District Court Holds Corporate Integrity Agreement Obligations May Create “Reverse” FCA Liability in Cephalon Case

Last week, U.S. District Court Judge Thomas O’Neill of the Eastern District of Pennsylvania denied Cephalon’s motion to dismiss False Claims Act allegations brought by three former employees. Bruce Boise, Keith Dufour, and Andrew Augustine, joined by the United States, alleged that Cephalon promoted two drugs, Provigil and Nuvigil off-label (view the third amended complaint here). The complaint had additional weight due to the fact that Cephalon was under a Corporate Integrity Agreement during the alleged illegal conduct, which outlined “Stipulated Penalties for Failure to Comply” with a variety of compliance obligations. The CIA includes, for example, a “$5,000 penalty for each false certification” made pursuant to required reports. The whistleblowers alleged that by not reporting off-label promotion Cephalon violated its CIA obligations and, thus, the “reverse” False Claims Act. 

“Reverse” false claims are situations where the alleged loss to the government did not result from an improper payment to a manufacturer (i.e. where prescriptions are wrongly reimbursed under Medicare), but where the government is entitled to payments from the manufacturer. In this case, the relators alleged that Cephalon made reverse false claims by falsely certifying compliance with the CIA’s reporting requirements. The company did this to avoid its obligation to pay penalties under the agreement, the complaint alleged.  

In 2008, Cephalon (since acquired by Teva) paid $425 million for off-label promotional practices related to a number of its products. The company entered into a CIA with the Office of Inspector General of the Dept. of Health and Human Services, agreeing to a wide range of corrective measures, including regular certifications of compliance. 

According to the relators in the current case, Cephalon instead took a “business as usual” approach, as the complaint worded it, after the company entered their CIA.  “As a direct result of Cephalon’s deliberate decision to continue its illegal marketing practices, the company violated the terms of the Corporate Integrity Agreement and caused Government Programs to continue to reimburse for the off-label uses of these drug,” the plaintiffs state.

The products at issue here, Provigil and Nuvigil, are both FDA-approved to improve wakefulness in adult patients with excessive sleepiness associated with obstructive sleep apnea/hypopnea syndrome, narcolepsy, and shift work sleep disorder. The plaintiffs allege that Cephalon carried out an off-label marketing strategy through a number of avenues. These included targeting physicians who did not prescribe the medications for on-label uses, including pediatricians; promoting the medications to treat specific conditions off-label such as ADHD, Multiple Sclerosis, Schizophrenia, Parkinson’s Disease, Jet Lag and Depression; and setting quota and bonus programs to compel off-label marketing. The complaint also alleged that Cephalon sales reps would “prompt” off-label discussion at speaker meetings.  

In its motion to dismiss the complaint, Cephalon argued that it should not be liable for reverse false claims because its obligations to pay stipulated penalties are contingent on the exercise of OIG’s discretion. Cephalon stated “that the discretion afforded to [OIG] officials to determine whether” to demand payment of stipulated penalties under the CIA “renders the obligation contingent and thus outside the scope of [the reverse false claims provision].” The court disagreed, stating that a “decision by the OIG that Stipulated Penalties are ‘appropriate’ is identical to the decision by a contracting party to sue for a breach. The court states:

A party to a contract that has allegedly been breached always has ‘discretion’ as to whether to seek remedy for the breach; parties to a contract are not required by law or custom to sue each other for every breach. Thus, accepting the defendants’ argument would mean that a breach of contract could never be an ‘obligation’ until a formal demand was made or a lawsuit was initiated, a result that cannot be squared with the language or the purpose of the statute.

The court concluded that “Cephalon’s contractual obligation to pay the government is an “established duty” under the False Claims Act “upon breach of the CIA’s relevant requirements.” Thus, the Judge allowed the case to move forward. 

Credit to Cooley Health Beat for alerting us to the opinion.