A Failure of Remedies: the Case of Big Pharma (an Essay)

• Publication year: 2016

A Failure of Remedies: The Case of Big Pharma (An Essay)

Paul J. Zwier
Emory University School of Law

Reuben Guttman

A FAILURE OF REMEDIES THE CASE OF BIG PHARMA (AN ESSAY)^†

Paul J. Zwier^* Reuben Guttman^**

"The lower the rate of a fraud's detection, the higher the multiplier required to ensure that crime does not pay."

—Chief Judge Esterbrook
United States v. Rogan (7th Circuit 2008)

Introduction

This Article examines the U.S. pharmaceutical industry and the harms imposed on individual patients and healthcare consumers—including private and government third party payers—from practices proscribed by Federal and State laws regulating marketing and pricing.¹

The Article pays particular attention to the False Claims Act (FCA), which has become the government's primary civil weapon against fraudulent and/or wrongful conduct causing the expenditure of government dollars.

Passed by Congress in 1863, and amended most recently in 2010, the FCA² allows the government to pursue an individual or entity that has filed, or caused to be filed, a "false or fraudulent" claim for payment with funds that in whole or in part came from the government. In addition to treble damages, the statute allows for civil penalties of between $5,000 and $11,000 for each "claim." The FCA is unique in that it has a "qui tam" provision allowing

[Page 42]

private citizens to bring suit in the name of the government provided that their suit is not based on "public information" or, alternatively, that the individual bringing the suit is an "original source" of that information.³

In United States v. Neifert-White Co.,⁴ the Court explained that the FCA is a "remedial statute" which "reaches beyond 'claims' which might be legally enforced to all fraudulent attempts to cause the Government to pay out sums of money."⁵ Yet, to the extent that common law fraud requires proving the element of "reliance," the FCA is actually more expansive than a fraud statute because it captures claims or statements made recklessly in furtherance of government reimbursement; hence, the statute captures false or fraudulent claims.⁶

Generally, where Medicare and Medicaid payers reimburse for drugs that are marketed through misrepresentations about safety, efficacy, quantity or pricing, or where sales have been tainted by "kickbacks," the Government may be entitled to recovery under the FCA.⁷ In other words, to the extent that a drug is "misbranded" under the Food, Drug, and Cosmetics Act (FDCA), redress is available under the FCA where the wrongful conduct caused the expenditure of government monies.

In addition to treble actual damages, i.e. the amount of money expended for each prescription times three, the Government is entitled to a civil penalty for each prescription submitted or caused to be submitted for payment or approval.⁸

Under the Park Doctrine, theoretically, the government can seek prison sentences for those who are in charge of companies when these illegalities occur,⁹ however, these remedies are almost never invoked. In 2015, Deputy Attorney General, Sally Yates, issued the much-publicized "Yates Memo"

[Page 43]

which encouraged a focus on the criminal and civil prosecution of corporate insiders who have steered their corporate ship on a criminal course.¹⁰

Despite available remedies, the questions for legislators, regulators, candidates for office, and members of the media are: 1) whether available compliance enforcement mechanisms are being used and 2) whether proper remedies that have deterrent value are being imposed on both corporations and the individuals who run them. These are important questions because pharmaceutical fraud is a substantial drain on the economy and places citizens at physical peril.

Historically, the lion's share of settlements with drug manufacturers have involved significant cash payments and the institution of Corporate Integrity Agreements (CIA), but no admission of wrongdoing, no loss of patents, and no restrictions on the particular company's ability to sell its drugs in the marketplace.¹¹ There is neither disclosure of core documents, nor evidence unearthed during the investigation, which may help reset the market for honest medical information about a pharmaceutical product. The Office of the Inspector General (OIG) of the Department of Health and Human Services (HHS) indicated that it will be more aggressive in imposing different remedies, including lifetime bans on individuals and companies that engage in off-label marketing or other kickback schemes.¹² This has not occurred, even though OIG also has issued guidelines regarding when it might revoke a patent, sell it, or otherwise take profits from the big companies.¹³

To be fair, the blame does not rest solely with the Department of Justice (DOJ). In civil enforcement, the DOJ acts as the law firm for client agencies, including the Centers for Medicare and Medicaid Services (CMS), which is a part of HHS. CMS implements the Medicare program through vendors and lacks the fundamental ability to directly and expeditiously track expenditures,¹⁴

[Page 44]

or to monitor whether the vendors are making reimbursement payments in accordance with regulation.¹⁵ A glaring consequence of this inability is the payment for drugs for uses that are not medically supported. The question of whether the use—if not within the FDA approved indication—is medically supported, is another problem. CMS has by regulation identified private contractors—i.e. the 'Compendia"—who are responsible for determining whether an off-label use is medically supported.¹⁶ These contractors often rely on industry paid doctors for guidance, as their conflicts of interest policies do not proscribe industry relationships.¹⁷ CMS has simply neglected to properly monitor Compendia publishers.

Without a CMS' handle on expenditures, the DOJ seems to have entered settlements absent any transparent damage models with the litmus test for fairness seemingly hinging on whether the settlement has the optics of deterrence. Unfortunately, when viewed from an historical context, remedies have had little impact on the behavior of the big pharmaceutical companies in their pricing and marketing practices.¹⁸

Big Pharma¹⁹ practices present a case study for determining whether agencies should use other remedies to bring about better behaviors and whether courts, in approving settlements, should exercise diligence in determining the applicability of remedies. The question is why traditional remedies have failed to provide the necessary deterrence and what practical solutions exist. This Article provides analysis of the problem and raises the prospect of long term and short term solutions which include:

[Page 45]

• The promulgation of formal DOJ guidance on settlements with pharmaceutical manufacturers and others in the stream of commerce, including a requirement that Civil Penalties under the FCA not be waived;
• The issuance of DOJ reports, which make public the facts and documents unearthed during investigations that result in settlements of cases that lacked the transparency of formal litigation;
• The release, under the Freedom of Information Act, of all documents maintained by the FDA with regard to a drug or product that was the subject of a settlement of misbranding or kickback allegations;
• Legislation allowing CMS to bargain with manufactures or to use price referencing systems—as exists in Europe and Canada—to lower the cost of drugs;
• The imposition of criminal and civil penalties on corporate officials who oversee marketing activities that have the potential to place patients at peril; and
• Complete oversight of CMS to analyze whether inherently public functions are imprudently privatized and whether functions properly performed by private vendors are monitored for compliance with regulatory obligations.

Part 1 of this Article looks at the market for pharmaceuticals, its profitability, and its risks. It evaluates pricing of pharmaceuticals and the incentives in the market that seem to cause institutional behaviors that drive illegal conduct. In addition, it briefly examines why faith in the free market, which theoretically should moderate the behavior of actors out of fear that consumers will simply choose a different provider, fails in the case of pharmaceuticals.

Part 2 of this Article examines the failures of the existing traditional remedies in the FCA and the related actions to adequately compensate, deter, and punish for Big Pharma's illegality. In particular, it examines repeat offenders in the pharmaceutical market, and notes that the problem may lie most with companies without either real competition for their particular drugs, or a diversified portfolio of generic products as part of their offerings. It also examines the promise of CIAs to bring more integrity into the relationship of manufacturers and consumers. It questions why such agreements that contain promises—including that a court can ban companies that persist if they engage

[Page 46]

in future off-label marketing—have not been enforced in settlements with the DOJ. It also demonstrates how revoking a company's patent can disrupt future patients' ability to get the appropriate drugs they need, and as a result make the remedy unattractive. At least until the generic market can meet this need, the court may be hesitant to revoke the patent. It examines whether as a matter of remedies, the court should be empowered to count as damages future sales of the patented drug as a basis for deterring the fraudulent behavior. It illustrates how such remedies may run afoul of the Constitution. As a result, the company may bet that its ability to continue to sell the drug in its markets will make up for the risks it incurs in engaging in deceitful behavior in establishing the market in the first place. Without the ability to confiscate future profits as a remedy, it is unlikely that the behavior of Big Pharma will be significantly deterred, as the gains are...