Responding to Pharmaceutical & Drug Manufacturer Fraud Charges
Contents
Introduction
Pharmaceutical and drug manufacturer fraud is unfortunately common in the industry. Companies may engage in illegal kickbacks, manipulation of clinical trials data, off-label promotion, manufacturing violations, price manipulation, and other fraudulent activities. When faced with fraud allegations or charges, companies have several options in responding and working to resolve the issues.
Assessing the Situation
The first step when hit with fraud charges is to thoroughly investigate and understand the specific allegations. Companies should hire experienced legal counsel to manage an internal investigation, review documents and communications, interview employees, and determine the validity of the claims. Understanding the scope of the potential fraud is critical for developing the appropriate response strategy.
Internal investigations can be complex, especially in large organizations, but are necessary to uncover the facts. As one Department of Justice case revealed, Purdue Pharma continued improper activities for years while claiming to have robust compliance programs 5.
Document review and employee interviews can identify such issues to prevent continued fraud.
In many healthcare fraud cases, the Department of Justice, FDA, DEA, or other authorities are involved in investigations. Companies facing fraud charges should strongly consider cooperating with the government and providing the findings from internal investigations.
Cooperation typically involves sharing documents, employee accounts of events, internal audits, and other evidence. Companies may need to waive attorney-client privilege or take other steps to fully cooperate. Though cooperation requires disclosing potentially damaging information, it can help secure more favorable settlement terms compared to resisting investigators.
For example, Purdue Pharma received lower criminal penalties for admitting misconduct and pleading guilty. If authorities have a weak case, companies can still deny charges while working cooperatively. But avoiding cooperation out of fear of self-incrimination often fails as a legal strategy.
Settling Fraud Charges
When fraud allegations have merit, swiftly working towards a settlement is often the best path forward. Settlements resolve fraud charges without admitting guilt and allow companies to move on from the incident. Especially for healthcare and pharmaceutical manufacturers, drawn-out legal battles lead to greater financial and reputational damage.
Recent major pharmaceutical settlements include:
- Purdue Pharma’s $8.3 billion criminal and civil settlement for opioid kickbacks and misbranding
- $400+ million settlement by Teva, Sandoz, and Glenmark for generic drug price-fixing
- Pfizer and Johnson & Johnson’s $785 million settlement for off-label drug marketing and kickbacks
In negotiating settlements, companies want to minimize financial penalties and avoid having to admit guilt for more serious charges. Settlement terms depend on the strength of the prosecutors’ case, how much misconduct occurred, and whether the company cooperates with investigators.
Admitting some liability, paying fines, and agreeing to compliance program changes is often unavoidable. But companies do have leverage in reaching an equitable settlement instead of risking much larger penalties from losing at trial.
Implementing Compliance Reforms
A key component of settlements is committing to enhanced compliance programs, monitoring, and governance reforms. Companies need to convince authorities that the issues were an aberration and new policies will prevent repeated fraud.
Common post-settlement compliance reforms include3:
- Increased audits and analytics to detect warning signs of fraud
- Expanding compliance staff and regular employee fraud prevention training
- Enhanced transparency and oversight around areas vulnerable to fraud like sales and marketing programs
- Changes to executive compensation and incentives that could promote misconduct
- Regular external monitoring and reporting to the government
Structural changes like management shakeups or reorganized business units show a commitment to reforms. Compliance terms vary based on the company and specific fraud issues involved. But implementing reforms after settlements builds trust with authorities and helps prevent repeat offenses.
Other Legal Strategies
While settlement is the most common outcome for pharmaceutical fraud cases, companies do have other options in responding to allegations, including:
Contesting Charges: In some cases, companies may deny liability and fight fraud claims filed against them. This avoids admitting guilt but means a protracted legal battle. Contesting charges is riskier but allows companies to defend themselves against excessive penalties if allegations are unfounded.
Seeking Dismissals: Another legal tactic is filing motions to dismiss fraud lawsuits based on lack of evidence or other deficiencies. If granted, dismissals end cases without settlements. But courts seldom grant dismissals unless prosecutors clearly fail to support allegations.
Pursuing Whistleblower Claims: Pharmaceutical companies can also get ahead of potential charges by pursuing whistleblower claims under the False Claims Act (FCA). Self-disclosing misconduct to the government can secure cooperation credit and reduced penalties 3.
The best legal response depends on the situation, but broadly denying liability often worsens outcomes. Carefully assessing the merits of allegations and cooperating with authorities typically works better for resolving pharmaceutical fraud cases.
Preventing Future Misconduct
The financial and reputational damage from fraud charges can be severe, especially for pharmaceutical and healthcare companies. Preventing fraud from occurring in the first place is ideal. Some best practices include 1 :
- Regular compliance audits and fraud risk assessments
- Extensive employee training on ethical policies and fraud prevention
- Strict financial controls and transaction monitoring for high-risk areas like sales
- Protecting whistleblowers and maintaining hotlines for anonymous misconduct reports
- Enforcing strong accountability standards for executives and managers
Fraud often arises from corporate cultures that emphasize sales over ethics. But implementing robust compliance programs makes misconduct more difficult and less likely to occur. With diligence and continual monitoring, companies can detect issues early and self-report to authorities for more favorable treatment.
While not perfect, strong fraud prevention allows pharmaceutical companies to avoid the severe consequences of charges and rebuild stakeholder trust after any incidents.