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. 

Last Wednesday, FTC and congressional leaders held a press conference highlighting a new FTC report on how drug companies have protected “$20 billion in sales of brand name drugs from generic competition” through collusive, anti-competitive ‘pay-for-delay’ settlements with generic manufacturers.

The FTC report, “Pay-for-Delay: How Drug Company Pay-Offs Cost Consumers Billions” explains how legal decisions starting in 2005 have led to 63 settlements which delay generic drugs for an average of 17 months. FTC  noted that “[m]ost of these agreements are in effect.”  The report estimates, using a very conservative analysis, that these settlements are costing “American consumers $3.5 billion per year — $35 billion over the next ten years.” Other legal experts have previously estimated that these agreements are costing $7.5 billion a year.  

FTC, and congressional advocates urged their colleagues to ban these pay-for-delay agreements, which harm consumers and drive up our health care costs overall.  FTC Chairman Jon Leibowitz was joined by Reps. Chris Van Hollen (D-Md.), Bobby L. Rush (D-Ill.), and Mary Jo Kilroy (D-Ohio) urging legislative action.  At the press conference, Sen. Herb Kohl (D-Wis.) highlighted how the settlements assessed in the report, such as 19 pay-for-delay settlements made in 2009 alone, had “robbed Americans of a competitive marketplace.”  The Report documented how Pharma and the generic manufacturers have increasingly used such ’pay-for-delay’ settlements since they were first upheld by the appellate courts starting in 2005. 

“Each of these backroom deals kept generics off the market, resulting in higher drug costs for millions of consumers and more federal spending in the form of drug reimbursement costs,” Sen. Kohl said.  “Today’s FTC report is proof that if we are serious about bringing down prescription drug costs, we must …  end these anti-consumer, anti-competitive backroom deals.” 

 The current health reform bill passed by the House bans ‘pay-for-delay’ settlements under federal anti-trust law, but the bill passed by the Senate does not. FTC Chairman Jon Leibowitz stated, “[w]e also must remember that behind the abstract numbers that show these deals increasing are real people with critical health care needs.  Many Americans struggle to pay for prescription drugs, especially the elderly and uninsured.”

FTC Commissioner J. Thomas Rosch noted that “[d]ecades ago our Supreme Court condemned as illegal per se an agreement by potential competitors stifling competition between them… [and] almost all, if not all, reverse payment agreements do that insofar as they delay generic competition longer than it might otherwise occur.”  While the FTC was successful in preventing the use of pay-for-delay agreements between April 1999 and 2004 and the U.S. Court of Appeals for the Sixth Circuit held these agreements per se illegal in 2003, the Report observed that beginning in 2005, “a few appellate courts have misapplied the antitrust law to uphold these agreements.” 

The Report also found that while pay-for-delay agreements benefit both the brand-name and generic pharmaceutical companies, they harm consumers.  Earlier last week, Community Catalyst and several other national consumer organizations, wrote to Senate Majority Leader Harry Reid and House Speaker Nancy Pelosi in support of including a ban on pay-for-delay agreements in national health care reform.

This letter from national consumer groups also proposed to eliminate the ‘bottleneck’ that prevents competition between generic drug companies. Under the Hatch Waxman Act, the first generic company to file an application with FDA to start selling a generic drug is granted a half year (180 days) of exclusive marketing before another generic company can sell the same generic drug.  Unfortunately, current precedent allows this ‘first-filer’ to retain their right to a half-year of market exclusivity even if they sign a settlement deal agreeing to keep their generic off the market.  “Those agreements place a cork in the bottle that typically ensures the brand-name drug’s lock on the market,” the FTC analysis said. “This cork-in-the-bottle effect occurs because every subsequent generic entrant has to wait until the first generic has been marketed for 180 days.”

These settlements are at issue in the PAL member lawsuit promoting access to generic versions of Provigil, and such a pay-for-delay settlement could affect the current PAL-membel lawsuit promoting consumer access to a generic version of Protonix.

The White House, in its efforts to line up industry support for health reform, announced an agreement this spring with the Pharmaceutical Researchers and Manufacturers of America (PhRMA) to discount senior drug costs and save $80 billion over the next decade.  PhRMA has announced that it will finance new ads in support of health reform—it has helped advocates like Families USA with previous ad campaigns.  However, with House leaders now proposing to go further in reining in excessive drug costs, there is speculation that PhRMA might pull its support if the House drives too hard a bargain.  But PhRMA should be supporting health reform—it’s not only good for the country, but good for the industry when more patients are insured and become new customers for their products. 

While details are scant, a recently leaked memo describes the deal as including: $25 billion in savings through a half-price discount for seniors buying brand name drugs in the ‘donut hole’ under Medicare Part-D; $34 billion in increased rebates under Medicaid; $12 billion through an industry fee or tax, and some $9 billion in savings on biologics.  Any mechanisms to ensure oversight and reliable pre-discount drug pricing are not clear.  

Controversy has now erupted, however, over drug pricing issues that affect the cost of health reform.  House Speaker Nancy Pelosi has said that “the House was not bound by any industry deals with the Senate or the White House.”   House Energy and Commerce Committee Chairman Henry Waxman (D-CA) also said that the House would not be obligated to abide by the agreement.  On July 31^st House democrats added new drug provisions in the House Committee on Energy and Commerce mark-up of its bill,  America’s Affordable Health Choices Act of 2009, H.R. 3200.  

H.R. 3200 includes an amendment introduced by Representative Schakowsky (D-IL) which allows the federal government to negotiate lower drug prices on behalf of senior citizens and persons with disabilities covered under Medicare Part D.  PhRMA quickly cried ‘foul’ and claimed that part of their deal was the administration’s promise to not pursue any other cost-cutting proposals.  They claimed that Schakowsky’s amendment would be a ‘deal breaker.’  But proponents are quick to point out that the potential savings for consumers and government payors are significant, and could easily exceed the PhRMA deal’s $80 billion over-ten-years.  

In the days following the release of H.R. 3200, the White House seems to have pulled back on its previous description of the agreement with PhaRMA. Huffington Post   $8 million in annual savings on a yearly drug tab in excess of over $200 billion nationwide seems to leave a lot on the table that we hope will be up for negotiation over the course of hammering out a final health care agreement.  

Another important provision in the House health care reform bill was a successful amendment by Rep. Rush (D-IL) would prohibit the ‘pay-for-delay’ settlements that drug manufacturers have used to keep generic competitors off the market.  (See more info here). Thees anti-competitive agreements, also called reverse payment settlements, have kept generic versions of several drugs off the market since 2005. The FTC conservatively estimates that banning such ‘pay-for-delay’ or ‘reverse-payment’ settlements would save $35 billion dollars over the next decade.

In addition Rep. Baldwin (D-WI) successfully introduced an amendment that wouldrequire the disclosure of financial relationships between pharmacy benefit managers (PBMs) and drug manufacturers.  PBMs manage insurers’ prescription drug benefits, including creating formularies of preferred medicines, negotiating discounts with drug manufacturers, and negotiating reimbursement rates with retail pharmacies that fill prescriptions.  Under Rep. Baldwin’s amendment, all PBMs must provide, to both their client health plans and to the federal government, a confidential annual accounting of all payments and rebates they receive from drug manufacturers in relation to the prescriptions filled.  In addition, the PBM must report, in aggregate, how much they paid pharmacists to fill all prescriptions. 

These two classes of information are essential for health plans to ensure that their formularies are designed to lower costs and not to maximize rebates often alleged to be retained by the PBM.  It would help ensure that the conflict of interest that PBMs face is not working against the fundamental purpose of PBMs to manage formularies that reduce costs.  Similar disclosure provisions have been enacted under state law in Maine and the District of Columbia even withstanding legal challenges.  Maryland, Iowa, South Dakota, and Vermont have also enacted state PBM reform measures.  In South Dakota, the state saved more than $800,000 on health insurance costs in one year after enacting its law.  Kansas, Mississippi, North Dakota, Rhode Island, Tennessee, Connecticut, Georgia, Louisiana, and Arkansas have also taken steps towards PBM transparency.  For example, through an audit of the PBM which manages the state employee health program, Arkansas discovered that in a three-month period, the state was overcharged by nearly $500,000.  The experience of these states demonstrates that increased PBM transparency has the potential to yield significant savings for public and private insurers.  

Prescription Access Litigation’s parent organization, Community Catalyst, is also home to The Prescription Project, which works to eliminate conflicts of interest created by pharmaceutical industry marketing by promoting policy change among academic medical centers, professional medical societies and public and private payers. Rob Restuccia, the Prescription Project’s director has an excellent op-ed in today’s Atlanta Journal-Constitution, Let public see doctors’ ties to drug companies.

Here it is:

What is the appropriate relationship between the medical profession and the drug industry? Last month, Dr. Charles Nemeroff stepped down as chair of Emory University’s psychiatry department after a Senate investigation exposed his failure to report hundreds of thousands of dollars in industry consulting and speaking fees, including payments from Glaxo-SmithKline, whose drug he was also studying using taxpayer dollars from the National Institutes of Health.

Last week in this newspaper, Emory economist Paul Rubin defended Nemeroff and accused Sen. Chuck Grassley (R-Iowa), who led the investigation, of leading a “war on pharmaceuticals” (“If politician’s war on drugs continues,” @issue, Oct. 28). Rubin argues that Nemeroff’s presence on 21 pharmaceutical payrolls is evidence that he is conflict-free, for how could he possibly favor the product of one company over the other 20? It’s a fallacy of the first order.

Physician-researchers play an important role in evaluating new drugs. But many physicians are also involved in helping the industry market its products. NIH guidelines do not prevent collaboration with industry (as Rubin suggests), but they do require that financial interests of more than $10,000 a year be reported and that conflicts of interest be managed so that publicly-funded science is not colored by industry support. Documents released by Grassley suggest that Nemeroff misled university officials about the extent of his financial relationships.

Nemeroff is in a group of influential doctors the industry refers to as “thought leaders,” prominent researchers that drug companies use to help promote their products among other physicians. A copious body of research over the past 20 years shows the link between industry marketing and physician prescribing.

The success of that marketing is at least part of the reason that U.S. doctors are so quick to adopt new and often unproven drugs. Yet news headlines warn us that new drugs —- Vioxx, Paxil, Avandia, Vytorin —- aren’t necessarily better drugs. In fact, the Food and Drug Administration’s own numbers show that in a recent five-year period, only 14 percent of drugs approved represented true therapeutic advances.

This is why there is a clear public interest in understanding the financial ties between physicians and drug companies. If disclosure of those ties discourages one physician from accepting NIH funding, there is no shortage of other highly qualified researchers who will step in to take his or her place.

Grassley understands that innovation does not stand at odds with transparency; it is strengthened by it. That’s why he and Sen. Herb Kohl (D-Wis.) have introduced the Physician Payments Sunshine Act, which would require drug and medical device companies to disclose all payments to physicians on a publicly accessible Web site, a critical step toward better, safer, more transparent medicine that Congress should pass in 2009. Patients are certainly better off for Congress’s recent efforts to shed light on conflicts of interest in medicine.

Robert Restuccia is executive director of the Prescription Project, a national initiative created with The Pew Charitable Trusts and led by Community Catalyst to ensure safe and effective drugs for consumers.

Great post up on Slate right now, “Under the Influence? Drug companies, medical journals, and money,” by Kent Sepkowitz. In it, Dr. Sepkowitz describes the disclosures that medical journals require their authors to go through regarding any financial relationship with or interest in the company about whose products they’re writing. But, he points out, what’s lacking is a little disclosure from the journals themselves, which reap significant sums of cash from drug company advertising, purchases of “reprints” of favorable articles to hand out to doctors, and non-peer-reviewed “supplements” sponsored by advertisers.

He recommends:

And so I have a modest suggestion: In addition to requiring authors to post conflict-of-interest statements when they publish an article, medical journals should tell readers how much revenue they themselves have received in the previous year from the company producing the drug or device under discussion. The total sum should include not just advertising pages purchased, but also the other ways that industry money can slip into journal pockets, by buying reprints and journal supplements. Show us the actual dollar (or euro or pounds sterling) amount. And if a professional society sponsors the journal, tell us about its financial dealings with the drug companies as well.

Such disclosures would take work, annoy scads of people (most of them honorable), and be completed under protest. But they’re worth it, to help assure the integrity of medical literature. Just as compromised relationships are unusual among researchers, they are likely, in the end, to be unusual among medical journals. But it is naive to think that only authors are influenced by who is writing the checks.

Check out the full piece at Slate.

This just in from Breast Cancer Action, a member of Prescription Access Litigation’s coalition of 130+ consumer advocacy organizations. The pricing of cancer drugs is one of the most troubling trends in the world of prescription drugs. This press release points out that the price today of these drugs is what’s important, not some arbitrary notion of “effective cost,” which seems more like an actuarial notion than a principle that should guide patients’ and doctors’ choices regarding medications.

FOR IMMEDIATE RELEASE

Mary DeLucco
mdelucco@bcaction.org
415-243-9301, ext. 16

Breast Cancer Action Says Two New Drug Pricing Studies Miss the Mark

San Francisco, CA (June 26, 2007) — Breast Cancer Action (BCA) today expressed grave concerns about two new studies that purport to justify the exorbitantly high price of breast cancer drugs.

One of the studies looked at Herceptin –a drug that costs upwards of $40,000 a year. The other study looked at Aromasin – an aromatase inhibitor that costs more than $3000 per year in the United States.

Both studies measured “cost effectiveness” in terms of the number of years each drug prolonged life, combined with the quality of life. This “cost effectiveness” measure was used to estimate the cost of the drugs over a patient’s lifetime. Based on this equation, researchers said the “effective” cost of the drugs was much less than the actual purchase price.

But BCA says that the “effective” cost is a meaningless concept to individual breast cancer patients, and points out that both studies were funded and — in the case of the Herceptin study partially staffed — by the companies that make the drugs.

“The bottom line is that Herceptin still costs at least $40,000 a year in the United States,” says BCA Executive Director Barbara A. Brenner. “The cost of these cancer drugs will not be reduced to reflect the ‘effective cost’ detailed in these studies. The ‘projected lifetime costs’ are meaningless to patients who have to pay for these drugs today.”

Brenner also points out that studies like these will prove most useful for pharmaceutical companies by encouraging insurance firms to pay the very high prices the drug companies are charging.

The fact that these drugs cost thousands of dollars is more evidence of the need for the United States to work toward a universal health care system that would allow the government to negotiate with pharmaceutical companies for lower drug prices.

Breast Cancer Action (www. bcaction.org) is a national grassroots education and advocacy organization that carries the voices of people affected by breast cancer to inspire and compel the changes necessary to end the breast cancer epidemic.

Since 1998, BCA has refused to accept funds from corporations that may create a real or apparent conflict of interest for BCA. Corporations covered by this policy include pharmaceutical companies.

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