Changing of the Guard in Health Care Fraud

Michael Loucks, the single most prominent figure in the wave of pharmaceutical industry health care fraud prosecutions over the past decade, has left the US Attorney’s office in Boston after almost 25 years.

As we report in “The Pink Sheet” DAILY, Nov. 25 was Loucks’ last day in the office; he is taking leave time until his official last day on the job, Dec. 19. For most of his career, Loucks has focused on health care fraud prosecutions, helping to establish Boston and its health care fraud unit as the center of industry investigations and settlement activity.

Loucks was most recently First Assistant US Attorney, and served as acting US Attorney upon the resignation of Michael Sullivan in April. Loucks’ departure follows the confirmation of Carmen Ortiz as the new US Attorney for Massachusetts.

It is hard to overstate the impact Loucks has had on the pharmaceutical industry. Consider the ramifications of the first blockbuster case Loucks brought: the prosecution of TAP Pharmaceuticals at the start of the decade. The case focused on the marketing of Lupron and inducements tied to the incentives built into the Medicare reimbursement system for physician administered drugs. The case was settled in 2001 for a then-record sum of $875 million—with evidence gathered from a top executive turned whistleblower, supplemented by tapes of sales pitches, recorded by physicians who had turned state’s evidence.

That certainly got the attention of lots of folks in industry.

The settlement demonstrated that pharmaceutical industry sponsors could be successfully prosecuted under the False Claims Act, introduced the industry to the realities of operating under formal compliance programs, and helped spur legislation to reform the payment system under Medicare Part B. In other words, it helped change the rules of commercial success in the biopharma business.

And it did more than that. The size of the settlement—and especially the nine-figure payment to the TAP whistleblower—helped ensure that industry investigations would become an almost self-sustaining exercise, setting up health care fraud prosecutions as a kind of parallel regulatory system for industry. It also led to the reality for industry today, where (as we put it in “The Pink Sheet”) if you aren’t under investigation, it is because you already settled.

The TAP case was followed by other landmark settlements, like the Neurontin case—which emphatically demonstrated that off-label promotion can be successfully prosecuted despite assertions that FDA’s rules infringe First Amendment rights. The policy response to that case remains very much a work in progress—but only because the implications are so far reaching. (We outlined the issues in The RPM Report, here.)

Loucks is leaving the US Attorney shortly after his office set yet another record for a settlement, recovering $2.3 billion from Pfizer for marketing practices related to Bextra and a handful of other products. As has been the pattern, the case did more than recover money. It drove important changes in Pfizer’s business practices—for instance, the company bowed out of funding continuing medical education activities as the investigation unfolded. And it dovetails with broader policy change by starting to define rules for disclosure of relationships with health care professionals that we suspect will soon be codified by legislation.

No Short Term Impact

Will Loucks’ departure mean any changes in the climate for prosecutions of pharmaceutical companies in the year to come?

In the short term, the answer is almost certainly, “no.” Loucks hasn’t been directly responsible for health care fraud cases in Boston for several years; a large and experienced team of prosecutors remains in place, and it will presumably be business as usual.

It also seems unlikely that the Obama Administration is going to rein in fraud prosecutions; quite the opposite, if the tough talk about fraud and abuse in Medicare is any guide.
And if you think Loucks was some kind of anti-industry zealot, think again. You should have seen the jaws drop when Loucks told The RPM Report’s FDA/CMS Summit in 2007 that he considers himself a conservative Republican and believes, generally speaking, that government intrusion in people’s lives is a bad thing that should be kept to a minimum. (Read more here.)

His successor, Ortiz, was recommended by Massachusetts’ two Democratic Senators (John Kerry and the late Ted Kennedy), so if anything you might expect a more interventionist tone at the top. And there is no reason to expect broad ranging disruptions at the AUSA level: Ortiz herself was an assistant US Attorney, having served in the Boston office since 1997.

But there may indeed be reasons to think the wave of health care fraud prosecutions from Boston is cresting. Ortiz’ focus has been on economic fraud; her list of the 10 most important cases in her career (submitted to the Senate Judiciary Committee as part of the confirmation process) includes telemarketing scams and pyramid schemes—but nary a health care case.
Ortiz is certainly unlikely to slow down the pipeline of pending investigations of health care fraud. But given that she got the job in the midst of an economic crisis, it seems safe to speculate that the priorities at the top may start to shift towards financial cases in the years to come.

Full Impact TBD

But those changes won’t happen overnight, and in the meantime we expect Loucks’ legacy will continue to be defined.

In economic terms, health care fraud prosecutions are lagging indicators. National headlines about record-breaking settlements come only after years of investigation, and inevitably involve assertions by the settling firm that the conduct involved is in the distant past, and does not affect current practice. And that is always true (though sometimes the “distant” past is not so distant, as in the Pfizer case where the allegations included activities as recent as October 2008.)

The pipeline of pending cases in Boston will no doubt include a number of other important settlements with significant commercial and policy implications. There’s just no way to know yet what they are.

Indeed, the last settlement announced under Loucks’ name—involving the long term care pharmacy provider Omnicare and the generic drug manufacturer Ivax—was relatively small and focused on a narrow market segment, but sure seems to suggest some huge cases to come (as we pointed out here.)

So it is still several years too early to even try to quantify the full impact of Loucks’ tenure on the biopharma sector. But this much we know: it is a big impact, and we don’t think it will look any smaller in the years to come.