Pharmaceutical Fraud

Healthcare fraud in the United States has reached staggering levels. From 2016 through 2020, the U.S. Department of Justice recovered $17.4 billion from cases brought under the False Claims Act (FCA). Nearly 68% of this recovery—$11.8 billion—involved the healthcare industry.

Much of this fraud is concentrated around pharmaceuticals. Drug manufacturers have developed various fraudulent schemes that keep drug prices high, resulting in record-setting profits. These schemes enrich powerful international corporations at the expense of ordinary taxpayers.

Types of Pharmaceutical Fraud

Pharmaceutical fraud comes in many forms. Some of the most common schemes include:

• Off-label marketing. The U.S. Food and Drug Administration (FDA) is responsible for approving drugs for use in the United States. During the approval process, the FDA determines which medical conditions a drug may be used to treat—called the drug’s “indications.” These indications are printed on the drug’s label. If a doctor prescribes a drug for one of these approved indications, the prescription is “on label.” If a doctor prescribes a drug for an indication that was not approved by the FDA, the prescription is “off label.”Doctors are allowed to prescribe drugs off label, but government healthcare programs will not pay for off-label prescriptions. In addition, drug manufacturers are not permitted to market a drug for off-label uses. Companies that market their drugs off-label are subject to severe penalties under the FCA and its state counterparts. For example, Baron & Budd helped secure a $110 million settlement under the Texas Medicaid Fraud Prevention Act for the off-label promotion of Seroquel and Crestor.

• Kickbacks to doctors. Government healthcare programs expect doctors to exercise independent clinical judgment, using their medical training to prescribe only those drugs that are reasonable and necessary for their patients’ treatment. Pharmaceutical companies frequently try to interfere with this independent clinical judgment by paying doctors to prescribe their drugs. Congress passed the Anti-Kickback Statute (AKS) in response to these schemes. The AKS prohibits a company from providing anything of value in exchange for a prescription. The statute also prohibits a doctor from soliciting or receiving anything of value in exchange for a prescription. This includes not only cash payments, but free services, consulting fees, travel expenses, entertainment, free drug samples, or any other gifts or payments.
• Kickbacks to Electronic Health Record (EHR) Vendors. Health care providers rely on Electronic Health Record (EHR) software to keep track of patient health information and to prescribe medications and other services. Pharmaceutical manufacturers commit fraud when they offer kickbacks to EHR software vendors in order to arrange the recommendation of their drugs. The drug manufacturer Purdue faced a criminal investigation regarding kickbacks to EHR vendor Practice Fusion. According to the criminal information, Purdue paid nearly $1 million to Practice Fusion for the implementation of “clinical decision support” that would recommend Purdue’s opioid medications to physicians looking to treat patients with pain issues.
• Prior Authorization Fraud. Insurance plans, such as Medicare Part D plans, require “prior authorization” from the insurance plan before dispensing more expensive drugs. This means showing the patient has tried other medications that have not worked or that the patient has a specific medical condition that requires the drug. Pharmaceutical manufacturers have engaged in prior authorization fraud by directing their sales representatives to fill out prior authorization forms with fraudulent or false information or call insurance companies representing themselves as employees of the physician’s office and request that certain drugs be covered.
• Patient Assistance Programs and copay cards. Most insurance plans—including government healthcare plans such as Medicare, Medicaid, and TRICARE—require patients to pay for only a small portion of the cost of the drugs they are prescribed, called a “copayment” or “copay.” The remainder of the cost (typically 80%) is covered by the insurance plan. This means that, if a patient can afford the copay, a drug manufacturer can earn a great deal of money from the insurance provider. As long as there have been insurance copay and co-insurance requirements, drug companies have worked to circumvent them, using tools such as discount coupons (called “copay cards” or “copay coupons”) to entice patients to use their brand name drugs rather than less expensive but equally effective treatments. The AKS prohibits the use of copay cards for government healthcare beneficiaries. To get around this restriction, drug makers began establishing third-party “Patient Assistance Programs” (PAPs), also known as “copay charities.” PAPs are touted as tools to help patients afford medications, but they often serve as conduits for kickbacks to patients that permit drug companies to continue to raise prices. PAPs must be truly independent of drug manufacturers and they cannot give preferential treatment to any drug over its competitors. If a PAP violates these requirements, its behavior may be illegal under the AKS. For instance, in 2020, Baron & Budd obtained a nearly $12 million settlement against Sanofi-Aventis. The company allegedly funneled copay assistance through a PAP called The Assistance Fund. Sanofi allegedly made payments to this PAP not with a charitable purpose, but to encourage Medicare patients to purchase one of Sanofi’s drugs.
• Substandard manufacturing and quality control. The federal Food, Drug & Cosmetic Act (FDCA) prohibits companies from introducing adulterated drugs into interstate commerce. A drug is considered adulterated if the methods, facilities, or controls used in its manufacture, processing, packing, or holding do not conform to current good manufacturing practices to ensure the drug is safe, effective, and of high quality.Sometimes, drug manufacturers will cut corners when producing their drugs, leading to safety hazards. For example, in 2013, the federal and state governments recovered $500 million in criminal and civil penalties from Ranbaxy, a generic drug manufacturer. Ranbaxy had failed to adequately test several of its drugs, failed to timely file required reports known as “field alerts” for batches of drugs that had failed certain tests, and lied to the FDA about test results.

Identifying Pharmaceutical Fraud

Although pharmaceutical fraud encompasses a wide variety of situations, there are a few key points that help determine whether certain behavior is illegal. Potential whistleblowers should consider the following questions:

• Is a drug manufacturer interfering with doctor’s independent clinical judgment or with patient choice?
• Is a drug manufacturer marketing its drugs for uses not approved by the FDA?
• Is a drug manufacturer offering anything of value to doctors or patients to induce them to prescribe or use the company’s drugs?
• Is a drug manufacturer complying with manufacturing requirements and being honest with the FDA?

Whistleblowers are essential in identifying, reporting, and stopping pharmaceutical fraud. Whistleblowers are typically employees (or former employees) of a pharmaceutical company, PAP, or healthcare provider, with inside information about fraud being committed. Sometimes, whistleblowers have evidence that a competitor company is committing fraud. In any case, a whistleblower may be entitled to an award of 15%-30% of any amount recovered in a successful enforcement action. If you have evidence that a person or company is committing pharmaceutical fraud, an experienced whistleblower attorney can help you file an effective complaint and maximize your share of any recovery.

Our Team

With more than 50 years of experience, the attorneys on Baron & Budd’s whistleblower representation team have represented dozens of clients in government fraud cases returning over $6 billion to federal and state agencies, with whistleblower recovery shares as high as 50%. They are ready to help if you have evidence of pharmaceutical fraud.

Please call (866) 845-2164 or complete our contact form if you would like more information. For more information, see What You Need to Know About Becoming a Whistleblower.  Please understand that contacting us does not mean that you have established an attorney-client relationship with Baron & Budd, P.C.