Tricare Fraud by Compounding Pharmacies Exposed

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The U.S. Government is investigating a rapid increase in payments to compounding pharmacies by Tricare, the federal government’s health insurance program for military members and their families. Tricare’s spending on compounded drugs more than tripled from fiscal year 2014 to 2015, according to a Wall Street Journal article.

Fourth Circuit to Weigh-In on Statistical Sampling and the Government’s Veto Power in False Claims Act Cases.

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The Fourth Circuit in U.S. ex rel. Michaels v. Agape Senior Community (Agape) has been asked to decide two important issues in False Claims Act lawsuits: (1) whether the Government can veto a settlement reached between the relator and defendant in a non-intervened case, and (2) whether statistical sampling can be used to prove damages. The case was certified for interlocutory appeal following the lower court’s June 2015 decision.

Health Care Bill Passed; Whistleblowers Needed!


Now that Congress has finally passed the health care bill, there will be an even greater need for whistleblowers to identify  fraud in the health care industry, particularly in relation to Medicare and Medicaid. The health care bill gives little “gifts” to insurance companies and hospitals, including insurance giant Kaiser Permanante and doctor-owned facilities in about a dozen states including Ohio, Pennsylvania, and Tennessee.

In terms of Medicaid, the health care bill is notable in that it expands coverage to include 133% of the poverty level ($29,327 for a family of four) and will require states to expand Medicaid to include childless adults starting in 2014. As for Medicare, drug companies have been thrown a serious bone. Seniors covered under Medicare Advantage will receive a 50% discount on name brand drugs in 2011, whereas presently they must pay thousands in out of pocket costs once they hit the “doughnut hole”– the coverage gap in prescription drug benefits. The doughnut hole led to many seniors going off their prescription medications or splitting pills to cut costs, which in turn affected drug makers’ bottom lines.

In general, the brand-name drug industry was a winner as a result of the health care bill. The pharmaceutical industry will keep its $80 billion a year agreement to provide savings and rebates. Fees charged to drug makers will be offset by the fact that drug makers stand to enjoy more customers, as more patients will be insured and receiving prescription drugs (as many as 32 million Americans will now have some type of insurance). The bill maintains the 50% discount for Medicare recipients, and the government will pay for another 25% discount. The bill also gives biological drug makers a 12 year period of exclusivity before the information necessary to create generic versions is made available to others. Critics argue that this provision will keep life-saving therapies out of reach of many patients. Biologics are drugs that are grown inside living cells using gene splicing techniques, and biotech companies guard their production secrets very closely. Companies like Genentech have scored big hits with certain cancer drugs, but these drugs remain very expensive.

Hospitals have also been given some gifts in the health care bill. For example, hospitals in Tennessee were given a combined $100 million in Medicaid “Disproportionate Share Hospital” payments for 2012 and 2013.  Officials insist that the payments were not a “special deal” in order to get Tennessee Democrats to vote for the bill (one Tennessee Congressman, Democrat Bart Gordon, did announce that he would change his November vote and support the health care bill).

Reading between the lines in all of this, it seems that there will be many new opportunities for fraud. With millions of new patients now having access to prescription drugs and receiving treatment at hospitals flush with Medicaid payments, the potential for fraud is greatly expanded. All you health care whistleblowers out there, keep your eyes open.

If you have evidence of Medicare or Medicaid fraud, contact one of our Philadelphia False Claims Act lawyers for assistance reporting it to the Department of Justice.

Another Big Pharma Payout – But Is It Enough?


Following big settlements against Eli Lilly and Pfizer for unlawful, off-label marketing of Zyprexa and Geodon respectively, the U.S. Department of Justice this week announced a settlement with AstraZeneca with regard to its atypical antipsychotic, Seroquel. As part of the settlement, the company has agreed to pay $520 million. The Wilmington, Del.-based pharmaceutical company was accused of promoting the drug’s use for multiple illnesses never approved by the FDA.

The DOJ said that by promoting Seroquel for off-label uses, the company caused false payment claims to be submitted to various federal programs including Medicaid and Medicare. The allegations were originally raised in a lawsuit under the whistleblower provisions of the False Claims Act. As part of the settlement, the federal government will receive $302 million and the states and the District of Columbia will receive $218 million.

While the government should be commended for this important settlement, the amount being paid by Astra Zeneca must be put in perspective. Seroquel originally went to market in 1997 and its sales have since eclipsed over $4 Billion Dollars per year, most of which were for non-approved or off-label uses as a direct result of AZ’s marketing misconduct. So while the amount being paid by AZ may seem like alot, in the overall scheme of things it appears to be the cost of doing business. I suspect that because of the incredible amount of money at issue, that companies like AZ will continue to find ways to market these expensive drugs off-label knowning that they are still making out in terms of the overall profits generated. One of the potential consequences of a government contractor such as AZ being found guilty of off-label violations is debarrment. I suspect that until some of these Pharma giants are debarred, that unfortunately wrongful marketing tactics such as those at issue in the Seroquel case will continue.

Eric L. Young, is a seasoned trial lawyer who specializes in the representation of whistleblowers and plaintiffs in wage and hour class actions. Mr. Young can be contacted at 800-590-4116 or

Healthcare Companies Continue to Face FCPA Liability Overseas.


Both Teva and Flowserve have announced potential exposure under the Foreign Corrupt Practices Act (FCPA) in securities filings over the past month due to business practices outside of the United States.

Teva announced that its investigation into potential FCPA violations has discovered conduct that “likely” violated the law. The corporate investigation started in 2012 following an inquiry by the Securities & Exchange Commission and Department of Justice. The company is investigating practices in Latin America, Eastern Europe and Russia.

Teva is an international pharmaceutical company headquartered in Israel. However, in addition to U.S. based companies, the law also applies to issuers on a U.S. stock exchange. Teva trades on the New York Stock Exchange under the stock symbol “TEVA”.

Unlike Teva, Flowserve indicated that it does not believe that the matter will materially impact its business. Flowserve self-reported a potential violation of the FCPA to the DOJ and the SEC following discovery of a violation of its code of conduct by an employee. The company terminated the individual and is conducting an internal investigation.

Flowserve previously settled charges in 2008 brought by the DOJ and the SEC that employees at a subsidiary paid kickbacks to the Iraqi government to obtain contracts related to the United Nations Oil for Food program. The company paid just over $10 million in penalties to resolve the cases. Flowserve is covered by the FCPA both as a U.S. issuer (it trades on the NYSE under the symbol “FLS”) and an American corporation. It is headquartered in a suburb of Dallas, Texas.

Teva and Flowserve are not the only companies to face potential liability. GlaxoSmithKline is investigating allegations of wrongdoing in several countries around the world, including China, Iraq and Poland. GSK already paid China nearly $500 million to settle charges of corruption in that country.

In Iraq, GSK allegedly hired 16 government-employed medical professionals as sales reps. In Poland, the company allegedly used money allocated for medical training to instead bribe doctors. In China, the sales team allegedly provided expensive gifts and cash to influential doctors. It also used a travel agent to send some on vacations while calling them conferences.

News reports have indicated that the allegations in China, Iraq and Poland have all resulted from international whistleblowers. Individuals in all three countries have reportedly provided information to the press regarding the matters the company is investigating.

Pharmaceutical and medical device manufacturers face potential exposure because physicians at state-owned facilities are considered foreign officials under the FCPA. Pfizer, Johnson & Johnson, and Eli Lilly have all paid fines over the past few years to resolve investigations.

FCPA investigations can take a long time, so there is no reason to expect a resolution or settlement involving either GSK, Teva or Flowserve anytime soon. Eli Lilly, for example, disclosed a potential violation of the law in 2003. Following its settlement with the SEC in 2012, the DOJ continued to investigate Eli Lilly. Eli Lilly only recently announced that the Justice Department closed its investigation into the matter.

Here are the links to the securities filings by Teva and Flowserve. The relevant sections can be found by searching for “Foreign Corrupt”.  For additional information, please contact one of our FCPA whistleblower attorneys.

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$3 Billion in Unused Cancer Drugs Wasted a Year

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A study by Memorial Sloan Kettering Cancer Center in New York has estimated that nearly $3 billion in cancer medicine is wasted every year in the United States. This happens because infused cancer drugs are distributed in vials that contain excess medicine which is usually thrown out.

Do Drug and Healthcare Ads Push Ethical Boundaries?

Do Drug and Healthcare Ads Push Ethical Boundaries?

In the past four years, pharmaceutical companies have more than doubled their ad spending, making it the second-fastest growing ad category in the nation. Other healthcare providers, from local hospitals to nationally known cancer treatment centers, are also increasing their advertising. But when do healthcare promotions cross ethical boundaries and the ancient pledge to all patients of “do no harm”?

GSK’s No Quota Sales Rep Compensation Under Review

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GlaxoSmithKline’s new no quota compensation plan for drug reps is under review, according to an internal company memo obtained by the press. The Patient First program, which was implemented across 150 countries in the last year, removed sales targets from the bonus payments for sales reps.

The reason for the review, some have speculated, is that its cleaned up marketing approach just isn’t generating the level of sales that the company has in the past. The drug manufacturer has been laying off workers due to declining sales in Advair, the company’s blockbuster drug for the treatment of asthma.

GSK agreed in a 2012 corporate integrity agreement not to provide financial incentives to sales representatives or their direct managers based on the volume of their sales. They initially entered into a 5 year agreement but that agreement was extended for two more years because of a 2014 settlement with the government over allegations of unlawful marketing of Advair, Paxil and Wellbutrin.

The new program compensates representatives based on product knowledge, customer reviews and other factors. Grading of mock sales calls has in part replaced the sales targets that are still used at many drug and medical device companies.

The compensation of sales reps using quotas isn’t the only practice that has been under fire in the drug industry recently. Payments to doctors for clinical trials, speaker programs and other have also been criticized. The government is undertaking several initiatives to increase financial transparency in the health care industry. The Physician Payments Sunshine Act, for example, requires manufacturers participating in federal healthcare programs to report certain payments and items of value to physicians and teaching hospitals. The U.S. Government hopes that the information will allow patients to better evaluate their doctor’s recommendations for bias.

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Medicare Releases 2013 Part D Drug Spending Data

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Prescription drug spending from Medicare Part D is now available as the U.S. Government released data for claims in 2013. The government spent nearly $104 million on drugs under the program which covers approximately 36 million elderly and disabled individuals.

The data details spending on nearly 3,500 drugs during the year. The government spent $2.53 billion on Nexium, a heartburn treatment, in the top drug expenditure. Advair Diskus was in second place in total cost, with government spending of $2.26 billion.

The data is available on the Medicare website here.

After a brief glimpse at the data, it looks like the government’s release of information could eventually put a damper on Defendant’s use of Rule 9(b) in Rule 12(b)(6) motions to dismiss in False Claims Act litigation. Rule 9(b) requires plaintiffs to plead fraud with particularity. Courts have held that it applies to litigation under the False Claims Act, although the level of specificity required varies in different appellate courts. Following the release of this information, a relator may still not have individual patient level data but they do now have proof of Part D spending on prescriptions written by certain doctors. The question is whether that would be sufficient for the whistleblower to overcome the objection in their particular case.

The prescription drug data released is a substantial improvement over the information previously available, but still limited in some respects. The Part D data released covers about 78% of total costs and 87% of total drug claims in Part D, excluding from the information physicians with 10 or fewer drug claims. The information release also doesn’t give a complete picture of all money spent by Medicare on prescription drugs. It fails to account for medicines received in a hospital or doctor’s office as these are not billed to the Part D program.

This isn’t the only news coverage that the government’s drug spending has received this week. An OIG report recommended Congress and Centers for Medicare & Medicaid Services pursue additional rebates from companies for prescription drugs. The report found that Medicaid received rebates of 47% of their expenditures while Medicare received a rebate of only 15% of their spending. The cost after rebates on 110 brand name drugs for Medicaid was less than half of that paid by Medicare Part D.

Following the report, Senator Bill Nelson introduced the Medicare Drug Savings Act of 2015 into the U.S. Senate. The bill would require pharmaceutical manufacturers to offer the same rebates in Medicare as they do to Medicaid.

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Massive Implantable Defibrillator Settlement under False Claims Act Approaches

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The Department of Justice is reportedly nearing settlements with hundreds of hospitals over their fraudulent billing of Medicare for defibrillators. Medicare covered the $40,000+ defibrillators for the primary prevention of arrhythmia unless they were implanted within 90 days of bypass surgery or 40 days of a heart attack. Doctors implanted the medical devices in patients and then fraudulently billed Medicare in spite of the guidelines.

This is expected to be the largest settlement in terms of the number of hospitals and the amount for a group of hospitals. In 2013, 55 hospitals settled a national investigation for $34 million into the use of cement in fractured vertebrae, a procedure known as kyphoplasty. The government is reportedly using data mining techniques this time around to assist them in their investigation.

The cardiac investigation dates back to at least 2012, when Modern Healthcare reported that the Justice Department was simultaneously emailing hundreds of hospitals with questionnaires concerning their use of the devices. At that time, Modern Healthcare obtained a document from the DOJ called the “Medical Review Guidelines/Resolution model”. It divided the possible scenarios for hospital billing of patients into categories which included those covered by the National Coverage Determination and/or excluded from the investigation, that the government had used its discretion to determine it would not bring enforcement (referred to as buckets), and those which would be included in an enforcement action.

The enforcement action(s) included certain coding errors, patients who were previously qualified but did not have an implantation until they were not within the coverage window, and those where it was not medically indicated. The calculation identified that the hospitals would be charged for the difference between the code they used and the correct code, as well as a per hospital multiplier of damages based on a variety of factors including knowledge, compliance efforts and patient harm.

At least six healthcare systems have already publicly reported the amount of their settlements to shareholders. Tenet announced a settlement of $12.1 million and HCA indicated their number was $15.8 million.

It will be interesting to see how the credit for this victory is shared. It seems likely that there are a number of whistleblowers out there, insiders who reported their hospital to the federal government through a qui tam lawsuit and may be in line for a reward as part of the settlement. The False Claims Act requires the DOJ to pay eligible relators between 15 and 25 percent of the award (in cases like this one where the government has not declined to intervene in the case). However, there are various rules such as the first to file rule and public disclosure which could limit those payments.

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