Regulatory Focus™ > News Articles > 'Record-Breaking Year' for Fraud Recovery Has Roots in Regulatory Missteps

'Record-Breaking Year' for Fraud Recovery Has Roots in Regulatory Missteps

Posted 12 February 2013 | By Alexander Gaffney, RAC

2012 was a record year for regulatory-related pain and government gain, claims a new report out from the US Department of Health and Human Services' (DHHS) Office of the Inspector General (OIG), the office responsible for overseeing fraud prevention and recovery efforts.

The report, jointly authored by OIG and the US Department of Justice (DOJ), explained that 2012 saw the highest-ever amount of fines recovered from those who had defrauded or attempted to defraud the government.

A 'Record-Breaking Year'

"This was a record-breaking year for the Departments of Justice and Health and Human Services in our collaborative effort to crack down on health care fraud and protect valuable taxpayer dollars," said Attorney General Eric Holder in a statement.  "In the past fiscal year, our relentless pursuit of health care fraud resulted in the disruption of an array of sophisticated fraud schemes and the recovery of more taxpayer dollars than ever before.  This report demonstrates our serious commitment to prosecuting health care fraud and safeguarding our world-class health care programs from abuse."

OIG recovered a total of $4.2 billion in 2012, up approximately $100 million from 2011. The two-year total amounts to more than a third of the agency's Health Care Fraud and Abuse total hauls since its founding in 1997, and officials said the three-year total was its highest ever.

Two Laws Constitute Nearly All Settlements

"The Justice Department's Civil Division Fraud Section, with their colleagues in U.S. Attorneys' offices throughout the country, obtained settlements and judgments of more than $3 billion in FY 2012 under the False Claims Act (FCA)," the statement explains.

The FCA, sometimes better known as the "Lincoln Law," is used to extract penalties from companies who defraud federal programs. The law also allows for so-called "qui tam" lawsuits, or actions initiated by a private individual on behalf of the government. Qui tam provisions provide a powerful incentive for individuals to uncover and report wrongdoing by providing them a cut of any funds recovered by the government if it joins the case.

"This marked the third year in a row that more than $2 billion has been recovered in FCA health care matters," OIG noted.

The law is one of two most often used by legal authorities when going after pharmaceutical, medical device and biopharmaceutical companies, the other being the Federal Food, Drug and Cosmetic Act (FD&C Act), the federal law regulating the development, production and use of the majority of healthcare products. Officials said they had recovered $1.5 billion under FD&C Act provisions in 2012.

But it's where the majority of that money came from that may give regulatory affairs professionals pause.

Regulatory Crime and Punishment

One reason the fine total was so large in 2012: GlaxoSmithKline, which paid a record-setting $3 billion fine to settle charges that it had used illegal practices to market three of its best-settling drugs, Paxil, Wellbutrin and Avandia. That settlement involved a combination of fines under the FCA, and resulted in a five-year corporate integrity agreement (CIA) with the US government.

Another manufacturer, Merck, Sharp & Dohme, paid $950 million to resolve charges under the FD&C Act and FCA that it had illegally promoted and marketed Vioxx (rofecoxib), a painkiller.

A large number of other medical device and pharmaceutical manufacturers paid fines in 2012 as well, including Johnson & Johnson subsidiary Scios ($85 million, FD&C Act), GE Healthcare ($30 million, FCA), Medtronic ($23.8 million, FCA), Genentech ($20 million, FCA), KV Pharmaceutical ($17 million, FCA) and Dava Pharmaceuticals ($11 million, FCA).

Not all settlement funds were necessarily recovered by the government, explaining the discrepancies between the fine totals (approximately $5 billion) and the amount recovered ($4.2 billion) and deposited into the federal treasury.

Other Efforts

In addition, three executives of the medical device manufacturer Synthes, now a Johnson & Johnson subsidiary, were found guilty under the responsible corporate officer doctrine and sentenced to between five and nine months in jail for their role in illegally testing their Norian XR and SRS spine devices.

FDA's 2012 activities were also highlighted in the report, which noted that the agency spent $3.4 million on 17 investigations. Thirteen of those investigations pertained to clinical trial/application fraud, while the remaining four were split between drug and device promotional violations. The agency also used the funding to conduct several three-day workshop training sessions, the report said.

The findings of OIG's report largely comport with an earlier study conducted by public interest group Public Citizen, whose September 2012 report notes that the pace of fraud recovery has accelerated dramatically.

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