Lauren Roth

26 March 2013

Par Pharmaceuticals Settles Off-Label Allegations for $45 million

Posted by Kristin KoehlerLauren Roth and Elizabeth Kolbe

On March 5, 2013, Par Pharmaceuticals (“Par”) became the latest pharmaceutical company to settle allegations of off-label promotion. Specifically, Par resolved criminal misbranding allegations by pleading guilty to a one-count misdemeanor violation of the Federal Food, Drug, and Cosmetic Act. The company also settled related civil allegations that its conduct violated the False Claims Act. In total, the company agreed to pay $45 million in criminal fines, forfeiture, and civil penalties.

The government alleged that Par promoted the use of Megace ES—an appetite stimulant approved for the treatment of patients with significant weight loss as a result of AIDS—for non-AIDS-related geriatric wasting. The government’s alleged evidence of misbranding included actions such as: (i) setting sales goals that exceeded the current sales trends for on-label use, (ii) creating call plans that included long-term care facilities and practitioners who treated geriatric patients, and (iii) adopting a strategy to convert physicians to Megace ES without regard for whether the physicians had been prescribing the competitor product for on- or off-label purposes. As part of this effort, Par’s marketing allegedly failed to acknowledge risks unique to elderly patients and made inaccurate or misleading comparative effectiveness claims between Megace ES and the competitor product, such as suggesting that practitioners “upgrade” their patients to Megace ES and falsely claiming that Megace ES worked faster than the competitor product.

As part of the global resolution of these claims, Par executed a Corporate Integrity Agreement (“CIA”) with the Office of the Inspector General of the Department of Health and Human Services (“OIG”) and the company accepted compliance-related obligations in its plea agreement with the Department of Justice. Among notable aspects of its CIA, Par must adopt restrictions on how incentive compensation is calculated for Megace ES sales professionals and it must institute a clawback mechanism for compensation previously paid to senior executives—two provisions that first appeared in the GlaxoSmithKline CIA (June 2012), but have not been required by OIG since then. Pharmaceutical executives, compliance professionals, and industry advisors had been waiting to see whether these requirements would be unique to GSK (which, to-date, remains the largest single settlement in history), or whether OIG would seek to impose them under other circumstances as well. Interestingly, although intervening settlements with Boehringer Ingelheim (October 2012) and Amgen Inc. (December 2012) were resolved for far higher dollar amounts than Par’s case, related CIAs had not included the incentive compensation provisions. Thus, going-forward, although it is now clear that OIG will seek to extend these provisions to other companies, predicting when it will do so remains a challenge.

The Par settlement concludes three qui tam suits filed in the District of New Jersey: U.S. ex rel. McKeen and Combs v. Par Pharmaceutical, et al., U.S. ex rel. Thompson v. Par Pharmaceutical, et al., and U.S. ex rel. Elliott & Lundstrom v. Bristol-Myers Squibb, Par Pharmaceutical, et al.

06 November 2012

Sixth Circuit Finds That “Claims” Means “Case” In FERA Provision

Posted by Kristin Graham Koehler and Lauren Roth

In the continuing drama of the Allison Engine case, the Sixth Circuit, last week, revived relators’ “claims” by overturning the District Court decision and further deepening a circuit split on the issue of how to interpret the word “claims” in section 4(f)(1) of the Fraud Enforcement and Recovery Act of 2009 (FERA). Roger Sanders v. Allison Engine Company, Inc. et al., Nos. 10-3818 (6th Cir. Nov. 2, 2012).


Readers will recall that this case began its journey in 1995 with relators’ filing a False Claims Act complaint against several Navy subcontractors. The case went to trial and, at the close of relators’ case, defendants filed a motion for judgment as a matter of law, arguing that relators had failed to produce evidence that any false claim was presented to the Navy. Without evidence of presentment, defendants argued, no reasonable jury could find a False Claims Act violation. The district court agreed. On appeal, however, the Sixth Circuit held that 31 U.S.C. section 3729(a)(2) did not require presentment of a claim to the government. In a unanimous decision, the Supreme Court disagreed, and it held that a person must have intended to get a false or fraudulent claim “paid or approved by the Government” in order to be liable. Dissatisfied with this outcome, Congress revised the statute itself, removing the language from section 3729(a)(2) on which the Court had based its decision and making its revision retroactive for “all claims under the False Claims Act . . . that [were] pending on or after” June 7, 2008 (i.e., two days before the Supreme Court’s Allison Engine decision).

Current Dispute

After FERA’s passage, the Allison Engine defendants filed a motion to preclude retroactive application of the amended provisions of False Claims Act section 3729. The district court granted the motion, finding that the retroactivity language in FERA section 4(f)(1)—which arguably had been enacted to address this very case—did not apply. The court’s rationale was grounded in an inconsistent use of terms between FERA section 4(f)(1) and 4(f)(2)—the first provision relating to pending “claims” under the False Claims Act, the second relating to pending “cases.” Among other things, the court reasoned that the differences in terminology between the two sections suggested a Congressional intent to assign different meanings to them. Interpreting “claim” to mean “any request or demand . . . for money or property” (i.e., the definition for False Claims Act section 3729, to which FERA section 4(f)(1) applies), the district court found that although the Allison Engine “case” may have been pending in June 2008, no “claims” were pending. Further, the court reasoned, even if section 4(f)(1) could be read to apply to the pending case, such application would violate the Ex Post Facto clause of the Constitution.

Sixth Circuit Decision

Back to the Sixth Circuit on appeal, the case has taken yet another turn. In its decision last week, the court reversed the district court ruling, holding that “claim” in section 4(f)(1) does mean “case.” (It also held that such application does not violate the Constitution.) While crediting the presumption that Congress uses different words to convey different meanings, the court nevertheless determined that such an argument was undermined in this case. In particular, the court was persuaded by the facts of the FERA drafting process (namely, that the two section 4(f) provisions were drafted by different chambers of Congress at different times) and the fact that other places in the False Claims Act plainly use the term “claim” to mean “civil action or case.” Because the court’s decision put it squarely on one side of a circuit split with the Second and Seventh Circuits—while the Ninth and Eleventh circuits, as well as many district courts, take the opposite view—it remains to be seen whether Allison Engine will take another ride to the Supreme Court before its journey ends.

06 August 2012

D.C. Circuit Decision in Friedman v. Sebelius Overturns Exclusions of Three Purdue Pharma Executives

In the pharmaceutical industry, government investigations initiated by whistleblower qui tam complaints can—and often do—result in both civil and criminal charges against the company. In recent years, such investigations also have increasingly focused on individual corporate executives, either based on the executives’ participation in the misconduct or by virtue of their status as “responsible corporate officers” of the wrongdoing entity. Last week, three executives ensnared in one such investigation scored a key, albeit mixed, victory.

A decision by the D.C. Circuit Court in Friedman v. Sebelius overturned the exclusions of three Purdue Pharma executives from participation in federal healthcare programs, holding that the Department of Health and Human Services (HHS) acted arbitrarily in imposing extraordinarily lengthy exclusions. Notwithstanding this ruling, the court held that HHS has the authority to exclude individuals convicted of a misdemeanor if the conduct underlying the conviction is related to fraud, even if the individual is an executive that had no knowledge of the underlying fraudulent conduct.

Background on the Case

In 2007, Purdue Pharma L.P. and Purdue Frederick Company, Inc. paid $600 million to resolve charges that Purdue Frederick fraudulently misbranded OxyContin as less addictive and less subject to abuse and diversion than other pain medications. As part of the settlement, Purdue Frederick pleaded guilty to a felony misbranding charge. The settlement resolved potential civil liability for allegations that that, based on these misleading claims, Purdue knowingly caused the submission of false claims for OxyContin.

Prosecutors also charged three former senior executives of Purdue— the company’s President and Chief Operating Officer, Executive Vice President/Chief Legal Officer, and Vice President of Worldwide Medical Affairs—with misdemeanor violations of the Food, Drug and Cosmetic Act (FDCA) based on Purdue Frederick’s guilty plea for felony misbranding of OxyContin and the executives’ status as “responsible corporate officers.” HHS’s Office of Inspector General (OIG) subsequently excluded the three executives for 20 years on the ground that their convictions “related to” fraud in the delivery of a healthcare item — a ground for discretionary exclusion.

In an administrative appeal, the HHS Departmental Appeals Board (DAB) upheld the executives’ exclusion. Though the three executives did not admit personal knowledge of this fraud — rather, they admitted only that it had occurred and that they had been “responsible corporate officers” at the time — the DAB determined, nevertheless, that the there was evidence that the executives’ convictions had “related to” fraud. The DAB reduced the length of exclusion to 12 years, however, finding that the OIG had not demonstrated that the underlying conduct harmed any patients. The D.C. Federal District Court affirmed the DAB decision.

D.C. Circuit Opinion

On appeal, a sharply divided panel of the D.C. Circuit affirmed that the executives’ exclusion but remanded the case to the agency, holding that it failed to reconcile the lengthy 12-year term of exclusion with agency precedent.

The D.C. Circuit’s ruling is significant in at least two respects. First, a panel majority (Sentelle, CJ., Ginsburg, J.) held that misdemeanor misbranding, which requires no proof that a corporate officer know of, or have any involvement in, fraudulent misbranding, is nevertheless a conviction for a “misdemeanor relating to fraud” within the meaning of the exclusion statute. HHS may therefore exclude individuals convicted of such misdemeanors from participation in federal healthcare programs. Second, a different majority (Williams, Ginsburg, JJ.) held that the length of any exclusion is subject to review under the arbitrary and capricious standard. The government had argued that, unlike the Administrative Procedure Act, the statute providing for judicial review of DAB decisions (42 U.S.C. 405(g)) did not include the arbitrary-and-capricious standard. For that reason, the government contended, the court could not require the agency to compare the exclusion imposed here to exclusions imposed in other cases. The majority disagreed, holding that the agency had not explained how the 12-year exclusion here for a misdemeanor offense was justified by exclusions involving felonies and incarceration. As the majority noted, “Simply pointing to prior cases with the same bottom line but arising under a different law and involving materially different facts does not provide a reasoned explanation for the agency’s apparent departure from precedent.” The case will be remanded to OIG for further consideration. Sidley represented the former Purdue executives in the DC Circuit.

03 April 2012

Sanction for Relator’s Counsel Who Engaged in “Abusive Behavior”

The public disclosure bar is meant to prevent or cut short the life of the “parasitic” lawsuit. In short, if a relator’s allegations are substantially the same as claims have been publicly disclosed already, and the relator is not the “original source” of the information, then a court generally must dismiss the suit. But as defendants know all too well, getting to dismissal can be a long and costly process. Moreover, enticed by the prospect of sharing in settlement proceeds, relators—and relators’ counsel—have an incentive to reprocess public allegations and “see what sticks.” Last week, however, a district court in Indiana sent a strong message by penalizing such conduct and demonstrating that it, too, may be costly for relators and their lawyers.

In U.S. ex rel. Leveski v. ITT Educational Services, Inc., the court—having earlier dismissed relator’s case—granted (in part) ITT’s Motion for Attorneys Fees and Sanctions and ordered relators’ counsel to pay nearly $400,000 in fees. U.S. ex rel. Leveski v. ITT Educational Services, Inc., 1:07-cv-0867 (D. Ind. March 26, 2012). Moreover, in a 30+ page opinion, the court took Leveski and her lawyers to task for filing such a contemptible, blatantly frivolous lawsuit, which reportedly cost ITT over $13 million to litigate. “Common sense,” the court opined, “suggests that Leveski is worlds apart from the type of genuine whistleblower contemplated by the FCA.”

The facts in the case were as follows: Leveski had worked at ITT for approximately 11 years, during which time she filed an unrelated employment suit against ITT that settled. In May 2007, after Ms. Leveski had ended employment with ITT, she was contacted by an investigator for Timothy Matusheski, her would-be FCA counsel. Matusheski had learned of Leveski through a public records search for former employees of for-profit educational institutions who had sued their former employer. Soon after their introduction, Leveski became convinced that ITT had violated an incentive compensation provision of Title IV of the Higher Education Act and she filed her FCA suit. (“Matusheski plucked a prospective plaintiff out of thin air and tried to manufacture a lucrative case,” the court wrote.) She was, apparently, not alone. The court’s decision cites to four other lawsuits against for-profit educational institutions that were filed by plaintiffs who had been recruited by Matusheski. All of the suits had been dismissed. Indeed, in one instance, Matusheski—”in consultation with his client, who was fearful of the potentially devastating financial impact of an attorney’s fees award” formally apologized to the court, the Department of Justice, and the Defendant after the dismissal.

In Leveski’s case, the court dismissed her suit for lack of subject matter jurisdiction, based on a public disclosure bar analysis. In support of its subsequent Motion for Attorney’s Fees and Sanctions, ITT identified several significant events in the case and argued that it was entitled to attorney’s fees incurred from the date of those events. Ultimately, the court found the triggering event to be Leveski’s deposition, in which she had revealed an extensive lack of knowledge about the substance of her allegations, undermining any argument that she was original source of the information. Although ITT reported having incurred approximately $2.6 million in legal expenses since the deposition, the court decreased its award to $394,998.33 for two reasons: (i) ITT’s delay in deposing Leveski, and (ii) the court’s application of Rule 11’s instruction that sanctions be limited to “what suffices to deter repetition of the same conduct or comparable conduct by others similarly situated.” See Fed. R. Civ. P. 11(c)(4). “In light of these considerations, the Court finds that 15 percent of the amount of attorney’s fees actually spent [from the date of the deposition onward] is an appropriate figure.”

Ultimately, ITT recovered only a tiny fraction of the attorney’s fees that it incurred defending a wholly unmeritorious lawsuit. Nevertheless, the mere fact of the award should provide a stronger deterrent effect to specious FCA suits than the public disclosure bar alone.

XSLT Plugin by BMI Calculator