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?