US Intensifies Drug Discount Debate in Latest Regeneron Lawsuit

New Justice Department allegations that Regeneron Pharmaceuticals Inc. artificially inflated Medicare reimbursement rates on a high-earning eye treatment are likely to trigger copycat complaints at other manufacturers.

Sales of the Westchester County, New York, biotechnology giant’s prized drug Eylea are now the target of three simultaneous lawsuits under the same statute. But this latest action announced by DOJ April 10, centering on Regeneron covering the costs of physician credit card processing fees, may create the most ripples.

“To the extent other pharmaceutical companies are indirectly forgiving credit card fees for physicians, those could be promising False Claims Act cases for other whistleblowers,” said Gregg Shapiro, who runs his own whistleblower practice after multiple years spearheading False Claims Act litigation against much of Big Pharma.

Unlike the prior two pending FCA cases against Regeneron, one of which DOJ isn’t litigating, the government opted for a simpler complaint that excluded the common false claims predicate accusation of violating the Anti-Kickback Statute.

That’s despite allegations that doctors racked up massive American Express Co. rewards of often six-figures per year by purchasing the macular degeneration drug, Eylea, at a reduced price financed by Regeneron.

By focusing on the company’s decision not to deduct the credit card fees as a price concession from the sales price reported to Medicare regulators, the department is poised to amplify a different sort of legal debate over health care costs: What types of discounts must be reflected in government payouts to physicians.

The case filed in Massachusetts federal court is garnering attention among practitioners who are wondering, “is this just the tip of the iceberg of a coming wave of” average sales price litigation, said Adam Tarosky, a partner who leads the False Claims Act team at Nixon Peabody.

Lawyers also are closely monitoring the Regeneron development because it dovetails with several other hot-button issues in DOJ enforcement. Those include unfair competitive practices, individual accountability for senior executives, and the implications of a consequential US Supreme Court ruling last year on proving intent in FCA cases.

The department alleges Regeneron’s CEO was aware of the credit card scheme. Although it doesn’t name him as a co-defendant, the mention of his involvement fits with DOJ’s heightened efforts to pin corporate wrongdoing on top executives.

Several lawyers also predicted that competitors may sue Regeneron on antitrust claims.

Service Fees

Regeneron, in a prepared statement, said the DOJ complaint “relates to the Company’s lawful reimbursement of costs incurred by our specialty distributors” and “demonstrates a fundamental misunderstanding of drug price reporting standards.”

The company added that it “will vigorously defend itself in court.”

The case will center on the interpretation of whether Regeneron’s practice of reimbursing intermediary distributors for credit card processing fees, allowing them to pass on those savings to their physician customers, qualifies under CMS regulations as a “bona fide service fee.” If it does, as the company is expected to assert in its defense, then it wouldn’t require a deduction from the average sales price reported to Medicare for reimbursement.

The regulations distinguish between price concessions that must be included in the company’s sales price report, such as discounts and rebates, and bona fide service fees, which must represent a value not passed on to the customer.

“The case will turn on what Regeneron’s internal documents reflect about that issue,” said Tarosky, who used to litigate FCA cases as an attorney at DOJ’s civil fraud section.

To Bill Sarraille, a veteran pharmaceutical defense lawyer, the case “illustrates a guidance failure” by a government that’s failed to effectively clarify the line between bona fide service fees and price concessions.

“This smacks of regulation by enforcement,” said Sarraille, now a regulatory consultant at Sarraille & Associates. In breaking down the regulation’s four-part test for what constitutes such a service fee, he said the credit card payments should count in part because the third-party distributors received them, not the physician customers.

Other attorneys, including those who represent whistleblowers who could bring similar claims, said the government’s evidence is compelling.

“All jurors will be able to relate to the fact that the physicians could still get all of the benefit of the credit card rewards without incurring the downside, the processing fees,” said Erica Hitchings, a member of the Whistleblower Law Collaborative in Boston, who used to handle false claims cases as a DOJ attorney. “In that way, the company is able to create a win win for the doctors, the company, and, as alleged, at the cost of the taxpayers.

Aggressive Tactics

That Regeneron has attracted widening scrutiny from three concurrent false claims lawsuits shouldn’t come as a surprise given the company’s aggressive marketing tactics, said Renée Brooker, a former DOJ civil fraud section supervisor.

“Despite its hefty price tag, Eylea has been a blockbuster drug for Regeneron. How can that be? Well, look to the allegations in all three complaints,” said Brooker, who now represents whistleblowers as a partner at Tycko & Zavareei.

In 2020, the same Boston-based US attorney’s office alleging Regeneron’s credit card fee misconduct brought a lawsuit accusing the company of paying a charity exactly enough to cover the copay costs of Eylea in an effort to encourage more doctors to prescribe it and more patients to buy it.

That matter remains before the US Court of Appeals for the First Circuit, with the parties arguing over whether the government needs to meet a higher causation standard to show that Regeneron engaged in a fraudulent kickback scheme.

Another whistleblower lawsuit accusing Regeneron of unlawful kickbacks and FCA violations is scheduled for trial next year before a federal court in the Central District of California. DOJ didn’t intervene in in that matter.

The latest credit card fee theory may seem more discrete on its face. It’s difficult to assess the prevalence of similar types of processing fee reimbursements in the healthcare sector, multiple lawyers said.

But by enforcing the False Claims Act to cover discounts more generally that are indirectly passed on to doctors may serve as an industry wake-up call.

“If other companies are offering these types of initiatives to encourage healthcare providers to use their particular drug would be the question,” said Habib Ilahi, a former DOJ civil fraud lawyer who’s now a partner at Schertler Onorato Mead & Sears. “Companies are going to take a hard look at their practices now that the government has come down on this particular issue this way.”

—With assistance from Daniel Seiden