In recent years, pharmaceutical companies have faced criminal investigations and charges in regard to alleged off-label marketing of prescription drugs and kickbacks to doctors. For this reason, the filing last month of two civil cases against Novartis was noteworthy and may aid defense lawyers in their efforts to oppose criminal charges being filed against clients in the health care industry.
The DOJ lawsuits allege that Novartis provided kickbacks to health care providers to induce them to prescribe the company’s products. The cases were brought under the False Claims Act on the theory that federal healthcare programs reimbursed patients for illicitly prescribed medications. The cases were not brought as criminal cases under the Federal Healthcare Anti-Kickback Statute despite numerous criminal cases premised on what seem to be very similar allegations.
The Novartis cases follow recent settlements by Victory Pharma and Adventist Health of civil cases alleging unlawful kickbacks. Together, these cases may reflect a shift toward civil rather than criminal charges against health care companies – a development that is also seen in other areas of white-collar enforcement. Civil dispositions and deferred and non-prosecution agreements, for example, have become common in fraud cases against financial institutions and in Foreign Corrupt Practices Act cases.
According to one of the complaints, Novartis hosted speaker programs where doctors paid by the company were supposed to speak about certain prescription drugs. The complaint goes on to allege that the speaker programs rarely, if ever, involved any discussion of the drugs at issue. Novartis allegedly paid doctors ostensibly to attend the speaker programs, but instead treated them to expensive dinners and other lavish events in order to induce prescriptions. In a separate complaint, the government alleged that Novartis gave kickbacks to pharmacists, disguised as rebates and discounts, in exchange for the pharmacies switching patients from a generic drug to a Novartis product.
In the past, the Department of Justice has pursued allegations of this sort with aggressive criminal prosecutions. For example, in 2003, Tenet Healthcare Corporation, along with individual executives, was charged with paying kickbacks that were disguised as part of physician relocation agreements to induce doctors to refer patients to its facility at the Alvarado Medical Center. In 2004, Schering-Plough pleaded guilty to paying $1.8 million to an HMO to keep its drug Claritin on the HMO’s formulary (a list of drugs that the HMO covers for its beneficiaries).
One of the reasons for the apparent shift toward civil charges could be specific to the Anti-Kickback Statute. In order to be liable under the statute, an individual or company who provides kickbacks in exchange for, or in order to induce, prescriptions must do so knowingly and willfully. Willfulness – that is, a conscious desire to break the law – is difficult to prove beyond a reasonable doubt. Courts have held that a “hope, expectation or belief” that prescriptions will result from the challenged activity is not enough to violate the Anti-Kickback Statute. More generally, the government faces a lower burden of proof in civil cases, which may be an important consideration to prosecutors depending on the evidence available to support a given enforcement action.
Indeed, when DOJ has chosen to bring criminal cases, individual pharmaceutical company executives have won some high-profile acquittals. In the 2004 prosecution of eight TAP Pharmaceuticals executives, the government alleged that executives and employees of the company violated the Anti-Kickback Statute by providing golf trips, dinners and free samples to doctors. The defendants argued that these practices were standard in the industry and were intended to cultivate business relationships, not induce prescriptions. Following a three-month jury trial, all eight defendants were acquitted. Similarly, in 2007, four former executives of Serono were accused of paying for doctors to attend a medical conference in Cannes in exchange for prescriptions. After a two and a half week trial, a jury acquitted all four defendants in fewer than three hours.
In addition to improving their likelihood of success, prosecutors looking to civil enforcement may also do so in recognition that a criminal prosecution often has serious long-term effects on employees and others not involved in the alleged wrongdoing, making it a tool best reserved for the most extreme cases and circumstances. In health care cases, for example, a felony criminal conviction results in mandatory exclusion from participation in Medicare and Medicaid. Such exclusion would threaten the viability of a pharmaceutical or health care company. In contrast, exclusion is optional in the event of a civil violation of the False Claims Act.
When a civil rather than criminal case is filed, the danger to a company from DOJ charges goes down – in some cases facilitating settlement, in other cases making litigation by the defendant a more realistic option. DOJ’s decision making thus warrants close attention as health care enforcement remains a priority of federal law enforcement.
From The Insider Blog: White Collar Defense & Securities Enforcement.