Are There “Special” Frauds Involving Specialty Drugs? Part II

In Part I of this blog series, we defined the term “specialty drugs” and addressed whether fraud is common in the specialty drugs arena. In this blog post, we will examine how the federal Anti-Kickback Statute impacts specialty drug fraud, whether there are special frauds involving specialty drugs, and what to do if you suspect fraud is being committed.

Specialty Drugs and the Anti-Kickback Statute

Since there are often different pricing mechanisms or controls in place for specialty drugs, and because it’s not always clear whether a drug is properly characterized as a specialty drug, there is lots of room for bending the rules.  Additionally, some of the types of misconduct in the non-specialty field have spilled over to the specialty drug area, such as auto-refills, because specialty pharmacies are often mail order pharmacies; compounded drug frauds, since specialty drugs frequently require compounding; and manufacturer co-pay coupons. Because of the high prices of specialty drugs, they are often the types of drugs covered under manufacturer co-pay coupons.  While not generally illegal, the use of those coupons is not allowed for patients covered under federal healthcare programs, and the use of those coupons can be prosecuted as kickbacks under the Anti-Kickback Statute, 42 U.S.C. § 1370a-7b, and the False Claims Act. See generally United States Department of Justice Press Release, “Nashville Pharmacy Services Settles False Claims Act Lawsuit,”, January 5, 2016; United States Health and Human Services, Office of Inspector General, “Manufacturer Safeguards May Not Prevent Copayment Coupon Use for Part D Drugs”, September, 2014; United States Health and Human Services, Office of Inspector General Special Advisory Bulletin, Pharmaceutical Manufacturer Copayment Coupons, September, 2014.

Again, in part due to the high costs of these drugs, many common types of illegal conduct are also seen in the area of specialty drugs. In a whistleblower lawsuit filed against manufacturer Novartis and other parties, in which the government intervened, plaintiffs alleged that Novartis violated the FCA and the Anti-Kickback Statute through kickbacks to specialty pharmacies, as inducements for them to recommend Novartis’ Exjade, an iron chelation drug, and Myfortic, a drug used to fend off rejection for kidney transplant recipients. With respect to Exjade, the government also alleged that Novartis incentivized and pushed the specialty pharmacies to tout the benefits of Exjade and minimize the serious side effects, as compared to alternative drug choices. Novartis settled that case in November 2015 for $370 million. See United States Department of Justice Press Release, “Manhattan U.S. Attorney Announces $370 Million Civil Fraud Settlement Against Novartis Pharmaceuticals For Kickback Scheme Involving High-Priced Prescription Drugs, Along With $20 Million Forfeiture of Proceeds From The Scheme”, November 20, 2015; ExpressScripts had previously settled for its role in the kickback scheme, for $60 million. See Ed Silverman, “Express Scripts to Pay $60 M to Settle Novartis Kickback Scheme.”. The Wall Street Journal, May 1, 2015.

Are There Special Frauds Involving Specialty Drugs?

There are also certain characteristics of specialty drugs that seem to be leading to some “new” or “special” types of wrongdoing.  For example, with some drug therapies running into the tens or hundreds of thousands of dollars per course of treatment, it can be tempting for healthcare providers or pharmaceutical distributors to cheat in terms of adding just a few phantom patients to their claims submissions.  Many specialty drugs require some type of prior authorization, which can lead to shortcuts or outright fraud in order to allow a prescription to be processed and paid for.  See, e.g., United States Attorney’s Office, Eastern District of Tennessee Press Release, “Former Walgreens Clinical Pharmacy Manager Pleads Guilty to $4.4 Million TennCare Fraud Scheme”, October 25, 2016.  PBMs or other players can push certain drugs from a non-specialty to a specialty category in order to take advantage of favorable payment criteria.

Additionally, there have been concerns about kickbacks, again particularly driven by the very high cost of these drugs.  Given the large amount of money involved, even a few patients can generate large profits for pharmacies.  In one instance, a local pharmacy was considering imposing a fee for passing a customer needing a specialty drug to a particular specialty pharmacy.  When the local pharmacy sought an Advisory Opinion from HHS Office of Inspector General, the suggestion was frowned upon.  See, United States Department of Health and Human Services, Office of Inspector General, OIG Advisory Opinion No. 14-06, August 15, 2014.

What to Do If You Suspect Fraud

Frauds involving pharmaceuticals that end up being paid for by federal or state healthcare programs cost the healthcare programs huge sums of money and lead to severe pressures on these important programs.  In the specialty drug arena, the high cost of the drugs serves to magnify the incentives and the impact of those frauds.  Special conditions in terms of prescription access and reimbursement also provide opportunities for fraud.  Employees in the healthcare field provide the first and best line of defense against fraud committed on these critical government programs.  If you observe conduct that seems to violate the rules in the government healthcare programs, speak up!  Call us for a free and confidential consultation. You might both help keep the healthcare programs afloat and available, as well as be rewarded for your diligence.