Life Science Compliance Update

June 26, 2017

Genentech & Escobar: Using Materiality to Escape False Claims Liability

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In constructively bringing an end to a False Claims Act (“FCA”) whistleblower suit alleging Genentech, Inc. (“Genentech”) of defrauding Medicare by way of concealing substantive health care analytics data involving purported side effects of the company’s cancer drug Avastin, the Third Circuit of Appeals in a recent decision determined that the Plaintiff in this matter had failed to demonstrate that any noncompliance had an impact on government payments. Specifically, the Court applied the prevailing standard in Escobar that an FCA lawsuit must demonstrate that any misrepresentation is “material” to the government’s payment decision. In dismissing this suit and invoking this heightened standard of materiality, the Third Circuit not only reinforces Escobar but places the now clear burden on FCA Plaintiffs to demonstrate that any noncompliance was material to alleged fraudulent payments.


Back in August 2016, we highlighted the widely watched and reported U.S. Supreme Court decision in Universal Health Services, Inc. v. United States ex rel. Escobar (“Escobar”). The case “reaffirmed that the government and realtors via qui tam suits can pursue False Claim Act liability against life science and healthcare companies” while adding “a requirement that such parties must also demonstrate any misrepresentations were “material” on statutory, regulatory, or contractual requirements that make such representations misleading on those goods and services."

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May 17, 2017

Sanofi and Mylan Are Preparing to Duke It Out in Court

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On April 24, 2017, Sanofi-Aventis sued Mylan Inc. in a United States District Court in New Jersey over its effort to keep a rival to the EpiPen from gaining traction in the market. The filing claims that when Mylan learned Sanofi’s Auvi-Q was close to reaching the market in January 2013, Mylan hiked the price of the EpiPen, then offered pharmacy benefit managers (PBMs) and state Medicaid officials “new and unprecedented rebates” in exchange for commitments to keep Auvi-Q off of formularies, and keep EpiPen front and center.

These claims by Sanofi follow Congressional investigation into Mylan for anti-consumer pricing practices. Congress, the Department of Justice, and the Federal Trade Commission were just a few of the groups investigating the $600 list price for EpiPen (quadruple what it cost in 2008, just eight years prior).

In the filing, Sanofi claims that the Auvi-Q device received favorable reviews from physicians because it was smaller than the EpiPen and came with voice instructions that could assist another user or caregiver inject the epinephrine while under stress.

“Faced with this competitive threat to its EpiPen monopoly, and seeing Auvi-Q gaining share month-by-month after its launch, Mylan erected artificial barriers to US consumers’ access to and use of Auvi-Q,” the filing states. Sanofi claims Mylan took the following steps to protect market share:

  • Mylan “took the extreme step” of requiring schools that took part in its discount program would not use any rival to the EpiPen. The suit states that Mylan has since rescinded this step.
  • Mylan misclassified the EpiPen to state and federal health officials to pay lower rebates than required to Medicaid, which Sanofi said allowed the company to pay for inflated rebates to commercial payers.
  • Because of the price increases, Mylan could link steep rebates with conditions that payers and PBMs exclude Auvi-Q, “which third-party payers would (and did) find … practically impossible to refuse.”
  • Sanofi alleges that Mylan “engaged in misleading advertising and other promotional activities to poison the well for Auvi-Q with doctors, key thought leaders, and consumers.


Allegedly, the aforementioned actions by Mylan meant that Auvi-Q dropped from a 13% market share in late 2013 to 7% in 2014. However, according to the filing, Auvi-Q topped 30% of the market in 2015 in Canada, where Mylan does not market the EpiPen.

Sanofi outlines the fallout that Mylan has experienced, which includes a $465 million settlement with the Department of Justice and federal health officials for improperly classifying EpiPen with Medicaid. “But,” the suit says, “Mylan has never been called to task for its antitrust violations.” The suit asked the court to find Mylan guilty of violations of the Sherman Antitrust Act and award triple damages.

A smaller company now distributes the Auvi-Q device, Kaleo Pharma. Kaleo also markets an injection system from naloxone, the drug that can counteract an opioid overdose. This case is expected to shed some light on the economics of drug pricing, and is sure to bring drug pricing back to the forefront of American politics.

March 13, 2017

Healthcare Providers Accused of $100 Million Kickback Scheme

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A dozen doctors, pharmacy owners, and marketing professionals have been accused of being involved in a sham medical study used to bilk up to $102 million from Tricare, the publicly funded federal health program for military and their family members. According to federal prosecutors, the scheme involved physicians prescribing “compounded” drugs, such as pain, scar, and migraine creams to military families. The twelve participants were charged in a thirty-five count superseding indictment.

The defendants include: Dr. Walter Neil Simmons, 47, of Mesa, Arizona; Dr. William F. Elder-Quintana, 50, of El Paso, Texas; Jeffrey Eugene Fuller, 51, of Dallas, Texas; Andrew Joseph Baumiller, 37, of Dallas, Texas; Jeffry Dobbs Cockerell, 61, of Houston, Texas; Steven Bernard Kuper, 43, of Burleson, Texas; Ravi Morisetty, 42, of Irving, Texas; Joe Larry Straw, 46, of Frisco, Texas;  Luis Rafael Rios, 50, of Killeen, Texas; and Michael John Kiselak, 49, of Southlake, Texas.

The superseding indictment alleges that from roughly May 2014 to mid-February 2016, the twelve defendants conspired to run a scheme to defraud TRICARE in connection with the prescription of compounded pain and scar creams. The scheme involved the payment of kickbacks to TRICARE beneficiaries, payment of kickbacks to prescribing physicians, and the payment of kickbacks to marketers by the owners of compounding pharmacies.

CMGRX Participants

Cesario and Cooper co-owned CMGRX, LLC, (CMGRX), a Texas limited liability company formed in September 2014. The ‘CMG’ in CMGRX stands for Compound Marketing Group. CMGRX primarily marketed compounded pain and scar creams to current and former U.S. military members and their families, on behalf of various compounding pharmacies. CMGRX’s principle marketing tool was a sham medical study through which individuals were paid monetary compensation in exchange for obtaining compounded drugs with their TRICARE prescription benefits. Cesario served as CMGRX’s CEO and Treasurer and Cooper served as its President and Secretary. Neither had any medical, nursing or pharmaceutical licensing or education. CMGRX ceased operations in mid-2015, shortly after TRICARE announced changes to its coverage of compounded drugs. From October 2014 through June 2015, TRICARE paid more than $102 million for compounded drug prescriptions generated by CMGRX.

Defendants Straw and Kiselak led marketing groups for CMGRX, recruiting military members and their families, offering them monetary compensation in exchange for obtaining compounded drugs with their TRICARE prescription benefits. Defendant Rios, a marketer and patient recruiter in Straw’s marketing group, recruited hundreds of beneficiaries on and around Fort Hood.

Per the superseding indictment, Cesario, Cooper, Straw, Rios, Kiselak and their coconspirators paid TRICARE beneficiaries for obtaining and filling prescriptions for compounded drugs, principally compounded pain creams, scar creams, migraine creams, and vitamins. They disguised these payments to TRICARE beneficiaries as “grants” for participating in a medical study they referred to as a TRICARE-approved “Patient Safety Initiative” or “PSI Study” to evaluate the safety and efficacy of compounded drugs. However, the PSI Study was not approved by TRICARE, was not overseen by a qualified physician or medical professional, had no control group, and was not designed to gather any useful scientific data relating to the safety and efficacy of any drug. Its true purpose was to compile a list of TRICARE beneficiaries who had filled prescriptions so that Cesario, Cooper and their coconspirators could calculate how much to pay the beneficiaries.

To further disguise the source of those kickbacks to TRICARE beneficiaries, Cesario and Cooper directed the creation of a charity and funneled the payments to the beneficiaries through the charity. Kiselak introduced Cesario and Cooper to an individual who helped them create the “Freedom from Pain Foundation” and registered it as a tax-exempt charitable foundation. The foundation, however, was funded entirely by payments from Cesario and Cooper, or business accounts they controlled, and from November 2014 to June 2015, they paid approximately $2.8 million to the foundation, most which was used to pay TRICARE beneficiaries and doctors.

Doctors Involved

Defendant Simmons served as the Chief Medical Officer for CMGRX and helped Cesario and Cooper create the PSI Study. Defendant Elder-Quintana worked as a contract physician with CMGRX., and Cesario and Cooper paid him to prescribe compounded drugs to TRICARE beneficiaries. Some of the payments were made directly to Elder, while others were made to Aztec Medicus, PLLC, a company he owned and controlled. Elder wrote thousands of prescriptions for compounded drugs to TRICARE beneficiaries who he never met in person and for whom he conducted only a cursory consultation via telephone. In an effort to disguise physician kickbacks, Cesario, Cooper and their coconspirators funneled some payments through the Freedom from Pain Foundation, under the false premise that the physicians were providing consulting services in connection with the PSI Study.

Pharmacies Involved

Trilogy Pharmacy, a compounding pharmacy in the TRICARE network, paid Cesario, Cooper, Straw, Rios, Kiselak and other CMGRX employees kickbacks in exchange for sending prescriptions for compounded drugs to Trilogy. Baumiller worked closely with Fuller, Cesario and Cooper to disguise these kickbacks as employee wages. Defendant Cockerell owned and operated 360 Pharmacy Services, a compounding pharmacy in the TRICARE network. 360 Pharmacy paid kickbacks to Cesario and Cooper in exchange for sending prescriptions to them.

Defendant Kuper owned and operated FW Medical Supplies LLC, a compounding pharmacy in the TRICARE network that did business under the name Dandy Drug. Dandy Drug paid kickbacks to Cesario and Cooper in exchange for referring prescriptions to them. Defendant Morisetty owned and operated Dena Group, LLC, a compounding pharmacy in the TRICARE network that did business under the name Alpha Pharmacy. Alpha Pharmacy paid kickbacks to Cesario and Cooper in exchange for referring prescriptions to them.

Charges

Each defendant is charged with one count of conspiracy to commit health care fraud, which carries a maximum statutory penalty of ten years in federal prison and a $250,000 fine. Cesario and Cooper are also each charged with fourteen counts of payment and/or receipt of illegal remuneration. Each of the remaining defendants, except for Simmons, is charged with at least one count of payment and/or receipt of illegal remuneration. The maximum statutory penalty, upon conviction for each of those counts is five years in federal prison and a $250,000 fine. Restitution may also be ordered.

The superseding indictment also includes a forfeiture request, which would require the defendants upon conviction to forfeit any property traceable to the offense, including real estate in several cities in Texas and Jacksonville, Florida; funds in bank accounts and investment accounts; numerous vehicles; boats and recreational vehicles; numerous firearms; jewelry and artwork; and other various investments to the United States.

Other Probes

There have been at least two other federal probes claiming that certain pharmacies are paying kickbacks to doctors who have ordered expensive compound drugs for their patients. One probe involved a California pharmacy that billed the state’s workers’ compensation program for pricy markups. Another probe involved a Florida doctor who was indicted on a charge of taking kickbacks for sending prescriptions, billed to Tricare and Medicare, for creams costing as much as $21,000 for a one-month supply.

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