VOL. III, ISSUE 11/JULY 30, 2004 COMPLIANCE REPORT EXCLUSIVELY DEVOTED TO PHARMACEUTICAL SALES AND MARKETING COMPLIANCE

Eight TAP sales execs acquitted of bribing doctors Defense attorneys say verdict is major setback to government efforts to “criminalize” longstanding sales and marketing practices

n July 14, a federal jury acquitted eight sales managers of TAP Pharmaceutical Products, Inc., finding Othat trips and gifts to physicians prescribing the company’s prostate cancer drug Lupron were not illegal. Prosecutors attempted to prove the trips and gifts were kickbacks or bribes offered in exchange for prescriptions. The verdict is serious a blow to the efforts of the U.S. Attorney’s office in Boston to criminalize many longstanding sales and marketing practices, say several of the defendant’s attorneys in the case. The acquittals will almost certainly cause prosecutors at the Department of Justice to think twice about pursuing novel theories and alleging conduct as criminal when people never knew what the rules were, says Royal Martin, a partner with Martin, Brown & Sullivan, in Chicago, who represented Carey Smith, one of IN THIS ISSUE the defendants. “The U.S. Attorney’s office in Boston, led by Michael Loucks, thought they were W Eight TAP sales execs acquitted of bribing cutting edge in the theories espoused in this doctors. Defense attorneys say verdict is major setback for prosecution,” says Martin. “It turned out that they government (p. 1) didn’t cut anywhere.” W cont.page 2 Cross-examination of whistleblower helps doom government’s case (p. 4) Drug pricing suits continue W DRUG PRICING. Drug pricing suits continue to plague pharma companies (p.1) to plague pharma

HHS issues proposed regs for new Medicare Drug Florida targets six drug makers Benefit: Are Brand Drug Companies Ready? (p. 11) ecent settlements appear to have wetted W INVESTIGATIONS. Sales and marketing in the pharma- the appetite of a growing list of states ceutical industry: The “Perfect Legal Storm” (p. 6) R and others suing pharma companies for W . Pharma threatened by implied overcharging for drugs. Last year, certification theory. Former DOJ attorney outlines new threat facing drug and device makers (p. 9) Massachusetts filed suit against generic drug manufacturers for allegedly overcharging the W IN THE NEWS: Growing list of states seek to regulate state. Since that time, as predicted, a wave of sales reps (p. 12) suits have followed. W Study finds conflicts in journal articles (p. 12) Last week, Florida Attorney General Charlie Crist issued civil subpoenas to six W Gambro reaches $310 million deal with DOJ (p. 13) pharmaceutical manufacturers regarding their W Administration taps GSA IG for HHS post (p. 13) wholesale pricing practices. Crist estimates the overcharges to the Medicaid program could W CALENDAR OF EVENTS. (p. 14) exceed $100 million. W cont. page 10 Eight TAP sales execs acquitted of bribing doctors W Continued from page 1

The government charged the TAP employees with was perfectly legal at the time,” says Martin, “the fair violating the anti-kickback statute for having provided way to approach it would have been to put the educational grants to hospitals, says Martin, when the industry on notice through the HHS Office of money was used for such legitimate educational Inspector General that certain behavior is viewed as purposes as funding visitor professor programs. The criminal and that if they continue to engage in it you government also charged individuals with kickbacks are subject to criminal prosecution.” under the anti-kickback statute for providing In addition, the defendants’ attorneys appear to textbooks to residents at teaching hospitals. have convinced jurors that gifts and many events were “I have never seen a prosecution brought legitimately designed to educate doctors. anywhere in the country, other than in Boston, based upon these kinds of facts,” says Martin. “These were “Clear as mud” novel theories advanced by the government,” he adds, During the course of the trial, Martin says U.S. “and obviously the jury didn’t buy it.” District Judge Douglas Woodlock “substantially David Stetler of Stetler & Duffy in Chicago, who narrowed” the scope of the charges by the government successfully defended former TAP vice president Alan because he believed that some of things they allege in MacKenzie, one of the eight sales managers found the indictment and the theories that they were innocent, takes a similar view. Stetler says he hopes pursuing simply were not violations of the law. the verdict means the government will be more careful Stetler reports that the judge expressed skepticism when deciding to bring criminal charges. “I do not, in “at many different points” of the trial in terms of his the least, question the good faith of the government in view of the evidence or lack of evidence. “If you are bringing the allegations that it brought,” he says. “But dealing in a civil context with the False Claims Act, I I must say that they really did not rely on facts as think it means one thing to bring innovative new much as they should have.” Instead, Stetler says the theories,” he says. “But when you are talking about government relied on legal theories that were “quite a costing people their freedom, it is quite another.” stretch.” Stetler says he argued to the jury that the In light of the jury’s “well-defined rejection” of government had a theory that the defendants acted the government’s theories in this case, Martin says he improperly in failing hopes the government will be more cautious in to have certain theorizing that certain conduct is criminal. “This was discount language “These were novel not the kind of case where anybody could view the included on invoices. theories advanced by conduct at issue as genuinely criminal,” he argues. “The law in that area is, quite frankly, clear the government,” “Everybody was doing it” as mud,” says Stetler. Federal prosecutors, including Loucks, have pointedly Judge Woodlock says defense counsel warned pharma companies that the “everybody was studied the Royal Martin, “and doing it” defense won’t pass muster. In this case, government’s however, it appears to have influenced the jury to argument “very obviously the jury some degree. The jurors, who reached their verdict in carefully” and sided didn’t buy it.” less than four days after a three-month trial, appeared with the defendants, persuaded by arguments that trips to posh resorts and he reports. five-figure education grants provided by TAP were According to routine business practices. Moreover, the defendants’ Stetler, the whole reimbursement process for Medicare attorneys were successful in persuading the jury that was predicated on the “concededly artificial price” the case lacked a conspiracy, in part because many of known as Average Wholesale Price (AWP). the current and former sales managers on trial worked “Everybody knows it,” he says. “Congress and CMS in different parts of the country and did not know have done studies and Congress declined to change each other. the law as recently as a few years ago.” “When you take conduct that everybody believes

JULY 30, 2004 Rx COMPLIANCE REPORT 2 It is well known that a spread existed because and not to a doctor it was not a kickback as defined doctors are underpaid in other respects, adds Stetler. by law (See Rx Compliance Report, June 8, 2004). “To recognize there is a spread and to tell a doctor The trial followed an eight-year investigation into there is a spread can hardly be called an inducement TAP’s marketing practices for its prostate cancer drug when that is the reimbursement scheme Congress Lupron, one of the government's first investigations in devised,” he argues. a widening spotlight on the industry. “I have tried a lot of criminal cases and I have had TAP agreed to pay $875 million in October 2001 the government have it wrong before,” says Stetler, to settle charges it inflated prices and bribed doctors “but I have never had them have it so wrong.” to prescribe its top-selling prostate cancer drug, Also acquitted were Donald Patton, former TAP Lupron. TAP agreed to plead guilty to conspiracy to vice president of marketing; Eric Otterbein, TAP’s violate the Prescription Drug Marketing Act and director of sales training; Rita Jokiaho, a TAP district settled civil liabilities to the federal government and manager in Massachusetts; Mark Smith, a TAP all 50 states and the district sales manager in Ohio; Henry Van Mourik, a District of district sales manager from California; and Donna Columbia. “To recognize there Tom, a former TAP district sales manager in New Defense Yo rk . attorneys caution is a spread and to Federal prosecutors in Boston earlier won guilty that drug and device tell a doctor there pleas or verdicts against three other former TAP sales companies should representatives as well as four doctors. Most recently, not read too much is a spread can former TAP regional account manager Joanne into this case. While hardly be called an Richardson of Tyngsboro, MA, was sentenced in the verdict is April to six months in prison after being found guilty important, especially inducement when of lying to a federal grand jury in 2000 about the for individuals, the drugmaker's gift-giving practices in marketing government still has that is the Lupron. enormous leverage reimbursement In 2002, former sales representative Jennifer over companies. This Krebsbach was sentenced to nine months’ probation is especially true scheme Congress and fined $500 for illegally giving free drug samples to given the recent devised,” says defense a doctor. emphasis the government has counsel David Stetler. Further acquittals loom placed on the threat Kimberlee Chase of Dover, Mass., pleaded guilty in of exclusion. December to conspiring to give inducements to Needless to say, TAP welcomed the verdict. Over physicians in order to defraud Medicare. the past several years, TAP’s Katherine Stueland says In what would be a highly unusual move, U.S. the company has helped redefine what it means to be District Judge Douglas Woodlock is considering committed to the highest ethical standards. “Our whether to vacate an earlier plea in the wake of the ethics and compliance program is central to our three-month jury trial and acquittals over which he corporate culture,” she says. “We expect our presided. “I found that the legal and factual bases employees to do what’s right, not just what’s required upon which I accepted the plea… were subject to by law.” ■ substantial refinement,” Woodlock wrote July 15. “That refinement was so significant that I have come See the August 16, 2004 issue of Rx Compliance to question whether I would have accepted Ms. Report for details on how TAP is measuring the Chase’s plea if I had known then what I know now." effectiveness of its compliance program. Two other defendants were acquitted and another ■ Royal Martin, Martin, Brown & Sullivan, Chicago, had charges against him dropped before the verdict. [email protected] Janice Swirski, who was accused of bribing an ■ David Stetler, Stetler & Duffy, Chicago, HMO in order to win prescriptions for Lupron, was [email protected] acquitted after her attorneys argued successfully that because the payment was allegedly made to an HMO ■ Katherine Stueland, TAP Pharmaceuticals, [email protected]

JULY 30, 2004 Rx COMPLIANCE REPORT 3 Cross-examination of whistleblower helps doom government’s case against eight TAP sales executives he cross-examination of Doug Durand, the Julius Erving or all the widely accepted risk factors for Tgovernment’s star witness in the case against prostate cancer that Tarun says were common eight current and former TAP sales executives, knowledge among Lupron salespeople. helped doom the government’s case, says Bob Tarun, “These points were devastating for a man who who represented Eric Otterbein, TAP’s director of was in charge of sales and a licensed pharmacist with sales training. twenty five years in the industry,” says Tarun. According to Tarun, for ten years a federal In light of the $124 million bounty Durand prosecutor and an experienced trial lawyer with more collected as a whistleblower in the government’s cases than fifty federal jury trials and twenty-five years against TAP and AstraZeneca, Tarun argues that it experience in business litigation, corporate internal may be time to grant judges discretion to review and investigations and white-collar criminal cases, approve large government rewards to individual Durand’s testimony was notable for what he didn’t whistleblowers. know as well as for his huge reward. Bill Kettlewell of Dwyer & Collora in Boston For example, Tarun says Durand did not have a followed Tarun and crossed Durand on the fact that single instance of firsthand personal knowledge of a he had received a $255,000 payout from his prior single physician billing for samples. In addition, employer, Merck & Co., and had not disclosed to Durand did not know the chemical name of the TAP the confidential circumstances of his departure blockbuster drug Lupron that he was in charge of from Merck. While Durand could not recall the marketing even though he is a licensed pharmacist. details of the blockbuster prostate cancer product that “Every other salesperson could rattle off the name TAP sold, he knew to the dollar the amount he had to Leupralide Acetate off his tongue within one week of pay the IRS on his bounty income: $27,818,360. working at TAP,” says Tarun, a partner with Latham Kettlewell established on cross that Durand explored & Watkins in Chicago. Nor could Durand cite the the possibility of a whistleblower suit before he left number of units of Lupron that TAP sold even within TAP. a range half a million units, reports Tarun. Durand also failed to name the spokespeople TAP Here are excerpts of Tarun’s cross-examination of used to appeal to older men such as Ed Asner and Durand on the eighth day of the trial on April 28, 2004:

Q: Now, let me address Lupron, which — am I bones of a large number of men with advanced correct, that was by far and away the largest revenue- prostate cancer? producer for TAP? A: I don’t recall ever saying or reading that. I don’t — A: At that point in time, yes, sir. Q: That’s not my question, sir. Q: All right. And what is the TAP chemical or A: Okay. technical name for Lupron? Q: My question is did you believe, as the head A: Leuprolide. I don’t know, leuprolide is the generic salesman, that this was a drug that greatly reduced the name for it. pain in men with advanced prostate cancer> Q: You’re not familiar with the name leuprolide A: I don’t know that. acetate? Q: All right. You believe that Lupron was a superior A: I am now. I didn’t remember it was acetate. product to that of its competitors? Q: And that was the number one medication that A: To Zoladex, yes. TAP had, correct? Q: And your understanding in 1995, and belief, was A: Yes. that Lupron was a more comfortable injection for Q: Would it be fair to say that you believed, as the patients than Zoladex? sales head, that Lupron greatly reduced pain in the A: Yes, sir.

JULY 30, 2004 Rx COMPLIANCE REPORT 4 Q: And if there was a choice for you, as a patient with A: Yes. advanced prostate cancer, you would have chosen Q: And TAP served over 8,000 urologists, right, at that Lupron? time? A: I can’t say that. That’s hypothetical. I couldn’t A: I don’t remember the 8,000 number, but that probably answer that. — given the number of urologists in the United States, Q: Do you recall being asked that in your deposition that probably would be an accurate number. and answering yes, that you would have chosen Tarun continues the cross-examination… Lupron? Q: Now, during 1995, early in 1996, did you go along A: If it was recommended between the two products. with any of the 400 reps, if we can say that, the I’m just saying if there were other things offered to me, approximate number at that point, on what were called surgery or other, I don’t know what my answer would ride-alongs? be. But if it was between Lupron and Zoladex, yes, the answer is Lupron. But if there were radiation, other — A: A field trip. I went out a couple times, yes. that’s what I meant by hypothetical, sir. Q: How many times would you estimate you went on a Q: Okay. Now you were asked about sales of Lupron ride-along or a field trip? in 1995 by Mr. Loucks. Can you tell us approximately A: Two or three, maybe. how many Lupron 7.5 milligram units your salespeople Q: And do you recall those sales reps that you went with? sold in your one full year at TAP? A: I can’t remember their — well — no, I don’t think I A: No, I could not. remember any of their names. Q: Can you give it to me within 100,000 units? Q: Do you remember what states they were in? A: No, I cannot. A: One in Massachusetts, in August of ’95, and then a Q: Can you give it to me within a quarter million units? couple — I think two different times in California. A: No. Q: And did you ask those sales reps in the field whether Q: A half million units? they had given free samples to doctors? A: I’m — probably — no, I can’t do the math. I’m A: No, sir. having trouble doing the math in my head. It would Q: Did you ask those sales reps in the field, on your ride- whatever roughly 750 million divided by average sales alongs, whether they gave free samples to doctors with price at 350 would be, and I just can’t do that one in my the knowledge that the doctors would bill Medicare? head, the total number of units. A: No, sir. Q: Would the number 1.526 million sound about right Q: And that was sometime in August of 1995? for the total number of units of Lupron sold in 1995? A: The first — the one in Massachusetts was August. I MR. LOUCKS: Objection. had one in California, the one that I mentioned earlier, THE COURT: Overruled. where I saw the televisions. That was Long Beach, A: I — California, area. And then I also believe I rode with a Kaiser representative up in the Northern California area Q: No idea? one time. A: No, I just don’t know. Q: So, I take it as you sit here today, you do not have any Q: All right. Do you have any doubt that from 1992 to direct personal knowledge from 1995 of either a 2000 TAP sold over 10 million Lupron units, 7.5 physician billing samples or a TAP employee encouraging milligram? a physician to bill for samples? A:I have no reason to doubt that. A: That, I do not, no.

Q: Now, I think you related some conversation or event ■ Bill Kettlewell, Partner, Dwyer & Collora, Boston, about having heard from somebody that some [email protected] physicians may have billed Lupron. Do you recall that on direct examination? ■ Robert Tarun, Partner, Latham & Watkins, Chicago, [email protected]

JULY 30, 2004 Rx COMPLIANCE REPORT 5 Investigations Sales and marketing in the : At the vortex of the “Perfect Legal Storm” Leading defense attorney outlines the scope of emerging fraud theories

he False Claims Act has been the driving force imagine, this statute has become something of a Tbehind health care fraud prosecutions for many magnet for opportunistic plaintiffs counsel who allege years. That is not likely to change given the flood of that they have been aggrieved or offended by certain whistleblower suits reported by qui tam attorneys. conduct,” he reports. However, leading defense counsel Paul Kalb What is important about these laws, says Kalb, is maintains that in order to understand the scope of that the focus under these laws is not the defendant’s emerging investigations, drug and device companies intent. “There is no obligation to prove that the should also pay close attention to at least five other defendant knowingly did something wrong. Rather, he areas of the law: consumer protection statutes, anti- says, the focus is on whether a consumer has been kickback statutes, the Food, Drug and Cosmetic Act, deceived, which, he says, is a much different question, product liability laws, and the Social Security Act. and may be a much easier one to prove. Moreover, he says companies must understand how these statutes are increasingly being used in III. Anti-Kickback Statute. The third major conjunction with one another. statutory scheme is the anti-kickback statute, which Kalb, a partner at Sidley Austin Brown & Wood, has also become very familiar to most drug and device LLP, in Washington, DC, and head of the firm’s companies. national Health Care Group, outlined these emerging Under the anti-kickback statute, which prohibits theories at the Pharma, Device & Biotech Colloquium any remuneration intended to induce the purchase, in Princeton, NJ, June 7, 2004. prescription, or recommendation of drugs, “remuneration” is broadly defined and can involve I. False Claims Act. The basic features of the False anything of value, Claims Act are, by now, well-known including treble says Kalb. “What we are damages plus up to $11,000 per false claim, notes The statute is Kalb. However, two important developments in this reciprocal, which beginning to see is area include new “cause-to-be-submitted” theories puts customers and a plethora of state False Claims Acts (see related equally at risk, he the interaction of story, p. 9). adds. Because of product liability and the breadth of the II. Consumer Protection Statues. According to statute, there are improper Kalb, pharma should pay close attention to consumer numerous protection statutes, which generally prohibit unlawful, exceptions and inducements,” unfair, or deceptive trade practices. Most recently, the roughly twenty says defense attorney Paul Kalb. Washington state Attorney General filed suit against safe harbors, Caremark under this statute. which affirma- “That is where you have the In most states, this statute is the province of the tively permit confluence of fraud and abuse state Attorney General, says Kalb. However, the certain types of California statute is an exception to that general rule. conduct. and patient injury.” In California, this statute, much like the California qui According to tam statute, can be enforced by private parties who Kalb, several of those safe harbors are particularly “can stand in the shoes” of the Attorney General and important to pharma. For example, one safe harbor bring complaints under this law, Kalb explains. covers certain types of bona fide services, specifically Notably, he adds, there is no requirement that those where companies are permitted to purchase such a private party have suffered any injury from the services from customers without the payments being alleged unfair deceptive trade practice. “As one could viewed as illegal inducement.

JULY 30, 2004 Rx COMPLIANCE REPORT 6 Discounts are also safe harbored under certain circumstances, along with administrative fees to group At the vortex of the Perfect Legal Storm: purchasing organizations (GPO). While PBMs may technically not be GPOs, says Kalb, many people Six key statutory schemes believe that, under the right circumstances, PBMs can appropriately be viewed as eligible for the GOPO safe Defense counsel Paul Kalb says drug and device harbor. There are certain managed care arrangements companies should pay close attention to the that also are safe harbored, he adds. relationship of six statutory schemes: According to Kalb, the key point to keep in mind with respect to safe harbors is they apply only if each of I. False Claims Act the many elements of the safe harbor is satisfied. “You ■ have to actually be in the safe harbor to take advantage Thou shalt not knowingly submit, or cause the of the safe harbor,” he explains. submission of, false claims to the government As with the False Claims Act and consumer – “Knowing” includes reckless disregard protection statutes, the anti-kickback statute has many – Treble damages plus up to $11,000/false state law analogues, says Kalb. “The bad news is that claim the state laws do not necessarily track the federal law,” – “Qui tam” (whistleblower) provisions allow he cautions. Moreover, many states do not have safe private individuals to bring claims “on behalf harbors. “That is tough to deal with if you have a of” the government ■ company that is selling in all fifty states,” he says. For State law analogues example, companies offering consumer coupons must determine whether those coupons, while valid under II. Consumer Protection Statues federal law, might nonetheless be illegal under state law. ■ Generally prohibit unlawful, unfair or deceptive trade practices IV. Food, Drug, and Cosmetic Act. Needless to say, Cal. Code §17200 the Food, Drug, and Cosmetic Act (FDCA) itself – Private Attorney General provision impacts sales and marketing activities, says Kalb. Most – No injury requirement importantly, the FDCA prohibits so-called off-label promotion. Yet, says Kalb, that language is not used anywhere in the statute, which comes as a surprise to III. Anti-Kickback Statute many. ■ Thou shalt not knowingly and willfully offer or “In fact, the statutory prohibitions that are give any remuneration intended to induce the interpreted to prohibit off-label promotion are substan- purchase, prescription, or recommendation of tially more complicated,” says Kalb, who predicts cases drugs that explore the more complex provisions. – “Remuneration” is broadly defined What the statute prohibits is “misbranding,” says – Statute is reciprocal Kalb, which is defined to include instances of false and – Numerous exceptions/safe-harbors - e.g., misleading labeling, or where labeling does not bear bona fide services, discounts, employees, GPO adequate directions for use. Another provision, which administrative fees, certain managed care supports the general view that the statute prohibits off- arrangements label promotion, is the prohibition against introducing ■ State law analogues new drugs into interstate commerce unless they are approved, he adds. IV. Food, Drug, and Cosmetic Act According to Kalb, these are the legal underpinnings for the “rule” that companies cannot Misbranding: A drug is “misbranded” if “its promote or market these products for uses not approved labeling is false or misleading in any particular,” in the labeling. or “its labeling” does not “bear[] adequate directions for use.” V. Product Liability Laws. Every state, either by statute, or more commonly by common law, provides w Continued next page remedies for people who are injured by any product

JULY 30, 2004 Rx COMPLIANCE REPORT 7 through negligence or other misconduct by a company, says Kalb. Under certain theories, he adds, there does not have to be misconduct. V. Product Liability Laws For prescription drugs, Kalb says there has always ■ Provide causes of action for patients who suffer been a unique defense known as the “learned injury, generally as a result of negligence or intermediary” doctrine. Under that doctrine, when a other improper conduct of some sort physician makes an independent judgment about how – Prescription drugs: Learned Intermediary to prescribe, that provides a defense to the Defense manufacturer. According to Kalb, where a physician’s judgment has arguably been corrupted by the payment of a VI. Social Security Act kickback, that defense may not be nearly as strong as ■ Among many other substantive provisions: it might otherwise be. “That may be a terribly compli- – Requires HHS OIG mandatorily to exclude cating factor in the defense of product liability cases,” entities from participation in federal health care he says. programs upon conviction of certain crimes – Authorizes HHS permissively to exclude ■ VI. Social Security Act. Finally, Kalb points to the entities under other circumstances Social Security Act, which, among many other substantive provisions, provides for the exclusion of Source: Paul Kalb, Sidley Austin both providers and manufacturers in certain cases. There is a mandatory exclusion of both providers and manufacturers from participating in Medicare and improper inducement cases where someone argues Medicaid if they are convicted of certain program- that a claim to the government was tainted by a related offenses. The HHS OIG also has discretionary kickback,” says Kalb. For example, he points to the authority to exclude companies for lesser offenses (see Parke-Davis case, in which the government argued Rx Compliance Report, June 18, 2004, p. 1). that off-label promotion led to pay money it should “This provides a tremendous amount of power in not otherwise have paid. the hands of the government,” says Kalb. “Ultimately, Likewise, there have been cases under the False the threat of mandatory exclusion is what has driven Claims Act that argue the FDA was duped or a every company that has been faced with indictment product should not have been on the market and the into a settlement.” government should not have paid for it. “We are seeing the same types of cases being brought under Application to sales and marketing 17200, arguing that it is deceptive and a violation of practices the consumer protection statute to give inducements According to Kalb, drug and device makers must or to promote off-label,” he adds. understand the way these various laws intersect. For years, there have been product liability cases Private individuals, who are the most likely to come based on “fraud on the FDA” and off-label across information about potential fraud, have a promotion, adds Kalb. “What we are beginning to see limited number of vehicles for capturing the attention is the interaction of product liability and improper of the government and bringing a case forward. The inducements,” he says, where people make the case False Claims Act and the California consumer that someone was injured as the result of improper protection statute are two obvious vehicles individuals promotion. “That is where you have the confluence of can use to “seize the machinery of government,” he fraud and abuse and patient injury,” says Kalb, which says. he calls “a problem of synergy.” For example, the use of those statutes is not hard These cases do not necessarily occur in isolation to discern in areas such as false claims and AWP. or against only one company, warns Kalb. “You may However, Kalb says these statutes are increasingly find yourself the subject of several of these cases all at being used to bring claims under statutory schemes, once, which creates quite a bit of trouble and a whole such as the anti-kickback statute and the FDCA, in additional set of problems,” he concludes. ■ which private individuals do not have cause of action. “We are increasingly seeing the false claims ■ Paul Kalb, Partner, Sidley Austin, Washington, DC, [email protected]

JULY 30, 2004 Rx COMPLIANCE REPORT 8 False Claims Act Pharma threatened by implied certification theory Former Justice Department attorney outlines new threat facing drug and device makers

ealth care fraud is hardly a new issue, notes aggressive” position in its statement of interest. Hformer Justice Department attorney John Specifically, he says the government was looking Bentivoglio. Then-Attorney General Janet Reno made at the intended end result of the defendant’s conduct. health care fraud a top priority in 1993. Three years “This is a very important theory of liability that the later, HIPAA was enacted, providing new tools and Justice Department is articulating,” he says. “It does resources. Throughout the 1990’s, other sectors were not require that a false statement be made.” targeted, including hospitals, clinical laboratories, In the Neurontin case, the court went so far as to DME suppliers, and nursing homes. Given increased say that the off-label statements of manufacturers do spending on pharmaceuticals in recent years, not have to be themselves false or fraudulent, notes Bentivoglio says it was inevitable that government Bentivoglio. Rather, the court's ruling could be read as scrutiny would increase. saying that unlawful but truthful information to Bentivoglio, now a partner with Arnold & Porter physicians who treat Medicaid patients could create in Washington, DC, points out that all of the key liability under this statute. drivers for health care fraud cases are still in place, “This is extraordinary,” says Bentivoglio. “These including whistleblowers, resources under the HIPAA are truthful and not misleading statements, but the statute, and public outrage at healthcare fraud. court said there is still the potential for liability under However, there are also key differences for pharma, he the False Claims Act.” While that was only one court, adds. it was a fairly influential court given the locus of For one thing, pharmaceutical cases involve more enforcement activity, says Bentivoglio. Moreover, it money than other types of health care fraud cases was not reviewed by an appeals court, which means making them much more attractive to relators, he pharma must now grapple with its meaning, he says. says. Moreover, unlike in the provider context, there is There is a rich body of case law on the implied no way to address minor problems through the certification theory, says Bentivoglio, and the courts overpayment process. “For pharmaceutical companies, have split on whether to embrace this theory. In one every discrete violation of the anti-kickback statute is case, the Ninth District rejected the theory. However, a criminal offense punishable by jail time for some courts have embraced the notion that it does not individuals and, in some cases, potential exclusion for require an actual certification, but rather, by their organizations,” he says. conduct, it could be implied certification and thus result in liability under the False Claims Act. Implied certification theory However, Bentivoglio points out that because of According to Bentivoglio, several new fraud theories the nature of fraud cases against pharma companies, make the future even more uncertain. Specifically, he few courts of appeal have or will ever address this points to the government's support for the “implied issue. In the vast majority of cases, companies simply certification theory,” under which FDA and other cannot pursue these cases in the courtroom because of regulatory violations form the “predicate” violation the threat of exclusion. under the False Claims Act and expose the industry to In short, Bentivoglio says the implied certification significant liability. While the number of cases in this theory driven by whistleblowers presents real risks for area is not great, he says it is enough to constitute an pharmaceutical manufacturers because it is so ominous sign. expansive. “You can imagine a number of theories The False Claims Act makes it unlawful to submit that you could put forward about how unlawful a false claim. However Section A1 of the statute conduct in one area or another caused the makes it unlawful to knowingly “cause” to be government to pay too much,” he concludes. ■ presented a false claim. Bentivoglio points out that ■ John Bentivoglio, Partner, Arnold & Porter, Washington, DC, while the government did not formally intervene in the [email protected] Neurontin case, the government took “a very

JULY 30, 2004 Rx COMPLIANCE REPORT 9 Drug pricing suits continue to plague pharma W Continued from page 1

We want to find out if the overcharging is happening,” The suit cites a recent report by the HHS Office of the said Crist. State officials cited price changes for Inspector General that shows more than 97 percent of products from the six companies: public hospitals paid prices above the legal limit for Pharmaceuticals Inc., Morgantown, WV; Geneva drugs during September 2002. According to the OIG Pharmaceuticals Inc., now owned by Sandoz Inc., in report released June 30, 2004: Broomfield, CO.; Ivax Pharmaceuticals Inc., in Miami; Purepac Pharmaceutical in Cranford, NJ.; ■ Thirty-one percent of the items purchased by public Teva Pharmaceutical Industries Ltd., based in hospitals and community health centers exceeded Jerusalem; and Watson Pharmaceuticals Inc., in the maximum price allowed. Corona, CA. ■ Fifty-three percent of the drugs sampled exceeded The subpoenas reportedly require wholesale the maximum price at least once. pricing and marketing information back to 1994 to ■ Public hospitals overpaid an estimated $41.1 determine whether the reported wholesale prices were million. inflated, resulting in overpayments by the state. Crist requested the information by Aug. 16. The suit asks the courts for a full accounting to Here is a rundown of several other recent actions: determine the extent of the overcharging by drug companies, injunctive relief to prevent further Public hospital sues manufacturers for overcharging, and relief from past overcharges. The overcharging for drugs companies named in the suit are Aventis Pharmaceutical, Inc.; Aventis Behring L.L.C.; Eli Lilly An Alabama public health hospital this month filed and Co.; Merck & Co.; , Inc.; Pharmacia Corp.; suit against several drug companies including Merck, Pharmacia & , Inc.; and -Ayerst Pfizer, and Eli Lilly, claiming the drug manufacturers Laboratories, Inc. have been systematically overcharging public hospitals and community health centers for drugs by as much Texas Attorney General sues three pharma as $500 million per year. companies for Medicaid fraud In a suit filed July 13, 2004, in U.S. District Court in Alabama, Central Alabama Comprehensive Texas Attorney General Greg Abbott last month filed Healthcare Inc., an organization that provides care for a Medicaid fraud whistleblower suit against three drug the indigent, claims major drug manufacturers have makers — , Baxter Healthcare, charged prices far above the maximum allowed by a and B. Braun Medical — alleging that the companies 1992 law designed to provide more healthcare access engaged in a “deliberate scheme to falsely report the to the homeless, the disabled, children, and the poor. wholesale prices of specific drugs and devices The 1992 law requires drug companies to charge prescribed for Medicaid patients.” The plaintiffs are public hospitals and community health centers a price seeking three times the actual damages, currently lower than prices paid by any other public or private estimated at $8 million, plus civil penalties, attorneys’ purchaser. Although drug companies are required to fees and costs from the defendants. give public hospitals the best price, the hospital argues The suit alleges that the companies erroneously they have steadfastly refused to disclose how they reported the prices for various intravenous fluids and calculate prices. other products, which led state and federal Medicaid The suit seeks to represent all public hospitals and programs to reimburse the defendants’ customers at community health centers nationwide that were vastly inflated rates. The Texas AG’s office claims that allegedly overcharged by the drug companies. “In our the alleged activities, dating back to at least 1995, view, the defendants have been hiding the truth from induced customers to favor business relations with the the government and the hospitals for years,” says Steve three drug manufacturers, creating a long-term, albeit Berman, the attorney representing the public hospitals illegal, market niche for them. and community health centers.

JULY 30, 2004 Rx COMPLIANCE REPORT 10 Wisconsin Attorney General sues twenty What does it all mean? firms for inflated wholesale prices Drug pricing expert Carolyn McElroy, a partner with Wisconsin Attorney General Peggy Lautenschlager Mintz Levin in Washington, DC, says that companies last month filed suit against twenty drug companies facing a suit in one state should evaluate whether it for allegedly inflating the wholesale prices. makes sense to approach the government for a global Lautenschlager maintains that because wholesale drug resolution. “Unless there are distinctly different prices are higher than what pharmacies and hospitals factual patterns, as is the case with the Texas Vendor actually pay, consumers, employers, and state agencies Drug Program settlements, it is highly likely that a were defrauded. settlement with one state will result in subsequent The suit alleges that the drug companies know demands from others,” she says. that when they publish false average wholesale prices “These later suits represent an expansion from the (AWPs) they cause the state, its residents, and its original focus on AWP involving a small number of health care organizations to overpay for prescription physician-administered drugs, into a broad range of drugs. It also alleges that some of the drug companies theories involving direct price and wholesaler prices, induced providers to prescribe their drugs by giving or WAC that can potentially impact hundreds of high- away free samples and offering educational grants and volume generic products,” adds McElroy. ■ other discounts. The state is asking that the twenty companies make restitution for all profits realized as a ■ Carolyn McElroy, Partner, Mintz Levin, Washington, DC, [email protected] result of their unlawful conduct. HHS issues proposed regulations for new Medicare prescription drug benefit

t press time, HHS released proposed The rule will go on display July 26 and will be Aregulations for the new Medicare prescription published in the Federal Register August 3. The drug benefit. The proposed regulations, which are comment period on the proposed regulations closes now available for public comment, implement the October 4. Final rules are expected to be issued early essence of the Medicare Modernization Act (MMA) in 2005. Enrollment for the new prescription drug that creates a new voluntary prescription drug plans will begin in the fall of 2005 for benefits starting benefit under Medicare, as well as new health plan January 1, 2006. ■ choices, improved health care for rural America, and improved preventive care benefits. The Centers for Medicare and Medicaid Services (CMS) is seeking comments on all aspects of the Are brand pharmaceutical MMA regulations for the Medicare prescription drug companies ready for the benefit (including the retiree drug subsidy program) Part D challenges? and the Medicare Advantage programs. The agency announced that it will conduct multiple public Some brand pharmaceutical manufacturers seem meetings and listening sessions on many of the to have been lulled into a false sense of security proposed issues to ensure the new benefits are about the mechanics of the Part D program, warn implemented as effectively as possible. Bill Sarraille and Anna Spencer of Sidley Austin. “As we move closer to providing affordable drug “Although it is true that the new law specifies coverage, access to popular health plans, and more restrictions on the use of a formulary, the secure retirement coverage, we need input from the protections are not ultimately sufficient to offer public,” said CMS Administrator Mark McClellan. substantial limits on the discretion afforded to “We are taking special steps to encourage comments PDPs and MA-PD Plans,” they warn. and dialogue on these proposed rules, and implement That is only one of the numerous challenges them together, to assure that the key elements of the cited by Sarraille and Spencer in a Special Update new law work together to give seniors and people with that will be published later this week by Rx disabilities the best Medicare possible.” Compliance Report.

JULY 30, 2004 Rx COMPLIANCE REPORT 11 IN THE NEWS

Growing list of states seek to regulate sales reps Last week, the West Virginia Pharmaceutical Cost Management Council discussed ways to license and regulate pharmaceutical sales reps, reports the Charleston Gazette. Kevin Outterson, a West Virginia University law professor and council member, said at least 21 other states have considered legislation or have bills pending to require marketing disclosures by drug companies. “A lot of states are looking at this, and they’re looking at it because they think that regulating the marketing of drugs will affect the money they pay,” he said. In 2002, the pharmaceutical industry spent an estimated $22 billion on marketing, including about $5.3 billion on direct marketing to physicians and about $12 billion on free drug samples for doctors to give to their patients, notes the Gazette. By comparison, direct-to-consumer advertising was roughly $2.6 billion. Outterson proposed that the state license sales reps, require them to report their spending, and to make it illegal to use expensive gifts or other inducements to encourage doctors to prescribe particular drugs. Covington and Burling’s Peter Safir, who attended the July 15 meeting at the request of the Pharmaceutical Research and Manufacturers of America (PhRMA), points out that voluntary standards, implemented by PhRMA in 2002, already address what was considered the most egregious behavior by sales reps. “It did away with many practices the industry itself felt had gotten out of hand,” he said. For example, under the PhRMA code, sales reps are not permitted to provide doctors with gifts valued at more than $100, and require that the gifts be educational or practice-related items, such as anatomical models or textbooks. The code also bars the formerly common practice of drug companies’ picking up the tab for doctors to attend medical conferences. Outterson argues that licensing sales reps is common sense. “We license all sorts of things. We license people who cut hair,” he said. “We know nothing about these people — whether they’ve been disciplined in other states or have a criminal record.” ■ Study finds conflicts of interest in journal articles A study released by the Washington, DC, public interest group Center for Science in the Public Interest (CSPI) July 12 found that eight percent of the articles it looked at were written, in part by, researchers who had conflicts of interest. The group says this represents a “distinct trend” by some researchers to ignore publisher guidelines. CSPI said it studied 163 articles in four major medical journals published between December 2003 and February 2004 and found the conflicts of interest, including Balto joins Robins Kaplan ties to the pharmaceutical manufacturer Miller & Ciresi paying for the clinical trial. David Balto has joined the Washington, DC, office of Robins The study examined 163 articles in the Kaplan Miller & Ciresi, which specializes in intellectual property, New England Journal of Medicine, the antitrust, and complex litigation. The Minnesota-based firm was Journal of the American Medical named Intellectual Property Litigation firm of the year last year Association, Environmental Health by the American Lawyer. Perspectives, and Toxicology and Applied Balto was formerly the Policy Director of the Bureau of Pharmacology. It identified at least 13 Competition of the Federal Trade Commission and a partner at articles where authors did not disclose White & Case. He is the only person to twice win the FTC’s relevant conflicts of interest that should award for outstanding scholarship and won the FTC’s award for have been disclosed according to the Distinguished Service, the highest award given a staff attorney. journals’ policies. CSPI found another 11 Balto is also an active member of Rx Compliance Report’s articles where there were undisclosed Editorial Board who has been generous with both his time and conflicts of interest that might not have his knowledge. He can be reached at [email protected] or directly related to the subject at hand, but 203/775-0725. ■ should have been disclosed nevertheless. ■

JULY 30, 2004 Rx COMPLIANCE REPORT 12 Gambro Healthcare U.S. reaches preliminary understanding with DOJ for $310 million settlement

ambro’s subsidiary, Gambro Healthcare U.S., — obtained from a Web site advertised as Canadian. Ghas reached a preliminary understanding with The FDA described the drugs as “fake, substandard the U.S. Department of Justice and other federal and potentially dangerous.” agencies to resolve matters raised as a consequence Meanwhile, the push to legalize drug reimportation of the subpoena it received in June 2001, the is gaining momentum. Last week, Boston became the company revealed late last week. Gambro says it will latest and largest U.S. city to offer prescription drugs make a provision of $310 million in the second from Canada — a program expected to save about $1 quarter of 2004 to provide for the settlement. The million in its first year, according to The Boston Globe. government’s investigation focused on compliance issues relating to documentation when submitting Requirement that drug companies reveal claims for services and relationships with pharma- negative drug data likely, says NIH director ceutical companies and physicians, the company There is a “very high” likelihood that drug companies stated July 21, 2004. Quality of care has never been will soon be required to publicly report results from all an issue, it maintains. Federal agencies refused to research experiments, said National Institutes of Health comment because the case is still under seal. Director Elias Zerhouni. The requirements would be in The preliminary understanding is subject to response to recent public outcry about the practice by negotiation and execution of definitive settlement some drug companies of withholding research that documents including a corporate integrity agreement reflects poorly on their drugs, reported The Boston as well as court approval. The company says DOJ has Globe July 25. Physicians say the suppression of data reviewed information dating back to 1991. Pursuant prevents health care providers from having a full picture to the preliminary understanding, Gambro Healthcare of medications, and they are calling for a public U.S., without admitting liability, would make a research database listing results from every medical payment of $310 million to resolve the civil claims experiment conducted in the U.S. ■ raised by the government. The company also plans to set aside funds to settle any claims made under Medicaid programs. Administration taps GSA Gambro is a global medical technology and Inspector General for HHS post healthcare company with leading positions in renal care and blood component technology. It has 21,350 The Bush Administration has tapped U.S. General employees in forty countries and revenues of approxi- Services Administrator Daniel Levinson as mately $2.7 billion. The company is organized into Inspector General for the Department of Health three business areas relating to medical technology and Human Services. Levinson previously served in and healthcare services: Gambro Healthcare, Gambro the government’s Executive Branch as Deputy Renal Products, and Gambro BCT. General Counsel of the U.S. Office of Personnel Management, General Counsel of the U.S. Study says Internet sales of generic drugs Consumer Product Safety Commission, and expose public to substandard products Chairman of the U.S. Merit Systems Protection Board. During his ten years in private practice, he According to the July 23 issue of Science, an represented corporate and non-profit organizations estimated 1,000 Internet pharmacies are currently in a wide variety of administrative, legislative, and operating. The authors report that one-third of the appellate matters. He received his law degree from countries producing drugs for sale have regulatory Georgetown University. controls similar to those in the U.S. Another third Levinson was presumably selected for his have regulatory controls but no enforcement, while the managerial expertise as he lacks a background in remaining third have no regulation. As a result, any health care. With considerable expertise about the drug, regardless of where it is manufactured, could drug and device industries now resting in the OIG’s turn up for use in the U.S., say the authors. These professional staff, the agency’s agenda is not results are in line with FDA’s analysis earlier this expected to change once Levinson is confirmed. month of three drugs — Viagra, Lipitor and Ambien

JULY 30, 2004 Rx COMPLIANCE REPORT 13 Mark your calendar…

See the next issue of Rx Compliance Report for discount information to each of these events!

American Conference Institute’s Fourth National Forum on Fraud and Abuse Matthew Hay, Editor & Publisher in the Sales and Marketing of Drugs Joan Shaffer, Editorial Director Critical Updates on Enforcement Activity, Civil 107 S. West Street, P.M. 320 Liability and Ongoing Compliance Techniques Alexandria, VA 22314 October 25-26, 2004 Phone: 703/317-9205 Philadelphia, PA Fax: 703/317-9206 www.americanconference.com [email protected] www.biomedical-market-news.com American Conference Institute’s The Legal and Business Forum on EDITORIAL ADVISORY BOARD Drug Importation and Reimportation Ted Acosta, Director of Pharma Compliance, Ernst & November 8-9, 2004 Young, NY Former Senior Attorney, Health and Washington, DC Human Services, Office of Inspector General www.americanconference.com David Balto, Partner, Robins, Kaplan, Miller, & Ciresi, American Conference Institute’s Washington, DC, Former Director, Office of Policy and Evaluation, Bureau of Competition, Federal Trade American Conference Institute’s Commission Managing Legal Risks and Avoiding Marc Farley, Assistant General Counsel, Chief Conflicts of Interest in Medical Affairs Compliance Officer, Berlex, Inc. November 11-12, 2004 John Kamp, Attorney, Wiley, Rein & Fielding, New York Marriott Financial Center, New York Washington, DC, Former Director, Office of www.americanconference.com Congressional & Public Affairs, Federal Communications Commission The Fifth Annual Pharmaceutical Carolyn McElroy, Partner, Mintz, Levin, Ferris, Regulatory and Compliance Congress Glovsky & Popeo, Washington, DC, Former Director, November 14-17, 2004 Maryland Medicaid Fraud Control Unit Washington, DC Louis Morris, President, Louis A. Morris & Associates, http://www.pharmacongress.com/ Dix Hills, NY, Former Acting Director, DDMAC, Food and Drug Administration For more information, contact: Paul Tunnecliff at 800/684-4549 or Marc Raspanti, Partner, Miller, Alfano & Raspanti, [email protected] Philadelphia, PA Bill Sarraille, Partner, Sidley Austin Brown & Wood, American Conference Institute’s Washington, DC Second National Seminar on Reducing Brenton Saunders, Senior Vice President, Global Legal Risks in the Sales and Marketing of Compliance and Business Practices, Schering-Plough, Medical Devices Kenilworth, NJ, Past President, Health Care Practical Insight from the Front Lines on the Latest Compliance Association, and Founder and Chair-elect, Enforcement Activity and Ongoing Compliance International Association of Privacy Officers Strategies Steve Tarnoff, Managing Partner, The Franklin Group, November 15-16, 2004 Somerville, NJ The Mid-America Club, Chicago Rx Compliance Report is published 24 times a year. www.americanconference.com Subscription price is $599 per year. Please note: Photocopying is prohibited by Federal law (including internal use, faxes and other electronic transfers) without written permission.

JULY 30, 2004 Rx COMPLIANCE REPORT 14