In a first of its kind settlement, Kaleo, Inc, a Virginia based pharmaceutical manufacturer that sells three marketed products in the US, agreed to pay $12. 7 million to settle claims that it encouraged its customers to use “preferred” pharmacies that in turn submitted false or misleading prior authorizations for one of Kaleo’s products. This investigation started as a whistleblower complaint brought by a former employee. The relator’s award for bringing this matter was $2.55 million. The novelty here is this is the first settlement where a manufacturer has settled conduct related to a third-party submitting false prior authorizations.

The product at issue is an opioid overdose emergency medication. According to the government, the medicine was the highest-priced version on the market and insurers frequently required the submission of prior authorization requests before they would approve coverage. The government claims that Kaleo encouraged its customers to use certain pharmacies to obtain the medicine and Kaleo knew, or deliberately ignored, that these pharmacies would submit false or misleading prior authorizations.

Some quick thoughts:

  • It should go without saying, but you cannot avoid false claims act liability by using a third-party to act in a way that the company cannot or should not act. Unfortunately, over the last few years we’ve seen this story several times. The charitable donation settlements where charities were directing money in a way that companies could not are another example of companies losing sight of potential liability associated with the actions of third-parties.
  • The facts of this case are unclear but an issue in all of these cases is the extent of the companies knowledge of the actions of the third-party. In this case the government alleges that Kaleo “encouraged” the use of these pharmacies and “knew or deliberately ignored” the pharmacies conduct . The settlement doesn’t mention what levels of the organization encouraged the use of these pharmacies and whether the company or some of its employees knew these pharmacies were submitting false or misleading claims or the company was just aware that these pharmacies had more success in getting claims approved.

    From a learnings perspective, this settlement really highlights the notion of “compliance values” that we all like to talk about. Compliance values means that the organization understands that third-parties aren’t a work-around for difficult government regulations and laws. Hopefully your organization has a culture that would encourage issues like this to be raised to compliance or legal and then investigated to ensure the company is minimizing its risk. If you are a Life Sciences company that has a product that requires a prior authorization, there should be both training about what the company can and cannot do and also an understanding that the company needs to be responsive if third-parties are acting in a way that the company cannot. The government states in its press release that Kaleo turned “a blind eye” to the practices of these pharmacies. Given the increased risks that come with a drug that requires prior authorizations, compliance departments should consider using data analytics to monitor and investigate these types of potential issues.

The government’s press release a link to the settlement can be found here:

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