United States Files Suit Against Drug Manufacturer Regeneron for Paying Kickbacks Through Co-Pay Foundation

The U.S. Attorney’s Office announced this week that the government has filed a civil False Claims Act complaint against drug manufacturer Regeneron Pharmaceuticals, Inc. (Regeneron), of Tarrytown, N.Y. The complaint alleges that Regeneron paid tens of millions of dollars in kickbacks for its macular degeneration drug Eylea, using a foundation as a conduit to cover co-pays for Eylea.

When a Medicare beneficiary obtains a prescription drug covered by Medicare Part B, the beneficiary may be required to make a partial payment, which can take the form of a deductible or co-insurance amount (collectively, co-pays). Congress included co-pay requirements in the Medicare program, in part, to encourage market forces to serve as a check on health care costs, including the prices that pharmaceutical manufacturers can demand for their drugs. The Anti-Kickback Statute prohibits pharmaceutical companies from offering or paying, directly or indirectly, any remuneration – which includes money or any other thing of value, including coverage of co-pays – to induce Medicare patients to purchase the companies’ drugs.

“According to the allegations in today’s complaint, Regeneron funneled tens of millions of dollars in kickbacks through a third-party foundation to ensure that few Medicare patients paid a co-pay on Eylea and that physicians who prescribed and purchased the drug did not have to collect Medicare co-pays from their patients,” said United States Attorney Andrew E. Lelling. “Regeneron allegedly paid these substantial sums only after confirming that the foundation needed the money to cover co-pays only for Eylea, and not for competing drugs, and that the company’s payments would generate a handsome return on investment, or ‘ROI,’ in the form of Medicare payments for Eylea. Furthermore, senior company executives allegedly took extensive measures to cover up the scheme.”

“Kickback schemes can undermine our healthcare system, compromise medical decisions, and waste taxpayer dollars,” said Phillip Coyne, Special Agent in Charge, Office of the Inspector General of the Department of Health and Human Service’s Boston Regional Office. “We will continue to hold pharmaceutical companies accountable for subverting the charitable donation process in order to circumvent safeguards designed to protect the integrity of the Medicare program.”

“As alleged, a pharmaceutical company has once again been caught manipulating the system and profiting handsomely at the expense of our taxpayer funded Medicare program,” said Joseph R. Bonavolonta, Special Agent in Charge of the Federal Bureau of Investigation, Boston Division. “The FBI will aggressively pursue justice against this company and all companies like it until those in the pharmaceutical industry learn they are not above the law.”

The complaint alleges that, in 2012, soon after the launch of Eylea, Regeneron considered how much to pay a foundation that covered Medicare co-pays for patients taking macular degeneration drugs. At the time, Regeneron and Genentech, which sold Lucentis, were the leading manufacturers of macular degeneration drugs. Regeneron’s senior management was willing to pay the foundation only enough to cover Medicare co-pays for Eylea patients. As Regeneron’s former Chief Financial Officer put it, Lucentis patients were “Genentech’s problem.” Moreover, Regeneron senior management wanted assurances that the company’s payments to the foundation would generate a handsome ROI.

To satisfy senior management, the complaint alleges, Regeneron employees repeatedly contacted the foundation to learn the amount of money the foundation would need to cover the co-pays of Eylea patients only. They then determined the Medicare revenue that Regeneron would derive from those patients and calculated that the company would earn a return of over 400% on its payments to the foundation. Over the course of 2013 and through the beginning of 2014, Regeneron paid the foundation exactly what it said it needed to cover Medicare expenses for Eylea patients only.

The government alleges that Regeneron’s conduct violated the anti-kickback statute which prohibits such “indirect” kickbacks to subsidize the price of a Medicare drug. The government further alleges that Regeneron’s senior management knew the conduct was illegal. In 2013, company auditors twice inquired about the information Regeneron was getting from the foundation about Eylea. Both times, Regeneron management, including the company’s commercial chief, lied and asserted that the company was not getting Eylea-specific data from the foundation. In fact, as the executives knew, the company was getting frequent Eylea-specific reports from the foundation and then using that data to correlate the company’s payments to the foundation with the foundation’s spending on co-pays for Eylea. As a result, the government alleges, the physicians who prescribed and purchased Eylea rarely, if ever, had to consider the drug’s substantial cost, because they knew that the foundation would cover their patients’ Medicare co-pays.

U.S. Attorney Lelling, HHS-OIG SAC Coyne, and FBI SAC Bonavolonta made the announcement today. The U.S. Postal Inspection Service also assisted with the investigation. The matter is being handled by Assistant U.S. Attorneys Gregg Shapiro and Evan Panich of Lelling’s Affirmative Civil Enforcement Unit.