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25Nov/090

Standing Up to Big Pharma

This post was written by Josh

A recent New York Times article reports that House lawmakers–both Democrats and Republicans–are giving speeches written by the same speech writer: lobbyists for Genentech, a subsidiary of Swiss drug maker Roche. The speeches were submitted as revisions to the Congressional Record for publication as part of the health care overhaul debate. The New York Times article notes that it is unusual for so many statements by members of Congress to match up word for word, and even more unusual for the statements to be verbatim recitals of language provided by lobbyists.

Genentech and Roche have made many allies in the House by giving campaign contributions and hosting fund raisers for House members–some of whom submitted statements to the Congressional Record provided by Genentech. Lobbying Congress is obviously nothing new, but there is something disturbing about lawmakers taking language directly from lobbyists and adding it to the record. One representative, Bill Pascrell Jr. (D-N.J.), stated that he didn’t even know the text he added to the record was provided by lobbyists–he merely accepted it from his staff.

It appears that the pharmaceutical industry is not content to just make political contributions–now it has to put its words in lawmakers’ mouths. With pharmaceutical manufacturers having this degree of power, whistleblowers are more important than ever in identifying fraud and waste by these corporations and bringing them to justice.

A recent $112 million settlement between the U.S. Department of Justice and the nation’s largest nursing home pharmacy and a drug manufacturer illustrates that qui tam suits are essential for holding the drug industry accountable. The defendants in these cases are nursing home pharmacy Omnicare Inc. and drug maker IVAX Pharmaceuticals (now a subsidiary of Teva Pharmaceuticals Industries Ltd.). Omnicare agreed to pay $98 million, and IVAX $14 million, to resolve allegations that Omnicare engaged in various kickback schemes. The kickback schemes involved a variety of actors, and it seems that everyone was making money out of the deal–except the elderly patients and the taxpayers, of course.

One aspect of the scheme involved Omnicare allegedly soliciting and receiving kickbacks from pharmaceutical manufacturer Johnson and Johnson in exchange for convincing physicians to prescribe Johnson and Johnson’s anti-psychotic Risperdal to nursing home patients. The kickbacks were disguised as rebates and fees. The FDA ultimately mandated that the Risperdal label carry a “black box” warning that elderly patients with dementia-related psychosis taking Risperdal were at increased risk of death compared to those taking a placebo. “Black box” warnings are required when a drug carries a risk of serious side effects.

A second aspect of the scheme involved Omnicare allegedly offering its pharmacy services to nursing homes below cost, which induced the nursing homes to use Omnicare’s services. Nursing homes are required by law to have pharmacists review patients’ drug regimens at least once a month, so this would have been a lucrative cash cow for Omnicare.

A third aspect of the scheme involved Omnicare allegedly soliciting $8 million in kickbacks from drug maker IVAX in exchange for Omnicare’s agreement to purchase $50 million in drugs from IVAX. Omnicare touted its ability to get patients to switch to IVAX’s drugs as part of the kickback solicitation.

In the final aspect of the scheme, Omnicare allegedly conspired with certain nursing home chains, paying $50 million for the exclusive right to provide pharmacy services to them. The $50 million payment was disguised as a sham purchase of a business unit of one of the nursing home chains.

With such a wide scope of fraud by pharmacies, drug makers, and nursing homes at the expense of nursing home residents, it’s difficult to find any positives in this case. However, the backstory of the whistleblower who originally brought the qui tam suit against Omnicare does provide a bit of a silver lining.

The whistleblower, Adam Resnick, is a recovering compulsive gambler. Resnick began gambling in his early teens, and simply couldn’t stop. He went to the University of Arizona for college because of its proximity to Las Vegas, making 37 gambling trips there before leaving Arizona after only three semesters. Eventually Resnick began leading a double-life as a family man and health care entrepreneur on one hand and a high-rolling gambler on the other who was flown to Vegas on private jets by casinos and paid in suitcases of cash. Resnick’s downfall came when his financial problems caused a bank to collapse in 2002, and Resnick was sent to prison.

Resnick’s qui tam suit resulted in the government recovering more than twice the amount it lost due to the bank collapse. He managed to overcome his past and help put an end Omnicare’s fraudulent activities. Today, Resnick is glad that he is able to repay taxpayers:

“I believe this settlement is a testimonial to what I have always stood for and is proof that addicts can make mistakes but certainly can turn their lives around. Kickback deals can hurt Medicare and Medicaid patients because they influence decisions to provide drugs that could be medically unnecessary, of poor quality or even harmful.”

Tagged as: drugs, Pharmaceutical, roche No Comments

24Nov/090

Military Contractors: Big Bucks, Big Fraud

This post was written by Josh

Most of us are aware of the fact that the U.S. government is using a large number of military contractors in its operations. What many people don’t know, however, is that as of March, 2009, there were more Department of Defense contractors than uniformed personnel in Afghanistan. According to a report by the Congressional Research Service, contractors made up 57% of the Pentagon’s personnel in Afghanistan, “the highest recorded percentage of contractors used by DoD in any conflict in the history of the United States.” Rather ominously, the study also notes that “[a]buses and crimes committed by armed private security contractors and interrogators against local nationals may have undermined US efforts in Iraq and Afghanistan.”

According to a Congressional Budget Office report, military contracts for services in the Iraq theater cost U.S. taxpayers more than $85 billion between 2003 and 2007, and the ratio of contractors to US service members was 1 to 1. The cost to U.S. taxpayers is obviously higher today, and continues to grow every single day as long as military operations continue. According to Senator Kent Conrad (D-N.D.), chairman of the Budget Committee, the use of military contractors “restricts accountability and oversight; opens the door to corruption and abuse; and, in some instances, may significantly increase the cost to American taxpayers.”

With the amount of money at stake, a recent New York Times article regarding bribes paid by security contractor Blackwater to Iraqi officials does not come as much of a surprise. According to Blackwater sources, top Blackwater executives authorized secret payments of approximately $1 million to buy the silence and support of certain Iraqi officials following a September 2007 incident in which Blackwater personnel indiscriminately opened fire on Iraqi civilians in Nisour Square, Baghdad, killing 17. The killings led to a backlash against Blackwater, and the company feared that Iraqi officials would force it to leave the country as well as denying it an operating license–essential for fulfilling contracts worth hundreds of millions of dollars.

Blackwater is currently under investigation by a federal grand jury in North Carolina. A Blackwater executive informed federal prosecutors about the company’s bribery scheme, which, if true, could open the company to charges of violating the Foreign Corrupt Practices Act (FCPA). The FCPA makes it unlawful to bribe foreign officials in order to gain/retain business.

Considering the number of foreign contractors operating in Iraq and Afghanistan, it’s not difficult to envision other contractors engaging in unauthorized activity and then entangling themselves by trying to bribe foreign officials into looking the other way. We could see more FCPA actions as military contractors attempt to cover up their nefarious deeds (see, for example, this article about a whistleblower who alerted authorities to a military contractor’s use of sex slaves while its employees were supposed to be guarding the U.S. embassy in Kabul).

If your company is operating overseas, note that the FCPA has five elements which must be satisfied in order to constitute a violation:

The FCPA potentially applies to any individual, firm, officer, director, employee, or agent of a firm and any stockholder acting on behalf of a firm. Individuals and firms may also be penalized if they order, authorize, or assist someone else to violate the antibribery provisions or if they conspire to violate those provisions.
The person making or authorizing the payment must have a corrupt intent, and the payment must be intended to induce the recipient to misuse his official position to direct business wrongfully to the payer or to any other person. You should note that the FCPA does not require that a corrupt act succeed in its purpose. The offer or promise of a corrupt payment can constitute a violation of the statute.
The FCPA prohibits paying, offering, promising to pay (or authorizing to pay or offer) money or anything of value.
The prohibition extends only to corrupt payments to a foreign official, a foreign political party or party official, or any candidate for foreign political office. A “foreign official” means any officer or employee of a foreign government, a public international organization, or any department or agency thereof, or any person acting in an official capacity.
The FCPA prohibits payments made in order to assist the firm in obtaining or retaining business for or with, or directing business to, any person. (DOJ Lay-Person’s Guide to FCPA)

An employee of a military contractor who observed illegal activity, such as the bribes made in violation of the FCPA, could be entitled to whistleblower protection under the Sarbanes-Oxley Act, Section 806, which protects employees of publicly traded companies who provide evidence of fraud. As more corporations expand their overseas operations, it’s important for potential whistleblowers to remain alert.

For an interesting case filed this fall involving a colorful cast of characters–notorious insurance giant AIG, a Korean government employee offered a “six week paid vacation in New York and London,” (courtesy of AIG and in violation of FCPA), and a wrongfully terminated whistleblower–see Lebron v. AIG, No. 09-4285, 2009 U.S. Dist. LEXIS 97303 (S.D.N.Y Oct. 19, 2009).

Tagged as: government, military No Comments

12Nov/091

Dr. David Gossman: Standing Up to Medtronic for Medical Ethics

This post was written by Josh

Medtronic is the leading manufacturer of medical devices. Despite repeated investigations by federal and state authorities, the company raked in a whopping $15 billion in 2009 alone. Federal scrutiny of the medical device industry has generally been relatively lax compared to that directed toward the pharmaceutical industry, and sometimes it seems as though medical device manufacturers will stop at nothing to get doctors to use their products. That is, until they run into a doctor like David Gossman, M.D.

From 1987 until September, 2009, Dr. Gossman was a cardiologist at the Lahey Clinic near Boston . He was good at what he did, and was the subject of a 2008 promotional article for the clinic chronicling his successful efforts to help a patient recover from a massive heart attack.

While at the Lahey Clinic, Dr. Gossman observed what he determined to be violations of ethical guidelines concerning the clinic’s financial relationship with Medtronic. Dr. Gossman claims that Medtronic offered the hospital “access to the CoreValve, a new heart valve that will be in clinical trials in the U.S. soon, predicated on the purchase and increased utilization of other products made by Medtronic.” In addition, Dr. Gossman claims that a senior cardiologist at the lab, Dr. Thomas Piemonte, has “significant financial interest in Medtronic” and earns “substantial yearly income” serving on the Medtronic speaker’s bureau, which educates doctors about the company’s products. Furthermore, Dr. Gossman claims that Dr. Piemonte’s wife is both a Medtronic employee and a stockholder, and that Dr. Piemonte and the chair of the cardiology department, Dr. Richard Nesto, put pressure on their fellow doctors to use more Medtronic products. Dr. Gossman determined that these were serious conflicts of interest, and he followed his ethical obligation and raised his concerns.

In September, 2009, Dr. Gossman raised his ethical objections during a lecture on medical ethics, in which he asked a hypothetical question about the very situation he had observed. He asked what the hospital’s position would be on an arrangement in which “a medical device company approaches a hospital offering access to a new investigational device, but predicates access to the device on increased utilization of other products sold by the company.” Dr. Gossman claims that Dr. Piemonte and the chairman of the cardiology department mounted an investigation of Dr. Gossman and sought negative feedback about him from other employees. On September 8th, only a few days after Dr. Gossman had raised his ethical question at the lecture, he was fired.

Determined to stand up for himself and hold the Lahey Clinic accountable for the ethical lapses, Dr. Gossman filed suit seeking damages both for defamation and for violations of the Massachusetts Healthcare Whistleblower Act. Massachusetts’ Healthcare Whistleblower Act prohibits retaliatory action (e.g., firing) against a healthcare employee under a variety of circumstances. For example, a healthcare employee may not be subjected to retaliatory action if he or she

objects to or refuses to participate in any activity, policy or practice of the health care facility or of another health care facility with whom the health care provider’s health care facility has a business relationship which the health care provider reasonably believes is in violation of a law or rule or regulation promulgated pursuant to law or violation of professional standards of practice which the health care provider reasonably believes poses a risk to public health. ALM GL ch. 149, § 187 (b) (3).

Qui tam and whistleblower protections vary from state to state. This map shows which states and cities have False Claim acts; consult with a Qui Tam Team attorney to determine what other state and federal protections may be available to you.

Predictably, both Medtronic and the Lahey Clinic are following the usual tactic of “deny, deny, deny.” A Medtronic spokesman said, “We expect that all of our employees adhere to our very strict policies and code of conduct regarding the sale of our products.” The Lahey Clinic claims that Dr. Gossman caused “severe problems” in his relationships with his colleagues that led to his termination, and that these problems were unrelated to any comments he may have made about ethical issues. One has to wonder, however, about the timing of the decision to fire Dr. Gossman. If Dr. Gossman was so problematic, why would the clinic celebrate Dr. Gossman’s skills and expertise in a promotional document (which as of this blog posting is still available on Lahey’s website) but then fire him a year later?

There are some important lessons to be learned from Dr. Gossman’s case. One is that there are many committed professionals out there who will do what it takes to stand up for their ethical principles. Another is that whistleblowers may be subjected to termination and harassment for following the rules and questioning those who don’t. Fortunately, there are federal and state laws that protect those who stand up for what is right. The Qui Tam Team blog will keep you updated on the progress of Dr. Gossman’s case.

Filed under: Pharmaceutical, Qui Tam Fraud 1 Comment