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DOJ’s Case Against Teva for Copay Fraud Will Continue

September 14, 2021

DOJ’s lawsuit against drug manufacturer Teva Pharmaceuticals for copay fraud is charging full steam ahead!

DOJ’s Allegations of Teva’s Copay Fraud

As we previously reported, in August 2020, the United States filed a False Claims Act lawsuit alleging that Teva illegally paid over $300 million to induce prescriptions of its drug Copaxone.  According to the complaint, Teva funneled the money to two patient assistance foundations.  These were not, however, simple charitable donations.  Rather, the government contends that Teva used the foundations as conduits to pay the copays of Copaxone patients, something the company was prohibited from doing itself.  This, as we have explained before, can be illegal.

The Court Denied Teva’s Motion to Dismiss the Case

On September 9, 2021, United States District Judge Nathanial M. Gorton denied Teva’s motion to dismiss the case.  First, the court concluded that the government’s complaint adequately alleged that Teva violated the anti-kickback statute.  The court found that Teva’s payments could constitute illegal remuneration, even though Teva did not pay the patients directly.  That is, “indirect payments to patients through charities” can violate the law.  Moreover, Teva need not have direct control over the distribution of the money in order to be liable.

Next, the court found that the government’s complaint adequately alleged that Teva intended that its donations induce purchases of its drug.  Here, the court pointed to specific allegations of handwritten notes calculating that a donation of $28 million would net $114 million in new revenue.  In addition, the court noted that an Associate Director in Teva’s Patient Services Department specifically warned that a reduction in the company’s donations would result in a decrease in sales.  She allegedly said: “[T]here will be Medicare patients out there that won’t be able to fill [their prescriptions of Copaxone].”

Notably, the company had avoided conducting a formal “return on investment” analysis (perhaps aware of the damage it could cause).  Nevertheless, these notes — coupled with the statement above and other details in the complaint- provided the government with ample ammunition to overcome the motion to dismiss.

Other Copay Fraud Cases

Throughout the opinion, the court cites favorably to the holdings of other courts who denied motions to dismiss in similar matters.  These include cases against Regeneron (also in the District of Massachusetts) and Mallinckrodt (Eastern District of Pennsylvania).  As significant as they are, these three cases are just the tip of the iceberg when it comes to the government’s enforcement in this area.  In fact, by August 2020, the United States had already collected over $1 billion in settlements with over a dozen pharmaceutical companies and foundations.

Copay Fraud as Cover for Increasing Prices

These are not just technical violations.  Rather, the government is cracking down on these schemes because they allow drug companies to hike drug prices and have taxpayers foot the bill.

By using foundations as conduits for copayments, drug companies are able to shield patients from the steep prices that they often charge for their drug.  This leads more and more Medicare patients to purchase the drug.  This is because, suddenly, price is no longer a concern.  The scheme directly undermines one of the Medicare’s central tenets: copay requirements serve as a check on health care costs, making patients and doctors more savvy and discerning consumers.  With the copay out of the way, there is little to no incentive for drug companies to keep their prices low.

For example, Teva’s copay fraud scheme allegedly allowed it to raise its drug’s price from approximately $17,000 per year to over $73,000 per year.  This is over 19 times the rate of inflation.  Likewise, the government alleges that Mallinckrodt’s scheme allowed it to hike the price of its drug from $50 per vial to over $32,000 per vial.  When announcing the lawsuit against Mallinckrodt, U.S. Attorney for the Eastern District of Pennsylvania William McSwain explained:

Drug companies are not allowed to pay patients’ co-pays. That rule is designed to prevent the very thing Mallinckrodt allegedly did here – outrageously jack up [the drug’s] price and leave the government with the entire bill.  We will not allow drug companies to use so-called charitable patient assistance funds to do what they otherwise are not allowed to do. That’s an illegal kickback and undermines the viability of Medicare Part D, which our nation instituted to help seniors cover prescription drug costs.”

No First Amendment Violation

Nor do these lawsuits infringe on the drug companies’ First Amendment rights.  Judge Gorton swiftly rejected Teva’s First Amendment argument, explaining that “it is Teva’s conduct and not its speech which purportedly violates the [anti-kickback statute].”  Here again, Judge Gorton could build upon the opinion in the Regeneron suit.  There, United States District Judge Dennis Saylor highlighted that the Regeneron case is about “restrictions on conduct–donations to [a foundation] that functioned as kickbacks–not restrictions on speech.”  The court continued:

A pharmaceutical manufacturer has no First Amendment right to pay kickbacks intended to induce prescriptions and purchases of its drugs.

More to Come

With the motion to dismiss behind them, the parties will move forward with discovery and, ultimately, go to trial.  That is, of course, unless the parties settle or the court resolves the case on summary judgment. We will keep our eyes on this and other cases proceeding in this very active space.