Recent Teva False Claims Act Settlement Provides Enforcement Model for Deterring Future Pharmaceutical Kickback Schemes

Recently, the Justice Department announced that generic drug manufacturer Teva Pharmaceuticals had agreed to pay $27.6 million to settle False Claims Act allegations that it paid kickbacks resulting in more than 100,000 false Medicaid and Medicare claims. According to the government, these payments were allegedly made to induce psychiatrist Dr. Michael Reinstein to prescribe the rarely used generic drug clozapine, rather than Clozaril, which he had been prescribing.

In addition to bringing a False Claims Act action against Teva, the Justice Department also filed a separate False Claims Act action against Dr. Reinstein, alleging that he violated the FCA and the Anti-kickback statute by writing prescriptions for clozapine for government healthcare beneficiaries, while accepting a $50,000 one-year “consulting agreement” and other benefits from Teva’s predecessor company IVAX, including all-expenses-paid trips to Miami for him and his wife. According to the court docket, the case against Dr. Reinstein is still pending.

The government’s efforts to reach this alleged kickback scheme are noteworthy on many fronts. Firstly, the Justice Department rarely seeks to reach the healthcare providers who were the recipients of the alleged kickbacks. It takes two to tango when it comes to kickbacks, and increased efforts to reach the recipients might derail ongoing and future kickback schemes.

Secondly, the substantial size of the Teva settlement signals a growing trend by the Justice Department to assess False Claims Act damages in cases involving Anti-kickback violations in accordance with the Relators’ bar view. In this settlement, the damages amount appears to be a multiplier of the amount of drug prescribed by this one provider. Previously, the Justice Department has only sought to recover the amount of the kickback allegedly paid by the company, with little regard to the resulting uptick in prescriptions. However, in a very true sense, this only sought to recover the business expense of the illegal promotion, while ignoring the other side of the ledger, where inducements regularly generated multiples of returns for the company.

Lastly, this successful recovery appears to be a government-initiated False Claims Act action.  By and large, most kickback schemes are only unraveled with the assistance of an insider, who files a False Claims Act qui tam action, exposing the true intent behind seemingly innocuous financial dealings of a provider and a pharmaceutical company.

More information for whistleblowers is located at the Nolan Auerbach & White website.