Faced with allegations brought by the South Carolina Attorney General claiming that its drug Seroquel causes harmful side-effects and was promoted for off-label uses, AstraZeneca has abandoned a lawsuit against the South Carolina AG, agreeing instead to pay $26 million to resolve all of the state’s claims related to Seroquel.
In late December of 2012, a state court judge in South Carolina denied the state AG’s motion to dismiss a suit claiming that AstraZeneca’s Fourteenth Amendment due process rights were violated by the contingency fee arrangements between the AG’s Office and three private law firms. The lawsuit invoked a legal strategy pursued by other major pharmaceutical companies, including Merck, that face claims of off-label promotion and other fraudulent practices. According to AstraZeneca, because the AG’s Office would retain 10% of any recovery under the contingency agreement, the AG essentially had a financial stake in the outcome of the litigation and had compromised his independence. The state court judge’s denial of the motion to dismiss signaled that the protracted litigation would be allowed to continue, and cast doubt upon the ability of the South Carolina Attorney General to pursue the state law claims against the pharmaceutical company. Despite the judge’s ruling, AstraZeneca has assented to a $26 million settlement to resolve the legal claims against it. The company’s decision may reflect the inefficiency of a legal strategy predicated upon litigating two lawsuits simultaneously. The South Carolina attorney general sought to recover funds spent to treat side-effects for Seroquel, an antipsychotic medication, and for reimbursements for alleged off-label uses. Since South Carolina’s Medicaid program generally does not reimburse for off-label prescriptions (that is, prescriptions for uses of a drug that have not been approved by the FDA), the state may seek to recover funds spent to reimburse for such prescriptions.
South Carolina is one of twenty U.S. states that does not have its own version of the federal False Claims Act (“FCA”), a statute containing qui tam (whistleblower) provisions that allow private citizens with knowledge of fraud to sue on behalf of the government. The FCA allows for recovery of treble damages and a penalty of up to $11,000 per violation, creating a strong incentive for whistleblowers (known as relators) to come forward; if successful, relators stand to recover between 15% and 30% of any final judgment or settlement on behalf of the government. The Act imposes liability for false claims for payment, and also for failure to return over-payments from the government. Recent changes to the FCA have expanded the scope of liability and increased the statute’s protections against employer retaliation. Unfortunately for potential whistleblowers, there is no South Carolina False Claims Act. The AstraZeneca litigation highlights the potential benefits that would accrue to a state like South Carolina if it were to adopt its own False Claims Act, empowering private individuals to come forward with information concerning fraud and abuse of the state’s funds.