Washington, DC - The Department of Justice Thursday announced that three pharmaceutical companies – Jazz Pharmaceuticals plc (Jazz), Lundbeck LLC (Lundbeck), and Alexion Pharmaceuticals Inc. (Alexion) – have agreed to pay a total of $122.6 million to resolve allegations that they each violated the False Claims Act by illegally paying the Medicare or Civilian Health and Medical Program (ChampVA) copays for their own products, through purportedly independent foundations that the companies used as mere conduits.

When a Medicare beneficiary obtains a prescription drug covered by Medicare, the beneficiary may be required to make a partial payment, which may take the form of a copayment, coinsurance, or a deductible (collectively “copays”). Similarly, under ChampVA, patients may be required to pay a copay for medications.  Congress included copay requirements in the Medicare program, in part, to serve as a check on health care costs, including the prices that pharmaceutical manufacturers can demand for their drugs. The Anti-Kickback Statute prohibits a pharmaceutical company from offering or paying, directly or indirectly, any remuneration — which includes money or any other thing of value — to induce Medicare or ChampVA patients to purchase the company’s drugs. This prohibition extends to the payment of patients’ copay obligations. 

“Pharmaceutical companies undercut a key safeguard against rising drug costs when they create assistance funds to serve as conduits for the companies to subsidize the copays of their own drugs,” said Assistant Attorney General Jody Hunt of the Department of Justice’s Civil Division. “These enforcement actions make clear that the government will hold accountable drug companies that directly or indirectly pay illegal kickbacks.”  

“We are committed to ensuring that pharmaceutical companies do not use third-party foundations to pay kickbacks masking the high prices those companies charge for their drugs,” said U.S. Attorney Andrew E. Lelling. “This misconduct is widespread, and enforcement will continue until pharmaceutical companies stop circumventing the anti-kickback laws to artificially bolster high drug prices, all at the expense of American taxpayers.”

Jazz and Lundbeck each entered five-year corporate integrity agreements (CIAs) with OIG as part of their respective settlements. The CIAs require the companies to implement measures, controls, and monitoring designed to promote independence from any patient assistance programs to which they donate. In addition, the companies agreed to implement risk assessment programs and to obtain compliance-related certifications from company executives and Board members.

“These kickback schemes harm Medicare and the public,” said Gregory E. Demske, Chief Counsel to the Inspector General. “OIG CIAs, such as those with Jazz and Lundbeck, are designed to reduce future risks to patients and taxpayer-funded programs. OIG decided not to require a CIA with Alexion because it made sweeping and fundamental organizational changes following the bad conduct. The changes included hiring a new eight-member executive leadership team and changing half of the members of its Board of Directors. In addition, 40 percent of Alexion’s employees are new and the company relocated its corporate headquarters.”

“These settlements demonstrate the FBI’s commitment to safeguard the Medicare program and ensure that patients receive treatment solely based on their medical needs,” said Joseph R. Bonavolonta, Special Agent in Charge of the Federal Bureau of Investigation, Boston Field Division. “Not only did these companies undermine a program that was set up to assist patients in decreasing the cost of their drugs, but they threatened the financial integrity of the Medicare program to which we all contribute and on which we all depend.”

“Kickback schemes undermine the integrity our nation’s healthcare system, including healthcare benefits administered by the U.S. Department of Veterans Affairs,” said Special Agent-in-Charge Sean Smith, VA Office of Inspector General, Northeast Field Office. “The VA Office of Inspector General, along with our law enforcement partners, will continue to aggressively pursue these investigations and exhaust all efforts to uncover these schemes.”

 The government’s allegations in the three settlements being announced today are as follows:

Jazz:  Jazz sells Xyrem, a narcolepsy medication with Gamma Hydroxybutyrate (GHB)—a central nervous system depressant and controlled substance—as its main active ingredient. The government alleged that, in 2011, Jazz asked a foundation to create a fund that would pay the copays of Xyrem Medicare patients and that the foundation agreed to establish a “Narcolepsy Fund,” to which Jazz became the sole donor. The government alleged that Jazz knew that, although Xyrem accounted for a small share of the overall narcolepsy market, the fund almost exclusively used Jazz’s donations to pay copays for Xyrem and required non-Xyrem patients on competing products to obtain a denial letter from another assistance plan before helping them. The government further alleged that, in conjunction with establishing this fund, Jazz made Medicare patients ineligible for Jazz’s free drug program and instead referred Xyrem Medicare patients to the foundation, enabling Jazz to generate revenue from Medicare and induce purchases of the drug, rather than continuing to provide these patients with free drugs. Meanwhile, Jazz raised the price of Xyrem by over 150 percent from 2011 through the end of the relevant time period.

Jazz also sold Prialt, an injectable severe chronic pain medication. The government alleged that Jazz asked the same foundation to create a fund ostensibly to assist patients with the co-pays of any severe chronic pain drugs, but which, in practice, almost exclusively paid Prialt Medicare copays. Shortly after creating the fund, the foundation allegedly told Jazz that when severe chronic pain patients seeking assistance with other drugs contacted the foundation, it would refer them elsewhere. The government alleged that Jazz was also aware that the fund did not appear on the foundation’s website, thereby minimizing the number of non-Prialt patients seeking assistance from the fund. Jazz has agreed to pay $57 million to resolve the government’s allegations.

Lundbeck:  Lundbeck sells Xenazine, the only drug that was approved to treat chorea associated with Huntington’s disease until a generic version became available until 2015. The government alleged that Lundbeck was the sole donor and made millions in payments to a fund at a foundation that ostensibly provided financial support only for patients with Huntington’s Disease. However, Lundbeck allegedly referred Xenazine patients with many other conditions to this foundation, which then paid the Xenazine copays for these unapproved uses from its Huntington’s Disease fund. The government further alleged that, in June 2014, after the foundation determined that its Huntington’s Disease fund would no longer pay the copays of patients taking Xenazine for non-Huntington’s disease uses, Lundbeck agreed to repurpose some of its prior donations to the Huntington’s Disease fund to a “general fund” at the foundation for the purpose of paying these patients’ Xenazine copays, and made subsequent “unrestricted” payments to the foundation with the understanding that the foundation would use these payments to pay Xenazine copays for these same patients. Lundbeck allegedly asked the foundation whether there was a “risk” that this practice would be viewed as not compliant with the foundation’s HHS-OIG Advisory Opinion, and the foundation allegedly replied that “[t]hey don’t know what we use the general fund for.” 

The government also alleged that, at the time it was engaged in the foregoing conduct, Lundbeck had a policy of not permitting Medicare or ChampVA patients to participate in its free drug program for Xenazine, which was open to other financially needy patients, even if those Medicare or ChampVA patients could not afford their copays for Xenazine. Instead, in order to generate revenue from Medicare and ChampVA and to induce purchases of Xenazine, Lundbeck allegedly referred financially needy non-Huntington’s Disease Xenazine patients to the foundation, which resulted in claims to Medicare and ChampVA to cover the cost of the drug. Lundbeck has agreed to pay $52.6 million to resolve the government’s allegations.

Alexion:  Alexion sells Soliris, which, from Jan. 1, 2010, through June 30, 2016, was indicated for certain uses to treat patients with paroxysmal nocturnal hemoglobinuria (PNH) and atypical hemolytic uremic syndrome (aHUS). The cost of Soliris, based upon its list price and indicated dosing recommendation, can be approximately $500,000 per year. The government alleged that Alexion made donations to a “Complement-Mediated Disease” (CMD) fund at a foundation to pay the Medicare copay obligations of patients taking Soliris and to induce those patients’ purchases of Soliris. Alexion allegedly knew that the price it set for Soliris could pose a barrier to patients’ purchases of it. In particular, the government alleged that Alexion approached the foundation in January 2010 to request that it create a fund to provide financial assistance to Soliris patients, including by paying patients’ Soliris Medicare copays and other medical expenses for Soliris patients. Over the next several months, Alexion and the foundation allegedly discussed the coverage parameters for the fund, including Alexion’s desire that the foundation “not support a patient with any of these [CMD] diagnoses for other reasons tha[n] Soliris therapy.” After the fund opened, Alexion—the sole donor to the fund—allegedly understood that the foundation’s provision of financial assistance to a patient was contingent on the patient taking Soliris. Alexion allegedly noted internally that it needed to be diligent in letting the foundation know if a patient had stopped taking Soliris so that Alexion’s donations would not be used on patients who were not starting or maintaining Soliris therapy. 

Meanwhile, the government alleged that Alexion had a general practice of not permitting Medicare patients to participate in its free drug program, which was open to other financially needy patients, even if those Medicare patients could not afford their copays for Soliris. Instead, in order to generate revenue from Medicare and induce purchases of Soliris, Alexion allegedly referred Medicare patients prescribed Soliris to the foundation, through the foundation’s “referral portal” software. Allegedly, the “referral portal” reported information back to Alexion confirming those Soliris patients who were approved for copay or other financial assistance from the foundation, and detailed the foundation’s payments to them, which resulted in claims to Medicare to cover the cost of Soliris. Alexion has agreed to pay $13 million to resolve the government’s allegations. 

The government’s resolution of these matters illustrates the government’s emphasis on combating healthcare fraud. One of the most powerful tools in this effort is the False Claims Act. Tips and complaints from all sources about potential fraud, waste, abuse, and mismanagement, can be reported to the Department of Health and Human Services at 800-HHS-TIPS (800-447-8477).

These investigations were conducted by the Justice Department’s Civil Division and the U.S. Attorney’s Office for the District of Massachusetts, in conjunction with the Department of Health and Human Services, Office of Inspector General; the Federal Bureau of Investigation; and the Department of Veterans Affairs, Office of Inspector General. 

The claims resolved by the settlement are allegations only; there has been no determination of liability.