Life Science Compliance Update

October 26, 2015

Millennium Health Settlement and Corporate Integrity Agreement: Focus on Boards of Directors

Millennium Health has agreed to pay $256 million to resolve allegations that it billed Medicare, Medicaid, and other federal health programs for unnecessary drug testing and genetic testing, and that it provided kickbacks to physicians to induce business. This settlement represents two False Claims Act settlements between Millennium and the DOJ and an administrative settlement agreement between Millennium and HHS.

As part of those settlements, Millennium will pay $227 million to resolve the False Claims Act allegations that it systematically billed federal health care programs for excessive and unnecessary drug testing from January 1, 2008 through May 20, 2015. The United States allegations included allegations that Millennium caused physicians to order excessive numbers of urine tests, in part through the promotion of "custom profiles," which were not customized for individual patients, but actually were standing orders that caused physicians to order a large number of tests without an individualized assessment of each patient's needs. The supposed "custom profile" use led to the over-billing of federal health care programs which limit payment to services that are reasonable and medically necessary for the diagnosis and treatment of a specific patient's illness or injury. The United States also alleged that Millennium violated the Stark Law and Anti-Kickback Statute by providing physicians with free drug test cups on the condition that the physicians return the specimen to Millennium for hundreds of dollars' worth of additional testing.

In addition to the aforementioned payment for resolution of False Claim Act allegations, Millennium agreed to pay $10 million to resolve different allegations that it submitted false claims to federal healthcare programs for medically unnecessary genetic testing that was performed on a routine and preemptive basis, without an individualized assessment of patient need, from January 1, 2012 through May 20, 2015. Typically routine genetic testing does not qualify for Medicare reimbursement because it is not medically reasonable or necessary.

The remaining $19 million was settled in connection with a claim from the Centers for Medicare and Medicaid Services (CMS) to resolve administrative actions regarding Millennium's claims to Medicare for certain drug test billing codes. Those claims were the subject of claim denials and an overpayment action initiated by CMS and its contractors.

Millennium's CEO Brock Hardaway said that the agreement will help Millennium reduce its debt and pay the settlement, "[w]hile Millennium may debate some of the merits of the DOJ's allegations, we respect the government's role in healthcare oversight and enforcement. At the end of the day, it was time to bring a closeure to an investigation that began nearly four years ago. Millennium Health is currently a very different organization than we were in the past."

In connection with their False Claim Act settlements, which were originally brought in lawsuits filed by whistleblowers, Millennium has entered into a Corporate Integrity Agreement with the Department of Health and Human Services, Office of Inspector General. Currently, Millennium is owned by private-equity firm TA Associates Management LP and company founder James Slattery; part of the CIA requires Millennium to appoint enough independent directors, rather than executives and family members, to make up a majority of its board. According to Inspector General Daniel R. Levinson, "This company has taken the first step toward demonstrating a commitment to compliance by agreeing to make significant changes to its board of directors. Most of the board will be comprised of new independent members. Under the five-year CIA, OIG will monitor the company's compliance efforts under this new leadership."

Their CIA was very direct in requiring the company to appoint a corporate compliance officer and appoint a compliance committee within 90 days of signing the CIA. They also have to appoint a chief clinical officer, apparently something that had been lacking for this clinical diagnostics company.

Millennium Health's shareholders must guarantee an initial payment of $50 million toward the full settlement, by guaranteeing pieces of the payment based on the proportion of equity in the company they won.

Millennium is in the process of collecting formal votes from their lenders over the next couple weeks to sign off on a mandated restructuring process Millennium expects to be completed by the end of the year. The agreement with the DOJ enables Millennium to finalize their reorganization either out of court or through a Chapter 11 bankruptcy proceeding. Currently, Millennium is debating whether or not to file for bankruptcy protection. They are forced to make a decision and file a petition by November 10, which will allow it to turn over control of the business to its lenders. Creditors would vote to accept what would be a pre-arranged bankruptcy plan by November 8, and a bankruptcy judge would confirm Millennium's bankruptcy plan by December 21. Millennium has had its earnings and finances shaken up by the probe due to their engagement in this federal investigation for the past four years.

April 16, 2015

Health Diagnostics Lab Settles With DOJ; Enters Corporate Integrity Agreement With New Provisions Aimed At Referral Transparency


The Department of Justice has announced the official settlement with Health Diagnostics Laboratory Inc. (HDL), of Richmond, Virginia, as well as with Singulex Inc., of Alameda, California. The companies will pay a total of $48.5 million to resolve kickback related allegations related to lab referrals. 

We have been writing about the ongoing scrutiny into HDL, and the government's broad interest in laboratory-physician referral arrangements for a number of months now. The DOJ announced last week that the two labs have agreed to resolve allegations that they violated the False Claims Act by paying physicians in exchange for patient referrals and then billing federal health care programs for medically unnecessary testing. Under the settlements, which stem from three related whistleblower actions filed under the federal False Claims Act, HDL will pay $47 million and Singulex will pay $1.5 million.  

View the DOJ announcement here.

The government also intervened in the lawsuits as to similar allegations against another lab, Berkeley HeartLab Inc.; a marketing company, BlueWave Healthcare Consultants Inc., and its owners, Floyd Calhoun Dent and J. Bradley Johnson; and former HDL CEO, Latonya Mallory. As alleged in the lawsuits, HDL, Singulex, and Berkeley induced physicians to refer patients to them for blood tests by paying them processing and handling fees of between $10 and $17 per referral and by routinely waiving patient co-pays and deductibles.  In addition, HDL and Singulex allegedly conspired with BlueWave to offer these inducements.  As a result, physicians allegedly referred patients to HDL, Singulex and Berkeley for medically unnecessary tests, which were then billed to federal health care programs, including Medicare.

Corporate Integrity Agreements and "Focus Arrangement Procedures"

As part of the settlements, HDL and Singulex agreed to enter into separate corporate integrity agreements (CIA) with the Department of Health and Human Services’ Office of Inspector General (HHS-OIG).  "Those agreements provide for procedures and reviews to be put in place to avoid and promptly detect conduct similar to that which gave rise to these settlements," states DOJ.

The CIAs are two of only a small handful between the HHS-OIG and laboratories. Thus, they provide an interesting look into how the government will negotiate with labs going forward. While many aspects of the agreements are similar to pharmaceutical and device CIAs--including management certifications, mandatory compliance training, and independent review organization oversight--the agreements include a new provision which scrutinizes all payments between the labs and physicians. This provision is entitled Focus Arrangement Procedures (p. 11, Section (D) of HDL's agreement

Using HDL's CIA as an example, OIG defines "focus arrangements" as every arrangement (1) between HDL and any actual source of health care business or referrals to HDL and involves, directly or indirectly, the offer, payment, or provision of anything of value; or (2) between HDL and any physician (or a physician's immediate family member) who makes a referral to HDL for designated health services.

"Within 120 days after the Effective Date, HDL shall create procedures reasonably designed to ensure that each existing and new or renewed Focus Arrangement does not violate the Anti-Kickback Statute and/or the Stark Law or the regulations, directives, and guidance related to these statutes," writes OIG. 

The "Focus Arrangements Procedures" must include:

  • Creating and maintaining a "centralized tracking system" for all existing and new or renewed Focus Arrangements 
  • Tracking remuneration to and from all parties to Focus Arrangements
  • Tracking service and activity logs to ensure that parties to the Focus Arrangement are performing the services required under the applicable Focus Arrangement
  • Monitoring the use of leased space, medical supplies, medical devices, equipment, or other patient care items to ensure that such use is consistent with the terms of the applicable Focus Arrangement
  • Establishing and implementing a written review and approval process for all Focus Arrangements, the purpose of which is to ensure that all new and existing or renewed Focus Arrangements do not violate the Anti-Kickback Statute and Stark Law, and that includes at least: (i) a legal review of all Focus Arrangements by counsel with expertise in the Anti-Kickback Statute and Stark Law, (ii) a process for specifying the business need/rationale for all Focus Arrangements, and (iii) a process for determining and documenting the fair market value of the remuneration specified in the Focus Arrangement
  • Requiring the Compliance Officer to review the Focus Arrangements Tracking System, internal review and approval process, and other Focus Arrangements Procedures on at least an annual basis and to provide a report on the results of such review to the Executive Compliance Committee
  • Implementing effective responses when suspected violations of the Anti-Kickback Statute and Stark Law are discovered

The CIA also requires that HDL "ensure that each Focus Arrangement is set forth in writing and signed by HDL and the other parties to the Focus Arrangement." Furthermore, the agreement requires compliance training for "each party to a Focus Arrangement," and mandates that the agreement includes "a certification by the parties to the Focus Arrangement that the parties shall not violate the Anti-Kickback Statute and the Stark Law with respect to the performance of the Arrangement."


The settlements with HDL and Singulex illustrate the government's continued scrutiny into laboratory referral arrangements with physicians. The Corporate Integrity Agreements that the labs entered into are aimed at eliminating under-the-table physician payments for lab referrals, by requiring a written agreement that includes certifications of Anti-Kickback and Stark compliance, as well as mandating a comprehensive tracking system for these payments. 

OIG often indicates its industry-wide expectations in its CIAs, and perhaps these settlements indicate the new normal for laboratories. In August last year, OIG released a special fraud alert which offered very specific requirements for lab arrangements with physicians, and on April 2, announced two enforcement actions against doctors for their relationship with a New Jersey-based lab.

View our previous article on lab referral arrangements here

January 13, 2015

Daiichi Sankyo Settlement and Corporate Integrity Agreement


Japanese pharmaceutical company, Daiichi Sankyo Inc., with U.S. headquarters in New Jersey, has agreed to pay $39 million to resolve allegations that it violated the False Claims Act. The complaint alleges that Daiichi marketed a number of its hypertension and diabetes drugs off-label, and paid kickbacks to induce physicians to prescribe them. A former Daiichi sales representative initially brought the complaint, and will get $6.1 million from the settlement.

The DOJ issued the following statement in its press release, honing in on the alleged kickbacks: “Drug companies are prohibited from using lavish entertainment and padded speaker program payments to induce physicians to prescribe their drugs for beneficiaries of federal health care programs,” said U.S. Attorney Carmen Ortiz for the District of Massachusetts, where the case was filed. “Settlements like this one show that the government will continue to pursue health care companies that use kickbacks to promote their products.”

As part of the settlement, Daiichi has agreed to enter into a Corporate Integrity Agreement with the Department of Health and Human Services-Office of Inspector General (HHS-OIG), which obligates the company to undertake substantial internal compliance reforms for the next five years.

Off-Label Allegations: “Class Effect”

Central to the plaintiffs' case was their theory that Daiichi Sankyo took advantage of a “class effect.” The complaint hones in on olmestartan, the principal active ingredient in the company’s drugs Benicar and Benicar HCT, both FDA-approved for hypertension. These drugs are part of a small class of marketed hypertension drugs known as Angiotensin-II Receptor Blockers (ARB’s).

According to the plaintiffs, Daiichi misrepresented to physicians that Benicar had all of the beneficial product label indications of other ARB’s, including protection against heart failure, left ventricular dysfunction, and diabetic kidney diseases, in addition to blood pressure control. The complaint argues that, in fact, Benicar had an “unambiguously narrow FDA-label,” which only recognized blood pressure control as an approved indication.

Due to what the plaintiffs deem “very successful illegal marketing,” Daiichi Sankyo persuaded physicians to believe that all ARB’s, including Benicar provided the same wide range of clinical benefits. “By focusing on the other members of the class FDA-approvals, rather than the Defendant’s indications that were FDA-approved, Defendants intended to overcome the subject drugs’ lack of FDA-approved indications for certain indications.” 

Sales reps were allegedly trained to use various reprints to promote off-label, and used kickbacks to encourage doctors to prescribe Daiichi’s products. 

Kickback Allegations

The Anti-Kickback Statute generally prohibits anyone from offering, paying, soliciting, or receiving remuneration to induce referrals of items or services covered by federal health care programs, including Medicare and Medicaid.

Here, the government alleged that Daiichi paid physicians improper kickbacks in the form of speaker fees as part of Daiichi Sankyo’s Physician Organization and Discussion programs, known as “PODs,” from Jan. 1, 2005, through March 31, 2011, as well as other speaker programs from Jan. 1, 2004, through Feb. 4, 2011

The company allegedly made payments to physicians “when physician participants in PODs took turns ‘speaking’ on duplicative topics over Daiichi-paid dinners, the recipient spoke only to members of his or her own staff in his or her own office, or the associated dinner was so lavish that its cost exceeded Daiichi’s own internal cost limitation of $140 per person,” according to DOJ. 

The complaint alleges that "[a]bsent Defendant’s unapproved, illegal off-label marketing, which included false representations, and its gifts to physicians, the subject drugs would not have been prescribed by physicians for off-label indications.” 

Importantly, Daiichi did not admit to the allegations. They settled for $39 million, and in the process avoided the risk of going to trial and losing—resulting in the "death sentence" of exclusion from Medicare, Medicaid, and other federal healthcare programs. 

Warning Letter For Benicar

In 2006, the Food and Drug Administration sent a Warning Letter to Sankyo (before the merger with Daiichi Pharmaceutical) due to the company’s promotion of Benicar. FDA found that Sankyo had made unsubstantiated superiority claims over other angiotension II receptor antagonists. “The studies did not generate valid data to support the product comparisons because, among other factors, the studies either (1) were open-label, uncontrolled trials; (2) were meta-analyses; (3) were titration-to-effect comparisons; or (4) did not compare drugs administered at their maximum approved dosage,” stated the Letter.   

Corporate Integrity Agreement

As noted above, Daiichi agreed to enter into a Corporate Integrity Agreement with HHS-OIG, which obligates the company to undertake compliance reforms for the next five years.

This CIA is not much different than other recent settlement agreements. 2014 was actually a fairly slow year for new CIAs—potentially due to the fact that many pharmaceutical companies are already under CIA. Endo Pharmaceuticals and Shire Pharmaceuticals are the two agreements that stand out from last year, and the government hasn’t much changed their model since we last wrote an in-depth analysis about Shire’s CIA . Essentially, Daiichi's CIA requires that the company institute and enforce policies to address appropriate ways for sales reps and medical affairs to comply with the Anti-Kickback statute, False Claims Act, and FDA requirements. 

Daiichi did not agree to sever the financial incentive structure for its sales representatives. The CIA states:

[C]ompensation (including through salaries, bonuses, or other means) for Relevant Covered Persons who are sales representatives and their field based managers. These Policies and Procedures shall: (i) be designed to ensure that financial incentives do not inappropriately motivate such individuals to engage in improper promotion, sales, and marketing of Daiichi’s Government Reimbursed Products; and (ii) include mechanisms, where appropriate, to exclude from incentive compensation sales that may indicate improper promotion of Government Reimbursed Products.

One interesting aspect of the CIA is a recently instituted policy seen in Endo Pharmaceuticals’ 2014 settlement terms involving social media. Daiichi must develop specific policies for “materials and information that may be distributed or made available by Daiichi through social media and/or direct-to-consumer advertising.” The CIA states: “[t]hese Policies and Procedures shall be designed to ensure that Daiichi’s activities in this area and the information distributed or made available comply with all applicable Federal health care program and FDA requirements, and have been reviewed and approved by the applicable Daiichi personnel before they are posted or disseminated.” 

Daiichi also must make disclosures consistent with the Federal Sunshine Act available on its website and make extensive grant disclosure as well. 

Also of note, unlike Endo or Shire, Daiichi's CIA does not include an extensive section regarding research ((see Endo page 15 (section r); see Shire page 16 (section q)). 


View the full Corporate Integrity Agreement here

View the DOJ Press Release here

View the settlement here

Download Daiichi Complaint



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