Life Science Compliance Update

February 16, 2018

Aegerion Sentenced to Pay $7.2 Million to Patients

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On January 30, 2018, Federal U.S. District Court Judge William Young sentenced Aegerion to pay some of the roughly $36 million fine for off-label marketing to Juxtapid patients. In November, Judge Young rejected an initial plea deal between the Department of Justice (DOJ) and Novelion Therapeutics (who now owns Aegerion) because it would have restricted his ability to impose a sentence upon the company.

Judge Young instead sentenced Aegerion in a deal that gave him discretion to determine how the payment would be split up. Young ordered the company to pay $7.2 million – the same amount the company had agreed to pay from the beginning – as part of the total $40.1 million fine.

Young’s concern with the DOJ-Aegerion agreement was that it was a fine that entirely went to the government, he instead wanted it to go to ninety-one patients who may have been harmed by Aegerion’s conduct. In a statement to the prosecution, Young stated, “I think you ought to pay more attention to the actual people who were harmed here.” He also went on to say, “I feel so strongly that people who were harmed by this criminality ought to have some recompense,” as quoted by the Boston Globe.

The patients who were affected and are set to receive a portion of the fine had taken Juxtapid for reasons other than the FDA-approved marketed reasons (which was to treat high cholesterol in people with a rare genetic disease). Instead, the company promoted the drug to patients who did not have the rare genetic disease, some of whom wound up with side effects including liver toxicity and gastrointestinal distress.

During court on the day of sentencing, Aegerion pled guilty to two misdemeanor counts that it misbranded Juxtapid in violation of the Federal Food, Drug & Cosmetic Act. In total, Aegerion agreed to pay $36 million to resolve criminal and civil claims by the DOJ and a $4.1 million deferred prosecution agreement to resolve a United States Securities and Exchange Commission case.

Jeffrey Hackman, Novelion’s chief operation officer, accepted responsibility for the conduct and stated, “It never should have occurred, and we strive to ensure it never occurs again.”

In a statement, Novelion called the sentence an "important milestone" that allows it to focus on its business going forward. "As a company, we are deeply committed to legal and regulatory compliance," Chairman Jason M. Aryeh said. "We have worked tirelessly to build a culture of integrity and ethics under our new management team and board of directors, in an effort to put legacy Aegerion challenges behind us."

This is certainly an interesting way of sorting out the total fine for the company, and it will be interesting to see if any other judges begin to take the same tact – or better yet, if other companies get out in front of the issue and start to make payments to certain patients as part of settlement deals, or if this is a one-off situation.

January 05, 2018

Kmart Settles Whistleblower Case About Inflated Prices

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Kmart Corp. has agreed to pay $42 million to the federal government and several states to settle a whistleblower lawsuit jointly litigated by Phillips & Cohen LLP and Korein Tillery that alleged Kmart overcharged government healthcare programs and private insurers for generic prescription drugs.

The “qui tam” (whistleblower) case filed in 2008 by former Kmart pharmacist James Garbe alleged that from 2004 to 2016 Kmart charged Medicare, Medicaid and Tricare as well as private insurers more for generic prescription drugs than it charged customers who paid cash.

According to the whistleblower’s complaint, Kmart sold a 30-day supply of a generic version of a popular prescription drug for $5 to customers who registered for a discount program but Kmart sought reimbursement from the government for $152 for the same drug for Medicare customers, which Kmart claimed was the “usual and customary” price.

Garbe worked for a Kmart pharmacy in Ohio when he discovered that Kmart was charging Medicare customers significantly more for generics than it was charging customers enrolled in its cash discount program. He had filled a personal prescription at the pharmacy and saw that Kmart claimed to his Medicare Part D insurer that the prescription cost $60 rather than the much lower price of $15 that it charged cash-paying customers in its discount program.

Kmart argued in court that it could exclude the lower prices that it charged members of its discount program when determining the proper price – known as the “usual and customary price” – to charge government healthcare programs. But the appeals court shredded that argument.

 “The ‘usual and customary’ price requirement should not be frustrated by so flimsy a device as Kmart’s ‘discount programs,’” the court wrote in its opinion.

The $42 million settlement includes $32.3 million that will go to the federal government as well as additional sums that will be paid to various states to settle Medicaid false claims allegations and allegations that Kmart improperly billed private insurers higher prices for generic prescription drugs  in violation of the California Insurance Fraud Prevention Act and the Illinois Insurance Claims Fraud Prevention Act.

Kmart waged a fierce legal battle to get the qui tam case dismissed after it was unsealed seven years ago, taking the litigation all the way to the US Supreme Court. The Supreme Court declined in January to hear Kmart’s appeal of a US Seventh Circuit Court of Appeals decision in 2015 that ruled against Kmart and denied the company’s request to dismiss the case.

Garbe will receive a whistleblower award of 29 percent of the federal government’s recovery ($9.3 million), which is nearly the maximum percentage whistleblowers can be awarded under the False Claims Act. He also will be awarded shares of the state recoveries as specified under state false claims and insurance fraud laws. The reason behind the larger-than-usual recovery is Garbe and his attorneys continued to litigate the case even after the government declined to intervene.

“The settlement shows we were right to continue to pursue the case on behalf of taxpayers, despite the government’s decision not to join the qui tam lawsuit,” said Erika A. Kelton, a whistleblower attorney and partner at Phillips & Cohen. “Not only did we recover funds for taxpayers, we also stopped a practice that would have been an improper drain on government healthcare funds.”   

October 30, 2017

Founder and Owner of Insys Arrested

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Late last week, John N. Kapoor, the founder and majority owner of Insys Therapeutics, Inc., was arrested and charged with leading a conspiracy to profit by using bribes and fraud to cause the illegal distribution of a Fentanyl spray intended for cancer patients experiencing breakthrough pain.

The superseding indictment includes allegations of RICO conspiracy, conspiracy to commit mail and wire fraud, and conspiracy to violate the Anti-Kickback law. It also includes additional allegations against former Insys executives and managers who were initially indicted in December 2016.

The Justice Department claims that Kapoor and other Insys executives offered bribes in the form of kickbacks to doctors who wrote “large numbers of prescriptions” for patients, many of whom did not have cancer. The Department also alleged that the executives defrauded insurers by forming a “reimbursement unit” dedicated to obtaining prior authorization from insurers who were reluctant to pay for the drug.

Insys allegedly encouraged doctors to write more prescriptions by hiring their friends and family members to serve as “business liaisons’’ and “business-relation managers,’’ prosecutors said. These support-staff employees worked in the doctors’ offices but were paid by Insys in what the indictment called bribes and kickbacks. The company even made a video featuring a sales rep dressed as a giant fentanyl spray bottle, rapping and dancing to a song that pushed the idea of getting doctors to prescribe higher doses, prosecutors said.

The indictment also alleges that Kapoor and the six former executives conspired to mislead and defraud health insurance providers who were reluctant to approve payment for the drug when it was prescribed for non-cancer patients.  They achieved this goal by setting up the “reimbursement unit,” which was dedicated to obtaining prior authorization directly from insurers and pharmacy benefit managers. 

Charged with racketeering conspiracy and other felonies, Kapoor is the highest-ranking pharma executive to be accused of an opioid-related crime, and his arrest may portend charges against companies far larger than Insys, which has a modest $417 million market capitalization.

In Connecticut, prosecutors have begun a criminal probe of Purdue Pharmaceutical Inc.’s marketing of OxyContin. Scores of states, cities and counties have sued companies including Purdue, Endo International Plc, and  Janssen Pharmaceuticals, alleging they triggered the opioid epidemic by minimizing the addiction and overdose risks of painkillers such as Percocet.

The charges of conspiracy to commit RICO and conspiracy to commit mail and wire fraud each provide for a sentence of no greater than 20 years in prison, three years of supervised release and a fine of $250,000, or twice the amount of pecuniary gain or loss.  The charges of conspiracy to violate the Anti-Kickback Law provide for a sentence of no greater than five years in prison, three years of supervised release and a $25,000 fine. Sentences are imposed by a federal district court judge based upon the U.S. Sentencing Guidelines and other statutory factors.

Insys Reaction

A spokesman for Arizona-based Insys said this week that the company is under new management and has replaced nearly all its original sales staff. It says it takes responsibility for the actions of its former employees.

"We have taken necessary and appropriate steps to prevent past mistakes from happening in the future, and are committed to conducting business according to high ethical standards and the interests of patients," the company said in a statement Wednesday. "We also continue to work with relevant authorities to resolve issues related to the misdeeds of former employees."

Kapoor Defense Lawyer Reaction

"He is not guilty of these charges, he intends to fight it vigorously," defense attorney Brian T. Kelly said outside court. Kelly is a high-profile Boston lawyer and former federal prosecutor who successfully tried imprisoned gangster James "Whitey" Bulger.

Government Reaction

As the investigation spanned – and used the resources of – many government agencies, multiple agencies had a comment on the investigation and charges. Some of the comments are below.

“In the midst of a nationwide opioid epidemic that has reached crisis proportions, Mr. Kapoor and his company stand accused of bribing doctors to overprescribe a potent opioid and committing fraud on insurance companies solely for profit,” said Acting United States Attorney William D. Weinreb. “Today's arrest and charges reflect our ongoing efforts to attack the opioid crisis from all angles. We must hold the industry and its leadership accountable - just as we would the cartels or a street-level drug dealer.”

“These Insys executives allegedly fueled the opioid epidemic by paying doctors to needlessly prescribe an extremely dangerous and addictive form of fentanyl,” said Phillip Coyne, Special Agent in Charge for the Office of Inspector General of the U.S. Department of Health and Human Services.  “Corporate executives intent on illegally driving up profits need to be aware they are now squarely in the sights of law enforcement.”

“As alleged, John Kapoor and other top executives committed fraud, placing profit before patient safety, to sell a highly potent and addictive opioid.  EBSA will take every opportunity to work collaboratively with our law enforcement partners in these important investigations to protect participants in private sector health plans and contribute in fighting the opioid epidemic,” said Susan A. Hensley, Regional Director of the U.S. Department of Labor, Employee Benefits Security Administration, Boston Regional Office.

Congressional Reaction

Insys has also been the subject of an investigation by Sen. Claire McCaskill (D-Mo.). After Kapoor's arrest on Wednesday, McCaskill said "anyone, including top executives, who potentially violated criminal law should be aggressively prosecuted."

"Evidence from our investigation suggests that Insys was engaged in systemic fraud and took actions that directly harmed their own customers and public health as a whole. This company has repeatedly gotten away with fines that amounted to a slap on the wrist for actions that helped fuel a nationwide epidemic that's claimed hundreds of thousands of American lives," she said.

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