Lessons Learned from Federal Prosecutions Michael K. Loucks First Assistant U.S. Attorney District of Massachusetts

Medicare/Medicaid Spending 2001: $588 billion 2003: $695.3 billion 2005: $828.7 billion 2007: $985.4 billion (projected) 2009: $1,140.2 billion (projected) 1992 GAO report estimated fraud and abuse was as high as 10% of expenditures: true???????

Financial Recoveries 1991 – 1995$856,600,000$125,300, – 2000$3,602,040,076$349,000, – 8/2006$9,362,622,955$1,254,091,556 $13,821,263,731 Source: Loucks and Lam, Prosecuting and Defending Health Care Fraud Cases, 2006 Cumulative Supplement, Chapter 11 (BNABooks).

Which sector is the worst one? Which company has been the greatest offender? Can any conclusions from the numbers fairly be drawn in answering any of these questions?

Mix 42.2 %: pharmaceutical products 26.8 %: hospitals 6.8 %: dialysis providers 6.1 %: laboratories 3.7 %: carriers/intermediaries 3.5 %: nursing homes 3.3 %: medical devices

Schering-Plough: four settlements –2002: $500,000,000 –2004: $27,000,000 –2004: $345,469,482 –2006: $435,000,000 Total: $1,307,469,482

Tenet hospitals: six settlements –2002: $29,000,000 –2002: $55,800,000 –2002: $17,000,000 –2003: $54,000,000 –2004: $22,500,000 –2006: $900,000,000 Total: $1,078,300,000

HCA (Columbia HCA), 2 settlements –2000: $840,000,000 –2003: $631,000,000 Total: $1,471,000,000 Settlements with these three companies represent about 26% of total recovered

7, $500,000,000 or greater: –4 in drug industry sector –3 in hospital sector 33, $100,000,000 or greater: –16 in drug industry –5 in hospitals –4 in laboratories –2 in dialysis –2 in nursing homes –2 in carriers/intermediaries

Factors that affect enforcement Leads –Whistleblowers –Anonymous sources –Audits Resources –Agents –AUSAs

Medical Device Industry Subject to same rules that govern manufacturing and marketing conduct in the pharmaceutical industry –Food, Drug and Cosmetic Act Manufacturing process requirements Off-label promotion prohibitions –Anti-kickback statute –“Typical” health care fraud rules

Off-Label Promotion No free speech right to promote a device for an off-label use –There is a tension between the “exchange of reliable scientific data and information within the health care community and the statutory requirements that prohibit companies from promoting products for unapproved uses.” Virginia Bd. Of Pharmacy v. Virginia Citizens Consumer Counil, inc., 425 U.S. 748, 765 (1976).

Off-Label Promotion Government has a substantial interest in the regulation of medical devices and in “subjecting off-label uses to the FDA’s evaluation process.” “[P]ermitting defendants to engage in all forms of truthful, non-misleading promotion of off-label uses would severly frustrate the FDA’s ability to evaluate the effectiveness of off-label uses.” –United States v. Caputo, 288 F. Supp. 2d 912 (N.D.Ill. 2003).

Lessons Learned Monitor development of off-label sales Scrutinize incentive programs for risk that sales force will be pushing off-label uses Conduct compliance audits of sales force activities Evaluate marketing and promotional campaigns against the directions for use

The Importance of Doing it Right Pressures from: –Competitors on pricing, quality –Customers on service, delivery, pricing –QC on following the processes –Regulatory affairs on following the rules What happens: –Cutting of corners –Sloppiness, rushing can become criminal

United States v. Canova Transtelephonic cardiac pacemaker testing – second intervals: testing of the pacemaker in three thirty second intervals –Medicare paid on a per test basis –Time requirements prevented “acceleration” of testing Vice President, Operations: increased employee quotas from 32 to 40 per day

Testimony from Employees Former plant manager: “If we were far behind on target, John would be pretty animated … what we were going to do to get close to being on target” Technicians: to meet quota, the last 30 second interval had to be cut to seconds From predecessor, when told employees were out of compliance: “everyone had to be in compliance [but] nothing [i.e., quotas] could suffer.”

Testimony from employees Another manager: [I told Canova] that “technicians were not performing the entire testing all the time.” Another manager: [I told him] “We’re not doing it period … no one’s doing it.” After seeking an “interpretation” from a Medicare carrier employee that the last 30 seconds didn’t mean 30 seconds, Canova and another employee decided on their own “there was in fact a loophole” that did not require a thirty second tape.

Lessons learned Are the normal processes being followed? Are there pressures to increase productivity, output that are unrealistic for the resources available? Are employees being told to stay in compliance and to meet production/sales demands that are not realistic for the resources at hand, or in light of the rules governing either production or sales? Has someone offered a novel or new or suddenly discovered justification? Is a manager ignoring warnings from subordinates?

The Next Five Years Expenditures: will more than double Drug costs will continue to rise Device development will continue An increase in the marriage of drugs and devices An increase in the cost of rehabilitative care An increase in the competitiveness between drugs and devices

Federal Enforcement: Type Substantial pending inventory of FCA cases involving pharmaceutical products –Off label promotion allegations –Medicaid pricing allegations –Kickback allegations These will continue; they will likely be joined by allegations regarding devices