[Also posted on Postscript]

When drugmakers lie to doctors about a drug’s safety or effectiveness, health plans pay more for substandard care, and patients suffer.

Case in point — the recent guilty plea and $1.5 billion settlement for illegal promotion of the drug Depakote revealed how Abbott Labs misled doctors for nearly a decade. They went to great lengths, profiling doctors, training their salespeople, and inappropriately funding and influencing Continuing Medical Education to get doctors to prescribe Depakote for unapproved treatment of seniors with dementia. Why? Because such off-label promotion instantly expands a drug’s market, and thus the drugmaker’s potential profits.

Unfortunately, class action lawsuits on behalf of consumers and health plans challenging such illegal marketing have met significant legal hurdles, and have been dismissed. This leaves consumers and private market health plans paying billions because of this fraud, while millions of patients receive inappropriate treatment, and are unnecessarily put at risk of side effects, which are often serious.

But progress is being made by State Attorneys-General and the Department of Justice bringing legal challenges under false claim laws. As a result, six of the biggest drugmakers have admitted or pled guilty to illegal promotion of unapproved uses of drugs since 2004. These investigations, most often initiated by whistleblowers, have led to the largest fines in U.S. history, and billions will be recovered this year alone.

But while all these enforcement actions are a welcome development, a recent jury verdict in a trial by the State of Arkansas may become a game-changer in the fight to stop the illegal marketing or promotion of drug products.

This past April, Arkansas Attorney-General Dustin McDaniel won a staggering verdict against Johnson & Johnson for their illegal promotion of the off-label uses of the antipsychotic drug Risperdal. In a trial before a jury, the state won $1.19 billion (yes, that’s ‘b’ ) in fines for violations of the state Medicaid anti-fraud law.

A hefty billion-dollar fine like this from one state sends a very big message — drug companies can no longer pursue profits by scoffing at the laws designed to protect safety-net health plans and the patients they serve.

Even more encouraging is the fact that most of the $1.19 billion in fines will go to the State Medicaid fund, which is looking at a $400 million budget shortfall next year.

What could be better than a deterrent that also helps stabilize funding for a state’s Medicaid plan during these tough economic times? Well, the only thing that could make this victory even better would be for Arkansas’ Medicaid program to earmark some of these recovered funds to correct the misinformation spread by Johnson & Johnson. Setting aside even a small amount of funds to allow trained independent medical professionals to go out into the field and teach doctors about the appropriate and effective alternatives to the unapproved uses of Risperdal will help prevent any ongoing inappropriate use of Risperdal, improving the quality of patient care and protect patients from being harmed by the significant side effects of the drug, like weight gain and diabetes. (See more about such education programs here.)

As we have seen in drug pricing (here and here) and universal coverage, the States often take the lead in on innovative ways to protect consumers. Based on this successful prosecution by the Arkansas Attorney-General, it wouldn’t be a bad idea for the remaining States to beef up their anti-fraud laws and enforcement staff, and go after the drug industry.

– Wells Wilkinson
Director, Prescription Access Litigation
Staff Attorney, Community Catalyst

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. 

Second Circuit takes a pass on reviewing the legality of pay-for-delay settlements

A negative court decision before the Second Circuit this week underscores the importance of passing federal legislation to ban ‘pay-for-delay’ settlements in order to preserve access to affordable, quality prescription drug benefits. At issue is the drug industry practice of paying off generic competitors of expensive brand-name drugs to delay access to low-cost generics. See our earlier blogs here and here.

On Tuesday, the Second Circuit issued a decision on the legality of pay-for-delay settlements concerning the drug Cipro that dealt a blow to consumer advocates and consumer protection attorneys challenging these collusive agreements in court. The decision rebuffed the Federal Trade Commission, the Department of Justice, and a group of State Attorneys-General, all of whom asked the Court to re-evaluate an earlier precedent from 2005 that allowed such ‘pay-for-delay’ settlements.

While the attorneys ponder whether to appeal the case to the Supreme Court, the importance of a legislative solution to this problem becomes even more clear.

Current legislation before the U.S. Senate proposed by Senators Herb Kohl (D-WI) and Richard Durbin (D-IL) would create a presumption that any drug patent settlement that exchanges a payment in return for an agreement to delay bringing a generic to the market is a violation of anti-trust law. The bill gives the FTC the tools to challenge such settlements. However, it still allows the drug companies to prove that a settlement is not a collusive agreement, but a legitimate effort to avoid the time and costs of litigation.

Why is a ban on pay-for-delay settlements important? Since 2005, Congress has responded to concerns about potential collusion by requiring the drug industry to file any settlement of patent litigation concerning a generic drug under seal with the FTC. Since 2004, the FTC has reviewed these settlements, and found that an increasing number of ‘pay-for-delay’ sweetheart deals have been made since the courts started to allow them in 2005. Last fiscal year, a record 19 such pay-for-delay deals were made. By the nine month mark of this fiscal year on June 30, the record was broken, with 21 new pay-for-delay settlements.

These settlements have prevented billions of dollars in possible savings, by preventing generic drugs from being available. At a time when consumer advocacy groups like AARP are documenting exhorbitant price increases for brand-name drugs, generic drugs are the best solution. Another recent report found that every 2% increase in generic use saves Medicaid $1 billion a year.

The FTC, which reviews these agreements, reported in January 2010 that $20 billion dollars in annual brand-name drug spending was being insulated from generic competition by pay-for-delay sweetheart deals. Then, in July, the FTC reported that new pay-for-delay deals were shielding another $9 billion in drug spending from market competition.

How does this impact consumers? The FTC reports that pay-for-delay settlements keep a generic drug off the market for an average of 17 months. The FTC estimates that being forced to take a brand-name drug costing $300 per month, instead of a generic costing $30, would increase a consumer’s health cost by $4,590 over that 17-month period. Drugs that cost more, or that have longer delays, will cost even more.

If a robust, competitive market is to play a role in our new health care system, shielding nearly ten percent of all annual brand-name drug sales from market competition will only allow drug company price increases to continue depleting more and more of our health care resources, while putting more patient care at risk.

In a brief filed with the court, the AMA and AARP described having access to a generic drug improves the quality of patient care:

The price of a brand drug can be prohibitive for uninsured patients who do not have help covering the cost of their prescription drugs. Even for those patients who are insured but who are on fixed or limited incomes, having a generic option is often the difference between having access to a health care treatment and not having any treatment option at all.

And the lawsuit filed by PAL member AFSCME District Council 37in 2006 is challenging the pay-for-delay settlements concerning the drug Provigil, used to treat narcolepsy. This lawsuit has revealed how the lack of competition reduces patients’ quality of life or quality of care when an insurance company refuses to pay for a high-cost brand-name drug. A pastor from Ohio reports that after

paying almost $17,000 in annual premiums for my family [health insurance plan, l] ast year, I was paying around $650/month [for Provigil. I]t now costs me $852/month. That is out of pocket money I have to come up with until later in the year when I reach my deductable and I can enjoy a few months of only paying $60/month. I cannot describe to you how much stress and difficulty this has caused for me and my family the last several years. As you can imagine, with my income, I often cannot afford to refill my prescription. I often take 1/2 or 3/4 of my dosage on days I know I won’t be driving much so I can delay getting a refill. But I do a lot of driving for my work, so I am forced to spend lots of money I don’t have just so I can be safe driving.

To find out how you can support legislation to prevent these pay-for-delay settlements, please contact us!

A surprising decision in the Second Circuit has breathed new life into legal efforts to prevent drug makers from paying to keep generics off the market.

Since 2005, the drug industry has increasingly used multi-million dollar ‘pay-for-delay’ settlements to prevent generic drugs from coming to the market. The PAL coalition has opposed this industry collusion with lawsuits on Provigil, Tamoxifen, and Cipro, and through our support for legislation (introduced by Rep. Rush and Sen. Kohl). The FTC has also been a steadfast opponent of these anti-competitive agreements and their negative impacts on consumers. Unfortunately, the ability of FTC or PAL members to challenge these settlements in the courts has been hampered by a number of unfavorable legal decisions.

The Second Circuit’s Cipro Decision

The Second Circuit’s April 29th ruling did dismiss the challenge to the ‘pay-for-delay’ settlements totaling $398 million that have prevented a generic version of Cipro from coming to the market. But the Court did so begrudgingly, and then invited the folks bringing the lawsuit to ask the Second Circuit to revisit the question of whether these settlements are legal under anti-trust protections. Even more surprising, the Court then spelled out why. 

In their decision, the three judge panel stated that a review of the binding precedent established under Tamoxifen by the full nine-judge panel for the Second Circuit (called an ‘en banc review’) may be appropriate for four reasons: First, the Court said that United States Department of Justice has urged a review of this decision saying that “Tamoxifen adopted an improper standard that fails to subject reverse exclusionary payment settlements to appropriate antitrust scrutiny.” Second, the Court found that “there is evidence that the practice of entering into reverse exclusionary payment settlements has increased since we decided Tamoxifen.” Third, the panel stated that “after Tamoxifenwas decided, a principal drafter of the Hatch-Waxman Act criticized the settlement practice at issue.” Finally, the Court noted that the Tamoxifen decision was based in no small part on the now erroneous understanding that a pay-for-delay settlement with the first generic competitor would not prevent other generic competitors from attempting to followand file suit.

The 2005 Tamoxifen decision by the Second Circuit Court of Appeals (which covers New York, Vermont, Connecticut) dismissed an FTC order challenging a pay-for-delay settlement. The Tamoxifen Court ruled the practice legal under anti-trust law, because the settlement provided drug maker AstraZeneca with no more protection from generic competition than their patent already did.

This Tamoxifen decision, along with the Eleventh Circuit’s Schering-Plough decision in 2005, and Federal Circuit’s 2008 Cipro decision, have been mounting obstacles to consumer and FTC efforts to oppose these settlements. Only the Sixth Circuit, in its 2002 Cardizem decision, has held that such agreements to “eliminate competition” are a “per se illegal restraint on trade.”

When the Appeals Courts from different US Circuits arrive at differing legal standards, the US Supreme Court should resolve this inconsistency, or ‘split’ between the Courts. Indeed, the PAL-member lawsuits concerning Cipro and Tamoxifen asked the Supreme Court to do just that, as has the FTC. So far, all of these requests have been denied. But a possible reversal in the Second Circuit might change things.

Consumers, legal and medical experts, and the Administration all file briefs in opposition to continued legality of pay-for-delay settlements

Amicus briefs in support of the request for a reconsideration of the Tamoxifen standard were filed by PAL and PAL coalition member AFSCME DC37; AARP, AMA, and the Public Patent Foundation; Consumers Union, US Pirg, Consumer Federation of America, and the National Legislative Associaton on Prescription Drug Prices. Also filing briefs were the American Antitrust Institute, the FTC, and the Department of Justice’s Anti-Trust division.

The amicus brief for the Department of Justice argues that ”by shielding most private reverse settlement agreements from antitrust liability, the Tamoxifen standard improperly undermines the balance Congress struck in the Patent Act between the public interest in encouraging innovation and the public interest in competition.”

The amicus brief from the Federal Trade Commission (FTC) added three additional reasons to those stated by the Second Circuit panel. FTC argued that the Tamoxifen standard gives drug companies an improper incentive to pay off generic drug manufacturers and protect even the weakest patents.

Next, FTC noted that the number of pay-for-delay settlements had grown since 2005, to now insulate “at least $20 billion in sales of branded drugs from generic competition.”

The FTC estimates (very conservatively in our opinion) that these settlements will continue to cost $3.5 billion a year by delaying competition from lower-priced generics, but warned that these costs may grow.

 The amicus brief submitted by PAL and PAL member AFSCME District Council 37pointed out that these settlements have cost consumers and health plans $12 billion or more each year in lost savings on generic drugs, and the costs are likely to increase as brand-name drug prices go up (as they did by 9.2 % in the year ending on March 31, 2010) while generic drug prices decline (as they did by 9.7 % during this time period.) Aside from the effect that higher costs have on reducing access to needed medicines, PAL pointed out how these settlements threaten to reduce the quality of care for consumers by limiting the drug options available to them. PAL pointed out that consumers of the drug Provigil, which is protected from generic competition by a pay-for-delay settlement, end up entering the donut hole faster and paying huge sums out of pocket when their health plans refuse to cover the drug due to its high cost.

AARP, the AMA, and the Public Patent Foundation filed a brief arguing that these settlements threaten our health care system because they undermine consumer access to generic drugs, which have, on the whole, “saved consumers over $734 billion in the last 10 years.” AARP noted that “[e]ven for those patients who are insured but who are on fixed or limited incomes, having a generic option is often the difference between having access to health care treatment and not having any treatment option at all.”

AARP’s brief warned that the Tamoxifen precedent will have long-term negative consequences on the well being of consumers because “when a generic pharmaceutical’s entry into the market is delayed, it limits treatment access to vulnerable patient populations and prolongs the difficulty that physicians have in prescribing affordable treatment options.”

An amicus brief filed by Consumers Union, Consumer Federation of America, U.S. PIRG and National Legislative Association of Prescription Drug Prices pointed out that the Tamoxifen decision allows the pay-for-delay settlements that “prevents patent challenges” which is contrary to the purpose of the Hatch-Waxman Act to “encourage[] patent challenges…..”

The American Antitrust Institute filed an amicus brief highlighting the anticompetitive nature of these settlements, and the Attorney Generals from 34 States filed an amicus noting that “the Cipro case is also of exceptional importance because the United States Supreme Court has refused to review the split between the Sixth and Eleventh Circuits.”

Industry use of these pay-for-delay settlements has driven up costs and prevented access to needed medicines for millions of consumers. This industry practice has prevented or delayed generic versions of the drugs Cipro, Provigil, Androgel, and many other drugs that amount to $20 billion of our nation’s current $278 billion in drug spending, according to the FTC.

PAL, Community Catalyst, and dozens of PAL coalition members have opposed these settlements through lawsuits and legislative advocacy. Please contact us if you would like to join in our work to oppose these anti-competitive settlements.

 — by Emily Cutrell and Wells Wilkinson

Two new stories that came out today call the question of what effect US Attorney settlements have on illegal promotional activities by pharmaceutical companies. The first story, from AP, “Drug Firms Flout FDA,” suggested that

“Even when drug makers are forced to pay huge fines, the amounts are small, compared with the money that can be made by promoting drugs for off-label uses.”

A guilty plea and $635 million settlement concerning Oxycontin marketing was widely reported today. (See, e.g. the New York Times: “In Guilty Plea, OxyContin Maker to Pay $600 Million”) The Times reported that Purdue’s sales from 1995 to 2001 were $2.8 Billion. The drug continued to be a $1 billion+ per year blockbuster for at least three years after that. So what then is the deterrent effect of a $635 million settlement? At best, it represents a small fraction of Oxycontin sales that were procured through the illegal and deceptive practices alleged in the case. And it’s just under 23% of Purdue’s $2.8B in sales for 1995-2001. Thus, this settlement notwithstanding, Oxycontin was — and remains — a very profitable drug.

In addition, despite the fact that today’s settlement covers only up to 2001, the marketing has a continued and lingering effect to the present day. The tactics alleged helped create the market for Oxycontin, both licit and illicit, and thus the barn door is closing long after the horse has gone.

A unique feature of today’s settlement was the inclusion of restitution for some unspecified group of individual consumers. Details of the settlement at this point are scant, so it’s unclear who they are, what their claims were, and how (and how much) they’ll be compensated. Hopefully more will be forthcoming soon.

Obviously, government prosecutions and settlements are and will continue to be important to punish, expose and hopefully deter illegal marketing tactics by the industry. But unless and until the sums really begin to hurt, these settlements run the risk of being chalked us as merely a cost of doing business and not a deterrent. David Franklin, the whistleblower in the Neurontin case, said in the AP story, “The $430 million penalty [in the Neurontin case] was widely referred to as a slap on the wrist.”

US Attorneys and state Attorneys General need to push for broad-reaching injunctive relief that truly prevents future misconduct. And perhaps they need other tools at their disposal. Right now, the biggest tool in their toolbox is to bar a company from participation in Medicare and Medicaid. But the ones most harmed by such a step in most cases would be patients, who are deprived of the company’s other medications. For this reason, this tool is rarely used, or, as in the case of last year’s $704 million settlement with Serono, a subsidiary that really doesn’t sell drugs to Medicare or Medicaid is barred. Other tools are needed, that can thoroughly punish the wrongdoing without hurting patients on Medicare and Medicaid.