Michael D. Lam is Pharmaceutical Executive's Associate Editor.
Pfizer is embroiled in a whistleblower lawsuit based on an unproven legal theory with the potential "to scare the hell out
of a lot of drug companies," says attorney Alan Minsk of Arnall Golden Gregory. If upheld, even those compliant with FDA regulations
for off-label promotion might still be liable for Medicaid fraud under the federal False Claims Act (FCA).
The cost of losing the case, known as Franklin v. Parke-Davis (a unit of Warner-Lambert, acquired by Pfizer, liabilities and all, four years ago), could be enormous. Violators of FCA
are excluded from government business and pay triple damages and civil penalties between $5,000 and $11,000 for each false
claim-all of which likely motivated Pfizer to set aside more than $400 million recently, presumably to settle the matter.
What does this suit mean for pharma? US Attorney James Sheehan, a veteran healthcare fraud investigator, sees the suit as
a "green light" for whistleblowers, the first of many to come. To James Moorman, executive director of Taxpayers Against Fraud,
an organization that supports whistleblowers and their attorneys, it's an "outlier," one of a kind.
Who's right? What's at stake? And what can pharma do?
Not as Directed
Like the flu, off-label promotion problems seem to afflict the industry in a new form every year. The Parke-Davis bug is not
only the latest strain, but in certain respects the most unlikely. The plaintiff, David Franklin, PhD, a microbiologist employed
by Parke-Davis as a medical liaison for five months in 1996, filed a lawsuit that year alleging that the company had engaged
in unlawful activities, including kickbacks and sham research, to promote off-label use of Neurontin (gabapentin), an anti-convulsant
approved for the treatment of epilepsy.
Much of the misbehavior alleged in Franklin echoes previous actions against pharma firms. (See "Whistleblower Fraud Cases.") But Franklin's suit contains a troubling
new legal theory that to date has withstood the court's scrutiny. It has two parts. The first, Minsk says, is the contention
that, although Parke-Davis never directly submitted a Medicaid claim the company "in effect caused the false claim to be made."
In a motion to dismiss the suit, the company argued, as Minsk put it, "Wait a second, we don't submit the paperwork. That's
the doctors and the pharmacies. Throw the claim out." But the court didn't.
Why not? Because the allegation is not so outlandish after all. First, there's the basic legal principle, articulated by William
Vodra, senior partner with Arnold & Porter, "that a company remains responsible for the foreseeable consequences of its activities."
In particular, the FCA statute imposes liability on any person who "knowingly presents, or causes to be presented ... a false
or fraudulent claim," with "knowingly" defined as actual knowledge, reckless disregard, or deliberate ignorance. It's easy
to see that a company that promotes off-label use, however circumspectly, might reasonably foresee that a Medicaid claim would
be submitted for that use.
The second part concerns why the claims are fraudulent. Medicaid programs in most states cover the cost of off-label drug
use (for which they are reimbursed by the federal government) as long as the unapproved indications are listed in any of three
standard reference works (Drugdex, AHFS Drug Information, and US Pharmacopeia). However, eight states do not cover any off-label
use under any circumstance. Because Medicaid reimbursement was sought for off-label use of Neurontin in these states, the
claims were materially false.
For Whom the Whistle Blows
"Franklin was a surprise for the industry," says a consultant who advises pharma on compliance issues. The connection between drug
maker and the person who actually bills Medicaid is so attenuated, he says, "that this issue probably was not on the compliance
radar screen of any pharmaceutical company." He likens it to "waking up one morning ... and wearing pants is suddenly viewed
as inappropriate. If you're asked, 'Did you ever wear pants?' you have to say yes. But you never thought you were violating
Minsk says, "The majority of drug companies promote off-label. If the court determines that a company can be held responsible
for causing a false claim to be made, the US Attorney could shoot fish in a barrel if he or she wishes to go after almost
any of them."
Then there are qui tam incentives to consider. "If Franklin walks out of this thing with $100 million," says Vodra, "I can certainly see people
saying, 'This is something to get into.' Every single person in a marketing organization, from the bottommost sales rep up
to the top levels of the company, might blow the whistle," he says. "Even the secretaries at headquarters can walk out, taking
all the documents with them."
So far, the claims in Franklin are just theoretical. And they are likely to stay that way. Every pharmaceutical company in a similar position has settled.
So, the consultant says, "there's never been any proof that these theories really stand up."
If Franklin is settled, as seems likely, the trial court's rulings won't be reviewed by an appellate court, and will be "interesting
opinions from one district court judge with no binding effect on any other," Vodra says. "That doesn't mean the court says
it's a silly claim," says Minsk. "It doesn't mean the court says it's a victorious claim. It just simply means that somebody
else is probably going to bring the issue up at another time."
Why do companies uniformly settle FCA lawsuits? David Hyman, a professor at the University of Maryland school of law, says,
"[Healthcare] providers who believe they are blameless are under tremendous pressure to settle, because of the legal expenses
associated with mounting a defense and the high probability of bankruptcy and professional disgrace if the jury does not see
things the same way."
It is interesting to note that the costliest penalty is the seemingly paltry civil fine of $5,000–$11,000 per false claim.
But, as Hyman points out, "because most healthcare providers typically submit a large number of modest claims, this structure
means that statutory penalties generally dwarf actual damages, and quickly rise to staggering levels—as much as $1.1 million
for every 100 false claims."