New Rules, New Risks. Health Care Fraud and the False Claims Act

Transcription

1 New Rules, New Risks Health Care Fraud and the False Claims Act

2 New Rules, New Risks By Ellen Leinfuss, SVP Life Science, UL EduNeering Illegal conduct and fraud by Pharmaceutical companies puts the public health at risk, corrupts medical decisions by Health Care Providers, and costs the government billions of dollars, said Tony West, Assistant Attorney General for the United States Department of Justice s Civil Division. This civil settlement and plea agreement by Pfizer represent yet another example of what penalties will be faced when a Pharmaceutical company puts profits ahead of patient welfare. US Department of Justice Press Announcement September 2, 2009 Life Science companies represent the largest percentage of recovered funds and open investigations under the False Claims Act (FCA). They are likely to remain at the center of federal and state prosecutions, thanks to new laws, aggressive investigations and a growing army of whistleblowers. That triad inside the Life Science industry is also influenced by actions and events outside the industry. Identifying and mitigating those risks requires companies to understand and act on the overlapping factors that now define the business and compliance landscape for the Life Science industry. Expanded Reach and Risk The FCA has been a steady tool in the Department of Justice s (DOJ s) fight against government fraud, particularly in Medicare and Medicaid. The Act gives the DOJ the authority to seek civil penalties in cases that involve false or fraudulent claims submitted to a program funded by government. FCA charges can be brought directly by the DOJ or under the Act s qui tam provisions, which let private citizens (relators) bring lawsuits on behalf of the government. Under some conditions, the DOJ will intervene in qui tam suits, sharing any recovery with the case s relators. The qui tam provisions of the FCA have enabled the DOJ to recover $24 billion, $15.9 billion from fraud against federal health care programs. Even though it has been on the books since the Civil War, the FCA gained extra teeth in Just as the Recovery Act and Troubled Asset Relief Program (TARP) redefined government s responsibility for rescuing the global financial infrastructure, a sour public demanded accountability and transparency by any company receiving TARP funds. The Fraud Enforcement and Recovery Act (FERA) promised aggressive anti-fraud measures and provided government agencies with sharpened tools to expose and prosecute fraud and abuse of government funds. Designed as a way to keep Wall Street under tight reins, FERA also pushed back against a 2008 US Supreme Court ruling Page 2

3 that put limits on the FCA. FERA reasserted and extended the reach of the FCA to any organization that participated directly or indirectly in any program funded by the government. For the first time, companies that sought reimbursement through state agencies or government contractors could be held liable under the FCA. key topics FERA provisions had barely been digested when the Patient Protection and Affordable Care Act (PPACA) was signed into law by President Obama, setting the stage for the nation s reform of health care. With billions of stimulus funds flowing into the battered US economy, the anti-fraud provisions and priorities contained in FERA and PPACA formalize new expectations of corporate integrity and establish new risks for health care-related companies. Among PPACA s most important provisions are changes related to the Anti-Kickback Statute (AKS), which often represents the starting point for false claims prosecutions. PPACA eliminated I didn t know and I didn t intend to as defenses against AKS allegations. A defendant no longer has to know that any particular action is a violation of AKS or intend to commit a violation. Equally important, PPACA explicitly states that AKS violations are false or fraudulent for purposes of the FCA. At the same time PPACA tightened the constraints on defendants, it loosened constraints on whistleblowers in filing FCA lawsuits and strengthened protections for whistleblowers in the workplace. Many legal experts warn that the changes will encourage illegitimate FCA lawsuits. Even without the softened whistleblower standards, however, harsh economic conditions, related layoffs and cutbacks have exposed an army of angry current and former employees, subcontractors and partners willing to expose any unethical behavior. Reports claim that the DOJ now has more than 1,000 FCA investigations underway, but the DOJ is not alone in its pursuit of fraud. A heightened spirit of cooperation among government agencies is reflected in the announcement by the DOJ regarding Pfizer. The DOJ was joined in its investigations by the Office of Inspector General for the Department of Health and Human Services, the FBI, the Defense Criminal Investigative Service (DCIS), the Office of Criminal Investigations for the FDA, the Veterans Administration Office of Criminal Investigations, the Office of Inspector General for the US Postal Service, the Office of Inspector General of the Office of Personal Management, the National Association of Medicaid Fraud Control Units and the offices of various state Attorneys General. Regardless of the source or type of misconduct, it is clear that the full resources of federal and state governments can be marshaled to investigate allegations. Expanded Reach and Risk Looking Outside the Box Lessons for Compliance Taking Credit for Compliance Major Risks of Health Care Fraud: 1 Drug Promotions 2 Misbranding 3 Medicaid Fraud 4 Kickbacks Looking Outside the Box A number of factors, both inside and outside the regulatory environment, influence the current risk of noncompliance and subsequent prosecution under the FCA. Life Science companies that connect the dots of dispersed actions are likely to be better positioned to anticipate and avoid missteps that lead to costly legal challenges. Page 3

4 Major Risks of Health Care Fraud #1: drug Promotions More Dollars Committed to Fraud: Money is flowing into the fight against health care fraud. President Obama s 2011 budget includes $1.7 billion for the Health Care Fraud and Abuse Control Program. According to testimony before a Congressional subcommittee, the Health and Human Services Deputy Director explained, This investment will expand existing criminal and civil health care fraud investigations and prosecutions, particularly related to emerging fraud schemes in areas such as pharmaceutical services, medical devices and durable medical equipment. Payment Recapture Audits: President Obama released a memorandum to the heads of executive departments and agencies, Today, to further intensify efforts to reclaim improper payments, my Administration is expanding the use of Payment Recapture Audits, which have proven to be effective mechanisms for detecting and recapturing payment errors. The Department of Justice has defined specific areas as priorities for investigation by its Civil Fraud Section. This paper lists four major risks for Life Science companies, including promotions of drugs. At its most fundamental, companies cannot promote drugs for purposes that have not been approved by the FDA. At the same time, physicians are free to prescribe them for off-label uses. These two facts have often collided in actions that can lead Pharmaceutical companies to court. In a case that has produced hundreds of additional lawsuits by state agencies and individuals, the DOJ alleged that Eli Lilly promoted its antipsychotic drug Zyprexa for uses not approved by the FDA, claiming that the company s management created marketing materials that promoted off-label uses, trained the company s sales force to disregard the law, and directed the sales force to promote the drug for off-label uses. As a result of those violations, the DOJ claimed that Eli Lilly caused false claims for payment to be submitted to federal insurance programs including Medicare, Medicaid, TRICARE and the Federal Employee Health Benefits Program, none of which provided coverage for off-label uses. HEAT Grew Up: HEAT the Health Care Fraud Prevention and Enforcement Action Plan has become one of the government s centerpiece enforcement tools in the fight against health care fraud. Introduced in 2009, HEAT is already credited with 800 health care defendants charged and 580 convicted, with some $4 billion recovered under the civil False Claims Act. US Attorney General Eric Holder outlined future efforts under HEAT, beginning with strengthening the program by leveraging the resources and expertise of multiple government agencies; expanding the Medicare Fraud Strike Force s reach into new areas of the country; increase funding; work with Congress on reforms to prevent and prosecute health care fraud; and engage the private sector. Increased FDA Prosecution of Corporate Officials: Responding to questions by Senator Chuck Grassley, FDA Commissioner Margaret Hamburg pointed to the recommendation of an internal FDA committee to increase the appropriate use of misdemeanor prosecutions to hold responsible corporate officials accountable Calling the prosecutions a valuable enforcement tool, Commissioner Hamburg explained, Criteria now have been developed for consideration in selection of misdemeanor prosecution cases and will be incorporated into the revised policies and procedures that cover appropriate use of misdemeanor prosecution. Heightened Debarment and Disqualification Procedures: were also recommended by the FDA internal committee to prevent noncompliant investigators from participating in new medical product development. The FDA has increased staffing and centralized coordination to ensure more rapid responses and will clarify the circumstances under which such administrative actions may proceed concurrently with pending criminal investigations. The FDA now posts disqualification and debarment actions that have been initiated or completed online. Page 4

5 DOJ Focuses on Individual Liability: According to a recent statement by Assistant US Attorney General Breuer, Put simply, the prospect of significant prison sentences should make clear to every corporate executive, every board member, and every sales agent that we will seek to hold you personally accountable AG Breuer s statement referred specifically to the DOJ s perspective to FCPA enforcement, but it could as easily have described the DOJ s approach under FCA. The department has shown a willingness to employ seldom-used legal theories including the Responsible Corporate Officer Doctrine (RCOD) to hold corporate directors and officers liable for the actions of subordinate employees in their organizations. Most significant about the RCOD, senior officers and directors can be held liable even without proof that they participated directly in the illegal activities or authorized them. Given the DOJ s focus on health care fraud, it would not be surprising to see it apply the same theory under the False Claims Act. State Governments Enact FCAs and Gift Bans in the fight against health care fraud. At least 26 states have enacted their own False Claims Act, with Maryland the most recent. State initiatives have extended far beyond enactment of FCAs, however. In 2009, Vermont and Massachusetts banned gifts by Pharmaceutical manufacturers to health care providers and set strict requirements for manufacturers of medical devices and biological products to report payments made to HCPs. Other states have followed suit, opening Life Science companies to unprecedented public scrutiny. Disclosure of payments to HCPs is also an increasingly familiar provision in corporate integrity agreements. States Successfully Prosecute Cases: Pharmaceutical and Medical Device companies are coming under increasing pressure from state regulators and enforcement agencies. Interestingly, state governments are alleging violations under a broad range of state statutes. In recent months, Roxane, Inc. settled allegations by the state of Missouri that the company had engaged in price-fixing that caused Medicaid to overpay for prescription drugs. Roxane agreed to pay the state $3.1 million to settle the case. Kentucky was awarded civil penalties of $5.8 million by a Franklin Circuit court in the state s case against GlaxoSmithKline for violations of the state s Consumer Protection Act. Previously, AstraZeneca was ordered to pay some $5.3 million in penalties for willful violations of the Consumer Protection Act, which came on the heels of a $14.7 million verdict against AstraZeneca for defrauding Medicaid. Changes in the US Sentencing Guidelines will affect virtually all companies by establishing new requirements for an effective compliance program. The amendments change specific requirements including the obligations between a compliance officer and the Board of Directors. Most significant, they clarify the company s response after learning of criminal activity. Both sections are likely to affect current compliance programs. Major Risks of Health Care Fraud #2: Misbranding Quest Diagnostics and its Nichols Institute Diagnostics (NID) pled guilty to a felony misbranding charge in violation of FDCA. According to the charges, NID promoted a diagnostic test by claiming that it achieved nearly identical results as the industry-standard competitor. NID knew that the test produced elevated results yet continued its promotions in directional inserts and marketing materials. In its plea, NID admitted that it knowingly, intentionally and with intent to mislead, did cause to be introduced into interstate commerce a medical device that provided inaccurate results. In a second misbranding case, the DOJ alleged that Spectranetics Corporation, a Medical Device manufacturer, illegally imported unapproved medical devices, provided them to physicians for use in patients, conducted a clinical study that failed to comply with federal requirements, and promoted certain products for procedures that had not been approved by the FDA. Spectranetics agreed to a nonprosecution agreement that allowed it to avoid criminal charges in exchange for instituting remedial measures, accepting responsibility for its conduct, cooperating in ongoing investigations, and paying $4.9 million. In addition to the criminal charges, the DOJ brought civil charges against the company, alleging that Spectranetics actions caused false claims to be submitted to the Medicare program. Page 5

6 Major Risks of Health Care Fraud #3: Medicaid Fraud Participation in the federal Medicaid program requires compliance with the Medicaid Rebate Statute, which was designed to protect Medicaid from overpayments for the drugs it purchases from manufacturers. The law requires strict recordkeeping and rebates to Medicaid for any difference between the lowest costs charged to private clients and the cost of the drug to Medicaid. Four leading Life Science companies agreed to a $124 million settlement to resolve allegations by the DOJ that they violated the FCA by failing to pay the required rebates to state Medicaid programs. According to the DOJ s allegations, the companies sold drugs at higher prices than allowed and failed to pay the required rebates to state Medicaid programs. Lessons for Compliance The amended US Sentencing Guidelines were approved by the Sentencing Commission on April 7, Absent disapproval by the US Congress, the amendments took effect on November 1, 2010, giving companies only a few months to adjust their established compliance programs. The amendments redefine what comprises an effective compliance program and, in the process, clarifies how the resulting program may affect the government s prosecution decisions. Prosecutors have typically considered a company s compliance program in deciding on an appropriate enforcement action to allegations of fraud within the company. Prosecutorial decisions to defer prosecution or negotiate settlements with offending companies have drawn criticism. Accusations of leniency become especially heated in cases that eliminate a company s eligibility for participation in government-funded programs. Recent high-cost settlements provoked particular public venom, fueling complaints that the companies were buying their way out of accountability. The stated commitment of enforcement agencies including the DOJ to increase its prosecution of corporate executives and officers, along with the clarity provided in the amended guidelines, may help to calm those complaints. Taking Credit for Compliance Meeting the commission s familiar seven conditions of an effective compliance program at the time fraud is uncovered can be considered for credit when prosecutors determine appropriate enforcement responses to allegations of fraud and other criminal actions. To be eligible for such credits, companies need to incorporate the following provisions into their compliance programs: 1. The person with operational responsibility for a company s compliance and ethics program has direct reporting obligations to the company s governing board or designated subgroup. Programs that require compliance officers to report to a senior executive rather than the Board or its subgroup will not comply with the amendments but the requirement also limits the ability of an executive to hide fraud and minimizes the likelihood that Boards are unaware of criminal activity inside their companies. 2. Companies must undertake reasonable steps to remedy the harm resulting from the criminal conduct, and must act to prevent similar conduct in the future. Among those actions, companies must assess their compliance and ethics program and make whatever changes are necessary to ensure that it is effective. Page 6

7 Even compliance and ethics programs that meet the standards of the sentencing guidelines cannot guarantee the elimination of unethical or illegal conduct, particularly when a company has dispersed facilities, global partnerships and a long supply chain. The recent experiences of companies including Pfizer, Siemens and Toyota all confirm that having a compliance and ethics program even one that is well-respected and conforms to the standards of effective is not the same as having a compliant, ethical organization. Culture change is tough stuff! Virtually all instances of enterprise-wide corruption and fraud are met by the same questions. How could they not know? Why didn t anyone report the problems before it got to this point? The first question is addressed through enterprise-wide training that enables learners to make informed decisions based on thorough understanding of the laws, policies and standards that apply to them. The second question is answered by creating a culture that promotes ethical behavior including the reporting of misconduct or criminal actions within the organization. I didn t know. is no longer a defense to criminal or unethical actions, whether from corporate officers or employees charged with processing invoices from vendors. The cost of ongoing and effective training, consistent reinforcement of culture and careful monitoring to ensure that both training and culturebuilding are effective is often cited as unacceptably high for companies, particularly in the current economic environment. Life Science companies in particular rely on the trust of their patients, physicians and regulators. Without that trust, companies run the risk of physicians refusing to prescribe their products, hospitals refusing admission to sales staff, patients withdrawing trust in their physicians decisions or the medicines they are prescribed. Even a multi-billion dollar settlement pales when compared to the outfall of broken trust, not only to the individual company but to the Life Science industry as a whole. Major Risk of Health Care Fraud #4: Kickbacks Perhaps more than any other violation, kickbacks compromise the public s trust in the Medical and Life Sciences communities. They also present a substantial risk to Pharmaceutical and Medical Device companies that rely on dispersed sales forces and routine interactions with Health Care Professionals (HCPs). Kickbacks are a common thread in health care fraud prosecutions by the Department of Justice. They routinely serve as the basis of complaints brought by whistleblowers under the qui tam provisions of the False Claims Act. Although kickbacks are often represented as the actions of individual sales people and physicians, recent health care fraud settlements show a different picture. Increasingly, Pharmaceutical and Medical Device companies are being held accountable for kickback schemes involving consulting arrangements, Medicaid rebates, gifts, undisclosed financial relationships, honoraria and speaking fees. Although physicians have frequently been identified as recipients of the kickbacks, a growing number of fraud prosecutions and settlements involve kickbacks from Life Science companies to pharmacies and Pharmacy Benefits Management (PBM)s, hospitals and medical clinics, durable medical equipment companies, national health insurers and hospital chains. Page 7

8 About UL EduNeering UL EduNeering is a business line within UL Life & Health s Business Unit. UL is a global independent safety science company offering expertise across five key strategic businesses: Life & Health, Product Safety, Environment, Verification Services and Enterprise Services. UL EduNeering develops technology-driven solutions to help organizations mitigate risks, improve business performance and establish qualification and training programs through a proprietary, cloud-based platform, ComplianceWire. For more than 30 years, UL has served corporate and government customers in the Life Science, Health Care, Energy and Industrial sectors. Our global quality and compliance management approach integrates ComplianceWire, training content and advisory services, enabling clients to align learning strategies with their quality and compliance objectives. Since 1999, under a unique partnership with the FDA s Office of Regulatory Affairs (ORA), UL has provided the online training, documentation tracking and 21 CFR Part 11-validated platform for ORA-U, the FDA s virtual university. Additionally, UL maintains exclusive partnerships with leading regulatory and industry trade organizations, including AdvaMed, the Drug Information Association, the Personal Care Products Council and the Duke Clinical Research Institute. 202 Carnegie Center Suite 301 Princeton, NJ UL and the UL logo are trademarks of UL LLC uleduneering.com WP/12/123013/PH