Life Science Compliance Update

November 09, 2015

Court Strikes Down HRSA’s 340B Orphan Drug Policy, Again

In October, a federal court struck down a Health Resources and Services Administration 340B orphan drug policy (the "Interpretive Rule") that called for manufacturers to provide drug discounts when orphan drugs were used for either off-label purposes, or to treat common conditions.

This decision follows a May 2014 decision where the Court vacated a Final Rule promulgated by the Secretary of the Department of Health and Human Services. In May 2014, the Court concluded that HHS lacked the statutory authority to promulgate such a rule. The Court noted that Congress granted HHS only "a specific delegation of rulemaking authority to establish an adjudication procedure to resolve disputes between covered entities and manufacturers." In the decision to vacate the final rule, however, the Court raised the possibility that HHS could issue the rule as an interpretive rule rather than a legislative rule.

Therefore, after the initial Final Rule was struck down, HHS issued an interpretive rule identical in substance to the vacated Final Rule, and Pharmaceutical Research and Manufacturers of America (PhRMA) challenged that Interpretive Rule.

PhRMA's Position

PhRMA challenged the Interpretive Rule under the Administrative Procedure Act (APA) as being arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. PhRMA believed that the HHS rule extending the discounts to orphan drugs violated the plain language of the ACA's orphan drug exemption and that the government lacked authority to issue the final rule.

Various pharmaceutical company officials submitted sworn declarations to the Court representing that their companies "must make changes to [their] own accounting, contracting and government price reporting systems and require the wholesaler[s] through whom [they] sell [their] 340B drugs to make changes to their tracking system." The D.C. Circuit Court has previously found similar requirements to constitute an immediate and significant burden on a regulated entity.

HHS' Position

HHS tried to argue that the Interpreted Rule was not a final agency action and therefore not actionable under the APA, and that even if the Court determined the rule could be challenged, the HHS should be afforded judicial deference to make their own rules as they apply to the agency.

HHS claimed that the "Interpretive Rule, itself, 'does not alter the legal obligations of the program participants' and that the rule has no legal force 'independent of any binding effect that the statute itself may have.'" HHS did, however, concede that the Interpretive Rule represents the consummation of the agency's decision-making process.

The Court's Decision

The Court concluded that the case was a question of statutory interpretation and the Interpretive Rule imposed an immediate and significant practical burden on the regulated entities and rejected HHS' position, and struck down the Interpretive Rule as contrary to the plain language of the 340B Program statute.

The Court found that the "Interpretive Rule imposes a significant burden on pharmaceutical manufacturers and other regulated entities alike." The Court found that deciding "whether to comply with the Interpretive Rule presents pharmaceutical manufacturers, too, with a 'painful choice between costly compliance and the risk of prosecution at an uncertain point in the future.'" As such, the court granted a summary judgment motion in favor of PhRMA, taking the case off the docket and essentially invalidating the Interpretive Rule.

Industry and Legal Response

Mit Spears, PhRMA's executive vice president and general counsel said PhRMA was "very pleased with the Court's decision," and that "PhRMA supports the original intent of the 340B program and remains committed to working with the administration and Congress to reform the 340B program to ensure it reaches the vulnerable or uninsured patients it was intended to help. To achieve this important objective, it is critical that the program operates in a manner consistent with the clear and unambiguous direction of Congress."

The Court's decision will have an immediate impact on the finances of the hospitals to which the orphan drug exclusion applies as they will no longer be authorized to purchase orphan drugs at a 340B discounted price when used for non-orphan purposes.

This decision by the court also has the potential to lead to more litigation surrounding HHS' recent proposed omnibus guidance on the 340B program. Attorney Donna Lee Yesner of Morgan Lewis & Bockius, LLP, stated, "What is interesting to me – and will impact the proposed mega-guidance – is the court's conclusion that the rule was reviewable as final agency action by a trade association rather than forcing individual companies to litigate the issue in enforcement proceedings." Ms. Yesner sees more litigation in the future, commenting, "Factors that the court considered – that HRSA was unlikely to change its position that noncomplying manufacturers would be in violation of the statute, compliance was costly and manufacturers who did not comply would be subjected to severe sanctions – apply equally to some of the positions taken in the proposed guidance."

Ms. Yesner believes that the contract pharmacy program may be "especially vulnerable to challenge as an improper interpretation of the term 'covered entity' and as an unauthorized substantive rule," since the contract pharmacy program was expanded to include retail pharmacies as covered entities. She also said it is possible that the covered entities will sue over the interpretation of the term "patient," because that limits the revenues of the pharmacies.

November 03, 2015

Third Circuit Allows RICO Suit Against GlaxoSmithKline to Proceed

Recently, the United States Court of Appeals for the Third Circuit allowed a group of third party payors, including union health and welfare funds, to continue pursuing their racketeering class action suit against GlaxoSmithKline related to the diabetes drug Avandia. The Third Circuit found that allegations that the funds overpaid for Avandia were material enough to survive dismissal.

This case goes back several years to soon after the FDA approval of Avandia. The FDA had concerns about heart-related disease being linked to Avandia and asked GSK to stop minimizing the risk of heart attacks and heart-related chest diseases in its marketing and required GSK to update their warning on the drug to include new data about the potential increased occurrence of heart attack and heart-related chest pain in some Avandia patients. A study published in The New England Journal of Medicine concluded that, compared with the use of competing diabetes drugs, Avandia was associated with a significant increase in the risk of myocardial infarction and a borderline-significant increase in the risk of death from heart-related diseases. The third party payors in this case allege that GSK responded to that study with a marketing campaign designed to sway doctors and consumer confidence by challenging the study's methodology and conclusions.

The third party payors who brought this suit assert that GSK's failure to disclose Avandia's significant heart-related risks violated RICO based on predicates of mail fraud, wire fraud, tampering with witnesses, and use of interstate facilities to conduct unlawful activity. They also assert claims for unjust enrichment and violations of the Pennsylvania Unfair Trade Practices and Consumer Protection law and other states' consumer protection laws. Plaintiffs specifically allege that GSK selectively manipulated data and scientific literature, made false and misleading statements in its 2007 advertising campaign, and intimidated physicians to publish false and misleading articles to increase Avandia sales and that the third party payors included Avandia in their formularies in reliance on these misrepresentations by GSK.

GSK moved to dismiss this claim in November 2010 based in part on the fact that the plaintiffs failed to adequately allege standing under Section 1964(c) of RICO.

Under the Racketeer Influenced and Corrupt Organizations Act, a party must show that they have suffered an injury to business or property and that the plaintiff's injury was caused by the defendant's violation of 18 U.S.C. § 1962 to have standing to bring the suit. The court set a precedent in Maio v. Aetna, which established that Section 1964(c) of RICO's "limitation of RICO standing to persons 'injured in [their] business or property' has a 'restrictive significance, which helps to assure that RICO is not expanded to provide a federal cause of action and treble damages to every tort plaintiff.'"

In Maio, the Court considered whether health insurance beneficiaries could maintain a RICO claim for economic injury against their insurer based on alleged misrepresentations regarding the services included in their HMO plans. In that case, the Court rejected the plaintiff's claims, setting a precedent upon which GSK heavily relied. The Court in that case construed the insured parties' property interests as the intangible "contractual right to receive benefits in the form of covered medical services," and found that the insured parties had suffered no injury absent allegations that they had received "inadequate, inferior delayed care, personal injuries resulting therefrom, or [the] denial of benefits due under the insurance arrangement."

GSK argued that the third party payors were improperly relying on future events (that Avandia and related drugs would prove unsafe or ineffective) to show RICO standing. However, the Third Circuit deemed that the third party payor's alleged damages "do not depend on the effectiveness of the Avandia that they purchased, but rather in the inflationary effect that GSK's allegedly fraudulent behavior had on the price of Avandia. As such, the [third party payor's] theory of economic loss does not require factual speculation. If we accept the plausible allegations in the complaint as true, the fraudulent behavior alleged in their complaint has already occurred, and its effect on the price of Avandia is not contingent on future events."

The Court also found that the funds have already linked GSK's alleged conduct to their injury, "The conduct that allegedly caused plaintiffs' injuries is the same conduct forming the basis of the RICO scheme alleged in the complaint — the misrepresentation of the heart-related risks of taking Avandia that caused TPPs and [pharmacy benefit managers] to place Avandia in the formulary. The injury alleged by the TPPs is an economic injury independent of any physical injury suffered by Avandia users."

The Court determined that GSK's reliance on Maio is distinguishable from this case because the third party payor's damages do not depend on the effectiveness of the Avandia that they purchased, but rather on the inflationary effect that GSK's allegedly fraudulent behavior had on the price of Avandia.

This decision by the Third Circuit, while uncommon, is not the end of the case. This decision is simply one that will allow the third party payors to proceed in their case against GlaxoSmithKline. The case will continue on and will be judged on the merits. The Third Circuit made clear that many of the issues covered in this decision will resurface in the future, and that their decision that it "would be premature to dismiss plaintiffs' well-pled RICO allegations at this juncture," does not signal a case win for the third party payors down the road.

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.


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