Federal Investigators Target Texas Physicians in Connection with Healthcare Fraud Schemes

On October 3, 2001 the Department of Justice announced that TAP Pharmaceutical Products Inc. (“TAP”) agreed to pay $875 million to resolve criminal charges and civil liabilities in connection with the company’s pricing and marketing of its advanced prostate cancer drug, Lupron. This unprecedented settlement is the largest healthcare fraud settlement in U.S. history and it sends a strong signal to the healthcare industry. Law enforcement authorities began the initial investigation into the company’s marketing activities in 1997 when a urologist employed by Tufts Associated Health Maintenance Organization, and a former TAP employee, reported a range of illegal marketing, including bribes, false billing claims, and violations of the Prescription Drug Marketing Act. The government alleges that numerous physicians across the country conspired with pharmaceutical sales representatives to illegally bill Medicare and HMOs for inflated drug prices and the sale of promotional “free samples.” Other pharmaceutical companies are also under investigation.

With the help of pharmaceutical market data and call notes obtained from pharmaceutical sales representatives, the Department isturning its investigation towards physician involvement, including conspiracy to receive illegal remuneration, such as free samples, expensive gifts, and forgiveness of debt. According to Health and Human Services Inspector General, Janet Rehnquist “In recent years, the pharmaceutical industry has come under increasing scrutiny for its pricing, sales, and marketing practices.” The OIG, together with other government agencies, will use all available enforcement authorities, where appropriate, to address these practices. Several weeks following the TAP indictments, a former pharmaceutical sales representative of Parke-Davis division of Warner-Lambert Co. charged that Parke-Davis officials were also engaged in illegal marketing activities in connection with that company’s epilepsy drug Neurontin. Moreover, the General Accounting Office recently requested detailed sales transaction data from eleven major drug manufactures and issued a subpoena to Pfizer after the GAO and Pfizer failed to reach an agreement for the drug giant to turn-over the sensitive data voluntarily. Last month the Department of Justice began to issue subpoena to Texas physicians in connection with the TAP investigation.

Unfortunately, the recent scrutiny has emerged from a relatively lax environment and many healthcare providers may have made mistakes without doing anything intentionally dishonest. The following article provides a brief overview of three relevant federal healthcare fraud statutes. These three statutes are, the Medicaid Anti-Kickback Statute, the Prescription Drug Marketing Act (PDMA), and False Claims Act (FCA). This article is not as a substitute for legal counseling, however, and readers with particular legal issues should consult a qualified attorney

Medicaid Anti-Kickback Statute

The thrust of the Government’s allegations in connection with the TAP-Lupron case is that TAP pharmaceutical sales representatives and certain healthcare providers conspired to violate the Federal Medicaid Anti-Kickback statute. The Anti-kickback statute prohibits knowingly and willfully paying or receiving any remuneration directly or indirectly, overtly or covertly, in cash or kind, in exchange for prescribing, purchasing or recommending any service, treatment or item for which payment will be made by Medicare, Medicaid or any other federally funded healthcare program. To convict a healthcare provider under the Anti-Kickback Statute, the government must prove that 1) the provider solicited or received remuneration; 2) the remuneration induced the provider’s referral of program-related business; and 3) the provider entered into the remuneration and inducement agreement knowingly and willfully. This broad statute prohibits not only patently illegal actions, such as overt kickbacks and bribes, but also an array of complex economic relationships which could result in conflicting interests, including discount arrangements, incentives given to pharmacists, payments for services and the practices of manufacturers giving gifts and business courtesies. Violations of the anti-kickback statute are punishable by fines up to $ 25,000 and/or imprisonment for up to five years. Civil remedies may also be available.

The Federal Indictment of TAP pharmaceutical employees alleges that TAP representatives, from 1989 to October of 2001, engaged in the practice of inducing providers to purchase and prescribe Lupron instead of other drugs, by offering and providing “money, free and nominally priced drugs, discounted prices on one drug to induce prescription of the other, free consulting services, and other things of value.” The Government further alleges that the “Medicaid Program, the nation’s health insurance programs for the elderly, and the State Medicaid Programs, the nation’s health insurance programs for the poor, which programs at all times relevant hereto paid for the cost of Lupron prescribed for thousands of beneficiaries of those programs, were harmed by this conduct and paid inflated prices for these drugs, in part to cover the cost of the kickbacks and other inducements.”

Prescription Drug Marketing Act

The TAP grand jury indictment also alleges that TAP conspired with providers to bill drug samples through Medicaid and Medicare in violation of the Prescription Drug Marketing Act (“PDMA”). The PDMA states in pertinent part, “No person may sell, purchase, or trade or offer to sell, purchase, or trade any drug sample.” Drug sample is defined by the act as a unit of drug that is “not intended to be sold and is intended to promote the sale of the drug.” Individual knowingly selling drug samples in violation of the PDMA provisions can be imprisoned for up to 10 years and be ordered to pay a fine of up to $ 250,000.

Although, prosecutions of physicians under the PDMA are rare, the FDA recently reported a case involving a Kentucky physician who was fined $40,000 and sentenced to 15 months in prison for violating the PDMA. This physician was charged not only with the sale of free samples (which he sold to patients for cash), but also for over-billing Medicare by charging multiple times for a single medical test. Special agent Rodney Turner of the FDA's Office of Criminal Investigations, commented that not only was the violation an act of illegal profiteering by the doctor, but he was destroying the safeguards that help ensure the effectiveness of drugs.

False Claims Act

The Federal False Claims Act (FCA) provides that where persons submit, cause others to submit, or conspire to submit, false or fraudulent claims to the United States Government, including its federal healthcare programs, the Government is entitled to treble damages plus fines of $5,500 to $11,000 for each false or fraudulent claim submitted. Qui Tam federal provisions also allow private citizens to bring FCA actions in the name of the United States. Healthcare providers may be subject to civil FCA actions brought by “concerned citizens” on behalf of the United States, as well as possible parallel and criminal prosecution by the United States government. To successfully bring an action agaisnt a provider under the FCA, a claimant must show that, the provider made, or caused to be made, a statement of material fact in an application for payment or benefits under a federal healthcare program, (ii) the statement or representation was false, (iii) the provider knowingly and willfully made the statement, and (iv) the provider knew the statement to be false.

The FCA provides rewards for whistleblowers to receive up to 15% of the Government’s recovery, providing a rich incentive for any current or past employer armed with inside information to commence an action and spark a governmental investigation. The current actions and investigations regarding TAP and Parke-Davis provide rich examples of the whistleblower provision of the statute in action—former TAP sales executive, Douglas Durand, received a $77 million whistleblower payment for reporting TAP’s activities.

American Medical Association Ethical Opinion

The AMA’s Ethical Opinion E-8.061 on gifts to physicians from industry are straight forward, and if adhered to, should be sufficient to avoid legal problems. Basically, the AMA advises that physicians should only accept gifts of minimum value and that primarily benefit patients, such as textbooks and other educational materials. Physicians should not accept cash gifts or free drug samples for personal use. Conferences or meetings should be primarily dedicated to scientific and educational activities and faculty should only accept reasonable honoraria and reimbursement for expenses for participation in industry sponsored educational expenses. Physicians attending conferences should not accept payments or reimbursement for the cost of travel, lodging or other personal expenses. Only students, residents or fellows should accept industry support for attending conferences. And no gifts should ever be accepted if there are strings attached.

Conclusion

As healthcare expenditures continue to rise, the entire healthcare industry will inevitably face greater political pressures and legal scrutiny over rising costs. Increased scrutiny of prescription drug costs have attracted particular interest recently, as this sector is the fastest growing healthcare costs in terms of overall expenditures. Healthcare organizations and providers should focus on strict compliance to avoid exhausting investigations and serious charges which can be devastating. The Medicaid Anti-Kickback Statute, the Prescription Drug Marketing Act (PDMA), and False Claims Act (FCA) are but a few of the serious fraud and abuse provisions which can destroy a healthcare organization or the career of an uninformed healthcare provider. This article provides a general overview of these statutes and some information regarding the current political environment and is not intended at legal advice.

By David M. Medearis and Bob Bennett.  Bob Bennett, Esq. is an attorney in private practice with The Bennett Law Firm, P.C.

United States Department of Justice, TAP Pharmaceutical Products Inc. and seven others charged with health care crimes; Company agrees to pay $875 million to settle charges. Press release, October 3, 2001. (available online at http://www.usdoj.gov/opa/pr/2001/October/513civ.htm)

AMNews October 22/29, 2001.

Scott Hensley and Chris Adams, Pfizer confirms it received subpoena from GAO seeking drug-price data, Wall Street Journal, January 9, 2002.

42 U.S.C.S. 1320a-7b; United States of America v. MacKenzie, Grand Jury Indictment, United States District Court, District of Massachusetts.

42 U.S.C.S. 1320a-7b

A. Blair, The "Knowingly and Willfully" Continuum of the Anti-Kickback Statute's Scienter Requirement: Its Origins, Complexities, and Most Recent Judicial Developments, 8 ANN. HEALTH L. 1, 2, 6 (1999)

42 U.S.C. § 1320a-7b(a)(6)

United States of America v. MacKenzie, Grand Jury Indictment, United States District Court, District of Massachusetts, at 2.

Id. at 2.

United States of America v. MacKenzie, Grand Jury Indictment, United States District Court, District of Massachusetts, at 2.

21 U.S.C. § 353[c](1)

21 U.S.C. § 333

Tamar Nordenberg, Selling Drug Samples Lands Doctor in Prison , FDA Consumer magazine (March-April 1998) (available online at US Food and Drug Administration, Investigators' Reports, http://www.fda.gov/fdac/departs/1998/298_irs.html, last visited 1/7/02)

31 U.S.C. § 3729; See also 42 U.S.C. § 1320a-7b Id

See Young-Montenay, Inc. v. United States, 15 F.3d 1040, 1043 (Fed. Cir. 1994).

David Greising, Think about it: not easy money, Chicago Tribune, October 7, 2001. (available online at http://chicagotribune.com)

Anonymous, US Healthcare spending up 6.9% to $1.3 in 2000, Dow Jones Newswires, January 8, 2000 (reporting that overall healthcare costs rose 6.9% in 2000 while prescription drug costs rose 17.3%.)