Kickbacks and Other Unlawful Financial Arrangements

A number of laws, including the anti-kickback laws, generally prohibit the payment of “kickbacks” – money or other financial incentives to doctors or hospitals in exchange for referrals or for the prescription of particular pharmaceuticals or supplies. The scope of these laws is broad. They prohibit not only the obvious, such as kickbacks and bribes, but also more subtle forms of kickbacks, such as economic arrangements that result in conflicting interests, including discount arrangements, incentives given to providers, payments for services, and the giving of gifts and other business courtesies.

Compliance with the anti-kickback laws is a precondition to participation in government-sponsored healthcare programs, such as Medicare and Medicaid. Thus, if a physician, hospital, or other healthcare provider seeks reimbursement for inpatient or outpatient services that were the result of kickbacks or other unlawful financial arrangements with drug manufacturers, the physician or healthcare provider is not entitled to reimbursement, and is subject to liability under the False Claims Act, along with the drug manufacturer.

Over the years, pharmaceutical companies have employed many unlawful schemes to make it financially profitable for doctors, hospitals and other healthcare providers to prescribe their drugs. For example, pharmaceutical companies have offered doctors “research” or “educational grants” that are monetary inducements to prescribe their drugs. Such money grants are nothing more than kickbacks from the drug manufacturer to the healthcare provider in return for writing prescriptions for the drug manufacturer’s products.

Drug companies have also encouraged or advised doctors, hospitals, and other healthcare providers to seek “reimbursement” from Medicare and Medicaid for free samples of drugs as a way for the doctors, hospitals, and healthcare providers to increase profits. Perhaps the most notorious case involving fraudulent drug pricing involved TAP Pharmaceutical Products Inc. In October 2001, TAP agreed to pay $875 million to resolve criminal and civil charges based on fraudulent drug pricing and marketing conduct. Among other things, TAP provided free samples of Lupron, its drug used to treat prostate cancer and infertility, to physicians who in turn sought Medicare reimbursement for administering the free sample. At least six physicians who received free samples of Lupron and billed the government for reimbursement were indicted, along with TAP employees, including three district managers.

Pharmaceutical companies also have been found to violate the False Claims Act by “marketing the spread” between an artificially high average wholesale price used by Medicare and others to determine reimbursement of the cost of the drug, and the deeply discounted prices paid by providers for the drug (“the discounted price”). The difference between the average wholesale price and the discounted price to physicians – known as the “spread” – is pure profit to the physician’s practice. The greater the spread, the more profit the hospital or physician makes, and the greater their incentive to buy drugs from that manufacturer. Marketing the spread violates the False Claims Act because the physician or hospital seeks reimbursement from Medicaid or Medicare at the falsely inflated price that the pharmaceutical company provided to the government.

Whistleblower cases involving this type of healthcare fraud include:

    (1) GlaxoSmithKline: On September 20, 2005, GlaxoSmithKline settled False Claims Act whistleblower allegations of marketing the spread for Zofran and Kytril, two anti-emitic drugs used to control nausea resulting from oncology and radiology treatments. The settlement totaled $50 million, of which $12.6 million was attributable to Medicare and TRICARE (the healthcare program serving uniformed service members and their families), and $4 million was attributable to Medicaid.
    (2) Roxane Laboratories: On November 5, 2005, Roxane settled allegations that it marketed the spread on albuterol drugs (asthma inhalants) by knowingly inflating the prices it reported to the Texas Vendor Drug program.
    (3) Baxter Healthcare Corporation: On June 9, 2006, Baxter settled allegations (for $10 million) that it marketed the spread on various intravenous fluids and injectables by knowingly reporting inflated prices for these products to the Texas Medicaid program.
    (4) Schering-Plough Corporation: Schering-Plough settled allegations (for $435 million) of marketing the spread for Claritin Reditabs, an antihistamine, and K-Dur, which is used in treating stomach conditions, by giving an HMO free Clariton Redi-tabs to disguise a lower price that it was offering to the HMO to induce the HMO to buy drugs from the company.

If you have knowledge that payments of money or other financial incentives were made to healthcare providers, such as doctors or hospitals, in exchange for referrals or for the prescription of particular pharmaceuticals or supplies, you may be able to bring a qui tam/whistleblower lawsuit under the False Claims Act or similar state laws. To discuss whether you have a whistleblower case, contact Michael S. Bigin or Laurence J. Hasson.