The False Claims Act: A Powerful Tool Against Fraud in the Pharmaceutical Industry
Introduction to the False Claims Act
The False Claims Act (FCA), 31 U.S.C. §§ 3729-3733, is a federal law in the United States aimed at combating fraud against the government. It allows for whistleblowers, known as “qui tam” relators, to bring lawsuits on behalf of the government against individuals or entities that have defrauded it. This powerful law has been particularly effective in the pharmaceutical industry, where fraudulent practices can lead to not only significant financial losses for the government but also potentially harmful consequences for patients. In this blog, we will explore how the FCA applies to pharmaceutical companies and discuss some prominent cases that demonstrate its impact.
Overview of the False Claims Act
The FCA imposes civil liability on any individual or entity that:
- Knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval
- Knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim
- Conspires to commit a violation of the FCA
Qui tam provisions:
- Allow private citizens to bring a lawsuit on behalf of the government
- Whistleblowers may be entitled to a share of any recovery, ranging from 15-30% of the amount recovered
- Damages and penalties:
Violators of the FCA may be liable for three times the amount of damages sustained by the government, plus civil penalties of $5,500 to $11,000 per false claim.
The FCA and the Pharmaceutical Industry
The FCA has been particularly effective in combating fraud in the pharmaceutical industry due to several factors:
- High financial stakes involved in government healthcare programs, such as Medicare and Medicaid
- Regulatory environment that can create opportunities for fraud
- Potential for patient harm resulting from fraudulent practices
Common types of FCA violations in the pharmaceutical industry include:
- Off-label promotion: Promoting a drug for uses not approved by the Food and Drug Administration (FDA)
- Kickbacks: Providing financial incentives or other forms of inducement to healthcare providers to prescribe certain drugs
- Price reporting fraud: Misreporting prices of drugs to the government to increase reimbursement rates
- Manufacturing violations: Failing to comply with FDA regulations, leading to the distribution of adulterated or misbranded drugs
Prominent Cases Under the False Claims Act
In one of the largest healthcare fraud settlements in U.S. history, GlaxoSmithKline (GSK) agreed to pay $3 billion to resolve criminal and civil liability arising from various FCA violations.
- Off-label promotion: GSK promoted the antidepressant drugs Paxil and Wellbutrin for unapproved uses, including treating children and adolescents
- Kickbacks: GSK provided money, gifts, and other incentives to physicians to prescribe certain drugs
- Price reporting fraud: GSK underreported the prices of several drugs, causing the government to overpay for those drugs under Medicare and other programs
Pfizer agreed to pay $2.3 billion to resolve criminal and civil liability for various FCA violations, including off-label promotion and kickbacks.
- Off-label promotion: Pfizer promoted the anti-inflammatory drug Bextra and several other drugs for uses not approved by the FDA.
- Kickbacks: Pfizer paid illegal remuneration to healthcare providers to induce them to prescribe certain drugs.
Johnson & Johnson (2013)
Johnson & Johnson and its subsidiaries agreed to pay $2.2 billion to resolve criminal and civil liability for various FCA violations, including off-label promotion and kickbacks.
- Off-label promotion: Johnson & Johnson promoted the antipsychotic drug Risperdal for unapproved uses, such as treating elderly patients with dementia
- Kickbacks: The company provided financial incentives to physicians and nursing home pharmacies to prescribe Risperdal and other drugs
Novartis Pharmaceuticals (2020)
Novartis Pharmaceuticals agreed to pay $678 million to settle FCA allegations that it engaged in a nationwide kickback scheme to induce healthcare providers to prescribe its drugs.
- Kickbacks: Novartis provided cash, lavish meals, and other incentives to healthcare providers to encourage them to prescribe its drugs, including hypertension drugs Lotrel and Valturna, and the diabetes drug Starlix.
The Importance of Whistleblowers in FCA Enforcement
Whistleblowers play a crucial role in uncovering fraudulent activities in the pharmaceutical industry. Many of the largest FCA settlements in the pharmaceutical industry have resulted from qui tam lawsuits brought by whistleblowers. Whistleblowers often have insider knowledge that allows them to identify fraud that would otherwise go undetected.
The False Claims Act has proven to be a powerful tool in combating fraud in the pharmaceutical industry. Through its qui tam provisions, the FCA incentivizes whistleblowers to come forward and expose fraudulent activities, which can result in significant financial recoveries for the government and help to ensure that patients receive safe and effective medications. The system depends on insiders providing information through the FCA with the use of a whistleblower lawyer as a check and balance and in turn, hundreds of millions have been given to pharmaceutical whistleblowers over the years who blow the whistle the right way.