Three Big Pharma Companies Under Investigation Over PBM Contracts

Last week Johnson & Johnson disclosed in its 10Q filing with the Securities & Exchange Commission that its subsidiary, Janssen Pharmaceuticals, Inc. (JPI) was served with a Civil Investigative Demand (CID) from the U.S. Attorney’s Office for the Southern District of New York. The March 2016 CID is seeking information related to JPI’s contractual relationships with pharmacy benefit managers (PBM) over the period from January 1, 2006 to the present with regard to unspecified JPI pharmaceutical products. In the disclosure, JPI acknowledged the CID was issued in connection with an investigation under the False Claims Act.

Merck & Co. Inc., and Endo Pharmaceuticals Inc. made similar disclosures just days before the Johnson & Johnson disclosure. Both companies received CID’s in March from the DOJ. Merck’s statement indicated the DOJ wanted to know more about its PBM contracts, services and payments in connection with its Maxalt and Levitra drugs. EPI’s statement acknowledged their investigation involved PBM contracts for its Frova treatment for migraines. Both Merck and EPI said in their filings that their companies were cooperating with the investigation.

So far the DOJ is not commenting on the investigation. It is unknown which PBM’s are involved in the investigation or why these companies have come under scrutiny. PBM’s negotiate on behalf of the insurers to get the best price for medications from the manufacturers. Because these investigations are alleged to be occurring in connection with potential violations of the False Claims Act, Medicare, Medicaid, TRICARE and possibly the Department of Labor are the federal payors involved. It is more probable than not that these investigations could involve incentive programs, discounts and other sales strategies the government may view as violations of the Anti-Kickback Statute. Novartis Pharmaceuticals agreed to pay $390 million in October 2015 to resolve alleged False Claims Act violations that it provided improper discounts and rebates to specialty pharmacies.

Preet Bharara, the United States Attorney for the Southern District of New York is well known for high-profile investigations and prosecutions. Although we do not know what the government has in its pocket, the fact that three Big Pharma manufacturers are under investigation signals the potential for a very large penalty should wrong doing be uncovered.