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Sales tactics, whistleblowers and qui tam lawsuits in the pharmaceutical industry

By Erika Kelton
Phillips & Cohen LLP
Washington, DC

With the help of whistleblowers and their "qui tam" lawsuits, the federal government is aggressively pursuing civil and criminal cases against drug companies and their employees for sales and marketing practices that violate federal laws. Many tactics that sales reps have relied on are no longer acceptable and could result in huge fines for their employers and criminal prosecution of sales reps. These illegal tactics include promoting off-label uses of drugs and providing financial inducements to doctors in return for prescribing the company's drugs.

The pharmaceutical industry is reeling from the crackdown. Pfizer/Warner-Lambert paid $430 million in May 2004 for engaging in a scheme to promote Neurontin for off-label uses. AstraZeneca Pharmaceuticals LP paid $355 million in June 2003 and pled guilty to giving doctors kickbacks by providing them with free samples of Zoladex, knowing the doctors would bill Medicare and Medicaid hundreds of dollars per sample. The record setter was TAP Pharmaceuticals Inc., which pleaded guilty to participating in a criminal conspiracy and paid $875 million to settle criminal and civil fraud charges. TAP provided doctors with free Lupron samples which the doctors billed to federal programs at the list price and then pocketed the payments. The drug company also offered doctors "grants" in exchange for prescribing Lupron.

Even doctors are being held accountable for violating the law. An Oregon doctor recently paid $213,000 to the federal government for improperly billing Medicare and other federal health programs for free samples of Lupron he had been given by TAP.

Sales reps' liability under the False Claims Act

Sales reps could be held liable under criminal laws and the False Claims Act for illegal sales tactics. A TAP sales rep and seven other account and sales managers were tried earlier this year in Boston on charges they had conspired to get doctors to prescribe Lupron by paying bribes and kickbacks to doctors, such as offering tickets to sporting events, dinners to fancy restaurants and free drug samples. Although they were acquitted, this doesn't mean that prosecutors won't pursue sales reps and executives in similar cases in the future.

Federal investigations continue around the country as more and more insiders step forward to reveal how drug companies are driving up sales illegally. Investigations into whistleblower allegations are conducted without informing the company or individuals involved. Whistleblower cases are filed "under seal," meaning they are not publicly available while the government is looking into the allegations.

Rewards for whistleblowers under the False Claims Act

The people who have exposed the illegal sales and marketing tactics have been insiders: sales executives, sales representatives, doctors and others with firsthand knowledge of ways drug companies persuade healthcare providers to prescribe certain drugs. These whistleblowers filed "qui tam" (generally pronounced KEY-TAM) lawsuits, which meant they sued drug companies to recover funds on the government's behalf.

Under the federal False Claims Act, a private individual may file a qui tam lawsuit against a company that is defrauding the federal government and collect a reward if any money is recovered as a result. ("Qui tam" comes from a Latin phrase meaning "he who brings an action for the king as well as for himself.") Liable companies may have to pay as much as three times the government's losses.

Congress included a financial incentive for whistleblowers in the False Claims Act to encourage them to step forward. If the government joins the qui tam lawsuit, the whistleblower - known as the "relator" - is entitled to 15 percent to 25 percent of the funds that are recovered. If the government declines to join, whistleblowers may pursue the cases on their own and if successful, get up to 30 percent of the recovery. In the Pfizer case, which the government joined, the whistleblower was awarded $26.6 million. Whistleblowers in the TAP settlement were awarded a total of $94 million.

A qui tam lawsuit is filed "under seal," which means that no one knows about it for a certain period other than the government. This gives the government time to investigate the allegations without letting the target of the investigation know. The False Claims Act gives the government 60 days to investigate before deciding whether to join the lawsuit. The seal can be extended and usually stands for at least a year.

The statute of limitations on False Claims Act violations is as long as 10 years in some cases. Under a "first to file" rule, if more than one case making similar allegations against the same company is filed, all but the first one filed will be dismissed and only that whistleblower would receive a reward. Whistleblowers may file qui tam lawsuits and receive a reward even if they participated in the fraud. Congress realized that the best information about fraud against the government comes from insiders. However, if the courts find the whistleblowers planned or initiated the fraud, then their reward may be reduced or eliminated.

Kickbacks, consulting agreements, misleading data, off-label marketing, seeding trials and other questionable pharmaceutical sales tactics

Sales reps are always under pressure to sell more to meet their quotas and collect bonuses. However, they should carefully review marketing practices that involve any sort of payment or inducement to doctors to make sure they are not crossing the line into criminal violations or civil fraud. These practices include:

Kickbacks: Offering doctors or others money or other benefits to induce them to change a current prescription to the sales rep's product is illegal if the drugs are reimbursable by federal health care programs.

In the TAP case, sales reps offered the medical director of an HMO "educational grants" totaling $65,000 that he could use of any purpose if he reversed his decision that the HMO would cover only Zoladex for prostrate cancer treatment rather than TAP's Lupron, which was more expensive than Zoladex.

Sales reps also should be aware that federal prosecutors might consider extraordinarily high expense accounts and incentive bonuses as possible proof that the drug manufacturer is motivating the sales forces to increase sales through lavish entertainment and other forms of kickbacks. Direct or indirect payments in any form that are made to get or reward the sale of pharmaceuticals to federal health care programs is illegal.

Concealed data: Pharmaceutical companies that conceal the adverse effects of their products run the risk of being prosecuted and sued. Even more egregious are instances where pharmaceutical companies market off-label uses that the U.S. Food and Drug Administration has specifically rejected or where clinical trials found negative effects from those off-label uses.

One of the more prominent cases involving concealed data is a fraud lawsuit brought by New York state Attorney General Eliot Spitzer against GlaxoSmithKline for promoting the off-label use of Paxil to treat children and adolescent for depression. The New York lawsuit says that three of five Glaxo trials found that certain possibly suicide-related behaviors were twice as likely among young Paxil users than others taking a placebo. The lawsuit says that Glaxo delayed submitting the test results to government regulators for years. Meanwhile, according to the lawsuit, the company told its sales reps that Paxil demonstrated "remarkable efficacy and safety" for treating adolescent depression.

Merck & Co. is the target of government investigations and hundreds of product liability lawsuits that allege the company knew about the health risks of Vioxx earlier than it has acknowledged. Merck pulled the arthritis drug from the market last year after a company-sponsored clinical test showed that Vioxx increased the risk of strokes and heart attacks in patients who took the drug more than 18 months.

Off-label marketing: Pharmaceutical companies cannot encourage doctors to prescribe a drug for patients with ailments that the drug hasn't been federally approved to treat. Pharma companies may be liable under the False Claims Act generally if their promotional practices or claims caused providers to submit reimbursement claims for off-label uses to Medicare and other federal health insurance programs. But FDA guidelines allow pharmaceutical companies and their sales representatives to provide information that is complete, accurate and not misleading, such as articles from peer-reviewed journals about off-label uses.

In the fraud case involving the epilepsy drug Neurontin, it was alleged that Parke-Davis promoted the use of Neurontin for patients with bipolar disorder, Lou Gehrig's disease, drug and alcohol withdrawal seizures and attention deficit disorder, and paid kickbacks to encourage the expansive use of the drug. Financial inducements led doctors to prescribe Neurontin to government-insured patients who otherwise wouldn't have received the drug, essentially defrauding the federal program. Pfizer, which acquired Warner-Lambert and its Parke-Davis division, paid $430 million to settle criminal charges and civil liabilities resulting from the qui tam case that exposed the practice

Free samples: Drug samples can benefit patients and sales reps may distribute them. However, sales reps may not encourage health care providers to bill Medicare or other federal programs for the samples the doctors give to patients as a backdoor way for the doctors to profit from the free drugs. Sales reps should inform their clients that samples can't be sold or billed and make sure the samples are clearly labeled with that information.

Consulting agreements: Paying doctors as "consultants" when they are expected simply to attend meetings or conferences raises questions about whether they are truly providing legitimate consulting services and might trigger the anti-kickback statute. Financial arrangements with health-care professionals to use their names for company-written papers and speeches also raise legal concerns. Any consulting agreements should be for actual business purposes and not a mechanism for promoting or marketing a drug.

Ghost-written articles:
As a way to encourage doctors to prescribe their products for off-label uses, pharmaceutical companies have paid specialists to put their names on articles written by company employees that promote off-label uses. These articles promote the off-label use of a drug - which pharmaceutical companies are prohibited from doing -- by skewing the medical judgment of those who might prescribe a drug for off-label use. Parke-Davis used this strategy to promote Neurontin.

Clinical studies: Manufacturers should develop procedures that clearly separate the awarding of research contracts from marketing or promotion of their products. Research initiated or directed by sales agents that is not used by the company's science team and is a pretense for promoting the company's product most certainly would violate the law.

Seeding trials: Pharmaceutical companies use these trials as marketing tools, paying doctors to prescribe certain drugs for off-label uses as part of a "clinical trial." Seeding trials are usually conducted post-marketing. To the extent information is collected, it typically is not for submission to the FDA or for publication. Seeding trials are intended primarily to encourage doctors to prescribe the drug more often.

Many pharmaceutical companies have adopted fraud and abuse compliance programs to prevent future violations of criminal and civil laws. However, the pressure to sell may make those guidelines difficult to follow. If an employee is concerned that an employer may be violating the law, the best step usually is to consult an expert lawyer in that field.

For more information about the False Claims Act and qui tam lawsuits, see


    Erika A. Kelton is a partner with Phillips & Cohen LLP, the nation's most successful law firm for whistleblowers in qui tam lawsuits brought under the False Claims Act. Whistleblower cases brought by Phillips & Cohen have returned more than $2 billion to the U.S. Treasury. The National Law Journal recently named Phillips & Cohen to its Hot List of the top 20 law firms in the country for plaintiffs' litigation.

One of the firm's cases was part of the $875 million settlement that TAP Pharmaceuticals paid to settle two whistleblower lawsuits and related criminal charges. Phillips & Cohen and several of its qui tam lawsuits figure prominently in a book published last year by Atlantic Monthly Press called, Giantkillers: the Team and the Law that Help Whistleblowers Recover America's Stolen Billions by Henry Scammell.

Ms. Kelton has substantial experience with qui tam cases involving many different types of fraud against the government, including fraud in the pharmaceutical, healthcare, telecommunications and computer industries. She is a frequent speaker at conferences on the False Claims Act and qui tam lawsuits and has published several articles on the subject.