Pharmaceutical companies often market drugs, and physicians often prescribe drugs for uses other than those specified on the product labels approved by the Food & Drug Administration (FDA). This so-called “off-label” distribution of medications can expose drug manufacturers and doctors to liability under federal and state false claims laws. This is because government health programs ordinarily do not cover “off-label” uses of medications except for those occasional cases in which an off-label use has been conclusively determined to be both safe and effective.
An individual with inside knowledge of illegal, off-label promotional activity can earn a reward for blowing the whistle on this misconduct. The federal False Claims Act as well as many of the state false claims statutes permits a private individual with knowledge of such fraud to sue in the name of the government payers and receive a share of any resulting financial recovery.
After providing background on the facts and law that give rise to liability in such circumstances, this article discusses the federal government’s willingness to aggressively use the federal False Claims Act to recover taxpayer funds misspent on drugs prescribed off-label, and offers suggestions on assessing potential legal action.
I. THE STATUTORY REMEDY
The federal False Claims Act imposes triple damage liability on any person who, among other things, knowingly causes the submission of false claims to the federal government for payment or approval. Pursuant to a so-called “qui tam provision3,” this law permits a private individual to sue on behalf of the United States to recover lost taxpayer funds, and, if he or she meets certain criteria, receive 15 to 30% of any recovery to the government, plus attorneys fees, costs and expenses.4 As of this writing, twenty states have enacted analogous legislation governing false claims for state funds5.
If liability is to turn on the “causation” of false claims, it is useful to think of these laws as requiring a plaintiff to establish the following elements:
* a false claim that a person
* caused to be
* submitted for payment or approval by the government.
The following discussion analyzes how a drug company’s off-label promotion of a drug and a physician’s off-label prescribing activity can violate each of these elements.
A. THE FALSE CLAIM
1. Promoting Drugs for Unapproved Uses is Illegal
Stories abound of the ways in which the pharmaceutical industry is betraying the trust of the public. One of the more egregious examples of this betrayal is the industry’s willingness to aggressively promote their products for uses that the Food & Drug Administration (“FDA”) has not yet determined to be safe and effective – – so-called “off-label uses.” The FDA has the authority to approve the marketing of a drug only for uses that the FDA has found to be both safe and efficacious through clinical trials or otherwise.6 Drug manufacturers are prohibited from commercially marketing drugs for non-FDA-approved indications7.
The FDA oversees multi-stage, manufacturer-conducted, clinical trials to determine the safety and efficacy of drug products when used in a specified manner to treat particular illnesses or conditions. Once the FDA agrees with the manufacturer that a given drug has been shown through such trials to be safe and effective for particular uses, the FDA will work with the manufacturer on a product label that appropriately describes these uses. The label is supposed to reflect the uses that the FDA has found to be “safe and effective,” and, conversely any use not listed on the label is presumptively one that the FDA has not yet found to be safe and effective.8
Despite the prohibitions in U.S. law, many drug manufacturers nonetheless promote a product off-label. They do so through a variety of techniques, such as:
* Making sales calls on physicians with practices exclusively dedicated to a class of patients for whom the drug is not yet indicated (e.g., pediatricians in the case of a drug not yet found to be safe and effective for children);
* Urging physicians to develop a protocol for use of the drug in a non-indicated manner;
* Distributing or causing the distribution of non-peer reviewed “studies” of dubious scientific value that support the off-label use; and,
* Asserting in oral or written communications that the use is advisable, desirable, or recommended.
Pharmaceutical manufacturers often carry out such sales efforts by methods that compromise the independence and quality of medical decision-making. For example, drug companies often corrupt medical decision making by coupling their off-label promotional activity with financial inducements to doctors, such as sizeable payments in exchange for completion of drug-related “questionnaires” or “consultation,” grant money for studies of dubious scientific value, or honoraria for “speaking” about the benefits of the drug. These payments are often nothing more than disguised rewards to the doctors for prescribing a drug; the payment to the doctor far exceeds the cost of the minimal work that the drug company asks the doctor to perform, and the requested work has little if any legitimate value for the manufacturer.9
In addition, pharmaceutical sales representatives often impact the quality of medical decision-making by feeding false or misleading information about a drug to doctors. For example, manufacturers have been known to falsely suggest that a drug has been found to be safe and effective for a given use when it has not been.
Physicians are busy and overwhelmed with paperwork, and generally rely on drug company representatives for information about the proper use of their products. Receiving false or misleading information from sales representatives consequently can cause doctors to prescribe a drug based on an incorrect understanding of the outcome of clinical trials.
2. Government Programs Pay for Safe & Effective Treatments Only
Government health programs generally do not cover drug products unless their use in the circumstances is “reasonable and necessary,” which the programs have determined requires that the drugs be used in a “safe and effective manner.” These programs tend to rely on FDA determinations of what is safe and effective, as well as conclusions in authoritative medical compendia. If a particular use clearly is not indicated on the FDA-approved product label, and if the use also has not been determined to be safe and effective in authoritative studies, then the government likely will consider a claim for such use a “false” claim.
For example, the federal rules governing Medicaid – – the jointly funded, federal-state program for low income individuals – – define “covered” outpatient prescriptions drugs to be those used for a “medically accepted indication.”10 The term “medically accepted indication” is a term of art in Medicaid law, and is defined as either an FDA-approved use, or a use supported by citations included in, or approved for inclusion in the American Hospital Formulary Service Drug Information, the United States Pharmacopeia-Drug Information (or its successor publications), or the DRUGDEX Information System.11 The federal rules further provide that a state Medicaid program may restrict coverage of covered outpatient drugs when the prescribed use is not for a medically accepted indication.12 The state Medicaid programs have enacted varying rules on whether, and if so, when off-label, non-compendium uses will be covered.
The new Medicare Part D program, which is a voluntary pharmaceutical benefit for seniors, the blind and the disabled, adopts the coverage criteria in the Medicaid statute, and likewise only covers a drug if it is used for a FDA-approved use or supported by a citation in one of the medical compendia relied upon by the Medicaid program.13
Similarly, the Medicare Part B program, which covers drugs which can’t be self-administered and several other narrow categories of medications, such as those used in connection with organ transplants, will pay for a drug only if the use is “reasonable and necessary” in the circumstances.14 To determine whether a drug use is “reasonable and necessary,” the Medicare rules look to whether the use is “safe and effective.”15 Medicare considers a drug use to be “safe and effective” when the use is within the scope of the indications specified on the FDA-approved label, or when a Medicare carrier has affirmatively determined the use to be “medically accepted” in the circumstances in question, taking into consideration the major drug compendia, authoritative medical literature and/or accepted standards of medical practice.16
The rules of the Civilian Health and Medical Program of the Uniformed Services (“CHAMPUS”) and its managed-care counterpart, (“TRICARE”), are similar. With certain exceptions for experimental cancer drugs, these programs for civilian employees of the Department of Defense generally will pay for the costs only of “proven” drugs, i.e., drugs that have been found to be “safe and effective” by the FDA.17 Moreover, CHAMPUS/TRICARE will pay for off-label use of an FDA-approved drug only if the use is determined to be “medically necessary” and if the program can determine through a review of medical literature, national organizations or technology assessment bodies that the off-label use is “safe and effective and in accordance with nationally accepted standards of practice in the medical community.”18 CHAMPUS/TRICARE will not pay for any treatment unless “reliable evidence shows that [the treatment] has been the subject of well-controlled studies of clinically meaningful endpoints, which have determined its maximum tolerated dose, its toxicity, its safety, and its efficacy as compared with standard means of treatment.”19 The CHAMPUS/TRICARE rules make clear that “reliable evidence” of such studies does not mean physician opinion, anecdotal evidence or general practice within the medical community.20
How can one determine whether a use that the FDA has not approved for inclusion on the product label is nonetheless considered by a government payer to be “safe and effective”? While this information will almost certainly be known to the manufacturer of the drug, it often will be difficult to ascertain from readily-available, public sources. A good starting point is a review of the government health program’s local and national coverage determinations, along with discussions of the drug’s indications in the various medical compendia referenced above. If Medicaid is the payer, individual state policies must be researched.
Accordingly, a claim to Medicare, Medicaid, or CHAMPUS/TRICARE will be deemed a “false claim” if it seeks payment for a use of a drug that has not been determined to be safe and effective. If the manufacturer promoted the product for such use, then the manufacturer as well as the doctor would be exposed for having “caused” the submission of false claims to a government health program.
B. “KNOWING” MISCONDUCT
The federal False Claims Act, like the state false claims laws, only imposes liability for “knowing” misconduct. The law defines the term “knowingly” to include situations not only in which someone has “actual knowledge” of the falsity of their claim, but also those situations in which someone recklessly disregards, or acts with deliberate ignorance concerning the truth or falsity of a claim. Accordingly, if a drug manufacturer has “reason to know” that a given drug use is not covered by a government payer, that its employees are promoting that use, and that this promotional activity will cause submission of claims to government programs, then that company can be considered to have “knowingly” caused the submission of false claims. Likewise, if a doctor has “reason to know” that a given drug use is not covered, and that his prescribing of the drug will cause submission of claims to government programs, then that doctor can be considered to have “knowingly” caused the submission of false claims.
Drug manufacturers and physicians ordinarily are not the ones who submit claims to government health plans for pharmaceutical drug benefits. Pharmacies ordinarily submit such claims. When a False Claims Act case is brought against a drug manufacturer or a physician because of a pharmacy’s charges to a government health program for off-label use, the theory is that the manufacturer or doctor took certain steps – – i.e., marketing the drug off-label – – that kick-started a chain of events leading to the submission of a claim to the government for a non-covered treatment.
If it can be said that the promotional steps of a manufacturer or the prescriptions of a physician were a “substantial factor” in producing “foreseeable” false claims, then it is fair to allege that the manufacturer or the physician “caused” the false claims. The one court to directly address the issue of whether off-label marketing can “cause” false claims, ruled that the foregoing common law standard for determining “causation” applies equally in the False Claims Act context.21
D. SUBMISSION TO THE GOVERNMENT FOR PAYMENT OR APPROVAL
Since the inception of the new Medicare Part D pharmaceutical benefit in 2006, it can safely be said that the government pays for a significant percentage of the prescriptions of every medication with a large sales volume. Accordingly, if there is high volume usage of a drug off-label, it is just about guaranteed that the government is paying for some of that usage. The rough percentage of sales paid for by government payers will be known to the manufacturer, and can be approximated by an outsider by determining the extent to which the drug treats a condition found among the elderly or the indigent.
II. USE OF THE FALSE CLAIMS ACT TO REDRESS OFF-LABEL PROMOTION
Over the course of the last four years, the U.S. Department of Justice and the U.S. Department of Health & Human Services have shown a growing determination to use the federal False Claims Act to fight off-label marketing of drugs billed to the government. Federal officials are concerned not only about the taxpayer funds that are squandered on unsafe or ineffective drugs, they are also worried about the significant threat of patient harm posed by off-label use. As Deputy Attorney General Paul J. McNulty stated in announcing a recent False Claims Act off-label settlement:
It is vital to public health and safety that pharmaceutical companies are deterred from improperly marketing their drugs to doctors and patients to treat . . . illnesses that these drugs are not approved to treat.
The federal government’s concern for patient harm means that the government will be particularly interested in pursuing off-label marketing under the False Claims Act when the promotional activity has caused patient harm, as indicated by numerous, serious adverse events following upon the off-label use and/or a black box warning on the label. In addition, the federal government is inclined to use the False Claims Act in several other situations, including those in which the manufacturer: i) has lied to physicians or government payers about the off-label use of the drug; ii) has applied to the FDA for approval of the use and been rejected; or, iii) has corrupted the independent, decision-making of doctors through kickbacks and other means. Regardless of whether one or more of these factors is present, a critical litmus test for the government, of course, will be whether the off-label marketing led to significant, government financial expenditures.22
The federal government’s focus on these factors is evidenced by the cases they have elected to pursue. Thus, the first major off-label case that the Department of Justice pursued under the federal False Claims Act involved the promotion of the anti-seizure medication, Neurontin, for off-label use by children and in other ways that have not been found to be safe and effective. Medicaid unwittingly had paid pharmacies around the country millions of dollars for such unapproved uses of the Warner-Lambert drug. To promote the drug, Warner-Lambert, among other things, made false statements to health care professionals about the efficacy of the off-label uses, falsely represented that the uses were approved by the FDA, and overpaid physicians to serve as “consultants” to induce off-label usage. To settle these claims, Warner-Lambert paid $430 million in 2004.
The Pfizer/Warner-Lambert settlement was followed by a $704 million settlement with Serono for off-label promotion of the AIDS-wasting drug Serostin. This case also involved financial inducements to doctors in exchange for their prescribing the drug off-label (an all-expense paid trip to a medical conference in Cannes), and false representations to patients and health professionals regarding the medical necessity of the drug.
In 2007, Cell Therapeutics, Inc. of Seattle, Washington, paid the United States $10.5 million to resolve claims based on its off-label promotion of Trisenox, an oncology drug paid for by Medicare. This case also involved sham consulting agreements to corrupt independent medical decision making, and false statements to physicians regarding the efficacy and regulatory approval of the off-label use. Finally, Medicis Pharmaceutical of Scottsdale, Arizona, paid $9.8 million to resolve claims based on its off-label promotion of the topical skin cream Loprox for use by children.
III. ASSESSING A POSSIBLE OFF-LABEL, FALSE CLAIMS ACT ACTION
A. Filing a Lawsuit Quickly
To be positioned to claim a reward for blowing the whistle on off-label marketing, it is critical to be the first one in the door. To encourage informants to come forward early, two aspects of the false claims laws bar lawsuits with second-in-time allegations.
The first provision is the so-called “public disclosure” bar. This bar prohibits an individual from filing a false claims act case based on information already in the public domain unless the individual is an “original source” who provided the government with the information before filing suit and had direct and independent knowledge of that information. The intent of this bar is to preclude “parasitic lawsuits” such as those based on a criminal indictment, government audit report or newspaper coverage.
The second provision is the so-called “first-to-file” bar. This prohibition is aimed at law suits that follow on the heels of other false claims act lawsuits with the same allegations, whether those lawsuits are on the public record or pending under seal. There is no “original source” exception to this provision. Even those with true insider information will be barred if someone else has filed first.
B. Ten Question Checklist:
What Facts Give Rise to a Strong False Claims Act Case?
If you believe you may have knowledge of off-label promotional activity, you should consider the following questions in deciding whether to pursue an action under federal or state false claims laws; generally, it will make sense to file a false claims act case only if the answer to all of these inquiries is “yes.”
1. Clearly Off-Label. Is the use in question without a doubt outside the scope of the FDA-approved label?
2. Evidence of Off-Label Promotion. Do you have documents or other evidence, such as business plans, recordings of training sessions or sales pitches, sales materials or e-mails, demonstrating the off-label promotional activity?
3. Evidence of Management Knowledge. Do you have documents or other evidence indicating that management directed, approved or condoned the off-label promotional activity; in other words, is the problem more than an overly aggressive marketing campaign by a single, rogue sales representative?
4. Government Payment. Is there good reason to believe that government health plans paid for the off-label uses?
5. Significant Government Payment. Is there good reason to believe that the off-label sales to government health plans are so significant in dollar amount that the potential pay-out from a government investigation and litigation would be well worth the time, expense and other non-financial costs to the government and the whistle blower?
6. Lack of Government Coverage. Is there good reason to believe that the government payers never approved payment of the off-label use, or, if they did so, approved payment based on materially inaccurate or misleading information submitted by the manufacturer?
7. Corrupting or Misleading Physicians. Can you identify specific actions by the pharmaceutical company that compromised the objectivity and/or the quality of the physician’s prescribing habits, such as the provision of financial benefits in exchange for prescriptions, or the making of false representations concerning drug studies, performance or approval?
8. Patient Harm. Does the off-label use pose a significant threat of patient harm through adverse side effects or ineffective treatment?
9. Inside Information. Is your information based on direct and independent knowledge of the misconduct rather than on a public document?
10. First in Time. Do you have a reasonable basis to believe that the off-label activity is not yet the subject of a government investigation or a lawsuit on the public docket?
1 The law is this area is evolving particularly rapidly, and it is likely that we will see significant developments in the law over the next few years.
2 See 31 U.S.C. § 3729(a)(1).
3 “Qui tam” is short-hand for the Latin phrase “qui tam pro domino rege quan pro se ipso in hoc parte sequitur” which means: “he who sues for the king as well as himself in the matter.”
4 See 31 U.S.C. § 3730(b).
5 As of May 29, 2007, the District of Columbia and the following states have enacted false claims laws with qui tam provisions: California, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Louisiana, Massachusetts, Michigan, Montana, New Hampshire, New Mexico, New York, Nevada, Oklahoma, Tennessee, Texas and Virginia.
6 21 U.S.C. § 355(d).
7 21 U.S.C. §§ 312.7 and 331(a) and (d).
8 If the FDA concludes that medical studies indicate a significant risk of serious or even life threatening adverse effects from a particular use of a drug, the FDA will require the manufacturer to include a warning on the label inside a box with heavy black borders. This warning is referred to as a “black box warning.”
9 When a pharmaceutical company provides financial remuneration to a physician as a quid pro quo for the doctor increasing his off-label prescriptions of the company’s drug, the company and the doctor may violate federal anti-kickback law as well as FDA marketing rules. The Federal Health Care Program Anti-Kickback Statute, enacted as Section 1128B(b) of the Social Security Act, 42 U.S.C. § 1320a-7b, prohibits persons from paying, soliciting, or receiving illegal remunerations in order to induce business reimbursable under federal or state health care programs. 42 U.S.C. § 1320a-7b(a). The types of remuneration covered specifically include kickbacks and bribes, whether made directly or indirectly, overtly or covertly, in cash or in kind. 42 U.S.C. § 1320a-7b(b). The prohibited conduct includes remuneration intended to induce the prescription and ordering of medications to be paid for by federal, state, or municipal health care programs. Id. Several states contain analogous anti-kickback statutes. See, e.g., Florida Stat., Ch. 409.920(2)(e).
10 42 U.S.C. § 1396r-8(k)(3).
11 42 U.S.C. § 1396r-8(k)6) and (g)(1)(B)(i).
12 42 U.S.C. § 13396r-8(d)(1)(B). Some argue that this statutory provision is superfluous in light of the statutory definition of “covered outpatient prescription drug,” while others take the position that this provision effectively nullifies that definition by giving states the discretion to cover off-label, non-compendia uses.
13 See 42 C.F.R. § 423.100, referencing the definition of “medically accepted indication” in the Medicaid statute.
14 42 U.S.C. 1395y(a); 42 C.F.R. § 411.15(k); Medicare Benefit Policy Manual, Pub. 100-02, Ch. 16, § 20.
15 Medicare Benefit Policy Manual, Pub. 100-02, Ch. 15, § 50.4.1.
17 32 C.F.R. § 199.4(g)(15)(i)(A).
19 32 C.F.R. § 199.4(g)(15)(i)(C).
20 See 32 C.F.R. § 199.2(b), definition of Reliable Evidence: “Specifically not included in the meaning of reliable evidence are reports, articles, or statements by providers or groups of providers containing any abstracts, anecdotal evidence or personal professional opinions. Also not included in the meaning of reliable evidence is the fact that a provider or a number of providers have elected to adopt a drug, device, or medical treatment or procedure as their personal treatment or procedure of choice or standard of practice.”
21 United States ex rel. Franklin v. Parke-Davis, 2003 U.S. Dist. LEXIS 15754, at *11-*12(D. Mass. Aug. 22, 2003).
22 See Remarks of Lew Morris, Chief Counsel to the Office of Inspector General of the U.S. Department of Health & Human Services, as reported in the article “Off-Label Drug Promotion Remains Key Concern for Federal Law Enforcers,” Health Care Report, Vol. 10, No. 23, Nov. 22, 2006
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