2009 Year-End Health Care Compliance Update

January 14, 2010

I.  Overview of Developments

Enforcement in the health care compliance arena exploded in 2009, with more enforcement actions, bigger financial penalties, tougher settlement terms, and higher stakes for individuals–including prison sentences.  Many of the top companies in the health care industry found themselves in the government’s crosshairs this year, with some entering into record-breaking settlements.  But smaller players were hardly immune from scrutiny, with many similarly targeted in 2009.  This increased regulatory and prosecutorial emphasis on health care compliance was hardly an anomaly; all signs point to a continuation of this upward trend in 2010 and beyond.

With the current push for reform, health care’s significance in the American dialogue has increased markedly this year.  The multi-trillion dollar question at the center of the current health care debate is how to provide quality health care to the American public, including the millions of Americans who lack health insurance, while keeping costs manageable and eliminating waste.  A key factor cited in the rising costs is health care fraud, and combating fraud is often depicted as a silver bullet.

Against this backdrop, prosecutors and regulators are focusing with increasing intensity on issues of health care compliance.  Tapping into public anger over rising costs and reports of abuse, more and more politicians and public officials look to assign blame for perceived or actual problems in the current system.  From conflicts of interest in the use of consultants and creative accounting systems to instances of outright fraud, there is continued pressure to weed out all sources of waste in the system.  This is coupled with a formidable populist backlash, as also experienced by other industries, against big corporations allegedly padding their pockets by circumventing the rules, and bolstered by the current focus on key areas of revenue generation for the government.

The result?  Over $5 billion in settlements and judgments relating to health care fraud recovered by the federal government in 2009.[1]  State governments have collected hundreds of millions more.[2]  The U.S. Department of Justice (DOJ) currently has nearly 1,000 pending civil cases involving health care fraud.[3]  Recent settlements serve as concrete examples of the increased exposure of the health care industry.  In January 2009, Eli Lilly agreed to pay over $1.4 billion to resolve allegations of off-label promotion of Zyprexa.  And in August 2009, for alleged off-label promotion of the drugs Bextra, Geodon, Zyvox, and Lyrica, Pfizer and its subsidiary Pharmacia & Upjohn agreed to pay $2.3 billion–in the largest health care fraud settlement in the history of the DOJ. 

Moreover, health care fraud does not simply result in corporate financial losses.  In addition to significant reputational and business implications for companies (such as debarment from participation in Medicare and Medicaid), individual executives and employees are also at risk.  Individuals can face not only heavy fines, but also criminal conviction and imprisonment. 

The concern that companies may view corporate fines–even hefty ones–as simply a cost of doing business has led the government to seek new and creative ways to raise the stakes for the health care industry.  As more companies are viewed as "repeat offenders," the government has increasingly focused on combating recidivism.  For example, according to Michael Louks, the acting U.S. Attorney in Massachusetts, referring to Pfizer’s $2.3 billion settlement, "[a]mong the factors we considered in calibrating this severe punishment was Pfizer’s recidivism."[4]

Government investigations into health care compliance violations are intensifying.  This year, the DOJ and the Department of Health and Human Services (HHS) created an interagency group–the Health Care Fraud Prevention and Enforcement Action Team (known as HEAT)–specifically tasked with combating health care fraud.  Health care fraud is now a top-five priority at the DOJ, as well as a key area of focus for the Federal Bureau of Investigation (FBI).  In his statement to the Senate Judiciary Committee, Assistant Attorney General Tony West, citing to the billions of dollars that are "wasted on fraud and abuse," reiterated that "the Department of Justice, through its Civil, Criminal, and Civil Rights divisions, along with U.S. Attorneys’ Offices and the FBI–the entities responsible for enforcing laws against all forms of health care fraud–has prioritized much of our enforcement efforts on protecting the integrity of health care that is provided to patients."[5]

Other players are also taking an interest.  With Senator Charles Grassley of Iowa in the lead, several U.S. senators have established themselves as industry watchdogs, spurring new investigations and legislation.  States are also taking a closer look at the health care industry, with new laws regulating physician-industry interactions and state attorneys general becoming increasingly active in the field.  And HHS has recently taken a tougher stance against health care fraud, with a new approach requiring that many Corporate Integrity Agreements (CIAs) include a provision whereby the company must hire a "compliance expert" similar to the monitors often mandated by the DOJ in Deferred Prosecution Agreements (DPAs).  If this trend continues, CIAs would, as a matter of course, impose some of the same onerous monitoring requirements as DPAs.

On the industry side, players are responding to the heightened scrutiny.  Increasingly, companies are strategically adopting stricter policies than the law requires.  Several have chosen to voluntarily disclose compensation paid to physicians.  These individual corporate initiatives have been matched by the two leading industry professional associations, both of which adopted more stringent ethical codes in 2009.

These recent developments–the national health care debate, the number and magnitude of recent settlements, the increased scrutiny by the government at all levels, and the changes by the industry–mean that companies must vigilantly ensure that health care compliance is, and remains, a priority.  Avoiding missteps requires adapting quickly to the changing political and legal environment.  Now more than ever, health care compliance must be viewed as a business necessity. 

This annual update provides a detailed review of notable settlements, judgments, actions, and investigations from 2009, an analysis of current trends in health care enforcement and compliance, and a projection of future trends that we anticipate based on the current environment.

II.  Notable Settlements and Judgments

This past year saw increased settlement activity, with health care companies paying record amounts to resolve claims of health care compliance violations at both the federal and state levels.  2009 was also marked by significant judgments against companies and individuals alike.  The conduct covered by these settlements and judgments ranged from off-label marketing and False Claims Act violations to Medicaid fraud and kickback schemes.  The defendants in these cases varied widely as well, from small regional companies to dominant global players like Pfizer, Lilly, and AstraZeneca.

Pfizer, Inc.

In September 2009, Pfizer, Inc. reached a $2.3 billion settlement with the DOJ, which amounted to "the largest health care fraud settlement in the history of the Department of Justice, the largest criminal fine of any kind imposed in the U.S., and the largest ever civil fraud settlement against a pharmaceutical company."[6]  The settlement included a $1.19 billion criminal penalty, the highest ever imposed for alleged health care fraud.  According to the DOJ, the "settlement is an example of the department’s ongoing and intensive efforts to protect the public and to recover funds for the federal treasury from those who seek to profit from fraud."[7]  The case was handled by the U.S. Attorney’s Office in Boston.

Pfizer pled guilty to a federal criminal charge of illegally marketing the painkiller Bextra, arising from alleged "off-label" promotion of the drug by Pfizer’s subsidiary Pharmacia & Upjohn Company, Inc.  According to the settlement agreement, Pfizer encouraged doctors to prescribe Bextra to treat acute pain, a use not approved by the Food and Drug Administration (FDA).  The settlement included a $1 billion fine to resolve related whistleblower complaints relating to alleged off-label promotion of Bextra, along with the drugs Geodon, Zyvox and Lyrica.  Pfizer also pled guilty to marketing the anti-psychotic drug Geodon for use by children, which was not approved by the FDA.  The settlement also resolved charges that Pfizer treated doctors to meals, paid them for speaking engagements and subsidized their travel to induce them to prescribe off-label uses for thirteen separate Pfizer drugs.  In addition to the fine, Pfizer signed a five-year CIA with HHS, which provides for the appointment of an Independent Review Organization and an Outside Reviewer.[8] 

Eli Lilly & Co.

Just months before the Pfizer settlement, Eli Lilly & Co. paid $1.4 billion to settle criminal and civil suits related to its marketing of the anti-psychotic drug Zyprexa.  The drug was approved to treat schizophrenia, but was allegedly promoted to the elderly as a treatment for dementia and Alzheimer’s disease, a use not approved by the FDA. 

Eli Lilly agreed to pay $615 million to settle the criminal investigation, which was handled by the U.S. Attorney’s Office in Philadelphia.  The company pled guilty to a misdemeanor charge of off-label promotion.  It paid $800 million to settle civil claims brought by the State Medicaid Fraud Control Units of various states.  As with Pfizer, Eli Lilly entered into a CIA with HHS.[9]

AstraZeneca

Drugmaker AstraZeneca P.L.C. announced on October 29, 2009 that it had set aside $520 million as part of a tentative agreement to resolve an investigation by the U.S. Attorney’s Office in Philadelphia into the company’s marketing practices.  The investigation focused on whether AstraZeneca promoted its antipsychotic drug Seroquel, which is approved to treat schizophrenia and bipolar disorder, as a treatment for other illnesses.  According to the company, the investigation dealt with separate allegations of the off-label marketing of Seroquel, as well as allegations regarding "selected physicians who participated in clinical trials involving Seroquel." Both sets of allegations were prompted by whistleblower suits filed under the False Claims Act. 

The company said it would not comment on whether it would admit to wrongdoing as part of the settlement, and did not reveal the terms of the expected agreement, except to say that it will include a CIA.  AstraZeneca reached the deal with federal prosecutors in September, after a prolonged period of negotiations.[10]

WellCare Health Plans, Inc.

WellCare Health Plans, Inc. pled guilty to one count of conspiracy to commit health care fraud against Florida Medicaid and the Healthy Kids program.  The government alleged that WellCare engaged in several fraudulent strategies to avoid returning unspent money to the Florida health care programs.  WellCare entered into a 36-month DPA with the DOJ, and agreed to the appointment of a federal monitor as well as a fine of $80 million.[11] 

Quest Diagnostics

Quest Diagnostics agreed to pay $302 million to settle criminal and civil claims involving alleged misbranding and False Claims Act violations.  The DOJ claimed that a subsidiary of Quest Diagnostics had knowingly marketed and sold testing kits that provided unreliable results.  The settlement included a $40 million criminal fine to resolve the misbranding charges and a $262 million civil fine to settle the False Claims Act allegations.

The investigation was started by a qui tam plaintiff, a whistleblower who reported that the test kits provided consistently incorrect results.  The plaintiff received $45 million as part of the settlement.[12] 

Mylan, UDL, AstraZeneca, and Ortho McNeil

On October 19, 2009, the DOJ announced that Mylan Pharmaceuticals, UDL Laboratories, AstraZeneca Pharmaceuticals, and Ortho McNeil Pharmaceutical had entered into settlement agreements totaling $124 million to resolve claims that they violated the False Claims Act by failing to pay appropriate rebates to state Medicaid programs for drugs paid for by those programs.  The precise amount of a rebate is determined in part by whether a drug is considered an "innovator" drug or a "non-innovator" drug.  The rebate paid for innovator drugs is higher than the rebate for non-innovator drugs.  The settlements resolve allegations that each company sold innovator drugs that were manufactured by other companies and had classified those drugs as non-innovator drugs for Medicaid rebate purposes.  As a result of the improper classification of these drugs, the companies allegedly underpaid their rebate obligations under the Medicaid Rebate Program.

Mylan and UDL together agreed to pay $118 million to resolve the allegations that they had underpaid their rebate obligations with respect to several drugs.  As part of the settlement, the federal government will receive $60.1 million, the states will receive $50 million, and $7.3 million will be paid to entities that participated in the Public Health Service’s Drug Pricing Program.  Separately, AstraZeneca paid $2.6 million to resolve allegations that it underpaid its rebate obligations with respect to Albuterol. Ortho McNeil paid $3.4 million to resolve similar allegations with respect to Dermatop.

The suit was initiated by a whistleblower, Ven-A-Care, a corporation located in Key West, Florida.  The whistleblower will receive a total of $10.8 million as its share of the recovery.[13]

Omnicare

On November 3, 2009, the DOJ announced that Omnicare Inc. would pay $98 million to settle charges that it engaged in several kickback schemes with drug makers and nursing homes.   In addition, IVAX Pharmaceuticals, a unit of Teva Pharmaceutical Industries Ltd., will pay $14 million to settle allegations that it paid $8 million in kickbacks in exchange for Omnicare’s agreement to buy $50 million of IVAX drugs.  The case was brought under the False Claims Act.

The DOJ alleged that Omnicare, a provider of geriatric pharmaceutical services, regularly paid kickbacks to nursing homes to induce the homes to refer their patients to Omnicare for pharmacy services.  Moreover, it was alleged that Omnicare solicited and received kickbacks from Johnson & Johnson in exchange for agreeing to recommend that doctors prescribe J&J’s antipsychotic drug Risperdal.[14]  The DOJ indicated that it was still contemplating whether to intervene in a lawsuit against J&J, and J&J corporate filings suggest that employees of several subsidiaries have been subpoenaed to testify before a grand jury in connection with the investigation.[15] 

Boston Scientific

Boston Scientific Corporation announced on November 6, 2009, that it had reached an agreement in principle with the U.S. Attorney’s Office in Minneapolis to settle claims that product advisories issued by its Guidant subsidiary in 2005 violated the Food, Drug, and Cosmetic Act.  Under the terms of the agreement, Guidant will plead to two misdemeanor charges related to failure to include information in reports to the FDA, and Boston Scientific will pay $296 million on behalf of Guidant.  VENTAK PRIZM 2, the CONTAK RENEWAL and the CONTAK RENEWAL 2 devices, which were the subjects of the 2005 product advisories, were the only drugs involved in the settlement.[16]

Pharmacia, Inc.

A state court in Wisconsin imposed a forfeiture award of $4.5 million against Pharmacia, Inc., a subsidiary of Pfizer, in connection with the fraudulent pricing litigation brought by the Wisconsin Attorney General.  The court imposed a $1,000 forfeiture for each of the 4,578 acts of misrepresentation it found Pharmacia to have made or caused to be made that purportedly defrauded the Wisconsin Medicaid program.

The court order follows the Pharmacia trial in February 2008, where the jury found damages totaling $9 million arising from alleged fraudulent pricing violations.  In total the State of Wisconsin has brought actions against 36 pharmaceutical companies, alleging violations of the state’s Medicaid Fraud laws.  Pharmacia was the first of the defendants to contest the allegations at trial.  Amgen, Immunex and Baxter Healthcare settled prior to the Pharmacia trial.  There are 32 remaining defendants in the litigation with more trials scheduled for March through May of 2010.[17]

Synthes

In the first settlement in connection with recent inquiries into potential conflicts of interest with health care providers, medical device manufacturer Synthes reached a settlement with the New Jersey Attorney General arising from allegations that Synthes had failed to disclose financial conflicts of interest among doctors involved in clinical research activities for the company.  The settlement called for Synthes to disclose any future payments or investments held by doctors involved in clinical research trials; the company agreed to make this information publicly available through its website.  Synthes also agreed to stop paying doctors who conduct clinical trials of its products with stock or stock options.  In addition, the company paid a fine of over $230,000. 

The State of New Jersey had pursued the case as a matter of consumer fraud.  As discussed below, the State Attorney General had issued subpoenas to the five major device makers requesting information on conflicts of interest with physicians involved in clinical research activities.  Synthes is the only device maker to date to settle these claims.[18]

UMDNJ

In September 2009, the University of Medicine and Dentistry of New Jersey (UMDNJ) agreed to pay $8.3 million to settle charges that it paid illegal kickbacks to cardiologists.  According to the DOJ, in 1995, UMDNJ was having trouble finding enough patients to perform the minimum number of cardiac procedures needed to keep its governmental funding and accreditation as a Level One trauma center.  UMDNJ created part-time employment contracts with community cardiologists who in turn referred patients to UMDNJ.  The DOJ alleged that the part-time contracts were masked kickbacks to cardiologists for patient referrals.  Six cardiologists involved in the scheme settled with the DOJ as part of this prosecution.

This is not the first time the DOJ has settled with UMDNJ.  In the last several years, a federal monitor found that the school had double-billed Medicaid for $5 million in procedures.  The school paid $2 million to settle that claim.  In 2005, the school paid $4.9 million to the federal government and the State of New Jersey as part of a DPA.[19]

Actions Against Individuals

In addition to these enforcement actions involving corporations, 2009 saw a number of notable individual prosecutions and settlements.  For example, one Miami physician was sentenced to 97 months in prison along with an order to return $9 million in restitution for Medicare fraud.  The physician co-owned a clinic that allegedly had routinely billed Medicare for unnecessary or unperformed services relating to HIV patients.[20] 

Another Miami-area clinic was found to have charged Medicare for willfully performing improper services for HIV patients, resulting in four criminal convictions and hefty fines. The clinic purposely removed platelets from blood samples of HIV patients, then billed Medicare for treatment for those low-platelet-count patients.  Participants in the scheme were fined over $20 million in combined restitution payments and were given prison sentences ranging from 37 months to 90 months.[21]

Health care executives were not spared in 2009.  In April, a former Bristol-Myers Squibb senior executive pled guilty to making a false statement in connection with a false certification to the Federal Trade Commission that no agreement had been made to delay the release of a generic version of Plavix, the most widely prescribed blood-thinning drug in the world.  He was sentenced to a $5,000 fine and two years probation, during which the judge ordered him to write a book about his experiences in order to deter future similar conduct.  That individual prosecution followed from a 2007 guilty plea by Bristol-Myers Squibb for the same conduct.  In the earlier case, the company was fined $1 million, the statutory maximum, for allegedly making illegal agreements with competitors and misleading the government regarding the patent for Plavix.[22] 

In another case, the owner of a health care agency pled guilty in October to soliciting and collecting kickbacks for referring Medicare patients to home health care agencies.  The individual is currently awaiting sentencing.  She faces 57 months in prison, restitution to Medicare of $5.2 million, a $25,000 fine, and forfeiture of assets.[23]

Finally, a former CEO of InterMune, Inc., a biopharmaceutical company, was convicted in September of a felony charge of wire fraud for his role in the alleged creation and dissemination of false and misleading information about the efficacy of the drug Actimmune.  The DOJ indicted the former CEO in 2008, about a year and a half after InterMune had resolved its claims with the DOJ and HHS by entering into a DPA and a CIA and paying nearly $37 million in fines. The government’s case against the executive primarily relied on a press release issued by InterMune which publicly announced the results of a clinical trial of Actimmune for the treatment of idiopathic pulmonary fibrosis (IPF).  The DOJ alleged that the defendant had caused the issuance and distribution of this press release, which misstated the results of the clinical trial by suggesting that Actimmune helped IPF patients live longer.  According to the DOJ, the clinical trial had in fact failed.  After a seven-week jury trial, the executive was acquitted of a misbranding charge under the Food, Drug, and Cosmetic Act, but convicted of wire fraud.  The maximum statutory penalty for wire fraud is 20 years in prison, a $250,000 fine, and three years’ supervised release.[24]  

False Claims Act Actions and Collateral Civil Actions

One crucial factor in health care compliance is the interplay between civil and government actions.  Qui tam, or whistleblower, lawsuits have often resulted in government intervention.  In the 2009 fiscal year, the Justice Department recovered $2.4 billion in settlements and judgments from False Claims Act cases, about $2 billion of which was a result of qui tam actions.[25]  Health care fraud recoveries, many of which are outlined above, accounted for two-thirds of the total, amounting to $1.6 billion.[26]  In addition, as detailed below, many of the investigations initiated by the government in 2009 spawned from a whistleblower suit.[27]

Conversely, news of a government settlement can generate related civil lawsuits, thus further increasing a targeted health care company’s exposure to liability.  For example, after the government anti-kickback settlement with the five largest orthopaedic companies, culminating in a dismissal of charges in 2009, a family of salespeople who worked for a smaller competitor filed a lawsuit charging that the companies had illegally steered business away from the smaller companies, thus depriving the salespeople of commissions.  Although a federal judge dismissed the case against two of the companies, the remaining three companies ultimately settled.[28] 

III. Notable Investigations and Actions

Matching the rapid rise in significant settlements and judgments in the health care compliance area, numerous significant health care investigations and lawsuits were initiated in 2009 at both the federal and state levels.  Like the matters resolved in 2009, those instigated in the past year targeted a wide range of alleged conduct, including off-label marketing, False Claims Act violations, Medicare and Medicaid fraud, kickback schemes, and fraudulent marketing practices.

Amgen

On October 30, 2009, 14 states and the District of Columbia filed suit against the biotechnology giant Amgen Inc., accusing the company of engaging in illegal kickbacks to promote sales of the Aranesp anemia drug.  The lawsuit alleges that Amgen provided free samples to doctors and clinics by putting tiny extra amounts of the drug in each vial.  The medical practices could then make a profit by billing insurers, including state Medicaid programs, for the extra drug.  The lawsuit also alleges that Amgen, in cooperation with a division of AmerisourceBergen, invited doctors to weekend retreats, paying for their food and lodging and giving them extra payments as "advisers."  The suit joins a whistleblower suit with similar allegations filed by a former Amgen sales representative.[29]

Biomet

In January 2009, the U.S. Attorney’s Offices in Massachusetts and West Virginia launched separate investigations into Biomet, Inc., a leading orthopedic device manufacturer, for improper sales, promotion, and billing by its spinal device unit, EBI.  The company allegedly promoted the off-label use of its spine stimulation devices, resulting in fraudulent Medicare and Medicaid billing. 

The West Virginia investigation stemmed from a whistleblower lawsuit alleging that a surgeon engaged in clinical research implanted the devices without asking for the consent of the patients.  The complaint also alleges that on 15 occasions, a representative of the EBI unit was in the operating room while the spinal products were used for off-label proposes. 

The Massachusetts investigation may have stemmed from another whistleblower suit, which claimed that Biomet was improperly billing bone-growth stimulators as devices that must be purchased, rather than rented.[30] 

Stryker Biotech

Stryker Biotech, LLC, along with its former president and three current sales managers, were charged criminally on October 28, 2009 in federal court with participating in a fraudulent marketing scheme of medical devices used during invasive spinal and long bone surgeries. The company and its former CEO were also charged with making false statements to the FDA.

The indictment alleges that the defendants participated in an illegal marketing scheme to promote medical devices used during invasive surgeries, and in doing so defrauded medical professionals and the FDA.  These devices were approved by the FDA only pursuant to a highly restrictive Humanitarian Device Exemption. One of the restrictions was that the device could only treat a condition that affected fewer than 4,000 patients in the United States, and could not be sold for a profit.  The indictment charges that the defendants promoted the use of these devices in a manner that was different from their FDA-approved uses.[31]

Stryker, Biomet, DePuy, Medtronic

Just a week after its settlement with Synthes, in May 2009, the Attorney General of New Jersey issued to Stryker Corp., Biomet, Inc., DePuy Orthopaedics, Inc., and Medtronic Inc. subpoenas seeking documents related to the financial interests of, and the companies’ arrangements with, physicians participating in clinical trials on behalf of the companies.  Each company disclosed receipt of the subpoena in various public fillings.[32]  The subpoenas sought documents regarding clinical studies, financial arrangements with certain physicians and health care providers, and research by certain physicians and health care providers.

Scios, Inc.

In December 2009, it was reported that the DOJ was considering filing off-label marketing charges against Johnson & Johnson subsidiary Scios, Inc.  The government apparently believes that Scios methodically pitched the drug Natrecor for chronic heart problems besides heart failure.  According to reports, doctors gave patients off-label infusions of the IV drug, helping to push sales to $111.2 million in 2002–more than double the $47.3 million the previous year.  By 2005, safety worries arose, leading Medicare to restrict reimbursement for the drug; the government program would only pay when Natrecor was used in hospitals.

The Scios case began with a whistleblower.  In 2005, a qui tam suit accused Scios of an "extensive and far reaching" off-label marketing campaign for Natrecor.  According to those allegations, sales representatives were told to talk up the off-label uses to doctors, and the company sponsored seminars about the benefits of using Natrecor off-label.[33] 

Siemens Medical Solutions

Criminal investigators from the U.S. Department of Defense (DoD) raided the Siemens Medical Solutions headquarters facility in Malvern, Pennsylvania, in April 2009, just weeks after Siemens had won a $267 million medical-imaging contract from the DoD.  The raid, which sought documents and other information, was reportedly related to a False Claims Act whistleblower lawsuit filed in January 2009.  That suit alleged that Siemens had disregarded the best-value requirements in federal contracts for a range of medical imaging equipment by offering commercial customers deeper discounts than it gave federal customers, including the DoD, the Department of Veterans Affairs, and the Federal Bureau of Prisons.[34] 

IV.  Current Trends

In addition to the significant enforcement actions discussed above, 2009 has seen dramatic developments on several fronts.  The intensive public focus on the health care arena has prompted a heightened degree of legislative and regulatory scrutiny as well as groundbreaking new legislation at the federal and state levels.  These actions have in turn spawned a movement toward greater self-regulation, both by the pharmaceutical and medical-device industries and by individual companies who perceive a benefit in being ahead of the curve.  Finally, in late 2009, the government gave the industry a sharp and unequivocal warning of its intent to launch a targeted assault on international corruption in the health care field.

Continued Congressional Scrutiny Led by Senator Grassley

Senator Charles Grassley of Iowa, the ranking Republican on the Senate Committee on Finance, which has jurisdiction over the Medicare and Medicaid programs, has focused a great deal of attention over the past few years on the relationships between physicians and industry.  Senator Grassley’s stated goals are twofold:  First, to shed light on relationships that may create a conflict of interest between corporations and physicians; and second, to determine whether the federal government should do more to legislate in this area.  

Senator Grassley’s committee lately has investigated various aspects of the health care industry, concentrating in particular on the relationships between health care professionals and the pharmaceutical industry–and on a perceived lack of transparency as to those relationships.[35]  Throughout 2009, Senator Grassley’s subpoenas to companies and doctors have been making headlines in major national newspapers including the New York Times and the Wall Street Journal.  

One representative area of Senator Grassley’s focus is an inquiry into industry money paid to three Harvard psychiatrists who promoted antipsychotic medicines for children.  Based on records Senator Grassley obtained from drug companies, the professors were accused of failing to properly report at least $4.2 million in payments from 2000 to 2007.  In March 2009, the Senator asked Pfizer to provide details of payments made to at least 149 faculty members at Harvard Medical School since January 1, 2007, as well as any Pfizer e-mails, faxes, letters, or photos regarding Harvard medical students who have protested against drug company influence.[36]

Additionally, Senator Grassley’s focus on "ghostwriting"–articles drafted by drug company-sponsored ghostwriters and then attributed to independent academic authors–has garnered attention and calls for change.[37]  In a recent editorial, the editors of the medical journal PLoS Medicine, from the Public Library of Science, called for a zero-tolerance policy under which medical journals would identify and retract ghostwritten articles, and refuse to publish future work by their authors.[38]  That editorial comes on the heels of a July 2009 request in which the Senator asked eight leading medical journals to describe their policies and practices regarding ghostwriting.  This request followed Senator Grassley’s earlier communications with Wyeth and DesignWrite, a medical education and communications company, regarding allegations that Wyeth hired DesignWrite to draft articles promoting the company’s hormone therapy products and to seek academic investigators to sign on as the primary authors.  Senator Grassley had previously written to Merck and Scientific Therapeutics Information, a medical publishing company, regarding similar allegations reported in the Journal of the American Medical Association related to articles on Merck’s VIOXX studies.  

The Physician Payment Sunshine Act of 2009

On January 22, 2009, Senator Grassley, along with Wisconsin Democratic Senator Herb Kohl, introduced the Physician Payment Sunshine Act of 2009.  The Physician Payment Sunshine Act of 2009 is a strengthened version of a bill previously introduced in 2007, which some health care companies had supported.  The 2009 version focuses on the disclosure of the financial relationships between industry and physicians, but does not govern those relationships.  The bill includes language mandating online disclosure of physician investments in and ownership of manufacturers, and it has sharper teeth.  "The goal of our legislation is to lay it all out, make the information available for everyone to see, and let people make their own judgments about what the relationships mean or don’t mean," Senator Grassley said in a statement.[39] 

The legislation would also require companies to report all consulting fees, honoraria, gifts, entertainment, travel, meals, research, charitable contributions, and many other benefits given to physicians.  And it would establish a national online registry for all industry payments of $100 or more to physicians.  Proposed fines for failure to comply–whether intentional or not–are severe.  Companies could be fined up to $150,000 per year for inadvertent violations, and up to $1 million for knowing violations.

Several major industry players, including the Pharmaceutical Research and Manufacturers of America (PhRMA), the Advanced Medical Technology Association (AdvaMed), AstraZeneca, Merck, and Eli Lilly, have voiced support for the legislation, but have advocated for a higher threshold reporting requirement and have stressed that the bill must expressly preempt state marketing and reporting laws to ensure consistency in application.

While the bill itself languished at the committee level, all of the major elements of the Physician Payments Sunshine Act appear in both the House and Senate versions of the health care reform bill.[40]  This legislation would not be the only new statute governing these interactions.  As drafted, the federal law will not preempt state law, and some states already have enacted even tougher rules.  Other states are looking to follow suit, as detailed below.  And of course, while the proposed federal legislation focuses only on the disclosure of relationships, Congress could always seek to govern the substance of those relationships in the future.   

New State Laws in 2009

Several states passed new legislation in 2009 aimed at regulating interactions between health care professionals and the industry.  These laws follow Minnesota’s 2005 law, which prohibits "any manufacturer or wholesale drug distributor, or any agent thereof, to offer or give any gift of value to a practitioner."[41]

Massachusetts

Continuing the trend of rising concern over physician-industry relationships, Massachusetts passed legislation, effective June 1, 2009, aimed at regulating these interactions.[42]  The new law provides a fairly strict health care compliance regime applicable to any company doing business in Massachusetts.

This law requires all pharmaceutical and medical device companies to adopt training programs, conduct annual audits to ensure compliance, develop and implement policies and procedures for investigating and correcting violations of the code, and identify a compliance officer.  The companies must file annual reports with the Department of Public Health outlining their adherence to the code, and on an annual basis must also disclose payments to health care professionals.  The penalty for violations is a fine of up to $5,000 for each transaction, occurrence, or event that violates the code.  The law also directs the Massachusetts Department of Public Health to adopt a marketing code of conduct, which must be at least as restrictive as the AdvaMed Code of Ethics and the parallel PhRMA Code.  Adherence to the marketing code is mandatory for all health care companies operating in Massachusetts. 

The new law is strict.  The trigger for disclosure of payments is a mere $50.  And under the law, companies may not provide any entertainment or recreation, travel for continuing medical education or other meetings, or meals other than modest meals provided at a training event.  Even the giving of small complimentary items, like branded pens, mugs, and calendars, is prohibited.[43]

Vermont

Not to be outdone by its New England neighbor, Vermont passed legislation, effective July 1, 2009, prohibiting manufacturers of prescription drug, device, and biologics products from providing certain kinds of gifts or payments to physicians and other health care professionals.  The Vermont legislation also requires disclosure to the state of most other kinds of gifts or payments, regardless of amount.  This legislation is more comprehensive than the Physician Payments Sunshine Act, and more sweeping than comparable gift disclosure laws in other states. 

The law’s definition of "gift" is broad, including "anything of value provided to a health care provider for free" and, with a few named exceptions, "any payment, food, entertainment, travel, subscription, advance, service, or anything else of value provided to the health care provider."  Some examples of exempt gifts under the law, which are allowed but must be reported, include patient samples, normal rebates and discounts, devices loaned for evaluation, academic literature, and FDA-approved labels.  Where a company permissibly gives a health care provider an item of value subject to these rules, the manufacturer must disclose information about the value, nature, and recipient for those permitted items.  There is no de minimus exception.  The law provides for penalties of up to $10,000 per unlawful gift or $10,000 per failure to report.[44]

 New Jersey

On December 3, 2009, the New Jersey Attorney General released a report from the Division of Consumer Affairs recommending new regulations to curtail the potential for conflicts of interest between doctors and pharmaceutical companies and medical device manufacturers.  The report sets forth new policies to be considered by the Board of Medical Examiners, the Board of Pharmacy, the Department of Health and Senior Services and academic medical centers.  The new policies would go beyond the voluntary industry codes (PhRMA and AdvaMed), and would ban doctors from accepting any gifts or fees or travel expense reimbursement from any pharmaceutical or medical device manufacturer.  In addition, the proposed reforms bar physicians from accepting free food and meals in office settings or at promotional dinners.

Recommended regulations would also require doctors who do serve as consultants to pharmaceutical companies or medical device manufacturers to publicly disclose every two years the acceptance of more than $200 in consulting fees, honoraria, or funding for research or education.

The report recommends tight controls on what is known in the pharmaceutical industry as "data mining," or tracking physician prescription information.  All physicians would have to be notified when renewing their licenses that they can opt out of having information about their prescriptions sold by pharmacists to health care information organizations, which collect information on prescriptions for pharmaceutical company marketing. 

In the area of continuing medical education, the report recommends that CME credit only be received by doctors for courses that are accredited by the Accreditation Council for Continuing Medical Education (ACCME) and specifically bar the CME provider from obtaining advice from a company that subsidizes the course, creating a separation between educational content and the source of the subsidy.[45]

Increased Focus of HHS

In recent months, HHS has taken a tougher stance against health care fraud.  Increasingly, CIAs imposed by HHS require companies to retain one or more "compliance experts," similar to the corporate monitors often required by the DOJ as part of DPAs.  The compliance experts are vested with the authority to review the company’s compliance program and to make binding recommendations, similar to a DPA monitor.  Often, these experts are tasked with reporting directly to the company’s Board of Directors. 

Signed in late 2008, Bayer’s CIA mandated a Compliance Expert Panel.[46]  Similarly, Quest’s CIA in 2009 required a Compliance Expert.[47]  And Pfizer’s CIA, signed in 2009, in addition to requiring a more expansive mandate for the Independent Review Organization than most CIAs, also called for an Outside Reviewer to monitor the company’s compliance with its obligations.[48] 

If this trend continues, it will constitute an important development in health care compliance enforcement.  Companies signing CIAs would be bound by some of the same onerous monitoring requirements imposed by DPAs. 

HHS Strengthening HIPAA Enforcement

On October 30, 2009, HHS issued an interim final rule, with request for comments, to strengthen its enforcement of the rules promulgated under the Health Insurance Portability and Accountability Act (HIPAA).  The Health Information Technology for Economic and Clinical Health (HITECH) Act, which was enacted as part of the federal government’s economic stimulus package in February 2009, modified HHS’s authority to impose civil monetary penalties for violations occurring after February 18, 2009.  These HITECH Act revisions substantially increase the penalty amounts that may be imposed for violations of the HIPAA rules and encourages prompt corrective action. 

The HITECH Act significantly strengthened the civil monetary penalty scheme by establishing tiered ranges of increasing minimum penalty amounts, with a maximum penalty of $1.5 million for all violations of an identical provision.  A covered entity can no longer bar the imposition of a civil monetary penalty for an unknown violation unless it corrects the violation within 30 days of discovery.[49]

2009 Advancements in Industry Codes of Conduct

New PhRMA Code

The Pharmaceutical Research and Manufacturers of America represents the country’s leading pharmaceutical research and biotechnology companies. On July 10, 2008, PhRMA’s Board of Directors adopted measures to enhance the 2002 PhRMA Code on Interactions with Health Care Professionals. The revised PhRMA Code, which is voluntary, took effect in January 2009.

The revised PhRMA Code prohibits the distribution of all non-educational items, including small branded promotional items such as pens, mugs, and pads, to health care professionals and staff.  It also provides restrictions on meals provided by company sales representatives and reaffirms the PhRMA Code’s pre-existing prohibition on providing entertainment or recreation to health care professionals.  And it mandates training on applicable laws and standards that govern interactions with health care professionals, provides various compliance certification guidelines, and requires detailed standards on the independence of continuing medical education programs.[50]

New AdvaMed Code

In December 2008, the Board of Directors of the Advanced Medical Technology Association unanimously approved a major update of AdvaMed’s Code of Ethics on Interactions with Health Care Professionals.  AdvaMed represents its member companies which develop, provide, market, and manufacture medical products, technologies, and related services and therapies.  The revised Code, effective as of July 1, 2009, further clarifies and distinguishes between appropriate and inappropriate activity between health care professionals and representatives of AdvaMed member companies.  It also presents non-member companies with an opportunity to adopt the AdvaMed Code’s principles and seeks to unite industry in addressing common issues in a consistent manner. 

AdvaMed’s revised Code explicitly prohibits companies from providing to health care providers any entertainment or recreation, as well gifts of any type or value–including minor branded promotional items.  It also provides strict guidelines on meals, requiring that they be both modest in nature and incidental to a bona fide professional meeting in an appropriate setting.  Additionally, the new AdvaMed Code provides guidelines on such topics as giving of demonstration products, royalty agreements, consulting agreements, training and education, grants, and many other areas.[51]

Companies Adopting Stricter Policies Than Required By Law

The Pharmaceutical Research and Manufacturers of America represents the country’s leading pharmaceutical research and biotechnology companies. On July 10, 2008, PhRMA’s Board of Directors adopted measures to enhance the 2002 PhRMA Code on Interactions with Health Care Professionals. The revised PhRMA Code, which is voluntary, took effect in January 2009.

The voluntary disclosures have come under varying terms.  For example, Eli Lilly was the first drug-maker to voluntarily disclose payments to physicians; it began doing so in mid-2009 on its public website.[52]  The company’s website disclosure includes all payments (since January 1, 2009) of more than $500 made to individual physicians for advice, speeches and other services, as well as educational grants for medical conferences.  Lilly eventually will disclose payments to physicians for travel, entertainment and gifts, and clinical research.  Pfizer has also indicated it will disclose all payments that total over $500 annually to a physician.[53] 

Merck’s public disclosures vary by category.  Beginning in the fourth quarter of 2009, Merck started to disclose all payments to U.S.-based health care professionals who speak on behalf of Merck and its products.  Starting in October 2008, Merck began reporting grants over $500 provided by the company’s Global Human Health division to U.S. organizations in support of independent accredited educational programs for health care professionals.  Over the course of 2009, Merck expanded this disclosure to include other types of grants.  Starting in March 2009, Merck began reporting all philanthropic grants made through the Office of Corporate Philanthropy and The Merck Company Foundation.  Information includes the name of the organization, program name/description, and the amount of the grant provided.  Merck will update this list annually, providing a full 2009 report in the first quarter of 2010.[54]

Medtronic’s disclosures are scheduled to begin in 2011.  These disclosures will include consulting fees, royalties, or honoraria for physicians who receive payments of $5,000 or more annually from Medtronic.[55]

In late 2009, GlaxoSmithKline began disclosing payments made to U.S. health care professionals in connection with clinical trials, consulting services, and speaking engagements, and eventually will disclose payments for other types of research to health care professionals and institutions outside the U.S.[56]  The company also announced that beginning in 2010, it will no longer fund commercial CME programs; instead, it will only sponsor medical education provided by academic medical centers and their affiliated teaching hospitals, and by "national-level" professional medical associations.  The company will invite grant applications from 20 education providers and will choose programs that do the most to close "clinical gaps" in patient care, according to a company statement. And all the grants will be posted on the Glaxo website.[57]

Focus on International Corruption

These aggressive enforcement efforts are matched and perhaps even surpassed by the recent skyrocketing of anti-corruption enforcement efforts.  So it should come as no surprise that both in the U.S. and abroad, government officials have been cracking down on perceived corruption in the health care industry.

DOJ Focus on FCPA

In the keynote address of the November 12, 2009 Tenth Annual Pharmaceutical Regulatory and Compliance Congress and Best Practices Forum, Assistant Attorney General Lanny Breuer warned of increased DOJ enforcement of the Foreign Corrupt Practices Act (FCPA) in the pharmaceutical industry.[58]  He noted that about one-third of total sales of PhRMA members were generated outside of the U.S., and that the "depth of government involvement in foreign health systems, combined with fierce industry competition and the closed nature of many public formularies, creates a significant risk that corrupt payments will infect the process."  He explained that "the types of corrupt payments that violate the FCPA because they are given to obtain or retain business in other countries are not any different than the items of value that would violate the Anti-Kickback Statute if given within the United States–cash, gifts, charitable donations, travel, meals, entertainment, grants, speaking fees, honoraria, and consultant arrangements."[59]

Mr. Breuer described increased DOJ staffing and expertise in the FCPA generally, and in the pharmaceutical context specifically, and noted that the DOJ’s FCPA and health care fraud units "are already working together to investigate FCPA violations in the pharmaceutical and device industries."  Further, the DOJ is working with the SEC and foreign law enforcement in various investigations.   

DePuy International

In December 2009, Britain’s Serious Fraud Office (SFO) charged a former Vice President of Marketing Development at DePuy International Ltd. with conspiracy to corrupt in connection with payments to medical professionals in the Greek public health care system.  The SFO alleges that the defendant made corrupt payments to Greek medical professionals in order to sell orthopedic devices.[60]

In 2007, DePuy International’s parent company, Johnson & Johnson, made voluntary disclosures to U.S. government officials that foreign subsidiaries were believed to have made improper payments in connection with the sale of medical devices in two small-market countries.[61]  These disclosures may have triggered the SFO investigation, which reportedly began in 2008.

V.   Future Trends

The debate over health care reform this year has revealed a near-unanimous consensus that any national health care policy should strive towards providing coverage for the maximum number of people at the lowest cost.  Implicit in this movement is a sense of urgency to root out practices that bloat the cost of health care without providing value to patients.  President Obama highlighted this during his September 9, 2009, address to a joint session of Congress, when he said that most of his health care plan "can be paid for by finding savings within the existing health care system, a system that is currently full of waste and abuse.  Right now, too much of the hard-earned savings and tax dollars we spend on health care don’t make us any healthier….  [T]his plan would eliminate…hundreds of billions of dollars in waste and fraud."[62]

This is not the first time President Obama has warned that health care fraud is in his crosshairs.  As discussed above, in May, the Administration announced that the DOJ and HHS were creating an interagency program, known as HEAT, to investigate and prosecute health care fraud.    

President Obama’s 2010 budget invests $311 million–a 50 percent increase from 2009 funding–to strengthen program integrity activities within the Medicare and Medicaid programs.[63]  These funds are not limited to investigating "street-level" fraud by individuals.  In Senate testimony, Assistant Attorney General Lanny Breuer stated that the DOJ is committed to prosecuting all who commit health care fraud, including "corporate wrongdoers."[64]  And the DOJ is looking to add high-profile names to its leadership as well as several "in-the-trenches" attorneys to bolster its fraud section, with a special focus on health care fraud.[65]  In fact, Obama administration officials have described fighting health care fraud as a priority of the DOJ, and health care fraud investigations as "among the highest priority investigations within the FBI’s White Collar Crime Program."[66]

Enforcement officials have not lost sight of their goal to help reduce the cost of health care in the United States.  While anti-fraud funding has yielded a 441% return on investment ($4.41 returned to victims of health care fraud for every $1 spent on enforcement), Assistant Attorney General Breuer has testified that "we believe that the deterrent effects from our efforts may produce far greater ‘returns on investment’ through dramatic reductions in fraudulent billings to and payments from Medicare."[67]

With this larger purpose in mind, and armed with bigger budgets and staff, we can expect that enforcement actions will continue to increase in the future.  Investigations by HHS, DOJ, and state attorneys general will likely continue in the "tried-and-true" areas, such as relationships with physician consultants, misbranding, false claims, and violations of the anti-kickback statute and Stark laws.  But enforcement officials have recently begun adding to their list of practices under scrutiny, including, most recently, billing practices,[68] "ghostwriting"[69] and executive compensation at non-profit health care companies.[70]  Furthermore, health care companies conducting business overseas are increasingly under scrutiny for possible FCPA violations.[71]

The field of enforcement officials scrutinizing health care companies is growing as well.  Whereas federal prosecutors once were predominant in this arena, state attorneys general are becoming more active, with Martha Coakley of Massachusetts and Anne Milgram of New Jersey being most involved.  New York’s Andrew Cuomo has also been active in the related field of conflicts of interest in the health insurance industry.

The collection of these factors–the political climate, the success of recent enforcement actions, the injection of new funds and federal enforcement officials, the additional practices now facing scrutiny, and the state prosecutors who have joined the fray–all point to an obvious conclusion:  Health care compliance will continue to be a burgeoning enforcement area.  In this climate, it is more important than ever before that companies institute and maintain rigorous health care compliance systems and practices.