Chiron Price Tampering Suit Could Have Broad Implications

While Chiron Corp. is being investigated by the California state attorney general's office for the pricing of a cancer drug Chiron has not sold in four years, San Francisco Chronicle columnist Tom Abate writes that the implications of the case "go far beyond Chiron or cancer." The state attorney general is currently conducting an investigation into the pricing of a generic cancer drug that Chiron used to sell to the Medi-Cal and other states' Medicaid programs through a joint venture called Cetus-Ben Venue Therapeutics. The attorney general has subpoenaed information "related to [the] pricing" of the anticancer drugs, and is currently attempting to discern whether the average wholesale price Chiron charged the state for the drugs "somehow concealed their true price," according to plaintiff attorney Stephen Meagher. Chiron sold off its stake in Cetus-Ben Venue four years ago to partner Ben Venue, which was later acquired by the German drug firm Boehringer Ingelheim Corp. As many as a dozen other unnamed firms are part of the same whistle-blower investigation. Chiron said that the company does not know when the investigation will be concluded.

Abate writes that the government's policing of price fraud dates back to the Civil War, when Congress, beset by "unscrupulous vendors," enacted the False Claims Act, which allowed the government to prosecute companies that "filed false or fraudulent claims against the government," according to Sacramento attorney Dennis Warren. The False Claims Act was "little-used" until the mid-1980s, when Congress "beefed up" the statute by imposing triple damages and other penalties on firms that were caught filing false claims and by awarding "private whistle-blowers" who brought evidence of fraud to the goverment.

Many states, including California, also acted "whistle-blower" statutes. Hospitals and health care companies have increasingly become the subject of such investigations -- in 1998, 61% of whistle-blower cases were against health care firms, mainly hospitals, Warren said. Abate writes that the shift reflects, in part, the "growing prominence of health care as a part of the national budget," but health care firms "complain" that "the complexity of government billing rules" and the rewards given to whistle-blowers "encourage plaintiff attorneys to go after technical violations that are not really fraud." However, Meagher said that companies are not defenseless against the system because "the courts typically allow defendants to shield themselves from liability by claiming they were unaware" that erroneous practices may not have conformed exactly to the law. "In this area, the courts have made it much more difficult to apply the rule that ignorance of the law is no excuse," Meagher said.

Still, Abate suggests that lawmakers trying to reign in raising health care costs through price controls "would be wise to consider how previous, mild attempts at legislated pricing have come back to haunt drug developers like Chiron with a legal threat whose magnitude is, as yet, undetermined." Abate concludes, "If legislators tinker with drug pricing formulas, this whistle-blower law, with all its pros and cons, is likely to be how the government polices the system" (Abate, San Francisco Chronicle, 11/13).