Fraud by Pharmaceutical and Medical Device Companies
Morgan Verkamp has litigated cases that have returned nearly half-a-billion dollars to taxpayers from pharmaceutical companies, including a landmark $422.5 million case against Novartis Pharmaceuticals Corp. for off-label marketing and the payment of illegal kickbacks related to an anti-seizure drug called Trileptal. Because of the size and complexity of most pharmaceutical and device cases, Morgan Verkamp’s commitment to litigating a case from beginning to end, our industry experience, and our large-scale litigation capabilities are particularly important in this field.
In 2017, Medicare and Medicaid spent approximately $134 billion on prescription drugs. That year, Medicare and Medicaid spending made up about 40% of annual spending on prescription drugs in the United States.
The pharmaceutical industry is largely mirrored by the medical device industry. Medical device companies produce a wide variety of products – everything from internal-use products like joint and valve replacements or external-use products like braces, bandages or equipment. Medicare pays indirectly for medical devices by reimbursing providers when the devices are used. Most often, the cost of a medical device is bundled into the overall Medicare reimbursement price for a procedure. Medicare hospital cost report data indicates roughly $14 billion was spent on implantable devices and $10 million on medical supplies for procedures on Medicare recipients in 2014.
Both the pharmaceutical industry and the medical device industry are regulated by the Food and Drug Administration (“FDA”). For pharmaceuticals, the FDA requires companies to undergo a rigorous process before it approves a drug as safe and effective for use by humans. Once a drug passes the approval process, it will be FDA-approved only for the specific use that was evaluated. Medical devices are subject to far less stringent standards – some low-risk products can be marketed without any FDA approval, medium-risk products must demonstrate only that they are roughly equivalent to a product already on the market, and only very few high-risk products must actually get FDA-approved as safe and effective before hitting the market.
The sheer size of the pharmaceutical and medical device industries has led to some of the largest cases and recoveries in the history of the False Claims Act. In 2017 alone, 4 of the 5 largest False Claims Act recoveries were from pharmaceutical companies, with settlements totaling more than $1.2 billion for a variety of fraudulent schemes.
Ideally, physicians would only give their patients a drug based on their reasoned medical opinion derived from their education, training, and knowledge of the costs and benefits of those drugs. In reality, however, many physicians prescribe brand-name drugs and devices to maintain favored treatment from massive pharmaceutical and device companies. These companies employ scores of sales representatives to tout the benefits of their drugs, and most spend more money on marketing than they do on research and development of new drugs.
Gifts of value to a physician or his or her practice can be violations of the Anti-Kickback Statute. The United States tracks and releases information about payments made by pharmaceutical and device companies to prescribing healthcare providers. Click here to access that data.
The United States – as the largest purchaser of prescription drugs – is supposed to receive the lowest price for every drug as compared to any other purchaser. The Medicaid Rebate Statute requires each pharmaceutical manufacturer who wants its drugs to receive the Federal share of the Medicaid reimbursement to provide the Medicaid program with the lowest price offered to any other purchaser in the marketplace. Each manufacturer enters into a Rebate Agreement which includes “best price” information including standard pricing, cash discounts, volume discounts or other rebates offered to commercial consumers. This information is consolidated to determine an annual rebate that the manufacturer must pay to Medicaid so the net effect is that Medicaid pays the lowest price.
The pharmaceutical industry as a whole largely dislikes this requirement, and drug manufacturers of all sizes have come up with ways to avoid their obligations to the government healthcare programs. Hallmarks of this type of fraud are manipulating data supplied by the manufacturer to calculate the annual rebate, or exorbitant deals between pharmaceutical companies and “special” customers, such as HMO formularies and chain drug stores, including those that repackage prescription drugs as house brands.
FDA New Drug Application Misconduct
Pharmaceutical companies and device companies seeking FDA approval of a new product must submit very detailed applications prior to approval. The applications constitute information about the manufacturing process, efficacy and safety clinical laboratory tests, packaging and known side-effects of the product. Sometimes, a manufacturer provides misleading information to the FDA in order to get the product approved under false pretenses. Under certain circumstances, material misrepresentations that would have influenced the FDA’s approval decision can rise to such a level that any resulting prescription payments for the drug would violate the False Claims Act. These cases are sometime referred to as “fraud on the FDA” cases.
CGMP (Current Good Manufacturing Practice) Misconduct
Pharmaceutical manufacturers are required to adhere to strict quality-assurance requirements called “CGMP,” or Current Good Manufacturing Practices. CGMPs relate to the design, monitoring and control of the manufacturing process with an aim to completely avoid or at least deter contamination, product mix-ups, deviations, failures or other quality-related errors. Typically, a manufacturer’s failure to comply with minimum CGMP is addressed by the FDA through a regulatory action which can result in a product recall, a public warning and seizure of adulterated drugs, or in certain cases, criminal cases seeking fines and jail time.
The application of the False Claims Act to CGMP violations is continuously developing. The primary consideration is whether a manufacturer knowingly and recklessly put drugs into the marketplace which were manufactured in violation of CGMP requirements.
Defective or Faulty Devices
In the same vein as CGMP violations, medical device companies may put products into the marketplace that are manufactured with known defects or substandard materials that compromise the function and integrity of the device. The result can be tremendously expensive for the government healthcare program that paid for device, and it can be physically devastating to the patient who received it, especially when the device is an internal product like a pacemaker or an artificial joint. If a company knowingly and willfully puts a defective or faulty device into the marketplace yet still markets the product as safe and effective, all resulting payments for that device may be violations of the False Claims Act.
Morgan Verkamp’s Representative Cases:
Pharmaceutical and medical device cases are notoriously complex and difficult cases to litigate, but Morgan Verkamp’s successes in the industry show that we have the experience and capabilities to handle them. Click the links below to read about some of our notable pharmaceutical and medical device settlements or click here to contact us about your pharmaceutical or medical device case.