Life Science Compliance Update

August 30, 2016

Novartis Execs Indicted in South Korea

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Six executives from the South Korean unit of Novartis have been indicted by prosecutors for paying rebates to doctors in return for prescribing the company’s drugs to patients. The prosecutorial sweep also included twenty-eight other individuals, including fifteen doctors and six medical publishers.

Included in the count of six was Novartis Korea chief Moon Hak-sun for an allegedly illegal sales effort that saw the doctors at general hospitals receive 2.59 billion won (roughly $2.3 million) in payments in either cash or through arrangements with the medical publications via conference appearances and fees for articles. The prosecution claims that such activities were conducted from January 2011 through early 2016.

The South Korean health regulators and prosecutors have been working together for the past few years in a joint effort to prevent foreign and domestic firms alike from paying rebates on drug sales since passing a drug anti-rebate law in 2013.

This particular case started was launched by the Seoul Western District Prosecutors’ Office and was acknowledged by a local Novartis unit, issuing a statement saying it does not “tolerate misconduct and we are already implementing a remediation plan in Korea based on the findings from our own investigation.” Novartis notes that internal investigations have uncovered some unfair trade practices, but that such activities were not conducted with the knowledge of executives. Paul Barrett, an official from Novartis International, stated that the company “could provide no other details on the case before the trial proceedings.”

Novartis did not identify any of the other five executives charged and did not provide any contact information for Moon or his attorney. None of the other twenty-eight individuals have been arrested.

The case initially came to light in February 2016 with announcements that investigators were examining whether the company and its executives systematically encouraged the practices, a suggestion Novartis rejects.

Other Asia Trouble for Novartis

These indictments follow other troubles Novartis has faced in Asia this year. In March, the company agreed to pay $25 million to settle a Securities and Exchange Commission (SEC) investigation into bribery allegations in China that included travel and other inducements to boost prescriptions of its drugs in the country. Novartis improperly recorded the payments as travel and entertainment, conferences, lecture fees, marketing events, educational seminars, and medical studies.

The SEC Order specifically referenced, “[I]n 2011, two sales representatives submitted fake receipts for approximately $8,100 as part of their employee expense reimbursement requests, which were approved by a regional sales manager. The

proceeds were used to entertain and provide gifts to [health care professionals].”

The $25 million payout amounted to disgorgement in the amount of $21.5 million, $1.5 million in prejudgment interest, and a $2 million penalty.

The SEC settled the case through an internal administrative order and did not go to court.

Railroad Retirement Board (RRB) First to Double-Down on DOJ’s Civil Penalties for FCA Violations

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In early July of this year, the Railroad Retirement Board (RRB) became the first federal agency to implement the mandatory requirements under the Bipartisan Budget Act of 2015, the doubling of civil monetary penalties (“CMPs”) to be assessed for violations of the False Claims Act (FCA). Specifically, the new RRB final rules now increase the minimum per claim civil penalty from $5,500 to $10,781 and increasing the maximum per claim civil penalty from $11,000 to $21,563. Life science companies should be cognizant of such changes, where agencies such as the RRB, are significantly changing the landscape on how civil penalties are being calculated, imposed, and otherwise assessed against FCA violators.

Buried in the Bipartisan Budget Act of 2015 64 Is a provision that requires agencies to increase increases the civil monetary penalties (“CMPs”), including False Claims Act (FCA) penalties.

 Read Full Article in the August 2016 Issue of Life Science Compliance Update

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August 29, 2016

HRSA Releases Proposed Rule on 340B ADR Program

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On August 12, 2016, the Health Resources and Services Administration (HRSA) published a proposed rule: “340B Drug Pricing Program; Administrative Dispute Resolution.” The Affordable Care Act required the Department of Health and Human Services (HHS) to promulgate a regulation that establishes and implements a binding administrative dispute resolution (ADR) process for resolving certain disputes under the 340B Program.

This proposed rule lays out the requirements and procedures that will apply to all drug manufacturers and covered entities that participate in the program. HRSA states that the ADR process is not intended to mock trial and should be used as a last resort, after good faith efforts to resolve disputes have been unsuccessful. There is a sixty day comment period for stakeholders.

Proposed Rule Highlights

Administrative Dispute Resolution Panel

HRSA proposes to establish a decision-making body to review and make binding decisions for claims filed by covered entities and manufacturers. The proposed panel will be made up of federal employees who have expertise in, and experience with, the 340B Program. HRSA welcomes comments on the proposed size and composition of the panel.

Claims

The ADR process is intended to be used with two different types of claims: (1) claims by covered entities who believe they have been overcharged for covered outpatient drugs by manufacturers and (2) claims by manufacturers that a covered entity has violated the prohibition on diversion to ineligible patients or duplicate discounts. This can only be done by manufacturers after they have conducted an audit. In the proposed rule, HRSA proposes that a claim be filed in writing within three years of the date of the sale or payment at issue and include sufficient documentation for the claim to be evaluated.

Consolidated Claims

HRSA proposes requirements for a covered entity to request consolidation of individual claims. Consolidated claims may also be made on behalf of covered entities by associations or organizations representing their interests. The ACA, however, disallows consolidated claims on behalf of manufacturers by associations or organizations representing their interests. HRSA would like specific feedback related to consolidated claims for manufacturers.

Deadlines

HRSA proposes that the part that files the claim must send the opposing party written notice within three business days. HRSA will make a determination regarding whether all requirements for a claim have been met and notify all parties within twenty business days of receiving the claim. If all requirements have been met, the claim will be forwarded on to the ADR Panel. HRSA proposes that the opposing party have twenty business days to submit their written response to the allegations, to both the Panel and the complaining party.

Final Agency Decision

In the proposed rule, HRSA proposes that the Panel prepare a draft letter that includes findings and conclusions regarding the alleged violation. The draft letter will be sent to all parties and allow for a twenty-day response period. Once responses to the draft letter have been received, the Panel will issue the final decision. The Final Decision will be binding on all parties involved, unless invalidated by a court order.

Comment Submission Information

Interested stakeholders can submit comments, identified by the Regulatory Information Number (RIN) 0906-AA90 via: (1) the Federal eRulemaking Portal; (2) email to 340BNPRMADR@hrsa.gov; or (3) regular, express, or overnight mail to CAPT Krista Pedley, Director, Office of Pharmacy Affairs (OPA), Healthcare Systems Bureau (HSB), HRSA, 5600 Fishers Lane, Mail Stop 08W05A, Rockville, MD 20857.

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