Cypress and Hawthorn: An Approval the Drugs Did Not Have

In the Cypress and Hawthorn settlement, the companies and their CEO agreed to pay $2.8 million to resolve allegations that they marketed unapproved skin products and caused false reports about their eligibility for government payment. The alleged misrepresentations reached physicians, state Medicaid officials and the agency receiving the companies’ quarterly reports. A former district sales manager brought the case.

Cypress Pharmaceutical Inc. was based in Mississippi, and Hawthorn Pharmaceuticals Inc. was its subsidiary. The Department of Justice announced the civil settlement on March 28, 2012. This pharmaceutical fraud case concerned both the message used to sell the products and the information used to support government payment for them.

What Was Alleged About Hylira, Zaclir and Zacare?

The government alleged that Cypress and Hawthorn marketed Hylira, Zaclir and Zacare from 2003 through 2009 without Food and Drug Administration approval as safe and effective. Hylira was a gel used to treat dry skin. Zaclir and Zacare were acne treatments.

The alleged selling point was an approval the products did not have.

The Centers for Medicare and Medicaid Services administers government payment systems, including Medicaid rebate agreements, while states administer Medicaid pharmacy payments within federal limits. The alleged misrepresentations reached both the federal agency receiving product reports and the state officials handling payment.

How the Marketing Reached Government Payment

Hawthorn’s sales representatives allegedly promoted the products to physicians and state Medicaid officials using the designation “safe and effective,” even though the drugs lacked that FDA designation. According to the Justice Department, those representations caused TRICARE, the military’s health care program, and state Medicaid programs to pay improperly for the products.

The alleged selling point reached beyond the prescription pad. Government healthcare programs paid for products that, according to the government, did not qualify.

A manufacturer can cause false claims under the False Claims Act through the information it supplies to the pharmacy or physician billing the government. That is the practical connection in this case: what the sales team said about a product allegedly helped get public money paid for it.

What the Medicaid Reports Said About the Drugs

The government also alleged that Cypress and Hawthorn caused false quarterly reports to the Centers for Medicare and Medicaid Services that misrepresented the products’ regulatory status. It said the companies failed to tell the agency that the drugs did not qualify as outpatient drugs covered for payment.

The government challenged both what the reports said and what the companies left unsaid. The question for an insider is who knew the products’ status and how that knowledge reached the people preparing the reports.

Manufacturer reporting is part of how the Medicaid Drug Rebate Program works. The information manufacturers provide includes drug product information as well as prices. In this case, the disputed information concerned whether the products qualified for payment at all.

For an insider, the connection to examine is the product information the company held, the representations it made outside the business and the government payments that followed. The sales message and the CMS report can expose different parts of the same alleged misrepresentation.

How a Sales Manager Exposed the Unapproved Drugs

A former Hawthorn district sales manager brought the qui tam case under the False Claims Act. The case puts someone from the sales organization at the center of exposing an alleged problem that also reached government reporting.

Sales instructions, materials used with physicians and communications about reimbursement are the kinds of records we examine alongside the information sent to Medicaid’s administrators. We want to understand what the company told its sales staff, what they were expected to tell customers and how that account matched the product’s regulatory status. An employee’s explanation of how the message traveled can make those documents intelligible.

Public Citizen’s 2018 study, Twenty-Seven Years of Pharmaceutical Industry Criminal and Civil Penalties: 1991 Through 2017, found that whistleblower disclosures contributed, at least in part, to 54% of federal pharmaceutical settlements during that period. The Hawthorn whistleblower’s job makes that contribution concrete: the person bringing the case came from the part of the business delivering the sales message.

How the Settlement Money Was Split

The federal portion of the Cypress and Hawthorn settlement was $1,615,783, including payments due to TRICARE. The state Medicaid share was $1,184,217.

The CEO participated individually in the civil settlement with the companies. The Justice Department also announced a reward for the former district sales manager who brought the case.

How Much Money Do Pharmaceutical Whistleblowers Get for Exposing Fraud?

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. We assess how the insider’s knowledge ties the false claims to the public money, then bring in pharmaceutical fraud whistleblower lawyers who know these cases.

The Same Medicaid Reporting Problem in Other Cases

Schwarz Pharma’s $22 million settlement, announced in April 2010, addressed allegations that the company failed to tell Medicaid’s administrators that unapproved Deponit and hyoscyamine products were ineligible for payment and submitted false quarterly reports. That is a close parallel to the reporting allegation against Cypress and Hawthorn: product status allegedly misrepresented to the agency responsible for payment.

KV Pharmaceutical’s $17 million settlement, announced in December 2011, concerned its subsidiary Ethex. The government alleged a failure to notify the Centers for Medicare and Medicaid Services that nitroglycerin ER and hyoscyamine ER were unapproved and ineligible. Across these cases, the reporting relationship gave manufacturers a place to disclose the problem, and the government alleged that they failed to do so.

For employees handling pharmaceutical product information, that is the recurring point. The description sent to a payer can determine whether money moves. Knowing how that description compares with the product’s status is knowledge a whistleblower case can use.

You Know What the Sales Team Was Told

If you know a drug’s approval status did not match the sales pitch or the information sent to a government payer, talk with our whistleblower experts about what happened inside the company. We work with you to build your strongest pharmaceutical whistleblower case, bring in pharmaceutical fraud whistleblower lawyers who understand product approval and reimbursement, and stay beside you throughout.