NY Times: Unhealthy Government Pursuits of Pharmaceutical and Medical Device Companies

Over the past several years, the federal government has participated in what some would call, “Unhealthy Pursuits of Medical Device and Drug Companies.”  In fact, the Department of Justice (DOJ) and the Health and Human Services (HHS) announced a few months ago, that combined, the agencies have brought in over $4 billion in health care fraud cases.

One attorney in particular, who has had a tremendous impact on these settlements, is Michael K. Loucks. 

Loucks “has been at the center of many of the largest settlements involving pharmaceutical manufacturers, up to and including the record-setting $2.3 billion settlement with Pfizer Inc. in 2009.” Additionally, he racked up numerous convictions using whistle-blowers and secret grand juries to pressure major pharmaceutical and health companies into ending illegal practices like kickbacks to doctors and misuse of blockbuster drugs.

In fact, Loucks “burnished a reputation aptly captured in a Fortune magazine headline: Why Do Drug Companies Fear This Man? Maybe because he’s declared all-out war on cheats in the drug industry.”

He worked his way up from an assistant US Attorney in Boston to acting US Attorney, where he created a health care fraud unit and used The False Claims Act, as well as the tools of secrecy and surprise, to reap major awards. The False Claims Act, with its triple damages, “has been the government’s most powerful weapon against health care fraud since Congress in 1986 increased the rewards for whistle-blowers. Since then, taxpayers have recovered an estimated $28 billion from medical companies.”

The unit’s victories are renowned, starting with an $875 million payment in 2001 by TAP Pharmaceuticals. Whistle-blowers shared $95 million in that case, alerting companies and informants to the stakes involved.

While he was in the U.S. Attorney’s Office, Loucks argued for years “that whistle-blowers are paid far too much in health care fraud cases — bounties up to 30 percent, totaling $650 million in just the last two years.” He noted that these people would blow the whistle for less in a paper titled “the Great American Giveaway.”

Shifting Sides

In late 2009, Loucks, a Republican, left the United States attorney’s office in Boston after he was passed over for the top post and President Obama appointed a Democrat.  As a result, Loucks joined Skadden, Arps last July, and “has startled former allies by emerging in recent months as zealous a corporate defender as he was a prosecutor, complete with proposals seeking more lenient treatment for the medical companies he once vilified,” according to a recent article in the New York Times. 

Now that the tables have turned, Mr. Loucks is bemoaning the very same strategies he used to embrace for clients (pharma) that he used to prosecute. He wrote in a recent memorandum that, “the government and the whistle-blower have an advantage,” and that federal investigators were now using the law unfairly. In addition, Loucks noted that, “while prosecutors often assert the company has engaged in ‘serious’ misconduct, they keep the company in the dark, often for years, as to the specific allegations.”

In response to Loucks change, some attorneys were “disappointed” to see him go over to the “dark side.”

Federal ethics rules prohibited Mr. Loucks from any dealings with the United States attorney’s office in Boston for a year after his resignation, and he can never be involved in cases he investigated directly. However, he is not barred from representing clients he once prosecuted on other matters, and his law firm’s roster includes some of the biggest companies he once investigated, including Pfizer, Merck, Schering-Plough, Bristol-Myers Squibb and Medtronic.

Loucks noted that although he has shifted to what “everyone calls ‘the other side,’ he is still doing the same thing he has always done, which is zealously representing his clients.”

In addition, Loucks views on the whistle-blower law had evolved.  In his May 12 memo to clients, Mr. Loucks “urged some companies to press judges to unseal complaints more quickly” so that companies can learn the scope of complaints sooner, identify witnesses and fight back harder.” He argued that, “more openness would let companies clean up their own acts, even if it meant adverse publicity.”

To support his argument, Loucks noted that statistics from the DOJ show that 885 False Claims Act cases involving health care fraud were pending under seal at the beginning of this year, with only about 200 prosecutors to juggle them, and on average, a case was sealed for more than a year, and some much longer.

Accordingly, Locks argued that the government’s lack of adequate resources to handle these cases is “not a good cause to keep them under seal.”  Nicholas C. Theodorou, chairman of Foley Hoag’s business crimes defense group in Boston, said Mr. Loucks’ argument made sense from a corporate defense standpoint, and possibly would sit well with some federal judges who have questioned why cases remain under seal so long.

While headlines and blockbuster cases involving drug companies are still making their rounds, Loucks shift into corporate defense represents a change for industry and health care stakeholders. Only time can tell how his insight prosecuting these cases and companies will play into their defense.  

Interestingly, while Loucks used to argue that drug companies actions were “evil, today he argues that drug and medical device companies are making strides in complying with federal billing, fraud and kickback laws.” He recognized that companies “make products that have huge benefits to a number of people.”