Life Science Compliance Update

February 01, 2016

DOJ Becoming Comfortable With Permitting Truthful, Non-misleading Promotion

As we know all too well, the U.S. Food and Drug Administration (FDA) has long taken the position that a medical device or drug manufacturer who promotes an FDA-approved device or drug for any unapproved uses violates the Federal Food, Drug, and Cosmetic Act (FDCA). The FDA has claimed that such off-label promotion misbrands the product and circumvents the regulatory approval process that is in place to ensure that medical devices and drugs are safe and effective. Such circumvention, they have opined, risks putting the public in danger.

Drug and device manufacturers, on the other hand, have long believed that informing physicians about possible off-label uses helps doctors to make informed medical decisions that directly benefit patients. Manufacturers also believe that the FDA's ban on truthful and nonmisleading off-label promotion inhibits their First Amendment commercial free speech rights.

Courts have not always been kind to the FDA's view on the topic, however. Amarin, for example, held that the court's "considered and firm view is that ... the FDA may not bring [a misbranding] action based on truthful promotional speech alone, consistent with the First Amendment."

New Jury Instructions

Now, for the first time, the federal government is actively warming up to the idea that the law, specifically the FDCA, does not criminalize truthful off-label promotion. The Department of Justice has recently submitted jury instructions in a medical device case, part of which states, "[i]t is also not a crime for a device company or its representatives to give doctors wholly truthful and non-misleading information about the unapproved use of a device."

In making the decision to include such phrasing in the jury instructions, Richard Durbin, Jr., the United States Attorney for the Western District of Texas, points to both Amarin and Caronia cases, noting that the decisions "held that the misbranding provisions of the FDCA did not prohibit off-label promotion of FDA-approved prescription drugs that is solely truthful."

The particular case at hand, U.S.A. v. Vascular Solutions, Inc. & Howard C. Root, involves a medical device company and its CEO who were each charged with four counts of adulteration, four counts of misbranding, and felony conspiracy to: introduce adulterated medical devices into interstate commerce, introduce misbranded medical devices into interstate commerce, and defraud the United States by concerning the sale of the allegedly adulterated and misbranded medical devices.

In his proposed jury instructions, Mr. Durbin states that in order for the jury to find that Howard Root – the Vascular CEO – caused a "misbranding violation, [they] must find beyond a reasonable doubt that, by reason of his position in the corporation, he had the responsibility and authority either to prevent or promptly correct the violation, and that he failed to do so."

What Does This Mean?

While this may seem to be a promising change, medical device and drug manufacturers should continue approaching off-label promotion with caution for several reasons.

First, cases such as Amarin have limited geographic reach. Amarin is a decision handed down by the Southern District of New York, which means that should the FDA or other government agency bring a misbranding case in a different United States federal court, that other district court could come to a different conclusion, one that states that truthful and non-misleading off-label promotion is not protected by the First Amendment.

Second, there is no First Amendment safe harbor for false and misleading off-label promotion. Third, the idea that off-label promotion of a particular product is truthful and non-misleading will be decided on a case-by-case basis, dependent on the individual facts of the cases.

Companies should continue to take a cautious and measured approach to off-label promotion that will minimize the risk of the FDA and the DOJ concluding that their off-label promotion is false, misleading, or both. We continue to advocate for employee training in sales and marketing, implementing standard operating procedures that require formal review and approval of any and all promotional materials, and adhering to published FDA guidance.

November 30, 2015

Novartis Settlement and Corporate Integrity Agreement Amendment

We have previously written about the proposed Novartis AG settlement relating its False Claims Act suit. The suit alleged Novartis participated in improper kickbacks to pharmacies to boost sales of several prescription drugs. Novartis Chief Executive Joe Jimenez claimed that Novartis had made the disputed payments, but did so to ensure patients took the drugs.

In October, Novartis announced a $390 million tentative agreement to settle that claim against them. That tentative agreement did not assign liability for the resolved allegations of improper discounts and rebates to specialty pharmacies in conjunction with the immunosuppressant Myofortic and the iron overload drug Exjade.

Allegedly, sales of Exjade were not meeting expectations primarily due to the side effects of the drug, when Novartis pressured a set of three hand-selected specialty pharmacies, including Bioscrip, Inc. and Accredo Health Group, to "hire or assign nurses to call Exjade patients and under the guise of education or clinical counseling, encourage patients to order more refills."

With regard to Myofortic, Novartis allegedly offered "lucrative rebate offers to five specialty pharmacies in return for the pharmacies' promise to recommend to doctors that they switch patients to Myofortic from competitor drugs."

Settlement and Admissions

The final settlement, approved November 20, 2015, settled the claims against Novartis for $370 million. That $370 million goes towards paying the fines to settle the claims against it, while an additional $20 million in profits will be forfeited, bringing the total settlement to $390 million. This is much less than the $3.35 billion the government was seeking. Of the $270 million, $286,870,245.98 will be paid to the federal government and $83,129,754.02 will be paid to settling states.

This settlement is the third settlement of this lawsuit – in January 2014 and April 2015, two specialty pharmacies (Bioscrip and Accredo) agreed to pay a total of $75 million to resolve federal and state claims against them based on the same allegations. Taken with this recent Novartis settlement, the federal and state governments' recovery will total $465 million.

In addition to the settlement, Novartis made a lengthy list of admissions relating to the Exjade and Myofortic claims. Novartis admitted to pressuring at least one of the specialty pharmacies into filling more Exjade prescriptions, even if it meant skirting the law a bit. Novartis also admitted to offering discounts and market share rebates to certain specialty pharmacies that dispensed Myofortic, though the agreements did not refer to any action that the pharmacies contemplated taking to increase Myofortic's market share.

Corporate Integrity Agreement Amendment

Part of this settlement requires Novartis to add provisions relating to specialty pharmacies as part of an addendum to its existing corporate integrity agreement, which will be extended for five years from November 19, 2015. These new CIA obligations will provide greater clarity on working with specialty pharmacies in support of patient care.

Novartis will "implement the agreed upon controls to ensure appropriate support for patients, and compliance with all Federal Healthcare program requirements related to its interactions with specialty pharmacies." These controls include a variety of things, such as "enhancing policies and procedures at [Novartis] for specialty pharmacy service arrangements and contracts, training for [Novartis] associates, as well as strengthened monitoring and tracking processes to ensure that services are provided in a compliance manner."

Part of those controls require an annual certification from Novartis officers and employees that the applicable Novartis business unit is compliant with applicable Federal health care program and FDA requirements.

In addition, Novartis will design policies and procedures to ensure that Novartis' arrangements with specialty pharmacies are "used for legitimate and lawful purposes in accordance with the federal anti-kickback statute ... and other applicable Federal health care program and FDA requirements." All arrangements will be subject to a written review and approval process. The policies and procedures shall include requirements about the business need for the arrangements, the services provided under the arrangements, and the amount of compensation provided under the arrangements – including that the amount of compensation is fair market value for the service.

Within 120 days of the effective date of the addendum, Novartis is required to create procedures reasonably designed to ensure that each existing and new or renewed arrangement does not violate the anti-kickback statute or the regulations, directives, and guidance related to the statute. Each new or renewed arrangement must be set forth in writing and comply with the arrangements procedures. Each party to the arrangement must have a copy of its Code of Conduct and relevant policies and procedures relating to the anti-kickback statute. A certification must be signed that the parties shall not violate the anti-kickback statute with respect to the performance of the arrangement, and that certification must remain on file.

Novartis has stated that they will provide its contracted specialty pharmacies with a "clear understanding of the Novartis Code of Conduct and training on the policies that guide our activities to help ensure compliance with Federal Healthcare program requirements." Novartis has agreed to provide a comprehensive annual report to the government of on its compliance with the aforementioned, and other, CIA obligations.

Novartis insists that it is "committed to high standards of ethical business conduct" and now has a comprehensive compliance program in place to ensure its future responsible behavior.

Preet Bharara, the U.S. Attorney for Manhattan made a warning statement to all pharmaceutical companies, stating, "Novartis turned pharmacies that should have been disinterested healthcare providers into a biased sales force for the drug maker. Drug makers and their relationships with healthcare providers ... must comply with the Anti-Kickback Statute. If they don't we will bring all appropriate law enforcement tools to bear to ensure that they do."

November 17, 2015

States Target Compounding Pharmacies over Claims to Military Health Program

Federal prosecutors in at least four states – Florida, California, Texas, and Mississippi – are ramping up investigations into widespread fraud by compounding pharmacies in claims to Tricare, the health-insurance program that covers 9.5 million U.S. military members and their families. Some pharmacies charged Tricare between $10,000 and $40,000 for a month of compounded medicines.

Justice Department prosecutors in all four states are working in concert with investigators from the Defense Department and other federal agencies to pursue both civil and criminal charges against pharmacies that have billed Tricare, as well as affiliated marketers and doctors. It is alleged that some marketing firms went so far as to search social media websites to identify military members and their spouses to contact them to promote compounded creams. It is speculated that the marketing firms sought out military members because Tricare is known to reimburse compounded drugs more generously than other federal health programs and private insurances.

Tricare paid $1.75 billion for compounded drugs during its 2015 fiscal year, which is 18 times the amount Tricare paid for compounded drugs in 2012; a Defense Department official estimates that 95% of the increased costs were inappropriate.

David G. Miller, the chief executive of the International Academy of Compounding Pharmacists, believes that fraud is only a small reason for the increased use of compounded medicines. He believes a bigger factor is that doctors have become wary of patients abusing opioid pain pills and have turned to alternative, nonaddictive treatments such as compounded pain creams, instead.


Earlier in 2015, the Department of Defense ("DOD") announced a policy shift, indicating that it would be initiating an audit of "all compounding claims in the last 12 months to determine if recoupment is justified in cases where violations of state or federal law resulted in inappropriate reimbursement." In addition, the DOD has been working with Federal law enforcement agencies to target criminal investigations of pharmacies and marketers relating to Tricare claims – focusing on specific marketing groups and pharmacies, mostly in Florida.

The investigations focused on potential false claims, improper auto-refill programs, and potential kickback relationships. Interviews were conducted with individuals at all stages of a claim, pharmacy owners, pharmacy employees, marketing representatives, patients, and prescribing physicians.

Florida Settlements

In June, however, the United States settled a claim for $3.77 million with a MediMix, a Jacksonville pharmacy. A physician allegedly sent hundreds of prescriptions to MediMix, who then billed the U.S. government for them. The physician, A. Desai, was married to a senior vice president at MediMix and the DOH alleged that the claims came from "an improper referral source."

Last month, four Florida pharmacies agreed to pay a combined $12.8 million to settle civil allegations that they falsely billed Tricare for expensive pharmaceutical creams and gels to treat pain, scars, and other ailments. Two of those pharmacies employed sales representatives who paid doctors to write prescriptions to Tricare beneficiaries. Some doctors would even conduct telephone consultations with beneficiaries and then write them prescriptions, despite not having met with the beneficiary in person. Those prescriptions amounted to a violation of the False Claims Act because they were not based on genuine doctor-patient relationships.

One of those pharmacies, Med Match, LLC, paid commissions of as much as 58% of its profit from each prescription to sales representatives employed by a marketing firm. One saleswoman in particular received $190,000 in commissions over just one month for prescriptions filled by the pharmacy. Prosecutors alleged that Med Match should have known that a large number of prescriptions it received from one Jacksonville physician were not legitimate because "the sheer magnitude and volume of prescriptions was far in excess of any other provider," and were all for the same substance, regardless of the specific patient's age or condition.

OHM Pharmacy Services, Inc. agreed to pay $4.1 million to settle allegations that it billed Tricare for an estimated $2.5 million in fraudulent prescriptions written over a five-week period. The vast majority of those prescriptions were written by one Jacksonville doctor, who wrote 150 prescriptions for patients in ten states.

Durbin Pharmacy and WELLHealth, Inc. were the other two pharmacies included in the settlement, agreeing to pay a combined $3.98 million to settle the government's allegations.

The settlements have not yet been formally announced, but the pharmacies are not expected to admit civil liability in the settlement agreements.

CBS News Investigation

CBS News heard about the Tricare prescription scheme and attempted to find out who the participating doctors were. CBS News filled out an online form requesting pain and scar creams from, and two weeks later, they received a package from a pharmacy in California. The package contained pain and scar creams prescribed by Paul Bolger, a physician who runs a weight loss clinic in Davenport, Iowa, and someone the CBS News reporters never spoke to.

Dr. Bolger was confronted by the CBS News reporters and stated, "I'm not going to make excuses for what I was doing. It's not that I had bad intentions, it was that I was under the mistaken impression that patients such as yourself were being spoken with by a qualified medical provider -- someone who's qualified to screen you, do a intake over the phone, and make sure you were safe to have these meds."


Only time will tell how widespread this issue is and how hard the DOD, DOJ, and other relevant federal and state agencies will work to chase down offenders. We anticipate there may be many more settlements in the coming weeks from various pharmacies in the four states mentioned above.


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