MITIGATING FALSE CLAIMS ACT AND CONSUMER PROTECTION EXPOSURE FOR PHARMACIES

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1 ASPL 11/6-9/2014 MITIGATING FALSE CLAIMS ACT AND CONSUMER PROTECTION EXPOSURE FOR PHARMACIES Barbara Rowland, Esquire John Joseph, Esquire 2014 Developments in Pharmacy Law Seminar XXV November 7, 2014

2 Agenda HHS and DOJ data on spend and recoveries False Claims Act overview Review of industry-wide investigations reported in case law, settlements, SEC filings Prescription transfer coupons Pharma manufacturer copay coupons Generic discount programs Dual eligibles coordination of benefits Consumer protection investigations Specialty pharmacies Mitigation tips 2

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4 Prescription Drug Spending Continues to Increase Centers for Medicare & Medicaid Services (CMS) predicts drug spending Increase of 6.8% in 2014 and 6.4% in 2015 Increase of 5.4% on average per year Total projected spend of $309.3 billion (2015); $381.8 billion (2019); $482.8 billion (2023) 4

5 2013 Health Care Fraud Data According to DOJ, civil and criminal recoveries continue to set records in 2013 $4.3 billion recovered overall in civil cases $3.8 billion recovered from FCA cases Second highest year for FCA recoveries $2.6 billion attributable to health care fraud Additional $443 million recovered for state Medicaid programs 5

6 2013 Health Care Fraud Data FY 2013 Department of Justice (DOJ) stats 1,013 new criminal health care fraud investigations initiated 718 defendants convicted 1,083 new civil health care fraud investigations, including 752 new whistleblower suits filed 1,079 civil health care fraud matters pending 6

7 Federal False Claims Act Overview 31 U.S.C False Claims Act (FCA) creates liability for person who Knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval; or Knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim Claim is a request for money directed to the U.S. or a third-party where the money is to be used or spent on the government s behalf Knowingly means actual knowledge or acting in deliberate ignorance or reckless disregard of falsity 7

8 Federal False Claims Act Overview 31 U.S.C Empowers both the U.S. Attorney General and private persons to institute civil FCA actions Qui tam / whistleblower provisions Receive up to 30% of recovery Pleading an FCA claim requires plaintiff to satisfy Fed. R. Civ. P. 9(b) s heightened standard In alleging fraud..., a party must state with particularity the circumstances constituting fraud Announced in Sept. 2014, DOJ Criminal Frauds to review all newly filed qui tam cases to determine whether to open a parallel criminal investigation 8

9 Mitigation Strategy #1 Compliance professionals and legal departments are the backstop to prevent or mitigate investigations and lawsuits To be effective, they must stay current with laws and regulations They must anticipate direction of government s enforcement interests They must partner with business units to monitor, audit, and address discrepancies 9

10 Retail Pharmacy Prescription Transfer Coupons Background Cases concern remuneration in violation of AntiKickback Statute (AKS) offered to federal health plan beneficiaries to transfer prescriptions Remuneration includes discounts, coupons, gift cards, and cash Investigations conducted by U.S. Attorney s Offices (C.D. Cal., S.D. Mich.) and HHS OIG Major retailers publicly mentioned are Walgreen, Rite Aid, CVS, Kmart 10

11 Retail Pharmacy Prescription Transfer Coupons Background Common amount of transfer coupons was $25 per script; others were between $10 and $50 Transfer coupons might bear exclusions for federal health care program beneficiaries, but often pharmacies provided remuneration nonetheless AKS 42 U.S.C. 1320a-7b: Prohibits exchange of anything of value to induce or reward referral of federal health care business De Minimis Exception to CMP: < $10; limit $50 annually; excludes cash or cash equivalents 11

12 Retail Pharmacy Prescription Transfer Coupons FCA theory Remuneration constitutes AKS violation when offered to federal health care program beneficiaries in connection with scripts billed to government program AKS compliance is condition of reimbursement for Medicaid, Medicare, and Tricare claims Failure to comply with AKS constitutes FCA violation All scripts paid by government payer where coupon redeemed and all subsequent scripts violate FCA 12

13 U. S. ex rel. Yarberry v. Sears Holdings Corp. and Kmart, Inc. Yarberry: S.D. Ill.; Kmart pharmacist; U.S. did not intervene Kmart allegedly offered remuneration to customers, including federal health care program beneficiaries, to transfer prescriptions to Kmart pharmacies Remuneration included gift cards, coupons, and redeemable rewards points that had cash value Also $10 and $20 gift cards for customers whose pharmacy orders were not ready when promised 13

14 U. S. ex rel. Yarberry v. Sears Holdings Corp. and Kmart, Inc. Kmart defenses in summary judgment motion Kmart policy was that federal health plan beneficiaries were not eligible for coupon benefits and Kmart coupons contained express exclusion Court found issue of fact whether Kmart had adequate system in place for pharmacy to identify federal beneficiaries Prior to automatic flag for government plan, system relied on employees manually determining if customer was federal beneficiary Kmart acted negligently by not having adequate system to identify federal beneficiaries Court found issue of fact whether Kmart s state of mind constituted negligence or recklessness 14

15 U. S. ex rel. Yarberry v. Sears Holdings Corp. and Kmart, Inc. More Kmart defenses in summary judgment motion de minimis exception to beneficiary inducement CMP (Civil Monetary Penalty) Certain coupons met Court declined to apply CMP definition of remuneration in an FCA case based on AKS violation Court found coupons were cash equivalents regardless Coupons redeemed by federal health plan beneficiaries were within accepted error rate for Medicare Court found issue of fact re appropriate data to show error rate Case dismissed in April 2014 after federal and state settlements entered 15

16 U.S. ex rel. Bass v. Walgreen Co. U.S. ex rel. Chin v. Walgreen Co. Walgreen settled two whistleblower suits with the U.S. in April 2012 for $7.9 million Bass: E.D. Mich.; former Walgreen pharmacy tech Chin: C.D. Cal.; independent pharmacist Relators claims Walgreen encouraged pharmacy hopping by giving customers, including federal health care program beneficiaries, gift cards, discount checks, and coupon brochures in excess of nominal value E.g., $20 discount checks, $25 gift card coupon, $50 coupon brochures 16

17 Retail Pharmacy Manufacturer Copay Coupons In Sept Special Advisory Bulletin, HHS OIG stated that manufacturer coupons reducing or eliminating customers copays for certain brand name drugs implicate AKS, FCA, and beneficiary inducement CMP (42 USC 1320a-7a(a)(5)) when offered to federal health care program beneficiaries The availability of a coupon may cause physicians and beneficiaries to choose an expensive brand-name drug when a less expensive and equally effective generic or other alternative is available. Excessive costs to Federal programs are among the harms that the anti-kickback statute is intended to prevent. 17

18 Retail Pharmacy Manufacturer Copay Coupons HHS OIG specifically included prescriptions under Medicare Part D in its bulletin HHS OIG stated pharmacies are at risk too - pharmacies that accept manufacturer coupons for copayments owed by Federal health care program beneficiaries also may be subject to sanctions under the AKS, FCA, and beneficiary inducement CMP 18

19 Retail Pharmacy Manufacturer Copay Coupons HHS OIG examined manufacturers measures to prevent use of copay coupons by federal health plan beneficiaries Found that some, not all, coupons state they cannot be used for drugs paid by Med D Claims edits at pharmacy transaction system did not reliably identify whether Med D payer involved making it difficult to identify and monitor use of coupons Use of coupons not visible in pharmacy transaction system to anyone but manufacturer HHS OIG concluded that failure to take steps to identify coupons may be evidence of intent to induce purchase of drugs 19

20 Mitigation Strategy #2 Remuneration should not be provided to federal health plan beneficiaries, whether pharmacy-initiated or through a business partner, UNLESS The remuneration is in the form of a coupon, rebate, or reward program It is offered to the general public And it is not tied to federally-reimbursed goods or services HHS OIG Proposed Rule, 42 C.F.R. Parts 1001 and 1003 (issued for comment 10/3/14) 20

21 Retail Pharmacy Generic Discount Programs Background Most pharmacy chains offer a generic discount program to uninsured or under-insured customers Response to Walmart s $4 price for certain common generics Typical features of generic discount programs Must enroll in program Pay annual fee Limited menu of generics 90 day supply for some programs Cannot be used with other insurance Price might be less than what Medicaid reimburses pharmacy for the same drug 21

22 Retail Pharmacy Generic Discount Programs Background Some state Medicaid agencies seek the same low price either through legislation (Oregon) or regulatory interpretation (Connecticut) Significant business issue for pharmacies because generic discount pricing not based on larger Medicaid population or breadth of Medicaid formulary Requires application of each state s Medicaid reimbursement rules for generics Generally, reimbursement formulas follow lesser of methodology that include usual and customary charge (U&C) 22

23 Retail Pharmacy Generic Discount Programs FCA theory Generic discount program pricing should be considered U&C price under the Medicaid lesser of reimbursement methodology Pharmacies failure to report discount program pricing as U&C to state Medicaids resulted in false claims for payment Damages could be substantial Other theories Pharmacies failure to offer lowest discount pricing to Medicare beneficiaries violates Part D State insurance fraud laws 23

24 U.S. ex rel. Garbe v. Kmart Corp. Garbe; SD Ill.; former Kmart pharmacist; U.S. did not intervene Kmart allegedly submitted false U&C prices to state Medicaid agencies for certain generics because they were not the generic discount program prices Discount program varied over time, but required enrollment, a fee, and, at times, only 90-day scripts Kmart filed summary judgment motions and is awaiting decision after September 30 oral argument 24

25 U.S. ex rel. Garbe v. Kmart Corp. Kmart arguments in summary judgment motions Generic discount program price is not the U&C offered to the general public Enrollment in program is required making participants members of a particular group Payment of annual fee makes participants members of a particular group 90-day prices in generic discount program could not be pro-rated to establish U&C for 30-day scripts or any other quantity U&C based on same drug, same dose, and same quantity 25

26 Retail Pharmacy Generic Discount Programs Other cases Texas AG case involving HEB Grocery Company Three non-heb pharmacists sued under Texas Medicaid Fraud Prevention Act Settled in February 2014 for $12 million Texas Medicaid defines U&C as the price the provider most frequently charges the general public for the same drug. 1 Tex. Code Ann (a) (emphasis added) HEB said regulatory interpretation was not free from doubt 26

27 Mitigation Strategy #3 Monitor state Medicaid publications on treatment of generic discount programs and U&C definitions Be prepared to assess the business value of the generic discount program on a stateby-state or national basis 27

28 Dual Eligibles Coordination of Benefits Background Federal and state investigations involving coordination of benefits for dual eligibles -patients covered by both third-party insurance and Medicaid Litigation and settlements continue Seventh Circuit review of favorable Shopko decision Settlements by Walgreen, CVS, and Supervalu Walgreen settlement in 2008 with U.S. and 4 states for $9.9M and 2011 settlement with Connecticut for $140k CVS settlement in 2011 with U.S. and 10 states for $17.5 million 28

29 Dual Eligibles Coordination of Benefits Background Pharmacies adjudicate claims electronically providing information to payers under NCPDP billing standards as directed by payer sheets Third-party payers reimburse first Medicaid is always payer of last resort Payer sheets reflect fields of information payers need to reimburse Certain state Medicaid agencies limit dual eligibles reimbursement to the copay amount of the third-party insurance 29

30 U.S. ex rel. Heidbreder v. Supervalu Inc. Heidbreder: WD Wis.; former Supervalu pharmacy manager; U.S. intervened Some Medicaid agencies reimbursed Supervalu more than dual eligible patients copay amounts Long, hard fought litigation with DOJ Several motions to dismiss filed and DOJ was twice allowed to amend its complaint in intervention Ultimately, court found sufficient facts were in dispute denying Supervalu s final motion to dismiss Supervalu entered comprehensive settlement in late

31 U.S. ex rel. Heidbreder v. Supervalu Inc. Arguments made by Supervalu (before settling) No payer sheets required pharmacies to submit the amount of the patient s copay liability Requiring copay liability to be entered into Gross Amount Due or U&C fields was improper under federally-mandated NCPDP 5.1 billing standards State bulletins, guidance, and instructions cited by Govt. either applied to paper submissions or did not follow proper rule-making process Limiting dual eligible reimbursement to copays is a material change to state Medicaid program that must be approved by CMS 31

32 U.S. ex rel. Thulin v. Shopko Stores Operating Co., LLC Thulin: W.D. Wis.; former Shopko pharmacist; U.S. did not intervene Relator alleged Shopko submitted false claims through its computer system which readjusted claims after third-party payor was billed to charge Medicaid a higher amount District court dismissed relator s complaint with prejudice; Seventh Circuit argument in April

33 U.S. ex rel. Thulin v. Shopko Stores Operating Co., LLC NCPDP 5.1 allowed copay data to be collected, but in an optional, not mandatory, field [N]o federal obligation for providers such as Shopko to disclose co-pay data and, therefore, plaintiff s contention that Shopko is limited to seeking a dual-eligible s co-pay amount from Medicaid is fundamentally flawed U.S. Dist. LEXIS *27. Court noted potential serious policy problem state and federal governments have been reimbursing private parties for the costs of pharmaceuticals over and above the amount paid under more favorable formularies negotiated by private insurers and PBMs but that by itself does not constitute fraud. Id. *

34 Mitigation Strategy #4 NCPDP D.0 effective at addressing dual eligibles issue Government takes stance that pharmacies have an obligation to refund overpayments If Medicaid agency and intermediary cannot receive copay data in an agreed-upon field, consider regular true-ups to avoid FCA exposure 34

35 State Consumer Protection Actions Brought by State Attorneys General, Medicaid Fraud Control Units (MFCUs), local prosecutors and district attorneys, often together with State Boards of Pharmacy Brought pursuant to State consumer protection statutes State False Claims Acts State Medicaid regulations 35

36 Unauthorized Automatic Prescription Refill Programs Pharmacy auto-refill programs are generally permissible but some state Medicaid regulations prohibit refills without customer authorization Concern is that drugs are not used or needed Vermont v. McGregor s Pharmacy Settled for $1M in 2012 with Vermont AG for pharmacy submitting to Vermont Medicaid claims for dispensing drugs more frequently than instructed by physicians and permitted by Vermont Medicaid Massachusetts v. Allcare Pharmacy Settled for $1.6M in 2013 with MassHealth for implementing auto-refill program and refilling scripts without customer authorization 36

37 Patient Consultation Investigations California Pharmacy Law regulation require pharmacists to consult one-on-one with patients who receive new prescriptions New medications New dosage, form, or strength California Board of Pharmacy, working in conjunction with county district attorneys, has been conducting undercover investigations of major pharmacy chains since

38 Patient Consultation Investigations CVS settled 22 citations issued to two pharmacies in December 2013, paying $658,000 in penalties and costs and entering into injunction requiring compliance with consultation regulations and implementation of internal compliance program Settlement funds divided among district attorney offices, Board of Pharmacy, and Consumer Protection Prosecution Trust Fund Rite Aid subsidiary, Thrifty Payless, settled investigation in June 2014 for $498,250 in penalties and costs and entering injunction similar to CVS 38

39 Mitigation Strategy #5 Do not miss warning signals Smaller matters can become big matters if ignored Develop system to capture government citations, summons, subpoenas and send to corporate to identify repeated visits from regulators and law enforcement Addressing issues early with local authorities mitigates damages and harm to reputation 39

40 Specialty Pharmacies As specialty pharmacy market share has grown, so has the interest of relators and law enforcement Relationships with manufacturers, other pharmacies, and patients being examined Often arises from unique role of specialty pharmacy in assuring potent and expensive drugs are properly used and reimbursed 40

41 U.S. ex rel. Greenfield v. Medco Health Systems, Inc. et al. Greenfield: D.N.J.; former vice president of Accredo Health Group, Inc.; U.S. did not intervene Lengthy litigation with relator; three amended complaints; Sept district court decision allows two claims to go forward Relator alleges Accredo, specialty pharmacy for patients with complex conditions including hemophilia and Medco subsidiary, made charitable contributions to an organization that provided donations to Hemophilia Association of NJ (HANJ), which offers insurance and financial assistance to hemophilia patients 41

42 U.S. ex rel. Greenfield v. Medco Health Systems, Inc. et al. Kickback allegations The more Accredo donations went to HANJ, the more referrals by HANJ to Accredo s products HANJ patients who used Accredo s products received excessive gifts dinners, lunches, refrigerators, and other equipment that assured that they would continue to use Accredo s products Court found that relator had plead facts sufficient for strong inference that patients were federal health plan beneficiaries and alleged kickbacks could form basis of FCA violation 42

43 U.S. ex rel. Kester v. Novartis Pharmaceuticals Corp., et al. Kester; S.D.N.Y.; former Novartis area sales manager Multiple defendants in qui tam case: Accredo, Bioscrip Corp., Curascript, CVS Caremark U.S. intervened as to only Novartis and Bioscrip Bioscrip settled with U.S. for $11.6M in 1/14 Relator s allegations proceeded as to other defendants In 2014, multiple motions to dismiss were filed District court trimmed back claims of the U.S. and relator, but each will proceed under central theory that alleged kickbacks constitute FCA violations for Medicaid and Medicare beneficiaries 43

44 U.S. ex rel. Kester v. Novartis Pharmaceuticals Corp., et al. Government s allegations Novartis paid kickbacks to certain non-defendant pharmacies cash rebates or discounts for each sale of a specific drug patient referrals to induce them to recommend certain Novartis drugs to doctors and patients Relator s allegations Novartis paid kickbacks to pharmacies that included defendants to recommend certain Novartis drugs Pharmacies ran high touch programs at call centers where pharmacy staff contacted patients for counseling but had goal of pushing Novartis drugs Defendant pharmacies were encouraged to channel patients from retail to specialty where they could be influenced 44

45 Mitigation Strategy #6 Get legal advice from your in-house legal team or outside counsel when entering into programs that offer rebates, discounts, services, data, and so on When FCA allegations get made, that decision-making process with thoughtful regulatory analysis will help defend you 45

46 Contact Information Barbara Rowland, Principal Post & Schell, P.C. Internal Investigations & White Collar Defense Practice Group Washington, D.C John Joseph, Principal Post & Schell, P.C. Internal Investigations & White Collar Defense Practice Group Philadelphia, PA