Types of Pharmaceutical Fraud
While there are a variety of ways in which companies can engage in pharmaceutical fraud, the following are some of the most common pharma fraud schemes:
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 (FD&C Act) and Title 21 of the Code of Federal Regulations (CFR).
Manufacturing Deficiencies Resulting in Contaminated Pharmaceutical Products:
The 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 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.
Violations of Federal Laws and Regulations Governing the Sale of Drugs:
The FDCA and the CFR also prohibit a number of other activities related to the sale of prescription drugs.
- 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, clinics, pharmacies or other health care service providers in exchange for prescribing certain drugs. Pharmaceutical companies have been known to make it financially advantageous for physicians to prescribe their drugs, 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 relators filed whistleblower lawsuits against the companies. The whistleblowers involved with these four actions were awarded a combined total of over $260 million.
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 offer rebates to state Medicaid programs for the difference between the price they initially charged Medicaid for a drug each year and their actual best price for the drug during the same year. Pharmaceutical companies are also 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. Drug companies occasionally fail to report the discounts or other payments offered to private entities, which ends up costing government healthcare agencies millions.
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:
For many years, Baum, Hedlund, Aristei and Goldman has been at the forefront of harmful drug litigation, having faced off against many of the world’s top pharmaceutical companies. Our firm has broken new ground in antidepressant litigation by exposing the harmful effects of antidepressants and the lengths to which some companies will go to bury their associated health risks.
Since 2005, data has been emerged that certain antidepressants may cause birth defects, including cardiac, pulmonary, neural-tube defects, craniosynostosis, infant omphalocele, club foot, anal atresia, and PPHN. Baum Hedlund product liability attorneys have secured justice for our clients in these antidepressant birth defects cases, which has led to increased public awareness of the risks associated with prenatal antidepressant use.
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 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 was involved in litigation against Eli Lilly and Company, the maker of the antidepressant Cymbalta. Many Cymbalta users 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.
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 government healthcare beneficiaries. This illegal promotion 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. Some of these settlements came as a result of pharmaceutical fraud whistleblowers bringing allegations of wrongdoing to the government’s attention.
As one example, Eli Lilly & Co. paid $1.415 billion in 2009 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, even though the drug had not received FDA approval to treat any of these conditions. The settlement resolved a whistleblower lawsuit filed by four relators who shared a $78.9 million reward for bringing the allegations to the government’s attention.
Filing a Pharmaceutical Fraud Whistleblower Lawsuit
The False Claims Act allows individuals to file qui tam lawsuits on behalf of the government against companies who are engaged in fraudulent practices, and provides whistleblower protection against retaliation by an employer. If the government intervenes in the whistleblower lawsuit and it results in a successful enforcement action, the whistleblower is entitled to receive 15 to 25 percent of the funds recovered. If the government does not join the case, the whistleblower may still proceed and, if successful, may be eligible to receive an award of up to 30 percent of the amount recovered.
Whistleblower rewards in the millions are not uncommon in pharmaceutical fraud cases. 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 have represented numerous whistleblowers in qui tam actions throughout the country and will continue to champion their rights to seek the truth, obtain justice and hold unethical companies accountable for their wrongdoing. If you have knowledge of pharmaceutical fraud, please get in touch with the whistleblower attorneys at Baum, Hedlund, Aristei and Goldman to discuss your claim.