HHS OIG: Recent FCPA, False Claims and Anti Kickback Settlements

In addition to the recent Amgen Settlement, the federal government announced several other settlements with pharmaceutical companies—including GlaxoSmithKline, Eli Lilly, and Sanofi.  The Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced by Attorney General Eric Holder and Kathleen Sebelius, Secretary of the Department of Health and Human Services in May 2009, has recovered over $13.9 billion since January 2009. 

All three companies are currently under corporate integrity agreement’s (CIA) with HHS-OIG.  At this point, however, it is uncertain what, if any, action OIG will take in response to these events.  If the companies properly reported these incidents to OIG, certain fines or penalties may be avoided, and only additional changes or monitoring may be required.  

Eli Lilly 

According to Bloomberg, Eli Lilly has agreed to pay $29.4 million to settle a complaint filed by the U.S. Securities and Exchange Commission (SEC), alleging that the company violated the Foreign Corrupt Practices Act (FCPA) because its subsidiaries made improper payments to foreign government officials to win millions of dollars of business in Russia, Brazil, China, and Poland.   

The Foreign Corrupt Practices Act of 1977 (FCPA), was enacted for the purpose of making it unlawful for certain classes of persons and entities to make payments to or bribe foreign government officials to assist in obtaining or retaining business.  In other words, the FCPA prohibits corrupt payments to foreign officials for the purpose of obtaining or keeping business.   DOJ and the SEC recently released guidance on the FCPA, and several cases have been settled, including a recent one with Pfizer, Inc.

Under the settlement agreement filed today in federal court in Washington, the drugmaker didn’t admit or deny the truth of the allegations.  The SEC claimed the company’s violations of the FCPA began as early as 1994. 

“Eli Lilly and its subsidiaries possessed a ‘check the box’ mentality when it came to third-party due diligence,” Kara Novaco Brockmeyer, head of the SEC’s foreign bribery unit, said in a statement.  “Companies can’t simply rely on paper-thin assurances by employees, distributors, or customers.  They need to look at the surrounding circumstances of any payment to adequately assess whether it could wind up in a government official’s pocket.”  

Lilly said in a statement that it was notified of the bribery probe in August 2003.  As part of the settlement, Lilly agreed to have an independent consultant conduct a 60-day review of its internal controls and compliance program related to the anti-bribery law.  “We have cooperated with the U.S. government throughout this investigation and have strengthened our internal controls and compliance program globally, including significant investment in our global anti-corruption program,” Anne Nobles, Lilly’s chief ethics and compliance officer, said in the statement.  

The SEC said an Eli Lilly subsidiary in Russia used so-called offshore marketing agreements to pay third parties chosen by government customers or distributors without knowing who these people were beyond an address or bank account information.  These offshore entities were used in some instances to funnel money to government officials to obtain business for the subsidiary, the SEC alleged.  The government alleged that Lilly became aware of possible FCPA violations, but did not curtail the use of marketing agreements for more than five years. 

Pharmalot noted that in China, employees at the Lilly “falsified expense reports in order to provide spa treatments, jewelry, and other improper gifts and cash payments to government-employed physicians.”  In Brazil, the Lilly subsidiary allowed a distributor to pay bribes to government health officials to facilitate $1.2 million in sales of a Lilly drug to state government institutions.  In Poland, the Lilly subsidiary made eight improper payments totaling $39,000 to a small charitable foundation that was founded and administered by the head of one of the regional government health authorities in exchange for the official’s support for placing Lilly drugs on the government reimbursement list. 

Sanofi Settles Kickback Charges 

Sanofi-Aventis U.S., Inc., and Sanofi-Aventis U.S., LLC, subsidiaries of international drug manufacturer Sanofi (collectively, “Sanofi”), have agreed to pay $109 million to resolve allegations that Sanofi violated the False Claims Act and the Anti-Kickback Statute by giving physicians free units of Hyalgan, a knee injection, to induce physicians to purchase and prescribe the product.  The settlement also resolves allegations that Sanofi submitted false average sales price (ASP) reports for Hyalgan that failed to account for free units distributed contingent on Hyalgan purchases.  The government alleges that the false ASP reports, which were used to set reimbursement rates, caused government programs to pay inflated amounts for Hyalgan and a competing product. 

The United States contends that, facing pressure from a lower-priced competitor, Sanofi provided its sales representatives with thousands of free “sample” Hyalgan syringes and trained its sales representatives to market the “value add” of these syringes to physicians.  In practice, the United States alleges, Sanofi sales representatives often entered into illegal sampling arrangements with physicians, using the free drug as kickbacks and promising to provide negotiated numbers of the syringes in order to lower Hyalgan’s effective price.   

For example, a Southern California-based Sanofi sales representative allegedly provided 25 Hyalgan samples to a physician practice for every 100 Hyalgan syringes purchased, and supplemented these kickbacks by regularly treating the entire practice to lavish dinners at Morton’s restaurant at Sanofi’s expense and with Sanofi’s approval.   

Under these allegations, it will be interesting to see if OIG brings an exclusion case against the individuals responsible for approving such meals, and whether DOJ will bring an action under the Park Doctrine.

The United States contended that price was important to physicians because Medicare and other insurers provided reimbursement for Hyalgan and its direct competitor at the same, fixed rate. Thus, the cheaper product afforded a greater reimbursement “spread,” or profit, to physicians’ practices.  According to the government’s allegations, Sanofi chose not to compete by lowering the actual invoiced price of Hyalgan, for fear of setting off a price war with its competitor that would lead to a “downward spiral” in reported prices and physician reimbursements. 

Instead, the government alleges, Sanofi surreptitiously lowered the effective price of Hyalgan by promising “free” Hyalgan syringes to doctors who agreed to purchase the product.  The government alleges that Medicare and other federal health care programs paid millions of dollars in kickback-tainted claims for Hyalgan.  

The government notes that Sanofi cooperated in aspects of the investigation, and that Sanofi ceased distributing Hyalgan samples shortly before the government commenced its investigation. The government took Sanofi’s cooperation and its current practices into account in agreeing to this civil resolution. 

GlaxoSmithKline and Nasal Spray 

According to Reuters, GSK has reached a $150 million preliminary settlement with U.S. drug wholesalers who claimed the company improperly delayed entry to the market of generic alternatives to its nasal spray Flonase, according to court documents.

The settlement was reached with, among others, AmerisourceBergen Corp, Cardinal Health Inc, and McKesson Corp, who maintained that Glaxo had abused the citizen’s petition process to maintain a market monopoly and overcharge for the spray by restricting access to less expensive generic versions.