Rx Fraud Cases: IG Integrity Agreements May Be As Costly As Settlements

The pharmaceutical industry should pay greater attention to the costs associated with corporate integrity agreements included in False Claims Act liability settlements, attorney Lynn Snyder (Epstein Becker & Green) suggested.

"Your settlement agreement and your corporate integrity agreement...have equal [weight]. If not, the CIA has greater weight," Snyder told the Food and Drug Law Institute annual meeting in Washington, D.C. April 19.

Snyder emphasized that the potential cost-implication of an integrity agreement should be weighed when settling cases with the HHS Office of the Inspector General. "You're not just writing a check here. You're on five years probation - that's what I call it, probation - and that has an integral cost element to it," she said. "Unfortunately, historically I have found that people don't get that."

IG Senior Counsel Mary Riordan agreed. While "the settlement agreements are long documents, the corporate integrity agreements are even longer."

The integrity agreement is "essentially a contract between the IG and the provider" which "lays out a number of obligations that we think are appropriate for the provider to undertake in order to sort of make sure the problems we saw that were the basis for the False Claims Act case and settlement...don't crop up during the term of that corporate integrity agreement."

CIAs have been used widely in settlements with other healthcare segments, but pharmaceutical manufacturers do not have much experience with the process.

"The pharmaceutical industry...you're so focused on FDA that you really don't realize there are other places out there in the federal government that can cause you harm," Snyder told the FDLI audience.

Retail pharmacies have been put on watch since investigations related to reimbursement practices for partially-filled prescriptions resulted in CIAs for Walgreen and Longs Drug. Another pharmacy settlement is imminent (¹ (Also see "FBI Near Settlement With "Major" Drug Chain Over Partial Rx Fills" - Pink Sheet, 30 Apr, 2001.)).

Pharmaceutical companies may have no choice but to enter CIAs, since the alternative will be exclusion from federal healthcare programs. "If there is Medicare coverage of out patient drugs more than currently,...I guarantee you're no different than a hospital or a clin lab," Snyder said.

Bayer's tentative settlement with the Justice Department related to AWP policies includes a five-year integrity agreement (² (Also see "Bayer Drug Prices To Be Monitored By HHS Under Medicaid Fraud Settlement" - Pink Sheet, 25 Sep, 2000.)).

The Bayer settlement is generally viewed as a precursor to a broad series of fraud cases involving other manufacturers. "It's a matter of focus of resources at the government level," Snyder said, describing "a movement away from the provider community into the manufacturing community."

Snyder observed that government investigators have become increasingly sophisticated about industry practices. "Just the fact that somebody can use that lingo should be very telling to you that they have now figured out that...area of the industry and are focusing on it."

Department of Justice Civil Division Attorney Reed Stephens agreed. "For example, I know the difference between how Medicaid rebates are calculated for sole-source drugs as opposed to multi-source drugs, and I can tell you what the formula is."

The AWP investigations include a number of pharmaceutical manufacturers, and TAP appears close to a large settlement related to a number of fraud claims arising from the investigation of its marketing practices for Lupron (³ (Also see "Rx Sampling In "Spotlight" Of Boston Grand Jury As Part Of TAP Investigation" - Pink Sheet, 23 Apr, 2001.)).

The IG is also involved in investigations into HMO repackaging as a potential method to circumvent Medicaid rebates as well as an investigation of pharmacy benefit management practices spearheaded by Philadelphia Assistant U.S. Attorney James Sheehan.

At the Health Care Compliance Association annual congress in Washington, D.C. April 23, Sheehan recommended that companies voluntarily implement "transparent compliance programs," noting that voluntary disclosure would be considered favorably during settlement negotiations.

However, Sheehan observed, a possible signal of fraud or abuse is "an organization where they've had three compliance officers in the last year." When compliance officers "elect to leave...they don't say, you know, 'investigate here,'" Sheehan said. "But the implication of rapid turnover in compliance officers is one we pay attention to."

IG is developing a compliance guide to help the pharmaceutical industry craft voluntary programs (⁴ (Also see "HHS IG Compliance Guide For Rx Industry Planned For Year-End" - Pink Sheet, 30 Apr, 2001.)).

IG is working with the American Institute of Certified Public Accountants to conduct a "survey of providers who are undergoing integrity agreements to let us know what about the CIA works [and] what doesn't work," Assistant Inspector General for Legal Affairs Lewis Morris said. The survey is a part of an overall reassessment of IG programs, Morris said.

The change in the control of the White House is not likely to lead to a relaxation of fraud enforcement activities, Morris said.

"Fighting fraud is a nonpartisan proposition," Morris said. "Both sides of the aisle supports this." He pointed out that Sen. Grassley (R-Iowa), "who many refer to as the godfather of the False Claims Act...is now the head of the Finance Committee."

"That's a powerful influence over us and the initiatives of the Administration," Morris said. Attorney General John Ashcroft is also committed to enforcement of the False Claims Act, Morris said.

Attorney Paul Kalb, MD, (Sidley & Austin), however, suggested to FDLI that government enforcement activities may be reaching a point where they will provoke a "backlash."

IG scrutiny of manufacturers is becoming unreasonable, Kalb said. He balked at the suggestion that selling drug at a price that is at all below retail may be considered an inducement.

He suggested that the evolution in the AWP investigation is a sign of overzealous enforcement. The initial focus was on cases where AWPs were set significantly higher than actual prices.

However, "there's a new theory...that no matter how high AWP is, even if AWP is essentially set at retail price...if any customer can buy at less than AWP and thereby gain some reimbursement [value]... that that's an improper inducement," Kalb said. "I'm terrified by this theory because that's the way this industry works and I have no idea how you avoid the problem."