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.

May 03, 2017

Mylan Settlement Classified as “Too Low”


Many of our readers may remember back in October 2016, when Mylan agreed to pay $465 million to settle claims related to the way EpiPen was classified under the Medicaid rebate program.

The settlement was based on allegations that the EpiPen was classified as a non-innovator drug with Centers for Medicare and Medicaid Services (CMS) when in reality, according to CMS, EpiPen is a branded drug and Mylan should have been paying Medicaid a much higher rebate under the government’s pricing rules. News that EpiPen has been incorrectly classified since late 1997 as a generic product was released just before this settlement.

CMS also alleged that other than paying Medicaid too-low of a rebate on EpiPen purchased, Mylan also was not paying a second rebate that is required whenever the price of a brand-name drug rises more than inflation. The price of an EpiPen pack rose an average of twenty-three percent per year between 2007 and 2016. Inflation, on the other hand, rose at an average of less than two percent per year over the same period.

This settlement (which has yet to be finalized), has been the most recent of Mylan’s woes. A study recently published in JAMA Internal Medicine concludes that Mylan underpaid in its Medicaid misclassification settlement with the United States government. Researchers at Harvard calculated publicly available data on acquisition costs for Mylan’s EpiPen and incorporating prescription volumes, plus branded and generic rebate rates under the federal healthcare program.

According to the study, at a bare minimum, Mylan avoided paying $426.1 million in rebates due to the misclassification of EpiPen as a non-innovator drug. The calculations that led to the settlement reach back only to 2012, when Mylan picked up EpiPen in 2007.

Writing in JAMA Internal Medicine, researchers Jing Luo, M.D., Aaron Kesselheim, M.D., J.D., and Jerry Avorn, M.D., point out that the settlement “underestimates the actual cost of Mylan’s strategy” to Medicaid, “pointing to the limits of litigation as a way of recovering taxpayer funds.” Instead, they believe, it shouldn’t be up to drug companies to classify their meds as a generic or a branded pharmaceutical.

Litigation expenses, additional rebate agreements and uncertainty surrounding the government’s responsibility could have also played a role in the settlement negotiations, said the authors, who are members of the Division of Pharmacoepidemiology and Pharmacoeconomics at Harvard Medical School.

Mylan did not comment on the study and did not provide an update of the settlement status, which has yet to be finalized, despite being announced more than five months ago. 


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