Life Sciences Investigations – 2020 Year in Review and 2021 Outlook

On February 11, 2020, AGG’s Government Investigations team leaders, Aaron M. Danzig and Sara M. Lord, conducted a webinar, titled “Life Sciences Investigations and Enforcement Actions:  2020 Year in Review and 2021 Expectations.”  The presenters highlighted the government’s 2020 cases and investigations involving life sciences companies under the False Claims Act (FCA) and Anti-Kickback Statute (AKS), recent antitrust prosecutions, and the ever-expanding number of actions related to opioid enforcement.  The webinar focused, in particular, on aspects of the cases that demonstrated new and continuing priorities in enforcement, as well as whether to expect changes or shifts in these areas under the new administration.

Notably, in December 2020, the Department of Health and Human Services (HHS) announced the creation of the False Claims Act Working Group, a coordinated enforcement group between the HHS Office of the Inspector General (OIG) and the Department of Justice (DOJ).  The announcement noted pointedly that, as a result of the COVID-19 pandemic, HHS provided unprecedented payments – $1.5 trillion in grants and other payments, and $170 billion to government contractors – to public and private recipients in 2020.  Given the haste with which these payments were made, a higher than normal rate of fraud is to be expected, and, as it has been in the past, the FCA will be the primary mechanism for enforcement and recovery of funds in 2021.  Furthermore, while the healthcare industry accounted for $1.8 billion of the $2.2 billion recovered by the DOJ in 2020, both those numbers represented a significant decline from the figures in previous years.  That said, 2020 saw the highest number of FCA cases ever filed – 922 –  more than in any previous year.  Thus, while resolutions of government FCA enforcement action slowed in 2020, likely as a result of the pandemic, companies should expect an uptick in enforcement activity in 2021.

In 2020, the government announced a number of FCA settlements in cases involving charitable foundations that provided pharmaceutical co-payment assistance to Medicare and other government-funded healthcare recipients.  While the bulk of these recoveries were from pharmaceutical companies, the government has also charged and recovered funds from certain foundations.  In addition, through at least two settlements, the government charged and recovered funds from a specialty pharmacy, alleging that the pharmacy had provided data from the foundations to the pharmaceutical company so that the company could coordinate its “donations” to the foundation to cover the co-pays for its own products.  For the most part, these cases arose from conduct during the period from 2011 through 2016, when the government’s first cases and investigations were announced.  While there likely are more cases in the pipeline, this may be an instance in which the industry has self-corrected, and, therefore, may mean fewer cases in the future.

The government has always focused on speaker benefits under the AKS, and 2020 was no exception.  Settlements in this area focused on the quality, utility, and quantity of speaker programs, including the locations and lavishness of meals and entertainment.  Significantly, however, in November 2020, the HHS OIG issued a Special Fraud Alert identifying the suspect characteristics in a fraudulent speaker program, e.g., little substantive information presented; multiple programs on the same topics; no new information or new indication; the same healthcare providers attending multiple presentations; speaker selection by salespeople; speaker payments in excess of fair market value, etc.  While the list is plainly derived from the experience of recent cases, it is a clear warning that government scrutiny of speaker programs will not only intensify, but will be initiated from a place of suspicion.

AKS cases in 2020 were not limited to speaker programs.  Government settlements cited kickbacks in the form of direct payments, “consulting fees,” free or below-cost products, guaranteed interest-free loans, the use of space and equipment, and other services.

In recent years, the government’s antitrust focus has increased with respect to the healthcare industry in general, and the life sciences in particular.  Generic pharmaceutical pricing has been and will continue to be a priority for both the federal and state governments.  In 2020, the government announced criminal penalties of $195 million (the largest domestic antitrust penalty ever in a domestic antitrust case) and $24.1 million against Sandoz and Apotex, respectively, on charges of price fixing and conspiracy.  These two cases are part of the larger investigation into the generic pharmaceutical industry which has resulted in six companies and a number of individuals being charged.  Relatedly, in June 2020, 46 states, the District of Columbia, and four territories filed suit charging 26 drug manufacturers with conspiracy to fix prices for more than 80 drugs; this suit follows two previous suits by various states in 2016 and 2019 alleging similar price fixing by drug makers of more than 100 other drugs.  In 2020, the DOJ also brought two “first of their kind” criminal antitrust cases, alleging wage-fixing and no-poach agreements by healthcare companies.

Opioid enforcement investigations and settlements predominated in 2020.  In addition to resolving civil and criminal claims against Purdue with billions of dollars in fines and penalties, the government announced criminal penalties of $289 million against Indivior for improperly marketing Suboxone, and $26 million in criminal penalties, and $118.6 million in civil fines against Practice Fusion for accepting kickbacks in exchange for using its electronic health records software to influence physicians to prescribe opioid pain medications.  On September 30, 2020, the government announced the largest healthcare fraud and opioid enforcement action in DOJ history.  The sweeping action charged 345 defendants, including more than 100 healthcare professionals, with submitting more than $6 billion in false and fraudulent claims to federal healthcare programs and private insurers, and also included charges of distributing more than 30 million doses of opioids.

These cases and government pronouncements support the following expectations for 2021:

• Continuing focus on FCA, including speaker programs, copay programs, but also scrutiny of COVID relief funds and programs

• Expanded emphasis on FCPA – especially involving drug and device manufacturers in foreign countries

• More antitrust investigations – stricter review of proposed mergers, greater scrutiny of pricing, especially with respect to pharmaceuticals, and more focus on possible price-fixing

• Increased investigations regarding opioids, including distribution and marketing, beyond pharmaceutical manufacturers – and further instances of state and private causes of action looking to assign responsibility beyond the manufacturers

• Potential clinical trial fraud investigations involving the development of drugs and medical devices