On October 5, 2017, the State of New Jersey sued Insys Therapeutics, Inc. (Insys), alleging that the company improperly marketed and promoted the opioid-fentanyl painkiller drug, Subsys. The civil complaint (Complaint) follows a series of federal indictments (and in some cases guilty pleas), of several Insys employees and executives, as well as lawsuits and ongoing investigations being conducted by several states.

Like many other suits against drug manufacturers for improper marketing and promotion, the Complaint alleges violations of state consumer protection law (here, the New Jersey Consumer Fraud Act). However, representative of a growing trend among the states, especially in the context of the country’s opioid epidemic, the Complaint also alleges a violation of state False Claims Acts (here, New Jersey’s False Claims Act). Manufacturers, physicians, pharmacies and others should closely review their compliance practices to anticipate such claims in light of the increased assertion of False Claims Act violations at the state level.

Echoing the allegations in other complaints against the company, the New Jersey complaint alleges that Insys improperly marketed Subsys in several ways. The Complaint alleges that, although the US Food and Drug Administration (FDA) approved Subsys only for the “single use of managing breakthrough cancer pain in patients who are tolerant to around-the-clock opioid therapy,” Insys directed its sales force to “peddle” Subsys to a broader patient population. For example, the Complaint alleges that Insys provided its sales force with “target lists ranking by deciles healthcare providers, including dentists and podiatrists, who could write prescriptions for controlled dangerous substances.” The Complaint alleges that: oncologists appeared at the bottom of these target lists, that a small percentage of the sales force was “oncology-specific,” and that the small group was disbanded shortly after Insys created it.

The Complaint also alleges that Insys “pushed” prescribers to prescribe Subsys on an inappropriate starting dosage above the FDA-mandated starting dose. For example, the Complaint alleges that: Insys’ tactics included emails from Insys executives requesting that members of the sales force explain lower-dose prescriptions, implementation of a “Switch” program designed to convert patients on high levels of competing products to the same high dosage of Subsys, a “Super Voucher” program to provide free Subsys prescriptions to prescribers, and “bribes” to prescribers alleged to be in the form of “speaker fees.”

In addition to three counts of violations of New Jersey’s Consumer Fraud Act, the Complaint alleges that Insys’ conduct violated the False Claims Act. The Complaint alleges that Insys caused the submission of false claims for reimbursement of Subsys to several New Jersey state-run programs, including New Jersey’s State Health Benefits Program, School Employees’ Health Benefits Program and State Workers’ Compensation Program. The Complaint alleges that these submissions included allegedly false expressed and/or implied certification of compliance with federal and State law and medical necessity.

The case is Porrino v. Insys Therapeutics, Inc., Superior Court of New Jersey, Chancery Division, Middlesex Vicinage.

Over the last several months, a handful of federal court decisions—including two rulings this summer on challenges to the admissibility of proposed expert testimony—serve as reminders of the importance of (and parameters around) fair market value (FMV) issues in the context of the Anti-Kickback Statute (AKS) and the False Claims Act (FCA).

First, a quick level-set.  The AKS, codified at 42 U.S.C. § 1320a-7b(b), is a criminal statute that has long formed the basis of FCA litigation—a connection Congress made explicit in 2010 by adding to the AKS language that renders any claim for federal health care program reimbursement resulting from an AKS violation automatically false/fraudulent for purposes of the FCA.  42 U.S.C. § 1320a-7b(g).  Broadly, the AKS prohibits the knowing and willful offer/payment/solicitation/receipt of “remuneration” in return for, or to induce, the referral of federal health care program-reimbursed business.  Remuneration can be anything of value and can be direct or indirect.  In interpreting the “in return for/to induce” element, a number of federal courts across the country have adopted the “One Purpose Test,” in which an AKS violation can be found if even just one purpose (among many) of a payment or other transfer of value to a potential referral source is to induce or reward referrals—even if that clearly was not the primary purpose of the remuneration. Continue Reading Recent Developments on the Fair Market Value Front – Part 1

In the fourth of a related set of qui tam False Claims Act (FCA) suits, the United States District Court for the Northern District of Illinois granted summary judgment in favor of generics manufacturer Par Pharmaceutical Companies (Par). The court’s August 17, 2017, opinion in U.S. ex rel. Lisitza et al v. Par Pharmaceutical Co, Inc. held that the relator had not presented sufficient evidence to support an implied certification theory of FCA liability.

Like its sister cases, the relator in Par Pharmaceutical alleged that the defendant caused the submission of false claims to the Medicaid program via an unlawful prescription-switching scheme. The alleged scheme involved manufacturing generic drugs in forms and dosage strengths that were atypical and not covered by existing Medicaid reimbursement limits, then marketing the drugs to pharmacies based on their higher reimbursement potential. The pharmacies would then fill the scripts with the more expensive forms and dosages manufactured by Par. The relators also alleged that the drugs were dispensed without physician approval and without meeting the medical necessity and economic requirements of governing state and federal Medicaid regulations, in violation of the FCA.

Continue Reading Par Pharmaceutical Beats FCA Prescription-Switch Allegations

On May 17, the United States Court of Appeals for the Second Circuit affirmed the dismissal of a relator’s False Claims Act (FCA) claims predicated on allegations that Pfizer “improperly marketed Lipitor, a popular statin, as appropriate for patients whose risk factors and cholesterol levels fall outside the National Cholesterol Education Program (NCEP) Guidelines.”  In United States ex rel. Polansky v. Pfizer, Inc. the relator, Polansky, claimed that the Guidelines were incorporated into the drug’s FDA label and were thus mandatory.  He further alleged that Pfizer induced doctors to prescribe the drug outside the Guidelines, and induced pharmacists to fill such “off-label” prescriptions that were, in turn, reimbursed by government payors.  Polansky claimed that requests for reimbursement for these prescriptions impliedly, but falsely, certified that the prescriptions were for on-label uses.

The Second Circuit rejected the relator’s theory at its most basic level, finding that the Lipitor label did not mandate compliance with the NCEP Guidelines, which were clearly advisory in nature.  The fact that the Guidelines were mentioned in the label did not render them mandatory.  Quoting the district court, the Second Circuit wrote, “we cannot accept plaintiff’s theory that what scientists at the National Cholesterol Education Program clearly intended to be advisory guidance is transformed into a legal restriction simply because the FDA has determined to pass along that advice through the label.”  In short, the Second Circuit held that prescribing outside of the Guidelines was not an off-label use.

Because the fundamental premise of the relator’s claims disintegrated, the court did not need to wade into other challenges Pfizer had raised to the relator’s claims.  However, the court noted that it was “skeptical” of relator’s theory of liability as a broader legal matter, observing that “it is unclear just whom Pfizer could have caused to submit a ‘false or fraudulent’ claim: The physician is permitted to issue off-label prescriptions; the patient follows the physician’s advice, and likely does not know whether the use is off-label; and the script does not inform the pharmacy at which the prescription will be filled whether the use is on-label or off.  We do not decide the case on this ground, but we are dubious of Polanky’s assumption that any one of these participants in the relevant transactions would have knowingly, impliedly certificated that any prescription for Lipitor was an on-label use.”

The Polansky case is not the first time the Second Circuit has rejected an off-label marketing theory as a basis for liability.  In December 2012, in the case of United States v. Coronia, the court overturned, on First Amendment grounds, the criminal conviction (under the Food, Drug & Cosmetic Act) of a pharmaceutical sales representative for promoting off-label use of a drug.

The Polansky court concluded its May 17 opinion by signaling that future FCA claims predicated on purported off-label marketing theories would receive serious scrutiny:

“The False Claims Act, even in its broadest application, was never intended to be used as a back-door regulatory regime to restrict practices that the relevant federal and state agencies have chosen not to prohibit through their regulatory authority. (quoting the district court).  It is the FDA’s role to decide what ought to go into a label, and to say what the label means, and to regulate compliance.  We agree with [the district court] that there is an important distinction between marketing a drug for a purpose obviously not contemplated by the label . . . and marketing a drug for its FDA-approved purpose to a patient population that is neither specified nor excluded in the label.”

The past three months have seen a flurry of advisory opinion activity from the U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG). The majority of this activity focuses on patient assistance programs (PAPs) as donors and organizations continue to have questions about OIG’s most recent PAP guidance. While none of these opinions or modifications are dramatically new on their face, together they provide valuable insight into the types of facts that can mitigate the OIG’s general concerns with tailored disease funds.

Typically, sponsored by pharmaceutical manufacturers and/or independent charity organizations with industry donors, PAPs provide financial assistance or free prescription drugs to low income individuals. Some PAPs are also structured to provide assistance to patients with a specific disease, like cancer or Crohn’s disease. As PAPs have the potential to be used by manufacturers to subsidize the purchase of their own products, or to improperly steer a patient’s drug selection, they can trigger scrutiny under the federal Anti-Kickback Statute (AKS) and Beneficiary Inducement Civil Monetary Penalty (CMP), among other laws. Not surprisingly, the OIG is more comfortable with bona fide charitable programs that are not drug-specific and that reflect other characteristics demonstrating a broad patient focus, rather than those reflecting a drug or pharmaceutical manufacturer focus.

Historically, the OIG has treated PAPs as important safety nets for patients who face chronic illnesses and high drug costs. The OIG issued a special advisory bulletin (SAB) in 2005 confirming that PAPs could help ensure patients had access to and could afford their medically necessary drugs. The OIG’s guidance evolved with its May 2014 SAB, which addressed the growing trend of independent charity PAPs establishing or operating specific disease funds that limit assistance to a subset of available products. The OIG articulated a concern with such PAPs, and indicated that it would view such programs as having a higher baseline risk of abuse when their assistance was limited to only a subset of available FDA-approved products for treatment of the disease. The OIG advised PAPs to define disease funds in accordance with widely recognized clinical standards and in a manner that covered a broad spectrum of products and manifestations of the disease (e.g., without reference to specific symptoms, drug stages, treatment types, severity of symptoms or other “narrowing” factors).

Consistent with this guidance, the OIG began issuing new advisory opinions and modifications of previous opinions in January 2015. The OIG’s opinions and modifications posted in the past three months are also consistent with this standard, but importantly add nuanced factors and exceptions that appear to show a more refined stance on specific disease funds. In December, the OIG posted a modification of Advisory Opinion 07-11, concerning a PAP that provided support for patients experiencing a specific symptom of cancer. In January, the OIG posted two new advisory opinions that addressed a PAP tailored to support patients with two specific diseases (a type of cancer and a type of chronic kidney disease) and a PAP providing support to needy patients with Stage 3 or Stage 4 of a specific disease, respectively. Also in January, the OIG posted a modification of Advisory Opinion 04-15, which addressed a PAP that maintained a disease fund limited to patients with certain metastatic cancers. While all of these specific disease funds may appear inconsistent with the OIG’s 2014 SAB, in each instance the OIG found that the tailored funds presented a low risk of abuse and merited a favorable opinion given the safeguards each employed.

In its Modification of Advisory Opinion 04-15, the OIG noted two factors that minimized the risk that the tailored disease fund could be leveraged by donors. First, the specific symptom of cancer was treatable by 62 different drugs made by 26 different manufacturers, so the program would not be supporting only one specific manufacturer or drug by tailoring its assistance to patients with the symptom. Second, and most importantly to the OIG, the PAP would not limit assistance through the fund just to drugs to treat that symptom; instead, the PAP would provide assistance for all medications prescribed for the qualifying patient’s underlying cancer and related symptoms. By certifying that the PAP would extend its support to underlying and related medical needs of patients with this symptom, the disease fund essentially agreed to expand the practical impact of the fund.

This “broadening” of support from otherwise narrowly defined disease funds can also be seen in the OIG’s other recent advisory opinions on the subject. In Opinions 15-16 and 15-17, for example, the OIG noted its favorable opinion was based in part on the PAPs’ representations that there were several different drugs made by various manufacturers currently available to treat each of the specific diseases and that the PAPs would, at a minimum, assist patients with all FDA-approved drugs to treat each disease (and, for the fund supporting patients with Stages 3 or 4 of the disease, would not limit the financial assistance to drugs expressly approved for advanced stages of the disease). In its Modification of Opinion 07-11, the PAP also noted that its support would not be limited to drugs expressly approved for the metastatic stage of the cancer. These opinions also include PAP certifications that if any of the PAP’s future disease funds would result in supporting only one FDA-approved drug treatment or one manufacturer, the PAP will also support the other medical needs of patients with the disease, including co-payment support for all prescription medication prescribed for the management and treatment of the patient’s disease (like pain and anti-nausea medications).

While the OIG continues to reiterate the potential risks posed by disease funds that are tailored to specific symptoms, severity of symptoms, method of drug administration, stages of a disease, or types of drug treatment, its recent opinions and modifications illustrate several exceptions to this general position. This recent flurry of OIG activity may be a good prompt for organizations with PAPs to review any specific disease funds in light of these most recent opinions.

After a First Circuit Court of Appeals panel restored a relator’s False Claims Act (FCA) suit against PharMerica, a long-term care pharmacy, the First Circuit denied the company’s petition for rehearing and rehearing en banc on Monday, January 25, 2016 in U.S. ex rel. Gadbois v. PharMerica Corp.   As a result, the relator will have another day in district court  to pursue his allegations that the company submitted false Medicare and Medicaid claims by seeking reimbursement for drugs provided without a legal prescription– this time to argue for a chance to supplement his pleading to cure a lack of subject matter jurisdiction under the first-to-file bar.

The December First Circuit panel decision, and the decision to let it stand, is significant because the court addressed a matter of first impression to the First Circuit, deciding that that Federal Rule of Civil Procedure 15(d) is available to cure most defects in subject matter jurisdiction.  Here, the defect in question is triggered by the FCA’s first-to-file rule, which provides that if a lawsuit involving the same subject matter is already pending, “no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.” 31 U.S.C. § 3730(b)(5).  The First Circuit stated that dismissals under the first-to-file rule should be without prejudice, allowing the claim to be refiled once the first-filed action is no longer pending.  By allowing relators in such situations to supplement their original pleadings, relators can now overcome the lack of subject matter jurisdiction and resuscitate their FCA claims.

In the district court, PharMerica sought to dismiss the amended complaint filed in 2011.  The district court agreed that the first-to-file bar barred the relator’s claims because a pending action in the Eastern District of Wisconsin was filed earlier, and thus dismissed the case for lack of subject matter jurisdiction.  During the appeal briefing, however, as the First Circuit stated, “the tectonic plates shifted”; two events completely changed the legal landscape.  First, the Supreme Court announced its decision in Kellogg Brown & Root Services, Inc. v. United States ex rel. Carter, 135 S. Ct. 1970 (2015), interpreting the phrase “pending action” used in the first-to-file bar. The Supreme Court interpreted the statute to mean that “an earlier suit bars a later suit while the earlier suit remains undecided but ceases to bar that suit once it is dismissed.” Id.  Second, the Wisconsin lawsuit – the first-filed action that had served as the bar to the relator’s amended complaint under the first-to-file bar – was dismissed.

These two events, according to the First Circuit panel, “dissolved the jurisdictional bar that the court below found dispositive. Under the circumstances, it would be a pointless formality to let the dismissal of the second amended complaint stand — and doing so would needlessly expose the relator to the vagaries of filing a new action.”  The court thus held that Federal Rule of Civil Procedure 15(d) – which allows a party to supplement a pleading to address “any transaction, occurrence, or event that happened after the date of the pleading to be supplemented” – could address subject matter jurisdiction defects, and stated that the relator could seek to supplement his complaint to address the dismissal of the Wisconsin case. Given the discretion granted to the district court under Rule 15, however, the panel remanded the case to the district court to decide whether to allow the relator to supplement the complaint.

This decision extends the reach of the Supreme Court’s decision in Carter weakening the first-to-file bar.  Cases dismissed on the basis of the first-to-file bar can potentially be revived months or years later after the first-filed case is dismissed.  The First Circuit’s decision thus increases the lack of finality that companies often face in FCA cases.  On a more general note, it shows the somewhat unique challenges that companies face defending against FCA cases.  Given that cases are often pending for years, the governing rules of the game can change at any point.   Relators are highly incentivized to litigate procedural and jurisdictional issues because of the huge potential recovery that awaits a successful FCA relator.  For this reason, defense against FCA claims should rarely proceed on a singular strategic focus, such as a procedural challenge to the relator’s complaint.

Last summer, we reported on the U.S. District Court for the Southern District of New York’s significant decision in Amarin Pharma, Inc. et al. v. Food and Drug Administration, et al., holding that a drug company may engage in “truthful and non-misleading speech” about off-label uses of an approved drug without the threat of a misbranding action under the Federal Food, Drug, and Cosmetic Act. As we reported, the holding, which narrows the scope of prohibited speech under U.S. Food and Drug Administration (FDA) regulations, has the potential to significantly curtail False Claims Act (FCA) off-label cases. These cases proceed on a theory that, through prohibited marketing, a company caused false claims to be submitted to government health care programs for non-FDA-approved uses. By narrowing the scope of prohibited speech regarding off-label uses, Amarin and its progeny may foreclose FCA cases based on truthful and non-misleading marketing about off-label uses of a drug.

In an indication of Amarin’s influence, on December 15, 2015, the FDA settled a lawsuit filed against it in September by Pacira Pharmaceuticals in the Southern District of New York, which challenged restrictions the FDA placed on the marketing of the post-surgery pain drug Exparel. (Pacira Pharmaceuticals, Inc. et al. v. United States Food and Drug Administration et al., 15-cv-07055 (SDNY)). Though the settlement is a favorable resolution for Pacira, it demonstrates that FDA marketing regulations are in a great state of flux. This uncertainty leaves companies at risk of FCA claims for off-label marketing if not deemed “truthful and non-misleading,” or if other courts do not follow the Southern District of New York’s approach outlined in Amarin.

The FDA originally approved Exparel in 2011 for “administration into the surgical site to produce postsurgical analgesia.” Pacira marketed Exparel to physicians for administration into various surgical sites for postsurgical pain control. However, the FDA warned Pacira in a September 2014 letter that the drug was indicated only for treatment of pain following bunionectomies and hemorrhoidectomies, the surgeries studied in clinical trials. Pacira sued, seeking declaratory and injunctive relief under the First Amendment, Fifth Amendment, and Administrative Procedure Act that Exparel was indicated for other post-surgery pain treatment. After the suit was filed, the FDA withdrew the warning letter, leading to settlement of the lawsuit on December 15, 2015.

Under the settlement agreement, the FDA has agreed to drop restrictions on the marketing of Exparel, and Exparel’s label will be updated to say the drug is indicated for the treatment of pain at any surgical site. Significantly, the FDA agreed in the settlement that the approval for post-surgical analgesia for surgeries other than those studied in clinical trials dates back to the drug’s 2011 approval. This retroactive approval will bar FCA cases based on the theory that marketing for surgeries other than bunionectomies and hemorrhoidectomies was off-label and prohibited.

FCA enforcement in off-label cases has been a huge source of FCA recoveries prior to Amarin. In FY2014, for example, the U.S. Department of Justice (DOJ) recovered over $2.2 billion in FCA actions against pharmaceutical and medical device companies stemming from off-label promotion. However, Amarin and similar cases may significantly reduce the magnitude of FCA recoveries based on off-label use theories. In the DOJ’s recent report for FY2015 though, claims involving the pharmaceutical industry accounted for $96 million in settlements and judgments, most of these claims related to alleged inaccurate price reporting under the Medicaid Drug Rebate Program and prohibited kickbacks to physicians to prescribe drugs, not improper marketing. In other words, the DOJ’s recovery on off-label use theories was significantly lower in 2015 than 2014.

Though the FDA has attempted to limit the implications of the Pacira settlement, stating that the resolution “is specific to the parties involved,” the settlement is another indication that the FDA’s prohibition of off-label marketing, and the resulting potential FCA liability, are at risk. Nevertheless, companies must continue to scrutinize marketing to ensure that statements are truthful and not misleading.  Statements that are too narrowly crafted may be deemed factually incomplete and therefore misleading.  Because of the huge potential for recovery in any successful FCA case against a pharmaceutical company, we anticipate that relators will continue to think creatively and look for any vulnerability in off-label marketing until there is further guidance beyond Amarin and the Pacira settlement.

 

Two decisions from the US District Court for the Southern District of Texas limit the extent to which relators can stretch the use of circumstantial evidence to support a False Claims Act case based on an anti-kickback or off-label marketing theory. In two separate decisions on December 10 and December 14 in US ex rel. King v. Solvay Pharmaceuticals, Inc. (SPI)., the court granted SPI’s summary judgment motion finding insufficient evidence for a reasonable juror to support either theory.

For the anti-kickback claim, relators alleged that SPI engaged in a number of activities, such as speaker programs, preceptorships, honorariums, free continuing medical education, and provided gifts such as dinners and event tickets, as part of a national scheme to illegally induce physicians to prescribe SPI’s drugs. In dismissing this claim on December 10, the court first found that the allegations of a nationwide scheme were unsupported because in relator’s response to interrogatories and expert report, only 46 Texas-based physicians were identified as having prescribed SPI’s drugs and as having allegedly received remuneration from SPI. The court observed:

[t]heoretically Relators could survive summary judgment with examples, the examples would have to be linked to remuneration from SPI, some evidence of intent that the remuneration would lead to claims, and claims for prescriptions written by these physicians that a reasonable juror could believe resulted from the unlawful remuneration.  Additionally, to continue a claim on a national-level scheme, Relators would need to demonstrate that kickbacks were provided to physicians in different areas of the country as part of a nationwide scheme to increase prescriptions of the specific Drugs at Issue to patients who are on Medicaid or part of some other government prescription program.

Since relators provided no physician examples outside of Texas, the court ruled the multi-state claims failed.

The court then examined each of the alleged forms of remuneration and found that the evidence was insufficient to find SPI had the requisite “knowing and willful” intent to induce referrals to support an anti-kickback claim under federal or Texas law. For example, the “physician profile interview program” involved sales representatives interviewing physicians prior to the launch of the drug Aceon to obtain information about the physicians’ practice and treatment of hypertension. Physicians were paid $100 for participating in this 30 minute interview. Sales reps were instructed to not mention Aceon during these interviews. Relators offered no evidence that sales reps failed to follow this instruction. Not surprisingly, the court found that the evidence failed to show that SPI intended the program to induce physicians to write prescriptions for a drug they were not told about. For other forms of remuneration, the court found that relators offered no proof that the physicians who received the remuneration actually prescribed SPI’s drugs.

In a separate ruling on December 14, the court granted SPI’s summary judgment motion dismissing relators’ “fraud-on-DrugDex” theory. To be eligible for government reimbursement for an off-label use of a drug, relators alleged that off-label use has to be listed in one of several drug compendia that evaluate whether sufficient clinical research supports that off-label use (see 42 U.S.C. §§ 1396r-8(d)(1)(B)(I); 1396r-8(k)(6)). DrugDex is one of those compendia. Relators alleged that SPI inappropriately influenced and misled DrugDex to include certain uses for Aceon, AndroGel, and Luvox as medically accepted by allegedly suppressing publication of negative research papers and only publishing “smaller” studies. Relators also alleged that SPI “colluded with” DrugDex “so that the uses listed might be deemed eligible for reimbursement under various government health programs.”

The court, however, found no evidence that SPI had a duty to publish negative studies, much less that the evidence showed SPI suppressed their publication. As far as the “collusion” allegation, relators admitted that they did not have evidence of communications between SPI and DrugDex, but rather that “DrugDex invited undue influence and SPI took advantage” of this invitation. While “relators had substantial time to conduct discovery and obtain proof that SPI and DrugDex communicated and that SPI somehow influenced DrugDex,” the court found no such sufficient evidence in the record to put the question to a jury.

These decisions provide some comfort to defendants, including but not limited to pharmaceutical companies and healthcare providers, that courts will require relators to offer more than innuendo and assumptions to support an FCA claim — a serious allegation with potentially significant consequences. The ability of relators to pursue cases through the costly and lengthy discovery process on flimsy allegations takes some of that comfort away. In this case, the relators filed their original complaint in 2003 — 12 years ago. The Department of Justice decided to decline in 2011.

On October 29, 2015, the United States announced a $125 million settlement with a subsidiary of pharmaceutical manufacturer Warner Chilcott to resolve a sealed qui tam in United States ex rel. Alexander, et al. v. Warner Chilcott plc, et al., Civil Action No. 11-CA-1121 (D. Mass.). The global settlement consisted of $22.9 million in criminal fines, $102 million to resolve civil claims, and the company pleading guilty in federal district court in Boston to felony health care fraud charges related to its marketing practices for various osteoporosis treatment medications.  In particular, the United States alleged that Warner Chilcott paid kickbacks to physicians to induce them to prescribe the company’s osteoporosis drugs and engaged in improper billing practices.

Simultaneous with announcing Warner Chilcott’s resolution of the corporate case, the company’s former president, W. Carl Reichel, was arrested on an indictment charging that he conspired to pay kickbacks to physicians. The Reichel indictment describes the U.S. Department of Justice’s (DOJ’s) allegations that Warner Chilcott sales representatives were directed to entertain health care professionals—in part under the auspices of medical education events—in exchange for increased referrals.

With charges against Warner Chilcott’s former president and a physician who allegedly received illegal kickbacks from the company, last week’s announcement invokes the DOJ’s newly minted guidance articulated in the Yates Memorandum. As we reported last month, the Yates Memorandum outlined DOJ’s vow to more closely focus on individuals in civil and criminal corporate investigations. The DOJ is also touting the resolution of this case as a product of its continued coordination with the U.S. Department of Health and Human Services in the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative.

As many health lawyers know, the government usually only pursues the person or entity that offers or pays allegedly improper remuneration, even though the federal Anti-Kickback Statute (AKS) also applies to those to solicit or receive it.  This uneven enforcement pattern occurs for a variety of reasons — the alleged payor is the focus of the relator’s complaint and resulting investigation, the amount of time that this investigation and resolution takes can create practical and legal problems in pursuing additional defendants, and the increasing number of qui tam cases stretches the government’s limited resources.

However, on October 7, 2015, the U.S. Department of Justice (DOJ) announced a settlement with an alleged kickback recipient over three years after it settled with the alleged payor.  PharMerica Corporation, identified by the DOJ as the nation’s second-largest provider of pharmaceutical services to long-term care facilities, agreed to pay $9.25 million to settle allegations that, from 2001 to 2008, the company knowingly solicited and received kickbacks from Abbott Laboratories in the form of rebates, educational grants and other financial support in exchange for recommending that physicians prescribe Abbott’s anti-epileptic drug Depakote to nursing home patients where PharMerica provided pharmacy services.

PharMerica noted in a press release that it denied the government’s allegations and fully cooperated with the DOJ throughout the investigation.  Of note, the Office of Inspector General (OIG) did not require an amendment to PharMerica’s current corporate integrity agreement to add provisions concerning AKS compliance as part of this resolution.

This settlement comes over three years after Abbott entered into an FCA settlement agreement with the DOJ and several individual states in May 2012, which, along with addressing separate allegations related to the promotion of Depakote, settled allegations related to its arrangement with PharMerica. Abbott also did not admit to any wrongdoing in its settlement.  Both the PharMerica and Abbott settlements are the product of lawsuits filed in federal court in the Western District of Virginia under the whistleblower provisions of the False Claims Act.

The pursuit of the settlement with PharMerica may indicate a growing interest by DOJ in pursuing AKS allegations against both the alleged offeror and the alleged recipient of prohibited remuneration under the FCA.