On May 27, 2016, Valeant Pharmaceuticals was hit with a proposed class action accusing the drug company and its executives of violating the Racketeer Influenced and Corrupt Organizations (RICO) Act. The suit – filed by two health care funds – alleged that Valeant fraudulently schemed to block Valeant’s drugs from competition and ensure their selection and coverage through a “secret network of captive pharmacies” who acted uniquely to push Valeant’s products over competitors comparable products.
The suit alleged that Valeant created a secret network of captive pharmacies to shield the company’s drugs from competition from generic alternatives, fraudulently inflate the prices of its products, and artificially boost sales. To further the scheme, Valeant used Philidor Rx, a Pennsylvania mail order pharmacy to create a host of shell companies owned through Philidor. In turn, Philidor used these shell companies to acquire interests in additional retail pharmacies all over the United States. The plaintiffs base their argument on the premise that had payors or PBMs known about Valeant’s captive pharmacy network, they would have denied claims submitted by pharmacies in the “Valeant Enterprise.”
The complaint alleged several activities as examples of the fraudulent scheme, including:
- actively changing codes on prescriptions to ensure that the prescriptions would be filled with a Valeant drug rather than a generic equivalent
- using false pharmacy identification information to bill payors/PBMs for prescriptions in order to fraudulently bypass payors’ denials of claims for reimbursement
- submitting prescription renewals for reimbursement and falsely representing to payors/PBM that patients had requested renewals of their prescriptions when no such request had been made
- waiving patient co-pays through manufacturer coupons or otherwise to remove patients’ incentive to seek out cheaper drugs
- using affiliate pharmacies within the “Valeant Enterprise” to enable Philidor to indirectly operate in States where it had been denied a license
In light of the proposed class action, pharmaceutical companies and pharmacies should be aware of the risks associated with the type of arrangement Valeant had with Philidor (and other affiliated pharmacies). The repercussions of these types of relationships may prove to be serious; not only might such entities face civil liability, but Valeant and other similarly-situated pharmaceutical companies also face ongoing governmental investigations into the legality of these practices.
Frier Levitt routinely represents pharmacies and pharmaceutical companies in structuring compliant business and distribution relationships. For questions or advice related to issues associated with relationships between pharmaceutical companies and pharmacies, contact Frier Levitt today.
