Life Science Compliance Update U.S. Edition

further scrutiny into the pharmaceutical industry. Big The Media Has Been All pharma couldn’t catch a break in the media as millions Over “Bad Pharma,” But of viewers tuned in to hear “Last Week Tonight” host John Oliver lambast pharmaceutical marketing practices Has the Department of to doctors.4 Oliver digs up clips from a 2001 GSK sales meeting where reps are told they’ll make an “ungodly Justice Followed Suit? sum of money selling Advair,” he spends some time on good-looking but unqualified sales reps, free lunches, Senator Elizabeth Warren (D-Mass) made a splash in the and even throws in an Open Payments database critique, news earlier this year when she introduced the Medical noting, “the only way a four cent meal makes sense is if Innovation Act,1 which would that doctor is a mouse!” institute a so-called “swear jar” for pharmaceutical companies.2 Based on conversations at The Act requires drug companies A “swear jar” conferences over the last month, that want to settle alleged compliance officers seemed violations with the government for big pharma: like the show’s biggest fans. to also pay one percent of the Many of the marketing schemes profits for each “blockbuster the Medical Innovation Act would Oliver references would be drug” with more than $1 billion tack on additional punishment unimaginable now, and the in annual sales that can be video clips demonstrate how far traced to government research for companies looking to settle the industry has come since the support. The penalty payments alleged violations with the early 2000s. would be split between the Food and Drug Administration government. Oliver also put a plug in and the National Institutes of for patients to search Open Health. Rarely do blockbuster Payments to find their doctor. drugs “appear as the result of a single, giant company’s This raises an interesting question—are doctors even individual genius,” Warren stated. “Drug companies aware of this database? The market research firm make great contributions, but so do taxpayers. In other MedPanel published survey results of close to 500 words, we built those medical innovations together.” physicians across diverse specialties suggesting perhaps not.5 Almost a third of surveyed doctors had not heard Stakeholders have listed numerous issues with such a of the Open Payments website, and less than half had law. For one, companies would be penalized based on visited the link. Going forward, it will be interesting to their profits, rather than the gravity of their alleged see whether a comedian has more sway in getting both violations. The added fines would also disincentive patients and doctors to look at Open Payments than the companies from settling, and encourage prolonged government. litigation. Furthermore, as the Biotechnology Industry Organization (BIO) notes, “by tying the tax to prior NIH involvement in the drug discovery or development 1 “Medical Innovation Act of 2015,” available at http://www.warren.sen- process, the bill would create a chilling effect on NIH- ate.gov/files/documents/Medical_Innovation_Act.pdf 2 Elizabeth Warren (Jan. 22, 2015), “My new bill: A swear jar for the drug industry collaborations at the very moment in time companies,” available at http://elizabethwarren.com/blog/my-new-bill- when Congress and the Administration are trying to a-swear-jar-for-the-drug-companies increase such collaborations to help patients suffering 3 BIO Expresses Concerns with Medical Innovation Act, available at from unmet medical needs.”3 https://www.bio.org/media/press-release/bio-expresses-concerns-medi- cal-innovation-act 4 “Last Week Tonight with John Oliver: Marketing to Doctors” (HBO), Despite the Medical Innovation Act’s implementation available at https://www.youtube.com/watch?v=YQZ2UeOTO3I 5 MedPanel, “Impact of the Physician Payment Sunshine Act on Market issues, Warren’s announcement of her latest big business Research,” full report available at http://medpanel.com/Expert-Insight/ “target” generated a ton of press and could indicate Insights/Impact-of-the-Physician-Payment-Sunshine-Act-on-Ma.aspx

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which may indicate questionable marketing tactics on The New Enforcement the part of the manufacturer. Such data can corroborate Frontier? a whistleblower’s allegations, and perhaps even allow Despite the recent media fervor surrounding “bad the DOJ to expand upon a whistleblower case by looking pharma,” federal enforcement actions paint a different at other companies engaged in similar, or even more picture. 2015 has seen just a handful of DOJ settlements suspicious, behavior. with pharmaceutical and device Prosecutors stated that the DOJ’s manufacturers, and most ability to find a “needle in the surprising has been the relatively haystack” is much better than it small dollar amounts at stake when used to be. Using the data allows compared to enforcement actions The days of billion dollar them to track situations where, for two or more years ago. settlements may be over. example, doctors are implanting Indeed, the message from the Small pharmaceutical and medical devices of a certain type where the area’s demographics Department of Justice (DOJ) at device companies are the compliance conferences across the don’t seem to support that level country has been similar: the days new targets, and new data of use. The DOJ is expecting of billion dollar pharmaceutical companies to actively utilize all settlements may be over. Small sources help the government available data to monitor both pharmaceutical companies and find outliers. their own compliance programs, device companies, however, are as well as their competitors. The the new targets. U.S. Attorney panels at a number of conferences have stated that At the CBI Medical Device and Diagnostic Compliance companies should have processes in place to monitor Congress in Chicago, a panel of U.S. Attorneys noted that healthcare professionals—both from a business better coordination between the FBI, HHS, and other perspective and a risk-management perspective agencies has allowed for more streamlined enforcement regarding off-label use. “Companies should look hard of smaller companies. Furthermore, False Claims Act at their own data,” stated one such prosecutor, and cases usually start with whistleblowers, and as these “quickly have appropriate answers” for payments that “qui tam relators” have earned substantial payouts may seem to raise kickback and off-label red flags. for their part in settlements, this has served to attract more complaints targeting a wide range of companies. During the recent CBI Pharmaceutical Compliance Prosecutors then have an obligation to investigate every Conference in Washington, D.C, the enforcement qui tam that comes through their door. panel also cautioned attendees on the proliferation of mergers and acquisitions, which often bring bigger, Perhaps the biggest boon to prosecutors is the new data compliant companies into a potentially messy situation. available to them. On March 24, 2015, Shantanu Agrawal, Companies could be “buying themselves a major the Deputy Administrator and Director at the Centers problem,” stated the prosecutors. Illustrating this point, for Medicare and Medicaid Services (CMS) provided a the topic of “thorough due diligence” in the M&A space detailed analysis on “The Use of Data to Stop Medicare was highlighted throughout the conference. Fraud.”6 He stated: “CMS has been using its Fraud Prevention System (FPS) to apply advanced analytics on all Medicare fee-for-service claims on a streaming Despite the dwindling settlement figures, national basis by using predictive algorithms and other there have been a couple of noteworthy sophisticated analytics to analyze every Medicare cases to come through this year. fee-for-service claim against billing patterns.” U.S. Attorneys believe tools such as Medicare payment data and the Open Payments databases are important ways 6 http://waysandmeans.house.gov/uploadedfiles/2015_03_24_oversight_ to track outliers in prescriptions or device utilization, shantanu_agrawal_testimony.pdf

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Daiichi Sankyo and Speaker AstraZeneca and Pharmacy Programs Benefit Managers

The largest manufacturer settlement in the last six AstraZeneca’s $7.9 million settlement was low on the months involved Daiichi Sankyo Inc., which paid $39 dollar scale, but offered an interesting look into how the million to resolve kickback and off-label allegations Department of Justice views the relationship between mainly related to its speaker programs. The government pharmaceutical manufacturers and pharmacy benefit 9 alleged that Daiichi paid physicians improper kickbacks managers (PBMs). The DOJ accused AstraZeneca of offering kickbacks to Medco Health Solutions (now as part of the company’s Physician Organization and Express Scripts) in exchange of Medco maintaining Discussion programs. Daiichi allegedly made payments AstraZeneca’s drug Nexium in favorable status on its where physician participants “took turns ‘speaking’ formulary. on duplicative topics over Daiichi-paid dinners, the recipient spoke only to members of his or her own staff PBMs such as Medco act as intermediaries between in his or her own office, or the associated dinner was so pharmaceutical manufacturers and third-party payers lavish that its cost exceeded Daiichi’s own internal cost to administer a plan’s prescription drug benefits. PBMs limitation of $140 per person,” according to the DOJ. use the purchasing power of their healthcare plan clients to negotiate lower prices for prescription drugs from pharmaceutical manufacturers. These manufacturers The Daiichi case illustrates the government’s interest have an incentive to offer discounts to PBMs if that in speaking arrangements. “The sales force chooses means the company’s drug will be featured on the physicians to speak, and sales reps care about how many PBM’s formulary of preferred medicine. PBMs, in turn, scripts physicians write,” noted an attorney on the DOJ can pass this discount on to consumers--though the panel in Washington, D.C., who classified speaker fees amount that a PBM actually passes on is the subject of as being “prone to abuse.” However, the DOJ conceded much debate given the “closed-door” negotiations that that there are many legitimate speaker programs, and often take place. re-stated the kickback safe harbors surrounding them— namely that speaker payments should be laid out in a The $7.9 million settlement between AstraZeneca and the government specifically resolves allegations made contract, tied to fair market value, and not incumbent by two high ranking former AstraZeneca employees— upon business production.7 Paul DiMattia, a former executive director of commercial operations, and F. Folger Tuggle, a managed markets The Department of Justice’s interpretation is one side of account director in charge of the Medco account. The the coin, but healthcare attorneys got a glimpse into how whistleblowers alleged that AstraZeneca agreed to courts will analyze speaking arrangements in October provide remuneration to Medco Health Solutions in last year when U.S. District Court Judge Paul Gardephe exchange for Medco maintaining Nexium’s “sole and denied Novartis’s Motion to Dismiss a False Claims Act exclusive” status on certain Medco formularies and lawsuit centered on the company’s speaker programs.8 In through other marketing activities related to those Medco formularies. AstraZeneca allegedly provided the his opinion, Gardephe hones in on particular allegations remuneration to Medco through price concessions on that life sciences companies should be mindful to avoid drugs other than Nexium, namely on Prilosec, Toprol XL going forward. These included: expensive dinners and Plendil. The two relators will split $1,422,000 from above Novartis’s own “modest meal” cap; the fact the settlement. that the same few speakers and attendees repeatedly attended the same dinner programs over a short time 7 Dept. of Justice (Feb. 11, 2015) “AstraZeneca to Pay $7.9 Million to Resolve Kickback Allegations”; 42 CFR 1001.952 (d) (Lists “personal span; absence of slide decks or objective educational services and management cont­racts” exception to the Anti-Kickback structure to these events; and big spikes in prescriptions statute) 8 United States ex rel. Bilotta v. Novartis Pharmaceuticals Corporation that corresponded to when doctors received the largest et al., No. 11-cv-0071 (S.D.N.Y.), view a copy of the opinion: http://poli- payments from Novartis. Also, Judge Gardephe stressed cymed.typepad.com/files/novartis-court-opinion.pdf 9 Dept. of Justice (Feb. 11, 2015) “AstraZeneca to Pay $7.9 Million to that scientific meetings shouldn’t be held at Hooters. Resolve Kickback Allegations”

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While AstraZeneca’s settlement may indicate a trend confirmed Joyce R. Branda, Assistant Attorney General towards greater scrutiny into the manufacturer-PBM of the Justice Department’s Civil Division. “Hidden relationship, it does little to draw a definite line between financial agreements between drug manufacturers and illegal conduct and permissible (and encouraged) pharmacy benefit managers can improperly influence negotiations that reduce drug costs for health plans and which drugs are available to patients and the price paid consumers. for drugs.”12

Marc Scheineson, a partner at Alston & Bird where he heads the firm’s Food and Drug Law Practice, offered Pharmaceutical and his insight into the case. He notes that the issue centers on whether the transactions between AstraZeneca and Device Corporate Integrity Medco conformed to the anti-kickback safe harbor for Agreements: discounts. Specifically, AstraZeneca is alleged to have offered considerable price concessions on a number of their drugs without disclosing the discounts. Who’s In, Who’s Out?

The basic focus of the safe harbor is to ensure that the Pharmaceutical and medical device manufacturers discount was negotiated by the parties in an arms- are closing out their five-year Corporate Integrity length transaction and that the government receives Agreements (CIA) at a much faster rate than new the benefit of the discount.10 While not in the DOJ companies are entering them. Only two manufacturers, press release, the original complaint mainly honed Daiichi Sankyo Inc. and Shire Pharmaceuticals, entered in on the fact that AstraZeneca’s price concessions into a settlement within the last year that included a CIA were not disclosed to Medicaid as required under the as part of the terms, while around a dozen have closed Medicaid Drug Rebate Statute’s “best price” reporting their CIAs, or will in the next few months. We have requirements.11 AstraZeneca “paid hundreds of millions listed a comprehensive chart of life science companies of dollars in inducements and kickbacks to Medco with corporate integrity agreements on page 6. New over the relevant period to obtain favorable formulary agreements are highlighted in green, while recently position, recommendation, and purchase of Nexium,” closed CIAs are highlighted in red. states the complaint. These “illegal inducements,” the plaintiffs argued, “were subject to ‘best price’ reporting Typical CIAs last five years, starting from the effective requirements.” date of the agreement. While several CIAs still listed on the Office of Inspector General’s (OIG) website Scheineson noted, however, that the settlement figure were entered into in 2009 or early 2010, this does not of $7.9 million indicates that perhaps the government’s necessarily indicate that these companies have longer case was not all that strong. Indeed, the complaint obligations under their particular settlement. We alleged that AstraZeneca’s “intentional circumvention contacted OIG about this, and the agency noted that and misreporting of its Nexium best price was intended CIAs are not closed out on the website immediately by [AstraZeneca] to deprive, and fraudulently did deprive when the term expires because “CIA annual reports the federal government and states of discounts…in the typically are not due until at least 60 or 90 days after the hundreds of millions of dollars or more over the relevant end of the annual reporting period, so the last annual period” (emphasis added). The government ended up report is always submitted after the term of the CIA has settling for a tiny fraction of the alleged fraud indicating expired.” that the case was likely very close to the line.

Despite the low settlement amount, Scheineson believes 10 42 CFR 1001.952 (h) (Lists the “discounts” exception to the Anti-Kick- that the settlement could indicate future government back statute) scrutiny into manufacturers’ dealings with PBMs. “We 11 United States ex rel. DiMattia et al. v. AstraZeneca LP et al. No. 10-910 (D. Del.), available at http://freepdfhosting.com/ac00cc7b70.pdf will continue to pursue pharmaceutical companies 12 http://www.justice.gov/opa/pr/astrazeneca-pay-79-million-resolve- that pay kickbacks to pharmacy benefit managers,” kickback-allegations

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