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Life Science Compliance


U.S. EDITION Volume 2.2 | February 2016

prohibition on such activities arises from the statute’s bans on introducing a new drug into interstate commerce and on misbranding. At the risk of oversimplification, a prescription drug is misbranded if a manufacturer’s promotional claims manifest an intent that the drug be employed in an unapproved use; in such situations, the drug’s label necessarily lacks the “adequate information for its use” as the regulation requires.2 The FDA, however, distinguishes between “promotion,” which is prohibited, and the dissemination of information concerning the drug, which is sometimes permitted.3 For example, a manufacturer may disseminate information related to an off-label use by submitting original research to peer-reviewed publications, or by distributing peer-reviewed medical journal articles directly to prescribers.

Through the Looking Glass - Exploring Transparency, False Claims Act, and Promotional Claims Charles Sullivan, Professor of Law, Seton Hall University School of Law This article discusses the new white paper issued by Seton Hall Law’s Center for Health & Pharmaceutical Law & Policy, analyzes the role of federal and state agencies, and their relationship with private “relators,” in direct and indirect enforcement of the Food and Drug Administration’s (FDA) off-label promotion rules.

A recent white paper issued by Seton Hall Law’s Center for Health & Pharmaceutical Law & Policy, analyzes the role of federal and state agencies, and their relationship with private “relators,” in the direct and indirect enforcement of the Food and Drug Administration’s (FDA) off-label promotion rules.1 The white paper describes from beginning to end how a qui tam case proceeds, warns that pharmaco-economic communication is the next frontier for enforcement, and makes suggestions for an enforcement regime more efficient and effective in achieving public health goals.

In addition to setting the ground rules for conduct in this area, the FDA engages in what might be called direct enforcement. Misbranding can be either a felony or a misdemeanor, depending on the manufacturer’s intent to defraud or mislead. Direct enforcement, then, includes the FDA seeking to initiate criminal prosecution, although the agency also has other civil remedies it may employ. But the significance of such direct enforcement by FDA pales when compared to enforcement through the False Claims Act. In recent years, billion dollar settlements against pharmaceutical companies accused of promoting their products for unapproved “off-label” uses have been commonplace. For example, in 2009, Eli Lilly settled with the government for $1.415 billion4 and Pfizer settled for $2.3 billion.5

The FDA is, of course, the source of what is called the ban on off-label promotion and has the power to seek to enforce its rules. While the words “off-label promotion” do not appear in the Food, Drug, and Cosmetic Act or in its implementing regulations, a

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Reprinted from Life Science Compliance Update U.S. Edition

Volume 2.2 | February 2016

In 2012, GlaxoSmithKline entered into the largest healthcare settlement ever, for $3 billion;6 and in 2013, the government settled with Johnson & Johnson for $2.2 billion.7

current or former employee) filing a “qui tam” action on the government’s behalf. The plaintiff —termed a “relator” – must also file written disclosure of substantially all material evidence in the case with the federal government, which then has sixty days to review the complaint before unsealing it and serving it on the defendant. The government may then choose to pursue the litigation in its own name (with the relator usually continuing as a more-or-less nominal party) or dismiss it. More typically, however, the government does neither and the plaintiff must decide whether to continue to litigate on the government’s behalf. Successful relators must also satisfy a series of conditions to their involvement, for example, being an “original source” of the information. The driver of this somewhat odd structure is the bounty that a successful relator receives – up to thirty percent of the total recovery if the relator proceeds herself and between fifteen percent and twenty-five percent if the government takes over the litigation.

While such settlements are ultimately predicated on the manufacturer’s violation of FDA rules concerning the promotion of approved drugs for unapproved uses, enforcement through the False Claims Act is based on a variety of legal theories which, in sum, view government payments by federal healthcare programs including Medicare and Medicaid for such off-label uses as a species of fraud on the public fisc. And the False Claims Act, a statute whose origins reach back to the Civil War, has a draconian remedial structure – treble damages coupled with substantial penalties for each violation. But False Claims Act enforcement of FDA off-label rules is complicated by two considerations. The first is that the FDA bars only off-label promotion, not prescribing for off-label use. In fact, prescribing for off-label uses is common, often permissible, and not infrequently the standard of care. Where a manufacturer’s promotion results in the federal government paying for a drug that is the standard of care, especially if it is approved for reimbursement by at least some government payers, it is hard to see how the government is injured, and such injury is the gravamen of a False Claims Act suit. Thus, the question in many such suits is not merely whether there has been off-label promotion but rather whether drug costs are reimbursable – although it is possible that a claim may exist even for reimbursable drugs where the manufacturer’s promotion was not only off-label but also false and misleading.

The term “government” in this thumbnail description covers a multitude of agencies that have some involvement in the action. As an initial matter, both the Department of Justice (Main Justice) and the United States Attorney in the relevant judicial district must coordinate the decision whether to intervene or dismiss the action, and other U.S. Attorneys may be drawn into the decision-making if there is related litigation in multiple jurisdictions. Secondly, since a False Claims Act case predicated on off-label promotion is a violation of FDA regulations, the FDA may be consulted. Third, since the False Claims Act focuses on fraudulent payments from the federal fisc, agencies responsible for reimbursement of claims for such drugs may be involved. Most obviously, this includes the Department of Health and Human Service’s Centers for Medicare and Medicaid Services; but the Department of Defense, the Veterans Administration, and the Bureau of Prisons also provide their constituencies with medications and, therefore, may have a role. Finally, state Medicaid Fraud Control Units also typically are involved in the investigation, litigation, and settlement of False Claims Act cases.

Secondly, the False Claims Act has an incredibly complicated enforcement mechanism, which (in the context of off-label promotion) can implicate a wide swath of federal and state agencies as well as private parties, called “relators.” A typical case involves a private party (often a manufacturer’s

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Reprinted from Life Science Compliance Update U.S. Edition

Volume 2.2 | February 2016

Overarching the already formidable remedies provided by the False Claims Act is the possibility that a manufacturer found to have defrauded the government can be excluded from participation in federal health care programs including Medicare and Medicaid. HHS Office of the Inspector General is also often involved in investigating and settling off-label promotion False Claims Act cases, and it has the authority under the Social Security Act to exclude manufacturers. Exclusion may follow from a conviction of criminal fraud but is also permissible for violations of the False Claims Act.

be added to claims for reimbursement under Medicare Part D and Medicaid, as it is for claims under Medicare Part B. Such a reform would enhance the ability of federal and state regulators and health insurance plans to use standard utilization management tools such as prior authorization to reduce medically unjustified prescribing and, a fortiori, false claims. It would also yield benefits in providing additional information about the use and effectiveness of medications. Further, the white paper recommends establishing clearer and more explicit rules on promotion, whether though the FDA or Congress. The mechanisms could include issuing guidance documents, developing safe harbors, or implementing an advisory opinion process. The need for clear rules of the road governing pharmaco-economic communications is particularly pressing.

Given the number of agencies involved and the range of sanctions available, it is not surprising that defense counsel will typically seek a global settlement of all of the matters the government has pending against the defendant, which may implicate not just the government agency prosecuting a False Claims Act suit (Main Justice and/or a United States Attorney) but also the HHS OIG. Nor, given the stakes involved, is it so surprising that billion dollar resolutions of offlabel promotion suits have come in settlements rather than a court decision. Although some argue that the “nuclear option” of exclusion is too blunt a weapon for the government to ever employ with regard to a major pharmaceutical company, risk-averse defendants seem to find large payments and intrusive monitoring through Corporate Integrity Agreements preferable to that risk.

A third recommendation is to enhance the transparency of the enforcement process. Aimed at the Department of Justice and United States Attorneys, the white paper recommends a wide range of reforms in government transparency. First, the Department of Justice should dismiss more claims – those that are without merit or do not advance public health goals. As to the calculation of proposed recoveries, it is not clear whether the government’s starting point is the number of patients prescribed the drug who were federal healthcare beneficiaries multiplied by the percentage of prescriptions that were for off-label uses. Nor is it clear how the government determines the percentage of prescribing that was off-label, or the percentage of off-label prescribing that constituted a false claim, or the percentage of false claims caused by the manufacturer’s off-label promotion. In addition, it is often unclear whether the uses in question are reimbursable by the relevant government programs or whether that is a factor in settlement negotiations. The enforcement regime would be further improved if the government made clearer the criteria it employs in determining whether a company has an “effective” compliance and ethics program, which is a factor in these settlement negotiations.

In short, enforcement of off-label promotion rules can be complicated both legally and procedurally, and A Call for Increased Transparency attempts both to sort out the complications of the present enforcement scheme and suggest improvements. Built not only around a thorough review of the case precedents and academic literature but also on interviews and consultations with players in all segments of the enforcement space, the Seton Hall Law white paper makes a number of important recommendations. These include proposals to reduce the number of false claims filed by requiring that diagnosis information

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Reprinted from Life Science Compliance Update U.S. Edition

Volume 2.2 | February 2016

In sum, when an off-label promotion case is resolved, the government should provide information about its reasoning in negotiating and arriving at the settlement amount. This could include an explanation of the damages model used and the calculations performed. This would dispel the sense that the settlement amounts are arbitrary; it would also provide companies with helpful guidance.

Copyright © 2016, Life Science Compliance Update This publication may not be reproduced in any form without express consent of the publisher. Reprints of this publication can be obtained by contacting:

1 See Kathleen M. Boozing, Charles A. Sullivan, Kate Greenwood, The False Claims Act and the Policing of Promotional Claims About Drugs: A Call For Increased Transparency, available at 2 See 21 U.S.C. §§ 331(a), 352(a). 3 See 21 U.S.C. § 396 4 See Department of Justice, Eli Lilly and Company Agrees to Pay $1.415 Billion to Resolve Allegations of Off-Label Promotion of Zyprexa, available at pr/2009/January/09-civ-038.html 5 See Department of Justice, Justice Department Announces Largest Healthcare Fraud Settlement in Its History, available at 6 See Department of Justice, GlaxoSmithKline to Plead Guilty and Pay $3 Billion to Resolve Fraud Allegations and Failure to Report Safety Data, available at pr/glaxosmithkline-plead-guilty-and-pay-3-billion-resolvefraud-allegations-and-failure-report 7 See Department of Justice, Johnson & Johnson to Pay More Than $2.2 Billion to Resolve Criminal and Civil Investigations, available at

Life Science Compliance Update


Center for Health & Pharmaceutical Law & Policy |


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Through the Looking Glass - Exploring Transparency, False Claims Act, and Promotional Claims  

A recent white paper issued by Seton Hall Law’s Center for Health & Pharmaceutical Law & Policy, analyzes the role of federal and state agen...

Through the Looking Glass - Exploring Transparency, False Claims Act, and Promotional Claims  

A recent white paper issued by Seton Hall Law’s Center for Health & Pharmaceutical Law & Policy, analyzes the role of federal and state agen...