Since 2009, the use of Civil Investigatory subpoenas where (i) they are issued within Demands (CIDs) has increased dramati- the statutory authority of the agency, cally. CIDs are typically used when the (ii) the material sought is reasonably rel- government is investigating qui tam alle- evant, and (iii) the requests are not unrea- gations. DOJ civil attorneys can use CIDs sonably broad or unduly burdensome. In to obtain both documents and testimony. most cases, receipt of an IG subpoena is a Unlike traditional Rule 26 civil discovery, signal that a company has been sued in a CIDs are employed by the government sealed qui tam. IG subpoenas are typically before litigation has commenced. This handled by attorneys in the civil section of fact alone makes it difficult to seek judi- the U.S. Attorney’s office or main justice. cial review or to attempt to set appropriate Documents produced pursuant to an IG limits. subpoena can be shared widely across gov- Prior to the Fraud Enforcement and ernment agencies. Recovery Act (FERA) in 2009, only the HIPAA authorized DOJ to issue subpoe- Attorney General could authorize issu- nas for documents and testimony in inves- ance of a CID. FERA allowed the Attorney tigations relating to “any act or activity General to delegate the power to issue involving a federal healthcare offense.”42 CIDs to U.S. Attorneys and the AAG for the HIPAA subpoenas are sometimes referred Civil Division.45 As a result, CIDs now are to as Authorized Investigative Demands issued with frequency to compel sworn tes- (AIDs).43 U.S. Attorneys’ offices may issue timony.46 DOJ may issue a CID if there is HIPAA subpoenas directly without involv- any “reason to believe that any person may ing agents. Documents and testimony be in possession, custody, or control of doc- obtained through these subpoenas may be umentary material or information relevant

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to a false claims law investigation.”47 While As soon as the company assesses the state a subpoena can only call for production of of its records and its ability to comply, coun- documents, CIDs can require a company sel should seek to narrow the request to to: (1) produce documents with a sworn the simplest universe of relevant material. certificate; (2) answer interrogatories; or Common topics of discussion include time (3) give testimony. The government may periods, custodians, refining broad requests, share any information obtained through a response times, electronically stored infor- CID with the qui tam relator, so long as the mation (ESI) issues, and privilege. government “determine[s] it is necessary as part of any false claims act investigation.” Disclosure of Investigation For public companies, disclosing an inves- Responding to Subpoenas tigation can be a complicated decision that Prior to interacting with DOJ to discuss will have significant business and legal ram- the subpoena, counsel should attempt to ifications. Companies will want to consult understand the scope of the requests and with their securities counsel to make this how the manufacturer retains responsive decision. In general, securities laws impose material. For every kind of subpoena, a duty to disclose specific events that may hold notices should be provided to rele- arise during an investigation. For example, vant personnel to assure that responsive a company must disclose when an investi- material is not destroyed or lost prior gation has grown to the point where there to collection. If the language in the sub- is a “material pending legal proceeding,” or poena is clear and easily understandable, where such a proceeding is “known to be thethhe ssubpoenauubpbpo request language can be contemplated” by a governmental author- usedusseddi iinn ththeh hold. IIff nonot,t, cocounselunsel shshouldld ity, or whwherehere a ddirector is a defendant in a craftcrraft tthee hhoholdd in sisimplemple aandndd brbroadoad tetermsms pendingpending criminalcrimin proceeding.48 to aassuassureur employees understand what is required of them. CONCLUSION Responding to subpoenas sets the tone After years of an intense focus on pharma- for the investigation in most matters. The ceutical and medical device manufacturers, government expects a quick and knowl- ongoing investigations appear to indicate edgeable response. While the topics and that the government will continue to focus subpoena are new to the company, the gov- on these sectors in the health care market. ernment may have spent months investi- Knowing the process, understanding how gating prior to issuing a subpoena. Counsel the government is proceeding, and making needs to take three immediate steps: sound decisions can reduce the expense of (i) review the requests, (ii) select who will handling an investigation. It requires build- interact with government, and (iii) issue a ing credibility with the government by hold notice after discussing the hold with understanding the evidence, keeping your the government attorney. In addition, word, acting in good faith, communicating counsel at publicly traded companies need openly, and avoiding gamesmanship. to consult with their securities counsel to ascertain if public disclosure is required. Endnotes: Given all the ways that information is cre- 1. False Claims Act, ch. 67, 12 Stat. 696 (1863)(codified ated, stored, and deleted, the ability to sat- as amended at 31 U.S.C. §§ 232-235). The FCA is isfy enforcers that responsive documents believed to be based on qui tam laws dating back and communications are being retained, to the middle ages in England. Charles Doyle, Qui Tam: The False Claims Act and Related Federal Statutes, reviewed, and produced is an important Congressional Research Service (Aug. 6, 2009). In aspect of successfully responding to and 1318, King Edward II allowed a 33 percent recov- defending against governmental action. ery share to individuals who won claims against

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officials who moonlighted as wine merchants. Id. program or interest, and if the United States “[A]pproximately $29.4 billion [has been] returned Government … provides or has provided any portion by the HCFAC account to the Medicare Trust Funds of the money or property requested or demanded.” since the inception of the Program in 1997.” 2015 9. The Bipartisan Budget Act of 2015 contains a sec- HCFAC Report at 1. tion entitled the “Federal Civil Penalties Inflation 2. Id. By most accountings, health care companies Adjustment Act Improvements Act of 2015” that account for approximately two-thirds of the $30 requires federal agencies to update the level of their billion. DOJ claims it has received over $26 billion civil monetary penalties to account for inflation. See in payments from settling FCA actions since 2009. H.R. 1314, 114th Cong. § 701 (as passed by the House Dept. of Justice, Press Release, Justice Department and Senate, Oct. 30, 2015) (amending the Federal Recovers Over $3.5 Billion From False Claims Act Civil Penalties Inflation Adjustment Act of 1990, 28 Cases in Fiscal Year 2015 (Dec. 3, 2015), available U.S.C. § 2461 note). As agencies adjust their penalty at www.justice.gov/opa/pr/justice-department- provisions, defendants might see penalties that recovers-over-35-billion-false-claims-act-cases-fiscal- exceed $21,000 per claim. Notably, most settled FCA year-2015. cases do not involve the payment of penalties. See 3. Press Release, Dept. of Justice, Justice Department also 31 U.S.C. § 3729(a); see also 28 C.F.R. § 85.3. Celebrates 25th Anniversary of False Claims Act 10. Defined as “having a tendency to influence or be Amendments of 1986 (Jan. 31, 2012), available at capable of influencing payment or receipt of money www.justice.gov/opa/pr/2012/January/12-ag-142. or property.” 31 U.S.C. § 3729(b)(4). html (“[a]mong the top settlements the govern- 11. Defined as “an established duty, whether or ment has achieved since the passage of the 1986 not fixed, arising from an express or implied amendments are the following, which include, in contractual … relationship, from statute or regula- some cases, criminal and state civil recoveries: $2.2 tion, or from the retention of any overpayment.” billion – J&J (2013); $2.3 billion – Pfizer Inc. (2010); Id. at § 3729(b)(3). $1.7 billion – Columbia/HCA I & II (2000 and 2003); 12. Id. at § 3729(a)(1)(6). $1.4 billion – (2009); $950 13. See Conner, 543 F.3d at 1217 (citing Mikes v. Straus, milliomillion – Merck Sharp & Dohme (2011); $923 mil- 274 F.3d 687, 697 (2d Cir. 2001)). liolionon – TeTeneten Healthcare Corporation (2006); $875 14. See 42 U.S.C. § 1320a-7b(b). mmilliomillionon – TTAP PharmacePharmaceuticalss (2002);200 ); $$750 million – 15. United Statese v. Katsa , 871 F.2d 105 (9th Cir. 1989); GGlaxGlaxoSmithKlineoSmmi ne (2010);(2010); $704$704 millionmi on – Serono,Se ono S.A.A. United StatesStates vv.. GGreber, 760 F.2d 68 (3d Cir.), cert. (2(2005);20055); $6 $$65050 millionlion – MMerckerck (2(2008);008); aandnd $$6343 millimillion – denieddeniedd, 47474 U.S. U S 988 (1985); see also United States PPurdued Pharma (2007)”). ex rel. Nevyas v. Allergan, no. 2:09-cv-00432 (E.D. Pa.), 4. “U.S. health care spending grew 5.8 percent in 2015, n.1, ¶5 (citing Greber, 760 F.2d at 69). reaching $3.2 trillion or $9,990 per person. As a share 16. 42 U.S.C. § 1320a-7b(g). of the nation’s GDP, health spending accounted 17. The most commonly used safe harbors or statutory for 17.8 percent.” See CMS, The National Health exceptions for manufacturers in their interactions Expenditure Accounts (NHEA) Report, Dec. 6, 2016 with health care professionals are: (1) the personal www.cms.gov/research-statistics-data-and-systems/ services safe harbor; (2) the discount safe harbor; and statistics-trends-and-reports/nationalhealthexpenddata/ (3) space or equipment rental safe harbor. While the nationalhealthaccountshistorical.html. OIG has asserted that safe harbor protection requires 5. See Cegedim Strategic Data, 2012 U.S. exacting compliance with all of the requirements, Pharmaceutical Company Promotion Spending it has also noted that noncompliance with a safe (2013), www.skainfo.com/health_care_market_ harbor does not make an arrangement illegal per se reports/2012_promotional_spending.pdf. because, as an intent based statute, each arrange- 6. See Larkin, Ang, Steinhart, et. al., Association ment must be evaluated on a case-by-case basis to Between Academic Medical Center Pharmaceutical assess the intent of the parties. Detailing Policies and Physician Prescribing, JAMA, 18. OIG Compliance Program Guidance for 317(17):1785-1795 (May 2, 2017). Pharmaceutical Manufacturers, 68 Fed. Reg. 23731, 7. Defined as (1) actual knowledge that the claim or 23734 (May 5, 2003). statement was false; (2) deliberate ignorance of truth 19. OIG A.O. 02-12 (Aug. 30, 2002). or falsity of the claim or statement; or (3) reckless 20. OIG A.O. 12-19 (Dec. 7, 2012). disregard of the truth or falsity of the claim or state- 21. 21 U.S.C. § 331(a). ment. 31 U.S.C. § 3729. However, the government is 22. A “new drug” is defined as one whose composition not required to prove specific intent to defraud. has not been recognized by qualified experts as safe 8. Defined as “any request or demand … for money and effective for the intended use. 21 U.S.C. § 321(p). or property” that: “(i) is presented to an officer, 23. 21 U.S.C. § 352(f). employee, or agent of the United States,” or “(ii) is 24. United States ex rel. DJ Partnership v. ISTA, No. 1:11- made to a contractor, grantee, or other recipient, if cv-00367 (W.D.N.Y.) Complaint at ¶¶ 271–83. the money or property is to be spent or used on the 25. See also United States ex rel. Harris et al. v. Shire PLC, Government’s behalf or to advance a Government No. 1:09-cv-06994 (N.D. Ill.).

Journal of Health Care Compliance — July–August 2017 13 The Most Challenging Compliance Arena in Health Care

26. See United States ex rel. Alexander et al. v. Warner spoke between 40-80 times in 2013; and (5) Teva Chilcott PLC, et al., No. 1:11-cv-10545 (D. Mass.), Third violated the PhRMA Code, and did not complete any Amended Complaint (Aug. 22, 2013). business needs-assessments or fair market value 27. U.S. ex rel. Ameer v. Respironics, Inc. No. 2:14-cv- (FMV) analysis before paying speakers. Instead, Teva 02077 (D.S.C.). added paid speakers on the basis of return on invest- 28. United States ex rel. Cestra, v. Cephalon Inc., et al., ment (ROI) analysis, which measured which speakers No. 2:14-cv-01842, Memorandum at p. 3 (E.D. Pa. were more likely to prescribe Teva’s drugs or increase Jun. 3, 2015)(citing ¶¶ 219-37 of relator Cestra’s their prescribing. Second Amended Complaint). 34. S. Ct. 2653 (2011). 29. United States ex rel. Bawduniak v. Biogen Idec, Inc., 35. 703 F.3d 149 (2012). No. 1:12-cv-10601 (D. Mass.) Second Amended 36. 447 U.S. 557 (1980). Complaint. 37. Id. at 166-67. 30. U.S. ex rel. Kroening v. Forest Pharm. et al., No. 2:12- 38. Given the prevalence of investigations, it is critical cv-00366 (E.D. Wisc.), Second Amended Complaint that compliance and counsel decide in advance if (alleging that Forest: (i) paid kickbacks to physi- they want any internal investigation to be covered cians in the form of speaker fees ($1,000 - $1,250 by attorney-client privilege. Where issues are highly per event), among other things, to induce them to complex and involve assessments of intent that may prescribe Forest products--so called “Pay-to-Play” turn on a nuanced review of material, it is wise to scheme; (ii) targeted high prescribers for alleged conduct an internal investigation under privilege kickbacks; (iii) conducted return-on-investment that will allow for attorneys to have a good-faith, (ROI) analysis on speaker fees and other payments fulsome exploration of the conduct and the legal to see whether HCPs increased prescriptions, which implications. Two recent decisions make clear that included tracking HCP weekly Rx data; and (iv) some courts will not hesitate to order the release of speaker programs were shams, with little/no educa- attorney-client communications if an internal inves- tional content, no prescribing attendees or only one tigation is not carefully initiated. In United States ex attendee, often a “friend” of the speaker, and/or lav- rel. Baklid-Kunz v. Halifax Hospital Medical Center, Case ishsh entertainmente venues not conducive to learning. No: 6:09-cv-1002, 2012 U.S. Dist. LEXIS 158944 (M.D. 31.11. UUniteUniteded SStStates ex rel. Cestra, v. Cephalonp Inc., et al., No. Fla. Nov. 6, 2012), the court ruled that hundreds of 22:14-cv-01842:14:14--cv-cv-010 2 (E.D.( D. Pa.) Third AmendedAmended CoComplaint;pa documentsts ccreatedeate by or directed to in-house coun- UUniteUniteded SStaStates exx rel.el. BoisBoisee et alal., vv. CCephalon,phalon, Inc.,c., selel and ccomplianceomp a were not protected. The court etttal al.,. NoNo.o 2:02:08-cv-00287v-0028 (E.D. PaPa.),,Th Thirdird Amended Am nde ddeterminedeterm ed that t a while communications with outside CComplaint. counsel enjoy a presumption of protection, commu- 32. United States ex rel. Brown and Vezeau, v. Pfizer, Inc., nications between in-house counsel and corporate No. 2:05-cv-06795 (E.D. Pa.)(alleging that Pfizer: employees do not, and the organization has the (1) paid kickbacks to HCP in the form of speaker fees burden of establishing that each communication is and training fees (both $1,500 each); (2) created a privileged. Perhaps more disturbing, in United States “national network of 350-400” paid Vfend speakers, ex rel. Barko v. Halliburton Co., 2014 U.S. Dist. LEXIS including over 200 KOLs by September 2001 prior 30866 (D.D.C. Mar. 11, 2014), the court compelled to Vfend’s launch to “carry the VFend off-label mes- production of internal investigation materials. This sage”; (3) designated “high volume” prescribing phy- case highlights the risk associated with having in- sicians as “fellows” or “Pfizer Crusaders” and then paid house personnel involved with internal investiga- for their dining and other expenses in connection tions. Before counsel starts to make inquiries into the with industry and Pfizer sponsored events as well as underlying facts, they should carefully consider why vacation schedules. and how to achieve their goals. If counsel intends 33. United States ex rel. Arnstein et al. v. Teva Pharm. et al., to have privileged communications, then it should No. 1:13-cv-03702 (S.D.N.Y.)(alleging that: (1) Teva be stated explicitly that the communication is privi- paid physicians to serve as speakers and consultants leged and that counsel has been asked for and is ($1,500 - $2,700 for each program) in connection providing legal advice. with sham speaker program and events in violation 39. See United States v. Medine, 992 F.2d 573, 579 (6th Cir. of the AKS; (2) physicians were only permitted to 1993); United States v. Matlock, 491 F.2d 504 (6th Cir. remain as speakers if they increased the number of 1974); Gregory v. United States, 369 F.2d 185, 188 (D.C. prescriptions written for Copaxone or Azilect; (3) in Cir. 1966). 2011, Teva hosted 1,329 speaker programs, which 40. The “ warning” takes its name from the Upjohn increased to 5,036 in 2012, and roughly 4,600 in Co. v. United States decision in which the Court held 2013. The complaint states that Teva trained approxi- that communications between company counsel mately 420 speakers for Copaxone® and 410 for and employees of the company are privileged, but Azilect.® Relators include a list of speakers in their the privilege is owned by the company and not the complaint and allege that Teva paid more than $10 employee. The purpose of the warning is to remove million in speaker fees in 2012 alone and more than any doubt that the lawyer speaking to the employee this amount in 2013 and 2014.; (4) certain physicians represents the company, and not the employee.

14 Journal of Health Care Compliance — July–August 2017 The Most Challenging Compliance Arena in Health Care

Upjohn Co. v. United States, 449 U.S. 383 (1981). foia_reading_room/usam/title9/11mcrm. Further, after the issuance of the Yates Memorandum, htm#9-11.153. cooperation on behalf of a manufacturer may 45. See Fraud Enforcement and Recovery Act of 2009, involve relaying detailed information about an indi- Pub. L. No. 111-21, 123 Stat. 1616, 1622 (2009). vidual and their conduct to the DOJ. Department 46. U.S.C. § 3733(a)(1); Ty Howard, Litigation: of Justice: Sally Quillian Yates, Memorandum Re. Examining the False Claims Act and civil investiga- Individual Accountability for Corporate Wrongdoing tive demands, Inside Counsel (Sept. 5, 2013), avail- (September 9, 2015), available at bit.ly/justice-dag able at www.insidecounsel.com/2013/09/05/ (hereinafter the “Yates Memo”). In the interest of fair- litigation-examining-the-false-claims-act-and-civi. ness to individuals, it may be worth explaining after 47. 31 U.S.C. § 3733(a)(1). the Upjohn warning what the Yates Memo means 48. See 17 C.F.R. § 229.103 (2009) (disclosure of “legal and how it operates. proceedings”); id. at § 229.401(f ) (disclosure con- 41. See 28 U.S.C. §§ 516-19. cerning involvement of directors or executive offi- 42. Pub. L. No. 104-191, § 248, 110 Stat. 1936, 2018 (codi- cers in certain legal proceedings). But even where fied at 18 U.S.C. § 3486 (2000). See 18 U.S.C. § 3486. specific disclosure requirements are set forth as in 43. 18 U.S.C. §3486(a)(1)(A)(i)(I). United States Securities and Exchange Commission 44. United States Attorney’s Manual § 9-11.15, (“SEC”) Form 8-K or Regulation S-K, those require- available at http://www.justice. gov/usao/eousa/ ments are subject to interpretation.

Reprinted from Journal of Health Care Compliance, Volume 19, Number 4, July–August 2017, pages 5–15, with permission from CCH and Wolters Kluwer. For permission to reprint, e-mail [email protected].