More Frown Lines for Industry? The US$600 Million Botox® Settlement Highlights the Risks of Certain Managed Care and Reimbursement Services Activities

On September 1, 2010 the US Department of Justice (DOJ) announced the resolution of an investigation into alleged off-label marketing of Botox® by Allergan, Inc. While Botox, an injectable botulinum toxin, is best known for smoothing facial frown lines, it is also indicated for treatment of non-"cosmetic" indications such as strabismus, cervical dystonia, and excess sweating. Allergan pled guilty to a one-count Information charging the company with distribution of a misbranded drug pursuant to 21 U.S.C. § 331(a) and 352(f)(1), and paid fines and forfeiture totaling US$375 million. Allergan also paid US$225 million and entered into a Settlement Agreement to resolve civil False Claims Act suits brought by several qui tam relators which were consolidated following government intervention. As part of the civil resolution, Allergan entered into a five-year Corporate Integrity Agreement (CIA) imposing, inter alia, detailed oversight and auditing requirements relating to numerous activities including reimbursement assistance, managed care interactions, and compendia communications. Notably, the Settlement Agreement also requires Allergan to file a stipulation of dismissal with prejudice to withdraw its pending First Amendment-based declaratory judgment action against the US Food and Drug Administration (FDA) within seven days of payment of the civil settlement amount.

As discussed more fully in this advisory, the Allergan settlement may signal an important development in the government's enforcement of federal healthcare laws against medical product manufacturers who fail to adequately control the actions of managed care functions
and third party vendors. The case suggests that the government may view the activities of managed care functions, and their vendors, as potential evidence of a company's intent to promote a product for a particular use, as well as a possible basis for alleging violations
of the False Claims Act.