DOJ Announces Its Most Recent Largest Ever Pharmaceutical Settlement

The Department of Justice announced today, Monday July 2^nd, 2012, that GlaxoSmithKline (GSK) has entered into a plea agreement and agreed to pay $3 billion dollars to resolve civil and criminal charges related to the unlawful promotion of prescription drugs, failure to report safety data to the FDA and false price reporting for a variety of drugs manufactured by the pharmaceutical company.  This resolution represents the largest health care fraud settlement to date.

            GSK will pay a criminal fine of $1 billion under the terms of the plea agreement.  Under the agreement, GSK pled guilty to two counts of introducing misbranded drugs, Paxil and Wellbutrin, into interstate commerce and one count of failing to report safety data about the drug Avandia to the FDA. 

GSK will also pay $2 billion to settle civil liability for pricing fraud allegations relating to the sale of drugs including Paxil, Wellbutrin, Advair, Lamictal, Zofran, Imitrex, Lotronex, Flovent and Valtrex.  This civil settlement resolves the government’s allegations that GSK promoted off-label uses for Paxil, Wellbutrin, Advair, Lamictal and Zofran, and kickback allegations related to Imitrex, Lotronex, Flovent and Valtrex.  The settlement also resolves the allegation that GSK made false statements concerning the safety of its diabetes drug, Avandia.

In addition to monetary payments, GSK has entered into a five-year CorporateIntegrity Agreement (CIA) whereby GSK is required to meet certain compliance obligations in order to avoid exclusion from federal health care programs.  According to the press release the CIA includes novel provisions which require that GSK make major changes to the way the company compensates its employees and executives.  GSK must eliminate compensation plans based on sales goals for territories and create a provision which allows the company to recoup compensation from executives who have engaged in significant misconduct.  The CIA also requires GSK to implement transparency policies in its research and publication practices. 

This CIA represents one more of a recent trend in OIG and DOJ settlements which utilize this tool.  CIA’s with health care companies have typically included provisions which require strengthening of compliance policies and subjecting these policies to independent review at the company’s expense.  The CIA announced today goes further than previous CIA’s by requiring GSK to alter the way it compensates its employees.    

Chief Justice Roberts to President Obama: "Now We're Even!"

Chief Justice Roberts made up to President Obama for mangling the oath of office Roberts administered to the President at his inauguration by joining with the four liberal justices to  declare the major elements of  the Affordable Care Act to be constitutional.

As you have probably heard, the Supreme Court in a 5-4 decision largely upheld the constitutionality of the Affordable Care Act, most notably the provisions concerning the so-called mandate, which the Court ruled to be a constitutional exercise of Congress’ taxation power.  The only portion struck down is a requirement imposed on the states to expand Medicaid coverage or risk loss of federal funding. The significance of this ruling, which is not a core provision of the ACA in any event, is unclear because the Court appears to have interpreted the provision to remedy the defect. 

In case you’re interested, I have been through the Syllabus.  (The 193 page opinion will take a bit longer to digest.)  Here’s my  first blush summary.

The majority opinion, by Chief Justice Roberts, appears to carve a judicious, some might say statesmanlike, path through the various arguments.  (Perhaps he was channeling Chief Justice Marshall).  Roberts rejects the argument that the ACA is a constitutional exercise of Congress’s power to regulate commerce, holding that that power presumes the existence of commerce.  Where one has not purchased health insurance there has been no commerce and thus nothing to regulate.  “Construing the Commerce Clause to permit Congress to regulate individuals precisely because they are doing nothing would open a new and potentially vast domain to congressional authority.” (Syllabus)(original emphasis).  (In other words, we are not creating precedent that may empower the government to make us buy broccoli).  Nor can the legislation be upheld under the Necessary and Proper clause, which has always been held to be derivative of not supplementary to Commerce Clause power.

Instead, Roberts upholds the statute under well-settled constitutional doctrine that “every reasonable construction must be resorted to, in order to save a statue from unconstitutionality, Hooper v. California, 155 U.S. 64, the question is whether it is “fairly possible” to interpret the mandate as imposing such a tax.”  Syllabus (citations omitted).    “In answering that constitutional question, this Court follows a functional approach “[d]isregarding the designation of the exaction, and viewing its substance and application.”  [citation omitted]  “Such an analysis suggests that the shared responsibility payment may for constitutional purposes by considered a tax.  The payment is not so high that there is really no choice but to buy health insurance; the payment is not limited to willful violations, as penalties for unlawful acts often are; and the payment is collected solely by the IRS through the normal means of taxation.”  Id.  [citation omitted].

Why Defendants Should Try More FCA Cases

            A district court in the Eastern District of Virginia recently held the civil penalties provisions of the federal False Claims Act, 31 U.S.C. §3729(a)(1)-(3)(2000) (FCA), unconstitutional as applied to the defendants’ conduct.  UnitedStates of America ex. rel. Bunk and Heuser v. Birkart Globistics Gmbh &Co., et. al.  (Birkart).  The holding is certainly positive for defendants but as a practical matter the cases declaring the penalties provisions of the FCA unconstitutional are generally of limited application.  The real story, however, lies not in the holding but in what the opinion reveals concerning the challenges facing relators (and the government) in litigating FCA cases.  Those lessons concern (1) the lengthy, arduous path from filing to resolution; (2) evidentiary obstacles; and (3) satisfying the elements of FCA liability.

            The relator filed the complaint in 2002.  (Yes, a decade ago).  He alleged that defendants engaged in price-fixing with respect to bids on a contract to transport household goods of military personnel in, to and from U.S. military bases in Europe.   In support of their bid, the defendants had certified that “the prices in this offer have been arrived at independently, without, for the purpose of restricting competition, any consultation, communication, or agreement with any other offeror or competitor relating to (i) those prices, (ii) the intention to submit and offer, or (iii) the methods or factors used to calculate the prices offered.”  Id.  The relator's evidence appeared strong.  It included correspondence between the defendants concerning, “the rates that were agreed by the participants in the February meeting for the services to be rendered under the DPM contract.”  Birkart at 5.  And, “we find this very important as we go ahead and stabilize this business.  We talk a lot about TRUST and we feel it is outmost [sic] important that we all work together in a good system, as we will trust you that things will happen just as they are being said.”  Id.     

            The allegations establish a prima facie false certification theory of FCA liability.  (It should be noted that some the evidence was so damning that the government obtained a guilty plea to a criminal charge.  The relator continued to litigate several other claims and it is these remaining, un-intervened claims that are the subject of this opinion).  It is well-established (as FCA plaintiffs are fond of reminding defendants at every opportunity) that one false certification renders every subsequent claim false.  See Harrison v. Westinghouse Savannah River Co.  In Birkart that single false certification generated 9,136 false claims.  Under the FCA, as adjusted by the Federal Civil Penalties Inflation Adjustment Act of 1990, a defendant is  liable for civil penalties of no less than $5500 and no more than $11,000 per claim, which resulted in potential liability for the defendants of no less than $50,248,000 and no more than $100,496,000.  But, as defense counsel say, it is one thing to proclaim and another thing to prove.  And it was at the proof stage that things became difficult for relator.

PPACA As Job Creation Engine

My sage but witty friend Andy Demetriou, with tongue firmly in cheek, forwarded this brilliant suggestion for how the administration can create jobs, which I could not resist forwarding (with his permission of course).  Andy observes,

Since the Administration is casting about for tasks to which the large number of unemployed can be set, I would modestly propose that at least some of them could be engaged in updating our nation’s statutes.  I was looking at some of the briefs in the case of Thomas More Law Center v. Obama (because I am supposed to talk about these cases at EMI, not just because I have that kind of time) and came across the following footnote in the Government’s Brief in Opposition to Petition for Certiorari:

2 Because the Affordable Care Act has not yet been codified in the United States Code, this brief will cite to the United States Code Annotated (“USCA”) for ease of reference.  All such citations are either to the 2011 Edition or the 2011 Supplement of the USCA. (emphasis mine)

I could understand this if the brief had been filed fairly soon after the enactment of PPACA, but alas it was filed only last month--some 18 months after the President signed the law.  Now I am sure that codifying statutes is probably highly technical work, but I would suspect that somewhere among the 14 million or so must be a few who could aid this process!  Maybe Thomson West has already hired everybody who is qualified.

Supreme Court Denies Cert in Hutcheson

Ouch.  The Supreme Court has denied defendant's petition asking the Court to reverse the First Circuit's expansive interpretation of the False Claim Act's reach.  As previously posted, in United States ex. rel. Hutcheson v. Blackstone Medical Inc., the First Circuit found that  a claim that fails to comply with a precondition of payment can be false under the FCA even if the claim does no contain an express legal  or factual misstatement.  It also held that a submitting entity's representations about its own legal compliance can be rendered false if it incorporates an implied representation concerning the behavior of non-submitting entities.  See June 2, 2011 post, "First Circuit Firmly Endorses Expansive Interpretation of the FCA."  It is hard to know what the Justices were thinking.  One cannot read much into a one sentence order.  The DOJ and relators' bar will no doubt portray the Court's ruling as endorsing their view that the FCA potentially reaches any claim that a defendant causes to be submitted and that arises from a false statement.  The truth is probably a bit narrower, however.

Washinton Health Care Summit: CLE and a free drink! What's not to like?

This Fall Health Care Reform will be on the Supreme Court's docket, the congressional agenda and the administration's "honeydo" list.  Members of Congress will have returned to Washington having spent the summer recess receiving feedback from their constituents, which the members will no doubt be willing to share with the President and the Public.  Your clients will want to know what is going on with Health Care Reform.  The best forum to get the answers will the Washington Health Care Summit, October 17-18th, at the Ritz Carlton in Pentagon City, just a short Metro ride from downtown Washington, DC.  The WHS is the preeminent health care law and policy conference in the United States.  Members of Congress, their staff, agency and federal and state enforcement officials will give you the most up-to-date information concerning the status and prospects for health care reform.  So, when your clients ask what is going on, you will be able to report, "I just heard from [so and so] who said...Or, better yet, "I just asked [so and so] that very question and s/he said..."

The Washington Health Summit provides a one-stopping shopping for the most up-to-date legal and regulatory information concerning health care reform and health care policy generally.    But, wait!  There's more.  For everyone who posts on this blog or is an email follower, I will buy you a drink.  (Can it get any better?)  Oh, did I mention I am the co-chair of the conference?  Yes, that's right the WHS is not only an opportunity to hear from those who shape health law and policy but to participate in bar activities with me!  (You caught the pun, right?).

So whether you are on or off the reform bandwagon, come to the Washington Health Summit, October 17th-18th at the Alexandria Ritz-Carlton.  Get involved.  Give a damn.  Get a drink.  Do you hear the people sing?  (Don't you love the 17 Jean ValJeans?)

Does the Government’s Health Care Fraud Enforcement Agenda Undermine Its Health Care Compliance Agenda?

Recent cases raise the question whether the Department of Justice’s continuing war on health care fraud is actually undermining its broader, stated goal of reducing Medicare and Medicaid fraud.   The government has pursued a carrot and stick approach to encouraging corporate compliance.  Effective compliance programs, as described by the U.S. Organizational Sentencing Guidelines, will benefit companies by not only preventing misconduct but mitigating penalties if and when they occur.  Accompanying this carrot, however, is the stick of aggressive prosecution of fraud and more severe punishment of companies that fail to advantage themselves of the opportunity to adopt such programs.

Quantifying the benefit of compliance programs has always been more challenging, however.  The expense of implementing and operating effective compliance programs is easy to quantify.  The benefits of doing so, less clear.  Complicating the analysis, the carrot contains its own stick in that effective compliance programs have the unfortunate “benefit” of unearthing violations, not just of the law but of company policy.  It is understandable that CEOs question the benefit of adopting expensive programs that seem to serve only to uncover problems that might otherwise go undetected.

The answer, supposedly, is that compliance programs not only mitigate the consequences of noncompliance they are preventative.  By creating policies and training programs that promote law abiding practices, a company theoretically, over time, will spend less money dealing with past transgressions, freeing up resources that can be allocated to revenue producing activities.

The key to an effective compliance program, however, is the ability to identify the line between lawful and unlawful practices.  If, for example, the speed limit on a highway keeps changing based on the speed of the traffic and no signs are posted, how can a driver obey the speed limit?  That appears to be what is happening as the government’s need to demonstrate that its tougher on health care fraud agenda,  trumps the policy of promoting compliance.  What constitutes fraudulent marketing practices is increasingly determined not by whether conduct violates a known standard but by what the government decides it likes or dislikes about how an industry operates.

Case in point; the government’s recent False Claims Act suit against Par Pharmaceuticals.  According to press reports, the lawsuit contends that Par violated the False Claims Act by encouraging pharmacies to prescribe capsules instead of tablets because capsules enjoy a higher price.  The Complaint alleges that “To increase sales, [Par] marketed their higher- priced drugs to pharmacies by falsely portraying their drugs as equivalent to popular, lower-priced generics.” This allowed the drugstores to get higher reimbursements from Medicaid programs and “evade the government’s price limits.”

Last time I checked, the False Claims Act prohibits a false or fraudulent statement, an element that appears to be completely missing from the Par allegations.  The Complaint does not allege that the prescription was false; it alleges that pharmacies prescribed one form of a drug rather than another to make more money.  But, as alleged, pharmacies billed the government for exactly what they prescribed.  Thus, the prescriptions at issue were false because they were true.  (Making an Alice in Wonderland reference here would be trite).