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Testimony of James W. Moorman,
President and CEO
Taxpayers Against Fraud
on
The False Claims Act and Fraud Against
Medicaid by Drug Manufacturers
before the
Committee on Oversight and Government Reform
United States House of Representatives
February 9,
2007
Summary of Testimony
The
federal government is spending hundreds of billions of
dollars to fund Medicare, Medicaid and other health care
programs. It is essential that as much as possible be done
to ensure that these funds are not lost to fraud, but are
spent on purchasing health care services for the more than
90 million Americans these programs serve.
One particular area, fraud by pharmaceutical companies
against Medicaid, is ripe for effective anti-fraud action.
Whistleblower cases under the False Claims Act have brought
three types of fraud into view that are costing Medicaid
many billions of dollars:
-
Medicaid Best Price fraud,
-
Average Wholesale Price fraud, and
-
Off-label marketing fraud.
So far there have been 16 settlements that have recouped
nearly $4 billion in civil damages and criminal penalties
from drug manufacturers. There are more than 180 additional
unresolved cases. The potential liability involved has not
been reported, but based on the cases settled to date, it’s
likely to be in the $60 billion range.
There is a serious danger that the Justice Department will
be unable to resolve most of these cases in a timely and
satisfactory manner. The reason is a lack of resources and
top-level leadership. Cases are being resolved at the rate
of less than three a year. Many cases are over a decade
old. A seriously inadequate number of lawyers are assigned
to the cases. Only a few U.S. Attorneys offices
(principally Boston and Philadelphia) are seriously
involved. Money allocated from the Health Care Fraud and
Abuse Control (“HCFAC”) Account for health care fraud cases
has been withheld. Support from
investigative agencies is skimpy. The active support of the
Attorney General and his Deputy are not in evidence. The
drug manufacturer defendants are aware of these deficiencies
and many of them appear to be trying to run out the clock on
the Justice Department’s attorneys.
These problems are particularly frustrating because the
entire set of cases provides the government with an
opportunity to close a multi-billion dollar fraud gap---the
difference between fraudulent conduct that has occurred and
fraudulent conduct held to account. In order to grasp this
opportunity, however, the Department of Justice must alter
the status quo. The top officers of the Department
must take an active interest in these cases; adequate
resources must be deployed quickly; HHS must provide more
support; full support by investigative agencies is
mandatory; the Civil Division’s fraud section must be
augmented; more US Attorney offices must participate in
these cases in a significant way; and action must be taken
to prevent these cases from languishing or allowing the
clock to run out on them.
Introduction
My name is James W. Moorman and I am the
President of Taxpayers Against Fraud, also known as “TAF”
and as “The False Claims Act Legal Center,” a position I
have held for the past seven years. I am an attorney by
training and served as an Assistant Attorney General of the
Department of Justice under Attorneys General Griffin Bell
and Benjamin Civiletti. Between my service at Justice and
TAF, I was a partner in the law firm of Cadwalader,
Wickersham & Taft.
Taxpayers Against Fraud and its sister
organization, Taxpayers Against Fraud Education Fund, are
non-profit charitable organizations dedicated to combating
fraud against the Federal Government and state governments
through the promotion of the use of the qui tam
provisions of false claims acts, especially the federal
False Claims Act, 31 U.S.C. §§ 3729- 33 ("FCA"). Qui
tam is the mechanism in the FCA that allows persons
with evidence of fraud involving government programs or
contracts to bring suit on behalf of the federal
government. The cases are filed in federal court under
seal, giving the Justice Department an opportunity to review
the allegations and decide if it wants to intervene. Under
the FCA, those that commit fraud are subject to triple
damages and civil penalties.
Thanks to the efforts of whistleblowers that
use false claims acts, their lawyers, lawyers on the fraud
team in the Civil Division of the Department of Justice,
Assistant United States Attorneys in several very active US
Attorneys offices, and certain members of Congress, the
public, over the past few years, has become aware of fraud
against government health care programs and the potential of
the FCA and its whistleblower provisions to curb such
fraud. Since the enactment of the 1986 amendments to the
FCA, settlements and judgments related to health care fraud
have totaled more than $12 billion. This money has, further
more, been recouped very efficiently. As health economist
Jack Meyer concluded in a report, updating earlier reports
and released by TAF Education Fund, the federal government
has realized $15 in direct recoveries for every $1 it has
invested in investigating and prosecuting health care fraud
through the FCA.
Types of Fraud Against Medicaid
My testimony focuses on fraud by some drug
manufacturers against Medicaid, which, until the enactment
of Medicare Part D, was the largest government purchaser of
drugs and remains the second largest. TAF Education Fund
has been monitoring cases in this area, the first of which
was settled in 2001. We have published two reports on the
subject that are posted on our website, and we are about to
release a third.
This
testimony draws upon the information in these reports.
Over the past six years, there have been 16
settlements of FCA cases involving allegations of fraud by
drug manufacturers against federal health care programs, 14
of which have involved Medicaid. These settlements total
nearly $4 billion, including $3 billion in civil damages
recouped by the federal government and the states, as well
as nearly $1 billion in criminal penalties.
The settlements involve three general
categories of fraud: concealment of best price; inflation
of average wholesale prices (AWP); and off-label marketing:
-
Concealment of Best Price.
In order for a drug manufacturer to sell its prescription
drug products to Medicaid, the manufacturer must enter into
an agreement with the Secretary of HHS to provide rebates to
the federal and state governments for the drugs that
Medicaid buys on behalf of its beneficiaries. In the case
of generic drugs, the rebate is 11% of average manufacturer
price, or AMP (the average price paid by wholesalers to
manufacturers for drugs distributed to retailer
pharmacies.) In the case of brand-name drugs, the rebate
amount is the greater of (1) 15.1% of AMP or (2) the
difference between AMP and the “Best Price” (the lowest
price a manufacturer sells its product to most customers.)
Manufacturers must report AMP and Best Price information to
HHS, which calculates the rebates due based on the data.
More than half of the FCA settlements involve manufacturers
concealing Best Prices that they gave to customers on
brand-name drugs in order to avoid paying higher Medicaid
rebates. As a result, the cost of these drugs to federal
and state governments was higher than it should have been.
Nine of the settlements to date, totaling over $2.5 billion,
have involved concealment of Best Price.
-
Average Wholesale Price (AWP). When
State Medicaid programs pay for prescriptions, they pay the
pharmacist a dispensing fee plus the estimated cost to the
pharmacist of acquiring the drug from the wholesaler or
directly from the manufacturer. Many states base their
estimated acquisition cost on a drug’s “Average Wholesale
Price,” or “AWP,” which is reported by the manufacturer to
price reporting services or, in some cases, directly to the
state. AWP fraud occurs when a manufacturer reports
inflated prices that bear no relation to the actual price
that the pharmacist pays for the drug. The pharmacist keeps
the difference between what the Medicaid program pays for
the drug and the price the pharmacist actually pays the
wholesaler or the manufacturer. Manufacturers use this
differential in order to incent pharmacies to purchase their
drug instead of that of a competitor. This is often
referred to as “marketing-the-spread.” The result is that
Medicaid pays inflated prices for the ingredient cost of the
drug.
Off-label Marketing.
Medicaid
covers all prescription drugs approved by the Food and Drug
Administration when they are prescribed by a physician and
are medically necessary. The FCA approves drugs only for
specific purposes, which appear on the drug’s labeling
materials. Doctors are legally permitted to prescribe drugs
for unapproved, or “off-label” uses as well, and many
physicians do so. Manufacturers, however, may not lawfully
promote or market their products for unapproved, off-label
uses to physicians or others. However, such marketing does
occur, often accompanied by the use of illegal kickbacks.
When off-label marketing induces physicians to prescribe
drugs for unapproved uses and Medicaid pays for those
prescriptions, Medicaid spending goes up.
As noted, FCA
settlements involving concealment of Best Price account for the
largest share of recoveries to date. While this may change
as future settlements are announced, I want to explain this type
of fraud in more detail because of the importance of drug
coverage to Medicaid beneficiaries and the importance of the
Medicaid rebate program to lowering Medicaid spending on
prescription drugs. The more the federal government can
reduce fraud against the Medicaid rebate program, the farther
that federal and state tax dollars will go in purchasing needed
medicines for low-income Americans.
Assume that a manufacturer
reports to HHS that the average manufacturer price, or AMP,
of a specific unit of one of its brand-name drugs is $79.
If the manufacturer charges all of its customers $68 or more
for
that unit of that drug, then the rebate the manufacturer
is required to pay on each prescription sold to Medicaid is
15.1% of the AMP, or $11.93. Thus, if Medicaid buys 100
prescriptions, the rebate owed is $1193.
Now assume that the manufacturer
charges a customer $64 for that unit of the drug in
question. In that case, $64 becomes the Best Price and the
rebate that the manufacturer has to pay on each prescription
sold to Medicaid is AMP ($79) minus Best Price ($64), or $15
dollars. If Medicaid pays for 100 prescriptions of the
drug, the rebate owed becomes $1500.
Best Price fraud involves
concealing the $64 Best Price from HHS, so that HHS
calculates the rebate amount to be 15.1%, or $11.93. The
gain to the manufacturer is the difference between $11.93
and $15, or $3.07, multiplied by the number of prescriptions
Medicaid buys. Thus if Medicaid buys 100 prescriptions,
that amount is $307 ($1,500 minus $1,193 equals $307). In
other words, $307 is the loss to Medicaid and federal and
state taxpayers, who are paying $307 more for the 100
prescriptions than federal law allows.
There are several ways Best Price
has been concealed from HHS. The most straightforward is to
simply not report the cash discounts given to a customer.
That is what happened in the $49 million settlement with
Pfizer in 2002. Pfizer marketed Lipitor to the Ochsner
Health Plan by giving it cash discounts to list the drug in
its formulary. The cash discount reduced the price of
Lipitor to Ochsner. However, when Pfizer reported its
Lipitor prices to HHS, it did not report the discount to
HHS. Because the discounts were not reported, the rebate
amount on the drug was less than it should have been, and
Medicaid ended up paying over $20 million more for Lipitor
than it should have during the time period covered by the
case.
A variation on this theme is the
$345 million settlement with Schering-Plough in 2004. In
order to place its most profitable product, the
anti-histamine Claritin, on the formularies of certain
national HMOs, Schering-Plough paid the HMOs kickbacks
disguised as “data fees” or “risk share” payments. These
kickbacks had the effect of lowering the price of Claritin
to the HMO, but when Schering-Plough reported to HHS the
price charged to the HMO, it did not report the price net of
the “data fees” or “risk share” payments. As a result,
Schering-Plough paid a significantly smaller rebate to
Medicaid than it was required to pay.
An even more creative approach to
concealing Best Price is known as “lick and stick.” This is
what happened in the $257 million settlement with Bayer
Corporation in 2003, which involved, among other drugs, the
antibiotic Cipro. An HMO insisted on a deep discount, but
Bayer did not want to give Medicaid a rebate based on that
discounted price. In order to evade reporting that price as
its Best Price, Bayer placed the HMO’s National Drug Code
number instead of its own on the label of the drugs it sold
to the HMO at the deeply discounted price. Bayer did not
include the price of the mislabeled drugs in its reports to
HHS.
It is worth stressing that in
each of these settlements (and others), the reason the
federal government found out about the fraud was not because
of a government audit or HHS oversight. Rather, it was
because a private whistleblower, using the FCA, brought the
information to the federal government’s attention.
The Extent of the Fraud
The scale of the fraud problem
with the pharmaceutical manufacturers is only hinted at by
the sixteen settlements (nine of which included Best Price
fraud) and the $4 billion in civil damages and criminal
penalties they have produced. In addition to those sixteen
cases, there are a very large number of cases on file
involving extensive fraud liability that have not been
resolved. Because of a peculiarity of the False Claims Act,
cases brought by whistleblowers under the Act are filed
under seal and remain under seal while government
investigations are undertaken. For that reason, it is
difficult to obtain precise information about this
litigation. However, Mr. Peter Keisler, the Assistant
Attorney General for the Civil Division of the Justice
Department informed the House Judiciary Committee on August
11, 2006 that the Department had “over 180” such cases on
its docket.
Added to these cases would be cases filed in state courts
under state false claims acts and cases filed by state
attorneys general under other statutes.
In addition to the cases under seal, there
are some cases out from under seal that have not been
resolved, most prominently a series of cases against Abbott
Laboratories in California, Florida, Massachusetts, and
Texas. In addition to Abbott, cases now out from under seal
in Massachusetts involve at least 48 drug companies.
Also, a preliminary settlement for half a billion dollars
with Bristol Myers Squibb has been announced, though details
have not been released. As recently as January 29, 2007,
the Justice Department announced that it had unsealed and
joined a case against Boehringer Ingelheim Roxane, Inc
alleging damages of $500 million.
It is also difficult to get a precise handle
on the amount of the potential liability involved in the
unresolved cases, but it appears to be very large. The
announced half-billion dollar settlement with Bristol alone
equals 12% of the $4 billion recovered in the sixteen
previous settlements. The alleged half-billion dollars of
damages owed by Boehringer is another 12%. The potential
liability in the cases against Abbott and others out from
under seal are in the same magnitude or larger. There are
indications that many of the other cases under seal also
involve quite large liabilities. Thus it would not be
unreasonable to assume that the total potential liability of
the 180 outstanding cases could be somewhere in the $60
billion range, or above.
The Dangers and Opportunities Presented
This astounding situation presents us with a
danger and with an opportunity. The danger is that these
cases will not be satisfactorily resolved; that one way or
another the drug manufacturers will find a way to dodge
their liability; and that they would be able to continue to
develop and implement business plans and practices designed
to plunder Medicaid and other government health programs,
damaging those programs, taxpayers, and the beneficiaries of
these programs.
The opportunity to be found in
these cases is that the leaders of the departments
responsible for pursuing the drug company fraud cases, the
Attorney General and the Secretary of Health and Human
Services, could, if they chose, use these cases to force the
drug manufacturers to disgorge their fraudulently obtained
funds. At the same time they could impose corporate
integrity agreements with the settling companies that would
put an end to the fraudulent practices and establish honest
dealing with Medicaid and other health care programs. Such
agreements could become the keystone of the companies’
future good citizenship.
As things stand now, failure is
far more likely than that the opportunity will be grasped.
A drift toward failure is the current status quo,
while grasping the opportunity would require a change of
course.
Major Program Insufficiencies
The Committee will no doubt be interested in
why the current course of conduct will lead to failure,
especially in the light of the successes so far. The answer
is complex, involving insufficiencies in manpower and the
leadership necessary to bring the cases to a satisfactory
resolution.
To begin with, the Department of Justice
attorneys handling the cases against the drug manufacturers
are simply overwhelmed and unable to prosecute a large
portion of the cases in a timely manner. This is not
because they are not good lawyers or because they are not
trying. To the contrary, the Justice Department’s attorneys
involved in cases against drug manufacturers are very
capable, hard working and dedicated. They are simply
stretched to the breaking point.
The Justice Department in recent
years has been able, on an annual basis, to resolve only
between 90 and 100 FCA cases of all kinds. Of those cases,
in the last six years, they have averaged less than three
drug fraud cases resolved per year. At that rate, it will
take many decades to resolve the 180 cases against drug
manufacturers currently on the Departments docket.
Actually, the backlog is not declining and cannot decline
under the status quo, because more cases against drug
manufacturers are filed each year than are resolved.
A further indication of the
Justice Department’s resource problem is the length of time
the cases in question remain under seal. Many have remained
under seal for ten years or more. When the Justice
Department recently unsealed and joined a case against
Abbott Laboratories that it could not settle, the case had
been under seal for eleven years. The reason for this
situation relates directly to the shortage of resources.
The FCA provides that cases brought by whistleblowers be
filed under seal in order to give the government a chance to
investigate the cases in order to determine whether they
wish to join the cases or leave them to the whistleblowers
to pursue. A complicated fraud case, such as those against
the drug manufacturers, could easily require two or three
years of intensive investigation. However, the extensive
time periods that drug fraud cases remain under seal
indicates that the Department does not want to decline the
cases, but does not have the resources to make timely
investigations or to litigate the cases it cannot settle.
Furthermore, the manufacturers are aware of this and are
attempting to use Justice’s lack of resources as leverage to
reduce the amount they are required to repay or to delay
settlement indefinitely with the hope of running out the
clock on Justice.
A review of the Department’s
resources dedicated to FCA cases indicates that funds
available for such a major set of cases are woefully
inadequate. The monetary resources available for FCA cases
at the Civil Division, which houses the central FCA fraud
section, has been in the $20 million to $23 million range in
the years FY2004 through FY2006. This pays for a fraud
section that includes about 70 or so attorneys and is
responsible for all civil matters involving fraud against
the United States. How many of these have been deployed on
drug manufacturer fraud cases in recent tears is not clear
to me, but I estimate, very uncertainly, that it adds up to
a dozen or so full time attorneys.
The money available for all FCA cases in the
U.S. Attorneys offices has dropped from $58.5 million to
$57.3 million in the years from FY2004 to FY2006. It is
unclear, however, how much of the money and how many
attorneys in the U.S. Attorneys offices are actually working
on FCA cases, much less working on drug fraud cases. It
appears that the money referred to is widely distributed to
the various U.S. Attorneys offices, but that only a small
percentage of those offices evidence concerted efforts to
pursue FCA cases. Thus, an unusually large percentage of
cases seem to be lodged in only a few U.S. Attorneys offices
– for example, in Boston and Philadelphia, which appear to
be completely swamped by the cases. A few other offices may
also have begun to pursue a significant number of cases, but
most U.S. Attorneys offices are simply missing in action.
Though a guess, probably about 25 Assistant U.S. Attorneys
are pursuing the 180 cases against the drug manufacturers on
a full time basis. Whatever the precise number, though,
there are simply far too few attorneys deployed to seriously
pursue all of these huge cases.
The lack of resources available
to pursue drug FCA cases cannot be a matter of economy. To
the contrary, the resources deployed by the Justice
Department in health care fraud cases have been repaid many
fold. As noted above, health economist Jack Meyer
calculates that the government, principally the Justice
Department, gets back $15 for every dollar it spends on
health care FCA cases. Despite this outstanding
return-on-investment, it appears that the Department is
actually withholding funds intended for health care fraud
cases from the offices pursuing such cases. The Attorney
General and the Secretary of Health and Human Services have
routinely reported that they are providing $14.5 million to
the Civil Division and $30 million to the U.S. Attorneys
offices for health care fraud. Money appropriated to the
Health Care Fraud and Abuse Control (HCFAC) Account is
allocated annually by the Attorney General and the Secretary
of HHS.
In FY 2005, for example, the HCFAC Report
reveals that $30,400,000 was allocated to U.S. Attorneys and
$14,459,000 to the Civil Division for “anti-fraud
activities.” These numbers are typical of such allocations
in recent years. However, as reported by Assistant Attorney
General Peter Keisler to the House Judiciary Committee on
August 11, 2006, it seems that only $10 million was actually
provided to the U.S. attorneys in each of the years
2004-2006 and a varying amount as low as $6.5 million to the
Civil Division in those years.
It also appears that the key
investigative agencies have not stepped up to the plate to
support these cases. Jack Meyer, in making the report
mentioned above, determined that the Office of Inspector
General at HHS is only supporting the Justice Department’s
health care FCA cases to the amount of $10 million or less.
The FBI, which has been provided $114 million from the HCFAC
Account on an annual basis to combat health care fraud,
simply spends nowhere near that amount to support health
care FCA cases. While this cannot be quantified without the
FBI’s cooperation, the FBI appears to be spending far, far
less, but has not been candid about what it has spent.
It is not just resources that are
lacking, it is also leadership that is lacking. The
Department of Justices fraud section is lodged within the
Commercial Litigation Branch of the Civil Division. Its
attorneys do not have the standing within the government to
command additional resources from within or without their
own Department or to cause other elements of the government
to give priority to any particular set of their cases. Only
the Attorney General and the Deputy Attorney General have
such standing. Thus, the actual attorneys struggling with
the fraud cases are not going to receive the additional
assistance they need without leadership initiative from
above.
The consequences of allowing the FCA drug cases to drift along on their current course, with
only two or three cases resolved each year, no matter how
much effort the current set of attorneys put into them, is
predictably negative. A few more cases will be settled with
apparent good results, but eventually this set of cases will
falter. One cannot predict with certainty how they will
falter, but falter they will. One way they could falter
would be as the result of an unexpected judicial
development. Recently the Court of Appeals for the Second
Circuit ruled that the government, when it unsealed an FCA
case and filed its own complaint, could not, for purposes of
the statute of limitations, take advantage of the date when
the whistleblower filed the original complaint.
Because the government has been forced to keep the drug
cases under seal for so long, were that ruling to be
followed and applied to the drug cases, many could falter on
that ground alone. That is but an example of how an
unexpected development could undermine the drug cases.
Certainly, as time drags on, legal, political and other
developments can and, over time, are likely to occur that
will erode the government’s ability to prevail. If not
timely pressed to resolve these matters, eventually the
companies could find a way to beat the rap.
Program Opportunities
One can hope that the faltering
of the cases against drug manufacturers through delay and
want of prosecution does not occur, for surely they present
us with golden opportunities, including
- An opportunity to bring many billions of
dollars defrauded from the government back to the taxpayers;
- An opportunity, going forward, to greatly
reduce fraud against Medicaid and other government health
care programs;
- An opportunity to redirect important
companies that have become addicted to bilking Medicaid and
Medicare;
- An opportunity for the pharmaceutical
companies to put a shameful era of questionable billing
practices behind them, and;
- An opportunity to set rules of conduct in
corporate integrity agreements that would prevent any one
company from gaining an economic advantage over its
competitors by cheating Medicaid and Medicare.
Recommendations
In order to grasp these opportunities, the
following things must occur:
1. First and foremost, the highest officials of the Department
of Justice, the Attorney General and the Deputy Attorney
General, should act now to provide leadership, in word and
deed, to force a resolution of the FCA cases against the
pharmaceutical manufacturers on a basis favorable to the
government.
2. The resource shortage dragging down the Justice Department’s
fraud fighters must be addressed quickly and affirmatively.
The fraud team requires significant augmentation. Its
status should be raised to the branch level. The missing
HCFAC Account money should be immediately provided to both
the Civil Division’s fraud team and to the U.S. Attorneys
Offices that are actually engaged. More U.S. Attorneys
offices should be recruited into the action. The missing
FBI’s HCFAC Account funds should be located and put to their
appointed use.
3. The full support of the Department of Health and Human
Services is necessary from the Secretary on down. The full
support, with significantly augmented resources, by the
HHS--OIG and by CMS should be insisted on to provide support
of the FCA cases against drug manufacturers.
4. The Departments of Justice and of Health and Human Services
should use their full authority and leverage to bring the
pharmaceutical companies to the table and impose agreements
that will end the fraudulent practices that characterize the FCA cases. Only the direct efforts of these officials can
end the manipulations on a basis that prevents any one
company from victimizing its competitors and the taxpayers
by cheating.
5. The Attorney General should take all possible action to keep
the clock from running out on these cases and to prevent
these cases from languishing.
Conclusion
If the recommended actions are taken, we
could see an end to the business plan frauds by the
pharmaceutical manufacturers against Medicaid and other
government programs. If the status quo continues, we
can expect the FCA cases against drug manufacturers to limp
along with some more settlements, but at some point the
effort will fail and there will be no reform of the massive
fraud drug practices weighing down Medicaid and other health
care programs.
- Attachment A -
Pharmaceutical Companies in Unsealed Medicaid Fraud
False Claims Act Cases
· Abbott
Laboratories
· Amgen
· Armour Pharmaceutical
· Aventis Pharmaceuticals
· Baxter Healthcare
· Bedford Laboratories
· Ben Venue Laboratories
· Boehringer Ingelheim Pharmaceuticals
· Braun of America
· C.H. Boehringer Sohn
· Centocorps Inc.
· Dey Pharmaceuticals
· Forest Pharmaceuticals
· Grundstucksverwaltung GMBH & Co.
· EMD
· Geneva Pharmaceuticals
· GlaxoSmithKline
· Glaxo Wellcome
· Burroughs Wellcome
· Hoechst Marion Roussell
· Hoffman-LaRoche
· Hospria Inc.
· Immunex
· Ivax Pharmaceuticals
· Janssen Pharmaceutical Products
· Johnson & Johnson
· Lipha
· McGaw
· Merck
· Mylan Laboratories
· Mylan Pharmaceuticals
· Novartis
· Ortho Biotech Products
· Pfizer
· Pharmacia
· Pharma Investment
· PurePac Pharmaceutical
· Roche Laboratories
· Roxane Laboratories
· Sandoz
· Sicor
· Gensia Pharmaceuticals
· Schering-Plough Corp.
· SmithKline Beecham Corp.
· GlaxoSmithKline
· Teva Pharmaceuticals
· Warrick Pharmaceuticals
· Z.L.B. Behring
Attachment B –
Settled False Claims Act Cases
Against Pharmaceutical Companies
Company |
Settlement Date |
Product
|
Total Recovery |
Fraud Type |
Whistleblower |
|
AstraZeneca |
6/20/03 |
Zoladex |
$355 million |
Marketing the spread and concealment of best
price |
Sales exec from competitor at TAP
Pharmaceuticals |
|
Baxter International |
6/13/06 |
Generic drugs made by Baxter |
8.5 million |
Marketing the spread |
Independent pharmacy |
|
Bayer l |
1/23/01 |
Kogenate, Koate-HP, Gamimmune |
$14 million |
Marketing the spread and concealment of best
price |
Independent pharmacy |
|
Bayer II |
1/23/01 |
Adelat CC, Cipro |
$257 million |
Concealment of best price |
Bayer marketing executive |
|
Dey I |
6/11/03 |
Albuterol |
$18.5 million |
Marketing the spread |
Independent pharmacy |
|
Dey 2 (Connecticut FCA) |
8/7/04 |
Albuterol |
$2.5 million |
Marketing the spread |
Independent pharmacy |
|
GlaxoSmithKline I |
4/16/03 |
Paxil, Flonase |
$88 million |
Concealment of best price |
Derived from Bayer marketing executive
allegations. |
|
GlaxoSmithKline II |
9/17/05 |
Zofran, Kytril |
$150 million |
Marketing the spread |
Independent pharmacy |
|
King Pharmaceutical |
10/30/05 |
Altace, Aplisol, Lorabid, and Fluogen |
$124 million |
Concealment of best price |
Executive of King Pharmaceuticals |
|
Pfizer l |
10/28/02 |
Lipitor |
$49 million |
Concealment of best price |
National account manager for Pfizer
subsidiary |
|
Pfizer ll |
5/13/04 |
Neurontin |
$430 million |
Off-label marketing |
Medical liaison to physicians for Pfizer
subsidiary |
|
Roxane Labs,
Boehringer Ingelheim Pharmaceuticals, and
Ben Venue Laboratories (Texas FCA) |
11/25/05 |
Albuterol |
$10 million |
Marketing the spread |
Independent pharmacy |
|
Schering-Plough l |
5/3/04 |
Albuterol |
$27 million |
Marketing the spread |
Independent pharmacy |
|
Schering-Plough ll |
7/29/04 |
Claritin |
$345 million |
Concealment of best price |
Three employees of Schering-Plough
subsidiary |
|
Schering-Plough llI |
8/26/06 |
Temodar, Intron-A, K-Dur, Claritin RediTabs |
$435 million |
Concealment of best price, Marketing the
spread |
Three employees of Schering-Plough |
|
Serono |
10/17/05 |
Serostim |
$704 million |
Off-label marketing and kickbacks |
Five Serono employees in two states. |
|
TAP Pharmaceuticals |
10/3/01 |
Lupron |
$875 million |
Marketing the spread and concealment of best
price |
HMO Physician and TAP sales executive |
|
TOTAL |
|
|
$3.894 Billion |
|
|
- Attachment C –
Citations for Settled False Claims Act Cases
Against Pharmaceutical Companies
-
No. GV002327
(District Court Travis County, 53rd Judicial District
2004)
-
GlaxoSmithKline I U.S. ex
rel. Estate of Couto v. Bayer Corporation. et al, No.
00-10339 (D. Mass. 2003
-
GlaxoSmithKline II U.S. ex rel.
Ven-A-Care of the Florida Keys Inc. v. GlaxoSmithKline
PLC, docket number sealed, settlement announced (D.
Mass. 2005)
-
King Pharmaceuticals U.S. ex rel.
Bogart v. King Pharmaceuticals, Inc., No 03-1538 (E.D.
Pa 2005)
-
Pfizer I U.S. ex rel. Foster v.
Pfizer, No.1:00-cv-00246 (E.D. Tex. 2002)
-
Pfizer II U.S. ex rel. Franklin v.
Warner-Lambert, No. 96-11651-PBS (D. Mass. 2004)
-
Roxane Labs et al. State of
Texas ex rel. Ven-A-Care of the Florida Keys, Inc. v.
Roxane Laboratories Inc., No. GV3-03079 (District Court
Travis County, 201st Judicial District) and No. GV002327
(District Court Travis County, 53rd Judicial District
2005)
-
Schering-Plough I State of Texas
ex rel. Ven-A-Care of the Florida Keys, Inc. v.
Schering-Plough, No. GV002327 (District Court Travis
County, 53rd Judicial District 2004)
-
Schering-Plough
II U.S. ex rel. Alcorn v. Schering-Plough
Corporation, No. 98-5868 (E.D. Pa. 2004)
-
Schering-Plough III In re
Pharmaceutical Industry Average Wholesale Price
Litigation, No. 01-CV-12257-PBS settlement announced (D.Mass.
Aug. 10, 2006).
-
Serono
U.S. ex rel. Driscoll v. Serono Laboratories, Inc., C.A.
No. 00-11680 (D. Mass. 2000)
-
TAP
Pharmaceuticals U.S. ex rel. Gerstein v. TAP
Holdings, Inc., No. 00-10547 (D. Mass. 2001)
Attachment B contains tables and figures summarizing
these settlements. Attachment C is a list of citations
of the cases.
Testimony of James W. Moorman,
President and CEO,
Taxpayers Against Fraud
on
The False Claims Act and Fraud
Against Medicaid by Drug Manufacturers
before the
Senate Finance Committee
June
28,
2005
Mr. Chairman
and Members of the Committee, thank you for inviting me to
testify at this important and timely hearing. We are in a
situation where Congress is wrestling with whether to reduce
Medicaid spending. Several states have done so and others are
currently debating the issue. This is very painful because
Medicaid is essential to the financing of needed health care for
over 58 million low-income Americans. It is therefore
imperative that savings in Medicaid come at the expense of those
who have enriched themselves by defrauding the program. The
False Claims Act has already demonstrated its ability to uncover
complex corporate fraud against Medicaid and to return
ill-gotten gains to the federal and state treasuries. The
purpose of my testimony today is to explain the results that the
False Claims Act has already achieved, why it is effective, and
how the Federal Government can make it even more effective,
generating concrete savings for the federal and state
governments without harming low-income beneficiaries or honest
providers.
First, let me introduce myself and my
organization. My name is James W. Moorman and I am the
President of Taxpayers Against Fraud, also known as TAF or as
The False Claims Act Legal Center, a position I have held for
the past five years. I am an attorney by training and served as
an Assistant Attorney General of the Department of Justice under
Attorneys General Griffin Bell and Benjamin Civiletti. Between
my service at Justice and TAF, I was a partner in the law firm
of Cadwalader, Wickersham & Taft.
Taxpayers
Against Fraud and its sister organization, Taxpayers Against
Fraud Education Fund, are non-profit charitable organizations
dedicated to combating fraud against the Federal Government
through the promotion of the use of the qui tam provisions of the False Claims Act, 31 U.S.C. §§ 3729- 33 ("FCA").
Qui tam is the singular mechanism in the FCA that
allows persons with evidence of fraud in federal programs or
contracts to bring suit on behalf of the federal government.
Under the FCA, those that commit fraud are subject to treble
damages and civil penalties. To encourage whistleblowers to
come forward, the FCA provides that they share between 15 and 30
percent of the federal government’s recoveries. I would like to
note for the record that neither TAF nor TAF Education Fund has
ever received any support from PhRMA or any drug manufacturer.
Thanks in
large part to the tireless efforts of Chairman Grassley, the
public over the past few years has become more aware of the
effectiveness of the FCA and its whistleblower provisions in
curbing Medicare fraud. In press releases and public
statements, the Chairman has highlighted important settlements
and other achievements that have returned over $4 billion to the
Medicare trust fund to date. As health economist Jack Meyer
concluded in a report just released by TAF Education Fund,
Fighting Medicare Fraud: More Bang for the Federal Buck,
April 2005, the federal government has realized $13 in direct
recoveries for every $1 it has invested in investigating and
prosecuting Medicare fraud through the FCA.
The role of
the FCA is curbing Medicaid fraud is less well understood, which
is one reason why today’s hearing is so important. In 2003, the
TAF Education Fund published a report authored by Andy Schneider
explaining the potential of the FCA to reduce Medicaid fraud.
Since that report was published, the FCA has clearly established
itself as a potent tool against Medicaid fraud, returning about
$1.2 billion to the federal and state treasuries over the past 5
years. Whistleblower lawsuits under the FCA have uncovered
fraud in a variety of industries in the health care sector of
the economy, ranging from hospitals to nursing homes to clinical
laboratories to chain drug stores. However, by far the largest
share of recoveries—about 80 percent—have resulted from cases
involving pharmaceutical manufacturers.
As of the end
of FY 2004, there were ten settlements of FCA cases brought by
whistleblowers alleging false or fraudulent claims against
Medicaid by pharmaceutical manufacturers. (There have been no
reported settlements so far in FY 2005). These ten settlements,
which involved three different types of fraudulent conduct,
returned $535 million to the federal treasury and $413 million
to state treasuries in satisfaction of losses to the Medicaid
program. A number of these cases also involved allegations of
false or fraudulent claims against the Medicare program. Total
recoveries in these ten cases to Medicare and Medicaid, plus
criminal fines, totaled $2.5 billion. The Appendix contains
tables and figures summarizing these settlements.
In addition to
the direct recoveries, these settlements have had an important
indirect effect. Pharmaceutical manufacturers now have a much
better appreciation of the importance of full compliance with
the reporting requirements of the Medicaid drug rebate program.
Given the volume of drugs that Medicaid buys—it is the nation’s
single largest drug purchaser, accounting for 18 percent of all
drug spending—the difference between partial and full compliance
can literally mean hundreds of millions of dollars in savings to
the federal and state governments each year. Even after
Medicare Part D is launched next January, Medicaid will still
account for 9 percent of the nation’s drug spending—no small
matter in a market expected to grow to $249 billion next year.
The deterrent
effect of the FCA has not been quantified, but to appreciate its
potential, consider the following: We know from CMS data that
during this fiscal year (2005) manufacturers will pay almost $10
billion in rebates to Medicaid. It would be reasonable for one
to assume that the deterrent effect of FCA cases is at least 10
to 15 percent of expenditures. That is, one could reasonably
assume manufacturers would pay 10 to 15 percent less in rebates
if they operated in a world without the whistleblower provisions
of the FCA. On this conservative assumption, the FCA is worth
between $1 to $1.5 billion in additional annual rebates to the
federal and state governments. Of course, the FCA's deterrent
effect may be significantly higher than 10 to 15 percent. If
so, these savings would increase accordingly. Under any
scenario—other than no deterrent effect, which is simply not
plausible—the savings to federal and state taxpayers are
significant.
Why has the
FCA been so successful in uncovering complex corporate fraud on
the part of some drug manufacturers against Medicaid? The
answer lies in the amendments authored by Chairman Grassley in
1986, which incentivized whistleblowers to come forward with
inside information about fraud against government programs
despite the threat of retaliation. When the management of a
firm develops a business plan to take advantage of a large
government program like Medicaid, the company usually takes
steps to cleverly mask what they are doing from the federal and
state officials that administer the program. FBI “sting”
operations have been suc |
