TAP Pharmaceuticals' $875 Million Fine Demonstrates Need for Fraud Awareness

The recent experience of TAP Pharmaceutical Products Inc. shows that medical product companies must be more careful in selling and marketing drugs reimbursed by the government's Medicare and Medicaid programs and should better educate their employees about the requirements of the Prescription Drug Marketing Act (PDMA).

TAP has agreed to pay $875 million in civil and criminal fines to settle charges of fraudulent pricing schemes, violations of the PDMA, and other sales and marketing misconduct related to its prostate cancer and gynecology drug Lupron, according to federal prosecutors.

In addition, six current or former TAP employees have been indicted for conspiracy to defraud Medicare and Medicaid, and for violations of the PDMA and anti-kickback regulations. The employees allegedly distributed free samples to doctors knowing that Medicare would be charged, and offered doctors "educational grants" and vacations if they would continue prescribing Lupron instead of its competitors. A physician was indicted on related charges.

TAP also has agreed to comply with a comprehensive corporate integrity agreement (CIA), which requires the company to report to the Medicare and Medicaid programs the true average sales price for its reimbursed drugs and allows the government to oversee the company's sales and marketing practices.

"The payment by TAP of nearly $900 million ... and the indictment of the six TAP employees sends a very strong signal to the pharmaceutical industry that it best police its employees' conduct and deal strongly with those who would gain sales at the expense of the health care programs for the poor and the elderly," U.S. Attorney Michael J. Sullivan said in an Oct. 3 press release from the U.S. Attorney's Office for the District of Massachusetts.

Pricing/Marketing Issues

TAP, based in Lake Forest, Ill., is a joint venture between Abbott Laboratories, headquartered in Abbott Park, Ill., and Takeda Chemical Industries Ltd. of Osaka, Japan.

According to the U.S. Attorney's Office, when TAP first marketed Lupron in the early 1990s — Zoladex, a competing product manufactured by AstraZeneca, also was being marketed at that time — it "concealed the true discounted prices paid by physicians from Medicare, and falsely advised physicians to report the higher [average wholesale price (AWP)] rather than their real discounted price for the drug." TAP allegedly "marketed the spread between its discounted prices paid by physicians and the significiantly higher Medicare reimbursement based on AWP as an inducement to physicians to obtain their Lupron business."

According to the U.S. Department of Justice (DOJ), the company was first investigated in 1996 after Douglas Durand, former TAP vice president of sales, filed a False Claims Act suit in Pennsylvania charging the company with illegal marketing practices. The False Claims Act allows individuals such as Durand to file "qui tam" or whistleblower suits to help the government obtain information about wrongdoing. If the government settles or litigates claims based on these private suits, whistleblowers may receive 15 percent to 25 percent of the money recovered by the government.

The investigation moved to Massachusetts in 1997 after Dr. Joseph Gerstein, a Tufts Health Plan urologist, reported that two TAP employees offered him $20,000 in "educational grants" if he would reverse his decision to have the Tufts Health Plan, a health maintenance organization, cover Zoladex rather than Lupron.

According to a Tufts press release and a complaint filed by the health plan and Gerstein against TAP, the company also offered to pay Tufts Heath Plan a fixed amount of money and give the plan a discount on the price of Lupron when used to treat such gynecological conditions as endometriosis. This practice would allow TAP to continue billing the government at a higher rate for the prostate cancer use of the drug. Gerstein worked with federal investigators to help record a conversation in which TAP representatives made the improper offer and, along with Tufts Health Plan, filed a qui tam suit against TAP.

In an Oct. 3 statement, TAP President Thomas Watkins said that "[w]e fundamentally disagree with the government claims regarding TAP's pricing and reimbursement policies. We believe we consistently complied with pricing laws and regulations."

Although TAP denies the government's charges of fraudulent pricing schemes, to settle the alleged violations, the company will pay $560 million in civil fines to the Medicare and Medicaid programs and will pay an additional $25 million to settle charges of fraudulent claims made by all 50 states and the District of Columbia.

PDMA, Kickback Violations

The company also pleaded guilty to conspiring to violate the PDMA and will pay a $290 million criminal fine, the highest fine ever paid in connection with a health care fraud prosecution. The PDMA allows both companies and individuals to be criminally prosecuted for selling or offering to sell, purchase or trade any drug sample or for failing to report convictions under the law to the FDA (see ¶1030).

In addition, civil money penalties can be assessed against individuals — but not companies — that violate the act. The PDMA also requires companies to keep records of free sample distribution. By providing free samples to physicians knowing that Medicaid would be charged, the TAP employees allegedly violated the PDMA.

A federal grand jury has indicted a urologist and six current or former TAP managers for: conspiracy to pay kickbacks to doctors and other customers; conspiracy to defraud state Medicaid programs by not selling TAP products at the best price; and conspiracy to violate the PDMA by causing Medicare to be charged for free samples. Four other physicians who billed Medicare for free samples previously pleaded guilty to health care fraud charges during the DOJ's investigation of TAP. All seven defendants have pleaded innocent to the charges.

Joan Krause, a professor at the University of Houston Law Center's Health Law and Policy Institute and an expert on health care fraud, said that the indictment is a "wake-up call to industry that they have to keep better track of their drug samples" because "all you need is one rogue sales agent" to violate the PDMA. Companies must "focus more on drug sample policies beyond [just] record-keeping requirements," Krause told the Bulletin.

In TAP's statement, Watkins said, "[w]e admit that TAP provided free samples of Lupron to a number of physicians, primarily in the early to mid-1990s, with the knowledge that those physicians would seek and receive reimbursement. The billing of free samples is wrong, and it should never have happened."

In addition to violating the PDMA, the indicted TAP employees also allegedly offered physicians a variety of inducements to continue prescribing Lupron, ranging from free samples to "educational grants" that were used to pay for conference expenses, cocktail parties and vacations at golf and ski resorts, according to the DOJ press release.

Companies should monitor their sales staff to ensure their sampling practices are within the parameters set by the PDMA. More broadly, companies must not only have written policies but also must make sure that sales and marketing staff actually adhere to company regulations prohibiting unethical practices, such as kickbacks, that are in violation of the anti-kickback provision of the Medicaid Fraud and Abuse statute, Krause said. In the early 1990s the government focused on kickbacks in the pharmaceutical industry but later shifted most of its attention to kickbacks made to hospitals and nursing homes, she added. The indictment of TAP's employees may indicate that "drug companies are back on the hot seat here."

CIA Calls for Action

As part of a civil settlement, the Department of Health and Human Services' (HHS) Office of the Inspector General (OIG) requires that health care providers and other companies sign CIAs imposing compliance requirements. OIG currently is monitoring more than 450 CIAs with health care entitites, including an agreement reached with Bayer in January (see www.os.dhhs.oig/cia/index/htm).

According to TAP's statement and the CIA, TAP will continue several steps taken before the agreement was signed and also institute several new measures in order to ensure compliance with federal health care program requirements. Actions taken to date include:

• mandatory annual training for all employees on fair and ethical business practices;
   
• appointing an executive-level ethics and compliance officer;
   
• linking employee incentives to an individual's adherence to the company's Code of Conduct and Operating Guidelines; and
   
• strengthening disciplinary procedures.

Under the corporate integrity agreement (CIA) TAP has agreed that for the next seven years it also will:

• maintain a compliance program that includes a compliance committee to ensure that the company complies with HHS regulations;
   
• implement a written code of conduct, and written policies and procedures, addressing accurate Medicaid reporting and the proper uses of drug samples;
   
• file pricing reports to the OIG four times per year. The CIA includes a methodology that TAP must use to calculate the average sales price of Lupron and other products. These average sales price calculations must be reviewed by a consultant;
   
• establish and publicize a confidential disclosure program that encourages employees to bring violations to the attention of the compliance officer; and
   
• pay substantial fines, ranging from $1,000 to $2,500 per day, for failing to adhere to these requirements.

"This settlement agreement and the compliance steps that TAP has agreed to take will reinforce the government's long-standing objective of paying Medicare and Medicaid providers for the reasonable costs of the drugs they administer," according to Assistant U.S. Attorney General Robert D. McCallum Jr.

Continued Medicare Scrutiny

According to the DOJ press release, Medicare paid 80 percent of the cost of Lupron sold by TAP and patients were expected to pay the remaining 20 percent as a copayment. Medicare has spent $4 billion for Lupron during the past decade, according to the Tufts Health Plan press release.

The current debate among members of Congress on the nation's drug reimbursement system and the continued commitment of the OIG to prosecute Medicare and Medicaid fraud indicate that ongoing scrutiny of the industry's business practices is likely.

"The enormity of today's settlement underscores the need for Congress to reform our nation's drug reimbursement system," House Energy and Commerce Committee Chairman Billy Tauzin (R-La.) said in a written statement. The TAP settlement "clearly bolsters the need for Congress to make swift reforms to this fatally flawed Medicare drug reimbursement system," he added.

At a Sept. 21 hearing on Medicare payments for prescription drugs before the House Committee on Energy and Commerce Subcommittee on Oversight and Investigations, Deputy Inspector General for Evaluations and Inspections George F. Grob testified that "[t]he method [Medicare] uses to determine the amount to be paid is flawed. In fact, it makes no sense at all. It allows the price to be set arbitrarily by drug manufacturers, not the marketplace."

Accordingly, the OIG is committed to working with other federal enforcement agencies to prosecute cases where firms are engaging in illegal marketing and pricing practices. "Until the system is changed, Medicare and its beneficiaries will continue to pay excessive amounts for prescription drugs," Grob said, "and the amount of excessive payments will increase every year."

In response to instances of fraud and abuse in the pharmaceutical industry, the OIG announced in the June 11 Federal Register that it is asking for "input and recommendations of interested parties as the OIG develops a compliance programs for the pharmaceutical industry" (66 FR 31246). The OIG has previously issued compliance program guidance for nine industry sectors that receive reimbursement from Medicare and Medicaid, including clinical laboratories, home health agencies and hospitals. OIG compliance guidance for these industries has included seven elements, among them the implementation of written policies and procedures, the use of audits to monitor compliance, the use of disciplinary guidelines to enforce standards and the designation of corporate compliance officers.

However, although Grob blamed drug manufacturers for inflating reimbursement rates, Krause called the pricing aspect of the investigation "very troublesome" because the government has known for 30 years that there are problems with basing reimbursement on the AWP.

It is unfair to accuse drug companies of fraud when the government continues to rely on the AWP for reimbursement purposes, Krause said, explaining that even though some companies may violate the spirit of the law, there is no clear statutory definition of AWP or how to calculate it. In contrast, the meaning of "best price" — the basis for Medicaid reimbursement — is clearer.

The CIA refers to the average sales price rather than the AWP because the OIG recognizes that TAP may not technically have violated any rules in the way it reported the AWP, Krause said. She added that the CIA with TAP — along with a similar average sales price provision in the Bayer CIA — makes it "very clear" that federal agencies would like to know this information. Krause also said that these agreements are a step in the right direction because they represent "kind of a first step to trying to make sure Medicare pays the right amount" for drug products.