TAP Pharmaceuticals whistleblower case settles for $875 million

Note: The following is a press release from Taxpayers Against Fraud, a nonprofit group based in Washington, DC. Phillips & Cohen LLP represented two of the whistleblowers mentioned below who brought a "qui tam" lawsuit against TAP Pharmaceuticals Inc.

Oct. 3, 2001 — TAP Pharmaceuticals Inc. (TAP) agreed today in Boston to pay the United States government $559.5 million and state governments $25.5 million to settle one of the largest civil Medicare and Medicaid fraud cases in history. It will also pay a $290 million criminal fine -- the largest criminal fine ever paid in a healthcare fraud case.

Initiated by whistleblowers and joined by the United States Department of Justice, two civil False Claims Act lawsuits charged TAP with paying illegal kickbacks to doctors who dispensed the company's high priced prostate cancer drug (Lupron). TAP also allegedly conspired with doctors to charge Medicare and Medicare beneficiaries for free samples of Lupron. (Taxpayers paid 80 percent and beneficiaries paid 20 percent of the drug cost.) Federal criminal charges of conspiring to pay kickbacks to doctors and other customers have been brought against one physician and six TAP managers, the Justice Department announced. In addition, a separate lawsuit brought by Medicare beneficiaries charges TAP with illegally inflating Lupron's average wholesale price, according to news reports.

"In addition to bringing one costly fraud against taxpayers to an end, the TAP False Claims Act settlement has two additional benefits," explained James Moorman, president of the nonprofit, nonpartisan Taxpayers Against Fraud and a former assistant attorney general of the United States. "First, more than three quarters of a billion dollars is being recovered and much of it will be available to shore up the hard-pressed Medicare Trust Fund. Second, this high-profile case will have a deterrent effect that could lower all prescription drug prices by serving notice on the pharmaceutical industry that fraud and abuse in drug marketing will not be tolerated."

Kickbacks to doctors included free TVs and seminars at resorts, as drug prices balloon

Although a less expensive, alternative drug is widely available, TAP's Lupron controlled 80 percent of the market for treating advanced prostate cancer. Among the perks TAP allegedly gave doctors who dispensed it were free televisions, free VCRs and educational seminars at resorts. Medicare paid physicians $645 million for Lupron in 1997, an amount only exceeded by the $847 million Medicare paid for a kidney dialysis drug, the CHICAGO TRIBUNE reported.

Medicare and Medicaid and their beneficiaries are paying as much as two billion dollars annually in inflated drug prices, according to research released September 21 by the House Committee on Energy and Commerce. Each year, Medicare spends about $5 billion and Medicaid about $18 billion for prescription drugs.

Overall spending on prescription drugs in the United States grew by $20.8 billion — or by 19 percent — in 2000, rising from $111 billion in 1999 to $131.9 billion last year, Dow Jones News Service has reported. Half of that spending increase was attributed to 23 drugs, including another TAP product (Prevacid) used to treat ulcers. Prescription drugs are the fastest growing segment

of the U.S. healthcare system with the average branded drug price rising from $30.43 in 1991 to $54.78 in 1998 — an 8.8 percent annual increase compared with a 2.6 percent per annum consumer price index.

Former TAP senior sales officer, Tufts' HMO and medical director blew the whistle

"The fraud case against TAP began when whistleblowers with direct knowledge of the company's misconduct in marketing Lupron did the right thing," Mr. Moorman continued. "Tufts Associated Health Maintenance Organization, which takes pride in being a model HMO, and its medical director, Dr. Joseph Gerstein, decided its physicians would use an equally effective, but significantly less expensive, alternative to Lupron. Soon thereafter, Dr. Gerstein and Tufts' management became alarmed by TAP's increasing sales pressure and monetary offers, which included research grants and other inducements valued at up to $100,000. They alerted the U.S. Attorney's office in Boston, retained counsel and filed a False Claims Act case in U.S. District Court. Dr. Gerstein's extensive cooperation with federal investigators included permitting his office to be 'wired' to record key conversations undercover during meetings with TAP representatives.''

Separately, TAP's senior sales officer also became very concerned about the company's marketing practices and eventually quit. "Douglas Durand walked away from a senior executive position and a healthy income and took the considerable personal risk and expense of blowing the whistle under the False Claims Act," Mr. Moorman explained. "With no guarantee of receiving any compensation whatever and aware that he would be blackballed within this highly profitable industry, Mr. Durand worked with federal prosecutors for five years, providing the government with a rare look at the inner workings of the pharmaceutical industry."

Wrongdoers Pay Whistleblower Awards & Large Cases Provide "Beacon" For Others

The Justice Department announced that 17 percent of the $559.5 million federal civil portion of the settlement will be shared by the whistleblowers. Tufts Associated HMO will devote its share to charity.

Mr. Moorman is particularly pleased by the size of taxpayers' recovery for the Treasury: "Cases like this and the media attention they receive are a beacon to other potential whistleblowers who can help the government fight fraud." He explained that the money awarded to whistleblowers is paid by wrongdoers — not taxpayers. Malfeasors, who would not have been held accountable at all without the whistleblowers, often pay treble damages and other penalties under the False Claims Act.

"The Treasury usually recovers more than its fraud losses, and the total amount recovered in a case also usually exceeds the government's investigation and litigation costs. Moreover, the TAP case will save many times more tax dollars than this specific recovery by deterring other drug frauds," Mr. Moorman said. "As with other endeavors within our capitalist system, it is the occasional large rewards which provide an incentive for other whistleblowers to bring cases, even though the overwhelming majority only receive small awards and some receive nothing at all."

Several Corporate CEOs Receive $100 Million Plus Each Year

"To put this in perspective, today it is not unusual for senior corporate executives to receive tens of millions of dollars as one year's compensation," Mr. Moorman continued. "Indeed, even in a down economy with a declining stock market, 15 corporate chief executives last year received an average of $89 million and several were paid more than $150 million."

The protected, empowered and rewarded whistleblowers, however, are only one part of the False Claims Act's private/public fraud fighting partnership, Mr. Moorman added. "To further investigate and carry forward the TAP case, the U.S. Attorney's office in Boston assigned two talented prosecutors, Assistant U.S. Attorneys Susan Winkler (civil) and Michael Loucks (criminal) and gave them the resources they needed to finish the job."

Based in Washington, DC, Taxpayers Against Fraud is a nonprofit, nonpartisan organization dedicated to fighting fraud against the government and defending and promoting use of the False Claims Act.