Both settlements arose from a qui tam case filed by Douglas Durand, TAP Pharmaceutical's ("TAP") Vice President of Sales, in May 1996 in the Eastern District of Pennsylvania. The TAP settlement also arose from a qui tam case filed in the District of Massachusetts by Dr. Joseph Gerstein, a Medical Director for the Tufts Associated Health Plan whose business TAP hoped to secure.
The Practice: "Marketing the Spread" and Concealment of Best Price
The $559.5 million settlement with TAP was based on allegations of "marketing the spread" and concealment of Best Price for Lupron, a prostate cancer drug. At the times relevant to the complaint, Lupron was in direct competition with AstraZeneca's prostate cancer drug, Zoladex. The $291million Astra-Zeneca settlement came roughly two years later, in June 2003, in the District of Delaware. This settlement also arose from allegations in the FCA case relating to "marketing the spread" and concealing the Best Price for Zoladex, a competing prostate cancer drug. Both settlements were accompanied by criminal pleas by the defendant companies and substantial fines: in TAP's case, $290 million, and in Astra-Zeneca's, $63.9 million. Both criminal fines were imposed for violations of the Prescription Drug Marketing Act by giving physicians free samples of Lupron and Zoladex so that they could bill Medicare for those samples. The TAP indictment charged TAP with offering kickbacks to doctors including free drugs, educational grants, trips to resorts, free consulting services, medical equipment and forgiveness of debt. A number of doctors and TAP managers were also criminally charged.
"Marketing the spread" is an industry term describing the manufacturers' practice of inflating the Average Wholesale Price ("AWP") used by Medicare and other federal programs as the basis for reimbursement of the drug, while deeply discounting the price paid by physicians (or giving the drug to physicians for free). The spread between the AWP and the discounted price is marketed to physicians as a way of increasing their profits when they receive reimbursement for the drug from Medicare and other health programs. This manipulation of the AWP enables pharmaceutical companies to offer doctors kickbacks: the spread is marketed to doctors as a reason to prescribe that product in preference to a therapeutic equivalent. As the TAP and Astra-Zeneca settlements show, TAP and Astra-Zeneca sales representatives competed with one another for the business of physicians on just that basis.
In addition to marketing the spread, TAP and Astra-Zeneca were alleged to have concealed Best Price by failing to report the deep discounts given to physicians as their lowest discount price. TAP and Astra-Zeneca paid substantially less in Medicaid rebates than they should and would have paid if the physician discounts had been accurately reported.
In 1996 Douglas Durand was the Vice President of Sales at TAP. Durand reportedly had a reputation as a "straight arrow," and he came to TAP after successfully climbing the corporate ladder at Merck & Co. Upon his arrival at TAP, he came to the view that the corporate culture facilitated and even encouraged indiscretions on behalf of its marketers. Durand observed the implementation of a TAP marketing plan designed to increase the market share of Lupron, a prostate cancer drug. He discovered that doctors were given high-end lavish gifts and kickbacks based on the amount of Lupron purchased and prescribed.
Durand reportedly became concerned with the seemingly routine practice of offering doctors free samples of Lupron whilst encouraging those doctors to bill Medicare and other insurers full price for the samples administered to patients. According to this scheme, doctors could bill for the full value of those samples dispensed at a rate of roughly $500 per dose. Concerned that encouraging physicians to bill Medicare for free samples may be illegal, Durand introduced an incentive program of his own in order to curtail the practice. He began anchoring the bonuses of the sales personnel under his supervision upon the percentage of free samples for which the sales managers could account. Despite the initial success of the bonus program - one manager went from reporting 50% of his or her samples to reporting 95% - Durand was told to end the program because it interfered with company morale. Durand also discovered that 300 urologists had been given kickbacks in the form of "administrative fees." The "administrative fee" amounted to 2% of any Lupron purchases made by the urologists.
Growing increasingly concerned with the nature of these practices and his potential liability as a Vice President of Sales, Durand left TAP shortly after his arrival in 1995, working there a mere fourteen months. His qui tam case was filed in May of 1996 in the Eastern District of Pennsylvania and later transferred to the District of Massachusetts. The complaint alleged that TAP paid illegal kickbacks, caused doctors to submit false reimbursement claims to Medicare for free samples, and encouraged overcharging by doctors for Lupron prescriptions.
In 1996, an urologist employed by the Tufts HMO named Dr. Joseph Gerstein approached the government and reported that he had been offered an unrestricted $25,000 education grant by a TAP sales representative in exchange for his support of Lupron, instead of AstraZeneca's equivalent drug Zoladex. Dr. Gerstein's support was critical to TAP because he had made the decision on behalf of his employer to cover only Zoladex under the Tufts health plan. Zoladex was roughly $100 cheaper per month than its competitor, Lupron; hence, Dr. Gerstein had opted to cut Lupron from the Tufts formulary. The TAP marketer wanted him to reverse his decision.
Armed with this knowledge, the government reportedly decided to conduct an undercover operation to investigate the illegal kickback scheme. With his office wired and the government listening, Dr. Gerstein played host to TAP representatives on three occasions in 1997. Allegedly, the representatives not only repeated the bribe offer, but enhanced the proposal, promising $65,000 in grants over the course of three years and a $100,000 discount on future Lupron sales.
For their assistance to the government in connection with the TAP settlement, Mr. Durand and Dr. Gerstein shared a qui tam award of approximately 17% of the civil recovery, or $94 million. The AstraZeneca settlement yielded $47.5 million for Mr. Durand, a figure equaling 17% of the recovery.
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