Drug manufacturers that sell to the government products that do not meet specifications or that fail to report serious adverse events could face False Claims Act allegations and potentially severe penalties in the near future.

The Department of Justice will expand the use of the False Claims Act into new enforcement areas that could impact over-the-counter products, said Eugene Thirolf, director of DOJ's Office of Consumer Litigation.

These new enforcement areas include "how a drug is manufactured" and "suppressing safety information or having a particular problem that is an adverse event that is not reported," Thirolf said at a recent Food and Drug Law Institute conference in Washington.

Used to penalize health care fraud against government programs like Medicare and Medicaid, the False Claims Act is considered one of the government's most powerful enforcement tools because it allows prosecutors to seek treble damages and civil penalties between $5,500 and $11,000 per false claim.

The statute has figured in a variety of cases including, for example, allegations that long-term care pharmacy provider Omnicare engaged in a kickback scheme, Pfizer fraudulently marketed Bextra and other drugs, and Wyeth engaged in fraudulent price reporting related to bundled sales of its proton pump inhibitor Protonix . The first two cases were settled, the Bextra allegations for a record $2.3 billion (¹ Also see "Pfizer's Record-Breaking $2.3 Bil. Settlement With U.S. Attorney Imposes New Restrictions on Corporate Behavior" - Pink Sheet, 7 September, 2009.).

While pricing and marketing are traditionally target areas for FCA actions, Thirolf warned that enforcement agencies could use the law to prosecute firms that misrepresent the quality of their manufacturing processes and finished products.

He explained that a drug that "does not meet spec and is being sold to a federal government entity, such as Medicare for example, could be a violation of the Food Drug & Cosmetic Act and could render the submission of the bill for the drug to be false."

Generic or private-label drugs are particularly at risk of False Claims Act cases, Thirolf said. He hypothesized, for example, that in the push to be the first generic drug manufacturer to market and secure exclusivity, a manufacturer might tell FDA it can make a drug when it cannot. As a result, the government and consumers are not paying for what they expect, and "that is fraud and will result in an investigation."

In this case, employees in a position to blow the whistle on a manufacturer, and cash in on the percent of recoupment offered under the False Claims Act, could be those monitoring how drugs are made or tested for quality control, he said.

The threat of increased competition from generic drugs also "may make [branded] companies do something they might not otherwise do, which is market products in a way [that is illegal] because they have a limited amount of time to get the patented drug's money back," Thirolf added.

Hiding Safety Concerns Could Be In Play

Likewise, failure to reveal substantial safety concerns could become a False Claims Act case if the failure impacts a product's reputation and misleads consumers and the government to think they are buying a safer product than they are.

Historically, prosecutors have used the False Claims Act to pursue illegal drug pricing schemes or misleading marketing, Thirolf said.

For example, in 2006 Schering-Plough paid $435 million to resolve False Claims Act allegations it failed to charge a Medicaid rebate program the "best price" for K-Dur (potassium chloride) and Claritin Reditabs . The drug company allegedly provided an HMO free drugs contingent on purchase of the products from Schering.

Finally, Thirolf said, he expects enforcement agencies may pursue more food cases with the False Claims Act. For example, it could take the same approach as in drug spec cases. If the government pays for a food product that the company knows does not meet standards, it could consider the transgression fraud under the act.

- Elizabeth Crawford ( ² e.crawford@elsevier.com )

DOJ To Expand Use Of False Claims Act To Manufacturing And AER Violations

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