Pharmaceutical Fraud 2017-02-15T12:48:55+00:00

Pharmaceutical Fraud


Pharmaceutical fraud has become the most common type of fraud pursued by the Federal government under the False Claims Act (FCA). Under the FCA, employees or citizens who have knowledge of fraudulent activities against the government can initiate a qui tam action to hold companies accountable for their illegal and fraudulent actions, and to reimburse the federal government. A report from Public Citizen, the non-profit consumer advocacy group, shows that from 2007 through July 18, 2012, pharmaceutical companies paid over $17 billion in penalties to settle 67 federal cases brought by the U.S. Department of Justice. Of this amount, $14.48 billion (85%) of the penalties resulted from the settlement of qui tam lawsuits initiated by whistleblowers.

Pharmaceutical Fraud Settlements


The False Claims Act can hold a pharmaceutical company or government contractor liable whenever the government loses money either directly or indirectly as a result of fraud. There are several basic types of pharmaceutical sector fraud. These include:

Medical Trial Fraud:
Clinical or medical trial fraud occurs when pharmaceutical manufacturers provide false data to the Food and Drug Administration (FDA) or withhold negative data from clinical research trials about the efficacy of pharmaceutical drugs or medical devices in order to get FDA approval to sell and market them.

Failure to Report Adverse Events of Medication or Other Products:
The FDA collects information on adverse drug experiences that occur after a prescription medication is approved or marketed. Drug application holders and certain manufacturers, packers, and distributors for prescription and non-prescription drugs are required to submit specific adverse event and drug safety information to the FDA as set forth in the Federal Food, Drug, and Cosmetic Act (FDCA) and Title 21 of the Code of Federal Regulations (CFR).

Manufacturing Deficiencies Resulting in Contaminated Pharmaceutical Products:
The United States Food and Drug Administration (FDA) enforces a number of regulations that address the proper design, monitoring, and control of manufacturing processes and facilities used to make pharmaceutical products. These regulations are known as Current Good Manufacturing Practice regulations, or cGMP regulations. Adherence to cGMP regulations assures the identity, strength, quality, and purity of drug products by requiring that manufacturers of medications adequately control manufacturing operations and properly detect and investigate product quality deviations, and maintain reliable testing laboratories. It is the FDA’s intent that such pharmaceutical manufacturing practices will help prevent instances of contamination, mix-ups, deviations, failures, and errors.

Drugs that are not manufactured according to cGMP regulations are considered adulterated and their sale is prohibited by the federal Food, Drug, and Cosmetic Act (FDCA).

In 2013, generic drug manufacturer Ranbaxy USA Inc., a subsidiary of Indian generic manufacturer Ranbaxy Laboratories Limited, paid $500 million to resolve FDCA and cGMP violations, as well as four felony counts of making material false statements to the FDA. Inspections of two Ranbaxy facilities in India revealed incomplete testing records, inadequate quality controls, and significant cGMP violations. Batches of adulterated drugs, including drugs used to treat epilepsy and nerve pain and an antibiotic, were introduced into interstate commerce in the U.S., a violation of FDCA laws.

How the U.S. Courts Shield Big Pharma from Liability

Violations of Federal Laws and Regulations Governing the Sale of Drugs:
The federal Food, Drug, and Cosmetic Act and the Code of Federal Regulations, a compilation of the rules and regulations of various government agencies (sometimes called administrative law), also prohibit a number of other activities related to the sale of prescription drugs. These include:

  • Knowingly selling, purchasing or trading prescription drug samples.
  • Resale of any prescription medication previously purchased by a public or private hospital or other health care entity.
  • The sale, purchase, trade, or counterfeiting of prescription drug coupons (i.e. coupons redeemable for free or low-cost prescription drugs)
  • The wholesale distribution of prescription drugs in interstate commerce without a state license
  • Re-importation of exported prescription drugs by anyone other than the drug’s manufacturer

Paying Kickbacks and Inducements to Physicians, Hospitals and Pharmacists to Prescribe or Otherwise Favor Their Drugs:
A pharmaceutical kickback consists of payments made to physicians for switching drugs, attending promotional events to lend credibility, or as a reward for high volume sales of a certain drug. Pharmaceutical companies have been known to make it financially advantageous for physicians to prescribe their drug, often advising the same physicians to seek reimbursement from Medicare or Medicaid for the free samples of the drug provided to help both the doctors and the pharmaceutical company to increase their profits at the expense of the government.

Many of the largest pharmaceutical fraud settlements of the past decade involved charges that drug makers were paying kickbacks. Department of Justice settlements with Johnson & Johnson (2013, $2.2 billion), AstraZeneca (2010, $520 million), Pfizer (2009, $2.3 billion), and Bristol-Myers Squibb (2007, $515 million) and many others involved  allegations that the companies paid kickbacks to health care providers to induce them to prescribe their drugs. In each of these cases, the drug makers were charged with violations of the False Claims Act after whistleblowers had filed qui tam lawsuits against the companies. All together, the whistleblowers in these four actions were awarded over $260 million.

Pharma Whistleblowers

Misreporting the “best price,” the “average manufacturer price” (AMP), the “federal ceiling price” or other benchmark prices that pharmaceutical companies report to Medicare and Medicaid programs is illegal.

The “best price” is the lowest price given to purchasers (both government and private entities) which is then used to calculate the Medicare reimbursement rate. The AMP is the average price wholesalers pay to manufacturers for drugs distributed to retail pharmacies. The federal ceiling price is based on the best price and the AMP. The federal ceiling price is the maximum price that a manufacturer can charge when selling to the Department of Defense (DoD), the Veterans Administration (VA), the Public Health Service (PHS) and the Coast Guard.

Pharmaceutical companies are required to rebate to state Medicaid programs the difference between the price they initially charged Medicaid for a drug each year and their actual best price for the drug that year. Pharmaceutical companies are required to report their best price to the Center for Medicare and Medicaid Services (CMS). The best price system is meant to ensure that government programs get the same price, or deal, as  private entities.

Many times drug companies fail to report discounts or other payments offered to private entities which in the end costs the government medical program millions of dollars.

Another way that pharmaceutical companies manipulate pricing is through federal ceiling price fraud, that is, by selling drugs to the DoD, VA, PHS and/or the Coast Guard at prices that exceed the “federal ceiling price.” Pharmaceutical companies which inflate the price for these sales are defrauding the federal government.
Best price excludes 340B covered entities.

340B Drug Pricing Program Overcharges:
The 340B Drug Pricing Program (named for the section in the Public Health Service Act of 1992 that describes the program) requires drug manufacturers to give steep discounts to hospitals and other qualified health care providers that serve a significant number of poor, uninsured, or disadvantaged patients. This includes health centers funded through the Consolidated Health Centers Program, children’s hospitals and cancer hospitals, Consolidated Health Centers, Migrant Health Centers, Health Care for the Homeless, Healthy Schools/Healthy Communities, Tribal Programs, State-operated AIDS Drug Assistance Programs, black lung clinics, comprehensive hemophilia diagnostic treatment centers and Native Hawaiian Health Centers. Entities that participate in the 340B program may enjoy significant savings on pharmaceuticals they purchase.

Pharmaceutical companies are required to adhere to a ceiling price (based on the AMP and best price) in sales of their drugs to covered entities. Unfortunately, the law does not require these companies to report the 340B-ceiling prices to the government, leaving 340B entities without access to the AMP, best price or ceiling price. Some drug manufacturers break the law by overcharging 340B entities and not supplying them with the rebates they are entitled to receive.

Civil monetary penalties for violations of 340B requirements apply to inaccurate or untimely average sales price data, price misrepresentation or false information, etc.

Defective Pharmaceutical Products Inducing Birth Defects or Suicidal Behavior:
Since 2005, data has been emerging that certain antidepressants may cause birth defects, including cardiac, pulmonary, neural-tube defects, craniosynostosis, infant omphalocele, club foot, anal atresia and PPHN. Baum, Hedlund, Aristei and Goldman has been investigating whether (and how long prior to 2005) certain pharmaceutical companies knew that their drugs could be causing birth defects, but chose to conceal the risk while continuing to manufacturer, promote and sell their drugs.

The black-box warnings concerning an increased risk of suicidality now on all antidepressant labels resulted, in part, from our firm’s tenacious efforts to expose the harm antidepressants can cause. Baum Hedlund attorneys and staff have tirelessly worked for two decades to ensure critical data was made public, including evidence about SSRI antidepressants causing suicidality, their lack of effectiveness in treating depression, drug companies falsely touting the safety and efficacy of their drugs through ghostwritten medical journal articles, miscoding side effects, etc.

SSRI antidepressants have also been linked to severe withdrawal effects that affect a large percentage of patients. Baum Hedlund is currently involved in litigation against Eli Lilly and Company, the maker of the antidepressant Cymbalta. Many Cymbalta users have experienced such severe and long lasting withdrawal symptoms that they were unable to quit taking the drug. Symptoms included dizziness, nausea, headache, fatigue, paresthesia [electric shock-like sensations], vomiting, irritability, nightmares, insomnia, diarrhea, and anxiety.

Baum Hedlund has been at the forefront of the SSRI-antidepressant litigation and has handled over 3,000 SSRI-antidepressant cases in the past 20 years. Whistleblowers who have approached our firm feel confident that our firm has the knowledge and experience necessary to aggressively represent them in their qui tam lawsuits. Attorneys at Baum Hedlund dig deep into pharmaceutical company files through the process of discovery as part of our thorough investigation into drug company wrongdoing. We are relentless in our pursuit to find out when drug companies knew of risks associated with their drugs and what efforts, if any, the companies took to hide those risks.

By representing whistleblowers in qui tam claims, we continue our legacy of seeking the truth, obtaining justice and holding Big Pharma accountable.

Engaging in Off Label Marketing:
Under the False Claims Act a pharmaceutical company may be held liable if they promote the use of prescription drugs for unapproved indications for Medicare patients. This is known as off-label marketing and often involves providing physicians with misleading or false drug marketing literature.

Many of the largest False Claims Act settlements with pharmaceutical companies have involved charges of off-label marketing. Indeed, the practice is so lucrative in the pharmaceutical industry that drug makers seem quite willing to engage in this illegal activity and, if they’re caught, simply write off the multi-million and multi-billion dollar federal fines as a cost of doing business.

Frequently these settlements are the result of qui tam lawsuits filed by whistleblowers. As one example, in 2009, Eli Lilly & Co. paid $1.415 billion to settle charges that it illegally marketed the antipsychotic drug Zyprexa for the treatment of dementia, Alzheimer’s, agitation, aggression, hostility, depression, and generalized sleep disorder. Zyprexa was never approved by the Food and Drug Administration for the treatment of any of these conditions. The settlement resolved a lawsuit filed by four whistleblowers who shared in a $78.9 million reward.

Filing a Pharmaceutical Fraud Whistleblower Lawsuit

As noted above, the Federal False Claims Act (FCA) allows individuals to file qui tam lawsuits on behalf of the government against companies who are engaged in fraudulent practices. If the government joins the lawsuit and reaches a successful settlement with the accused business, the whistleblower is entitled to receive 15 to 25 percent of the funds recovered in the settlement. If the government does not join the case, the whistleblower may still proceed and, if successful, receive an award of up to 30 percent of the amounts recovered. Awards in the millions of dollars are not uncommon. Skilled legal counsel can contribute significantly to the success of a qui tam action and the size of the reward that is earned.

The whistleblower attorneys at Baum, Hedlund, Aristei & Goldman are currently representing numerous whistleblowers, or relators, in qui tam actions throughout the country and will continue to champion the rights of their clients who have come forth to seek the truth, obtain justice and hold unethical companies accountable for their wrongdoing. If you have knowledge of pharmaceutical fraud and are considering filing a False Claims Act claim, please contact the Baum, Hedlund, Aristei and Goldman whistleblower team.

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