Posted May 29th, 2012

The Affordable Care Act created some desperately needed means to start controlling ever-rising health care costs. Many — like preventive care or delivery reforms — will take some time to realize savings. In contrast, new anti-fraud efforts look to be paying off right away, in amounts much bigger than expected.

The health reform law provided $350 million over ten years to increase anti-fraud investigation and enforcement resources for the Department of Justice (DOJ) and State Attorneys-General. The goal? Saving $6.4 billion over the next decade. Given that some estimate that fraud and waste cost as much as $60 billion a year, or $600 billion over a decade, saving one percent of that amount seems a pretty modest impact.

But wait! New estimates project that current or pending settlements of drug fraud litigation by the DOJ and the Attorneys-General will top $8 billion in FY2012 alone, according to the group Taxpayers Against Fraud. (See list below.) This is not the culmination of hundreds of lawsuits; it’s just the eight biggest. So it looks like this anti-fraud effort under the ACA will meet and then surpass its ten-year goal in less than two years!

To be fair, most of these eight drug fraud investigations were undoubtedly underway before the increased funding for anti-fraud efforts reached the DOJ and State Attorneys-General offices. But there is little doubt that providing these over-worked regulators with increased resources was a big help in increasing enforcement. DOJ probably has fewer lawyers working on all their pending drug fraud cases than some of the biggest drugmakers hire to defend a single lawsuit. But despite these disparities, these results show that very modest government investment in fighting fraud, coupled with hard work by government lawyers and whistleblowers, can pay off big.

For example, earlier this week drugmaker Abbott Labs in Chicago settled a civil and criminal investigation of their illegal promotion of the anti-convulsant drug Depakote as an unapproved treatment of dementia in seniors, and of various conditions in children. Abbott pleaded guilty to promoting these unapproved, or ‘off-label’ uses of Depakote, and agreed to pay $1.6 billion – one of the biggest settlements for the illegal promotion of a single drug.

There could be as many as a couple hundred pending whistle-blower lawsuits that are filed under seal and being investigated now by the federal or state regulators. These pending lawsuits may add up to billions of dollars of additional fines and settlements.

Some critics have warned that even billion-dollar fines are an inadequate deterrent when a drug company can make far in profits on illegally promoted sales of a drug.

For instance, the $1.4 billion record-breaking settlement with Eli Lilly in 2009 for illegal promotion of their antipsychotic drug Zeprexa was less than 5 percent of Lilly’s gross sales. Eight months later, DOJ shattered this record with an even bigger $2.3 billion settlement, which amounted to 14 percent of Pfizer’s gross sales of eight illegally marketed drugs (see here).

Similarly, this month’s $1.6 billion Depakote settlement is nearly 12 percent of the drug’s $13.8 billion in gross sales revenue from 1998 to 2008. Furthermore, DOJ is pioneering two mechanisms to deter future illegal conduct by Abbott, along with this hefty fine.

First, the Depakote settlement places Abbott on probation and imposes a corporate compliance and monitoring program, for five years. If Abbott violates the compliance agreement or significantly violates the law, the government can exclude Abbott, and all their drug products, from federal health care programs. That would cost Abbott billions in lost sales on numerous drugs.

The settlement also aims to hold Abbott’s corporate leadership personally accountable. Abbott’s CEO must personally certify compliance and the board of directors must review and report on compliance each year. If the CEO or the board is lax in these duties, they could be excluded from their positions at Abbott. And if CEO or board intentionally lie to the government to cover up any misconduct, they could face personal criminal liability under the federal False Statements Statute. (Find the plea agreement and related documents here.)

Sadly, Abbott’s illegal promotion of ineffective and dangerous uses of Depakote has both harmed and put at risk what is arguably the most vulnerable patient population – seniors suffering from dementia, who live away from their families in nursing homes. Undoubtedly millions of seniors were, and likely continue to be given Depakote inappropriately as a result of Abbott’s illegal promotional campaign.

Check back soon for more on (1) actions that Medicare and Medicaid can take to address the continuing effects on patients of illegal promotions of off-label use of drugs and (2) how the Arkansas AG fought prescription drug fraud, winning huge fines to plug the state’s Medicaid budget deficit.

Wells Wilkinson

Director, Prescription Access Litigation

Staff Attorney, Community Catalyst

Projected Drug Fraud Settlements in FY 2012, excerpted from the Taxpayers Against Fraud website.

A version of this blog was posted earlier on Health Policy Hub and Postscript. 

In case anyone had lingering doubts about Merck [NYSE:MRK], the embattled maker of Vioxx is in the news again. This time for agreeing to pay a $671 million to federal and state prosecutors for allegedly overcharging government programs for four drugs — Zocor, Mevacor, Vioxx and Pepcid, and for bribing doctors to prescribe certain drugs. This is one of the largest health care fraud settlements to date.

An Associated Press article reports the details:

Drug companies must report to the government the lowest price for their medicines to ensure that Medicaid programs get the same discounts or rebates on drugs they buy. Prosecutors said Merck was hiding steep discounts – up to 92 percent off the average price – it gave hospitals that used a set amount of Merck products.

From 1997 to 2001, prosecutors said Merck had about 15 different programs used by its sales representatives to give doctors and other health professionals “illegal kickbacks,” disguised as fees for training or consultation, to induce them to prescribe Merck drugs.

The Philadelphia case involved pricing programs for the cholesterol drugs Zocor and Mevacor and the painkiller Vioxx, which Merck pulled from the market in September 2004 because Vioxx doubled the risk of heart attack and stroke. Those programs ran from 1996 through 2006, Rogers said.

The Louisiana case involved pricing for heartburn drug Pepcid, from mid-1996 to April 2001, when it was sold only by prescription.

Merck, of course, denies it did anything wrong:

“What we have here is a disagreement (over) the rules of the Medicaid rebate program,” said Merck spokesman Ronald Rogers. “These civil settlements were the best and most appropriate way to resolve these lengthy investigations.”…

“At the time that these pricing programs were in place, Merck believes that it acted in good faith and complied with the regulations that were in place at the time,” Rogers said.

The settlement announced late yesterday concerns conduct that took place from 1997 to 2001. Thus, we’re talking about things that happened a very long time ago – 7-11 years ago, to be precise. Cases like this are brought under the False Claims Act, which allows “whistleblowers” (known as false claims or qui tam relators) who have information about companies that are defrauding the government to bring a lawsuit on behalf of the government to recover the amounts that were illegally charged. False Claims Act cases are “under seal” for several years while the Justice Department decides whether to “intervene,” that is, whether to enter — and largely take over — the case on behalf of the government. Then the investigation usually takes several more years, and negotiations with the defendants can take yet several more.

So, even when you have a situation like this, in which a drug company has to pay hundreds of millions of dollars, it’s only years after the conduct in question took place. It begs the question of how to make the process move more quickly, so that the fear of federal investigations and penalties can actually have a deterrent effect on drug companies’ behavior.

The Pennsylvania case whistleblower’s attorneys have set up their own website, describing the case and the settlement, drugfraudsettlement.com. Their press release describes what they say is a unique feature of this case:

Aside from the huge settlement, the second largest FCA civil fraud Medicaid recovery, the case marked new ground with a collaborative investigation model that saw the relator and his lawyers work closely with state and federal Government investigators to press the case. This new investigative model, [whistleblower lawyer] Cohen said, “will become the basis for future qui tam whistleblower investigations, especially in an age of shrinking government budgets.”

Merck reportedly will be bound by a Corporate Integrity Agreement as well, although no details of that agreement seem to be yet available. Corporate Integrity Agreements are frequently a feature of False Claims Act settlements, and usually require defendants to agree to set up “compliance programs” to train employees in how to comply with federal law and monitor that they are doing so.