State and Federal Pharmaceutical Enforcement Litigation: What’s Next?

Written by Ellyn L. Sternfield

I recently co-chaired an American Conference Institute (ACI) forum on Pharmaceutical Pricing Litigation, which featured a number of key players who provided their unique perspectives on state and federal litigation involving pharmaceutical manufacturers and their products.  The presentations spurred thought-provoking discussions about potential new theories of liability as well as creative defense strategies.

Just days before the forum, Public Citizen published its Pharmaceutical Industry Criminal and Civil Penalties, An Update, 9/27/2012.  The report analyzed federal and state pharmaceutical case judgments, summarized case statistics, and drew conclusions about the states’ return on investment from pharmaceutical cases.  On the latter point, I found Public Citizen’s statistics misleading because they failed to account for mandatory Medicaid federal matching percentage credits, qui tam relators’ statutory share, and private counsel fee awards, all of which significantly reduce the states’ bottom line recoveries from these cases.

But the Public Citizen report did contain some interesting objective measures, such as the following:

• Since 2009, the federal government reached as many settlements with the pharmaceutical industry as it had in the previous 18 years combined, and more than 75% of those cases stemmed from qui tam filings.
• Since 2009, 59% of the government settlements or judgments with the pharmaceutical industry resulted from single state cases, more than double the pre-2009 percentage.  The states with the most single state cases were Kentucky (which generally retains private attorneys to pursue those cases) and Texas (where state attorneys from the Attorney General’s Civil Medicaid Unit handle the cases).
• The five most common types of violations asserted in these cases were:

1.  Pricing violations involving Medicaid (AWP, Medicaid, AMP, Drug Rebate)
2. Unlawful promotion (off label, deceptive marketing)
3. Monopoly/unlawful collusion
4. Kickback violations
5. Concealing or falsifying data or information submitted to a government program or entity.

The Public Citizen report helped frame the discussions at the ACI forum.  Speakers included private attorneys who represent states in pharmaceutical-based litigation, state and federal prosecutors who handle pharmaceutical cases, and attorneys who act as defense counsel for pharmaceutical manufacturers in federal and state cases.  ACI forum attendees learned the following:

• Despite conflicting and incomplete federal guidance on AMP, false claims cases are being pursued based on AMP reporting; manufacturers should consider carefully documenting their reasonable assumptions when reporting AMP.
• Bundled sales and best price for government rebate purposes are an ongoing qui tam risk area for manufacturers even though federal guidance is vague.
• Wholesalers and PBMs have unique incentives to pursue qui tam actions against manufacturers based on pricing issues, such as best price and AMP.  Bona fide service fees will likely be another risk area for qui tam activity.
• Payors also have unique incentives to pursue qui tam cases against manufacturers.  Expect to see more instances where payors raise allegations relating to consumer marketing practices involving copayment programs or coupons.
• Federal prosecutors expect HHS-OIG to pursue more administrative cases against individual corporate officers based on corporate violations, including increased exclusion actions.
• Manufacturers should considering engaging outside counsel at the first sign of a government inquiry or at the first sign of a compliance concern that could result in a qui tam filing.
• Private attorneys continue to actively “pitch” state Attorneys General to retain them to pursue more pharmaceutical pricing and marketing cases on behalf of their state.
• While states have historically prosecuted many cases under Medicaid false claims statutes, they are increasingly relying on consumer protection statutes as a basis for pursuing pharmaceutical-based cases.
• State prosecutors are still pursuing AWP cases and believe state enforcement efforts regarding off-label marketing will only increase.  Indeed, Cynthia O’Keefe, who heads a litigation team for the Texas Civil Medicaid Unit, stated her success has energized her unit and other state Attorneys General to pursue more off-label cases.
• A number of cases are being pursued under state or federal false claims statutes seeking penalties only, without asserting or proving any actual damages.  Evolving case law may bolster an argument that false claims penalties cannot be assessed, or are excessive, if no damages are claimed or proven.

At the conclusion of the conference, my colleague, Theresa Carnegie, offered a master class on what may be the next wave of pharmaceutical pricing litigation: drug coupons.  Ironically, during Theresa’s presentation, the Office of Inspector General for the Department of Health and Human Services announced that, for the first time, it will audit Part D plans related to beneficiary use of drug coupons.

Taken together, the Public Citizen report and the ACI forum demonstrate that government enforcement against pharmaceutical manufacturers is still on the rise. Innovative theories of liability will require innovative defenses to those assertions.  Stay tuned.

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