Welcome Pharmaceutical Whistleblowers
Under the False Claim Act who is Liable or “Legally Responsible” for Fraud in the
Pharmaceutical Industry?
Any pharmaceutical manufacturer, pharmaceutical executive, pharmaceutical sales representative, physician and/or related individual or business entity that participates in a scheme to defraud the federal government.
Types of Alleged Fraud by Prescription Drug Manufacturers:
In the case of brand-name drugs, some pharmaceutical manufacturers have engaged in “marketing the spread” to physicians and concealing “best prices.” In the case of generic drugs, some pharmaceutical manufacturers allegedly “market the spread” to pharmacies. Pharmaceutical manufacturers, pharmaceutical sales representatives, physicians and pharmacists all benefit from this illegal scheme.
Marketing the Spread to Physicians:
Pharmaceutical manufacturers of brand name drugs market their drugs to physicians in a number of ways. In the case of drugs that are administered to patients by physicians, one technique is to offer the physician a deep discount on the price of the drug. The physician then keeps the “spread” or difference between the amount the government program (or private insurer) pays for the drug and the discounted price charged by the manufacturer. For example, if Medicare (or a state Medicaid program) reimburses a physician at 95 percent of the average wholesale price for such a drug, and the pharmaceutical manufacturer, in order to induce the physician to prescribe the drug, charges him only 25 percent of average wholesale price, the physician keeps the spread (70 percent of average wholesale price.) This revenue is in addition to whatever reimbursement the physician receives from Medicare or Medicaid for actual physician services provided during the encounter at which the drug was prescribed. Obviously, a pharmaceutical manufacturer can increase either the size of the “spread” or the amount of revenue it generates under such an arrangement (or both) by raising the average wholesale price for the drug. If the average wholesale price is $100 in the above example, the physician receives $95 from the government for administering a drug for which he pays $25, a spread of $70. To increase the amount the manufacturer makes on a prescription while enabling the physician to continue to receive the same spread, the manufacturer simply raises the average wholesale price to, say $110. The government now pays the physician 95 percent of $110, or $104.50. The physician keeps the $70 spread and pays the difference of $34.50 to the manufacturer, an increase of $9.50. In the alternative, if the manufacturer wished to increase the prescribing physician’s compensation, the manufacturer could increase the physician’s spread to $79.50 by continuing to charge him $25 for the drug. In both cases, the increases are at government expense.
Concealing Best Prices:
As discussed above, the Medicaid program requires manufacturers to pay rebates as a condition of covering their products. In the case of brand name drugs, the rebates are designed to give Medicaid the benefit of the “best price” that the pharmaceutical manufacturer gives to any other domestic purchaser (with a few exceptions like the VA and safety net hospitals and clinics). For example, if a pharmaceutical manufacturer gives a deep discount to a large managed care plan, it must give the same price (net of rebate) to Medicaid. This creates an incentive for the pharmaceutical manufacturer to conceal actual “best price” information from the federal government. By not reporting steep discounts given to a private purchaser to win market share for brand-name drugs, a pharmaceutical manufacturer will not have to give that same low price to all state Medicaid programs in the form of a large rebate.
Private Labeling:
There are numerous techniques for concealing actual “best price.” One is to give a steep discount to a customer but not report that discounted price to the Centers for Medicare and Medicaid Services. Another concealment technique is called “private labeling.” In this scheme, the pharmaceutical manufacturer sells a drug to a large managed care plan or other high-volume customer at a deeply discounted price. In order to conceal the steep discount, the pharmaceutical manufacturer disguises the product to make it appear to be that of the plan rather than one of the pharmaceutical manufacturer’s drugs. The relabeled drug is identical to the drug sold to Medicaid patients — i.e., same ingredients, same dosage form and strength, same packaging — in all respects but one: the National Drug Code (NDC) number, which is that of the plan, not of the manufacturer. Because pharmaceutical manufacturers report “best prices” by NDC number, the “best prices” for the drug sold to Medicaid programs will not capture the deeply discounted price for the same drug sold to the managed care plan.
Marketing the Spread to Pharmacists:
In the case of brand-name drugs, a pharmaceutical manufacturer will generally market to the prescribing physician. In the case of generic drugs, however, the manufacturer tends to market not to the physician but to the pharmacist. That is because when patents expire on brand-name drugs there will often be several pharmaceutical manufacturers offering generic products in competition with one another and the brand-name drug. If the pharmacist has discretion to dispense a generic product rather than the brand name, it is the pharmacist, not the physician, who generally decides which generic drug will be dispensed. The generic pharmaceutical manufacturers tend to compete for the pharmacist’s business on the basis of price. Among the price-based sales techniques used by some generic pharmaceutical manufacturers is “marketing the spread.” In the case of Medicaid, which pays pharmacists both the ingredient cost and a dispensing fee, this price competition takes the form of increasing the potential profit realized by the pharmacist through the ingredient cost. The pharmacist’s profit can be increased either by raising the reported price that is relied on by Medicaid for paying the ingredient cost, or by lowering the price net of discounts at which the product is actually sold to the pharmacy, or both.
Concealed Data:
Pharmaceutical manufacturers and the company insiders that conceal the adverse effects of their drugs may by prosecuted and sued. For example, In June 2004, New York State Attorney General Eliot Spitzer filed a lawsuit that alleged GlaxoSmithKline (GSK) for many years engaged in repeated and persistent fraud by concealing and failing to disclose to physicians and Government regulators accurate information about Paxil, a drug used to treat depression. Paxil had been approved by the FDA for the treatment of depression in adults, but not for treatment of depression in children. Prozac is the only antidepressant that has been approved to treat depression in children. Physicians, however, have professional discretion to prescribe Paxil for treatment in children, a so-called "off-label" use. Spitzer’s lawsuit alleged that, starting in 1998, GSK engaged in a concerted effort to withhold negative information concerning Paxil and misrepresented data concerning Paxil's safety and efficacy when prescribed for depression in children and adolescents.
Off-Label Marketing:
Pharmaceutical manufacturers cannot encourage doctors to prescribe a drug for patients with ailments that the drug hasn't been federally approved to treat. Pharmaceutical manufactures may be liable under the False Claims Act generally if their promotional practices or claims caused healthcare providers to submit reimbursement claims for off-label uses to Medicare and other federal health insurance programs. For example, in May 2004 pharmaceutical manufacturer Warner-Lambert agreed to plead guilty and pay more than $430 million to resolve criminal charges and civil liabilities in connection with its Parke-Davis division's illegal and fraudulent promotion of unapproved uses for its drug Neurontin. The drug Neurontin was approved by the Food and Drug Administration in December 1993 solely for adjunctive or supplemental anti-seizure use by epilepsy patients. However, Warner-Lambert's strategic marketing plans, as well as other evidence, show that Neurontin was aggressively marketed to treat a wide array of ailments for which the drug was not approved. The company promoted Neurontin for the treatment of bipolar mental disorder, various pain disorders, Amyotrophic Lateral Sclerosis (ALS) commonly referred to as Lou Gehrig's Disease, attention deficit disorder, migraine, drug and alcohol withdrawal seizures, restless leg syndrome, and as a first-line monotherapy treatment for epilepsy (using Neurontin alone, rather than in addition to another drug).
Ghost-Written Articles to promote Off-Label Use:
When pharmaceutical companies pay physicians to put their names on news articles and/or reports written by employees of the pharmaceutical manufacturer that promote off-label uses for the pharmaceutical manufacturer’s drug. Pharmaceutical companies are prohibited from using ghostwriters in this manner because it can skew the medical judgment of physicians who might prescribe a drug for off-label use.
Seeding Trials & Payments or Incentives to Physicians as Kickbacks:
With Seeding trials there is always some form of payment or incentive to physicians for the creation of a new prescriptions for the pharmaceutical manufacture’s product, allowing product growth. Hence the name “Seeding Trial.” The U.S. Department of Justice has publicly stated they are looking for pharmaceutical fraud cases related to clinical research, market research and seeding trials.
Unlawful Inducements & Kickbacks:
The pharmaceutical industry in recent years has spent more than $10 billion annually on "marketing." Some would argue that a relatively significant portion of this might have been used to provide unlawful inducements in exchange for prescriptions. The federal Anti-kickback Statute, 42 U.S.C. § 1320a-7b(b), prohibits any person or entity from making or accepting payment to induce or reward any person for referring, recommending or arranging for federally-funded medical services, including services provided under the Medicare, Medicaid and TRICARE programs. Kickback laws arose out of congressional concern that payoffs to those who can influence healthcare decisions will result in goods and services being provided that are medically unnecessary, of poor quality, or even harmful to a vulnerable patient population. There are a variety of improper arrangements where providers will provide some material benefit in return for other providers prescribing or using their products or services. In some cases the Department of Justice may consider extraordinarily high expense accounts and incentive bonuses of the pharmaceutical manufacturer’s sales representatives as possible proof that the drug manufacturer is motivating the company’s sales forces to increase sales through lavish entertainment and other forms of kickbacks to healthcare providers. A direct or indirect payment in any form by a pharmaceutical manufacturer’s sales representative that is designed to obtain or reward the sale of pharmaceuticals to any federal healthcare programs is illegal.
Grants as Kickbacks:
Pharmaceutical manufacturers sales representatives sometimes get management to issue a money grants to healthcare providers superficially for an educational program or research program that will be performed by the healthcare provider at a future date. Such money grants are nothing more than kickbacks from the pharmaceutical manufacturer to the healthcare provider in return for writing prescriptions for the pharmaceutical manufacturers products. In some cases healthcare providers have been allowed to do whatever they want with the grant money received from a pharmaceutical manufacturer.
Free Samples as Kickbacks:
An example of free drug samples as a kickback would be when pharmaceutical manufacturers encourage and facilitate the widespread provision of free vials of injectable drugs to physicians in the healthcare marketplace. The amount of the drug the physician is given for free depends upon what the pharmaceutical manufacturers Sale’s representatives negotiates with the physician. This practice is attractive to physicians because each injectable drug vial provided by the pharmaceutical manufacturer as a "free sample" is worth anywhere from $100.00 to $1,000.00 in revenue for the physician. Due to this inducement, the physicians will determine that it would be quite profitable to start treating his or her patients with the free injectable drugs that he or she is receiving free from the pharmaceutical manufacturer.
Drug Trials & Clinical Studies as Kickbacks:
An example of drug trials & clinical studies as kickbacks is when pharmaceutical manufacturers provide compensation for drug trials and clinical trials to physicians as a way to encourage physicians to prescribe the pharmaceutical manufacturers products. If a drug trial and/or clinical study that is performed by a physician has no true and legitimate value in the healthcare marketplace the Department of Justice may view the drug trial or clinical study as nothing more than a way for the physicians to receive payments from the pharmaceutical manufacturer for referrals of the company’s products.
Bogus Consulting Agreements & Advisory Board Meetings as Kickbacks:
Pharmaceutical manufacturers have paid physicians as "consultants" or “advisors” to attend meetings or conferences where the pharmaceutical manufacturer pays for and provides lavish entertainment for the physicians and covers all the expenses. Consulting or advisory services provided by a doctor on behalf of a pharmaceutical manufacturer must be for authentic business purposes and not as an instrument for promoting or marketing of the pharmaceutical manufacturer’s drug.
Bogus Investigator Meetings as Kickbacks:
Pharmaceutical companies set up meetings for physicians that are called “Investigator Meetings.” At investigator meetings pharmaceutical manufacturers call upon physicians around the country to meet and talk about potential non-indicated uses of the pharmaceutical manufacturer’s drugs. At the Investigator Meetings the pharmaceutical manufacturer’s sales representatives spend generously on all attending physicians and speakers. A bogus investigator meeting last only an hour or two and the pharmaceutical manufacturer pays for the physicians' airfare, hotel stay, lunches, dinners, golf outings and spa treatments at expensive 5 star hotels around the country.
Honoraria Payments For Speaker Fees as Kickbacks:
Honorarium is a form of payment given to a professional person for services for which fees are not legally or traditionally required. In some cases, honoraria payments are nothing more than payoffs to physicians from a pharmaceutical manufacturer in return for writing prescriptions for the pharmaceutical manufacturer’s product. An example would be when a pharmaceutical manufacturer pays a physician for speaker fees in advance to help market the pharmaceutical manufacturers products at future meetings and/or conventions and the physician actually never speaks at any formal functions on behalf of the pharmaceutical manufacturer.
Bogus Preceptorship Shadowing Programs as Kickbacks:
It is the opinion of some physicians that Preceptorship Shadowing Programs are the most blatantly flagrant marketing techniques used by pharmaceutical manufactures in the healthcare marketplace. Preceptorship Shadowing Programs are nothing more than teaching session where a pharmaceutical manufacture’s sales representative follows a physician around for a half day or full day and are taught technical aspects of the physician’s medical practice in exchange for payments ranging as much as $1,000.00 dollars for a half day and $2,000.00 dollars for a full day. Many academic departments and community-based physicians participate in Preceptorship Shadowing Programs offered by pharmaceutical manufacturers. If the Preceptorship Shadowing Programs are used by pharmaceutical manufacturers to persuade physicians to prescribe the company’s drug products rather than exchange for teaching of the company’s sales representative, any payments from the pharmaceutical manufacturers to the physician may be deemed as a kickback.
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