Feds Crack Down on Fraud

November 1, 2001
Jill Wechsler, Pharm Exec's Washington Correspondent

Jill Wechsler is Pharm Exec's Washington Corespondent

Pharmaceutical Executive

Pharmaceutical Executive, Pharmaceutical Executive-11-01-2001, Volume 0, Issue 0

Government efforts to trim budgets has put the spotlight on unethical pharma marketing tactics.

Rising government pharmaceutical expenditures have attracted the attention of federal prosecutors, and the scrutiny is expected to expand. With Congress spending billions to fight terrorism, federal investigators are looking closely at healthcare for opportunities to trim outlays and collect big penalties. During the past 15 years, the government has recovered nearly $8 billion from violators of the False Claims Act, almost half of that from health-related cases. The record $875 million fine recently paid by TAP Pharmaceuticals is encouraging both investigators and company whistleblowers to jump on anything that smacks of fraud.

Creeping Abuses

Questionable marketing practices subsided in the mid-'90s, observes James Sheehan, assistant US attorney in Philadelphia, after some government saber-rattling prompted medical associations and industry groups to adopt ethical marketing guidelines. At the October Fraud and Compliance Forum in Washington, however, he said he has seen a "creep up" in unethical programs in the last few years, as sales reps find it difficult to "take the high moral ground" in a highly competitive market.

Sheehan is looking at a number of marketing practices and focusing on pharmacy benefit managers (PBMs). It may be all right for a PBM to ask a manufacturer for a fee to send out compliance letters to patients, but Sheehan wants to know the fair market value of that service. An overly generous payment could constitute a kickback to gain formulary listing. He is also examining industry repackaging deals with HMOs and other value-added programs, such as disease management and research grants, to see if marketers use them to avoid traditional discounts that must be included in best-price calculations for Medicaid rebates.

The "net message," says attorney Harvey Sussman with Kleinfeld, Kaplan & Becker, is that the government is looking beyond the traditional price to determine if additional value should reduce the reported best price. Value-added programs are not "inherently wrong," but they must be constructed so the value is not targeted to just one HMO. Sheehan also remains troubled by gifts to doctors and says the test is whether the doctor would be comfortable telling his patients about the arrangement.

Probes in Progress

The Office of the Inspector General (OIG) in the Department of Health and Human Services (HHS) is examining a long list of industry practices and government programs affecting pharma companies, as seen in its new Work Plan for fiscal year 2002. Among other questions, OIG wants to know

  • if pharma companies are complying with limits on gifts to physicians

  • if FDA is tracking industry performance on postmarketing studies

  • how much it costs Medicare to cover patients in clinical trials

  • whether Medicare is paying appropriate rates for Epogen (epoetin alfa) and for nebulizer therapies.

Another hot button for investigators is whether manufacturers comply fully with product tracking requirements set by the Prescription Drug Marketing Act (PDMA). The latest question to arise is the extent to which a company is responsible for detecting discrepancies between sales and retail reports. The issue emerged from a recent criminal case against a Kansas City pharmacist who diluted chemotherapy drugs. Patients have filed civil charges against Eli Lilly for failing to report the problem earlier than it did, even though a Lilly sales rep helped uncover the scheme by noting big discrepancies in sales numbers.

Attacking AWP

Congress, meanwhile, is leading the charge to revise how manufacturers report prices to Medicare and Medicaid. A key allegation in the TAP case is that the company inflated its average wholesale price (AWP), then sold its prostate cancer therapy Lupron (leuprolide) to physicians at much lower rates, allowing doctors to make hefty profits on the spread between the two prices.

At a hearing in late September, leaders of the House Energy and Commerce Committee were particularly vocal about reforming the system. Not only does the big spread on office-administered therapies boost Medicare expenditures by an estimated $1 billion a year, it also forces seniors to pay more out of pocket for treatments.

Oncologists and home health agencies have opposed reform because they claim that they need to profit from drug price spreads to make up for the low reimbursement they receive for treating patients. Congress' General Accounting Office (GAO) countered that oncologists receive sufficient fees. Tom Scully, administrator of the Centers for Medicare & Medicaid Services (CMS), noted that HHS tried to fix the problem a year ago, but Congress blocked it. Representative Jim Greenwood (R, Pennsylvania) now wants to revise the law so that Medicare reimbursement is based on wholesale acquisition costs instead of AWPs. Even if Congress fails to act this year-which seemed likely at press time-the spotlight on industry pricing is already curbing the promotion of "spread" profits.

Seeking Compliance

To clarify those and other issues, the OIG is developing a Compliance Guide to help pharma companies establish internal programs that ensure employees understand and obey all rules and statutes. In announcing the project last June, OIG listed seven major elements to be included in a comprehensive program and asked for suggestions about what risk areas need to be addressed. OIG is examining comments from interested parties and is expected to issue a draft early next year.

An indication of how OIG might expect marketers to demonstrate compliance appears in the agency's Corporate Integrity Agreement negotiated as part of TAP's settlement agreement. The basic provisions are not that surprising. They require TAP to provide employee training in ethical marketing practices, to appoint a compliance officer and a corporate compliance committee, and to issue a code of conduct. Every quarter, TAP also has to report its "true average sale price" for all products covered by Medicare and Medicaid, a requirement similar to OIG's agreement with Bayer last January. (See PE Washington Report, June 2001.)

What is unusual is the broad scope of oversight and review that independent review organizations (IROs) will conduct. To ensure that TAP calculates prices correctly, the integrity agreement calls for an outside consultant to review the company's records and transactions, including how it calculates best prices and corrects inaccurate data.

Even more sweeping is the call for an annual independent review of TAP's systems, policies, and practices governing sales and marketing. That requirement allows an IRO to examine all documents dealing with sales of Lupron and Prevacid (lansoprazole) to see if the company has established controls and written policies for key marketing activities such as

  • retention of physicians and other prescribers for consulting, speaking, or advisory arrangements

  • sponsorship of meetings and other events

  • payment of educational, clinical, and research grants

  • expenditures for third-party advice on reimbursement

  • gifts and payments for business courtesies and customer assistance programs

  • reduction or forgiveness of debt and other assistance to customers

  • drug sampling programs.

The IRO will review expense reports and agreements with speakers and consultants, with emphasis on the company's arrangements with its largest and fastest growing purchasers and prescribers. The detailed review of marketing practices represents a "quantum leap" over previous requirements, comments attorney Paul Kalb of Sidley, Austin, Brown & Wood. Kalb also notes that a key whistleblower in the TAP case was a physician who objected to the company's sales practices, highlighting the need for marketers to examine how promotional activities affect customers and disgruntled employees.

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