Illegal Kickbacks from Pharmaceutical Companies and Device Makers

Pharmaceutical companies and device makers, among others, are prohibited from providing payments to medical providers in exchange for the use of their products. Despite this, many False Claims Act cases have demonstrated the prevalence of improper kickbacks within these industries as a means of driving sales for their products. And qui tam False Claims Act whistleblowers have played a central role in disclosing these practices.

In recent years, large companies like Pfizer, Johnson & Johnson, Abbott, and others have paid millions of dollars to resolve claims that include allegations of unlawful payments in exchange for use of their respective products.

Many such practices are in direct violation of the federal Anti-Kickback Statute and are also implicated as a tactic used in many off-label marketing campaigns by these industries. At the core of the federal prohibition on kickbacks is the general rule that one may not provide a material benefit to a medical provider in return for that provider prescribing or purchasing its products with respect to which payment is made under Medicare, Medicaid, or another federally funded health care program.

These companies rely upon a reserve of respected physicians in the relevant practice areas to promote and legitimize use of their products, in particular off-label use. In order to generate interest among physicians, the companies are incentivized to provide economic inducements to them.

Perhaps because a bag of cash is more difficult to explain to authorities, many companies develop any number of ways to influence prescribers or their medical organizations, employers, or hospitals, through other forms of remuneration. This can take the form of payments to particular prescribers for non-bona-fide services; discounts tied to prescribing patterns; free or reduced vacations with little to no substantive educational purpose for the trip; lavish meals or other forms of entertainment; and other gifts of various kinds.

Other, sometimes more elaborate and disguised methods of providing payment to those who use or prescribe a manufacturer’s product involve creating a relationship of some kind between a medical provider and, for example, a pharmaceutical company whose product is used by that particular physician and his or her area of specialty (whether or not the use is on label). These industries develop relationships with medical providers in part to identify “key opinion leaders” who can be used to speak on the company’s behalf in order to encourage other providers to follow suit.

These opinion leaders will often receive significant compensation, in particular when they are asked to push the envelope by promoting uses that have not been approved. Most physicians will listen more closely to a pitch from a fellow practitioner in their practice area than a pitch from a non-physician professional sales person. For that reason, these opinion leaders are highly sought after.

As part of the process of developing and nurturing these relationships, companies may provide improper sponsorships to conferences that involve expensive travel or provide payments to physicians who perform minimal work on company advisory boards (“ad boards,” as they are commonly known) but are compensated out of proportion to that work. Sometimes companies will provide “educational grants” to physicians without legitimate basis.

Other times, the relationships can involve use of physicians in joint ventures or research trials.

Because there are legitimate reasons for relationships to develop between manufacturers and professional practitioners, it is critical for whistleblowers to develop an understanding (with their counsel) as to what behavior runs afoul of anti-kickback laws and what behavior is permitted.

Though the Anti-Kickback Statute has been on the books since the 1970s, only in more recent times has it become an obvious and accepted basis upon which to substantiate a case under the False Claims Act. The statute has both a criminal and civil component and can be used by the government to prosecute offenders, and also by whistleblowers bringing actions under the qui tam provisions of the False Claims Act.

Courts have generally held that if one purpose of “any remuneration” to a medical provider is to induce referrals to the product of the entity providing the remuneration it is unlawful under the AKS. And though the Anti-Kickback Statute does not itself contain a qui tam provision allowing for its direct enforcement by private qui tam relators, the violation of that law is now well-accepted as a predicate violation for the False Claims Act. In fact, in 2010, as part of the Affordable Care Act, the AKS was amended to explicitly make plain that “a claim that includes items or services resulting from a violation of this section constitutes a false or fraudulent claim for purposes of [the False Claims Act.”

This is because when one violates the AKS, the underlying provision of medical services to the patient enrolled in a government health care program is receiving services tainted by that kickback violation. That taint renders the request for payment invalid and “false,” under the False Claims Act. This is true regardless of whether the actual service provided, say, the prescription for treatment of cholesterol or implantation of a stent used to prop open an artery, was safe and effective for treatment.

One area that remains highly contested in False Claims Act cases premised upon violations of the Anti-Kickback Statute is the question of damages. In circumstances where a patient received medical treatment that was safe and effective, the question arises how to measure damages to the government: which translates to recoveries from which qui tam whistleblowers are compensated. For example, if $10,000,000 in Medicare costs are attributed to prescriptions that were themselves the product of kickback violations, but the prescriptions were reasonable to treat the patients, what measure of damages is to be considered?

Because Medicare is not supposed to pay for medical costs resulting from violations of the Anti-Kickback Statute, the better argument is that (in the scenario above) all $10,000,000 of the cost should be returned to the government (in addition to the statutory fines and treble damages provisions of the False Claims Act). Defendant companies, however, argue that because benefits were provided to government health care program beneficiaries, the improper “windfall” to the government that would result from returning the entire cost of care means some other measure should be used.

Whistleblowers should bear in mind that the more egregious the conduct, the less likely defendants will succeed in making such arguments.