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January 12, 2017

Weekly Health Care Criminal and Civil Fraud Enforcement Round-Up

The following highlights notable health care fraud and abuse news, settlements and enforcement actions in the first two weeks of January 2017. 

Shire Pharmaceuticals to Pay $350 Million to Settle False Claims Act Allegations that the Company Employed Kickback Scheme to Increase Use of Medical Device. On January 11, 2017, the Department of Justice (DOJ) announced that Shire Pharmaceuticals LLC and other subsidiaries of Shire plc agreed to pay $350 million to settle federal and state False Claims Act (FCA) allegations that the company employed kickbacks and other unlawful methods to induce clinics and physicians to use or overuse its medical device product "Dermagraft" - a bioengineered human skin substitute approved by the FDA for the treatment of diabetic foot ulcers. The settlement resolves allegations that Dermagraft salespersons unlawfully induced clinics and physicians with lavish dinners, drinks, entertainment and travel; medical equipment and supplies; unwarranted payments for purported speaking engagements and bogus case studies; and cash, credits and rebates, to induce the use of Dermagraft. The allegations resolved by the settlement were brought in six separate lawsuits filed under the qui tam, or whistleblower, provisions of the FCA, which permit private parties to sue on behalf of the government for false claims and to receive a share of any recovery. The whistleblower shares to be awarded in this case have not yet been determined. The settlement represents the largest FCA recovery by the United States in a kickback case involving a medical device.

Dental Practice Management Company, MB2 Dental Solutions, and Affiliated Dental Practices to Pay $8.45 Million to Settle Medicaid False Claims Act Allegations. On January 9, 2017, the DOJ announced that Texas-based MB2 Dental Solutions (MB2) and 21 pediatric dental practices affiliated with MB2, along with their owners and marketing chief, have agreed to pay the United States and the State of Texas Medicaid program $8.45 million to resolve allegations that they violated the FCA by submitting claims for pediatric dental services that (1) were not rendered, (2) were tainted by kickbacks, or (3) falsely identified the person who performed the service. The settlement also resolves allegations that MB2 paid kickbacks to Medicaid beneficiaries and their families, marketers, and marketing entities, in violation of the Anti-Kickback Statute, and that MB2 and affiliated dental practices used incorrect Medicaid provider numbers in order to misrepresent the dentists performing the pediatric procedures. The case was brought by a former employee whistleblower under the qui tam provisions of the FCA, which allow a private individual to bring an FCA case on behalf of the government and share a portion of the recovery. The whistleblower in this case will receive a reward of over $1.5M. The press release notes that “HHS-OIG is particularly vigilant about potential abuses in Medicaid pediatric dental offices where patients and their families are especially vulnerable to questionable practices.”

Cardinal Health Agrees to Pay $44 Million to Settle Controlled Substances Act Violations. The DOJ recently announced that Cardinal Health, Inc. (Cardinal) agreed to pay $44 million to resolve allegations that it violated the Controlled Substances Act (CSA) by failing to report suspicious orders of controlled substances to pharmacies located in Maryland, Florida and New York. The settlement also resolves a civil investigation in Washington alleged violations of CSA record keeping requirements. Contemporaneously, the Southern District of New York has entered into a separate settlement agreement with Cardinal in which Cardinal agreed to resolve allegations that a subsidiary distributor failed to report suspicious orders by pharmacies. In the press release, U.S. Attorney for the District of Maryland Rod J. Rosenstein emphasized that preventing pharmaceutical abuse and drug diversion is a top federal priority and that “[p]harmaceutical suppliers violate the law when they fill unusually large or frequent orders for controlled substances without notifying the DEA.” As the government continues to crack down on opioid abuse, pharmaceutical manufacturers should examine the effectiveness of their anti-diversion policies and programs and take steps to ensure they are maintaining effective controls.

New Rule Imposes Civil Monetary Penalties on Drug Manufacturers That Overcharge Safety Net Providers for 340B Outpatient Drugs

On January 5, 2017, the Health Resources and Services Administration (HRSA) of the Department of Health and Human Services published a final rule (Final Rule) imposing civil monetary penalties (CMPs) on drug manufacturers if they overcharge safety net providers and other “covered entities” for outpatient drugs sold under the 340B Program. The 340B Program, which is administered by HRSA in accordance with section 340B of the Public Health Service Act (PHSA), generally allows eligible covered entities (including safety net health care providers) to access lower-priced drugs. Section 340B of the PHSA instructs HHS to enter into a phrmaceutical pricing agreement (PPA) with certain drug manufacturers. When a drug manufacturer signs a PPA, it is opting into the 340B Program and thereby agrees to the statutory requirement that the prices charged for covered outpatient drugs to covered entities will not exceed defined 340B ceiling prices, which are based on quarterly pricing data obtained from the Centers for Medicare & Medicaid Services (CMS). In addition to imposing CMPs not to exceed $5,000 for each instance of overcharging a covered entity, the Final Rule, also sets forth the calculation of ceiling prices, which are the maximum amounts drug manufacturers may charge for covered outpatient drugs. The Final Rule will be effective March 6, 2017.

Senate Takes Step Towards Dismantling Affordable Care Act

As reported by many news outlets, including the New York Times, Wall Street Journal and Associated Press, at nearly 1:30 am this morning, Senate Republicans approved a budget blueprint resolution (51 to 48 vote) that set in motion the Republican plan to dismantle the Affordable Care Act (ACA) through a filibuster-proof “budget reconciliation” bill. The budget blueprint resolution instructs House and Senate committees to come up with repeal bill by Jan. 27. While the January 27th date has been called a “placeholder” by several Republicans, President-Elect Trump has urged that repeal and replacement occur simultaneously and soon. At his news conference yesterday, President-Elect Trump told reporters that the ACA would be replaced “essentially simultaneously” with something “far less expensive and far better” and that “we’ll be submitting a plan” to repeal and replace Obamacare as soon as HHS secretary nominee, Rep. Tom Price (R-GA), is confirmed. The House will consider the budget resolution on Friday and is generally expected to vote along party lines. However, some House Republicans have expressed discomfort with voting on the budget blueprint this week due to concerns as to how and when the ACA will be replaced. Notably, last week HHS officials reported that over 8.8 million people have enrolled in ACA coverage through Healthcare.gov for 2017. We will continue to closely monitor this situation.