Life Science Compliance Update

May 18, 2017

Quest to Pay $6 Million to Settle Kickback and Unnecessary Testing Allegations


On April 28, 2017, the United States Department of Justice announced a settlement with Quest Diagnostics, Inc., for $6 million to resolve a lawsuit by the United States alleging that Berkeley HeartLab Inc., of Alameda, California, violated the False Claims Act by paying kickbacks to physicians and patients to induce the use of Berkeley for blood testing services and by charging for medically unnecessary tests. Quest acquired Berkeley in 2011, and ended the conduct that gave rise to the settlement.

Physicians refer their patients to independent laboratories like Berkeley to conduct tests on blood samples. According to the government’s complaint, Berkeley paid kickbacks to referring physicians disguised as “process and handling” fees. The complaint also alleged that Berkeley paid kickbacks to patients by routinely waiving copayments owed by certain patients who were legally required to pay for part of their tests. Allegedly, Berkeley paid the kickbacks to induce both the physicians and patients who received them to choose Berkeley over other laboratories. The government’s complaint further alleged that these illegal practices resulted in medically unnecessary cardiovascular tests being charged to federal healthcare programs.

The lawsuit was initially filed by Dr. Michael Mayes under the qui tam, or whistleblower, provisions of the False Claims Act. The United States partially intervened in this and two related actions on March 31, 2015, and is continuing to pursue claims against the remaining defendants: Latonya Mallory, the former CEO of Health Diagnostics Laboratory Inc., and marketing company BlueWave Healthcare Consultants Inc. and its owners, Floyd Calhoun Dent III and Robert Bradford Johnson. Dr. Mayes’ share of the settlement with Quest has not been determined.

“The South Carolina U.S. Attorney’s Office has dedicated considerable resources to pursuing fraud cases that divert federal tax payer dollars from important programs, like health care and defense contracting,” said U.S. Attorney Beth Drake of the District of South Carolina. “The goal for our qui tam unit is to protect taxpayers, patients, and soldiers by ensuring that important decisions are made according to medical science and engineering, and not based on dollar signs.”

“This settlement is part of the government’s ongoing efforts to address conduct that allows medical decisions to be influenced by money rather than the best interests of patients,” said U.S. Attorney Channing D. Phillips of the District of Columbia. “Our office is pleased to defend the integrity of our healthcare system and to demand the return of ill-gotten gains.”

“We will not allow laboratories to provide financial incentives to induce physicians to steer patients their way,” said Special Agent in Charge Derrick L. Jackson of the U.S. Department of Health and Human Services, Office of Inspector General (HHS-OIG) in Atlanta. “The Office of Inspector General will continue to work aggressively to eliminate this type of behavior which ultimately drives up healthcare costs and eliminates fair competition.”

Similar Settlements

On April 9, 2015, the DOJ announced settlements with two other laboratories - Health Diagnostics Laboratory Inc. of Richmond, Virginia, and Singulex Inc., of Alameda, California - for engaging in conduct similar to that resolved in the settlement with Quest.

The government’s intervention in this matter illustrates the government’s emphasis on combating health care fraud. One of the most frequently used tools in this effort is the False Claims Act.


May 05, 2017

Novo Nordisk Settles Qui Tam Suit


Novo Nordisk is in the midst of settling a whistleblower lawsuit that alleges that the company ran a “white-coat marketing scheme” to pump up sales of NovoLog, Victoza, and Levemir. The complaint was recently unsealed as part of the settlement process and alleges that Novo Nordisk partnered up with a clinical education company, Healthstar’s PT, to set up a program – “Changing Life with Diabetes” – which hired and trained certified diabetes educators.

The whistleblowers, two former managers, claim that since 2006, Novo ran the program to gain access to physician practices, where the educators would provide thousands of dollars worth of educational programs and materials, including: free patient education and seminars; free in-office training; free Novo-branded log books to give patients; and unlimited access to “go to” diabetes experts for patients.

The lawsuit alleges that Novo Nordisk attempted to bypass rules established by the U.S. Food and Drug Administration (FDA) regarding promotional materials and communications from sales professionals. The lawsuit said that the value of having a diabetes educator calling on a doctor “cannot be understated” because they provide materials and education that could cost doctors thousands of dollars. The suit further claims that because the certified diabetes educators were not titled as sales representatives, they received unprecedented access to physicians. However, “they were sales representatives in every way except title.”

Allegedly, the program was meant to induce prescribers to write prescriptions for Novo’s diabetes medications, and the educators would develop a close bond with doctors (closer than the bond sales representatives can forge) and sales of the drugs were “extraordinarily” boosted because of the program.

According to the complaint, the three drugs involved made Novo Nordisk $6 billion in sales in 2013, making up ten percent of the company’s worldwide sales for the year.

A spokesman for the company stated that the company “reached an agreement in principle to settle certain claims related to this investigation,” further noting that the company denies “the allegations, and highly value the role our diabetes educators serve in helping [health care providers] better understand diabetes and patient care. The process is not finalized, and as such as we can’t provide further comment to this matter at this time.”

This isn’t the first time Novo Nordisk has been penalized in the United States for kickback schemes. In 2009, the company paid an $18 million fine in connection with $1.4 million in illegal kickbacks paid to the former Iraqi government following the Department of Justice’s investigation into the U.N. Oil-for-Food program. According to a Justice Department statement “between 2001 and 2003, Novo paid approximately $1.4 million to the former Iraqi government by inflating the price of contracts by 10 percent before submitting the contracts to the United Nations for approval and concealed from the United Nations the fact that the price contained a kickback to the former Iraqi government. Novo also admitted it inaccurately recorded the kickback payments as "commissions" in its books and records.”

For a more in-depth review of this case and implications on the life sciences industry, please see the June issue of our sister publication, Life Science Compliance Update.

April 07, 2017

The New Strict French Anti-Bribery Law


In early December 2016, the Sapin II law was enacted in France. The law, which is meant to promote transparency, fight against bribery, and modernize the economy, was pushed for two years by Transparency International. Corruption has long been criminally punishable under French law, so the main purpose of the new law was to issue more clear rules to prevent and detect bribery.

Company Obligations

Companies that exceed certain thresholds (and their executives) are required to adopt an anti-bribery compliance program that satisfies a variety of specific requirements set out in the law. The obligation to implement internal procedures applies to: (1) companies with their registered office in France (including French overseas territories, i.e., French Guiana, French Polynesia) that employ more than 500 employees and realize at least €100 million in revenue and (2) groups of companies that employ more than 500 employees with revenue or consolidated revenue exceeding €100 million, where the holding company has its registered office in France. In the second instance, the obligations detailed in Sapin II lie on the holding company itself, but also on subsidiaries or controlled companies, including those outside of France.

Sapin II Obligations

Companies that exceed the aforementioned thresholds have until June 1, 2017, to:

  1. Adopt a code of conduct, describing the behaviors likely to constitute bribery acts. This code should give clear and practical guidance tools to employees;
  2. Set up a whistleblowing system allowing employees to report behaviors or situations breaching the internal code of conduct. This whistleblowing system should define the process for investigating complaints in a confidential way. Sapin II also provides for certain protections for such whistle-blowers;
  3. Create a risk map, ranking and classifying the company’s risks of exposure to corruption, by sector and geographical area and taking into account the company’s major clients, suppliers or intermediaries;
  4. Run due diligence on the company’s major clients, suppliers and intermediaries;
  5. Implement internal or external accounting auditing processes to make sure that accounting books are not used to conceal corruption or influence peddling acts;
  6. Train the employees that are more at risk;
  7. Set up a disciplinary process that enables punishment for employees that breach the code of conduct; and
  8. Set up an internal process to control and evaluate the measures implemented.

Sanctions for Breach

To ensure compliance with these rules, Sapin II provides serious financial sanctions for those who do not comply. In fact, a new authority, the National Agency for Prevention and Detection of Bribery, has been established to enforce Sapin II. The Agency can issue an injunction to comply with the law as well as order the payment of fines by both the legal representative of the company (up to €200,000) and the company itself (up to €1 Million).

Non-compliance with Sapin II also carries significant reputational risk: the decision by the Anti-Corruption Agency issuing an injunction or imposing a fine can be made public under ‘name and shame’ powers.

Sapin II Brings Changes

While Sapin II does not significantly interfere with existing laws and sentencing guidelines on corruption, it does actually greatly change things in France. For one, it expanded extra-territorial reach for French prosecutors by allowing investigations into foreign companies with even a footprint in France.

The eight mandatory measures for a corruption prevention program have an effect on companies that are already complying with current French laws (they will need to consult with their employee representative organizations prior to integrating the code of conduct into internal regulations) and companies that are already complying with UK and US standards should consider how the such an obligation affects their existing framework.

Additionally, by compelling all companies with more than 50 employees to establish a whistleblower mechanism and providing “protection against retaliation” and guaranteeing confidentiality to whistleblowers, Sapin II introduces one of the strongest protection frameworks for whistleblowers.

There are a few things that differentiate the whistleblower regime from its UK and US counterparts. First, the regime applies only to disinterested parties: the law does not protect or incentivize whistleblowing by implicated parties, i.e. those who have the closest visibility of the facts. Second, the whistleblower must have firsthand knowledge of the facts. Third, with very few exceptions, whistleblowers receive immunity from criminal prosecution. Fourth, the law affords protection to those alleged to be involved by guaranteeing anonymity to named accused persons in a report until the facts are proven. Finally, unlike in the US, whistleblowers may be provided with financial support in an amount to be determined by an existing independent authority, but not rewarded.

However, whistleblower activity may be hampered by the hierarchical reporting process: whistleblowers must first use internal whistleblowing channels before blowing the whistle to the relevant regulator and finally to the press. In line with the preventive policy directive behind the law, this is designed to enable companies to react quickly to allegations.

How Can Companies Prepare?

Companies that fall under the scope of Sapin II will need to ensure that they can demonstrate that they comply with each of the eight measures listed above. Compliance is recommended to be such that an investigation by the newly-created Agency would come up clean.

Companies that do not fall under the Sapin II requirements would also do well to comply, as they can minimize the risk of bribery and, in the event of actual bribery, to mitigate their liability under separate bribery offences and/or to being able to negotiate the level of fine for such offences under the procedure of the Deferred Prosecution Agreement.


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