Pharmaceutical Kickbacks

Right now the pharmaceutical industry is in the middle of its biggest challenge in history. Whistleblowers have exposed and continue to expose fraudulent practices ranging from pricing issues to sales and marketing practices at a rate never anticipated by either the pharmaceutical industry or the Department of Justice. Settlements and jury verdicts have been headline grabbing and large, attracting the attention of pharma, regulators, Congress and taxpayers. The qui tam pharmaceutical fraud cases settled since 2000 alone have amounted to over 3.5 billion dollars, representing various patterns of fraud. We expect to see some new patterns as time goes by, especially with the new Medicare prescription drug benefit. Pharmaceutical fraud is still abundant and this blog is intended to keep readers up to date with all pharmaceutical fraud related news and to provide commentary when warranted. This blog also contains an array of laws and regulations concerning the Federal Food, Drug and Cosmetic Act set out in an easy to read format.

Uncovering Pharmaceutical Manufacturing Problems

by Nolan and Auerbach on March 30, 2011

Increasingly, federal investigators have been turning their attention to manufacturing deficiencies at some of the world’s largest drug makers. According to one industry report, the number of FDA inspection reports has skyrocketed to an all-time high. This focused attention comes on the heels of a recent report from the US General Accountability Office, which found that the FDA failed to adequately inspect a number of manufacturing facilities around the globe.

The added governmental exposure has shed the light on a number of problems, likely encouraging a weekly parade of drug recalls from pharmaceutical companies. For some companies, they have led the parade of FDA warnings and recalls on a number of occasions. For example, Johnson & Johnson has repeatedly tangled with the FDA, most recently when it was warned by the FDA about problems at its Cordis stent facility. Last year, this same company temporarily closed a large Pennsylvania facility and recalled an estimated 136 million bottles of liquid children’s Tylenol and other pediatric products, after quality controls failed.

However, the real driving force behind this surge of pharmaceutical mea culpas probably has less to do with federal investigators and more to do with pharmaceutical industry’s concerns about potential False Claims Act qui tam actions. The simple fact is that drug makers are now on notice that employees can bring successful whistleblower suits involving current Good Manufacturing Practices (cGMP) violations.

The extended reach of whistleblowers was made crystal clear last year, when the U.S. Department of Justice joined in a whistleblower action against GlaxoSmithKline, exposing systemic manufacturing deficiencies at the company’s Puerto Rico facility. Ultimately, the company settled the action for $750 million, and the whistleblower was handsomely rewarded to the tune of $96 million.

In a very real sense, the GlaxoSmithKline settlement has encouraged other potential whistleblowers to step forward and uncover other instances of cGMP violations. More importantly, because the False Claims Act provides incentives and protections for these whistleblowers, drug companies cannot simply disregard their concerns. The lasting impact is that, whether through recalls or False Claims Act settlements, drug companies are forced to fess up to unsafe manufacturing practices.

For more information about qui tam law and pharmaceutical fraud, contact Nolan and Auerbach, P.A.

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CNBC Runs Whistleblower Series

by Nolan and Auerbach on February 9, 2011

Throughout the week, CNBC is doing a special series on whistleblowers, and much of it concerns the False Claims Act. This morning, Recognizing that there is a huge “cottage industry” out there, CNBC ‘s Eamon Javers reported that pharmaceutical companies have changed their practices as a result of pharmaceutical fraud whistleblower lawsuits. An overview and the schedule is at CNBC.

For more information about qui tam law and pharmaceutical fraud, contact Nolan and Auerbach, P.A.

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Drug Companies Pay $421 Million to Settle Inflated-Price Allegations

by Nolan and Auerbach on January 24, 2011

Recently, the U.S. Justice Department announced settlements with three pharmaceutical companies for a total of $421 million to settle allegations they reported “false and inflated prices” for pharmaceutical products knowing that government health care programs would use those reported prices to set payment rates. According to the Justice Department, the actual sales prices for the products were “far less” than what the companies reported. In this trio of False Claims Act qui tam settlements, Abbott Laboratories Inc. agreed to pay $126.5 million, Roxane Laboratories Inc. (n/k/a Boehringer Ingelheim Roxane Inc.) agreed to pay $280 million, and B. Braun Medical Inc., a subsidiary of Germany-based B. Braun Melsungen AG, agreed to pay $14.7 million. As part of these settlements, the whistleblowers will receive approximately $88.4 million.

In this pharmaceutical fraud scheme known as “marketing the spread,” the drug companies fraudulently created a large incentive for providers to prescribe their drugs. This “spread” is the difference between the resulting inflated government payments and the actual price paid by health care providers for a drug.  The larger the “spread” on a particular drug, the larger the profit for the provider or pharmacist. In turn, because payment from the Medicare and Medicaid programs was based on the false inflated prices, the government alleged that the defendants caused false claims to be submitted to government health care programs, and as a result, the government paid millions of claims for far greater amounts than it would have if the defendant companies had reported truthful prices.

For more information about qui tam law and pharmaceutical fraud, contact Nolan and Auerbach, P.A.

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Drug-maker Shells Out $41 Million to Settle Kickback, Illegal Promotions Lawsuit

by Nolan and Auerbach on January 14, 2011

Kos Pharmaceuticals, a subsidiary of Abbott Laboratories, has agreed to pay $41 million to quiet criminal and civil allegations that it violated the federal anti-kickback laws, when it allegedly bribed doctors, medical groups and managed care organizations to prescribe or recommend two of the company’s drugs, Advicor and Niaspan. In addition, the drug-maker settled allegations that it promoted the cholesterol-lowering drug Advicor for off-label uses.

The price tag to settle the civil allegations was $38 million. The criminal settlement required Kos Pharmaceuticals to ink a $3 million check, to enter into a deferred prosecution agreement, and to agree to the filing of a criminal information charging the company with one count of conspiracy to violate the anti-kickback statute.

Noticeably, the doctors who accepted the bribes were not held accountable. “As long as dishonest doctors are willing to be bought, drug companies will be able to bribe their way into America’s medicine cabinets,” said Nolan & Auerbach partner Jeb White. “We need to recognize that it takes two to tango in the underworld of pharmaceutical kickback schemes.”

For more information about qui tam law and pharmaceutical fraud, contact Nolan and Auerbach, PA.

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Pharmacy Settles Whistleblower Case Involving Drug-Recycling Allegations

by Nolan and Auerbach on January 6, 2011

Long-term care pharmacy Remedi Seniorcare, Inc. has agreed to pay $1,279,575 to settled a qui tam action, raising allegations that it illegally distributed misbranded and adulterated drugs in interstate commerce.  This was a unique and important whistleblower case, alleging that, instead of disposing unused medications, the pharmacy unlawfully recycled, repackaged, and redistributed thousands of drugs to Medicare and Medicaid beneficiaries. This was the sixth settlement this year for the national whistleblower law firm of Nolan & Auerbach, P.A, whose False Claims Act qui tam cases have recovered more than $1.3 billion for the US Treasury.

The whistleblower alleged that every day, Remedi would typically pick up twenty or more tote bags of unused medicine from long-term care facilities, ostensibly destined for disposal. However, instead of properly disposing the medication, the pharmacy would allegedly recycle the drugs, by removing pills and tablets from their packaging in unsterile environments, sorting the drugs into unsanitary bins, and inserting the medicine into new packaging. According to the whistleblower, the sorting process regularly comingled drugs with different expiration dates, lot numbers, and potency. These alleged practices caused federal and state government health care programs to pay for adulterated drugs.

To ramp up these operations, the pharmacy supposedly hired outside “efficiency experts,” who made recommendations on how the pharmacy could further streamline its recycling scheme. By repackaging everything from blisterpacks to bulk syringes, the pharmacy was able to pocket funds that would have been spent on new medications.

The Food and Drug Administration is the agency responsible for protecting the health and safety of the American public by ensuring, among other things, that pharmaceuticals designed for use in humans are safe and effective for their intended uses and are labeled accurately and in compliance with the law. The federal law imposes numerous requires on the distribution of prescription drugs, including that the drugs are not misbranded or adulterated.

For more information about qui tam law and pharmaceutical fraud, contact Nolan and Auerbach, PA.

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FOLLOW THE MONEY: New Database Details Pharma Payments to Doctors

by Nolan and Auerbach on December 23, 2010

According to a new database compiled and published by ProPublica, a non-profit investigative journalism group, drug companies shelled out more than $250 million to some 17,000 doctors and nurses across the country in 2009 and 2010. While some of these payments may be legitimate, the aggregate amount certainly raises eyebrows, especially since several drug companies have recently admitted to sidestepping the Anti-Kickback Act by disguising bribes as “consulting fees” or “speakers’ honoraria.”

Applied to the pharmaceutical world, the Anti-Kickback Act, 42 U.S.C. § 1320a-7b(b), makes it illegal for a drug company to bride a doctor to prescribe its drugs. The Anti-Kickback Act is designed to, inter alia, ensure that patient care is not improperly influenced by inappropriate compensation from the pharmaceutical industry.

There are a variety of rules and exceptions that come into play when assessing whether a drug company’s payments to a doctor violates the Anti-Kickback Act. However, at the end of the day, the question boils down to whether the drug company was looking to improperly influence the doctor’s prescribing habits. If the company was looking to bribe its way into the medicine cabinets of Medicare and Medicaid patients, the payments were likely illegal kickbacks, under the federal Anti-Kickback Act.

To encourage insiders to step forward and report these shadowy payments, the US Congress recently clarified, in the federal health care reform legislation, that violations of the federal Ant-Kickback Act are per se violations of the federal False Claims Act. In turn, if a person has detailed information about a drug company bribing doctors to prescribe its drugs, that person might receive a substantial whistleblower reward.

For more information about qui tam law and pharmaceutical fraud, contact Nolan and Auerbach, PA.

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Whistleblowers Needed to Expose Drug Manufacturing Deficiencies

by Nolan and Auerbach on December 21, 2010

Recently, we discussed GlaxoSmithKline’s False Claims Act settlement, in which the drug maker shelled out $750 million to quiet allegations about manufacturing deficiencies at its Puerto Rico. Based on a recently released FDA inspection report, it looks like another drug company’s Puerto Rican plant is having trouble following current Good Manufacturing Practices (cGMP).

In this report, the FDA rattles off a laundry list of violations at the plant owned by McNeil Consumer Healthcare, a unit of Johnson & Johnson: distribution of drugs that failed quality requirements, a failure to identify product defects during routine testing, failure to detect incorrect expiration dates on drug labels, failure to adequately investigate product problems, failure to follow laboratory controls and inadequate training of lab staff.

Some of these mirror concerns raised in a January 2010 FDA warning letter that was sent McNeil about this same Puerto Rico plant.  McNeil has also seen this scenario play out before at a different plant.  After quality controls failed at its Fort Washington, Pa. plant, the company temporarily closed the plant and recalled an estimated 136 million bottles of liquid children’s Tylenol and other pediatric products.

This latest brush up with the FDA stems from inspections that date from late September through early November. The 10-page report concluded that there was no assurance at the Puerto Rico plant “that the current laboratory controls are adequate to assure that drug products conform to appropriate standards of identity, strength, quality and purity.” The report also states, “The established procedures and controls for cleaning and maintenance may not be sufficient to prevent mix-ups and/or contamination during the manufacturing and packaging process as evidenced by the mix-up deviations and incidents involving manufacturing and packaging operations.”

Somebody had the courage to blow the whistle on GlaxoSmithKline’s manufacturing deficiencies. Hopefully a brave McNeil employee can similarly provide the inside information the government needs to further shine a light on the problems at this wayward Puerto Rico facility.

For more information about qui tam law and pharmaceutical fraud, contact Nolan and Auerbach, PA.

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Drug Efficacy

by Nolan and Auerbach on December 13, 2010

On November 15, 2010, Scios, Inc. announced that the investigatory study of NATRECOR (ASCEND-HF trial)  demonstrated no statistically significant difference from placebo in the co-primary endpoints of dyspnea, measured at six and 24 hours, or in the composite of heart failure re-hospitalizations and death during the first 30 days following treatment. The results, presented the previous day at an  American Heart Association meeting showed that there was no significant difference for patients when they were experiencing the severe shortness of breath/drowning feeling (because their lungs were filled with fluid). While the study was favorable for Natrecor regarding safety concerns, the study reaffirms the current lawsuit against Scios in which our client is involved, that the off label marketing of Natrecor caused  a colossal waste of taxpayer funds at best.

In an article, the investigator for the Natrecor trial, Dr. Robert M. Califf, a Duke cardiologist, said that “once again, small studies give us the wrong answers”, referring to previous small studies which suggested that Natrecor was effective. [See article in The International Herald Tribune (November 17, 2010) “The uncertainties of clinical testing; The case of a heart drug shows how small studies can lead to misdirection.”]

The article pointed out that “Cardiologists have similar questions about the effectiveness of Zetia, an eight-year-old cholesterol drug that Dr. Califf is also studying and which has been beset by questions about whether it improves heart health.” Zetia is widely accepted as  modestly reducing bad cholesterol and the significantly reducing L.D.L., but the article asserts, studies so far have failed to demonstrate a cardiac benefit to the drugs. It would be a disservice to patients if this drug were marketed off-label as having a benefit in stroke or heart failure for instance,without FDA-approval. Other pharma companies have promoted cholesterol and blood pressure drugs as having a class effect, without the benefit of the indication.

For more information about qui tam law and pharmaceutical fraud, contact Nolan and Auerbach, PA.

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Government Needs Help in Identifying Dishonest Pharma Executives

by Nolan and Auerbach on December 8, 2010

Last month, the influential legal advocacy group Washington Legal Foundation (WLF) called on the FDA to abandon its plans to criminally prosecute the corporate masterminds behind pharmaceutical fraud schemes. Specifically, in a letter to Eric Blumberg, Deputy Chief for Litigation in the FDA’s Office of Chief Counsel, WLF complained that increased criminal prosecution of pharmaceutical executives could “adversely affect the nation’s healthcare delivery system by providing industry executives little incentive to continue working in the pharmaceutical sector.”

The reality is that, until recently, dishonest pharmaceutical executives could devise elaborate fraud schemes, with little concern that the Government would hold them personally liable. Some organizations, such as WLF, are looking to turn back the clock on law enforcement efforts. However, the momentum is now heading in the direction of justice, especially since whistleblowers are increasingly providing the necessary inside information to identify the criminal masterminds.

False Claims Act whistleblowers have proven especially effective in identifying wayward executives and restoring ethical business practices. Indeed, in just the past two months, whistleblowers played key roles in the prosecution of four pharmaceutical companies and the recovery of over $2 billion.

For more information about qui tam law and pharmaceutical fraud, contact Nolan and Auerbach, PA.

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Drug Company Settles Adulterated Drug Case, Highlighting Need for Courageous Whistleblowers

by Nolan and Auerbach on November 19, 2010

Recently, the United States Department of Justice announced the settlement of the first False Claims Act qui tam case predicated on current Good Manufacturing Practice (cGMP) violations. In this settlement, GlaxoSmithKline pled guilty and agreed to pay $750 million to resolve criminal and civil liability regarding manufacturing deficiencies at its Puerto Rico plant. According to the government, the company’s manufacturing operations failed to ensure that its drugs were free of contamination from microorganisms. Moreover, the government alleged that the company’s manufacturing process caused one of its two-layer tablet products to split, causing the potential distribution of tablets that did not have any therapeutic effect. Lastly, the government alleged that the plant was riddled with longstanding problems of product mix-ups, which caused tablets of one drug type and strength to be commingled with tablets of another drug type and/or strength in the same bottle.

While this is the first False Claims Act qui tam settlement involving cGMP violations, this application of the FCA has been on the radar screen of leading FCA practitioners for years. (For example, in 2004, Kenneth Nolan, founding partner of the national whistleblower firm of Nolan & Auerbach, P.A., penned a 2004 article and a 2008 book chapter on this very topic.) Indeed, similar qui tam actions have been filed and are currently working their way through the Justice Department’s litigative pipeline. 

The FCA has implications for cGMP violations because the federal government (funding as it does the Medicare program, the majority of state Medicaid programs, the Veterans Administration, the TRICARE program, and others) is the world’s largest purchaser of prescription medications. Because the FCA imposes liability on any government contractor that knowingly submits false claims to the government or that uses false documents to get a false claim paid, a drug company which knew or was recklessly indifferent to the fact that the manufacturing process was compromised by cGMP violations is in violation of the FCA. The basis of liability under the FCA is that false records have been generated which caused (false) claims for drugs to be paid by the government. The monetary damages result because the government is potentially paying for substandard drugs due to the cGMP violations – later covered up by false statements in documents required to be completed under the cGMP.

With that being said, the government is just now dipping its toes into these FCA waters, so only the most egregious violations will likely rise to the top. When assessing whether a violation meets this high hurdle, one must determine whether the violation is severe enough such that the drug product that finally reaches the public is foreseeably substantially less safe or less effective than if the cGMPs were not violated. If the answer is yes, then for the sake of patient safety, potential whistleblowers are strongly encouraged to contact experienced False Claims Act attorneys who are familiar with the cGMP.

For more information about qui tam law and pharmaceutical fraud, contact Nolan and Auerbach, PA.

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