Drug Companies Up to Their Old Tricks
We hear what seem like the same old stories over and over, but here it goes again. Yet another drug company has entered into a multi-million dollar settlement with the government over allegations that it falsely claimed eligibility for federal reimbursement for its drug.
The U.S. attorney’s office in Boston alleged that Eon Labs Inc., a subsidiary of Swiss drug giant Novartis AG, misrepresented the regulatory status of its drug Nitroglycerin SR and failed to advise the government that the drug did not qualify for Medicaid coverage. The whistleblower lawsuit that started all of this also claimed that Eon kept going with the fraud even after the FDA determined that there was little evidence that the drug was effective.
The trouble all started for Eon in 1999, when the FDA determined that there was a lack of evidence that Nitroglycerin SR was effective at treating angina pectoris as Eon claimed it was. The FDA then published a notice in the Federal Register proposing to withdraw approval of the drug. Under Section 505(e) of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. § 355(e)), the FDA can withdraw approval for various reasons. These include evidence based on new tests or methods that show that the drug is not safe or effective.
As of the date in 1999 when the FDA proposed withdrawing approval, Nitroglycerin was no longer eligible for federal reimbursement. However, until September 2008, Eon kept right on with what it was doing, submitting false quarterly reports to the Centers for Medicare and Medicaid Services that misrepresented the drug's regulatory status in order to get paid.
The qui tam action is United States ex rel. Constance Conrad v. Eon Labs, Inc., et al., No. o2-CV 11738 (D. Mass.).
The whistleblower, Constance Conrad, will receive approximately $525,000 out of the settlement. This is a just reward for informing the government of fraud spanning more than a decade!
Fraud in Body Armor
Everyone in the line of fire needs body armor these days, even the dogs. The problem is, manufacturers keep making shoddy body armor--and ripping off taxpayers in the process. In particularly disgraceful fashion, a body armor manufacturer allegedly sold a fabric called Zylon to the government to protect law enforcement officers and servicemembers--all the while knowing that the material was defective.
Lincoln Fabrics Ltd., a Canadian company (visit its website and see how it touts the military applications of its products), wove the fabric which was used in the manufacture of vests sold by several companies. The government alleged that Zylon degraded quickly, especially in hot and humid conditions, and that Lincoln knew about the problems as early as 2001 but continued to manufacture and sell the fabric until 2005. At that point, the National Institute of Justice issued a report detailing Zylon's degradability, and its use was stopped.
Lincoln will pay the government $4 million to settle the lawsuit, and it joins several other scurrilous members of the body armor industry that have gotten themselves entangled in FCA suits based on their use of Zylon. The U.S. has already settled with some companies for $54 million, and the hits keep on coming. There are lawsuits pending against Toyobo Co., Honeywell Inc., Second Chance Body Armor, Inc. and First Choice Armor Inc.
Pipe Manufacturer in Hot Qui Tam Water
Once again, another example of the limitless areas that can get a defendant into qui tam trouble: A whistleblower has accused pipe manufacturer JM Eagle ("World's Largest Manufacturer of Plastic Pipe") of falsifying test results concerning the quality of its products. The whistleblower, John Hendrix, claims that the company's pipes have ruptured after one year when they are supposed to last 50 years. This can lead to fires, explosions, and, of course, leaks. The big problem for JM Eagle stems from the fact that the company has sold pipe to a plethora of state and local governments, as well as the federal government.
Mr. Hendrix is a former employee of JM Eagle and discovered the problems when he was asked to oversee the company's quality control process. When he realized that the company had been manipulating its cerfification test results, he pressed management to do something, but it refused and Hendrix was eventually fired.
Although the federal government declined to join Hendrix's lawsuit, numerous states and municipalities have signed on. They include Nevada, Delaware, Tenessee, and more than 40 water authorities in California (and if you live in California or other parts of the west, you know that water is something you don't mess around with!). Nevada has been particularly hard hit with expenses related to faulty pipe. The state has already spent about $5 million to replace JM Eagle pipe that was supposed to supply water to a prison complex. Apparently, the pipe exploded several times per year. Even darker times may be ahead, however: the state has spent $57 million on PVC pipe from JM Eagle for use in government buildings and other projects.
JM Eagle has an interesting back story. The company's parent is Formosa Plastics Group, which is Taiwan's biggest diversified industrial company. The company's founder, Wang Yung-ching, helped make Taiwain into an economic "tiger," and he died the second richest man in the province. His children, including JM Eagle's CEO, continue to fight over Yung-ching's massive fortune (Yung-ching died intestate, i.e., without a will).
One of the central claims of Hendrix's suit is that JM Eagle hired inexperienced workers to save money, thereby reducing the quality of the piping and necessitating the company to engage in a coverup. As more governments realize that they may have been duped into buying faulty pipe, they may join the suit in an effort to shore up their dwindling budgets. Keep an eye out for more on JM Eagle in the future.
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