Corporate responsibility and pharmaceutical fraud

Pharmaceuticals Policy and Law 14 (2012) 129–156 129
DOI 10.3233/PPL-120350
IOS Press
Corporate responsibility and pharmaceutical fraud
Jos ́e Luis Valverde
Chaire Jean Monnet Europe of the Health, University of Granada, Granada, Spain
E-mail: [e-mail]
The Health-Care fraudulent practices cost billions of dollars each year. Fraud and corruption activities
can take place in any healthcare systems, whether they are predominantly public or private, well funded
or poorly funded, and in any area of healthcare delivery. Rooting out health care fraud is central to the
well-being of both the citizens and the overall economy.
Fraud and corruption in the healthcare sector are often hard to detect unlawful behaviour. Healthcare
is increasingly becoming multinational and needs tackling as such. A major concern has been fraud
schemes by pharmaceutical manufacturers and distributors. The world pharmaceutical market was worth
an estimated 614,583 million ($ 855,500 million) at ex-factory prices in 2011. The pharmaceutical
industry’s reputation has come under fire concerning the lack of transparency around its relationships
with governments and the health community. The annalist and the news papers condemn the disconnect
between the self-serving proclamations of “high ethical standards” and the reality of pharma’s conduct.
The regulation of the prosecution of the pharmaceutical fraud it is too completely different in United
Stated, EU and other countries. It is very important for the sector react whit efficacy. Its it one challenge
for the companies and for preserve the huge historical contribution in the health. Our society need to
preserve this patrimony and increase his efficacy.Building trust and transparency are indispensable in the
new policy on corporate social responsibility in the pharmaceutical industry.
Keywords: Pharmaceutical fraud, Medicaid, Medicare, False Claims Act, Off Label Marketing, corporate
responsibility, EU
1. One pharmaceutical industry two world regulation
The pharmaceutical companies have the common goal of fabric medicinal product
for all the people at global level. But the access of the population it is very different.
The world pharmaceutical market was worth an estimated 614,583 million
($ 855,500 million) at ex-factory prices in 2011. The North American market (USA
and Canada) remained the world’s largest market with a 41.8% share, well ahead of
Europe and Japan.
In 2011, North America accounted for 41.8% of world pharmaceutical sales com-
pared with 26.8% for Europe. According to IMS data, 56% of sales of new medicines
launched during the period 2006–2010 were on the US market, compared with 24%
on the European market and 12% Japan.1
Medicines can generate additional savings, by substantially reducing costs in other
branches of healthcare (hospital stays, invalidity, etc.).
1http://www.efpia.eu/sites/www.efpia.eu/files/EFPIA Figures 2012 Final-20120622-003-EN-v1.pdf.
1389-2827/12/$27.50  2012 – Network of Centres for Study of Pharmaceutical Law. All rights reserved

130 Jos ́e Luis Valverde / Corporate responsibility and pharmaceutical fraud
IMS Health publishes an analysis of trends expected in the pharmaceutical industry
every year. The then largest pharmaceutical and biotech companies ranked by health-
care revenue are: Pfizer, Novartis, Merck and Co., Bayer, GlaxoSmithKline, Johnson
and Johnson, Sanofi, Hoffmann–La Roche, AstraZeneca, Abbott Laboratories.
Pharmaceutical Companies participated in global market, but every country have
your own regulation. This situation product one fragmentation of the pharmaceutical
market even between EU.
The regulation of the prosecution of the pharmaceutical fraud it is too completely
different in United Stated, EU and other countries.
2. Fraud in the American Health Care System
Rooting out health care fraud is central to the well-being of both the citizens and
the overall economy.
Health care fraud costs the country an estimated $80 billion a year. And it’s a
rising threat, with national health care spending topping $2.7 trillion and expenses
continuing to outpace inflation. Recent cases also show that medical professionals
are more willing to risk patient harm in their schemes.
The FBI is the primary agency for exposing and investigating health care fraud,
with jurisdiction over both federal and private insurance programs.2
Cases involving fraud against Medicaid or Medicare are complex. The Medicare
Modernization Act (MMA) was passed by Congress after much debate. The Pre-
scription Drug Benefit (PDB) was originally touted as an important benefit for senior
citizens. However, in the opening stages, there were countless complaints about
unscrupulous vendors.3
From the years 2000,the U.S. Department of Justice has taken an aggressive posture
in prosecuting pharmaceutical manufacturers that have been found to use unethical
and illegal marketing and other schemes to gain market share with prescription drugs.
The number of schemes to defraud health care insurance is as varied as the services
and care providers in the health care field. Federal health care programs include
Medicare, Medicaid, and all other plans and programs that provide health benefits
funded directly or indirectly by the United States.
Fraud in the American Health Care System takes on many forms. A major concern
has been fraud schemes by pharmaceutical manufacturers and distributors. These
include: Good Manufacturing Practice (GMP) Violations; Off Label Marketing;
Best Price Fraud, CME Fraud; Medicaid Price Reporting; Manufactured Compound
Drugs; kickbacks to providers to induce a referral or a reward for past referrals; false
2http://www.fbi.gov/about-us/investigate/white collar/health-care-fraud.
3National Health Care Anti-fraud Association (September 2002) “Healthcare Fraud: A Serious and
Costly Reality for All Americans”, www.nhcaa.org.

Jos ́e Luis Valverde / Corporate responsibility and pharmaceutical fraud 131
reporting under the Medicaid drug rebate law, and provision of off invoice discounts
in violation of Medicaid drug rebate laws.
This note constitutes an brief overview of the state of health care fraud in the
United States. It is not meant to be all-inclusive.
3. Current methods for handling fraud4
The False Claims Act (FCA), was enacted in 1863 by a Congress concerned that
suppliers of goods to the Union Army during the Civil War were defrauding the Army.
Since then, the FCA has been amended several times. Over the life of the statute it
has been interpreted on hundreds of occasions by federal courts. Our purpose is not
to explain how the FCA works. We simply explain the most significant elements of
the FCA for an introductory understanding of the FCA.
The statute begins, by explaining the conduct that creates FCA liability. The
Statute listing seven types of conduct that result in FCA liability.
After listing the seven types of conduct that result in FCA liability, the statute
provides that one who is liable must pay a civil penalty of between $5,500 and
$11,000 for each false claim and treble the amount of the government’s damages.
Where a person who has violated the FCA reports the violation to the government
under certain conditions, the FCA provides that the person shall be liable for not less
than double damages.
A person does not violate the False Claims Act by submitting a false claim to
the government; to violate the FCA a person must have submitted, or caused the
submission of, the false claim (or made a false statement or record) with knowledge
of the falsity. Knowledge of false information is defined as being: actual knowledge,
deliberate ignorance of the truth or falsity of the information, or reckless disregard
of the truth or falsity of the information.
The FCA also defines what a claim is and says that it is a demand for money
or property made directly to the Federal Government or to a contractor, grantee, or
other recipient if the money is to spent on the government’s behalf and if the Federal
Government provides any of the money demanded or if the Federal Government will
reimburse the contractor or grantee.
The False Claims Act and the Prosecution of Manufacturers Under the FCA, can
be found liable for civil penalties and treble damages based upon the Government’s
damages.
4. The qui tam provisions
The FCA allows private persons to file suit for violations of the FCA on behalf of
the government. A suit filed by an individual on behalf of the government is known
4www.oig.hhs.gov.

132 Jos ́e Luis Valverde / Corporate responsibility and pharmaceutical fraud
as a qui tam action,5 and the person bringing the action is referred to as a ‘relator’.
The qui tam provisions states that a person may file a qui tam action. A qui tam
complaint must be filed with the court under seal. The complaint and a written
disclosure of all the relevant information known to the relator must be served on the
U.S. Attorney for the judicial district where the qui tam was filed and on the Attorney
General of the United States.
The 1986 amendments to the False Claims Act strengthened the Act’s qui tarn, or
whistleblower, provisions and gave federal prosecutors one of their most effective
tools against defrauding the government.
The False Claims Act is often used to recover payments made to entities or
individual providers under false pretenses. The False Claims Act imposes civil
liability on any person or entity that submits a false or fraudulent claim for payment
to the U.S. Government. The False Claims Act prohibits: Making a false record or
statement to get a false or fraudulent claim paid by the government. Conspiring to
have a false or fraudulent claim paid by the government. Withholding property of the
government with the intent to defraud the government or to wilfully conceal it from
the government. Making or delivering a receipt for the government’s property which
is false or fraudulent. Making a false statement to avoid or deceive an obligation to
pay money or property to the government.
We does not discuss every section of the False Claims Act. It is intended only to
provide a minimum general terminology for introduction to the False Claims Act to
those new to the area.
5. The Fraud Enforcement and Recovery Act of 2009
After nearly a quarter of a century without a single legislative update, the U.S.
Government’s primary fraud-fighting weapon was finally modernized in 2009 and
2010. Specifically, by passing the Fraud Enforcement and Recovery Act of 2009
(FERA)6 and the Patient Protection and Affordable Care Act of 2010 (PPACA).7
Congress removed some of the statutory confusion and liability loopholes that have
been undermining the federal False Claims Act (FCA).8 Among other things, these
landmark amendments restored key liability provisions and changed the cost-benefit
analysis for dishonest entities who seek to steal Government funds. Additional work
is still needed in the future to fully restore the Act.9
5Qui tam derives from the Latin phrase qui tam pro domino rege quam pro se ipso in hac parte sequitur,
meaning “who as well for the king as for himself sues in this matter.”
6Pub. L. No. 111-21, 123 Stat. 1617. American Recovery and Reinvestment Act of 2009, Pub. L. No.
111-5, 123 Stat. 115.
7Pub. L. No. 111-148, 124 Stat. 119.
831 U.S.C. 3729 et seq.
9Joseph E. B. “Jeb” White, Esq. The future of the false claims act: back to the future for the govern-
ment’s primary fraud-fighting weapon. Nolan and Auerbach, P.A.

Jos ́e Luis Valverde / Corporate responsibility and pharmaceutical fraud 133
These acts, among other things, amended bases for liability in the FCA and
expanded certain rights of qui tam relators.10
From 1999 to 2002, more than 3,600 civil actions were successful. In this same
period, there were more than 19,000 exclusions. HHS has been involved in more that
1,300 ‘qui tam’ investigations over the past five years. HHS reported the successful
conclusion of 258 criminal convictions,105 federal civil actions, and 1,695 exclusions
from the federal health care program.11
6. Whistle-blowers can initiate cases
Prosecution and prevention of health care fraud and abuse are essential to reducing
U.S. health care spending. Currently, 90% of health care fraud cases are ‘qui tam’
actions in which whistle-blowers with direct knowledge of the alleged fraud initiate
the litigation on behalf of the government. If a qui tam action leads to a financial
recovery, the whistle-blower stands to collect a portion of the award. From 1996
through 2005, qui tam actions led to more than $9 billion in recoveries. In follow
year the increase was exponential.
Whistle-blowers (as relators) can initiate cases by filing a sealed complaint in fed-
eral court, nearly always with the help of a personal attorney. Department intervenes
result in judgments against or settlements with the defendant.12
The False Claims Act allows an individual, often referred to as a whistleblower,
who knows about a person or entity who is submitting false claims to bring a suit, on
behalf of the government, and to share in the damages recovered as a result of the
suit. The whistleblower that brings the case is called a qui tarn relator.13
The whistleblower protection clause is one of the strongest protection clauses in
federal law. It not only protects the relator but anyone who investigates, initiates,
testifies in furtherance of, or assists in a case.
But although FCA prosecution has the potential to exact large monetary fines from
manufacturers, overall the FCA is ineffective at deterring future fraud for a number
of reasons. First, there appears to be a lack of sufficient investigation. A second
major problem with the FCA is the Government’s over reliance, on qui tarn suits.
The effectiveness of qui tarn suits to combat fraud, however, has frequently been
questioned. A third major problem with the FCA is that prosecution typically results
10OIG. State False Claims Act Reviews. https://oig.hhs.gov/fraud/state-false-claims-act-reviews/index.
asp.
11HHS Office of Inspector General Part IV – Public Health, Human Services, Semiannual Report
to Congress – Spring 2012. Medicare Program Reviews. https://oig.hhs.gov/reports-and-publications/
archives/semiannual/2012/spring/sar-s12-01-medicare.pdf.
12Kesselheim, Aaron S, Md, Jd, Mph; Studdert, David M, Llb, Scd, Mph; Mello, Michelle M, Jd, Phd,
Mphil, Whistle-Blowers’ Experiences in Fraud Litigation against Pharmaceutical Companies. The New
England Journal of Medicine 362, 19: 1832-9 (2010).
13Accessed at www.quitam.com.

134 Jos ́e Luis Valverde / Corporate responsibility and pharmaceutical fraud
in a monetary judgment or settlement against the manufacturer and fails to deter
future criminal behaviour.
7. Anti-kickback statute
The failure of ethical norms to deter behaviour that is widely regarded as unaccept-
able is a classic trigger for the imposition of legal norms. Just such a phenomenon
is occurring today with the insertion of the federal anti-kickback law into this arena
by federal prosecutors by criminalizing suppliers’ efforts to induce use of products
or services by providing “remuneration” to ordering physicians. Giving, accepting,
or offering to give or accept such remuneration can result in severe criminal and civil
penalties. Amendments in 1977, 1980, and 1987 sought to refine the statute’s scope
and application.
Another form of fraud is manufacturers’ attempts to encourage, persuade, or bribe
health-care providers to prescribe a particular drug. It is unlawful to “knowingly and
wilfully” offer to pay any “remuneration . . . directly or indirectly . . . in cash or in
kind” to any person to induce such person to purchase or order any item “for which
payment may be made . . . under a federal health-care program”.
Because government officials believe such intrusions into the important medical
decisions of doctors cannot be allowed, the Government will continue to prosecute
claims of illegal kickbacks and incentives.
A concern in the Medicare and Medicaid programs are conflict of interest is-
sues, referred to as Stark violations. These are violations where doctors or other
practitioners provide or are provided kickbacks for business or referrals.
Governance of the relationships between physicians and pharmaceutical companies
has long relied on professional concern about potential conflicts of interest, rather
than legal regulation.
8. Exclusion and Corporate Integrity Agreements
Other action have relevant importance as the Exclusion and Corporate Integrity
Agreements. An important action that can be taken by HHS is exclusion of a provider
from billing federal insurance programs or serving in any institution or practice that
receives federal funds. The effect of an exclusion (not being able to participate) is
that no payment will be made by any federal health care program for any items or
services furnished, ordered, or prescribed by an excluded individual or entity.
A contractor can be excluded or debarred from federal contracting. The purpose
behind exclusion and debarment is not to punish contractors for past behaviour, but
to ensure their present responsibility. One issue with debarment and/or exclusion
is that some companies have become “too big to debar”. The chief counsel for the