False Claims Act Resource Center

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Pharmaceutical Fraud

Whistleblower cases brought under Federal and State False Claims Acts have been particularly effective in combating false and fraudulent claims by pharmaceutical manufacturers. According to publicly available data, well over $19 billion has been collected from pharmaceutical companies for various pricing, billing and marketing schemes that violate the Federal and State False Claims Acts, the Federal Ant-Kickback Statute, as well as other federal and states laws. These extraordinary recoveries are just the tip of the iceberg, and it is widely believed that billions of dollars in false and fraudulent claims and practices by pharmaceutical companies remain undetected. Whistleblowers acting under Federal and State False Claims Acts are critical to exposing such fraud, bringing pharmaceutical companies to justice, and recovering substantial funds owed by pharmaceutical companies to federal and state taxpayers.

Some of the schemes that pharmaceutical companies have commonly used that may be violations of Federal and State False Claims Acts include:

  • Off-Label Marketing of Drugs: Pharmaceuticals and other drugs are highly regulated by numerous federal and state laws and regulations. Before any drug can be approved for use in the United States, it must first be approved by the Food and Drug Administration (“FDA”). The FDA determines precisely which medical conditions a drug may be used to treat. This determination is known as the drug’s “label” or “indication.” The label or indication is critical to pharmaceutical companies because federal law restricts pharmaceutical companies to marketing or promoting drugs only for the uses or indications approved by the FDA. Physicians, by contrast, generally may prescribe drugs to treat numerous medical conditions even if the drug has not been approved by the FDA to treat those conditions. This practice is known as “off-label” use of a drug because it goes beyond those uses specifically approved by the FDA.One common scheme by pharmaceutical manufacturers has been to market or promote their drugs to physicians for an off-label or unapproved use. Although physicians may prescribe a drug for an off-label use, pharmaceutical companies violate federal law, including the False Claims Act, when they market, promote or encourage physicians to use their drugs in an off-label or non-FDA approved manner. Pharmaceutical companies that have engaged in illegal off-label marketing or promotion of their drugs have paid the Government hundreds of millions of dollars as a result of Federal False Claims Act cases, often times brought by pharmaceutical sales representatives, sales managers, compliance officers, other pharmaceutical company employees, physicians, nurses and/or employees of hospitals or physician practices.
  • Illegal Kickbacks: One common scheme has been for pharmaceutical companies to provide payments or other financial incentives to hospitals and/or physicians in order to induce them to prescribe their drugs to patients. Such payments or financial inducements can come in many forms, including:
    • Bonus payments to physicians and hospitals;
    • Free or reduced cost vacations;
    • Lavish dinners and lunches;
    • Tickets to sporting events, other forms of entertainment and golf outings;
    • Gifts;
    • Payments for attending conferences, lectures or other meetings;
    • Payments for serving on “advisory boards” which are excessive compared to the work being performed;
    • Joint business ventures between pharmaceutical companies and hospitals or physicians;
    • Research funding and unrestricted educational grants;
    • Phony or sham drug trials; and
    • Free samples of drugs, which physicians then sell to patients.

    Pharmaceutical companies have also been known to provide financial inducements to insurance companies and Group Purchasing Organizations (“GPO’s”) to place their drugs on that insurer’s preferred drug formulary, which can substantially increase the sales volume for those drugs. These illegal financial inducements can also come in many forms, including: data fees in which the pharmaceutical company pays the insurer for data on their members; rebates; discounts; and joint business ventures.

    These and other financial inducements can be a violation of the Federal Anti-Kickback statute, 42 U.S.C. §1328-7b(b), the Federal False Claims Act, as well as various other federal and state laws and regulations.

  • Inflating the Price of Pharmaceuticals: Medicare and many State Medicaid programs determine the amount they will pay for drugs based upon a figure known as the Average Wholesale Price (“AWP”) for that drug. The AWP is determined by information reported by pharmaceutical manufacturers. One common type of fraud has been for pharmaceutical manufacturers to inflate the AWP of their drugs and to use that inflated cost to provide a financial inducement for Pharmacists, Pharmacy Benefits Managers (“PBMs”); Insurers; and Group Purchasing Organizations to prescribe their drugs. Pharmaceutical manufacturers provide such financial inducements through what is known as “marketing the spread.” In this scheme, the “spread” is the difference between (1) the actual cost that the pharmacist pays for a drug and (2) the price that the Government (Medicaid) will pay for dispensing that drug, which is determined by the AWP for the drug. As a financial inducement to prescribe their drugs, pharmaceutical manufacturers have inflated the AWP, thereby increasing the “spread” between the actual cost of the drug and the amount that the Government pays for that drug. Pharmaceutical manufacturers have marketed this fraudulently inflated profit as a means of inducing Pharmacists, Pharmacy Benefits Managers (“PBMs”); Insurers; and Group Purchasing Organizations to prescribe their drugs. Such inducements violate the Federal Anti-Kickback statute, the Federal and State False Claims Acts, as well as various other federal and state laws and regulations.
  • Best Price Fraud: In order for a pharmaceutical manufacturer to sell its drugs to the Medicaid Program, it must agree to charge the program the lowest price at which the manufacturer sells to drug wholesalers, pharmacists, HMOs, Group Purchasing Organizations, and other private sector customers. In order to induce these private insurers, wholesalers, pharmacists and businesses to purchase and prescribe their drugs, and to include them on their preferred formularies, pharmaceutical manufacturers have offered their drugs at prices below the Best Price offered to Medicaid. Many times these discounted or nominal prices are concealed from the Government through other agreements between the pharmaceutical companies and the private insurers, wholesalers, pharmacists and businesses. The pharmaceutical companies conceal these discounts so as to avoid having to provide rebates to Medicaid to match the discounted price they are providing to private insurers, wholesalers, pharmacists and businesses. This violation of the Medicaid Best Price requirement can be a violation of Federal and State False Claims Acts.
  • Pharmaceutical Benefits Manager Fraud: Pharmaceutical Benefits Manager (“PBM”) firms appeared in the 1960s as a way to help insurance companies manage their claims for prescription drugs and administer prescription drug plans. In recent years, PBM’s have expanded their roles to include reducing costs for insurance companies by negotiating discounts and rebates with pharmaceutical companies, purchasing drugs in bulk, and through cost-controlling drug formularies. In addition, PBM’s also provide increased services such as mail-order pharmacies and on-line refill requests. PBM’s earn hundreds of millions of dollars for these services, and have lucrative contracts with government health care insurance programs. PBM’s have been the target of numerous Federal and State False Claims cases for conduct ranging from illegal rebate and discount agreements with pharmaceutical manufacturers, and offering kickbacks to insurance companies; to violating contractual responsibilities by shorting prescriptions, switching medications and canceling prescriptions to conceal failures to meet contractually mandated deadlines for filling prescriptions.Attorneys in the national qui tam whistleblower practice of Pietragallo Gordon Alfano Bosick & Raspanti successfully represented the lead relator in one of the largest case of PBM Fraud in the history of false claims litigation, United States ex rel. Hunt and Gauger v. Medco Health Solutions, (E.D.Pa.) which resulted in a recovery of $185 million for federal and state taxpayers.

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