The United States Attorney in Boston recently announced the settlement of a health-care-fraud case involving five urologists and TAP Pharmaceutical Products, Inc., a major American pharmaceutical manufacturer.  The government alleged that the urologists received illegal inducements from TAP to prescribe the drug Lupron in the 1990’s.   The physicians pleaded guilty to health-care fraud, and TAP agreed to pay $875 million to settle allegations of fraudulent drug pricing and marketing of Lupron.

TAP markets Lupron for the treatment of advanced prostate cancer.  The U.S. Attorney initiated an investigation into TAP’s pricing and marketing of Lupron  in 1997, after a urologist employed by an HMO reported to law-enforcement authorities that he was offered an educational grant to reverse a decision he had made on behalf of the HMO to exclude coverage for Lupron.

To induce physicians to prescribe Lupron instead of a cheaper alternative, TAP gave physicians free samples of the drug, worth as much as $40,000, as a form of volume discount.  The average cost of a monthly dose of Lupron was $400 to $600.  Because Lupron must be injected under the supervision of a physician, Medicare, which normally does not reimburse for medication, reimbursed physicians 80% of their administration cost.  The remaining 20% was reimbursed by the patient as a co-pay. TAP fully intended and expected the physicians to prescribe the free Lupron to their patients and then bill the patients and their insurers the average wholesale price of the drug.  That is precisely what the physicians did.

As a further incentive to encourage physicians to prescribe Lupron, TAP offered them free consulting services, free trips to golf and ski resorts, and money disguised as “educational grants,” that the physicians used to pay for cocktail parties, office Christmas parties, medical equipment, and travel expenses. The Government described these items as kickbacks and bribes used to influence the physicians to prescribe Lupron.

The TAP case is likely to have a significant impact on the marketing practices of not only  pharmaceutical companies, but on all health-care vendors.  For physicians, the message should be loud and clear.

First, physicians need to carefully examine some of the perks they are used to receiving from health care product and service vendors.  The Federal government cited as illegal inducements many of the marketing practices typically utilized by pharmaceutical companies and other health care vendors, including: free products, free consulting services, trips to golf and ski resorts and money purportedly for “educational grants” but used for other purposes.  Thus, physicians who accept free services, free products, or money from vendors risk criminal charges and civil liability.

It is a felony under the Medicare-Medicaid Anti-kickback statute (42 U.S.C. 1320a-7b) to receive or solicit payment in exchange for ordering an item, such as a prescription drug, reimbursable by Medicare or Medicaid.  This statute was expanded to apply to all federal health care programs under the Health Care Portability and Accountability Act (HIPAA).

In terms of civil liability, physicians who knowingly submit false claims for reimbursement by the federal government can incur civil penalties of up to $10,000 per claim, plus treble damages, under the Federal False Claims Act (31 U.S.C. 3729-3732). At $10,000 per claim, civil monetary penalties often reach millions of dollars. For example, TAP’s $875 million penalty included over $559 million to settle its federal civil False Claims Act liability in the Lupron case.

Second, physicians need to realize that the Government is paying close attention to their interactions with manufacturers and vendors of health care products and services.  The TAP case highlights the government ’s increased vigilance in investigating and prosecuting violations of the fraud and abuse statutes. In a six-month period (April through September 2001), the Government recouped more that $1.22 billion through both Civil Monetary Penalty Law and False Claims Act civil settlements.

Physicians should stay tuned to further developments in this area.