WASHINGTON – Healthpoint, Ltd., and DFB Pharmaceuticals will pay up to $48 million to resolve allegations that Healthpoint caused false claims to be submitted to Medicare and Medicaid for an unapproved drug, Xenaderm, which was ineligible for reimbursement by those programs, the Justice Department announced today. Under the terms of the agreement, Healthpoint and DFB will pay $28 million, plus another $20 million if there is a change in ownership of Healthpoint or DFB over the next three years.
Under the Federal Food Drug and Cosmetic Act, manufacturers must obtain Food and Drug Administration (FDA) approval before introducing any new drug into the market. In January 2011, the United States intervened in, and later filed, a civil False Claims Act case against Healthpoint, alleging that it launched Xenaderm, a prescription skin ointment for the treatment of nursing home patients’ bed sores, without any FDA approval. The complaint alleged that Healthpoint’s business strategy was to market new prescription drug products modeled after drug products that were on the market before October 1962, in order to avoid the time, effort, and expense of obtaining FDA approval. The complaint further alleged that at no time prior to its introduction of Xenaderm into the market did Healthpoint complete any double-blind placebo-controlled clinical studies that established the safety and effectiveness of Xenaderm. In fact, one of Healthpoint’s own clinical researchers expressly conceded in an internal e-mail that the safety and efficacy data for Xenaderm was “cruelly insufficient” to meet FDA standards. Notwithstanding the lack of FDA approval, the government alleges, Healthpoint actively promoted Xenaderm as a prescription drug that, unlike non-prescription skin ointments such as Vaseline, was “Medicaid reimbursed” and thus cost nursing homes nothing to administer to Medicaid patients.
While products containing Xenaderm’s principal active ingredient, trypsin, were on the market prior to 1962, the FDA had determined in the 1970s that trypsin was less-than-effective for its intended use. The government contends that those determinations rendered Xenaderm ineligible for Medicaid and Medicare reimbursement. Nonetheless, the government alleges, Healthpoint misrepresented the regulatory status of Xenaderm when it submitted quarterly reports to the government. As a result, the government contends, Healthpoint knowingly caused false claims to be submitted for Xenaderm.
“Today’s settlement once again demonstrates our commitment to making sure that taxpayer dollars are not spent on unapproved and less-than-effective drugs,” said Stuart Delery, Principal Deputy Assistant Attorney General of the Department of Justice’s Civil Division.
“This resolution is yet another example of the government’s enduring efforts to ensure that drug manufacturers comply with the critical FDA requirements for the efficacy of their drugs and the integrity of their data,” said U.S. Attorney Carmen M. Ortiz. “This Office will continue to vigorously police these key requirements that ensure that the public has access to, and the government pays only for effective medications.”
“The plain fact is that unapproved drugs place consumers at risk. FDA does not know what is in these products, nor whether they are effective or safe, or how they are made,” said FDA Commissioner Margaret M. Hamburg, M.D. “This case demonstrates why we must be vigilant in taking action against companies that circumvent the regulatory process.”
The settlement resolves allegations against Healthpoint in a multi-defendant whistleblower action captioned United States ex rel. Constance Conrad v. Healthpoint, Ltd., et al., No. 02-11738-RWZ (D. Mass.). The lawsuit was brought under the qui tam, or whistleblower, provisions of the False Claims Act, which allow private parties with knowledge of fraud to sue on behalf of the United States and share in any recovery. This settlement is part of a series of recoveries totaling over $100 million from manufacturers of unapproved drugs. The United States and the relator, Ms. Constance Conrad, have not reached agreement on a share of the proceeds of this settlement.
The case was litigated by Assistant U.S. Attorneys Gregg Shapiro, Patrick Callahan, and Jeff Fauci of Ortiz’ Civil Division, together with Senior Trial Counsel Sanjay Bhambani and Trial Attorneys Jessica Weber and Chris Wilson, in the Justice Department’s Civil Division. The case was investigated by the Office of Inspector General of the Department of Health and Human Services, with the active cooperation by the Centers for Medicare & Medicaid Services, the Food and Drug Administration, and the National Association of Medicaid Fraud Control Units.
This resolution is part of the government’s emphasis on combating health care fraud and another step for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced by Attorney General Eric Holder and Kathleen Sebelius, Secretary of the Department of Health and Human Services in May 2009. The partnership between the two departments has focused efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation. One of the most powerful tools in that effort is the False Claims Act, which the Justice Department has used to recover $10.1 billion since January 2009 in cases involving fraud against federal health care programs. The Justice Department’s total recoveries in False Claims Act cases since January 2009 are over $13.9 billion.
The claims settled by this agreement are allegations only; there has been no determination of liability.
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