ABA National Institute on Health Care Fraud 2004 (conference papers).

By Lesley Ann Skillen and Megan M. Scheurer

In the three years since 2001, pharmaceutical companies have paid in excess of $1.6 billion to federal and state governments in civil False Claims Act (“FCA”) settlements. It’s a boom time for pharmaceutical fraud investigations and prosecutions, and it’s a safe bet that we have yet seen only a fraction of the billions more that will be paid by pharmaceutical companies in civil settlements and criminal fines in the coming years.

It’s an equally safe bet that most of these allegations will have been brought to light by pharmaceutical industry employees-turned-whistleblowers. Who else would have the ability not merely to know about an alleged fraudulent manipulation of, say, the rules governing the pricing of pharmaceuticals to government health plans, but to deconstruct it for prosecutors, and, moreover, to provide them with a documentary record?

In the 1960s, the archetypal whistleblower was the crusading line worker who took on the corporate Goliath. In the pharmaceutical industry of the 21st Century, the archetype is less likely to be found in the mail room than in the board room. The FCA qui tam¹ law, as amended in 1986, has provided access and incentives that earlier generations of activists could only dream about. All of the seven pharmaceutical fraud cases settled since 2001 arose from qui tam whistleblower suits brought by executives of the defendant companies, their competitors or their customers.² This article outlines those cases (together with an additional pending case for which the defendant company recently reserved $427 million in anticipation of settlement) and explores the whistleblowers’ motivations. It concludes with a summary of pending FCA cases and reported investigations, providing a glimpse of a near future in which pharmaceutical fraud settlements and fines remain the number one source of fraud recoveries to the federal and state Treasuries.

The Cases

1. Bayer (2003 – $251 million) and GlaxoSmithKline (2003 – $88 million)

Both settlements arose from a qui tam case filed in 2000 by a Bayer marketing executive, George Couto, in the District of Massachusetts. Mr. Couto was represented by our firm.

The Practice: Concealment of Best Price (Private Labeling)

In 1990 the government introduced the Medicaid Rebate program, requiring drug makers to give Medicaid the same discounts they give big commercial customers like HMOs, hospitals and chain pharmacies. Drug companies have to report to the government their Best Price, or lowest discount price, for each Medicaid-covered drug on a quarterly basis, and pay a rebate to Medicaid based on that Best Price and the Medicaid utilization.

In 1995, Bayer wanted to give the California-based HMO Kaiser Permanente a 40% discount on its popular antibiotic Cipro. In order to avoid giving Medicaid a matching discount (which would have involved a substantial Medicaid rebate liability), Bayer engaged in what they called “private labeling.” Bayer changed the labels on the bottles of Cipro tablets sold to Kaiser and then claimed that “private labeled” Kaiser Cipro was no longer their responsibility for the purpose of Medicaid rebate. The only change that Bayer made to the label was to put Kaiser’s four digit National Drug Code (NDC) number on the label instead of Bayer’s, and to put “Distributed by Kaiser” in fine print on the side of the bottle. Other than that, the two labels were identical in all respects, and the tablets in the bottle were identical in all respects. Notwithstanding the 40% discount that Bayer was giving Kaiser, it reported to the government a Best Price corresponding to a discount of around 15%.

Bayer then “private labeled” an additional drug for Kaiser, the anti-hypertensive Adalat CC. In the civil settlement agreement, the United States alleged a number of civil violations including, amongst other things, that Bayer knowingly misreported its Best Price and underpaid its Medicaid rebates by omitting the Kaiser “private label” prices for Cipro and Adalat CC. The United States also alleged that Bayer, during an audit conducted by federal regulators in 1999, falsely stated that the actual price at which Bayer sold Cipro to Kaiser was higher than Bayer’s reported Best Price. In addition to the $251 million civil settlement, Bayer pled guilty to concealing the Cipro discount from the Food and Drug Administration (“FDA”) (a violation of the Food, Drug and Cosmetic Act) and paid a $5.6 million fine.

The $88 million settlement paid by GlaxoSmithKline (“GSK”) also arose from George Couto’s qui tam case. The “private labeled” drugs in question were the anti-depressant Paxil and a nasal spray, Flonase. Again, discounts given to the HMO Kaiser were not reported by GSK in its Best Price reporting.

The Whistleblower

George Couto was a 37-year-old Bayer marketing executive when he filed his qui tam case in early 2000. A former staff pharmacist for the CVS drugstore chain with a degree in Pharmacy, Mr. Couto had joined Bayer in 1993 and been rapidly promoted, becoming a Senior Executive of Corporate Marketing in 1997. In early 1999, Mr. Couto and his colleagues attended mandatory ethics training – the first such training conducted by Bayer – and were admonished by Bayer’s U.S. head to obey not only the letter of the law but the spirit of the law. Mr. Couto was troubled by what he knew of the company’s “private labeling” program, which Bayer purported to justify (in the words of one in-house counsel) as “operationally legal.” Shortly after the ethics seminar, Mr. Couto wrote a confidential memo to his boss: “According to the class on ethics training that I attended 2/9, Wehmeier’s video calls for obeying ‘not only the letter of the law, but the spirit of the law as well.’ I am wondering how this should be interpreted regarding Pharma’s continued and expanded private labeling activities?” His memo never received a response. During 1999, he heard of plans to expand “private labeling” to additional drugs and additional HMOs. Eventually, he became convinced that top management would neither halt the “private labeling” scheme nor protect him from retaliation if he pushed his objections internally. Wehmeier’s admonition notwithstanding, he came to the view that the culture of Bayer was not conducive to resolving ethical concerns internally — as evidenced, for example, by the laughter that had erupted when Wehmeier had urged employees at the ethics training to report any such concerns directly to him, and the fact that his compliance inquiry had never received a response.

Shortly after filing his qui tam case in early 2000, Mr. Couto resigned from Bayer and relocated his family from Connecticut to Boston where he took a job with a smaller pharmaceutical company. Two years later, he was diagnosed with pancreatic cancer, a condition that is terminal in all but a handful of cases. In the summer of 2002, while undergoing chemotherapy, he gave a videotaped deposition over four days in order to preserve his testimony. Despite his medical condition, he withstood Bayer’s blistering cross-examination. He died three weeks before settlement-in-principle was achieved. His estate received a 24% qui tam relator share of the federal portion of the settlement with Bayer.

2. TAP Pharmaceuticals (2001 – $559.5 million) and Astra-Zeneca (2003 – $291 million)

Both settlements arose from a qui tam case filed by Douglas Durand, TAP Pharmaceutical’s (“TAP”) Vice President of Sales, in May 1996 in the Eastern District of Pennsylvania. The TAP settlement also arose from a qui tam case filed in the District of Massachusetts by Dr. Joseph Gerstein, a Medical Director for the Tufts Associated Health Plan whose business TAP hoped to secure.

The Practice: “Marketing the Spread” and Concealment of Best Price

The $559.5 million settlement with TAP was based on allegations of “marketing the spread” and concealment of Best Price for Lupron, a prostate cancer drug. At the times relevant to the complaint, Lupron was in direct competition with AstraZeneca’s prostate cancer drug, Zoladex. The $291million Astra-Zeneca settlement came roughly two years later, in June 2003, in the District of Delaware. This settlement also arose from allegations in the FCA case relating to “marketing the spread” and concealing the Best Price for Zoladex, a competing prostate cancer drug³. Both settlements were accompanied by criminal pleas by the defendant companies and substantial fines: in TAP’s case, $290 million, and in Astra-Zeneca’s, $63.9 million. Both criminal fines were imposed for violations of the Prescription Drug Marketing Act by giving physicians free samples of Lupron and Zoladex so that they could bill Medicare for those samples. The TAP indictment charged TAP with offering kickbacks to doctors including free drugs, educational grants, trips to resorts, free consulting services, medical equipment and forgiveness of debt. A number of doctors and TAP managers were also criminally charged.

“Marketing the spread” is an industry term describing the manufacturers’ practice of inflating the Average Wholesale Price (“AWP”) used by Medicare and other federal programs as the basis for reimbursement of the drug, while deeply discounting the price paid by physicians (or giving the drug to physicians for free). The spread between the AWP and the discounted price is marketed to physicians as a way of increasing their profits when they receive reimbursement for the drug from Medicare and other health programs. This manipulation of the AWP enables pharmaceutical companies to offer doctors kickbacks: the spread is marketed to doctors as a reason to prescribe that product in preference to a therapeutic equivalent. As the TAP and Astra-Zeneca settlements show, TAP and Astra-Zeneca sales representatives competed with one another for the business of physicians on just that basis.

In addition to marketing the spread, TAP and Astra-Zeneca were alleged to have concealed Best Price by failing to report the deep discounts given to physicians as their lowest discount price. TAP and Astra-Zeneca paid substantially less in Medicaid rebates than they should and would have paid if the physician discounts had been accurately reported.

The Whistleblowers

In 1996 Douglas Durand was the Vice President of Sales at TAP. Durand reportedly had a reputation as a “straight arrow,” and he came to TAP after successfully climbing the corporate ladder at Merck & Co.⁴ Upon his arrival at TAP, he came to the view that the corporate culture facilitated and even encouraged indiscretions on behalf of its marketers. Durand observed the implementation of a TAP marketing plan designed to increase the market share of Lupron, a prostate cancer drug. He discovered that doctors were given high-end lavish gifts and kickbacks based on the amount of Lupron purchased and prescribed.⁵

Durand reportedly became concerned with the seemingly routine practice of offering doctors free samples of Lupron whilst encouraging those doctors to bill Medicare and other insurers full price for the samples administered to patients.⁶ According to this scheme, doctors could bill for the full value of those samples dispensed at a rate of roughly $500 per dose. Concerned that encouraging physicians to bill Medicare for free samples may be illegal, Durand introduced an incentive program of his own in order to curtail the practice. He began anchoring the bonuses of the sales personnel under his supervision upon the percentage of free samples for which the sales managers could account.⁷ Despite the initial success of the bonus program – one manager went from reporting 50% of his or her samples to reporting 95% – Durand was told to end the program because it interfered with company morale.⁸ Durand also discovered that 300 urologists had been given kickbacks in the form of “administrative fees.” The “administrative fee” amounted to 2% of any Lupron purchases made by the urologists.⁹

Growing increasingly concerned with the nature of these practices and his potential liability as a Vice President of Sales, Durand left TAP shortly after his arrival in 1995, working there a mere fourteen months.¹⁰ His qui tam case was filed in May of 1996 in the Eastern District of Pennsylvania and later transferred to the District of Massachusetts. The complaint alleged that TAP paid illegal kickbacks, caused doctors to submit false reimbursement claims to Medicare for free samples, and encouraged overcharging by doctors for Lupron prescriptions.¹¹

In 1996, an urologist employed by the Tufts HMO named Dr. Joseph Gerstein approached the government and reported that he had been offered an unrestricted $25,000 education grant by a TAP sales representative in exchange for his support of Lupron, instead of AstraZeneca’s equivalent drug Zoladex.¹² Dr. Gerstein’s support was critical to TAP because he had made the decision on behalf of his employer to cover only Zoladex under the Tufts health plan.¹³ Zoladex was roughly $100 cheaper per month than it’s competitor, Lupron; hence, Dr. Gerstein had opted to cut Lupron from the Tufts formulary.¹⁴ The TAP marketer wanted him to reverse his decision.

Armed with this knowledge, the government reportedly decided to conduct an undercover operation to investigate the illegal kickback scheme.¹⁵ With his office wired and the government listening, Dr. Gerstein played host to TAP representatives on three occasions in 1997.¹⁶ Allegedly, the representatives not only repeated the bribe offer, but enhanced the proposal, promising $65,000 in grants over the course of three years and a $100,000 discount on future Lupron sales.¹⁷

For their assistance to the government in connection with the TAP settlement, Mr. Durand and Dr. Gerstein shared a qui tam award of approximately 17% of the civil recovery, or $94 million.¹⁸ The AstraZeneca settlement yielded $47.5 million for Mr. Durand, a figure equaling 17% of the recovery.¹⁹

3. Bayer (2001 – $14 million) and Dey (2003 – $18.5 million)

Both settlements arose from qui tam cases filed by Ven-A-Care, a Florida-based independent pharmacy. The case against Bayer was brought in a Miami federal court in 1995 as part of a larger case against 20 pharmaceutical companies. In the fall of 2000, a similar suit against Dey was initiated in Texas state court.

The Practice: “Marketing the Spread” and Concealment of Best Price

In 1995, Ven-A-Care, a independent pharmacy, filed a qui tam case alleging that Bayer inflated the AWP of hemophilia and immune deficiency therapies, specifically Kogenate, Koate-HP, and Gamimmune.²² The complaint alleged that Bayer was “marketing the spread” to physicians and home health care agencies responsible for administration of the drugs by offering them deep discounts.²³ Furthermore, Bayer allegedly did not include the discounts in its Best Price reports submitted to the government.²⁴ As a result of the suit, Bayer settled with the Department of Justice (“DOJ”) and 45 other states for $14 million in January 2001.²⁵

In the fall of 2000, the Texas Attorney General filed a lawsuit under the Texas false claims statute against Schering-Plough, Dey Laboratories and Boehringer Ingelheim based on information provided by Ven-A-Care.²⁶ Ven-A-Care alleged that Dey inflated the AWP for asthma inhalants, Albuterol Sulfate and Ipratropium Bromide, and marketed the spread to pharmacists.²⁷ In addition, Dey allegedly reported false wholesaler and distributor prices for asthma inhalants to the Texas Vendor Drug Program.²⁸ In 2003, Dey and the Texas Attorney-General reached a settlement of $18.5 million.

In the Dey case, the “spread” was marketed to pharmacists, rather than to physicians as in the TAP and Astra-Zeneca cases discussed above.²⁹ Medicaid reimburses pharmacists for the cost of ingredients as well as the cost of dispensing the drugs, which is often referred to as a dispensing fee. In order to create a spread and incentivize pharmacists to use their product, pharmaceutical companies can either (a) raise the reported cost of the ingredients; or (b) lower the total price paid to the manufacturer by the pharmacy. In either case, the pharmacist will make a profit.

The Whistleblowers

Ven-A-Care is a Florida independent pharmacy which specialized in in-home intravenous drug treatments, particularly AIDS treatments. In 1991, Ven-A-Care began to receive reimbursements from Medicare in the hundreds of dollars for drugs that it had purchased from the manufacturer for only about $50. Ven-A-Care returned the checks to Medicare, thinking there was a mistake. Medicare sent the checks back, citing the AWP “book” price and saying there was no mistake. Thus Ven-A-Care learned about “marketing the spread.” As the 1990s progressed, more and more drug salespeople marketed their products to Ven-A-Care on the basis of higher profits for Ven-A-Care on the spread rather than therapeutic benefit.

Ven-A-Care’s principals went to extraordinary lengths to have the government address conduct they were convinced was fraudulent. They contacted Medicare, congressmen, the FBI, and the Inspector-General’s Office (“OIG”) in the Department of Health and Human Services (“HHS”). At one point, in frustration, they sent Medicare officials a complaint about an AWP of $400 for a nutrition drug for which they had paid $30 together with a toilet seat, echoing the defense procurement abuses of the 1980s. In 1994, they filed their qui tam suit against 20 pharmaceutical companies.

In 2001, Ven-A-Care received a 20 percent relator’s share of the federal government recovery in Bayer, totaling roughly $1.6 million.³⁰ Following the Dey settlement on June 11, 2003, Ven-A-Care received a relators’ share of $3.2 million.³¹ The federal and related state lawsuits are reportedly ongoing.

4. Pfizer (2002 — $49 million)

This settlement arose from a qui tam case filed in 2000 by John David Foster, a National Account Manager for a Pfizer subsidiary.

The Practice: Concealment of Best Price

In October 2002, Pfizer agreed to a settlement of $49 million arising from a FCA case alleging concealment of Best Price for Lipitor, the top-selling cholesterol drug.³² In 1999, Warner-Lambert, which was subsequently acquired by Pfizer, gave $250,000 in “unrestricted educational grants” to an HMO based in New Orleans in exchange for the HMO’s promise to maintain coverage of Lipitor.³³ At least five other HMOs/MCOs and two PBMs were receiving similar grants from Warner-Lambert.³⁴ These “educational grants” allegedly amounted to discounts that Warner-Lambert failed to include in its Best Price reports for Lipitor.

The Whistleblower

The whistleblower who brought this scheme to light was John David Foster, a former Warner-Lambert National Account Manager, whose duties included convincing managed care organizations to include Lipitor on their formularies.³⁶ After raising his concerns, Mr. Foster was placed on administrative leave.³⁷

Mr. Foster’s qui tam suit was filed in April 2000. Pfizer settled the matter two and one half years later for $49 million. Mr. Foster was awarded $5.9 million, which amounted to 21.3 percent of the total federal recovery.³⁸

5. Pfizer (Parke-Davis) (pending – $427 million reserved)

This FCA litigation has been ongoing in the District of Massachusetts since 1996. It was unsealed in 1999. The qui tam plaintiff, David Franklin, was a microbiologist with a PhD who was formerly employed as a medical liaison at Parke-Davis. The defendant, Parke-Davis’ parent company, Warner-Lambert, merged with Pfizer in 2000.

The Practice: Off-Label Promotion and Kickbacks

The relator alleges that Parke-Davis campaigned to increase prescriptions for the epilepsy drug Neurontin by promoting “off-label” usage of the drug.³⁹ According to the complaint, “[t]hough physicians may prescribe drugs for off-label usage, the FDA prohibits drug manufacturers from marketing or promoting a drug for a use that the FDA has not approved.”⁴⁰ Parke-Davis allegedly offered kickbacks and conducted sham research as part of the larger plan to promote off-label usage of the drug.⁴¹ This aggressive marketing scheme allegedly led to the fraudulent submission of false claims to the federal government.

The complaint alleges that Parke-Davis sales representatives dishonestly touted unapproved uses for Neurontin such as relieving pain, headaches and psychiatric illnesses. Furthermore, Parke-Davis is alleged to have offered kickbacks to those doctors who supported the drug’s off-label usage. This marketing program allegedly raised the drug’s sales enormously, from $97.5 million in sales in 1995 to nearly $1.2 billion in 2000. According to press reports, about 80 percent of Neurontin prescriptions are for off-label uses.”⁴²

Pfizer recently set aside $427 million in anticipation of settling claims arising from the Neurontin case.⁴⁴ According to sources involved in the litigation, the settlement negotiations, which involve representatives of the DOJ, HHS, the FDA, and officials from state Medicaid Fraud Control Units and state consumer protection agencies, are nearing conclusion.⁴⁵

The Whistleblower

The qui tam relator, David Franklin, was employed by Parke-Davis as a medical liaison for five months during 1996. While medical liaisons are ordinarily affiliated with the research department of a drug manufacturer, Franklin alleges that Parke-Davis employed medical liaisons to act exclusively as sales representatives.⁴⁶ In his action he asserts that medical liaisons were “instructed to make exaggerated or false claims concerning the safety and efficacy of Parke-Davis drugs for off-label uses” and “encouraged to misrepresent their scientific credentials and to pose as research personnel, rather than as sales representatives.”⁴⁷ Franklin alleges that he was personally trained “to actively deceive physicians with contrived data, falsified ‘leaks’ from clinical trials, scientifically flawed reports, or ‘success stories’ that stated that Neurontin was highly effective in the treatment of a variety of pain syndromes.”⁴⁸ Furthermore, he alleges that he was instructed to tell physicians that data existed to support dosages of up to 4800 mg per day whereas the clinical tests performed had only proven the safety and effectiveness of 1800 mg daily dosages of Neurontin.⁴⁹ According to Franklin, he was instructed to go by the title of “Doctor” with the assumption that physicians would interpret Franklin’s PhD as a medical degree and rely on his professional acumen.⁵⁰ Franklin alleges that his employer concealed its actions by “shredding documents, falsifying documents, and encouraging medical liaisons to conduct their marketing activities without leaving a ‘paper trail’ that might be discovered by the FDA.”⁵¹

Troubled by his involvement and increasingly convinced his behavior was illegal, Mr. Franklin quit his job at Parke-Davis on July 29, 1996, just five months after starting.⁵² Immediately thereafter he consulted an attorney and brought his qui tam suit.

The Whistleblowers

It is all too easy for corporations confronted with qui tam whistleblowers to demonize them as disgruntled, vengeful, greedy, and/or opportunistic. In an effort to minimize or avoid entirely the incidence of qui tam whistleblowing by current and former employees,⁵³ corporations have experimented with various containment strategies that in the authors’ view entirely miss the point. These include routine waivers of the right to bring a qui tam action in separation agreements,⁵⁴ to requiring employees to sign agreements that they will donate the proceeds of any qui tam suit to charity, to “psychological screening” of potential job applicants to identify those with “whistleblowing tendencies,” to exit interviews that routinely question departing employees about whether they are aware of any wrongdoing, one objective apparently being to provide some basis upon which to later undermine the employee’s credibility in the event of a qui tam suit.

In our view, a constructive analysis of the qui tam phenomenon starts with understanding the whistleblowers and what motivates them. We do not attempt to provide a scientific analysis, but rather to share the benefit of our experience in representing whistleblowers for more than a decade.

First, perhaps surprisingly to those on the receiving end of qui tam lawsuits, relators are not primarily driven by greed. This is not to say that money is not an important factor in a relator’s decision to go forward. The qui tam law was designed to work that way — to provide people with an incentive to take the risks to career, security, and personal stability that becoming a whistleblower can entail. To many, the potential recovery provides a comfort factor that renders the possibility of career damage a risk worth taking — a way to explain to a spouse, for example, why blowing the whistle is not a totally foolhardy act. The recovery is a lure — but it is rarely, if ever, the primary motivation upon which a successful qui tam suit is ultimately built.

Likewise, revenge is a factor but rarely the driving force. Some relators certainly seek vindication, and many are tenacious to the point of obsession. This is usually understandable given that many have fought long and hard to bring their concerns to the attention of corporate management through internal means, only to be ignored, spurned, marginalized, fired and/or otherwise frustrated in their efforts. Similarly, others have tried, and failed, to have law enforcement authorities address their concerns by calling government hotlines in order to report their concerns through official procedures established for the purpose. Given the volume of calls that such hotlines field, it is hardly surprising that whistleblowers often have been met with answer machines and/or apparent indifference. And hotline reports, of course, carry no guarantee of follow-up, and no guarantee that the whistleblower will even be informed if any such follow-up occurs.

In our experience, one factor that is always present is some degree of moral outrage. Most relators simply believe that what they observed is wrong, and they believe that reporting it is the right thing to do. For many, a qui tam case is the last resort after efforts to get the company to address the problem have failed. As colleague Harris Berman, M.D., chairman and CEO of Tufts, reported about whistleblower Dr. Joseph Gerstein, “[t]his is vintage Joe Gerstein,…he saw a wrong and kept going until he righted it. He’s a very principled guy who feels passionately about his principles.”⁵⁵ Much the same can be said about Douglas Durand. Discussing his upbringing, Durand stated, “I was raised to do the right thing. You don’t lie. You don’t cheat. You don’t steal. And you tell the truth.”⁵⁶

In cross-examination during his deposition in 2002, George Couto explained what led his to file his qui tam suit:

“I continuously got more uneasy as the private labeling program expanded, as more people learned about it, as Bayer began to use it almost as a routine marketing practice. It was one drug and then it was two drugs and now it’s three drugs . . . I attended a training compliance training program in February of [1999], I’m told by Joe D’Arco, our lead counsel, and I’m told by Helge Wehmeier on video to not only follow the letter of the law but the spirit of the law as well. So here I am, a market manager with full knowledge and awareness of a program that clearly is not within the spirit of the law at a minimum . . . It’s the only ethical thing to do.”

In most cases, the qui tam relator is motivated by a combination of factors. More recently, as corporate executives, management level employees and others in positions of responsibility have become a distinct category of qui tam relator, self-protection increasingly has become a motive: a concern about being asked to participate in wrongdoing, or being perceived as having already done so, and fear of the personal consequences that might flow. For example, Douglas Durand, already troubled by what he saw as TAP’s “cowboy” culture, told People magazine that after he heard about an alleged kickback plan involving sales of the drug Lupron, he realized the extent of his personal exposure. “The sales force was my responsibility,” he told the magazine. “I could have been the one to get hung out to dry.”⁵⁷

The marketing and pricing practices that have evolved with the explosion in prescription drug usage over the past decade are as complex and creative as the legal and regulatory scheme that governs the industry. The pharmaceutical business is rife with opportunities for envelope-pushing: pricing and marketing practices that many pharmaceutical companies have viewed as merely entrepreneurial, can, and have been, viewed by the government as beyond the pale. The highly competitive nature of the industry also renders it susceptible to dubious practices. In order to defend their market share, many companies have been driven to adopt what they might term “borderline” or “gray area” practices that other companies have initiated to gain a competitive advantage. Ultimately, the industry comes to view this kind of conduct as acceptable because “everyone does it.” However, as is well known, the DOJ has no tolerance for the “everyone does it” defense.

In this climate, pharmaceutical company employees with managerial and decision-making roles are especially vulnerable. The options open to a corporate decision-maker who is aware of conduct that may be viewed by prosecutors as fraudulent, and who may be perceived as having been involved in such conduct or having adopted an “ostrich” approach to it, are far from enviable. Such a person could, and in an ideal world should, report the conduct internally and urge that it be corrected – provided, of course, that the company has a truly effective compliance program, and ( to use the terminology adopted by the HHS) a truly effective “process (such as a hotline or other reporting system) to receive complaints or questions, and . . . procedures to protect the anonymity of complainants and to protect whistleblowers from retaliation.”⁵⁸ In the absence of such a program and process, fear of being punished, shunned, or even fired is likely to be all too real. And if senior management is part of the problem, reporting to a compliance officer may seem like a pointless enterprise unless that officer has true independence, status and a guarantee of access to a higher authority such as the Board of Directors.

Nor could our hypothetical employee hope that the corporation would come to his or her aid if and when the conduct is exposed – potentially by another whistleblower. As a perusal of the front pages of any major business daily makes all too clear, no-one should expect support from the corporation if he or she is involved in potentially fraudulent conduct. Nor should a corporate decision-maker expect to fly below the radar if he or she knew about such conduct and did nothing to stop it.

Faced with such a situation, a qui tam action can be the only reasonable option. As the cases we have discussed above illustrate, corporate higher-ups bring immense value to the government’s anti-fraud effort. Their sophistication, knowledge and access to information are such that they have often been able to provide prosecutors with a virtual road map to the alleged wrongdoing.⁵⁹

It takes immense courage for an employee who has achieved a level of responsibility in a corporation to turn informer on it. Such persons have a huge personal, professional and financial investment in believing in the integrity of their employers and remaining loyal to them. In the cases discussed above, the whistleblowers lost faith in the corporate culture and came to see it as a personal threat. The key to preventing them from ultimately taking matters into their own hands is to provide them with a meaningful opportunity to report their concerns internally, without fear of retaliatory acts and with confidence that their complaints will be adequately addressed. Such effective reporting process is one of the HHS OIG’s Basic Compliance Elements, as set forth above. Similarly, the Sarbanes-Oxley Act requires that Audit Committees establish procedures for the “receipt, retention and treatment of complaints” regarding accounting and auditing matters, while “maintaining the anonymity of complaints made by company employees.”⁶⁰ This means that employees must be free of the following concerns: “Will I be punished or even fired if I draw attention to a practice that is making the company a lot of money? Will I be shunned by my colleagues? If I take a stand, will my concerns be taken seriously and investigated thoroughly? What can I do if senior management is part of the problem?” As to the last two of these concerns, corporations would do well to heed the second and seventh elements of the HHS OIG’s “Basic Compliance Elements:” “(2) The designation of a compliance officer . . . with authority to report directly to the board of directors and/or the president or CEO . . . (7) The development of policies and procedures for the investigation of identified instances of noncompliance and misconduct.”⁶¹

In our experience real whistleblowers — the successful ones — are rarely motivated purely or even primarily by money or revenge. Many simply want to do the right thing, and others also act from a desire to protect themselves, lest the finger of blame be pointed at them some day. If there is a whistleblower archetype, it may well be this: the corporate insider who is unable to have his or her concerns addressed via internal means and who, in fear and/or frustration, turns to the qui tam law as a last resort.

Pending Cases

Qui tam cases often remain under seal for considerable lengths of time. However, there are a number of FCA suits pending in which the government has intervened and/or the seal has been lifted. Those cases are set forth in the paragraphs below.

Qui tam cases also provide the inspiration for both “spin-off” law suits and for legislative reform. The AWP cases have spawned a host of civil lawsuits by Attorneys-General in as many as 20 states alleging that pharmaceutical manufacturers overcharged government health plans, private insurers and consumers for both brand name and generic drugs. Those states that have stepped into the fray include Arkansas, Connecticut, California, Florida, Kentucky, Massachusetts, Minnesota, Montana, Nevada, New York, Ohio, Pennsylvania, Texas, and West Virginia.⁶² Just recently, as a part of its prescription drug package, the federal government announced an overhaul of the AWP system that will hopefully prevent future similar abuses. A sample of the state cases and a brief overview of the new legislation are set forth below.

1. Pending Unsealed FCA Cases

A. Merck/Medco ⁶³

In June 2003, United States Attorney Patrick Meehan joined two FCA suits filed in the Eastern District of Pennsylvania against Merck-Medco Managed Care, now titled Medco Health Solutions, and its parent company, Merck & Co.⁶⁴ The first suit, filed in 1999, was brought by two pharmacists, George Hunt and Walter Gauger, who were then employed at Merck-Medco.⁶⁵ The second suit was initiated in 2000 by Dr. Joseph Piacentile, a New Jersey physician.⁶⁶

The thrust of the combined allegations is that Medco perpetrated a scheme to defraud the government “by canceling and destroying prescriptions, switching patients’ prescriptions without their consent, shipping and billing patients for drugs they never ordered, creating false records of contacts with doctors, and by receiving incentives from its former parent – Merck & Co. of Whitehouse Station, N.J. – to use its products in filling prescriptions.”⁶⁷ According to the publication Modern Healthcare, “[t]he potential damages could be sizable, considering Merck-Medco reported $26 billion in revenue in 2001 and filled 537 million prescriptions.”⁶⁸

B. Schering-Plough

In an April 2003 securities filing, Schering-Plough announced that an FCA qui tam case had been filed against it “and approximately 25 other pharmaceutical companies” in the Northern District of Texas alleging that the companies had defrauded the U.S by selling drugs to the government that were not manufactured in compliance with the current Good Manufacturing Practices.

Earlier, in May 2002, Schering-Plough agreed to pay $500 million disgorgement in relation to violations of the current Good Manufacturing Practices, which are designed to ensure drug quality, at two of its manufacturing facilities located in New Jersey and Puerto Rico.⁷⁰

C. Merck

In February 2003, a Louisiana⁷¹ doctor filed a qui tam case against Merck in the Eastern District of Louisiana alleging that Merck knowing failed to charge Medicaid the Best Price for Pepcid, a heartburn drug. The case alleges that Merck sold Pepcid tablets to hospitals for roughly $0.10 per tablet while charging Medicaid and Medicare up to $1.65 for the same.⁷²

The case also alleges that, as a product of the deep discounting, hospitals often switch or substitute Pepcid for similar products without physicians’ consent, thereby causing both his patients and the government to pay more for the brand drug than they otherwise would have for the generic equivalents.⁷³ The complaint alleges violations of the FCA, the Food, Drug, and Cosmetic Act, and the Medicaid/Medicare Anti-Kickback Statute.⁷⁴ In April 2003, the DOJ declined to intervene. The case remains before the District Court in New Orleans.

D. Abbott Laboratories

On January 7, 2003, the California Attorney General Bill Lockyer filed a complaint against Abbott Laboratories and Wyeth for inflating drug prices and falsely reporting pricing data to Medi-Cal, the California state Medicaid system.⁷⁶ The case, California ex rel. Ven-A-Care v. Abbott Laboratories Inc., cites a host of dramatic mark-ups; for example, in 1996 Abbott charged pharmacies roughly $6.29 for a dose of Vancomycin and then promptly sought reimbursement of the same from the government for $55.59, a 752% mark-up.⁷⁷
2. A Sample of State AWP Cases

In March 2004 the Pennsylvania Attorney General filed a suit against 13 pharmaceutical giants, alleging that “they conspired to perpetuate a price inflation scheme in which medical providers paid artificially low prices for prescription drugs and in turn overcharged government health programs, insurers and individual consumers for those drugs.”⁷⁸ Those industry giants include TAP Pharmaceutical Products, AstraZeneca, Bayer, GlaxoSmithKline, Pfizer, Amgen, Schering-Plough, Bristol-Myers Squibb, Johnson & Johnson, Baxter International, Aventis Pharmaceuticals, Boehringer Ingelheim, and Dey Inc.⁷⁹

In March 2004 the Ohio Attorney General filed a lawsuit against Merck KGaA affiliate Dey, Abbott Laboratories, Pharmacia, and generic firm Warrick Pharmaceuticals and its affiliates Schering-Plough and Schering. The complaint alleges that the defendants entered into secret supply agreements, provided undisclosed discounts and rebates to wholesale customers, fraudulently concealed their actual wholesale prices and marketed the resulting spread between government reimbursements and providers’ acquisition costs.”⁸⁰ This suit parallels one filed against virtually the same defendants in Arkansas in January of this year for misreporting drug pricing information in order to boost their profits.⁸¹

In September 2003, the Massachusetts Attorney General brought a federal suit against 13 generic drug manufacturers for “systematically and secretly” inflating prices and fraudulently overcharging Medicaid.⁸² The defendants named in the case are Mylan Laboratories, Barr Laboratories, Duramed Pharmaceuticals, Ethex Corp., Par Pharmaceuticals, Ivax Corp., Warrick Pharmaceuticals, Teva Pharmaceuticals, Watson Pharmaceuticals, Schein Pharmaceuticals, Purepac Pharmaceuticals, and Roxane Laboratories. In an effort to increase their market share, “the companies report[ed] higher prices for their drugs to the government than they actually charged their customers, then pa[id] the excess reimbursement from Medicaid to their customers in the form of kickbacks.”⁸³ The complaint alleges that the companies overcharged the government by as much as $50 million over the course of the past several years.⁸⁴
3. Legislative Reform

In the course of the AWP litigation, pharmaceutical companies have claimed that the problem lies not with their marketing practices but with the regulatory system. Their claim is that “the problem with AWP is not drug makers’ reporting practices but the government’s decision to continue using a price reference system that it knows does not reflect actual prices.”⁸⁵ The recent overhaul of the Medicare Rx system was designed to address this issue by replacing AWPs with average sales prices and widely available market prices. The Medicare Prescription Drug, Improvement and Modernization Act, P.L. 108-173, signed into law on December 8, 2003, changes the methodology for physician reimbursement for drugs and biologicals.⁸⁶ Historically, physicians have been reimbursed for roughly 95% of the AWP; the new Medicare Rx system will decrease that percentage to 85% throughout the year 2004, and then change the reimbursement to 106% of the average sales price (ASP), effective as of January 1, 2005.⁸⁷ Additionally, drug manufacturers will face more burdensome reporting requirements.⁸⁸

Reported Investigations

Hardly a week goes by without a press report and/or SEC filing announcing that yet another pharmaceutical company has been subpoenaed or is otherwise under investigation. At such an early stage, of course, it is not known whether these investigations were triggered by qui tam filings. However, based on experience, it’s reasonable to assume that qui tam whistleblowers, directly or indirectly, are playing a key role. The following provides a summary of investigations made public in the past year.

1. Biovail

Biovail reportedly is under investigation by the SEC, the Ontario Securities Commission and the HHS OIG.⁸⁹ The HHS investigation, which was reportedly initiated last fall, concerns marketing practices relating to the hypertension drug Cardizem.⁹⁰ Allegedly, Biovail paid American doctors as much as $1,000 for prescribing Cardizem, and offered office managers as much as $150 for their assistance.⁹¹

2. Bristol Myers Squibb

On August 8, 2003, Bristol Myers Squibb announced in an SEC filing that the U.S. Attorney in Boston had issued a subpoena to the company relating to their sales, marketing, and Best Price reporting practices.⁹² In July 2003, prior to the issue of the subpoena, Bristol Myers announced that it had hired Mary Jo White, the former U.S. Attorney for the Southern District of New York, to conduct an internal review of its sales and marketing practices.⁹³

3. Eli Lilly

In March 2004, Philadelphia U.S. Attorney Patrick Meehan reportedly launched a federal civil investigation into Eli Lilly ‘s marketing and promotional practices.⁹⁴ The probe sought information on the marketing and sales practices for schizophrenia and bipolar disorder drug Zyprexa, its best-selling product; antidepressant Prozac, its former blockbuster; and its osteoporosis drug Evista.⁹⁵ As of July 2002, Eli Lilly was already under investigation for off-label usage of Evista, an investigation sparked by a competitor’s complaint that Lilly was promoting off-label usage of the osteoporosis drug for breast cancer and heart disease.⁹⁶

4. GlaxoSmithKline

On February 6, 2004, a subpoena reportedly was issued by the United States Attorney’s Office in Denver, Colorado, in relation to the sales and promotional practices of GlaxoSmithKline.⁹⁷ According to press reports, the investigation will explore sales dating back as far as 1997.⁹⁸

5. Johnson & Johnson

On December 12, 2003, according to press reports, Johnson & Johnson’s subsidiary Ortho-McNeil Pharmaceutical received a subpoena from the Massachusetts United States Attorney’s Office regarding the off-label promotion of Topamax,⁹⁹ a leading epilepsy drug. The subpoena requested information pertaining to the sales and marketing practices for Topamax.

In addition to the Ortho-McNeil subpoena, another company subsidiary, Centocor, received a subpoena from the federal government in relation to their sales and marketing practices of the autoimmune disorder drug, Remicade.¹⁰⁰ Receipt of the Centocor subpoena was revealed in a Johnson & Johnson quarterly report filed with the SEC on August 11, 2003.¹⁰¹

6. King Pharmaceuticals

Both the SEC and the OIG are reportedly investigating King Pharmaceuticals.¹⁰² The SEC investigation, launched in March 2003, was triggered by accounting irregularities which led to significant underpayments to the Medicaid drug program.¹⁰³ In November 2003, King received a subpoena requesting “documents relat[ing] to King’s sales, marketing, and other business practices involving the antihypertensive drug Altace, the hypothyroidism drug Levoxyl, and the tuberculosis diagnostic Aplisol.”¹⁰⁴ King Pharmaceuticals has since set aside at least $65.4 million to recompense the government for the underpayments.¹⁰⁵

7. Merck

In August 2003, the company received a subpoena from the federal government in relation to their sales and marketing practices.¹⁰⁶ Merck disclosed the subpoena in a quarterly report filed with the SEC.¹⁰⁷

8. Pfizer

In a 10K filed with the SEC in March 2004, Pfizer disclosed that it was under investigation for practices relating to the human growth hormone, Genotropin, and its pain-killing arthritis medication, Bextra.¹⁰⁸ The two products account for more than $2 billion in annual Pfizer sales.¹⁰⁹ According to industry reports, “[a] recent Merrill Lynch research report suggested drug makers could face settlement liabilities in marketing cases in the neighborhood of the annual sales for the targeted products, which could mean a record enforcement tab for Pfizer if that hypothesis holds true.”¹¹⁰

9. Schering-Plough

Schering-Plough’s 2003 Annual Report notes that sales and marketing investigations currently underway by the United States Attorneys in Pennsylvania and Massachusetts “pose significant risks to the Company and have caused the Company to significantly increase its litigation reserves.”¹¹¹ Schering-Plough’s 10K revealed that it had increased its litigation reserves by $350 million in 2003.¹¹² According to a recent article in Pharmaceutical Corporate Compliance Report, Schering-Plough expects “to be indicted on fraud, kickback and obstruction of justice charges.”¹¹³

10. Watson Pharmaceuticals

On December 12, 2003, Watson Pharmaceuticals acknowledged that it received a subpoena from the OIG regarding potential kickbacks to doctors. According to news reports, the subpoena requested documents “related to meetings held for kidney specialists in 2002 and 2003 about the injectable anemia drug Ferrlecit. Doctors who attended the meetings, which were held in multiple cities, reportedly received $500 and dinner” as a “consulting fee.”¹¹⁴

The federal subpoena follows on the heels of other state investigations, such as the one initiated in November by the California Attorney General, as well as the lawsuit initiated by Massachusetts Attorney General Tom Reilly against Watson and 12 other generic drug makers.¹¹⁵

Conclusion

In October 2000, the “First Annual Pharmaceutical Industry Regulatory and Compliance Summit,” an industry forum, was held in Washington DC. That this gathering was termed the “first” in the industry to deal with the compliance is telling. In fact, compliance was not high on the list of priorities in the pharmaceutical industry prior to 2000, despite the warning signs. The DOJ’s assaults on the clinical laboratory industry and the for-profit hospital industry, each of which resulted in recoveries to the government well in excess of $1 billion, had begun in 1992. Pharmaceutical companies apparently were slow to recognize that the DOJ enforcement juggernaut was turning its sights firmly in their direction.

The October 2000 Summit featured an address by a distinguished former DOJ official, John Bentiviglio, who had been a DOJ Associate Deputy Attorney General and Special Counsel for Health Care Fraud. Mr. Bentiviglio’s remarks about the importance of qui tam relators were, in that setting, prophetic:

“It is no exaggeration to say the virtually every major case that the Department [of Justice] has brought in the past was the result in one way or another of a whistleblower complaint. It’s an extraordinarily powerful tool for the government. You have insiders who . . . know the practices, they know where documents are located, they know what executives and officials know of certain types of conduct. Sometimes they are cooperators so they can gather additional information. If you were thinking about what kind of case you’d bring if you were an Assistant United States Attorney, and you had some external report of wrongdoing, versus someone who is inside who could give you that level of insight into the alleged conduct, which case would you take?”

Since Mr. Bentiviglio’s remarks, the government has recovered more than $1.6 billion from drug makers in seven qui tam cases. Drug companies are facing additional unsealed qui tam cases (and an unknown number of sealed cases); they are being sued by more than 20 state Attorneys-General; and they are facing a virtual avalanche of investigations by federal and state law enforcement and regulatory agencies. Qui tam relators grow ever more sophisticated and ever more incentivized. Exposing corporate fraud – as evidenced by the fact that Time magazine bestowed its famous Persons of the Year Award on three whistleblowers in 2002¹¹⁶ – has become not only respectable but heroic. In light of the success achieved by pharmaceutical industry insiders in qui tam cases over the past few years, the decision to come forward is not only good ethics but, increasingly, good business.

In 2001, describing the $875 million TAP civil settlement/criminal fine as “the tip of the pharmaceutical fraud liability iceberg” would have been viewed as a dubious prediction. Today, that proposition seems all but incontrovertible.

¹ The qui tam, or whistleblower, provisions of the federal False Claims Act 31 U.S.C. Sec. 3729 ff. permit a private citizen with knowledge of a fraud on the government to bring a civil lawsuit in the name of the government and to receive up to 30% of the proceeds. Revamped in 1986 to create a “public-private partnership” of citizens and the government, qui tam recoveries have exceeded six billion dollars since that time.

² In June 2003, the DOJ and Abbott Laboratories reached a $600 million settlement arising from alleged fraud relating to the marketing of durable medical equipment, viz., enteral feeding pumps, tubing and liquid food. Since the focus of this case was equipment rather than primarily pharmaceuticals, discussion is not included in this article.

³ Andy Schneider, TAXPAYERS AGAINST FRAUD, REDUCING MEDICAID AND MEDICARE FRAUD BY DRUG MANUFACTURERS 8 (2003) (“2003 TAF REPORT”); BNA Report, Vol. 7, No. 13, 480; TAF Quarterly, Vol. 31, 46.

⁴ Lisa Biank Fasig, Whistle-blower Wiser, Now – Exposing Medicaid Fraud Costs Up-and-Comer His Career Trajectory, PROVIDENCE JOURNAL-BULLETIN, Sept. 15, 2002, at. F1.

⁵ Id.

⁶ 2003 TAF REPORT, supra note 3, at 8; FALSE CLAIMS ACT AND qui tam QUARTERLY REVIEW, January 2002, at 33 (“TAF Quarterly”).

⁷ Biank Fasig, supra note 4.

⁸ Biank Fasig, supra note 4.

⁹ Patrick Rogers and Fannie Weinstein, The Outsider; Douglas Durand blew the whistle on his drug firm–and got $ 79 million, PEOPLE, May 6, 2002, at 139.

¹⁰ Bruce Japsen, Drug Giant Guilty in Medicare Sales Fraud; AstraZeneca to Pay $355 Million Fine, CHICAGO TRIBUNE, June 21, 2003 at 1.

¹¹ Biank Fasig, supra note 4.

¹² Duffy, supra note 7.

¹³ Six Additional Tap Employees Charged with Conspiracy and Kickback Crimes, Reports U.S. Attorney, PR NEWSWIRE, July 16, 2002.

¹⁴ Gina Rollins, Turning off the Tap, Whistleblower Recounts Efforts to Stop Fraud, MODERN PHYSICIAN, February 1, 2002, at 2.

¹⁵ 2003 TAF REPORT, supra note 3, at 8;TAF Quarterly, supra note 6, at 33.

¹⁶ Rollins, supra note 15.

¹⁷ Id.

¹⁸ Duffy, supra note 7.

¹⁹ Mia Burns, The Zoladex Conspiracy; Marketing Roundup; AstraZeneca Investigation, MED AD NEWS, July 1, 2003, at 6. “[A] large portion of his reward from the AstraZeneca case will be used for health-care purposes. Once about $20 million in taxes and fees are paid, Durand said, there will be more than $10 million left to establish a private family foundation dedicated to research on cancer and Alzheimer’s disease.” Japsen, supra note 11.

²⁰ Bayer is the only pharmaceutical company known to have settled as a result of this litigation.

²¹ 2003 TAF REPORT, supra note 3, at 39.

²² Jill Wechsler, Industry Under Investigation: Prosecutors Are Focusing on Marketing, Pricing, and Agreements to Delay Generic Competition, PHARMACEUTICAL EXECUTIVE, June 1, 2001, at 24.

²³ 2003 TAF REPORT, supra note 3, at 32.

²⁴ Id.

²⁵ Wechsler, supra note 23; see also DOJ Press Release, Bayer to Pay $14 Million to Settle Claims for Causing Providers to Submit Fraudulent Claims to 45 State Medicaid Programs (January 23, 2001) (“DOJ Bayer Press Release”).

²⁶ Michelle Chandler, The Whistleblowers, MIAMI HERALD, February, 5, 2001, at G6; see also 2003 TAF REPORT 34.

²⁷ Id.

²⁸ 2003 TAF REPORT, supra note 3, at 34.

²⁹ Similarly, a state class action has been filed against 20 manufacturers for giving deep discounts to PBMs. In re Pharmaceutical Industry Average Wholesale Price Litigation [Civil Action No. 01-122577-PBS] (D. Mass) is currently before the Massachusetts District Court. The reported plaintiffs are five employee benefit plans and five consumer and public interest associations. The defendants are numerous, including but not limited to an affliation of pharmaceutical giants known as Together Rx; member companies include Abbott Laboratories, AstraZeneca, Aventis, Bristol-Myers Squibb, GlaxoSmithKline, Johnson & Johnson affiliates Janssen Pharmaceutica Products and McNeil-OPC, and Novartis Pharmaceuticals. Other defendants involved include Amgen, Baxter, Bayer, the Boehringer Group, B. Braun of America, Merck KGaA affiliate Dey, the Fujisawa Group, Immunex; Johnson & Johnson affiliate Ortho Biotech, Pfizer and its Pharmacia and Upjohn subsidiaries, Schering-Plough and its generic subsidiary Warrick Pharmaceuticals, the Sicor Group, TAP Pharmaceutical Products, and Watson Pharmaceuticals. Judge Refuses to Drop Allegations of PBM, Together Rx Conspiracies, PHARMACEUTICAL CORPORATE COMPLIANCE REPORT, March 16, 2004; see also Federal Judge Refuses to Nix AWP Fraud Case, WASHINGTON DRUG LETTER, March 8, 2004.

³⁰ Wechsler, supra note 23; see also DOJ Bayer Press Release, supra note 26; see also 2003 TAF REPORT 8.

³¹ 2003 TAF REPORT, supra note 3, at 34.

³² 2003 TAF REPORT, supra note 3, at 8; BNA Report, Vol. 6, No. 21, 797; TAF Quarterly, January 2003, at 51.

³³ Avram Goldstein, Pfizer to Pay City $32,000 in Case; Medicaid Drug-Pricing Rules Violated, THE WASHINGTON POST, February 13, 2003, at T6.

³⁴ Id.

³⁶ Berg & Androphy Law Firm Announces $49 Million Settlement Against Pfizer Inc. in Beaumont, BUSINESS WIRE October 28, 2002.

³⁷ Id.

³⁸ Jerry Seper, Pfizer, Subsidiaries Pay $49 Million to Settle; Firms Accused of Drug-Rebate Fraud, THE WASHINGTON TIMES, October 29, 2002, at C8.

³⁹ Originally, the case included similar claims of off-label promotion relating to the drug Accupril, but those claims were dismissed for a lack of particularity. See United States ex rel. Franklin v. Parke-Davis, 147 F. Supp. 2d 39, 50 (D. Mass. 2001).

⁴⁰ United States ex rel. Franklin v. Parke-Davis, 147 F. Supp. 2d 39, 44 (D. Mass. 2001) (citing 21 U.S.C. § 331(d)).

⁴¹ Michael D. Lam, Is Everyone a Target? A new legal theory, the latest off-label commotion, appears far-fetched to some, but raises a few serious questions. Here’s One, PHARMACEUTICAL EXECUTIVE, March 1, 2004, at 56.

⁴² Theo Emery, Whistleblower’s Lawsuit Being Closely Watched, THE ASSOCIATED PRESS, August 8, 2003.

⁴⁴ Theresa Agovino, Pfizer: Justice Department Investigating Marketing Practices on Two Drugs, ASSOCIATED PRESS, March 10, 2004; see also Pharma Needs Appellate Win to Stop Off-Label Suits, PHARMACEUTICAL CORPORATE COMPLIANCE REPORT, February 17, 2004.

⁴⁵ Pharma Needs Appellate Win to Stop Off-Label Suits, PHARMACEUTICAL CORPORATE COMPLIANCE REPORT, February 17, 2004.

⁴⁶ United States ex rel. Franklin, supra note 40, at 45.

⁴⁷ Id.

⁴⁸ Id. at 48.

⁴⁹ Id. at 48-49.

⁵⁰ Secrets & Lies; David Franklin describes deceptive sales and marketing strategies of Warner-Lambert with their drug Neurontin (Dateline NBC, July 11, 2003) (quoting Dr. Franklin as having pretended to be an expert in any number of fields in order to cater to the doctors with whom he was speaking) (“Secrets & Lies”).

⁵¹ United States ex rel. Franklin v. Parke-Davis, 147 F. Supp. 2d 39, 46 (D. Mass. 2001).

⁵² Secrets & Lies, supra note 51.

⁵³ Not all qui tam relators are corporate insiders. They can be customers, vendors, consultants, competitors and even external entities such as public interest organizations. Since corporate insiders predominate, however, the remarks in this section of this paper are focused on that category of relator.

⁵⁴ In U.S. ex rel. Green v. Northrop Corp., 59 F.3d 953 (9th Cir. 1995), cert. denied, 518 U.S. 1018, 116 S. Ct. 2550, 135 L. Ed. 2d 1069 (1996), the Ninth Circuit held such waivers and agreements not to sue to be unenforceable as contrary to public policy.

⁵⁵ Rollins, supra note 15.

⁵⁶ Rogers and Weinstein, supra note 10.

⁵⁷ Id.

⁵⁸ The Basic Compliance Elements, 68 Fed. Reg. 86, 23731, 50, 23734 (2003) (HHS OIG Compliance Program Guidance for Pharmaceutical Manufacturers released April 2003).

⁵⁹ Management-level relators have also been responsible for big ticket recoveries in other health care fields, in particular hospitals and clinical laboratories:

• A qui tam suit filed by a divisional reimbursement supervisor for a national hospital chain against his employer and an accounting firm that helped prepare Medicare cost reports resulted in a $9 million settlement with the accounting firm in 2001, and formed part of an $881 million settlement with the hospital chain in 2003. U.S. ex rel. Schilling v. KPMG Peat Marwick, LLP., No. 98-901 (M.D. Fla.).
• In 1998, the CFO of a Florida hospital turned in his employers after they responded inadequately to his reports that certain management fees submitted to Medicare for reimbursement were inflated. His qui tam case against the hospital chain and a management company recouped $16.5 million from the management company in 2001, and formed part of an $881 million settlement with the hospital chain in 2003. U.S. ex rel. Parslow v. Columbia/HCA Healthcare Corp., No. 99-3338 (D. D.C.).
• A former Vice President of a home health care company filed a qui tam case in 1997 against his employer and a national hospital chain alleging that they made claims to Medicare for non-reimbursable marketing activities. In 1999 the home health company agreed to a $51 million settlement and $10 million in criminal fines. In 2000, the hospital chain settled this and a number of other qui tam cases for $745 million. U.S. ex rel. McLendon v. Columbia/HCA Healthcare Corp., No. 97-CV-0890 (N.D. Ga.); No. 99-3295 (D. D.C.).
• A qui tam lawsuit filed in 1993 by the former CFO of a Montana hospital against his employers alleging Medicare cost reporting fraud resulted in an $85 million settlement in 2001. U.S. ex rel. Alderson v. Quorum Health Group, Inc., No. 8: 99-CV-413T-23TGW (M.D. Fla.).
• The National Health Laboratories settlement was followed by a number of additional qui tam cases against most of the nation’s major clinical testing laboratories, ultimately recovering in excess of $1 billion. The single largest settlement in these cases — $325 million — arose from three qui tam cases, one filed by a senior billings system analyst for the laboratory, and another filed by a laboratory medical director. U.S. ex rel. Merena v. SmithKline Beecham Corp., 205 F.3d 97 (3rd Cir. 2000).
• In 1989, a sales manager for one of the country’s major clinical testing laboratories filed a qui tam case against his and other laboratories after they listened to his complaints alleging corrupt practices by a competitor — and copied them. His lawsuit resulted in criminal charges, and civil recoveries totaling $149 million.. Calvin Sims, How a Whistleblower Found Blood Test Fraud, N.Y. Times, December 21, 1992, at D12 (commenting the on the settlement reached in U.S. ex rel. Dowden v. National Health Laboratories, Inc.)

⁶⁰ 15 USCS § 78j-1(m)(4)(B) (2002).

⁶¹ The Basic Compliance Elements, supra note 59, at 86, 23734.

⁶² Two More States in AWP Fray; One Seeks Damages Related to Old Federal Case, PHARMACEUTICAL CORPORATE COMPLIANCE REPORT, March 16, 2004.

⁶³ United States v. Merck-Medco Managed Care LLC/United States ex rel. Piancentile v. Medco Health Solutions (E.D. Pa. No. 00-cv-737).

⁶⁴ Mark Taylor, Bringing in the Big Guns; U.S. Attorney Joins Civil Suits Against Medco Health, MODERN HEALTHCARE, July 7, 2003, at 17; see also Milt Freudenheim, Payments by Managers of Drug Plans Face Scrutiny, NEW YORK TIMES, December 11, 2003, at C3.

⁶⁵ Taylor, supra note 64.

⁶⁶ Id.

⁶⁷ Michael Prince, U.S. Suit Not Expected to Hurt Medco Dealings with Clients, BUSINESS INSURANCE, October 6, 2003; see also Taylor, supra note 64.

⁶⁸ Taylor, supra note 64.

⁷⁰ May 2002 Consent Decree in the matter of United States v. Schering-Plough Corp. and Schering-Plough Products, Case No. 02-2397 (JAP).

⁷¹ United States ex rel. LaCorte v. Merck & Co., 2004 U.S. Dist. LEXIS 4860, 3 (E.D. La. 2003).

⁷² Id. at 5.

⁷³ Id. at 6-7.

⁷⁴ Id.

⁷⁶ Japsen, supra note 11.

⁷⁷ Id.

⁷⁸ Asher Hawkins, In the Game, BROWARD DAILY BUSINESS REVIEW, March 22, 2004, at 19.

⁷⁹ Pennsylvania Sues Drug Makers Over Pricing Practices, HEALTH & MEDICINE WEEK, March 29, 2004, at 488.

⁸⁰ Two More States in AWP Fray, supra note 63.

⁸¹ U.S. State AG Sues for Rx “Overcharging,” PHARMA MARKETLETTER, February 2, 2004.

⁸² Massachusetts Sues Generic Firms Over Medicaid Drug Pricing, DRUG INDUSTRY DAILY, September 26, 2003.

⁸³ Debbi Mack, Massachusetts Targets Generic Drug Makers, CORPORATE LEGAL TIMES, December 2003.

⁸⁴ Id.; see also Massachusetts to Sue Generic-Drug Makers Over Medicaid Pricing, AFX EUROPEAN FOCUS, September 25, 2003.

⁸⁵ Arkansas AG Alleges Fraud in Generics’ AWP Reporting, PHARMACEUTICAL CORPORATE COMPLIANCE REPORT, February 3, 2004.

⁸⁶ Eide Bailly, Medicare Prescription Drug, Improvement and Modernization Act of 2003, THE I-V, January 2004, at 2.

⁸⁷ Arkansas AG Alleges Fraud in Generics’ AWP Reporting, supra note 86.

⁸⁸ Id.

⁸⁹ Scott Adams, A yellow flag guide to Biovail: Scilipoti’s issues to watch, NATIONAL POST’S FINANCIAL POST & FP INVESTING, March 26, 2004, at IN1.

⁹⁰ BNA Report, Vol. 7, No. 18, 650.

⁹¹ Mia Burns, Marketing Tactics Questioned, MED AD NEWS, October 1, 2003, at 19.

⁹² BNA Report, Vol. 7, No. 17, 619; see also Milton Liebman, DOJ Sweep Puts Pharmas on High Alert, MEDICAL MARKETING & MEDIA, September 1, 2003, at 10.

⁹³ Liebman, supra note 93.

⁹⁴ Lilly Facing Federal Probe of Drug Marketing Practices, DRUG INDUSTRY DAILY, March 26, 2004.

⁹⁵ Id..

⁹⁶ Drug Makers Facing Increased Risk of Off-Label Enforcement Actions, FOOD AND DRUG LETTER, February 13, 2004.

⁹⁷ BNA Report, Vol. 8, No. 4, 152; see also Inquiry Targets Sales by Drugmaker, ROCKY MOUNTAIN NEWS, February 13, 2004, at 3B.

⁹⁸ Inquiry Targets Sales by Drug Maker, supra note 98.

⁹⁹ Watson/J&J: Receive Federal Subpoenas in Separate Inquiries, AMERICAN HEALTH LINE, December 15, 2003; see also Jennifer Heldt Powell, Fed Regulators Want J&J Info, THE BOSTON HERALD, December 13, 2003, at 21; see also Susan Warner, Hard Times In Star Part Of the State Economy, NEW YORK TIMES, December 28, 2003, at 1.

¹⁰⁰ BNA Report, Vol. 7, No. 17, 619.

¹⁰¹ Liebman, supra note 93.

¹⁰² Gregory Relinquishes King CEO Post, CHAIN DRUG LETTER, March 15, 2004, at 59.

¹⁰³ King Adds to Set-Aside for Unpaid Medicaid Rebates, DRUG INDUSTRY UPDATE, February 20, 2004.

¹⁰⁴ SEC Requests Documents, MED AD NEWS, No. 1, January 1, 2004, at 26; see also As Part of an Ongoing Probe Led by the U.S. Securities and Exchange Commission into King Pharmaceuticals, Inc. in Bristol, Tenn., HHS’s Office of Inspector General Handed the Drug Maker a Subpoena on Nov. 13, According to the Company, REPORT ON MEDICARE COMPLIANCE, November 20, 2003, at 8.

¹⁰⁵ King Adds to Set-Aside for Unpaid Medicaid Rebates, supra note 104.

¹⁰⁶ BNA Report, Vol. 7, No. 17, 619.

¹⁰⁷ Merck Reveals Justice Subpoena in SEC Filing, DRUG INDUSTRY DAILY, August 15, 2003.

¹⁰⁸ Justice Probes Marketing, Sales at Pfizer, PHARMACEUTICAL CORPORATE COMPLIANCE REPORT, March 16, 2004.

¹⁰⁹ Id.

¹¹⁰ Id.

¹¹¹ SCHERING-PLOUGH, 2003 ANNUAL REPORT 27 (2004).

¹¹² Schering-Plough SEC 10K Filing, February 26, 2004.

¹¹³ Schering-Plough Anticipates Payout in USAO Investigation, PHARMACEUTICAL CORPORATE COMPLIANCE REPORT, October 28, 2003.

¹¹⁴ Watson/J&J: Receive Federal Subpoenas in Separate Inquiries, supra note 100; see also Heldt Powell, supra note 100.

¹¹⁵ Watson Receives OIG Subpoena Over Physician Visits, GENERIC LINE, December 24, 2003.

¹¹⁶ Richard Lacayo and Amanda Ripley, Persons of the Year: Coleen Rowley, Cynthia Cooper, Sherron Watkins, TIME MAGAZINE, December 30, 2002/January 6, 2003, at 30.