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WASHINGTON - Global health care giant Johnson & Johnson (J&J) and its subsidiaries will pay more than $2.2 billion to resolve criminal and civil liability arising from allegations relating to the prescription drugs Risperdal, Invega and Natrecor, including promotion for uses not approved as safe and effective by the Food and Drug Administration (FDA) and payment of kickbacks to physicians and to the nation’s largest long-term care pharmacy provider. The global resolution is one of the largest health care fraud settlements in U.S. history, including criminal fines and forfeiture totaling $485 million and civil settlements with the federal government and states totaling $1.72 billion.
“The conduct at issue in this case jeopardized the health and safety of patients and damaged the public trust,” said Attorney General Eric Holder. “This multibillion-dollar resolution demonstrates the Justice Department’s firm commitment to preventing and combating all forms of health care fraud. And it proves our determination to hold accountable any corporation that breaks the law and enriches its bottom line at the expense of the American people.”
The resolution includes criminal fines and forfeiture for violations of the law and civil settlements based on the False Claims Act arising out of multiple investigations of the company and its subsidiaries.
“When companies put profit over patients’ health and misuse taxpayer dollars, we demand accountability,” said Associate Attorney General Tony West. “In addition to significant monetary sanctions, we will ensure that non-monetary measures are in place to facilitate change in corporate behavior and help ensure the playing field is level for all market participants.”
In addition to imposing substantial monetary sanctions, the resolution will subject J&J to stringent requirements under a Corporate Integrity Agreement (CIA) with the Department of Health and Human Services Office of Inspector General (HHS-OIG). This agreement is designed to increase accountability and transparency and prevent future fraud and abuse.
“As patients and consumers, we have a right to rely upon the claims drug companies make about their products,” said Assistant Attorney General for the Justice Department’s Civil Division Stuart F. Delery. “And, as taxpayers, we have a right to ensure that federal health care dollars are spent appropriately. That is why this Administration has continued to pursue aggressively – with all of our available law enforcement tools -- those companies that corrupt our health care system.”
J&J Subsidiary Janssen Pleads Guilty to Misbranding Antipsychotic Drug
In a criminal information filed today in the Eastern District of Pennsylvania, the government charged that, from March 3, 2002, through Dec. 31, 2003, Janssen Pharmaceuticals Inc., a J&J subsidiary, introduced the antipsychotic drug Risperdal into interstate commerce for an unapproved use, rendering the product misbranded. For most of this time period, Risperdal was approved only to treat schizophrenia. The information alleges that Janssen’s sales representatives promoted Risperdal to physicians and other prescribers who treated elderly dementia patients by urging the prescribers to use Risperdal to treat symptoms such as anxiety, agitation, depression, hostility and confusion. The information alleges that the company created written sales aids for use by Janssen’s ElderCare sales force that emphasized symptoms and minimized any mention of the FDA-approved use, treatment of schizophrenia. The company also provided incentives for off-label promotion and intended use by basing sales representatives’ bonuses on total sales of Risperdal in their sales areas, not just sales for FDA-approved uses.
In a plea agreement resolving these charges, Janssen admitted that it promoted Risperdal to health care providers for treatment of psychotic symptoms and associated behavioral disturbances exhibited by elderly, non-schizophrenic dementia patients. Under the terms of the plea agreement, Janssen will pay a total of $400 million, including a criminal fine of $334 million and forfeiture of $66 million. Janssen’s guilty plea will not be final until accepted by the U.S. District Court.
The Federal Food, Drug, and Cosmetic Act (FDCA) protects the health and safety of the public by ensuring, among other things, that drugs intended for use in humans are safe and effective for their intended uses and that the labeling of such drugs bear true, complete and accurate information. Under the FDCA, a pharmaceutical company must specify the intended uses of a drug in its new drug application to the FDA. Before approval, the FDA must determine that the drug is safe and effective for those specified uses. Once the drug is approved, if the company intends a different use and then introduces the drug into interstate commerce for that new, unapproved use, the drug becomes misbranded. The unapproved use is also known as an “off-label” use because it is not included in the drug’s FDA-approved labeling.
“When pharmaceutical companies interfere with the FDA’s mission of ensuring that drugs are safe and effective for the American public, they undermine the doctor-patient relationship and put the health and safety of patients at risk,” said Director of the FDA’s Office of Criminal Investigations John Roth. “Today’s settlement demonstrates the government’s continued focus on pharmaceutical companies that put profits ahead of the public’s health. The FDA will continue to devote resources to criminal investigations targeting pharmaceutical companies that disregard the drug approval process and recklessly promote drugs for uses that have not been proven to be safe and effective.”
J&J and Janssen Settle Civil Allegations of Targeting Vulnerable Patients with the Drugs Risperdal and Invega for Off-Label Uses
In a related civil complaint filed today in the Eastern District of Pennsylvania, the United States alleges that Janssen marketed Risperdal to control the behaviors and conduct of the nation’s most vulnerable patients: elderly nursing home residents, children and individuals with mental disabilities. The government alleges that J&J and Janssen caused false claims to be submitted to federal health care programs by promoting Risperdal for off-label uses that federal health care programs did not cover, making false and misleading statements about the safety and efficacy of Risperdal and paying kickbacks to physicians to prescribe Risperdal.
“J&J’s promotion of Risperdal for unapproved uses threatened the most vulnerable populations of our society – children, the elderly and those with developmental disabilities,” said U.S. Attorney for the Eastern District of Pennsylvania Zane Memeger. “This historic settlement sends the message that drug manufacturers who place profits over patient care will face severe criminal and civil penalties.”
In its complaint, the government alleges that the FDA repeatedly advised Janssen that marketing Risperdal as safe and effective for the elderly would be “misleading.” The FDA cautioned Janssen that behavioral disturbances in elderly dementia patients were not necessarily manifestations of psychotic disorders and might even be “appropriate responses to the deplorable conditions under which some demented patients are housed, thus raising an ethical question regarding the use of an antipsychotic medication for inappropriate behavioral control.”
The complaint further alleges that J&J and Janssen were aware that Risperdal posed serious health risks for the elderly, including an increased risk of strokes, but that the companies downplayed these risks. For example, when a J&J study of Risperdal showed a significant risk of strokes and other adverse events in elderly dementia patients, the complaint alleges that Janssen combined the study data with other studies to make it appear that there was a lower overall risk of adverse events. A year after J&J had received the results of a second study confirming the increased safety risk for elderly patients taking Risperdal, but had not published the data, one physician who worked on the study cautioned Janssen that “[a]t this point, so long after [the study] has been completed … we must be concerned that this gives the strong appearance that Janssen is purposely withholding the findings.”
The complaint also alleges that Janssen knew that patients taking Risperdal had an increased risk of developing diabetes, but nonetheless promoted Risperdal as “uncompromised by safety concerns (does not cause diabetes).” When Janssen received the initial results of studies indicating that Risperdal posed the same diabetes risk as other antipsychotics, the complaint alleges that the company retained outside consultants to re-analyze the study results and ultimately published articles stating that Risperdal was actually associated with a lower risk of developing diabetes.
The complaint alleges that, despite the FDA warnings and increased health risks, from 1999 through 2005, Janssen aggressively marketed Risperdal to control behavioral disturbances in dementia patients through an “ElderCare sales force” designed to target nursing homes and doctors who treated the elderly. In business plans, Janssen’s goal was to “[m]aximize and grow RISPERDAL’s market leadership in geriatrics and long term care.” The company touted Risperdal as having “proven efficacy” and “an excellent safety and tolerability profile” in geriatric patients.
In addition to promoting Risperdal for elderly dementia patients, from 1999 through 2005, Janssen allegedly promoted the antipsychotic drug for use in children and individuals with mental disabilities. The complaint alleges that J&J and Janssen knew that Risperdal posed certain health risks to children, including the risk of elevated levels of prolactin, a hormone that can stimulate breast development and milk production. Nonetheless, one of Janssen’s Key Base Business Goals was to grow and protect the drug’s market share with child/adolescent patients. Janssen instructed its sales representatives to call on child psychiatrists, as well as mental health facilities that primarily treated children, and to market Risperdal as safe and effective for symptoms of various childhood disorders, such as attention deficit hyperactivity disorder, oppositional defiant disorder, obsessive-compulsive disorder and autism. Until late 2006, Risperdal was not approved for use in children for any purpose, and the FDA repeatedly warned the company against promoting it for use in children.
The government’s complaint also contains allegations that Janssen paid speaker fees to doctors to influence them to write prescriptions for Risperdal. Sales representatives allegedly told these doctors that if they wanted to receive payments for speaking, they needed to increase their Risperdal prescriptions.
In addition to allegations relating to Risperdal, today’s settlement also resolves allegations relating to Invega, a newer antipsychotic drug also sold by Janssen. Although Invega was approved only for the treatment of schizophrenia and schizoaffective disorder, the government alleges that, from 2006 through 2009, J&J and Janssen marketed the drug for off-label indications and made false and misleading statements about its safety and efficacy.
As part of the global resolution, J&J and Janssen have agreed to pay a total of $1.391 billion to resolve the false claims allegedly resulting from their off-label marketing and kickbacks for Risperdal and Invega. This total includes $1.273 billion to be paid as part of the resolution announced today, as well as $118 million that J&J and Janssen paid to the state of Texas in March 2012 to resolve similar allegations relating to Risperdal. Because Medicaid is a joint federal-state program, J&J’s conduct caused losses to both the federal and state governments. The additional payment made by J&J as part of today’s settlement will be shared between the federal and state governments, with the federal government recovering $749 million, and the states recovering $524 million. The federal government and Texas each received $59 million from the Texas settlement.
Kickbacks to Nursing Home Pharmacies
The civil settlement also resolves allegations that, in furtherance of their efforts to target elderly dementia patients in nursing homes, J&J and Janssen paid kickbacks to Omnicare Inc., the nation’s largest pharmacy specializing in dispensing drugs to nursing home patients. In a complaint filed in the District of Massachusetts in January 2010, the United States alleged that J&J paid millions of dollars in kickbacks to Omnicare under the guise of market share rebate payments, data-purchase agreements, “grants” and “educational funding.” These kickbacks were intended to induce Omnicare and its hundreds of consultant pharmacists to engage in “active intervention programs” to promote the use of Risperdal and other J&J drugs in nursing homes. Omnicare’s consultant pharmacists regularly reviewed nursing home patients’ medical charts and made recommendations to physicians on what drugs should be prescribed for those patients. Although consultant pharmacists purported to provide “independent” recommendations based on their clinical judgment, J&J viewed the pharmacists as an “extension of [J&J’s] sales force.”
J&J and Janssen have agreed to pay $149 million to resolve the government’s contention that these kickbacks caused Omnicare to submit false claims to federal health care programs. The federal share of this settlement is $132 million, and the five participating states’ total share is $17 million. In 2009, Omnicare paid $98 million to resolve its civil liability for claims that it accepted kickbacks from J&J and Janssen, along with certain other conduct.
“Consultant pharmacists can play an important role in protecting nursing home residents from the use of antipsychotic drugs as chemical restraints,” said U.S. Attorney for the District of Massachusetts Carmen Ortiz. “This settlement is a reminder that the recommendations of consultant pharmacists should be based on their independent clinical judgment and should not be the product of money paid by drug companies.”
Off-Label Promotion of the Heart Failure Drug Natrecor
The civil settlement announced today also resolves allegations that J&J and another of its subsidiaries, Scios Inc., caused false and fraudulent claims to be submitted to federal health care programs for the heart failure drug Natrecor. In August 2001, the FDA approved Natrecor to treat patients with acutely decompensated congestive heart failure who have shortness of breath at rest or with minimal activity. This approval was based on a study involving hospitalized patients experiencing severe heart failure who received infusions of Natrecor over an average 36-hour period.
In a civil complaint filed in 2009 in the Northern District of California, the government alleged that, shortly after Natrecor was approved, Scios launched an aggressive campaign to market the drug for scheduled, serial outpatient infusions for patients with less severe heart failure – a use not included in the FDA-approved label and not covered by federal health care programs. These infusions generally involved visits to an outpatient clinic or doctor’s office for four- to six-hour infusions one or two times per week for several weeks or months.
The government’s complaint alleged that Scios had no sound scientific evidence supporting the medical necessity of these outpatient infusions and misleadingly used a small pilot study to encourage the serial outpatient use of the drug. Among other things, Scios sponsored an extensive speaker program through which doctors were paid to tout the purported benefits of serial outpatient use of Natrecor. Scios also urged doctors and hospitals to set up outpatient clinics specifically to administer the serial outpatient infusions, in some cases providing funds to defray the costs of setting up the clinics, and supplied providers with extensive resources and support for billing Medicare for the outpatient infusions.
As part of today’s resolution, J&J and Scios have agreed to pay the federal government $184 million to resolve their civil liability for the alleged false claims to federal health care programs resulting from their off-label marketing of Natrecor. In October 2011, Scios pleaded guilty to a misdemeanor FDCA violation and paid a criminal fine of $85 million for introducing Natrecor into interstate commerce for an off-label use.
“This case is an example of a drug company encouraging doctors to use a drug in a way that was unsupported by valid scientific evidence,” said First Assistant U.S. Attorney for the Northern District of California Brian Stretch. “We are committed to ensuring that federal health care programs do not pay for such inappropriate uses, and that pharmaceutical companies market their drugs only for uses that have been proven safe and effective.”
Non-Monetary Provisions of the Global Resolution and Corporate Integrity Agreement
In addition to the criminal and civil resolutions, J&J has executed a five-year Corporate Integrity Agreement (CIA) with the Department of Health and Human Services Office of Inspector General (HHS-OIG). The CIA includes provisions requiring J&J to implement major changes to the way its pharmaceutical affiliates do business. Among other things, the CIA requires J&J to change its executive compensation program to permit the company to recoup annual bonuses and other long-term incentives from covered executives if they, or their subordinates, engage in significant misconduct. J&J may recoup monies from executives who are current employees and from those who have left the company. The CIA also requires J&J’s pharmaceutical businesses to implement and maintain transparency regarding their research practices, publication policies and payments to physicians. On an annual basis, management employees, including senior executives and certain members of J&J’s independent board of directors, must certify compliance with provisions of the CIA. J&J must submit detailed annual reports to HHS-OIG about its compliance program and its business operations.
“OIG will work aggressively with our law enforcement partners to hold companies accountable for marketing and promotion that violate laws intended to protect the public,” said Inspector General of the U.S. Department of Health and Human Services Daniel R. Levinson. "Our compliance agreement with Johnson & Johnson increases individual accountability for board members, sales representatives, company executives and management. The agreement also contains strong monitoring and reporting provisions to help ensure that the public is protected from future unlawful and potentially harmful off-label marketing."
Coordinated Investigative Effort Spans Federal and State Law Enforcement
This resolution marks the culmination of an extensive, coordinated investigation by federal and state law enforcement partners that is the hallmark of the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which fosters government collaborations to fight fraud. Announced in May 2009 by Attorney General Eric Holder and Health and Human Services Secretary Kathleen Sebelius, the HEAT initiative has focused efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation.
The criminal cases against Janssen and Scios were handled by the U.S. Attorney’s Offices for the Eastern District of Pennsylvania and the Northern District of California and the Civil Division’s Consumer Protection Branch. The civil settlements were handled by the U.S. Attorney’s Offices for the Eastern District of Pennsylvania, the Northern District of California and the District of Massachusetts and the Civil Division’s Commercial Litigation Branch. Assistance was provided by the HHS Office of Counsel to the Inspector General, Office of the General Counsel-CMS Division, the FDA’s Office of Chief Counsel and the National Association of Medicaid Fraud Control Units.
This matter was investigated by HHS-OIG, the Department of Defense’s Defense Criminal Investigative Service, the FDA’s Office of Criminal Investigations, the Office of Personnel Management’s Office of Inspector General, the Department of Veterans Affairs, the Department of Labor, TRICARE Program Integrity, the U.S. Postal Inspection Service’s Office of the Inspector General and the FBI.
One of the most powerful tools in the fight against Medicare and Medicaid financial fraud is the False Claims Act. Since January 2009, the Justice Department has recovered a total of more than $16.7 billion through False Claims Act cases, with more than $11.9 billion of that amount recovered in cases involving fraud against federal health care programs.
The department enforces the FDCA by prosecuting those who illegally distribute unapproved, misbranded and adulterated drugs and medical devices in violation of the Act. Since 2009, fines, penalties and forfeitures that have been imposed in connection with such FDCA violations have totaled more than $6 billion.
The civil settlements described above resolve multiple lawsuits filed under the qui tam, or whistleblower, provisions of the False Claims Act, which allow private citizens to bring civil actions on behalf of the government and to share in any recovery. From the federal government’s share of the civil settlements announced today, the whistleblowers in the Eastern District of Pennsylvania will receive $112 million, the whistleblowers in the District of Massachusetts will receive $27.7 million and the whistleblower in the Northern District of California will receive $28 million. Except to the extent that J&J subsidiaries have pleaded guilty or agreed to plead guilty to the criminal charges discussed above, the claims settled by the civil settlements are allegations only, and there has been no determination of liability.
Court documents related to today’s settlement can be viewed online at www.justice.gov/opa/jj-pc-docs.html.
NOTE: The 2018 False Claims Act statistics can be found here.
The Department of Justice obtained more than $2.8 billion in settlements and judgments from civil cases involving fraud and false claims against the government in the fiscal year ending Sept. 30, 2018, Principal Deputy Associate Attorney General Jesse Panuccio and Assistant Attorney General Jody Hunt of the Department of Justice’s Civil Division announced today. Recoveries since 1986, when Congress substantially strengthened the civil False Claims Act, now total more than $59 billion.
“Every year, the submission of false claims to the government cheats the American taxpayer out of billions of dollars,” said Principal Deputy Associate Attorney General Panuccio. “In some cases, unscrupulous actors undermine federal healthcare programs or circumvent safeguards meant to protect the public health. In other instances, deceitful contractors overcharge our military or sell faulty equipment to our law enforcement agencies. Such fraud will not be tolerated by the Department of Justice. The nearly three billion dollars recovered by the Civil Division represents the Department’s continued commitment to fighting fraudsters and cheats on behalf of the American taxpayer.”
“The False Claims Act was originally passed in response to rampant fraud perpetrated against the United States military during the Civil War. Back then, crooked contractors defrauded the Union Army by selling it sick mules, lame horses, sawdust instead of gunpowder, and rotted ships with fresh paint. Unfortunately, what we see today is just a modern version of the same thing — deceptive and fraudulent practices directed at the U.S. government and the American taxpayer,” said Assistant Attorney General Jody Hunt. “The Department of Justice has placed a high priority on rooting out and pursuing those who cheat government programs for their own gain. The recoveries announced today are a message that fraud and dishonesty will not be tolerated.”
Of the $2.8 billion in settlements and judgments recovered by the Department of Justice this past fiscal year, $2.5 billion involved the health care industry, including drug and medical device manufacturers, managed care providers, hospitals, pharmacies, hospice organizations, laboratories, and physicians. This is the ninth consecutive year that the Department’s civil health care fraud settlements and judgments have exceeded $2 billion. The recoveries included in the $2.5 billion reflect only federal losses but, in many of these cases, the Department was instrumental in recovering additional millions of dollars for state Medicaid programs.
In addition to combatting health care fraud, the False Claims Act serves as the government’s primary civil remedy to redress false claims for federal funds and property involving a multitude of government operations and contracts. These areas range from defense and national security to import tariffs and small business programs.
In 1986, Congress strengthened the Act by increasing incentives for whistleblowers to file lawsuits alleging false claims on behalf of the government. These whistleblower, or qui tam, actions comprise a significant percentage of the False Claims Act cases that are filed. If the government prevails in a qui tamaction, the whistleblower, also known as the relator, receives up to 30 percent of the recovery. Whistleblowers filed 645 qui tam suits in fiscal year 2018, and this past year the Department recovered over $2.1 billion in these and earlier filed suits.
Health Care Fraud
The Department investigates and resolves matters involving a wide array of health care providers, goods, and services. The Department’s health care fraud enforcement efforts recover money for federal programs that fund health care for our nation’s most vulnerable and deserving citizens, such as Medicare, Medicaid, and TRICARE. But just as important, the Department’s vigorous pursuit of health care fraud prevents billions more in losses by deterring those who might otherwise try to cheat the system for their own gain.
The largest recoveries involving the health care industry this past year came from the drug and medical device industry. In one matter, AmerisourceBergen Corporation and certain of its subsidiaries paid $625 million to resolve allegations that they sought to circumvent important safeguards intended to preserve the integrity of the nation’s drug supply and profit from the repackaging of certain drugs supplied to cancer-stricken patients. Of that amount, $581.8 million was paid to the federal government and $43.2 million was paid to state Medicaid programs. https://www.justice.gov/opa/pr/amerisourcebergen-corporation-agrees-pay-625-million-resolve-allegations-it-illegally. In another matter, the medical device manufacturer Alere paid $33.2 million to resolve allegations that it sold a materially unreliable testing device that was intended to aid clinicians in the diagnosis of drug overdoses, acute coronary syndrome and other serious conditions. Of the $33.2 million paid by Alere, $28.4 million was returned to the federal government and $4.8 million was returned to state Medicaid programs. https://www.justice.gov/opa/pr/alere-pay-us-332-million-settle-false-claims-act-allegations-relating-unreliable-diagnostic.
The Department has investigated efforts by drug manufacturers to facilitate increases in drug prices by funding the co-payments of Medicare patients. Congress included co-pay requirements in the Medicare program, in part, to serve as a check on health care costs, including the prices that pharmaceutical manufacturers can demand for their drugs. This year, pharmaceutical company United Therapeutics Corporation, a seller of pulmonary arterial hypertension (PAH) drugs, paid $210 million to resolve allegations that it used a foundation as an illegal conduit to pay the co-pay obligations of thousands of Medicare patients taking its PAH drugs. https://www.justice.gov/usao-ma/pr/united-therapeutics-agrees-pay-210-million-resolve-allegations-it-paid-kickbacks-through. In addition, the drug manufacturer Pfizer paid approximately $23.85 million to resolve claims that it used a foundation as a conduit to pay the co-pays of Medicare patients taking Pfizer drugs. The government alleged that Pfizer raised the price of one of those drugs by 40 percent in just three months. https://www.justice.gov/opa/pr/drug-maker-pfizer-agrees-pay-2385-million-resolve-false-claims-act-liability-paying-kickbacks.
The Department also reported substantial recoveries from other health care providers. In a matter that came to light in part by a voluntary disclosure by the company to the Department, HealthCare Partners Holdings LLC (HCP), doing business as DaVita Medical Holdings LLC, paid $270 million to resolve its liability for providing inaccurate information that caused Medicare Advantage Organizations (MAOs) to receive inflated Medicare payments. DaVita acquired HCP, a large California-based independent physician association, in 2012 and disclosed to the government various improper practices that were instituted by HCP. In addition, this settlement resolved whistleblower allegations that HCP engaged in “one-way” chart reviews in which it scoured its patients’ medical records to find additional diagnoses that enabled managed care plans to obtain added revenue from the Medicare program. At the same time, however, it ignored inaccurate diagnosis codes revealed by its reviews that, if deleted, would have decreased Medicare reimbursement or required the plans to repay money to Medicare. https://www.justice.gov/opa/pr/medicare-advantage-provider-pay-270-million-settle-false-claims-act-liabilities. In 2017, the Department filed suit against UnitedHealth Group Inc. (UHG) alleging similar allegations that UHG knowingly obtained inflated risk adjustment payments based on untruthful and inaccurate information about the health status of beneficiaries enrolled in UHG’s Medicare Advantage Plans throughout the United States. https://www.justice.gov/opa/pr/united-states-intervenes-second-false-claims-act-lawsuit-alleging-unitedhealth-group-inc. That litigation is ongoing.
In a matter that concluded in both a civil recovery and criminal plea, the former hospital chain Health Management Associates (HMA) paid over $216 million to resolve civil allegations that it billed government health care programs for more-costly inpatient services that should have been billed as observation or out-patient services, paid illegal remuneration to physicians in return for patient referrals to HMA hospitals, and inflated claims for emergency department facility fees. In addition to these civil recoveries, HMA’s subsidiary, Carlisle HMA Inc., pleaded guilty to one count of conspiracy to commit health care fraud arising from illegal conduct designed to aggressively increase admissions to the hospital and paid a $35 million monetary penalty. https://www.justice.gov/opa/pr/hospital-chain-will-pay-over-260-million-resolve-false-billing-and-kickback-allegations-one. In another matter, William Beaumont Hospital, a regional hospital system based in the Detroit, Michigan area, paid $84.5 million to resolve allegations of improper relationships with eight referring physicians intended to induce patient referrals. https://www.justice.gov/opa/pr/detroit-area-hospital-system-pay-845-million-settle-false-claims-act-allegations-arising.
As some of the matters described illustrate, the Department continued to place great importance on enforcing the safeguards contained within the Anti-Kickback Statute (AKS). This law was enacted to ensure that clinical decisions and medical services are provided to patients based on their medical needs and not on the improper financial considerations of providers. Congress has made clear that claims submitted to federal health care programs in violation of the AKS are “false” claims for purposes of the False Claims Act.
In the past year, the Department also pursued a variety of fraud matters involving the government’s purchase of goods and services. Toyobo Co. Ltd. of Japan and its American subsidiary, Toyobo U.S.A. Inc., f/k/a Toyobo America Inc. (collectively, Toyobo), paid $66 million to resolve claims that they sold defective Zylon fiber used in bullet proof vests that the United States purchased for federal, state, local, and tribal law enforcement agencies. The United States further alleged that between at least 2001 and 2005, Toyobo, the sole manufacturer of Zylon fiber, knew that Zylon degraded quickly in normal heat and humidity and that this degradation rendered bullet proof vests containing Zylon unfit for use. The United States alleged that Toyobo nonetheless actively marketed Zylon fiber for bullet proof vests, published misleading data that understated the degradation problem and, when one body armor manufacturer recalled some of its Zylon-containing vests in late 2003, started a public relations campaign designed to influence other body armor manufacturers to keep selling Zylon-containing vests. Toyobo’s actions allegedly delayed by several years the government’s efforts to determine the true extent of Zylon degradation. Finally, in August 2005, the National Institute of Justice (NIJ) completed a study of Zylon-containing vests and found that more than 50 percent of used vests could not stop bullets that they had been certified to stop. Thereafter, all Zylon-containing vests were decertified for use. With this year’s Toyobo settlement, more than $132 million has been recovered by the Department in False Claims Act matters involving the manufacture, distribution or sale of Zylon by body armor manufacturers, weavers, and international trading companies. https://www.justice.gov/opa/pr/japanese-fiber-manufacturer-pay-66-million-alleged-false-claims-related-defective-bullet.
United Kingdom marine services contractor, Inchcape Shipping Services Holdings Limited, and certain of its subsidiaries paid $20 million to resolve allegations that they overbilled the U.S. Navy under contracts to provide services to Navy ships at ports in several regions throughout the world, including southwest Asia, Africa, Panama, North America, South America and Mexico. In its suit, the government alleged that Inchcape knowingly overbilled the Navy by submitting invoices that overstated the quantity of goods and services provided, billing at rates in excess of applicable contract rates, and double-billing for some goods and services. https://www.justice.gov/opa/pr/united-states-settles-lawsuit-alleging-contractor-falsely-overcharged-us-navy-ship-husbanding.
In another matter, TrellisWare Technologies Inc., a communications company located in San Diego, California, paid over $12 million to settle allegations that it was ineligible for multiple Small Business Innovation and Research (SBIR) contracts it had entered into with the Navy, Army, and Air Force. The SBIR program is designed to stimulate technological innovation by funding small businesses to engage in federal research and development efforts. The United States alleged that TrellisWare was not eligible for SBIR awards because it was actually a majority-owned subsidiary of a large company at the time it was awarded and performed the SBIR contracts. https://www.justice.gov/usao-sdca/pr/san-diego-communications-company-pays-more-12-million-settle-false-claim-act.
In addition, 3M Company, headquartered in St. Paul, Minnesota, paid $9.1 million to resolve allegations that it knowingly sold dual-ended Combat Arms Earplugs to the United States military without disclosing defects that hampered the effectiveness of the hearing protection device. https://www.justice.gov/opa/pr/3m-company-agrees-pay-91-million-resolve-allegations-it-supplied-united-states-defective-dual.
Other Fraud Recoveries
The number and variety of judgments and settlements announced during fiscal year 2018 illustrate the diversity of fraud cases pursued by the Department. For example, in February 2018, Deloitte & Touche LLP agreed to pay $149.5 million to resolve potential False Claims Act liability arising from Deloitte’s role as the independent outside auditor of Taylor, Bean & Whitaker Mortgage Corp. (TBW), a failed originator of mortgage loans insured by the Federal Housing Administration (FHA) in the Department of Housing and Urban Development (HUD). Deloitte served as TBW’s independent outside auditor during the time TBW had been engaged in a long-running fraudulent scheme involving, among other things, the purported sale of fictitious or double-pledged mortgage loans. The United States alleged that Deloitte’s audits knowingly deviated from applicable auditing standards and therefore failed to detect TBW’s fraudulent conduct and materially false and misleading financial statements. https://www.justice.gov/opa/pr/deloitte-touche-agrees-pay-1495-million-settle-claims-arising-its-audits-failed-mortgage.
The False Claims Act was also used this past year to redress avoidance of antidumping duties that are in place to protect against foreign companies “dumping” products on the U.S. market at prices below cost. The Department of Commerce assesses, and the Department of Homeland Security’s Customs and Border Protection collects, these duties to protect U.S. businesses and level the playing field for domestic products. This year, the Virginia-based home furnishings company, Bassett Mirror Company, paid $10.5 million to resolve allegations that it knowingly made false statements on customs declarations to avoid paying antidumping duties on wooden bedroom furniture imported from the People’s Republic of China (PRC). The Department alleged that between January 2009 and February 2014, Bassett Mirror evaded these antidumping duties by knowingly misclassifying the furniture as non-bedroom furniture on its official import documents. At the time of the alleged conduct in this case, wooden bedroom furniture from the PRC was subject to a 216 percent antidumping duty; non-bedroom furniture was not subject to an antidumping duty. https://www.justice.gov/opa/pr/bassett-mirror-company-agrees-pay-105-million-settle-false-claims-act-allegations-relating. Similarly, textile importer American Dawn Inc. agreed to pay over $2.3 million to resolve allegations that it intentionally misclassified goods imported into the United States, such as bath and shop towels as polishing cloths, in order to pay lower tariff rates. https://www.justice.gov/usao-ndga/pr/textile-importer-resolves-false-claims-act-allegations-0.
And in a matter illustrating the government’s continuing efforts to hold accountable those who seek to take improper advantage of a program that allows companies to remove gas from federal lands upon payment of royalties to the federal government, Citation Oil & Gas Corp. and its affiliates, Citation 2002 Investment Limited Partnership and Citation 2004 Investment Limited Partnership, paid $2.25 million to resolve allegations that they underpaid royalties owed on natural gas produced from federal lands in Wyoming. https://www.justice.gov/opa/pr/citation-companies-agree-pay-225-million-settle-civil-false-claims-act-allegations.
Holding Individuals Accountable
The Department continued its commitment to use the False Claims Act and other civil remedies to deter and redress fraud by individuals as well as corporations. For example, after a two-week jury trial, the Department obtained judgments totaling more than $114 million against three individuals who were found to have paid physicians illegal remuneration disguised as “handling fees” of between $10 and $17 for each patient they referred to two blood testing laboratories: Health Diagnostic Laboratory of Richmond, Virginia (HDL), and Singulex Inc., of Alameda, California (Singulex). The government also introduced evidence at trial that this kickback scheme resulted in physicians referring patients to HDL and Singulex for medically unnecessary tests, which were then billed to federal health care programs. https://www.justice.gov/opa/pr/united-states-obtains-114-million-judgment-against-three-individuals-paying-kickbacks.
In another kickback case, based on the jury’s verdict for the United States, the court awarded judgment of $5.5 million against neurosurgeon Dr. Sonjay Fonn, his fiancé Ms. Deborah Seeger, and their professional corporations DS Medical and Midwest Neurosurgeons. The evidence showed that Dr. Fonn performed spinal fusion surgery using implants for which his fiancé received commissions, which were used to benefit Dr. Fonn in the form of lavish purchases such as a yacht and home improvements. https://www.justice.gov/usao-edmo/pr/federal-judge-trebles-damages-and-imposes-civil-penalties-against-cape-girardeau.
In addition, former professional cyclist Lance Armstrong paid $5 million to resolve a lawsuit alleging that his admitted use of performance-enhancing drugs and methods (PEDs) resulted in the submission of millions of dollars in false claims for sponsorship payments to the U.S. Postal Service (USPS), which sponsored Armstrong’s cycling team during six of the seven years Armstrong was deemed the winner of the Tour de France. The lawsuit alleged that Armstrong and his team regularly and systematically employed PEDs, that Armstrong made numerous false statements denying his PED use, and that Armstrong took active measures to conceal his PED use during the USPS sponsorship and even after the sponsorship ended. https://www.justice.gov/opa/pr/lance-armstrong-agrees-pay-5-million-settle-false-claims-allegations-arising-violation-anti.
Prime Healthcare Services Inc., Prime Healthcare Foundation Inc., and Prime Healthcare Management Inc. (collectively “Prime”), and Prime’s Founder and Chief Executive Officer, Dr. Prem Reddy, paid $65 million to settle allegations that 14 Prime hospitals in California knowingly submitted false claims to Medicare by admitting patients who required only less costly, outpatient care and by billing for more expensive patient diagnoses than the patients had. Dr. Reddy paid $3.25 million of the overall settlement. https://www.justice.gov/opa/pr/prime-healthcare-services-and-ceo-pay-65-million-settle-false-claims-act-allegations. Dr. Arthur S. Portnow of Sarasota, Florida, the owner and operator of Arthur S. Portnow, P.A., d/b/a Apple Medical and Cardiovascular Group, d/b/a Apple Medical Group, agreed to pay $1.95 million to resolve allegations that he and his practice violated the False Claims Act by knowingly seeking reimbursement for medically unnecessary ultrasound tests that were performed on Medicare beneficiaries. The government also alleged that Dr. Portnow falsified patient records in an effort to justify those unnecessary ultrasounds. https://www.justice.gov/usao-mdfl/pr/sarasota-physician-agrees-pay-195-million-resolve-false-claims-act-allegations. Dr. Michael Frey, M.D., a pain management specialist and one of the two principal owners of Advanced Pain Management Specialists P.A. in Fort Myers, Florida, agreed to pay $2.8 million to resolve allegations that he violated the False Claims Act in a number of ways, including receiving illegal kickbacks and by ordering medically unnecessary laboratory tests. https://www.justice.gov/usao-mdfl/pr/fort-myers-pain-management-physician-pleads-guilty-healthcare-offenses-and-agrees-28.
Recoveries in Whistleblower Suits
Of the $2.8 billion in settlements and judgments reported by the government in fiscal year 2018, over $2.1 billion arose from lawsuits filed under the qui tamprovisions of the False Claims Act. During the same period, the government paid out $301 million to the individuals who exposed fraud and false claims by filing these actions.
The number of lawsuits filed under the qui tam provisions of the Act has grown significantly since 1986, with 645 qui tam suits filed this past year – an average of more than 12 new cases every week.
“Whistleblowers have played a vital role in unmasking fraudulent schemes that might otherwise evade detection,” said Assistant Attorney General Jody Hunt. “The taxpayers owe a debt of gratitude to those who often put much on the line to expose such schemes.”
In 1986, Senator Charles Grassley and Representative Howard Berman led the successful efforts in Congress to amend the False Claims Act to, among other things, encourage whistleblowers to come forward with allegations of fraud. In 2009 and 2010, additional improvements were made to the False Claims Act and its whistleblower provisions. Congress also included in the False Claims Act authority for the government to dismiss cases, and during the past year the government made increasing use of this tool to help prioritize the use of government resources.
Finally, Assistant Attorney General Hunt commended the many dedicated public servants throughout the Department’s Civil Division and the U.S. Attorneys’ Offices, as well as the agency Offices of Inspector General and the many other federal and state agencies that contributed to the Department’s False Claims Act recoveries this past fiscal year. “The accomplishments announced today would not have been possible but for the hard work of the men and women throughout the government who work tirelessly to protect the interests of taxpayers,” said Assistant Attorney General Jody Hunt. “I have served in the Civil Division for many years and it is now my great honor to lead this Division. I am grateful to work alongside so many passionate, dedicated, and talented employees who have committed their careers to serving the American people and defending the interests of our great nation.”
Except where indicated, the government’s claims in the matters described above are allegations only and there has been no determination of liability. The numbers contained in this press release may differ slightly from the original press releases due to accrued interest.
Pharmaceutical company Pfizer, Inc. (Pfizer), based in New York, NY, has agreed to pay $23.85 million to resolve claims that it used a foundation as a conduit to pay the copays of Medicare patients taking three Pfizer drugs, in violation of the False Claims Act, the Justice Department announced today.
When a Medicare beneficiary obtains a prescription drug covered by Medicare Part B or Part D, the beneficiary may be required to make a partial payment, which may take the form of a copayment, coinsurance, or deductible (collectively copays). Congress included copay requirements in the Medicare program, in part, to encourage market forces to serve as a check on health care costs, including the prices that pharmaceutical manufacturers can demand for their drugs. Under the Anti-Kickback Statute, a pharmaceutical company is prohibited from offering, directly or indirectly, any remuneration—which includes paying patients’ copay obligations—to induce Medicare patients to purchase the company’s drugs.
As part of today’s settlement, the government alleged that Pfizer used a foundation as a conduit to pay the copay obligations of Medicare patients taking three Pfizer drugs: Sutent and Inlyta, which both treat renal cell carcinoma, and Tikosyn, which treats arrhythmia in patients with atrial fibrillation or atrial flutter. The government alleged that, in order to generate revenue, and instead of giving Sutent and Inlyta to Medicare patients who met the financial qualifications of Pfizer’s existing free drug program, Pfizer used a third-party specialty pharmacy to transition certain patients to the foundation, which covered the patients’ Medicare copays. Pfizer allegedly made donations to the foundation to enable it to cover the copays of these patients and received confirmation from the foundation, via the specialty pharmacy, that the foundation funded the copays.
With respect to Tikosyn, Pfizer raised the wholesale acquisition cost of a package of forty .125 mg capsules of the drug by over 40 percent in the last three months of 2015. Pfizer allegedly knew that the price increase would also increase Medicare beneficiaries’ copay obligations for Tikosyn, and potentially prevent some patients from being able to afford the drug. Pfizer allegedly worked with the foundation to create and finance a fund for Medicare patients suffering from the condition treated by Tikosyn, coordinated the opening of the fund with the implementation of its price increase for the drug, and referred patients to the fund. For the next nine months, Tikosyn patients accounted for virtually all of the beneficiaries whose copayments were paid by the fund.
“Kickbacks undermine the independence of physician and patient decision-making, and raise healthcare costs,” said Acting Assistant Attorney General Chad A. Readler of the Justice Department’s Civil Division. “As today’s settlement makes clear, the Department will hold accountable drug companies that pay illegal kickbacks—whether directly or indirectly—to undermine taxpayer funded healthcare programs, including Medicare.”
“Pfizer used a third party to saddle Medicare with extra costs,” said United States Attorney Andrew E. Lelling. “According to the allegations in today’s settlement agreement, Pfizer knew that the third-party foundation was using Pfizer’s money to cover the co-pays of patients taking Pfizer drugs, thus generating more revenue for Pfizer and masking the effect of Pfizer’s price increases. The Anti-Kickback Statute exists to protect Medicare, and the taxpayers who fund it, from schemes like these. At the same time, we commend Pfizer for stepping forward to resolve these issues in a responsible manner.”
“Today’s settlement demonstrates the FBI’s commitment to making sure patients receive, and the government pays for, health care that is not compromised by kickbacks,” said Harold H. Shaw, Special Agent in Charge, FBI Boston Division. “What Pfizer is accused of doing in this case—masking charitable contributions to increase company profits—violates the basic trust patients extend to the healthcare system and threatens the financial integrity of the Medicare program.”
Pfizer has also entered into a corporate integrity agreement (CIA) with the Department of Health and Human Services Office of Inspector General (HHS-OIG). The five-year CIA requires, among other things, that Pfizer implement measures designed to ensure that arrangements and interactions with third-party patient assistance programs are compliant with the law. In addition, the CIA requires reviews by an independent review organization, compliance-related certifications from company executives and Board members, and the implementation of a risk assessment and mitigation process.
“Our corporate integrity agreement promotes independence between Pfizer and any patient assistance programs to which it may donate,” said Gregory E. Demske, Chief Counsel to the Inspector General for the United States Department of Health and human Services. “Without true independence, as we have seen in this case, drug companies may use patient assistance programs as conduits for improper payments that harm Medicare.”
The government’s resolution of this matter illustrates the government’s emphasis on combating healthcare fraud. One of the most powerful tools in this effort is the False Claims Act. Tips and complaints from all sources about potential fraud, waste, abuse, and mismanagement, can be reported to the Department of Health and Human Services at 800-HHS-TIPS (800-447-8477).
The investigation was conducted by the Justice Department’s Civil Division and the U.S. Attorney’s Office for the District of Massachusetts, in conjunction with the Department of Health and Human Services, Office of Inspector General; the Federal Bureau of Investigation: the Department of Veterans Affairs, Office of Inspector General; and the United States Postal Inspection Service.
The claims resolved by the settlement are allegations only; there has been no determination of liability.
Yuri Bezmenov Warned Us
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