DOJ Sues Teva Pharmaceutical for Copay Fraud

August 27, 2020

The Massachusetts U.S. Attorney’s Office recently filed a health care fraud lawsuit against drug manufacturer Teva Pharmaceuticals (specifically, Teva Pharmaceuticals USA, Inc., and Teva Neuroscience, Inc.).  The United States’ False Claims Act complaint alleges that Teva illegally paid over $300 million to induce prescriptions of its drug Copaxone.  The alleged scheme ran for at least nine years and involved payments to third-party foundations to cover the Medicare co-pay obligations of Copaxone patients.  As we have detailed before, the government has had schemes like this in its cross-hairs for several years.

Teva’s Copay Waiver Scheme

According to the government’s complaint, Teva funneled hundreds of millions of dollars to two foundations: The Chronic Disease Fund (CDF) and The Assistance Fund.  Teva used the foundations as conduits to pay the copays of Copaxone patients, something the company was prohibited from doing itself.  Teva did this to shield patients from the steep prices that it charged for the drug, thereby leading more and more Medicare patients to purchase the drug.  This scheme allowed the drug company to dramatically increase the price for its drug without risking a loss of market share.  And sure enough, that is what the company did.  According to the complaint, while Teva was subsidizing Copaxone’s cost through the two foundations, it raised the drug’s price at a rate over 19 times the rate of inflation, rising from approximately $17,000 per year to over $73,000 per year.

As we have explained, waiving a copay for a patient on a case-by-case basis is sometimes permitted.  However, schemes like this one where a drug company’s “donations” are designed to drive sales of their own drug can violate the Anti-Kickback Statute.

Additional Players

Teva did not operate alone.  Both foundations to which Teva funneled money settled with the government.  So has Advanced Care Scripts, the specialty pharmacy that was a crucial middle-man in the scheme.  According to the government, ACS regularly relayed data from the foundations to Teva.  This data allowed Teva to correlate its payments to the foundations with the amounts of money the foundations spent on Copaxone patients.  Teva thus could ensure that it was donating just enough to cover its drug, but no more.  This behavior provides just one example of how Teva intentionally blew past the “safeguards”  required for a drug company to donate to patient assistance foundations legally.

ACS recently paid $3.5 million to the government for its alleged role in the scheme.  In announcing the settlement, the FBI Special Agent in Charge explained that his agency will “aggressively go after vendors like ACS who conspire with pharmaceutical companies to disguise kickbacks as charitable contributions, at the expense of hard-working taxpayers who support the Medicare program.”

A Powerful Affidavit

The government’s pursuit of ACS paid off in other ways too.  An affidavit from ACS’s founder, Edward Hensley, figures prominently in the government’s complaint against Teva:

• Hensley attests that, from the outset, he “understood that Teva was purposefully utilizing ACS and structuring its donations to CDF in a manner that essentially ensured that such donations would benefit only Copaxone patients, and not patients who had been prescribed competitor MS medications.”
• Likewise, Hensley states that he “understood that Teva effectively would be able to use [The Assistance Fund] as it had CDF: essentially, as a ‘pass-through’ donation vehicle to get Teva monies into the hands of Copaxone patients.”
• Hensley also stated that a retired executive at Teva told him that “she had warned Teva’s senior leadership years before that Teva should ‘take a reserve’ to cover False Claims Act liabilities associated with Teva’s donations to CDF and The Assistance Fund ‘in the event’ that the donations came under government scrutiny.”

One in a Long Line of Copay Cases

This lawsuit is the latest in a long line of litigation and settlements involving patient assistance programs.  In fact, as we recently discussed, the Massachusetts U.S. Attorney’s Office has sued Regeneron for a similar scheme involving its drug Eylea.  In November 2019, the Massachusetts U.S. Attorney’s Office announced that the U.S. had collected over $850 million in copay foundation settlements from three separate foundations and eight pharmaceutical companies.  These substantial recoveries were not the result of specific qui tam matters, but rather came from diligent investigation by DOJ counsel and other federal agencies.  Whistleblowers have brought cases alleging similar schemes, including our firm’s successful US WorldMeds LLC matter, the first of its kind.

Conclusion

The government’s complaint powerfully conveys why copay waiver fraud is so pernicious:

“Teva’s scheme circumvented the congressional design of the Medicare system, which requires drug co-pays, in part, to act as a market constraint against increasing prices. Instead, unbound by any market check on pricing due to its payment of illegal kickbacks, Teva left American taxpayers to shoulder the high prices that Teva set for Copaxone, while Teva reaped for itself the resulting profits.”

We will be watching this case closely and suspect that the drug companies will be too.