Can You Get Insurance Coverage for False Claims Act and Similar Claims? Making Sure You ve Looked at All Possible Avenues of Recovery

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1 Can You Get Insurance Coverage for False Claims Act and Similar Claims? Making Sure You ve Looked at All Possible Avenues of Recovery Presented by Brennan Torregrossa Asst. General Counsel Dispute Resolution & Prevention GlaxoSmithKline John N. Ellison and Barbara R. Binis Reed Smith LLP

2 What Is the Purpose of the FCA?

3 The FCA Is Violated if:

4 Qui Tam Actions Procedure Actions brought under the FCA by private individuals, called relators, on behalf of the federal government A relator files suit under seal, serves the federal government with the complaint, and discloses all material evidence related to the claim to the federal government. 31 U.S.C. 3730(b)(2) The federal government has 60 days to investigate the allegations and decide if it wants to intervene in the action If the federal government chooses to intervene, it takes over primary control of the action. 31 U.S.C. 3730(c)(1) If the federal government chooses not to intervene, the relator may still continue to pursue the action on his/her own. 31 U.S.C. 3730(c)(3)

5 Potential Relators / Employee Complainants

6 Types of FCA Actions Brought by Government

7 Interplay Between FCA and Other Federal Statutes

8 Off-Label Promotion: Potential Liabilities *

9 Off-label Promotion Although off-label use is legal, it carries potential risks and legal implications Drug companies are prohibited by law from advertising or marketing medications for any purpose other than their FDA-approved use, and from distributing information about clinical findings of off-label use, except in specific circumstances * *

10 How To Best Defend FCA Claims

11 Know Your Company s Materials e.g., see: 06/06/13 FDA Untitled Letter sent to Johnson & Johnson International, Inc. concerning a Print Ad for Xarelto featured in WebMD magazine for minimizing the drug s risks by fail[ing] to convey this important risk information with a prominence and readability reasonably comparable to the efficacy claims (i.e., presenting risk information without any of the emphasis (i.e. color scheme, borders, layout, and graphics) used with the efficacy claims )

12 Know Your Company s Materials (cont.) e.g., see: 09/25/08 FDA Warning Letter sent to Shire Development, Inc. stating that a webpage and a video testimonial posted on youtube.com featuring celebrity Ty Pennington overstated the efficacy of Adderall XR and broadened the indicated uses. For example, in the video, Pennington implied that the product would transform patients lives, improve their confidence, and help them to fit in and not feel different or alienated.

13 Be Mindful of Oral Statements Made To Investors/Potential Investors e.g., see: 11/8/13 FDA Warning Letter sent to Aegerion Pharmaceuticals regarding statements its CEO made on CNBC s TV show Fast Money promoting Juxtapid as safe and effective for use in decreasing cardiovascular events, and increasing the lifespan of patients with the rare genetic disease homozygous familial hypercholesterolemia (HoFH), which would be a new intended use.

14 FCA CLAIMS Insurance Coverage Issues *

15 Potential Expenses and Damages

16 Types of Insurance Coverage

17 FCA: Potentially Available Insurance Coverage * Claims under the FCA against life sciences companies, including off-label use and/or off-label promotion, arise in a variety of contexts Depending on the nature of the allegations and the context in which the claims arise, there could be opportunities for insurance coverage under various types of policies Types of insurance policies to review: Commercial general liability and excess policies Directors and officers coverage Specialty products like employment practices coverage and crime/blanket bond insurance *

18 FCA: Potentially Available Insurance Coverage (cont.) Commercial General Liability Insurance CGL policies typically provide broad coverage against third-party claims alleging damages that resulted from a company s products or behavior, including bodily injury and property damage Most CGL policies do not exclude coverage for claims arising out of injury as a result of off-label use of a pharmaceutical Many CGL policies do exclude coverage for claims arising out of illegal off-label promotion Insurers often argue that intentional misconduct provision precludes coverage, but this usually requires finding by court that intentional misconduct occurred * *

19 FCA: Potentially Available Insurance Coverage (cont.) Directors & Officers Liability Insurance D&O policies typically provide coverage to the company and its directors and officers against claims resulting from wrongful acts allegedly committed by the directors and officers D&O policies may be implicated by direct suits for alleged off-label promotion D&O policies may also be implicated by securities claims and shareholder derivative suits D&O policies could provide coverage where CGL policies exclude it * *

20 Off-Label Claims: Potentially Available Insurance Coverage Employment Practices Liability Insurance EPLI policies typically provide coverage for liabilities arising out of wrongful employment acts Many off-label promotion cases, particularly those involving employee complainants, include allegations relating to conduct by the company that could fit within the definition of wrongful employment acts Beware of Retaliation claims U.S. ex rel. Ibanez, et al. v. Bristol-Myers Squibb Co., et al., 1:11-cv (S.D. Ohio) judge dismissed FCA claims that BMS offered kickbacks to promote off-label sales of Abilify, but left relators retaliation claims intact * *

21 Off-Label Claims: Potentially Available Insurance Coverage (cont.) Crime/Blanket Bond Policy FCA lawsuits can often arise out of scenarios where an employee or former employee has possession of proprietary materials owned by the company that should not be in his or her possession Depending on the nature of the proprietary material, the company may have been the victim of a theft or wrongful taking that might fall within the scope of crime coverage It is worth analyzing the specific facts and policy terms to see if a viable opportunity for coverage exists * *

22 Review Your Coverage Now *

23 Recommendations * *

24 Government Reimbursement

25 Off-Label Use and Government Reimbursement Many off-label uses are reimbursable under Medicare and similar government programs With respect to prescription drugs, the government reimburses off-label uses that appear in certain designated compendia (now online) Split in courts on whether compendia are exclusive or whether other medical literature not in a designated compendium qualifies Reimbursement standards for medical devices *

26 Off-Label Use and Third-Party Payor Reimbursement Many insurers cover off-label uses to the extent that the government does Unless coverage is explicitly linked to a government program, private insurers are free to impose more restrictive definitions of medical necessity Insurance policies that refuse to cover any offlabel use are now uncommon Some states have required coverage of off-label uses under various circumstances *

27 Kickbacks

28 Running Afoul of the Anti-Kickback Statute Illegal for pharmaceutical companies to provide payments or financial incentives to physicians/hospitals as inducement to prescribe their drugs Examples of such payments include: Extravagant meals and gifts Vacations and golf outings Tickets to sporting events and concerts Payments for attending conferences and lectures Excessive payments to serve on advisory boards Also illegal for pharmaceutical companies to provide financial incentives to insurance companies and group purchasing organizations to have their drugs placed on preferred formularies

29 Recent Example of FCA Case Alleging Illegal Kickbacks United States ex rel Nevyas, et al. v. Allergan Inc., 2:09-cv (E.D. Pa.) Plaintiffs, owners of a surgical ophthalmology practice, allege that since 2002, Allergan engaged in illegal kickback scheme to induce doctors to prescribe Restasis. Inducements included free business consulting services, billing advice, and membership in its high-paying speaker s bureau. ** Amended complaint was unsealed in December 2013.**

30 TAA Violations

31 What Is the Trade Agreements Act (TAA)? TAA requires that certain products sold to the U.S. government originate in either the United States or in one of the designated countries in which the United States has special trade agreements Recent FCA settlement for $8.3 million based on TAA violations United States ex rel. Cox v. Smith & Nephew, Inc., 2:08-cv (W.D. Tenn.) suit filed in 2008; settled in 2014 Medical device company allegedly failed to segregate TAA-compliant devices from devices that were repackaged in the United States, but were originally imported from Malaysia (a non-designated country) Company could therefore not attest that all goods sold were TAA certified Even though company voluntarily disclosed the potential violations, a former employee filed suit under the FCA First-ever FCA settlement for a medical device manufacturer based on TAA compliance

32 Insurance Issues Related to Off-Label And Other Claims Potentially broader coverage is available because some of the more generic insurance products may be implicated by off-label claims like CGL insurance and product liability insurance Advertising injury coverage Product defect coverage At a minimum, provide notice to all potentially implicated insurers Duty to defend vs. duty to indemnify Impact of deductibles/self-insured retentions on selection of defense counsel Strategies for still controlling the defense effort while maximizing potential for insurance coverage * *

33 Thank you! Questions? *