No hospital executives have been charged in the on-going criminal investigation into TAP Pharmaceutical Products and 11 current and former executives now on trial in Boston, but relationships between hospitals and prescription drug companies could face increased government scrutiny as a result.
In the TAP trial that began April 20 in U.S. District Court in Boston, it is alleged that sales and marketing representatives and executives bribed hospital executives and paid kickbacks to physicians to gain market share for the company's Lupron prostate cancer drug and Prevacid heartburn medication. The company pleaded guilty to civil and criminal fraud and kickback charges in 2001, paying $884 million. At least four doctors have been convicted or have pleaded guilty to illegally billing Medicare for free samples of the drug TAP sales representatives gave them to maintain their loyalty and encourage their continued prescribing. The trial, which is the culmination of a 7-year-old federal investigation sparked by whistleblower lawsuits, is expected to last six months.
According to the indictment and courtroom testimony, TAP representatives allegedly offered hospitals and their employees in California, Connecticut, Massachusetts, New Hampshire and New York unrestricted grants, luxury vacations, tickets to Major League Baseball games, cash and free consulting services to influence the decisionmaking on hospital pharmacy formularies. TAP paid for golf outings, Christmas parties, bar tabs and medical equipment "with the understanding and expectation that the employee with whom the `institutional' grant was being discussed would be able to obtain and receive the benefits of that grant as an inducement," the U.S. attorney in Boston charged in the indictment.
The government alleged that TAP, based in Lake Forest, Ill., sponsored contests at one hospital offering gift certificates to the doctor or nurse who converted the most patients within a five-week period to Lupron, paid for hospital employees to attend conferences at luxury resorts, and paid one hospital pharmacy director $500 to "continue building our case."
A doctor on a committee that selected drugs for one hospital's formulary told TAP that it would have to present a $30,000 grant to the gastrointestinal department-to match what its competitor contributed annually-if it wanted Prevacid on that hospital's formulary.
San Francisco whistleblower lawyer Stephen Meagher of Phillips & Cohen said some of the practices the government accused TAP of employing are common in the industry.
"I think it's happening and it's unlikely that TAP is the only drug company in the industry doing it," Meagher said. "There are a fair number of government investigations mirroring the TAP one and it's fair to assume drug companies, pharmaceutical benefit companies and their relationships with provider customers are under some scrutiny."
American Hospital Association spokeswoman Alicia Mitchell said her organization is aware of the potential legal implications of certain relationships between pharmaceutical companies and hospitals. "We raised the issue to our membership through one of our publications in 2002," Mitchell said. "While we haven't done any kind of formal guidance, we know the TAP case could have implications for hospitals."
If pharmaceutical companies have established illegal kickback patterns with physicians, there's no reason to assume those practices aren't being used with providers like hospitals and pharmacies, said Gabriel Imperato, a Fort Lauderdale, Fla.-based healthcare lawyer with the firm Broad and Cassel.
"It's only a matter of time until the government focuses on pharmaceutical company relationships with hospitals," he said.
And it's not just kickback allegations that tangle hospitals, but also the prices they pay for prescription drugs.
With widespread national interest in the high cost of drugs, government health plans are seeking ways to lower prices. Last month Senate Finance Committee Chairman Chuck Grassley (R-Iowa) and Sen. Max Baucus (D-Mont.) sent letters to 19 pharmaceutical companies about their pricing practices. Drugmakers are supposed to report to the government their "best price," the lowest price charged to purchasers in the U.S. That price or less is what drug companies are required by federal law to charge Medicaid for their products. Medicare uses a different reimbursement system for pricing drugs. However, government prosecutors have alleged that some drug companies have abused an exception under the best-price law that allows them to sell products to charitable organizations for less than their best reported price in order to gain market share.
William LaCorte, a New Orleans internist who filed a whistleblower lawsuit against drug giant Merck & Co., said hospitals could face False Claims Act liability and malpractice lawsuits for offering drug companies exclusivity on their formularies. He said pharmaceutical companies offer hospitals drugs at prices far below market value to encourage them to switch patients. The hospitals, in turn, charge patients and their insurers higher prices. LaCorte said the drug companies know that after the patients are discharged they will continue to use the drugs prescribed to them in the hospital.
"Hospitals think they're changing pharmacies, normally money losers, into profit centers, but in the process they're disregarding doctors' orders and putting patients' health at risk," LaCorte said.
He alleges that Merck and other drug companies are "switching" drugs in national, for-profit and not-for-profit hospital chains. For example, LaCorte alleged that Merck persuaded hospitals to switch patients from a generic form of Zantac heartburn medication to Merck's Pepcid, charging the hospitals 10 cents per pill. He said the hospitals did not pass on those savings but rather billed patients $20 per pill.
"This is a way to bring market share delivery power to drug companies," LaCorte said. "But some of these drugs are not therapeutically equivalent and can be dangerous drugs with adverse reactions."