For the last several years, we have reported extensively about the government settlements, investigations, and prosecutions of pharmaceutical and medical device companies for various fraud and abuse, FCPA and FDA violations. Almost all of these cases has resulted in multi-billion dollar settlements, corporate integrity agreements and various other legal, regulatory and compliance obligations.
Consequently, a growing concern and trend that companies are now facing are separate and parallel civil and criminal enforcement actions at the state level for the same or similar conduct companies settled with the federal government. According to a recent article from the Wall Street Journal, “some U.S. states have become more aggressive in accusing drug makers of deceptive marketing, widening the potential liability for an industry that has shelled out billions of dollars to settle investigations led by the federal government.”
“For state officials, a key appeal of these cases is that they generally don't have to prove that a drug maker's marketing caused any specific injuries or harm. They need only convince a judge or jury that a drug's promotion was deceptive in some way.” Moreover, “Plaintiffs’ law firms have been pitching new consumer-protection lawsuits to state attorneys general,” according to David Hart, an assistant attorney in charge of the financial fraud and consumer-protection section of the Oregon Justice Department. “Some states have outsourced such litigation to outside counsel after issuing requests for proposals. Houston-based law firm Bailey Perrin Bailey has served as outside counsel for some state,” reported WSJ.
“More states feel empowered to bring these kinds of actions solo,” said Hart. Oregon is one of the most pro-active states leading the state prosecutions. In fact, Oregon is responsible for the oversight of the Consumer and Prescriber Education Grant Program, which funds groups to help reduce fraudulent marketing and other improper life-science related activities.
Examples of Parallel State Consumer Protection Actions
WSJ points out that GlaxoSmithKline (GSK), Sanofi, Bristol-Myers Squibb Co. and Teva Pharmaceutical Industries Ltd. are among the drug companies in the cross hairs of attorneys general of several states. “A key legal weapon at the states' disposal: consumer-protection laws that have traditionally been used to go after abusive debt collectors or deceptive car sellers,” WSJ writes.
Some allegations of consumer-law violations by drug makers have been resolved in multistate settlements—the size of which have grown steadily in recent years. For example, in 2012, Johnson & Johnson agreed to pay $181 million to settle consumer-protection claims by 36 states and the District of Columbia to resolve allegations the company promoted the antipsychotic Risperdal for unapproved uses. The company did not admit wrongdoing or violations of any law or regulation, saying it agreed to the pact to avoid further litigation.
However, “some states have chosen to go it alone, a strategy that has resulted in hefty single-state awards and settlements in recent years,” the author writes.
For instance, J&J is appealing an Arkansas’ judge’s $1.2 billion penalty assessed in 2012 after a jury found the company violated state consumer protection and Medicaid-fraud laws in its marketing of Risperdal. The case was brought by the Arkansas attorney general. The appeal is pending in the Arkansas Supreme Court.
A unique aspect of this case was that a “portion of the Arkansas Risperdal penalty was calculated by applying a fixed amount to each of about 4,570 letters J&J sent to doctors in 2003 containing information about Risperdal’s safety. The FDA concluded these letters didn't adequately convey the risk of elevated blood sugar associated with Risperdal.”
A lawsuit with allegations similar to the Arkansas case resulted in a $258 judgment against J&J in 2010 in Louisiana. The judgment was upheld by one appellate court and is pending before the Louisiana Supreme Court. Additionally, J&J is appealing a $327 million penalty awarded by a state judge in 2011 in a Risperdal lawsuit. The case is pending at the South Carolina Supreme Court, which heard arguments last month.
A J&J spokeswoman noted that claims over Risperdal marketing brought by state officials in West Virginia and Pennsylvania were dismissed. J&J last year also agreed to pay $158 million to settle a Texas lawsuit over Risperdal.
Most recently, the Kentucky Attorney General also filed a lawsuit against J&J regarding its alleged illegal promotion of Risperdal, as reported by Pharmalot.
In February 2013, attorneys general in Kentucky and Maryland filed separate lawsuits against GSK in their respective state courts, alleging the company deceptively marketed the diabetes drug Avandia. The suits say GSK “misrepresented the safety and efficacy of the drug, which has been linked to increased risk for heart attacks and strokes.” And at least five other states, including Utah, continue to pursue similar lawsuits against GSK over Avandia.
They chose to opt out of a 2012 settlement in which GSK agreed to pay $90 million to settle consumer-protection claims by 37 other states and the District of Columbia. “In the case of Avandia, we opted out of the multistate because we felt we could obtain a better result by taking our own action,” said a spokeswoman for the Kentucky Office of the Attorney General. One reason for opting out is that consumer-protection violations “have resulted in some eye-popping monetary judgments and settlements,” WSJ writes.
Other pending state consumer-protection cases include:
- Attorneys general of Mississippi and West Virginia sued Bristol-Myers and Sanofi, alleging the companies falsely and deceptively labeled and promoted the blood thinner Plavix to consumer and doctors. The states allege the companies misleadingly marketed Plavix as more effective and safer than aspirin in treating patients at risk for strokes and related cardiovascular events.
The suits also allege the companies knew or should have known since 2003 that Plavix can be less effective in a subgroup of patients who metabolize it poorly. The suits allege the companies failed to disclose that information in a timely manner because they wanted to preserve Plavix sales.
BMS and Sanofi said they believe the state lawsuits over Plavix marketing have no merit, and the companies will defend themselves. The companies said some of the attorneys who have filed the lawsuits on behalf of state attorneys general are also representing private plaintiffs in personal-injury lawsuits related to Plavix. The lawsuit was moved to federal court and is still pending.
- South Carolina sued Teva’s Cephalon unit in 2011, alleging it promoted drugs including wakefulness drug Provigil for unapproved uses. Teva is seeking to dismiss the lawsuit, claiming in a court document that the attorney general's hiring of an outside law firm on a contingent-fee basis violates Teva's rights to due process under the U.S. and South Carolina constitutions. The contingent-fee arrangement allows for the outside law firm to be paid a percentage of any monetary settlement or judgment, on a sliding scale. The South Carolina attorney general's office said Teva's request to dismiss the lawsuit has no merit.
Response From Industry
“The industry and its defense lawyers say the state allegations of deceptive marketing amount to overreach because there has been little evidence that patients have been harmed by the alleged conduct,” WSJ writes.
For example, the Pharmaceutical Research and Manufacturers of America (PhRMA) filed a document supporting J&J in its appeal of the Arkansas Risperdal verdict and penalties, “arguing that the state court improperly interpreted an alleged violation of federal prescription-label standards as a violation of a state Medicaid-fraud law.” “Imposing state-law penalties on manufacturers for alleged violations of [federal drug law] raises serious legal and constitutional questions,” said PhRMA.
“I don't think the states should be looking to punish statements about pharmaceutical marketing unless they can prove that somebody was actually injured as a result of relying on the statements,” said Kenneth J. Wilbur, an attorney with Drinker Biddle who has defended drug makers including J&J in the state litigation. Wilbur said the “First Amendment’s free-speech protections should restrict the ability of states to broadly construe consumer-protection statutes against drug marketing.”
Industry defense lawyers also have argued that “federal law authorizing the FDA to regulate drugs should pre-empt state laws concerning the marketing of approved drugs whose safety and efficacy have been reviewed by the FDA.”