What every pharmaceutical and medical device company should know: False Claims Act cases based on off-label promotion promise to increase with the healthcare act and the bad ad program.

• Author: Peters, Kai

FOR MANUFACTUERS of prescription drugs and medical devices, preventing the "off-label" promotion of their products (i.e., marketing the product for uses for which it was not approved) has always been a top concern and issue on which significant company time and resources have been expended. With the 1938 enactment of and subsequent amendments to the Food, Drug, & Cosmetic Act (the "FDCA"), (1) the federal government has had at its disposal a focused statutory scheme directed specifically at preventing off-label promotion of prescription drug and medical devices by their manufacturers, and the ability to impose potentially significant criminal and civil penalties for companies found to be in violation. Accordingly, the FDCA has been the traditional vehicle by which the off-label promotions of prescription drug and medical device products has been policed and has provided a predictable statutory rubric by which a manufacturer could properly understand and assess its potential liability for any alleged off-label advertising and promotion and related compliance efforts.

More recently, however, an increasing number of False Claims Act (the "FCA"), (2) actions predicated on the off-label promotion of drugs and medical devices have been filed against manufacturers, giving rise to new concerns about the potential liability of companies that have engaged in purportedly violative advertising or promotion of their products. The basic premise for such claims, which may be brought by the federal government or by private parties, is that manufacturers who have knowingly engaged in the off-label promotion of their prescription drug or medical device products, and which have received payments from Medicare or Medicaid as a result of such oft-label promotion, have committed a fraud upon the government and are accordingly punishable under the FCA. Plaintiffs' attorneys have capitalized on this increasingly developed area of the law, and have begun to file similar claims based on the qui tam provisions of the FCA (as "relators"), or have sought to represent those whistleblowers who, by statute, are entitled to significant percentages of the civil damages awarded to the federal government in these actions.

To appreciate the full weight of this increased use of the FCA as a weapon against off-label advertising and promotion of prescription drugs and medical devices, one needs to look no further than reports of numerous recent settlements entered into by companies against whom FCA-based allegations have been made. In the last two years alone, a number of such lawsuits initiated by the federal government and private parties have resulted in billions of dollars of settlements, including but not limited to the following:

* AstraZeneca paid $520 million to settle criminal and civil claims related to its promotion of the psychiatric drug Seroquel. Such actions alleged that AstraZeneca had improperly promoted Seroquel for use in the treatment of insomnia; (3)

* Also in 2010, Novartis paid $442 million to settle criminal and civil actions concerning its antiepileptic drug Trileptal, which it had allegedly promoted for use in treating psychiatric issues, pain, and other conditions;

* Allergan paid $600 million in 2010 to settle criminal and civil actions related to its alleged off-label promotions of the drug Botox; and

* In 2009, Pfizer paid $2.3 billion to settle criminal and civil actions relating to its off-label marketing of Bextra. It was alleged that Pfizer attempted to promote Bextra for the treatment of acute surgical pain, despite being limited in its approval for pain related to osteoarthritis, rheumatoid arthritis and primary dysmenorrheal. (4)

Further, the DOJ in 2009 announced that FCA lawsuits have now overtaken FDCA actions, stated that there is reason to believe this trend will continue, (5) and strongly suggested that future actions may not be restricted simply to claims involving alleged off-label advertising and promotion. (6)

Based on the recent actions of the federal government to apparently expand the ability to bring FCA actions, there is every reason for drug and medical device manufacturers to be concerned about these statements. Critically, recent statutory amendments to the FCA and enforcement initiatives announced by FDA suggest that both federal and private FCA actions against pharmaceutical and medical device manufacturers will increase in number. The linchpin of these increased enforcement efforts is the amendment of the FCA by the Obama administration's recent healthcare reform legislation (7) to make it easier for the federal government and private parties to initiate and pursue FCA actions. (8) Building on these amendments, the FDA has also recently announced the implementation of its "Bad Ad Program," an outreach initiative directed at physicians that seeks their assistance in monitoring and policing advertising and promotion for prescription drugs and medical devices. (9) The federal government has also implemented a policy banning company executives who have committed fraud on the government from entering into future contracts with federal health programs, (10) increasing the odds of significant settlements of any FCA claims for fear of such significant repercussions and underscoring the need to be prepared that the company does not risk an FCA lawsuit.

Taken together, the message from the federal government to drug and medical device manufacturers is very clear the threat of and potential exposure from FCA claims is here to stay. This article briefly examines the FCA and its application to claims brought against drug and medical devices companies, recent changes to federal laws and administration policies that will likely increase the frequency and potency of such actions, and some recommended strategies for handling such situations.

1. Legal Analysis

   1. The False Claims Act and its Application to Drug and Medical Device Companies

      1. Background on FCA Claims Brought Against Drug and Medical Device Manufacturers

         Generally speaking, the FCA (11) renders persons or entities who make false claims to the government liable for damages up to three times the amount of the erroneous or improper payment plus mandatory penalties for each false claim submitted. Specifically, 31 U.S.C. [section] 3729(a) states that persons or entities are liable under the FCA where they "knowingly present[], or cause[] to be presented, a false or fraudulent claim for payment or approval." Where such a "'false claim" for payment has been made, the federal government may bring a civil action to enforce the FCA. (12) The statute also contains a qui tam provision authorizing private persons to bring, as relators, civil actions on behalf of the United States (13) and the federal government has the...