Healthy Skepticism Library item: 16980

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Publication type: Electronic Source

A Big Bad Biotech Case and its Effects on Qui Tam
The Qui Tam Team Blog 2009 Dec 17
http://quitamteam.com/blog/big-bad-biotech-case-effects-qui-tam/

Full text:

Cell Therapeutics Inc. is a Seattle-based biotechnology company. In April 2007, the company paid $10.5 million to settle charges that it defrauded Medicare for sales of the cancer drug Trisenox. According to the Justice Department, Cell Therapeutics marketed Trisenox for uses for which it was not FDA approved. This could have been just another qui tam suit involving a drug maker, but in this case Cell Therapeutics decided to go after its former consultant and alleged co-conspirator in fraud for contribution.

The case has been anything but by-the-book from the start. The whistleblower, James Marchese, received $1.6 million back in October 2007 as part of Cell Therapeutics’ settlement with the government. Marchese was lucky to receive his $1.6 million (15 per cent of the total recovered). Prosecutors from the Justice Department had taken the unusual action of claiming that Marchese should be denied any recovery at all. The Justice Department argued that Marchese had been an initiator of the scheme to defraud Medicare, but the judge rejected this argument. According to experts, it’s extremely unusual for the government to argue that a whistleblower should receive a reduced award or no award at all.

In the most recent turn of events in the case, a three-judge panel of the 9th U.S. Circuit Court of Appeals has ruled that Cell Therapeutics can sue the Medicare reimbursement consulting company that advised Cell Therapeutics to market Trisonex beyond its FDA-approved uses. Cell Therapeutics sued the consultant to recover both the $10.5 million it paid to settle the suit with the government, as well as an additional $12.3 million in attorney’s fees and damages.

The case is Cell Therapeutics Inc. v. Lash Group Inc., 2009 U.S. App. LEXIS 25297 (9th Cir. 2009).

The back story behind Cell Therapeutics’ and the consultant’s relationship helps to explain why the court is allowing the biotech firm to sue the consultant. Cell Therapeutics was a relatively young and inexperienced company when it received FDA approval for Trisonex (its first FDA-approved drug) so it hired Lash (now known as Documedics Acquisition Co., Inc.) to handle the Medicare reimbursement issues. Although Documedics claimed to be an expert in reimbursements for cancer drugs, it made a serious mistake in advising Cell Therapeutics. Id. at *6. Documedics mistakenly advised Cell Therapeutics (and Medicare carriers and medical providers) that the non-FDA approved uses of Trisonex were reimbursable by Medicare. The carriers and providers submitted claims to Medicare based on this advice, and Cell Therapeutics stopped doing further research that would have actually determined whether the drug was eligible for Medicare reimbursement. Id.

The government began investigating both Cell Therapeutics and Lash/Documedics. Marchese, the whistleblower, eventually filed his qui tam suit against both companies in 2006. Id. at *7. The government, however, only intervened in the suit against Cell Therapeutics, alleging that it “knowingly and willfully promoted the sale and use of Trisonex . . . for such indications [as] had not been approved as safe and effective by the FDA” and “made false and misleading statements to treating doctors . . . causing them to present false or fraudulent claims to Medicare.” Id.

After Cell Therapeutics settled with the government, it sued Lash for indemnification, as well as other causes of action. The trial court decided that a qui tam defendant like Cell Therapeutics could not seek contribution from a co-conspirator in a scheme to defraud the government, and dismissed Cell Therapeutics’ action. Id. at *8. Cell Therapeutics appealed, and the circuit court ruled that Cell Therapeutics did in fact have a viable claim against Lash for two reasons.

The first reason the 9th Circuit cited for allowing Cell Therapeutics’ suit to go forward is that settlements “generally do not bar claims against non-parties or have issue-preclusive effect (sometimes referred to as ‘collateral estoppel’) on the subsequent litigation of issues not expressly resolved in the settlement.” Id. at 17. The second reason was the concern that if a settlement is determined to be a finding of liability, defendants won’t settle False Claims Act cases anymore. Id. at 18.

The 9th Circuit’s ruling in this case could have a widespread effect, considering how many False Claims Act defendants decide to settle. It could also prove to be very unwelcome news for consulting companies that make ugly mistakes when advising their clients.

Check out the news articles on the Qui Tam Team site, particularly those concerning pharmaceutical and medical device manufacturers, and note how many of them settle False Claims Act cases with the government rather than admitting liability. These companies consistently pay millions and even billions of dollars to settle cases (see, for example, this article about how much pharmaceutical companies are spending to settle whistleblower suits).