Life Science Compliance Update

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.

October 21, 2015

FDA Removes Pacira Warning Letter in Midst of Free Speech Suit

Pacira_building

We have previously written about Pacira Pharmaceuticals, Inc. and their constitutional challenge against the Food and Drug Administration, which alleges that the FDA has placed unconstitutional restrictions on Pacira’s commercial speech. Pacira filed suit to establish its right to provide truthful and non-misleading information to doctors about its anesthetic product, Exparel.

The case goes back to September 2014, when the FDA sent a warning letter accusing Pacira of promoting the anesthetic Exparel for unapproved uses and overstating the drugs effectiveness. The FDA concluded their letter by warning Pacira of potential criminal liability if the alleged misconduct continued.

After Pacira’s initial receipt of the letter, they sent out corrective statements on Exparel, but eventually filed suit, “asserting that the FDA has silenced its speech in violation of the First Amendment; enforced vague policies in violation of the Fifth Amendment; and abruptly changed Exparel’s approved labeling in violation of the Administrative Procedure Act.” The FDA had initially approved Exparel in 2011 for general use and backtracked three years later in the warning letter when they asserted that Exparel was approved only for two specific surgeries studied in clinical trials.

Pacira’s lawsuit against the FDA follows two others: one brought by Amarin Pharma Inc., a First Amendment case involving off-label promotion of omega-3 drug Vascepa; and one brought by the United States against Alfred Caronia, an employee of Orphan Medical, Inc.

The Caronia ruling was the first of its kind in recent years, stating that a pharmaceutical sales representative’s off-label promotion of a drug was constitutionally protected speech. The majority concluded, “simply that the government cannot prosecute pharmaceutical manufacturers and their representatives under the FDCA for speech promoting the lawful, off-label use of an FDA-approved drug.”

In the Amarin case, a New York federal judge ruled that Amarin had a constitutional right to make truthful and nonmisleading statements about off-label uses of omega-3 drug Vascepa. U.S. District Judge Paul A. Engelmayer granted Amarin’s motion for a preliminary injunction, arguing that the preliminary injunction will “eliminate the chill on Amarin’s First Amendment rights” and based his opinion largely on the Caronia case, stating that “the court’s considered and firm view is that ... the FDA may not bring such an action based on truthful promotional speech alone, consistent with the First Amendment.”

Many in the industry have been watching the Pacira lawsuit to see if another federal court will rule in favor of free speech, or go against the grain and rule to suppress the free speech.

In a strange turn of events, the FDA recently quietly unpublished their warning letter that objected to the promotional practices of Pacira. When questioned about the unpublication of the letter, an FDA spokeswoman declined to comment, citing the ongoing litigation between the FDA and Pacira.

The removal of a warning letter is an extremely rare occurrence, as stated by Scott S. Liebman, a Loeb & Loeb LLP partner, who is not involved in the Pacira case. “It is unusual for FDA to take a letter down after posting it. FDA began posting letters in 1997, and I’m not aware of any others that have been unpublished after the fact.”

It is not clear why or when the letter was taken down by the FDA, but some speculate it may be connected with an unpublicized development in the case, such as possible settlement talks.

Pacria Warning Letter - FDA

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