As regulations and requirements for transparent interactions between pharmaceutical, medical device and biotechnology companies (collectively “life sciences organizations” or LSOs), and healthcare professionals (HCPs) continue to evolve, certain patterns are emerging. It is becoming increasingly important to protect prescribers and companies by ensuring that transactions are commercially reasonable and FMV (fair market value) compliant.
Interactions between HCPs and LSOs
Considering that certain types of interactions between HCPs and LSOs are fundamental to the advancement of science and the provision of high-quality care, there is a proven need to preserve these relationships. Current regulatory scrutiny focuses on various types of service arrangements to determine whether they may be linked to prescribing practices or to usage patterns involving the LSOs products. Of particular significance is whether the fees paid to HCPs are based on the services rendered (i.e., speaking, consulting, training, conducting research, etc.), or are paid as an inducement to prescribe the LSO’s products and/or services. As a result, U.S. and global transparency laws seek to expose all payments made to HCPs by LSOs, or their third-party intermediaries in an effort to identify those which may directly or indirectly relate to payment for referrals. Notwithstanding, there is also increased recognition that opportunities continue to exist for illegal activity.
Governmental tools to hold companies accountable
Within the U.S., the government has very effective tools to hold both companies and prescribers accountable for illegal referrals of products and/or services through the dynamic pairing of the Anti-Kickback Statute (“AKS”) and the False Claims Act (“FCA”).
- The AKS makes it illegal to knowingly or willfully offer, pay, solicit, or receive “remuneration,” directly or indirectly, in exchange for referring a patient or furnishing or arranging for a healthcare good or service, for which payment may be made under Government insurance programs, such as Medicare or Medicaid. The AKS is a criminal statute and requires intent.
- The FCA basically is focused on the submission of false claims for payment to the government as well as on those who avoid paying required money to the government (Section 3729(a)(1)(G), known as the reverse false claims section). The FCA is a civil statute and requires that there be knowledge of the falsity of the submitted claim(s).
Recent government cases
These regulations often focus on various types of service arrangements to determine whether they may be linked to prescribing practices or to usage patterns involving the LSO’s products or services. Of particular significance is whether the fees paid to prescribers are commercially reasonable and/or appear to be in excess of fair market value. Some recent government cases illustrate the issues:
- The DOJ announced that Avanir Pharmaceuticals (Avanir), based in Aliso Viejo, California, was charged for paying kickbacks to a physician to induce prescriptions of its drug Nuedexta. Additionally:
- The Northern District of Georgia announced a deferred prosecution agreement resolving the charge, under which Avanir admits that it paid a doctor to induce him to not only maintain but increase his prescription volume. Under the agreement’s terms, Avanir will pay a monetary penalty in the amount of $7,800,000, and a forfeiture in the amount of $5,074,895;
- The Northern District of Ohio also announced indictments of four individuals who paid or received kickbacks from Avanir. All four are charged with conspiracy to solicit, receive, offer and pay health care kickbacks. Avanir has agreed to cooperate in the prosecution of these individuals; and
- The DOJ announced that a resident of Monroeville, Pennsylvania who owned two labs, Personalized Genetics, LLC, d/b/a Personalized Genomics (PGL) and Med Health Services Management, LP (MHS) based in Pittsburgh, Pennsylvania, was charged for paying kickbacks in connection with almost $130 million in Medicare claims for genetic testing. Additionally:
- As alleged, the defendant and a group of co-conspirators comprised of business consultants, marketers, and the operator of a telemedicine entity, among others, acquired thousands of testing samples from Medicare beneficiaries located throughout the United States, as well as the corresponding prescriptions for the two labs owned by the defendant to bill Medicare for genomic testing (CGx) and pharmacogenetic testing (PGx);
- Further, as alleged, the marketers used targeted campaigns to induce beneficiaries to submit CGx and PGx specimens by means of cheek swabs sent to their homes or provided to them at purported “health fairs” held throughout the United States. Marketers, in turn, were paid percentage-based kickbacks depending upon the Medicare reimbursements for beneficiaries whose samples they had obtained and submitted to PGL or MHS; and
- In addition, the operator of a Florida-based telemedicine entity allegedly was paid kickbacks in connection with obtaining CGx and PGx prescriptions from contracted physicians. As alleged, contract physicians authorized testing for greater than 95% of beneficiaries despite the fact that the doctors did not conduct a proper telemedicine visit, were not treating the Medicare beneficiaries for cancer or symptoms of cancer, did not use the test results in the treatment of the beneficiaries, and generally were not qualified to understand and interpret the test results.
11/20/18 through 11/26/19
In a series of twelve recent cases OK Compounding, LLC and its network of paid ‘medical directors’ have been the focus of government investigation. In these cases, OK Compounding paid prescribers, through sham medical director fees, to prescribe compounded pain creams to their patients. These “kickbacks” were in violation of the False Claims Act because some patients were insured by federal health insurance programs.
A Manhattan doctor was convicted in federal court of accepting bribes and kickbacks from a pharmaceutical company in exchange for prescribing a fentanyl-based drug. As reflected in the Indictment and other documents, the physician participated in a scheme to receive bribes and kickbacks in the form of fees for sham educational programs (“Speaker Programs”) from Insys Therapeutics, Inc. (“Insys”) in exchange for prescribing millions of dollars’ worth of Subsys, a potent fentanyl-based spray manufactured by Insys. According to the DOJ, the physician, who was also an Associate Clinical Professor at a large hospital in Manhattan, received approximately $308,600 in Speaker Program fees from Insys in exchange for prescribing large volumes of Subsys. According to the New York Times, five physicians in total were indicted and several Insys executives and employees face charges. Insys filed for bankruptcy in June shortly after reaching a $225 million settlement with the DOJ.
It is also important for HCPs and LSOs to recognize that many of the government’s FCA actions have been the direct result of whistle blowers, who receive a percentage of the recovered damages … an amount that can be quite sizable. In addition, as a result of expanding transparency laws and requirements, there is an exponential increase in the amount of available data related to payments by LSOs to HCPs in the U.S. and throughout the world. Therefore, it is relatively easy for government regulators to identify outliers for further investigation
To learn more about how to protect yourself and your company, contact Katie Tarr at ktarr@LBMC.com or 615-690-1944.
To learn more about other valuation and consulting services LBMC provides, visit our Healthcare Valuation Services page or contact:
- Katie Tarr at KTarr@LBMC.com or 615-690-1944; or
- Josh Brummett at JBrummett@LBMC.com or 615-309-2226.