1. Enforcement Trends in Pharmaceutical Cases The views expressed are those of the author. They do not necessarily reflect the position of the Department of Justice and are not binding on the Department of Justice. The views expressed are those of the author. They do not necessarily reflect the position of the Department of Justice and are not binding on the Department of Justice.

2. Eugene M. Thirolf Director, Office of Consumer Litigation United States Department of Justice Civil Division Eugene.Thirolf@usdoj.gov Office of Consumer Litigation The Office of Consumer Litigation (OCL), a section in the Civil Division of the Department of Justice (DOJ), enforces through civil litigation and criminal prosecutions a number of Federal statutes that protect the public health and safety and protect consumers from unfair practices. 28 C.F.R. 0.45(j) Point of Contact Policy OCL monograph is at http://www.usdoj.gov/civil/ocl/monograph/index.htm

3. DOJ Has Made Health Care Fraud a Priority DOJ Has Made Health Care Fraud a Priority   Associate Attorney General Robert McCallum in May 2004 asked the U.S. Attorneys to make health care fraud a top priority in their offices.   Since 1996, DOJ, working with HHS, has returned in excess of $4.5 billion to the Medicare Trust Fund for health care fraud recoveries.   Pharmaceutical fraud has resulted in criminal convictions and in excess of $1.6 billion in equitable relief and penalties.

4. DAG Comey to the ABA “I “I believe that it is of paramount importance that the Department use every tool at its disposal to ensure the health and safety of the consumers of the nation's health care system.” “[T]he high school honor student able to obtain dangerous prescription drugs from an Internet pharmacy, the cancer patient receiving diluted drugs from a greedy pharmacist, or the cardiac patient receiving unnecessary surgery all share one common experience: they each suffered, and some of them died, at the hands of a health care provider who placed profit ahead of their patients’ vital health care concerns.”

5. Food, Drug, and Cosmetic Act (FDCA)   The FDCA case referral process has been overtaken by events— i.e., qui tams   Civil injunctions/address systemic problems   Criminal prosecutions under the FDCA Misdemeanors—before 1990, the more common charge Felonies—since 2000, how many convictions?

6. In 2003 Americans spent $230 billion on prescription drugs Source: CBS News

7. Enforcement Goals 1. Identify and successfully prosecute those who are committing health care fraud. 2. Prevent future fraud or abuse by deterring criminal conduct and violations of the statutes. 3. Protect program beneficiaries.

8. History of Enforcement OCL has been pursuing fraud and misconduct in the pharmaceutical industry for at least 30 years. OCL has been pursuing fraud and misconduct in the pharmaceutical industry for at least 30 years. More felonies for a range of criminal statutes More felonies for a range of criminal statutes More jail and higher fines because of sentencing guidelines More jail and higher fines because of sentencing guidelines International character of violations International character of violations New emerging areas—e.g., Internet pharmacies, importing counterfeit drugs New emerging areas—e.g., Internet pharmacies, importing counterfeit drugs

9. HHS’ perspective is essential. The standards for marketing pharmaceuticals are clear. http://www.oig.hhs.gov/fraud/docs/complianceguidance/dr aftcpgpharm09272002.pdf http://www.oig.hhs.gov/fraud/docs/complianceguidance/dr aftcpgpharm09272002.pdf http://www.oig.hhs.gov/fraud/docs/complianceguidance/dr aftcpgpharm09272002.pdf http://www.oig.hhs.gov/fraud/docs/complianceguidance/dr aftcpgpharm09272002.pdf PHARMA guidelines and challenges PHARMA guidelines and challenges Corporate governanceCIAs Corporate governance — CIAs

10. Generic drugs cause market pressure. Defending FDA’s exclusivity decisions against whomever “loses” Generic or Innovator Defending FDA’s exclusivity decisions against whomever “loses” — Generic or Innovator  In FY 2004, 31 new defensive cases  FDA’s implementing the MMA Draft Guidance published October 2004 http://www.fda.gov/cder/guidance/6174dft.pdf  FDA’s implementing the MMA — Draft Guidance published October 2004 http://www.fda.gov/cder/guidance/6174dft.pdf  30-month stay  Generic exclusivity

11. Enforcement Options: Civil Remedies Under the Food, Drug, and Cosmetic Act Injunction– e.g., United States v. American Red Cross Injunction– e.g., United States v. American Red Cross Product seizure and condemnation– e.g., United States v. Abbott Laboratories Product seizure and condemnation– e.g., United States v. Abbott Laboratories Disgorgement Disgorgement – e.g., United States v. Universal Management, 999 F. Supp. 974 (N.D. Ohio 1997), aff’d, 191 F.3d 750 (6th Cir. 1999). During the first Bush Administration, we recovered $900 million in disgorgement.

12. Health Care Fraud False Claims Act (FCA): QUI TAMS CAN SET THE ENFORCEMENT AGENDA  100 or more cases involving pharmaceutical manufacturers, PBMs, doctors, and hospitals  Implied certification is an appropriate basis for imposing FCA liability.  United States, ex rel Franklin v. Parke-Davis, Civ. 96- 11651PBS, 2003 WL 22048255 (D.Mass. Aug 22, 2003).

13. Health Care Fraud Emerging prosecutions and enforcement areas for pharmaceutical manufacturers– CGMP United States v. Bhutani, 175 F.3d 572 (7th Cir. 1999), 266 F.3d 661 (7th Cir. 2001), cert denied 536 U.S. 922 (2002)– mid-tier/contract manufacturers “Qui Tam actions are an “avalanche on pricing issues and kickbacks.” Rx Compliance Report, July 8, 2004.

14. Types of Qui Tams Inflated average wholesale prices (AWP) at which Medicare and Medicaid reimburse Inflated average wholesale prices (AWP) at which Medicare and Medicaid reimburse Off-label marketing Failure to provide adverse event reports The number of cases, in multiple Districts, against common defendants presents a challenge to DOJ.

15. State actions, new areas of interest Attorney Generals using state consumer protection and antitrust laws Attorney Generals using state consumer protection and antitrust laws California law requiring compliance with OIG compliance standards California law requiring compliance with OIG compliance standards Private medical insurance recoveries Private medical insurance recoveries Clinical trials-FDA draft guidance September 2004 Clinical trials-FDA draft guidance September 2004

16. Should you proactively tell the Government about a crisis? The Government’s responsibility in investigating a qui tam claim is clear The Government’s responsibility in investigating a qui tam claim is clear — Whether the Government paid for unapproved new drugs or adulterated and misbranded drugs Whether the Government paid for unapproved new drugs or adulterated and misbranded drugs Was the pharmaceutical prescribed with the patient’s interest uppermost in mind? Was the pharmaceutical prescribed with the patient’s interest uppermost in mind?

17. Do you report to the Government? OJF is a pharmaceutical manufacturer. OJF is a pharmaceutical manufacturer. Has a drug for treatment of blood deficiency. Has a drug for treatment of blood deficiency. Product is not performing as expected when launched. Product is not performing as expected when launched. A new medical journal reports that the drug’s chemical entity may have a significant benefit for a vulnerable pediatric population. A new medical journal reports that the drug’s chemical entity may have a significant benefit for a vulnerable pediatric population. Product is aggressively “marketed” as beneficial for the “same” pediatric population that is identified in the medical journal. Product is aggressively “marketed” as beneficial for the “same” pediatric population that is identified in the medical journal. Sales increase dramatically as doctors find the drug to be exactly what they wanted. Sales increase dramatically as doctors find the drug to be exactly what they wanted.

18. An unexpected development  An adverse reaction occurs. When should OJF tell the government? When should OJF tell the government? Mr. Jones, VP for Regulatory Affairs, is notified by a treating physician that the drug is having unexpectedly bad effects on the young children he is treating. Mr. Jones, VP for Regulatory Affairs, is notified by a treating physician that the drug is having unexpectedly bad effects on the young children he is treating. Jones discusses this with the CEO and is put in charge of addressing the problem. Jones discusses this with the CEO and is put in charge of addressing the problem.

19. What does Jones do? Jones immediately reports a literature search and finds nothing to explain the adverse reaction. Jones immediately reports a literature search and finds nothing to explain the adverse reaction. Jones contacts the medical affairs director and learns that there is no dosing information for the new pediatric population. Jones contacts the medical affairs director and learns that there is no dosing information for the new pediatric population. Jones debates whether notification to the physician user community is appropriate. Jones debates whether notification to the physician user community is appropriate. Jones considers and rejects sending a “Dear Doctor” letter. Jones considers and rejects sending a “Dear Doctor” letter. Jones leaves the product on the market because the results of the investigation are not clear and the product is generally well received and must be performing well. Jones leaves the product on the market because the results of the investigation are not clear and the product is generally well received and must be performing well. CEO tells Jones to consult with outside regulatory counsel, Ms. Counsel, for guidance. CEO tells Jones to consult with outside regulatory counsel, Ms. Counsel, for guidance.

20. The lawyer enters. Ms. Counsel suggests consulting with the FDA about how best to proceed. Ms. Counsel suggests consulting with the FDA about how best to proceed. Still lacking firm answers about the problem or the solution and with an unknown safety record in the field, OJF stops shipping the drug. Still lacking firm answers about the problem or the solution and with an unknown safety record in the field, OJF stops shipping the drug. OJF refuses to confirm for inquiring physicians that there have been adverse reports about the drug’s use in the new pediatric population. OJF refuses to confirm for inquiring physicians that there have been adverse reports about the drug’s use in the new pediatric population.

21. What Does OJF Do After Stopping Shipping? Can OJF and Mr. Jones “blame the doctors”? Can OJF and Mr. Jones “blame the doctors”? How much of the investigation should be disclosed to the physicians who prescribed the drug? How much of the investigation should be disclosed to the physicians who prescribed the drug? FDA shows up at the door. FDA shows up at the door. What does OJF say to the FDA? What does OJF say to the FDA?

22. What Defense Is There? Can OJF defend against felony new drug, adulteration and misbranding, and 18 U.S.C. § 1001 violations? Can OJF defend against felony new drug, adulteration and misbranding, and 18 U.S.C. § 1001 violations? What does OJF disclose and to whom? What does OJF disclose and to whom? How does OJF communicate its views and options? How does OJF communicate its views and options? Can OJF rely on past FDA practice and public statements? Can OJF rely on past FDA practice and public statements?

23. What Defense Is There? Can OJF compare its product’s safety and efficacy with other products on the market? Can OJF compare its product’s safety and efficacy with other products on the market? Are there free speech issues? Are there free speech issues? What about product liability? What about product liability?

24. A Qui Tam Is Filed. An OJF employee alleges  That OJF’s investigation was not initiated promptly enough  That it was totally inadequate to determine why the adverse reactions were occurring  That the product was promoted for an off-label use

25. Limiting the Damages How much did Medicaid pay for the drug? How much did Medicaid pay for the drug? Does a recall limit the dangers of the investigation? Does a recall limit the dangers of the investigation? Was the recall sufficiently timely? Was the recall sufficiently timely? Was the company knowingly shipping unapproved, adulterated, or misbranded product? Was the company knowingly shipping unapproved, adulterated, or misbranded product?

26. Why Did This Happen? Was it vague regulations, differing market expectations, and epidemiology by hindsight? Was it vague regulations, differing market expectations, and epidemiology by hindsight? Was it the competitive economics of the industry? Was it the competitive economics of the industry? When should OJF have gone to FDA, HHS, or DOJ? When should OJF have gone to FDA, HHS, or DOJ? Did OJF make conservative judgments on public health and safety? Did OJF make conservative judgments on public health and safety? United States v. Hiland, 909 F.2d 1114 (8 th Cir. 1990). United States v. Hiland, 909 F.2d 1114 (8 th Cir. 1990).

27. Failure to Ask or Tell Has Consequence “Finally, we think it is relevant that neither Carter nor Hiland ever consulted the FDA to find out if it was necessary to test E-Ferol for safety. Although Carter and Hiland were under no legal duty to make such an inquiry, we believe their decision not to consult the FDA constituted at least some evidence of deliberate ignorance.” Id. at 1124. “Finally, we think it is relevant that neither Carter nor Hiland ever consulted the FDA to find out if it was necessary to test E-Ferol for safety. Although Carter and Hiland were under no legal duty to make such an inquiry, we believe their decision not to consult the FDA constituted at least some evidence of deliberate ignorance.” Id. at 1124.

28. Tell Us What Happened Early On HHS IG Web site offers the opportunity to self- report. HHS IG Web site offers the opportunity to self- report. New Corporate Sentencing Guidelines highlight self-reporting. New Corporate Sentencing Guidelines highlight self-reporting. Your own corporate compliance programs should deal with self-reporting for Sarbanes- Oxley. Your own corporate compliance programs should deal with self-reporting for Sarbanes- Oxley. CIAs require self-reporting of a material breach. CIAs require self-reporting of a material breach.

29. Current Health Care Fraud Drug Cases Current health care fraud cases will be based on older cases:   Medicare prescription drug benefit merely increases the stakes.   United States v. Smith Klein   Kickback cases — OIG/Pharma Guidance   Off label prescription drug promotion   United States v. Genentech (1999)   United States v. Parke-Davis (2004)

30. Some factors we consider in deciding to pursue a case What will be the deterrent value of the case, or, in simplest terms, what is the guideline sentencing? What are the Government’s priorities in terms of type of case? Can the defendant help the Government to prosecute others?

31. Deputy Attorney General Thompson’s Memorandum Corporate Compliance Policy–sets standards to decide whether a company should be charged. Corporate Compliance Policy–sets standards to decide whether a company should be charged. Sentencing guidelines say how large the penalty should be. Sentencing guidelines say how large the penalty should be. The principles recognize that the existence of an adequate and effective compliance program may be one of several relevant factors in determining whether to charge a corporation. What does this mean? What is an adequate and effective program? The principles recognize that the existence of an adequate and effective compliance program may be one of several relevant factors in determining whether to charge a corporation. What does this mean? What is an adequate and effective program?

32. What Will the Supreme Court Do? Booker v. United States Argument October 4, 2004 The Courts of Appeal disagree about how facts affecting a sentence should be determined. The Courts of Appeal disagree about how facts affecting a sentence should be determined. Fed.R.Cr.P. 11(c)(1)(c) has been the standard. Fed.R.Cr.P. 11(c)(1)(c) has been the standard. Congress is considering possible statutory solutions. Congress is considering possible statutory solutions. Certainty in sentencing is gone (for a while). Certainty in sentencing is gone (for a while).

33. United States Sentencing Commission’s Organizational Guideline The new Guideline Section 8B2.1 became effective November 1, 2004. The new Guideline Section 8B2.1 became effective November 1, 2004. Does the organization have in place a structural guideline to prevent and detect criminal conduct? Does the organization have in place a structural guideline to prevent and detect criminal conduct? “The duty imposed... is, we emphasize, one that requires the highest standards of foresight and vigilance.” “The duty imposed... is, we emphasize, one that requires the highest standards of foresight and vigilance.”

34. §8C2.5. Culpability Score (g) Self-Reporting, Cooperation, and Acceptance of Responsibility If more than one applies, use the greatest: (1) If the organization (A) prior to an imminent threat of disclosure or government investigation; and (B) within a reasonably prompt time after becoming aware of the offense, reported the offense to appropriate governmental authorities, fully cooperated in the investigation, and clearly demonstrated recognition and affirmative acceptance of responsibility for its criminal conduct, subtract 5 points; or (2) If the organization fully cooperated in the investigation and clearly demonstrated recognition and affirmative acceptance of responsibility for its criminal conduct, subtract 2 points; or (3) If the organization clearly demonstrated recognition and affirmative acceptance of responsibility for its criminal conduct, subtract 1 point.