Overcoming Fraudulent Allegations of Health Care Fraud

Over the weekend, Paul Howard wrote about a National Journal article lamenting that pharmaceutical companies keep promoting their products for off-label uses -- that is, "uses the Food and Drug Administration hasn't blessed." Paul did a solid job debunking the article's primary claim: that regulatory officials and the Department of Justice are woefully out-gunned and have too few tools at their disposal to prevent companies from repeatedly engaging in fraudulent behavior.

The fact of the matter is that prosecutors have a sledgehammer at their disposal -- an enforcement tool that has made many a hardened corporate executive cry uncle when they should be fighting the charges in court. After all, much of what these companies are doing is either not illegal or is protected by the First Amendment or both. But the government's charges almost never have to be proven in a court of law because a mere indictment on fraud allegations would be sufficient to destroy most drug companies. It's time we started reining in these misleading, and potentially fraudulent, allegations of fraud.

Under federal anti-fraud laws, merely being indicted for fraudulent behavior permits government programs to exclude, suspend, or "debar" corporations from doing business with the federal government. As I've written before, because Medicare, Medicaid, and the VA health programs pay for a sizeable chunk of all US health spending -- including vast amounts of the pharmaceuticals administered in a hospital setting -- debarment from federal health programs would be tantamount to a corporate death sentence. "It is thus not surprising," notes Ropes & Gray attorney Joan McPhee, "that virtually all rational corporations ... conclude, as a business matter, that they cannot incur the risks associated with taking an indictment and going to trial, even when, in the corporation's assessment and that of its seasoned counsel, the threatened case is without factual or legal merit."

Far from having a limited ability to prosecute this allegedly illegal activity, the Department of Justice can exact billion dollar penalties from the pharmaceutical industry without ever having to prove the allegations in court. No guilty verdict is necessary to trigger debarment, which means that prosecutors can leverage this power and the vagueness of federal regulations to force defendants to settle out of court.

What is especially galling, though, is that the news media have so willingly bought in to the government's allegations of fraud. Indeed, the National Journal article is just one of many recent news reports cheerleading for the government's new "tough on fraud" campaign (see here and here, for example).

Now, to be sure, there is plenty of genuine fraud in the Medicare and Medicaid programs. And when multinational corporate giants agree to settle out of court and pay billion dollar plus fines, it's easy to suspect that something shady must have been going on. But the infractions most of these firms are being charged with do not include fraud or consumer misrepresentation or any other claim that the firms misrepresented the truth about their products.

The so-called crime that the drug companies are committing is, as the National Journal puts it, promoting their products "for uses the Food and Drug Administration hasn't blessed." But, as federal judge Royce Lamberth explained in his decision in a seminal off-label promotion case, "In asserting that any and all scientific claims about the safety, effectiveness, contraindications, side effects, and the like regarding prescription drugs are presumptively untruthful or misleading until the FDA has had the opportunity to evaluate them, FDA exaggerates its overall place in the universe" (Washington Legal Foundation v. Friedman, 13 F.Supp.2d 51, 68 (D.D.C. 2000)). Promotion of off-label uses could include untruthful or misleading statements, just as promotion of on-label uses could. But promoting a drug or medical device for an off-label use is not inherently untruthful or misleading.

Technically speaking, companies prosecuted for off-label promotion are charged with introducing a "misbranded" article into interstate commerce. And that might sound like fraud or some other form of misrepresentation -- and the government certainly wants you to believe that it is. But the misbranding in question doesn't have to be untruthful or misleading in any way. It's not even related to what is actually printed on the product's label. It occurs, according to the FDA, solely for the reason that the manufacturer's spoken or written recommendation that the drug be prescribed for an off-label use suggests an "intended" purpose for which "adequate directions for use" are not printed on the label. But, of course, the manufacturer is legally barred from printing "adequate directions" for an off-label use on the product's label because that too would constitute the introduction of a "misbranded" article into interstate commerce.

The logic here is circular. Under the FDA's interpretation of the Food, Drug and Cosmetic Act, drug manufacturers are forbidden from mentioning the fact that certain off-label uses have been shown to be safe and effective because they are also forbidden from supplying physicians and patients information about the appropriate way to use drugs for off-label indications in a safe and effective way.

Got it? If not, you could certainly be forgiven for being a little confused. Even many legal experts have difficulty figuring out what is and is not lawful.

During oral arguments last year in a drug sales representative's appeal of his off-label promotion conviction, a panel of Second Circuit Court of Appeals judges seemed inclined to agree that the FDA rules are unclear, ambiguous, and overbroad. At one point, a DOJ attorney tried to explain that off-label promotion "is not a crime" per se, but is merely evidence of the manufacturer's intent to "introduce a misbranded drug into commerce," which is illegal. But the only way the drug was "misbranded" was the sales rep's claim that it was safe and effective for two off-label uses. The judges had difficulty following DOJ's argument and questioned why such speech should be considered criminal.

The U.S. Supreme Court has held on several occasions, most recently in June of 2011, that truthful speech used in pharmaceutical marketing is entitled to the same level of First Amendment protection as other commercial speech. The U.S. District Court for the District of Columbia held some of the FDA's off-label promotion rules unconstitutional in a case that was reversed on appeal when the FDA acknowledged that some off-label speech is protected by the First Amendment. And a recent decision on a related issue by the Seventh Circuit Court of Appeals suggested in non-binding dicta that the FDA's off-label speech restrictions are likely to be "unconstitutional in at least some applications."

Unfortunately, so few constitutional challenges to the FDA's off-label speech ban ever make it to court because an indictment, what attorney Joan McPhee calls the "admission ticket" to the courtroom, would be a catastrophe for any drug firm. That Second Circuit case, Caronia v. United States, is now being watched so closely because it is so rare for these prosecutions to end up in court. Alfred Caronia, the sale representative in question, decided to fight, even though his employer, Orphan Medical, folded at the thought of an indictment.

This "debarment trap" is patently unfair, as companies are forced to choose between the Scylla and Charybdis of a multi-billion dollar fine or the loss of many billions of dollars in sales without having defrauded or otherwise harmed anyone. Worse still, prosecutors and the Department of Health and Human Services are free to mete out either punishment without ever being subject to the oversight of an independent court, essentially stripping manufacturers of basic due process rights. It is no stretch to think that prosecutors who use the threat of debarment to force a settlement are engaging in unethical behavior. And it is long past time that we did something about it.

The simplest solution would be for the FDA to bring its rules on off-label speech into compliance with the First Amendment in a clear and concise way, so that the rules reflect the fact that much of this type of speech is constitutionally protected and so it becomes possible for manufacturers to know what is and is not illegal. That would only solve the problem as it relates to off-label speech, however, leaving drug manufacturers and many others in the heath care industry subject to the whims of aggressive and unfettered prosecutors for other reasonable conduct. Thus, real reform must rein in the ability of prosecutors to use the threat of debarment for the purpose of avoiding judicial oversight. I've been looking into ways in which this might be done, and I hope to explore some proposed solutions in future posts.

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