Pacira Pharmaceuticals Pays $3.5M to Settle Allegations of Using Grants as Kickbacks

On July 28, 2020, the Department of Justice (DOJ) announced a $3.5 million settlement to resolve allegations against Pacira Pharmaceuticals Inc. that it paid kickbacks to doctors in the form of “bogus” research grants to induce them to prescribe its analgesic EXPAREL.

In the settlement agreement, the DOJ highlighted several problems with the grants. As an initial matter, Pacira sales representatives or marketing executives typically initiated the offer of grants conditioned upon the institution adding EXPAREL to its formulary. Pacira then allegedly approved and funded 28 grants despite receiving little or no information regarding the proposed research or documenting a reasonable commercial need or fair market value assessment for the grants. The DOJ further contended Pacira performed little or no follow-up on the proposed research and that certain grant recipients did not perform research according to the original proposal and that some did no work at all. Moreover, certain Pacira executives allegedly coached grant recipients and other employees on how to avoid internal scrutiny of the grant payments.

The lawsuit was initiated by a pharmacist under the qui tam, or whistleblower, provisions of the False Claims Act. Medicare and Medicaid do not reimburse for products tainted by illegal kickbacks. As such, according to the DOJ, Pacira caused the submission of false claims by using the research grants to induce sales of EXPAREL. Pacira denied all allegations and admitted no wrongdoing in the settlement agreement.

To help avoid the same mistakes highlighted in the Pacira settlement, the Office of Inspector General (OIG) in its Compliance Program Guidance for Pharmaceutical Manufacturers provides basic compliance elements for a variety of high-risk activities, including funding research grants. Although manufacturer-funded research grants can provide valuable information to the healthcare industry and advance patient care, a research grant conditioned, in any way, expressly or implicitly, on the physician’s referral of the manufacturer’s product will implicate the anti-kickback statute even if the grant has a legitimate research purpose. The OIG also notes that if linked directly or indirectly to the purchase of product, research grants can be misused to induce the purchase of business without triggering Medicaid Best Price obligations.

In order to reduce the risks that a research grant implicates the anti-kickback statute or price reporting requirements, the OIG makes the following recommendations:

• Manufacturers should separate their grantmaking functions from their sales and marketing functions. Effective separation of these functions will help insure that grant funding is not inappropriately influenced by sales or marketing motivations and that the research purposes of the grant are legitimate.
• Manufacturers should establish objective criteria for making grants that do not take into account the volume or value of purchases made by, or anticipated from, the grant recipient and that serve to ensure that the funded activities are bona fide.
• Compliance with such procedures should be documented and regularly monitored.

The Pacira settlement also highlights two important compliance areas not specifically addressed in the OIG’s Compliance Program Guidance, but which are expected when a manufacturer awards a research grant:

• Perform a fair market analysis on the grant proposal and only award a grant consistent with the fair market analysis. This will further support that the grant is for a legitimate purpose.
• Build provisions in the grant agreement to ensure the research is being performed consistent with the grant. If the research is not consistent with the grant or no work has been done according to the terms of the grant, then the manufacturer should take appropriate action to stop funding the grant and possibly attempt to recoup any amounts paid for the grant.

By implementing the elements identified above into a research grant compliance program, manufacturers can establish internal controls to ensure adherence to applicable rules and program requirements. A well-run compliance program is an affirmative step addressing the public and private sectors’ mutual goals of reducing fraud and abuse in the healthcare industry. Importantly, as noted by the OIG in the Compliance Program Guidance, “a good faith effort by the company to comply with applicable statutes and regulations as well as federal health care program requirements, demonstrated by an effective compliance program, significantly reduces the risk of unlawful conduct and any penalties that result from such behavior.”