EnforcementEnforcementTrends in Trends in

Pharmaceutical Pharmaceutical CasesCases

The views expressed are those of the author. They do not necessarily The views expressed are those of the author. They do not necessarily reflect the position of the Department of Justice and are not binding reflect the position of the Department of Justice and are not binding

on the Department of Justice.on the Department of Justice.

Eugene M. ThirolfEugene M. ThirolfDirector, Office of Consumer LitigationDirector, Office of Consumer Litigation

United States Department of JusticeUnited States Department of JusticeCivil DivisionCivil Division

Eugene.Thirolf@usdoj.govEugene.Thirolf@usdoj.gov The Office of Consumer LitigationOffice of Consumer Litigation (OCL), a section

in the Civil Division of the Department of Justice (DOJ), enforces through civil litigation and criminal prosecutions a number of Federal statutes that protect the public health and safety and protect consumers from unfair practices.

28 C.F.R. 0.45(j) Point of Contact Policy OCL monograph is at

http://www.usdoj.gov/civil/ocl/monograph/index.htm

DOJ Has Made Health DOJ Has Made Health Care Fraud a PriorityCare Fraud a Priority

Associate Attorney General Robert McCallum in May 2004 asked the U.S. Attorneys to make health care fraud a top priority in their offices.

Since 1996, DOJ, working with HHS, has returned in excess of $4.5 billion to the Medicare Trust Fund for health care fraud recoveries.

Pharmaceutical fraud has resulted in criminal convictions and in excess of $1.6 billion in equitable relief and penalties.

DAG Comey to the ABADAG Comey to the ABA “ “I I believe that it is of paramount importance that

the Department use every tool at its disposal to ensure the health and safety of the consumers of the nation's health care system.”

“[T]he high school honor student able to obtain dangerous prescription drugs from an Internet pharmacy, the cancer patient receiving diluted drugs from a greedy pharmacist, or the cardiac patient receiving unnecessary surgery all share one common experience: they each suffered, and some of them died, at the hands of a health care provider who placed profit ahead of their patients’ vital health care concerns.”

Food, Drug, and Food, Drug, and Cosmetic ActCosmetic Act

(FDCA)(FDCA) The FDCA case referral process has been

overtaken by events— i.e., qui tams Civil injunctions/address systemic problems Criminal prosecutions under the FDCA

Misdemeanors—before 1990, the more common charge

Felonies—since 2000, how many convictions?

In 2003

Americans spent $230 billion

on prescription drugs

Source: CBS News

Enforcement GoalsEnforcement Goals

1. Identify and successfully prosecute those 1. Identify and successfully prosecute those who are committing health care who are committing health care

fraud.fraud.

2. Prevent future fraud or abuse by deterring 2. Prevent future fraud or abuse by deterring criminal conduct and violations of the criminal conduct and violations of the

statutes.statutes.

3. Protect program beneficiaries.3. Protect program beneficiaries.

History of EnforcementHistory of Enforcement OCL has been pursuing fraud and misconduct in OCL has been pursuing fraud and misconduct in

the pharmaceutical industry for at least 30 years.the pharmaceutical industry for at least 30 years. More felonies for a range of criminal statutesMore felonies for a range of criminal statutes More jail and higher fines because of sentencing More jail and higher fines because of sentencing

guidelinesguidelines International character of violationsInternational character of violations New emerging areas—e.g., Internet pharmacies, New emerging areas—e.g., Internet pharmacies,

importing counterfeit drugsimporting counterfeit drugs

HHS’ perspective is HHS’ perspective is essential.essential.

The standards for marketing pharmaceuticals The standards for marketing pharmaceuticals are clear.are clear. http://www.oig.hhs.gov/fraud/docs/complianceguidance/drhttp://www.oig.hhs.gov/fraud/docs/complianceguidance/dr

aftcpgpharm09272002.pdfaftcpgpharm09272002.pdf

PHARMA guidelines and challengesPHARMA guidelines and challenges

Corporate governanceCorporate governance—CIAsCIAs

Generic drugs cause market Generic drugs cause market pressure.pressure.

Defending FDA’s exclusivity decisions Defending FDA’s exclusivity decisions

against whomever “loses” against whomever “loses” —Generic or Generic or InnovatorInnovator

In FY 2004, 31 new defensive casesIn FY 2004, 31 new defensive cases FDA’s implementing the MMAFDA’s implementing the MMA—

Draft Guidance published Draft Guidance published October 2004 October 2004 http://www.fda.gov/cder/guidance/6174dft.pdfhttp://www.fda.gov/cder/guidance/6174dft.pdf

30-month stay30-month stay Generic exclusivityGeneric exclusivity

Enforcement Options: Enforcement Options: Civil Remedies Under the Civil Remedies Under the

Food, Drug, and Cosmetic ActFood, Drug, and Cosmetic Act InjunctionInjunction––e.g., e.g., United States v. American United States v. American

Red CrossRed Cross Product seizure and condemnationProduct seizure and condemnation––e.g.,e.g.,

United States v. Abbott LaboratoriesUnited States v. Abbott Laboratories DisgorgementDisgorgement– e.g., United States v. Universal

Management, 999 F. Supp. 974 (N.D. Ohio 1997), aff’d, 191 F.3d 750 (6th Cir. 1999).

During the first Bush Administration, we recovered $900 million in disgorgement.

Health Care FraudHealth Care Fraud

False Claims Act (FCA):False Claims Act (FCA):

QUI TAMS CAN SET THE QUI TAMS CAN SET THE ENFORCEMENT AGENDAENFORCEMENT AGENDA

100 or more cases involving pharmaceutical 100 or more cases involving pharmaceutical manufacturers, PBMs, doctors, and hospitalsmanufacturers, PBMs, doctors, and hospitals

Implied certification is an appropriate basis for Implied certification is an appropriate basis for imposing FCA liability.imposing FCA liability.

United States, ex rel Franklin v. Parke-DavisUnited States, ex rel Franklin v. Parke-Davis, , Civ. 96-11651PBS, 2003 WL 22048255 Civ. 96-11651PBS, 2003 WL 22048255 (D.Mass. Aug 22, 2003).(D.Mass. Aug 22, 2003).

Health Care FraudHealth Care Fraud

Emerging prosecutions and enforcement areas for pharmaceutical manufacturers–CGMP

United States v. Bhutani, 175 F.3d 572 (7th Cir. 1999),

266 F.3d 661 (7th Cir. 2001), cert denied 536 U.S. 922 (2002)– mid-tier/contract manufacturers

“Qui Tam actions are an “avalanche on pricing issues and kickbacks.” Rx Compliance Report, July 8, 2004.

Types of Qui TamsTypes of Qui Tams

Inflated average wholesale prices Inflated average wholesale prices (AWP) at which Medicare and (AWP) at which Medicare and Medicaid reimburseMedicaid reimburse

Off-label marketing Failure to provide adverse event

reports The number of cases, in multiple

Districts, against common defendants presents a challenge to DOJ.

State actions, new areas of State actions, new areas of interestinterest

Attorneys General are using state Attorneys General are using state consumer protection and antitrust consumer protection and antitrust lawslaws

California law requiring compliance California law requiring compliance with OIG compliance standardswith OIG compliance standards

Private medical insurance Private medical insurance recoveriesrecoveries

Clinical trials-FDA draft guidance Clinical trials-FDA draft guidance September 2004September 2004

Should you proactively tell Should you proactively tell the Government about a the Government about a

crisis?crisis?The Government’s responsibility The Government’s responsibility

in investigating a qui tam claim in investigating a qui tam claim is clearis clear— Whether the Government paid for Whether the Government paid for

unapproved new drugs or unapproved new drugs or adulterated and misbranded drugsadulterated and misbranded drugs

Was the pharmaceutical Was the pharmaceutical prescribed with the patient’s prescribed with the patient’s interest uppermost in mind?interest uppermost in mind?

Do you report to the Do you report to the Government?Government?

OJF is a pharmaceutical manufacturer. OJF is a pharmaceutical manufacturer. Has a drug for treatment of blood deficiency.Has a drug for treatment of blood deficiency. Product is not performing as expected when Product is not performing as expected when

launched.launched. A new medical journal reports that the drug’s A new medical journal reports that the drug’s

chemical entity may have a significant benefit chemical entity may have a significant benefit for a vulnerable pediatric population. for a vulnerable pediatric population.

Product is aggressively “marketed” as Product is aggressively “marketed” as beneficial for the “same” pediatric population beneficial for the “same” pediatric population that is identified in the medical journal. that is identified in the medical journal.

Sales increase dramatically as doctors find Sales increase dramatically as doctors find the drug to be exactly what they wanted.the drug to be exactly what they wanted.

An unexpected An unexpected developmentdevelopment

An adverse reaction An adverse reaction occurs.occurs.

• When should OJF tell the government?When should OJF tell the government?• Mr. Jones, VP for Regulatory Affairs, is Mr. Jones, VP for Regulatory Affairs, is

notified by a treating physician that the notified by a treating physician that the drug is having unexpectedly bad effects drug is having unexpectedly bad effects on the young children he is treating.on the young children he is treating.

• Jones discusses this with the CEO and Jones discusses this with the CEO and is put in charge of addressing the is put in charge of addressing the problem.problem.

What does Jones do?What does Jones do?• Jones immediately reports a literature search Jones immediately reports a literature search

and finds nothing to explain the adverse and finds nothing to explain the adverse reaction.reaction.

• Jones contacts the medical affairs director and Jones contacts the medical affairs director and learns that there is no dosing information for learns that there is no dosing information for the new pediatric population.the new pediatric population.

• Jones debates whether notification to the Jones debates whether notification to the physician user community is appropriate.physician user community is appropriate.

• Jones considers and rejects sending a “Dear Jones considers and rejects sending a “Dear Doctor” letter.Doctor” letter.

• Jones leaves the product on the market because Jones leaves the product on the market because the results of the investigation are not clear and the results of the investigation are not clear and the product is generally well received and must the product is generally well received and must be performing well.be performing well.

• CEO tells Jones to consult with outside CEO tells Jones to consult with outside regulatory counsel, Ms. Counsel, for guidance.regulatory counsel, Ms. Counsel, for guidance.

The lawyer enters.The lawyer enters. Ms. Counsel suggests consulting Ms. Counsel suggests consulting

with the FDA about how best to with the FDA about how best to proceed.proceed.

Still lacking firm answers about the Still lacking firm answers about the problem or the solution and with an problem or the solution and with an unknown safety record in the field, unknown safety record in the field, OJF stops shipping the drug.OJF stops shipping the drug.

OJF refuses to confirm for inquiring OJF refuses to confirm for inquiring physicians that there have been physicians that there have been adverse reports about the drug’s use adverse reports about the drug’s use in the new pediatric population.in the new pediatric population.

What Does OJF Do After What Does OJF Do After Stopping Shipping?Stopping Shipping?

Can OJF and Mr. Jones “blame the Can OJF and Mr. Jones “blame the doctors”?doctors”?

How much of the investigation How much of the investigation should be disclosed to the should be disclosed to the physicians who prescribed the physicians who prescribed the drug?drug?

FDA shows up at the door.FDA shows up at the door. What does OJF say to the FDA?What does OJF say to the FDA?

What Defense Is There?What Defense Is There? Can OJF defend against felony new Can OJF defend against felony new

drug, adulteration and misbranding, drug, adulteration and misbranding, and and 18 U.S.C. § 18 U.S.C. § 1001 violations?1001 violations?

What does OJF disclose and to whom?What does OJF disclose and to whom? How does OJF communicate its views How does OJF communicate its views

and options?and options? Can OJF rely on past FDA practice Can OJF rely on past FDA practice

and public statements?and public statements?

What Defense Is There?What Defense Is There?

Can OJF compare its Can OJF compare its product’s safety and efficacy product’s safety and efficacy with other products on the with other products on the market?market?

Are there free speech issues?Are there free speech issues? What about product liability?What about product liability?

A Qui Tam Is Filed.A Qui Tam Is Filed.

An OJF employee allegesAn OJF employee alleges That OJF’s investigation was not That OJF’s investigation was not

initiated promptly enoughinitiated promptly enough That it was totally inadequate to That it was totally inadequate to

determine why the adverse reactions determine why the adverse reactions were occurringwere occurring

That the product was promoted for an That the product was promoted for an off-label useoff-label use

Limiting the DamagesLimiting the Damages How much did Medicaid pay for the How much did Medicaid pay for the

drug?drug? Does a recall limit the dangers of the Does a recall limit the dangers of the

investigation?investigation? Was the recall sufficiently timely?Was the recall sufficiently timely? Was the company knowingly shipping Was the company knowingly shipping

unapproved, adulterated, or unapproved, adulterated, or misbranded product?misbranded product?

Why Did This Happen?Why Did This Happen? Was it vague regulations, differing market Was it vague regulations, differing market

expectations, and epidemiology by hindsight?expectations, and epidemiology by hindsight? Was it the competitive economics of the Was it the competitive economics of the

industry?industry? When should OJF have gone to FDA, HHS, When should OJF have gone to FDA, HHS,

or DOJ?or DOJ? Did OJF make conservative judgments on Did OJF make conservative judgments on

public health and safety?public health and safety? United States v. HilandUnited States v. Hiland, 909 F.2d 1114 (8, 909 F.2d 1114 (8thth

Cir. 1990).Cir. 1990).

Failure to Ask or Tell Has Failure to Ask or Tell Has ConsequenceConsequence

““Finally, we think it is relevant that Finally, we think it is relevant that neither Carter nor Hiland ever neither Carter nor Hiland ever consulted the FDA to find out if it was consulted the FDA to find out if it was necessary to test E-Ferol for safety. necessary to test E-Ferol for safety. Although Carter and Hiland were under Although Carter and Hiland were under no legal duty to make such an inquiry, no legal duty to make such an inquiry, we believe their decision not to consult we believe their decision not to consult the FDA constituted at least some the FDA constituted at least some evidence of deliberate ignorance.” Id. evidence of deliberate ignorance.” Id. at 1124.at 1124.

Tell Us What Happened Tell Us What Happened Early OnEarly On

HHS IG Web site offers the HHS IG Web site offers the opportunity to self-report.opportunity to self-report.

New Corporate Sentencing Guidelines New Corporate Sentencing Guidelines highlight self-reporting.highlight self-reporting.

Your own corporate compliance Your own corporate compliance programs should deal with self-programs should deal with self-reporting for Sarbanes-Oxley.reporting for Sarbanes-Oxley.

CIAs require self-reporting of a CIAs require self-reporting of a material breach.material breach.

Current Health Care Fraud Drug CasesCurrent Health Care Fraud Drug Cases

Current health care fraud cases will be based Current health care fraud cases will be based on older cases:on older cases: Medicare prescription drug benefit merely increases the

stakes. United States v. Eli Lilly, Oraflex (1985)

Kickback cases—OIG/Pharma Guidance Off label prescription drug promotion

United States v. Genentech (1999) United States v. Parke-Davis (2004)

Some factors we consider in Some factors we consider in deciding to pursue a casedeciding to pursue a case

What will be the deterrent value of the case, or, in simplest terms, what is the guideline sentencing?

What are the Government’s priorities in terms of type of case?

Can the defendant help the Government to prosecute others?

Deputy Attorney General Deputy Attorney General Thompson’s MemorandumThompson’s Memorandum

Corporate Compliance Policy–sets standards to Corporate Compliance Policy–sets standards to decide whether a company should be charged.decide whether a company should be charged.

Sentencing guidelines say how large the penalty Sentencing guidelines say how large the penalty should be.should be.

The principles recognize that the existence of an The principles recognize that the existence of an adequate and effective compliance program may be adequate and effective compliance program may be one of several relevant factors in determining one of several relevant factors in determining whether to charge a corporation. What does this whether to charge a corporation. What does this mean? What is an adequate and effective program? mean? What is an adequate and effective program?

What Will the Supreme What Will the Supreme Court Do?Court Do?

Booker v. United StatesBooker v. United States

Argument October 4, 2004Argument October 4, 2004 The Courts of Appeal disagree about The Courts of Appeal disagree about

how facts affecting a sentence should how facts affecting a sentence should be determined.be determined.

Fed.R.Cr.P. 11(c)(1)(c) has been the Fed.R.Cr.P. 11(c)(1)(c) has been the standard.standard.

Congress is considering possible Congress is considering possible statutory solutions.statutory solutions.

Certainty in sentencing is gone (for a Certainty in sentencing is gone (for a while).while).

United States Sentencing United States Sentencing Commission’s Organizational Commission’s Organizational

GuidelineGuideline The new Guideline Section 8B2.1 The new Guideline Section 8B2.1

became effective November 1, 2004.became effective November 1, 2004. Does the organization have in place a Does the organization have in place a

structural guideline to prevent and structural guideline to prevent and detect criminal conduct?detect criminal conduct?

““The duty imposed . . . is, we The duty imposed . . . is, we emphasize, one that requires the emphasize, one that requires the highest standards of foresight and highest standards of foresight and vigilance.”vigilance.”

§8C2.5. §8C2.5. Culpability ScoreCulpability Score(g) (g) Self-Reporting, Cooperation, and Acceptance of ResponsibilitySelf-Reporting, Cooperation, and Acceptance of Responsibility

If more than one applies, use the greatest:If more than one applies, use the greatest:(1) If the organization (A) prior to an imminent threat of disclosure (1) If the organization (A) prior to an imminent threat of disclosure or government investigation; and (B) within a reasonably prompt or government investigation; and (B) within a reasonably prompt time after becoming aware of the offense, reported the offense to time after becoming aware of the offense, reported the offense to appropriate governmental authorities, fully cooperated in the appropriate governmental authorities, fully cooperated in the investigation, and clearly demonstrated recognition and affirmative investigation, and clearly demonstrated recognition and affirmative acceptance of responsibility for its criminal conduct, subtract acceptance of responsibility for its criminal conduct, subtract 55 points; or points; or (2) If the organization fully cooperated in the investigation and (2) If the organization fully cooperated in the investigation and clearly demonstrated recognition and affirmative acceptance of clearly demonstrated recognition and affirmative acceptance of responsibility for its criminal conduct, subtract responsibility for its criminal conduct, subtract 22 points; or points; or(3) If the organization clearly demonstrated recognition and (3) If the organization clearly demonstrated recognition and affirmative acceptance of responsibility for its criminal conduct, affirmative acceptance of responsibility for its criminal conduct, subtract subtract 11 point. point.