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False Claims Act Update: Huge Recovery by Whistleblower for Allegations of Illegal Marketing of Unapproved Drugs

Thumbnail image for above-the-bar-logo.jpgThe Department of Justice agreed this week to a $2.8 million settlement with Cypress Pharmaceuticals Inc. (“Cypress”), its subsidiary Hawthorn Pharmaceuticals Inc. (“Hawthorn”) and its CEO Max Draughn to resolve allegations of violating the False Claims Act. Robert Heiden, a district sales manager who worked at Hawthorn between October 2005 and October 2006, filed this whistleblower lawsuit in the U.S. District Court in Texas.

Heiden’s whistleblower complaint charged Cypress, Hawthorn and the CEO with illegally marketing drugs which were not FDA approved. If you have knowledge of fraud being committed against the government at your place of employment, call our attorneys to help you figure out if you have a qui tam whistleblower action under the False Claims Act.

The government had alleged that between 2003 and 2009, Cypress, Hawthorn, and Draughn marketed three drugs that were not approved by the FDA as safe and effective. The 3 drugs were Hylira, a gel marketed to treat dry skin, and Zaclir and Zacare which were both for the treatment of acne.

The government alleged that although the drugs did not have a “safe and effective” designation, pharmaceutical sales representatives improperly promoted the drugs to physicians and Medicaid officials. Sales reps were instructed to give pharmacists free samples to try to make them stock the drugs. This caused state Medicaid programs and TRICARE, the U.S. military health care program, to improperly pay for these drugs. This also resulted in false quarterly reports being filed with the Centers for Medicare and Medicaid Services, since the drugs did not qualify as outpatient drugs which could be covered for payment.

Heiden alleged that he was fired for refusing to offer “illegal inducements to pharmacies and pharmacists.” He will receive over $300,000 for his part in reporting the fraud. He stated that the “impact of this case goes beyond the money recovered . . . My case and the government response mean that children are now protected from the dangers of certain drugs whose safety and effectiveness haven’t been determined.”

Stuart F. Delery, the Acting Assistant Attorney General for the Justice Department’s Civil Division, stated that “The marketing and promotion of unapproved new drugs undermines the FDA’s important role in protecting the American public.”

The qui tam provision of the False Claims Act is a great weapon benefitting the government and the whistleblower for his or her trouble. The statute provides that an individual with knowledge of fraud being committed against the government can bring an action on behalf of the government. If liability is found, the Act imposes treble damages and penalties which range from $5,500 to $11,000 per claim. Depending on whether the government intervenes in the action, a whistleblower may be entitled to recover anywhere between 15% to 30% of the government’s recovery. Most importantly, you must be the first person to bring the fraud to the government’s attention. In other words, you cannot “blow the whistle” on the evening news and then file a qui tam action.

Heiden’s whistleblower complaint made a huge difference in not only saving the government money but also in stopping the false marketing of drugs which were not FDA approved as “safe and effective.” If you know of fraud being committed against the government, call our Whistleblower Attorneys at Villanueva & Sanchala at (800) 893-9645 to help you determine if you have a claim under the False Claims Act.


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