Impact of an Australian Anti-False Claims Law
on the Pharmaceutical Sector
Prof. Thomas Faunce
BA/LLB (hons) BMed PhD
College of Medicine, Biology and the Environment and College of Law
Australian Research Council Future Fellow
7th Annual Pharmaceutical Law Conference
Sydney Harbour Marriott
30 May 2014
Overview
Background- massive corporate undetected fraud in
Australian health care, energy sector (royalties), defence
contracting
Introduction to US Qui Tam anti-fraud laws
Applications of Qui Tam laws in US
Potential applications of Qui Tam laws to Australia-
particularly to pharmaceutical sector
Progress in Developing an Australian False Claims Law
Rationale for Australian False Claims law
Health Care Fraud
Australian taxpayers spend billions each year on medicines and health care.
Australian federal expenditure on PBS A$8.3 billion in 2010
Expenditure on health care $70 billion in 2011
Australian state government expenditure on health care $26 billion in 2008.
A 2010 report published by the University of Melbourne and KPMG estimates that the money lost to corporate fraud in Australia (including in connection with the billions spent by governments on pharmaceuticals and health care) is growing at an annual rate of 7%, but that only a third of the losses are currently being detected.
Evergreening in US
In 2002 an extensive and lengthy inquiry by the United States Federal Trade Commission (FTC) found that as many as 75% of new drug applications by generic drug manufacturers suffered legal actions under patent laws by the original brand name patent owner.
These were driving up United States drug costs by keeping the cheaper generic versions off the market. The FTC recommended that only one injunction against a potential generic market entrant be permitted per product.
This change was implemented when the United States legislature passed its Medicare Prescription Drug Improvement and Modernisation Act 2003 (US), in s 1101 creating in s 1101 a complicated process of early declaratory relief.
Federal Trade Commission, Generic Drug Entry Prior to Patent Expiration: An FTC Study
(United States Federal Trade Commission, 2002).
Glasgow L, Stretching the Limits of Intellectual Property Rights: Has the Pharmaceutical Industry Gone Too Far? (2001-2002) 41 Journal of Law and Technology 227.
Evergreening Tactics
A wide range of tactics may be employed:
potentially misleading or deceptive advertising;
patent extensions for delayed regulatory approval (in the absence of criteria requiring that the manufacturer did not itself prolong the regulatory process);
data exclusivity claims;
threatened or actual legal action against generics
Licensed generics
patent claims over incremental product modifications
with marginal obviousness. Faunce, T.A and Lexchin J ‘Linkage’ Pharmaceutical Evergreening in Canada
and Australia Australian and New Zealand J Health Policy 2007 Jun
1;4(1):8
‘Linkage Ever-greening’ in
AUSFTA
Article 17.10.4 AUSFTA: if patent ‘claimed’ drug regulator must ‘prevent’ marketing approval (Provision also in NAFTA (1993) and KORUSFTA (2006))
Required new Sections 26B(1) Therapeutic Goods Act 1989 The certificate required under this subsection is either:
(a) a certificate to the effect that the applicant, acting in good faith, believes on reasonable grounds that it is not marketing, and does not propose to market, the therapeutic goods in a manner, or in circumstances, that would infringe a valid claim of a patent that has been granted in relation to the therapeutic goods; or
(b) a certificate to the effect that:
(i) a patent has been granted in relation to the therapeutic goods; and
(ii) the applicant proposes to market the therapeutic goods before the end of the term of the patent; and
(iii) the applicant has given the patentee notice of the application for registration or listing of the therapeutic goods under section 23.
F1-F2 Amendments to National Health Act
1953: Fracturing the PBS Formulary
2007 amendments to National Health Act 1953 new sections 85AB and 85 AC: create
F1 formulary: no ‘bioequivalent brands-mostly patented medicines
F2 formulary-mostly generic and subject to mandatory price cuts
New reference pricing groups will have to satisfy the criteria of “interchangeable on an individual patient basis” (new sections 84AG and 101 [3BA])-will that be a positive or negative for supragenerics (patented generics) and biologics?
US Qui Tam laws
In US anti-fraud laws involving financial compensation (a percentage of final triple damages) to whistleblowers lawyers (Qui Tam provisions) upon successful action in detecting fraud and abuse of public monies obtained from federal and state programs.
In 2009 Pfizer Inc., the largest pharmaceutical firm in Australia based on its PBS sales, settled for US$2.3 billion, one of the largest health care settlements in the history of the US Department of Justice, to resolve criminal and civil liabilities related to kickbacks to physicians for and marketing for off-label prescriptions.
While the US continues to strengthen such anti-fraud measures, Australia still suffers from the absence of any comprehensive scheme that not only protects from reprisals, but similarly encourages informants to expose evidence of corporate fraud, particularly in the health care sector.
US False Claims Legislation Overview
US False Claims Act 1986 (FCA) creates private-public enforcement partnership
Half of all US States have enacted their own False Claims statutes.
Anti-Kickback Statute 1972, the Stark Law Statute 1995, the Patient Protection and Affordable Care Act 2010 (PPACA), and the Food, Drug, and Cosmetic Act 1938.
Qui Tam laws allow private citizens, also called ‘relators’, the right to provide documents establishing fraud to a ‘no win-no fee’ lawyer and initiate with combined assistance of DOJ a lawsuit under seal (not initially disclosed to the defendant).
Informants must provide new information, not malicious (screening by lawyers and DOJ)
Rewarded with up to 30% of triple damages Government recovers from the civil suit.
Criminal penalties still applies
Examples of Successful False
Claims in US HealthCare Making claims for government money involving a false certification;
Over-utilisation of clinical laboratory and diagnostic services;
Inflating the price used for government reimbursement above that
charged to pharmacists and other private payers;
Concealing discount prices afforded to non-government payers and
otherwise improperly pricing drugs, misbranding, providing defective
and poor-quality health care items and services;
Billing for medicines or health services not provided or inadequately or
inappropriately provided;
Colluding to inflate price, “off-label” promotion of drugs (ie marketing for
unapproved uses);
Providing kickbacks to doctors and institutions that prescribe or
purchase products; and
Discounting medicines to hospitals which then charge the Federal
Government a higher price. Skillen LA, “Fighting Medicare Fraud: The Deficit Reduction Act, Federal Incentives to Enact State Qui Tam Laws and the
New York State False Claims Act” (2008) American Bar Association National Institute on White Collar Crime,
http://www.getnicklaw.com/media/FightingMedcareFraud.pdf viewed 21 October 2010.
Potential applications of Qui Tam laws to
Australian medico-legal practice:
- Pharmaceutical and Medical Device Industries- private
hospital requiring manufacturers provide a discount for
surgeons to use their device
- False claims by Private Health Insurers and Medical
Indemnity Insurers-Charging for treatment /s that have not
been provided, Creating false documents, Altering
accounts to increase financial benefits, Claiming for
additional services without the healthcare providers’ ,
health fund members’ knowledge
- Understating minerals extraction to reduce state royalties
- Making false claims to get and maintain defence contracts
Highest Australian PBS Suppliers by Market Share (Scripts),
2008-09 (%) in relation to representative US Qui Tam Actions
against those firms or parent company.
Alphapharm (14% PBS) (subsidiary of Mylan Inc) Mylan paid US government US$65m in 2010 concerning a False Claim action
Pfizer (10% PBS )- False Claim actions by US government including 2009 settlement for US$2.3billion.
Astra Zeneca (9% PBS ) 2010 False Claim action by US government for US$520m.
Sigma (10% PBS) (Aspen Pharmacare) No US Qui Tam involvement
Glaxo Smith Kline (5% PBS) 2005 US False Claim action for US$150m and 2010 US False Claim action for US$750m
Merck Sharpe and Dohme (3% PBS) 2008 US False Claim action for US$650m
Sanofi-Aventis (8% PBS) Sanofi settled US False Claims action for US$95.5m in 2009.
Bristol Myers Sqibb (3% PBS) settled 2007 US False Claims action for US$515m
Source: Aust. Govt. Dept. Innovation, Industry, Science and Research. Aust. Pharmaceutical Industry Data Card 2010 and
Skillen (2010)
Offences under the Health Insurance Act 1973 (Cth)
allowing Aust. Governments treble damages if Qui Tam
statutes enacted.
prohibition of certain medical insurance (s 126);
preclusion on agreements to assign Medicare benefits (s 127);
offences in relation to returns (s 128);
false statements relating to Medicare benefits (s 128A);
knowingly making false statements relating to Medicare
benefits (s 128B);
charging of fees for provision of public hospital services to
public patients (s 128C);
making false statements (s 129);
bribery in relation to admissions to private hospitals (s 129AA).
ACCC and CDPP
ACCC: obtaining anti-trust evidence by immunity from civil proceedings if first participant in cartel to admit, if not the “ringleader” and where full admissions and ongoing assistance are provided.
New criminal sanctions for executives involved in cartels, including 10-year jail terms,
In January 2009, the Commonwealth Director of Public Prosecutions (CDPP) allowed whistleblowers of cartel behaviour can now apply to ACCC for both civil and criminal immunity.
Trade Practices Act 1974 (Cth), Pt IV, Div 1 – Cartel Conduct, s 44ZZRF (Making a contract etc containing a cartel provision) and s 44ZZRG (Giving effect to a cartel provision).
Commonwealth Director of Public Prosecutions, Disclosure Policy, http://www.cdpp.gov.au/Publications/DisclosurePolicy/
Australian developments in anti-fraud and anti-
trust
The Australian anti-fraud and anti-trust litigation system has developed considerably since 1989, when a federal committee on insider trading recommended that qui tam laws were “incompatible” with accepted principles and practice in the Australian legal system.
Over the past 20 years, anti-competitive behaviour has increasingly been regarded as a serious crime by Australian regulators.
Champerty has been abolished in most jurisdictions, and litigation funding companies are permitted to back public interest class actions.
House of Representatives Legal and Constitutional Affairs Committee, Insider Trading in Australia
(AGPS, Canberra, 1989) p 45.
Standing Committee of Attorneys-General, Litigation Funding in Australia (AGPS, Canberra, 2005).
Private enforcement of public rights
Parliament can decide who may bring an action to “prevent the violation
of a public right or to enforce the performance of a public duty.”
“The common law requirement that a plaintiff who brings an action, not to
vindicate a private right, but to prevent the violation of a public right or to
enforce the performance of a public duty, must have a special interest to
protect, is based upon considerations of public policy which the legislature
would not lightly disregard. Nevertheless, it is not difficult to understand why,
in the case of certain laws, it might be considered in the public interest to
provide differently. Apart from statute, there are ample precedents for private
enforcement of laws.”
Truth About Motorways Pty Ltd v Macquarie Infrastructure Investment
Management Ltd (2000) 200 CLR 591 per Gleeson CJ and McHugh J at [2]
Australian law and private
prosecutions
Australian criminal law recognises “private prosecution”.
Indictable offences prosecuted by indictment in the name of
the Attorney-General of the Commonwealth or such other
person as the Governor-General appoints in that behalf” Judiciary Act 1903 (Cth), s 69(1).,
But s 13 of the Crimes Act 1914 (Cth) provides:
Unless the contrary intention appears in the Act or regulation
creating the offence, any person may:
(a) institute proceedings for the commitment for trial of any person in
respect of any indictable offence against the law of the
Commonwealth; or
(b) institute proceedings for the summary conviction of any person in
respect of any offence against the law of the Commonwealth
punishable on summary conviction.
Australian law and private prosecutions
Private prosecution typically taken over by the Commonwealth Director of
Public Prosecutions.
Prosecutions likely to be discontinued if alternative remedies, such as the
imposition of civil penalties, are reasonably available.
Even where a right to bring an action is recognised, however, this is
separate from the right to claim a share of the penalty or bounty.
In Australia, the common law origins of the qui tam action are
acknowledged, but courts have taken the view that “Only offences created
by statutes which expressly or by necessary implication provide for qui tam
action may be prosecuted by a common informer [ie a relator]” and that
“[t]he onus of showing the statute so provides lies on the common informer”: Commonwealth Bank of Australia v Gargan (2004) 140 FCR 1 at [28].
Aust. False Claims Proposal
Andrew Lawrence at AGs is coordinating drafting of Aust.
False Claims Proposal
Drawing on Expertise of top US False Claims Public and
Private Sector Lawyers
Likely to be a growth industry for Aust. Legal Practice
Large Aust. law firms supportive
Police Association and Accountancy firms supportive
Conclusion
The Health Insurance Act 1973 (Cth) could be amended to allow the judiciary to construe the statute in favour of a qui tam petitioner.
Strong prospects for US False-claims type legislation in relation to other large amounts of public money in Australian healthcare system
Crucial features are relators with own lawyers working in tandem with govt. law enforcement, incentive percentage of final verdict, protections against de minimis and vindictive cliams
Further research needed on areas such as :
relationship between putative False Claims relator and public prosecutor under Australian law and
triple damages punitive?
can relator have own lawyer?
costs awards?