Crackdown on the C-Suite

Jun 01, 2010



Over the past decade, the drug industry has paid tens of billions of dollars to settle state and federal lawsuits involving the False Claims Act—which covers defrauding Medicare and Medicaid, promoting drugs for unapproved uses, paying kickbacks to doctors and pharmacies, and the like. Most of the top 100 pharmas have been nailed at one time or another. The Justice Department is currently investigating nearly 200 pharma fraud cases involving more than 500 drugs. In 2009 alone, 16 cases were settled, netting Uncle Sam more than $4 billion.

Yet while industry leaders like Pfizer, AstraZeneca, and Lilly have paid some of the biggest settlements, they are also some of the worst recidivists—evidence that the current system is failing. Major drugmakers now set aside hundreds of millions of dollars to settle False Claims Act charges, and contrary to official statements of contrition, these reserves are viewed as merely the cost of doing business.

Still, record-breaking settlements make the news, attracting the notice of Congress and regulators. Stories about off-label promotion of drugs with serious adverse effects to children, the elderly, prisoners, and the mentally ill have sparked a demand for justice. Now the Obama administration has announced a new enforcement strategy that will take full advantage of the False Claims Act's provisions. Offending drugmakers will increasingly be forced to relinquish product exclusivity. More stunning, the executives under whose watch serious violations occur will be banned from doing business with the government—effectively booting them out of the industry.

Sound harsh? Lewis Morris, a 29-year veteran of the Office of the Inspector General at HHS—and its top lawyer—was more than happy to make the "responsible corporate official" case to Pharm Exec. —Walter Armstrong

Pharm Exec: Can you begin by explaining what you do as the counsel to the Office of the Inspector General?

Lewis Morris: Over the last decade, the Department of Justice and the Inspector General's Office have been pursuing a significant number of cases involving the pharmaceutical industry, as well as device manufacturers, hospitals, and doctors. Under the civil False Claims Act, a company can be liable for promoting the off-label use of a drug, for misrepresenting the pricing of a drug to Medicaid or Medicare, or for other fraudulent conduct. In addition, a pharmaceutical manufacturer can be liable under our criminal authority for submission of fraudulent claims, paying kickbacks to doctors, or other activities. After a case has been thoroughly investigated by our agents and partners in law enforcement, the question becomes how to structure a global settlement that puts the matter to rest in the best interests of the American people. That's where our Office of Counsel comes in.


Lewis Morris, Chief Counsel, OIG, HHS
The OIG has a unique authority to exclude from Medicare and Medicaid any individual or entity that has been convicted of healthcare fraud, abuse, or related offenses. If a company has engaged in, say, a $100 million fraud—that's a pretty modest sum these days—we have to make a decision whether or not to throw them out of the Medicare and Medicaid programs. If they've been convicted of Medicare fraud, their exclusion is mandatory. More likely than not, that would be a back-breaker for any company [because most of its profits come from sales to the federal government]. It's not going to voluntarily commit suicide by pleading to a criminal charge.

So they're likely to have brought their high-priced lawyers into the act and negotiated a settlement. What they then have to do is come to the office and convince us that it's better for the company to stay in business. We take a number of considerations into account, including whether the company is making critical or life-saving drugs, or if the company has a lot of innocent employees who knew nothing of the fraudulent conduct. Also, we consider whether or not the company has a good track record of treating the Medicare program fairly. If the answer to all those questions is yes, we'll generally negotiate a corporate integrity agreement [CIA].