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Pharmaceutical Manufacturer Pays $7.9 Million to Resolve Allegations that it Caused the Submission of Over-the-Counter Drugs to Medicare Part D

On September 15, 2022, the Department of Justice (DOJ) announced a $7.9 million settlement with generic manufacturer Akorn Operating Company LLC (Akorn) to resolve allegations that Akorn caused the submission of over-the-counter (OTC) drugs to Medicare Part D in violation of the False Claims Act (FCA).  Because Medicare Part D only covers prescription drugs, the pertinent drugs were not eligible for Medicare reimbursement.  The conduct at issue under this settlement is a relatively novel basis for FCA liability, but we may see similar government enforcement actions in the future as the federal government actively encourages drug manufacturers to “switch” prescription drugs to OTC status in order to enhance their accessibility and reduce costs (see a prior post related to switching here).  The settlement is also noteworthy because the DOJ specifically reported that it gave Akorn credit under its 2019 guidelines for taking disclosure, cooperation, and remediation into account in FCA cases.

Alleged Conduct at Issue

Akorn manufactures and distributes generic versions of various brand name products approved for marketing by FDA (with such products that are being copied by the generic company referred to as reference listed drugs, or RLDs).  Three former prescription drugs were converted by the relevant RLD manufacturers to OTC marketing status in 2020 and 2021. This marketing status change meant that the labeling for the drug products no longer specified “Rx only” use and the previously approved, long-form prescribing information were each converted into Drug Facts Labels that are used for OTC drug products. Accordingly, all generic drug products that copied and relied upon those three RLDs were required either to seek FDA approval for their own OTC switch or to seek withdrawal of their generic prescription-only approval and cease marketing the drug in question. This requirement derives from the foundational rule in the Food, Drug, and Cosmetic Act (FD&C Act) that a generic drug must have “the same” labeling as its RLD, subject to certain permissible differences such as the name and address of the drug’s distributor.

In the case of the three drugs at issue in the Akorn settlement, the original qui tam complaint filed in June 2021 noted that other generic companies very quickly received approval for supplemental applications that switched their Rx-only versions into OTC drugs.  Such prompt action by generic applicants is consistent with FDA’s guidelines for updating generic labeling after changes are made by the RLD manufacturer.  The FDA advises generic manufacturers to submit their revised labeling “at the earliest time possible” and clearly articulates that the generic manufacturer has a duty to monitor its RLD in order to ensure that it is not distributing drugs that are considered misbranded under the FD&C Act (which generally kicks in any time there is false, misleading, or inaccurate information in the labeling of a drug product).  The fact that other companies updated their generic products timely but Akorn did not likely added to the government’s concerns regarding FCA liability.  

So, in short, Akorn allegedly continued to sell its generic versions of these three drugs as prescription products even after the brand-name drug was converted to an OTC product, ignoring FDA’s requirements for its generic drug labels to be the same as their RLD counterparts.  Because Medicare Part D only covers prescription drugs, the drugs were no longer eligible for Medicare coverage.

Credit for Self-Disclosure, Cooperation, and Remediation

Of note, the DOJ’s press release specifically states that it credited Akorn under the DOJ’s guidelines for taking disclosure, cooperation, and remediation into account in FCA cases (the Guidelines).  As Mintz reported in a previous post, under the Guidelines, the DOJ will give credit for disclosure, cooperation, and remediation in the form of reduced penalties or the damages multiple sought.  Although the DOJ does not specify any concrete guidance on how it will quantify the financial value of any credit, it does indicate that credit cannot result in payment of less than the sum of federal damages, interest on the loss amount, investigative costs, and the relator’s share, if applicable.

Neither the DOJ’s press release nor the publicly available settlement agreement provides any specifics on how Akorn cooperated in the investigation or engaged in remediation in response to the alleged misconduct.  But the DOJ settled the matter for an amount representing approximately 1.5 times the amount of the federal damages, which is a relatively low damages multiple.  We note that $5.1 million of the $7.9 million settlement was restitution.

Since the Guidelines were announced in 2019, the industry has been watching to see how DOJ implements them.  This Akorn settlement is one of at least three recent settlements demonstrating that the DOJ is actively applying the Guidelines when resolving FCA cases.  Although the facts of these three settlements differ substantially, they all underscore the benefits of self-disclosure, cooperation with the government’s investigation, and proactive efforts to remediate misconduct or noncompliance.

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Joanne counsels global clients on the regulatory and distribution-related implications when bringing a new FDA-regulated product to market and how to ensure continued compliance after a product is commercialized.
Rachel Yount is a Mintz attorney who focuses her practice on health care industry transactions. Her clients include hospitals, health systems and plans, physician organizations, and pharmacy benefit managers.