California Insurance Commissioner Intervenes in Qui Tam Lawsuit Alleging Pharma Company paid Physicians as “Runners and Cappers”

March 24, 2011

By Nisha P. Shah & Alan M. Kirschenbaum

In an unusual step, the State of California’s Department of Insurance intervened in a qui tam lawsuit brought against Bristol-Myers Squibb (“BMS”) by three former employees, including a former member of the L.A. Lakers.  In The People ex rel. Wilson v. Bristol-Myers Squibb, Inc., the employees claim that BMS paid kickbacks to physicians and pharmacists to increase prescriptions and dispensing of the company’s drugs.  The complaint alleges that BMS caused the submission to private insurers of fraudulent claims that were induced by payments of these kickbacks, in violation of the state’s Penal Code and Insurance Code.

BMS allegedly paid kickbacks to physicians who were high prescribers of the company’s drugs as well as physicians on formulary committees and physician practice groups.  Kickbacks described in the complaint included gifts, liquor, gift cards, entertainment and sporting event tickets, participation in two L.A. Lakers “Dream Camps”, high-end dinners, trips to resorts, and cash payments disguised as grants and fees for preceptorships, consulting, advisory boards, and speaker bureaus.  BMS also allegedly provided gift cards and meals to pharmacists to induce them to fill prescriptions with BMS products rather than generic equivalents.  The plaintiffs and the Department of Insurance are seeking monetary penalties and the disgorgement of millions of dollars in profits stemming from the kickbacks, plus treble damages.   

Kickback allegations against pharmaceutical companies have become commonplace in recent years, but the cases have generally been brought under antikickback and false claims laws applicable to federal and state health care programs.  What is unusual here is that the claims are brought under state insurance fraud laws with the participation of the state Insurance Commissioner, and they are based on allegations that private insurance plans – not government programs – have been defrauded.  According to the complaint, BMS caused false claims to be submitted to insurance policies in violation of Cal. Penal Code Section 550.  The plaintiffs also make creative use of California’s runners and cappers statute, Cal. Ins. Code § 1871.7, which prohibits the knowing employment of “runners, cappers, steerers … to procure clients or patients … to perform or obtain services or benefits under a contract of insurance or that will be the basis for a claim against an insured individual or his or her insurer.”  BMS allegedly violated this law by “employing” physicians by paying them kickbacks in order to “procure clients or patients . . . to obtain services or benefits” under an insurance contract, and by employing sales representatives to give kickbacks to physicians to generate prescriptions that would be paid by private insurers.  We may see other states follow California’s lead in using state insurance laws – especially those authorizing whistleblower suits – as a prosecutorial weapon against drug manufacturers.