The government’s FCA enforcement efforts have continued to focus on key areas concerning the pharmaceutical and medical device industries. In fact, drug and device manufacturers accounted for nearly half of the enforcement recoveries from the healthcare industry last year. Manufacturers also saw enforcement agencies focus on product promotion and speaker program practices, as well as alleged violations of Current Good Manufacturing Practices (cGMP).

Speaker Programs Closely Scrutinized

Speaker Programs are an industry norm because prescribers prefer to be educated about a product by their peers rather than a sales representative. These programs have received significant attention from enforcement agencies and relators because companies typically provide their speakers, who are also prescribers of the companies’ products, with honoraria for their involvement. If the programs are not carefully implemented and executed, companies may open themselves up to AKS and FCA liability. Last year, there were mixed outcomes for pharmaceutical and medical device companies that had to defend their speaker program practices.

In U.S. ex rel. Booker v. Pfizer, Inc., 2016 WL 3017381 (D. Mass. May 23, 2016), after six years and five amended complaints, Pfizer was awarded summary judgment in connection with allegations that it paid kickbacks to physicians through a sham speaker series in order to induce additional prescriptions. The relators, two former sales representatives, suggested, in part, that the series was a sham because the company did not use “nationally known opinion leaders,” the programs were conducted with one-on-two lunches instead of large groups and the company tracked the return on investment from its series. The district court concluded that Pfizer’s series was organized under written contracts that met the requirement the AKS Personal Services safe harbor and that none of the evidence provided by the relators was sufficient to take it out of the safe harbor. The district court explained that having speakers present to small groups may not be the “best, most cost efficient” way to run a speaker series, but it does not “suggest that the program necessarily had a ‘universal and improper purpose’ of inducing the speaker to prescribe Gedeon.” Likewise, the district court found it “unremarkable” that Pfizer tracked its return on investment from a series because as a for-profit company that is to be expected and only the attendees – not the speakers – were tracked. An appeal is pending for this matter in the First Circuit.

In U.S. ex rel. Kroening v. Forest Pharmaceuticals, Inc., 155 F. Supp. 3d 882 (E.D. Wisc. 2016), the district court found that allegations that Forest used speaking fees to pay kickbacks to physicians to induce them to prescribe Forest products did not meet the particularity requirements of Rule 9(b). The relator, a former sales representative, claimed that, during 2007 and 2012, Forest provided physicians with lavish meals and money for sham presentations, and, in return, those physicians prescribed Forest products. The district court first held that PPACA’s amendment of the AKS, although not retroactive, restated existing law, such that the alleged AKS violations that occurred prior to 2010 still could be the basis for FCA liability. Nonetheless, the district court held that the complaint was insufficient because it failed to identify “representative examples of fraud,” and that the relator, as a sales representative, should have been able “to identify specific physicians who received kickbacks, who, in turn, wrote a lot of prescriptions for Forest drugs.” Despite Forest’s momentary victory, the district court permitted the relator to amend his complaint, and Forest agreed to pay $38 million to settle the case late last year.

Narrowing the Grounds for Off-Label Promotion-based FCA Liability

Off-label promotion remained a target of enforcement activity. Once again, however, the Second Circuit whittled away the types of conduct that may be considered off-label promotion and added to the growing body of case law limiting FCA liability based on this theory.

In U.S. ex rel. Polansky v. Pfizer, 822 F.3d 613 (2nd Cir. 2016), the Second Circuit affirmed the dismissal of the relator’s FCA allegations, which asserted that Pfizer improperly marketed Lipitor as appropriate for patients whose risk factors and cholesterol levels fell outside of the National Cholesterol Education Program Guidelines (NCEP). The relator alleged that the Guidelines were mandatory because they were incorporated into Lipitor’s FDA label, Pfizer induced physicians to prescribe to patients outside the Guidelines, and those patients ultimately sought reimbursement from government healthcare programs in violation of the FCA.

The Second Circuit rejected the relator’s claim and concluded that the Guidelines “expressly disclaimed perspective force” and were meant only to provide advice. In accord with the district court, the Second Circuit found that the NCEP clearly did not intend for their advisory Guidelines to be transformed into a “legal restriction” because the FDA placed them on the drug label. In effect, Pfizer’s promotion of Lipitor to patients outside the Guidelines was not off-label promotion.

The Second Circuit expressed skepticism about the relator’s overall theory. The Second Circuit described “that there is an important distinction between marketing a drug for a purpose obviously not contemplated by the label (such as, with respect to Lipitor, ‘to promote hair growth or cure cancer’) and marketing a drug for its FDA-approved purpose to a patient population that is neither specified nor excluded in the label.” This suggests that the Second Circuit believes that FCA liability for off-label promotion should be limited to only the most grievous occurrences.

cGMP Violations Continue to Plague Pharmaceutical and Medical Device Companies

In years past, we have addressed the various ways that enforcement agencies and relators have used violations of cGMP to pursue FCA liability, but a recent case may have opened the door to a new basis of liability for failure to adhere to cGMPs.

On November 9, 2016, the district court denied GlaxoSmithKline’s (GSK) motion to dismiss RICO claims brought by 41 private insurance companies claiming that wide-scale cGMP violations at GSK’s now-defunct Cidra, Puerto Rico, plant led them to purchase adulterated, worthless drugs. Blue Cross Blue Shield Assoc. v. GlaxoSmithKline LLC, 2016 WL 66112804 (E.D. Pa. Nov. 16, 2016). From 1997 to 2006, the Cidra plant consistently failed to manufacture drugs in accordance with cGMPs and sold adulterated drugs in the U.S. market. In 2013, the insurers filed a complaint alleging that GSK fraudulently induced them to pay for billions of dollars of adulterated drugs in violation of RICO, as well as several Pennsylvania laws.

GSK asserted that the claims should be dismissed because the plaintiffs failed to allege a cognizable injury. The district court disagreed. Relying on the Third Circuit’s decision in In Re Avendia, the court concluded that the insurers “adequately connected GSK’s non-disclosure of cGMP violations, and the effect of those violations, on the quality and packaging of certain at-issue drugs, to the [insurers’] payment for drugs they allege had no value.” The insurers’ successful defeat of GSK’s motion to dismiss signals to manufacturers that cGMP violations can create liability that extends well beyond FDA warning letters and FCA suits.

Usual and Customary Pricing

Historically, the government has been reticent to intervene in “usual and customary” (U&C) pricing suits, but that trend may change after the Seventh Circuit’s decision in U.S. ex rel. Garbe v. Kmart Corp., 824 F.3d 632, 635 (7th Cir. 2016). There, the Seventh Circuit affirmed that participants in a pharmacy’s “discount program” constitute members of the “general public” for purposes of determining U&C prices. The relator, an experienced pharmacist, alleged that Kmart artificially inflated its U&C prices of generic drugs for purposes of Medicare Part D reimbursement by ignoring “discount program” sales. Despite Kmart’s argument to the contrary, the Seventh Circuit found that the discount program participants were members of the “general public” because, in part, there were virtually no barriers to becoming a member of the program and Kmart permitted anyone to join. The Seventh Circuit explained that “allowing Kmart to insulate high usual and customary prices by artificially dividing its customer base would undermine a central purpose of the statutory and regulatory structure” around U&C pricing. Therefore, the Seventh Circuit concluded that prices provided to discount program members represented Kmart’s U&C prices.

Other courts already have relied upon Garbe to expand the scope of what should be considered when determining U&C prices. See U.S. ex rel. Schutte v. Supervalu, 2016 WL 6139913 (C.D. Ill. Oct. 21, 2016) (finding that defendant’s price-match discount offer was open to the general public, and, therefore, under Garbe, represented the U&C prices for impacted drugs). As the case law continues to emerge, pharmacies would be wise to evaluate whether any of their pricing programs are structured in a way that may affect their U&C pricing and open them up to FCA liability.