ABA Health eSource
June 2010 Volume 6 Number 10

Fraud and Abuse in Clinical Research: Three Case Studies

By Julie M. Rusczek, Drinker Biddle & Reath LLP, Milwaukee, WI and
Andrew P. Rusczek, Ropes & Gray LLP, Boston, MA

AuthorAuthorThe federal government is renewing its focus on fraud and abuse in clinical research activities at a time when pharmaceutical, device, and biotech companies are sponsoring an increasing number of clinical trials. In light of these trends, industry sponsors and institutions that conduct research studies must be increasingly vigilant in their compliance efforts. This article presents three common clinical research scenarios that pose fraud and abuse concerns and offers suggestions for mitigating risk of fraud and abuse violations. 1

Research Involving Non-Employed Physician Investigators

A hospital enters into an agreement with a pharmaceutical company to conduct a drug study. The physician who will serve as the principal investigator is not a hospital employee. The principal investigator asks the hospital to pass along to him half of the funds that the hospital will receive from the sponsor pharmaceutical company for conducting the study, figuring that a 50/50 split would be fair.

This arrangement raises a number of fraud and abuse concerns, most notably under the federal Stark law 2 (the “Stark Law”). The Stark Law prohibits physicians from making referrals for designated health services for which payment may be made under the Medicare or Medicaid programs to any entity with which the physician has a financial relationship. 3 The term “financial relationship” is defined to include a “compensation arrangement,” and a compensation arrangement is any arrangement involving remuneration, direct or indirect, between a physician (or a member of the physician’s immediate family) and an entity. 4 The term “designated health services” includes, among other services, clinical laboratory services, radiology and other imaging services, and inpatient and outpatient hospital services. 5 The Stark Law is a law of strict liability; therefore, if a financial relationship does not meet each element of an applicable exception to the Stark Law, the referrals are prohibited.

The arrangement outlined above implicates the Stark Law because the funds passed along to the principal investigator’s practice create a compensation arrangement between the hospital and the physician, and the physician may refer enrolled subjects and other patients to the hospital to receive designated health services reimbursed under Medicare or Medicaid. Arrangements such as this one should be structured to fit within the Stark Law’s exception for personal service arrangements. 6 To fit within this exception, personal service arrangements must meet a number of requirements, including, among others, the following:

  • The arrangement must be set out in writing, be signed by the parties, and specify the services covered;
  • The arrangement must cover all services to be furnished by the physician to the entity, or incorporate by reference other arrangements or a master list of contracts; and
  • The compensation paid over the term of each arrangement must be set in advance, must not exceed fair market value, and except in the case of a physician incentive plan, must not be determined in a manner that takes into account the volume or value of any referrals or other business generated between the parties. 7

In the scenario presented, the hospital must assess the fair market value of the principal investigator’s services provided during the drug study and ensure that the funds that it passes along to the principal investigator do not exceed fair market value; passing along half of the funds when, for example, the physician is playing only a minor role in the conduct of the clinical trial would violate the Stark Law. 8 Further, the arrangement between the hospital and physician should be documented in a research services agreement that specifies the services to be performed by the physician as principal investigator. In addition to addressing compensation, this agreement should address compliance, insurance and indemnification, and other issues that are relevant to the hospital’s and physician’s roles in conducting the clinical trial.

Although, from a fraud and abuse perspective, issues under the Stark Law are most notable here, this arrangement, if not structured properly, may violate other laws, including the federal anti-kickback statute and implementing regulations 9 (the “Anti-Kickback Statute”), discussed further below.

Marketing Disguised as Research

A physician is invited by a pharmaceutical company to take part in a study involving an FDA-approved drug. The physician’s responsibilities entail prescribing the drug for patients and then completing three questionnaires about each patient’s experience with the drug. The questionnaires are quite short and will take about 20 minutes each to complete. The sponsor will pay $1,500 for each completed questionnaire. The physician is very interested in participating because it looks like a great way to increase practice revenues.

Among other fraud and abuse concerns, this arrangement raises concerns under the Anti-Kickback Statute. The Anti-Kickback Statute prohibits the knowing and willful solicitation, receipt, offer or payment of any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, in return for either referrals of Medicare or Medicaid beneficiaries or the arranging, recommending, leasing or ordering of any item or service reimbursed by Medicare or Medicaid. 10 This scenario could violate the Anti-Kickback Statute because it appears that the pharmaceutical company is knowingly making a payment to the physician in return for the physician prescribing the company’s drug, which may be reimbursed under Medicare and/or Medicaid.

The Anti-Kickback Statute regulations include a safe harbor for personal services contracts. 11 The personal services safe harbor has similar requirements as the Stark Law’s exception for personal service arrangements, including that the arrangement be set out in a writing signed by the parties and that the payment constitute fair market value for the services rendered. 12 The arrangement above would not qualify for the personal services safe harbor because the payments made to the physician far exceed the fair market value of the physician’s time to enroll the subjects and complete the questionnaires. The Department of Health and Human Services Office of Inspector General closely scrutinizes arrangements such as this one—where physicians are compensated above fair market value to participate in post-marketing studies—because these arrangements may involve sham studies or marketing efforts disguised as research. 13

Unlike the Stark Law, the Anti-Kickback Statute is an intent-based statute, and therefore an arrangement that does not fit within an exception to the Anti-Kickback Statute may be permitted based on a facts and circumstances analysis. However, a facts and circumstances analysis is unlikely to be helpful here as this study appears to be intended, at least in part, to induce physicians to prescribe the pharmaceutical company’s drug.

This arrangement may also violate other laws, including the False Claims Act, described further below.

Double Billing

A patient arrives at a hospital for a physician-ordered x-ray. After the patient makes a vague reference to a clinical trial in which she is participating, the hospital double checks the order form to confirm it is performing the correct x-ray. The hospital later bills Medicare for the x-ray. After receiving Medicare reimbursement, the hospital receives a check from the physician group to pay for performing the x-ray because the x-ray was requested as part of a clinical trial sponsored by a medical device company. The physician group received payments from the medical device company to conduct the clinical trial.

This scenario raises concerns under the False Claims Act. 14 The False Claims Act prohibits knowingly filing a false claim with the federal government or causing the filing of a false claim, creating a false record to get a claim paid, and concealing an obligation to repay monies owed to the federal government. 15 In this case, the hospital’s and physician’s failure to determine which research costs should be covered by the research sponsor and which costs may be billed to Medicare could result in a violation of the False Claims Act because the hospital billed Medicare for a service that was covered by the device company.

Before providing services to a patient enrolled in a clinical trial, the hospital should determine, working with the principal investigator and sponsor, which services will be performed by the hospital, who will be responsible for payment for each service, and how research participants will be identified when presenting to the hospital. The hospital should also consider taking other measures to help ensure compliance, such as educating its billing personnel regarding clinical research reimbursement issues.

As the federal government steps up its fraud and abuse enforcement efforts, research sponsors and health care providers participating in clinical research should review and update their compliance policies, procedures, and practices to ensure that they will not find themselves engaging in all too common practices, including those described above, that could violate fraud and abuse laws.


1 This article provides a brief overview of how fraud and abuse issues apply in the clinical research context; however, an in-depth discussion of fraud and abuse laws is beyond the scope of this article. For a detailed analysis of these issues, see the ABA Health Law Section’s book, Health Care Fraud and Abuse: Practical Perspectives: 2 nd Edition, Linda Baumann, Editor.
2 42 U.S.C. § 1395nn; 42 C.F.R. § 411.353 et seq.
3 42 U.S.C. § 1395nn(a)(1).
4 42 U.S.C. § 1395nn(a)(2), (h)(1).
5 42 U.S.C. § 1395nn(h)(6).
6 42 C.F.R. § 411.357(d).
7 Id.
8 Industry sponsors typically require that all payments be made to one party ( i.e., the principal investigator or the hospital) and expect the payee party to arrange for appropriate compensation of the other party. Sponsors are not usually willing to make separate payments to the principal investigator and the hospital.
9 42 U.S.C. § 1320a-7b(b); 42 C.F.R. § 1001.951.
10 42 U.S.C. § 1320a-7b(b).
11 42 C.F.R. § 1001.952(d).
12 Id.
13 One recent example involves Biovail Pharmaceuticals (“Biovail”) and Cardizem L.A., a heart medication used to control high blood pressure. In May 2008, Biovail pleaded guilty to conspiracy and Anti-Kickback Statute charges and agreed to pay a criminal fine of more than $24 million for allegedly conducting a sham study involving Cardizem L.A. The study paid physicians up to $1,000 per enrollee if they enrolled 11 to 15 patients in the study, which involved prescribing Cardizem L.A. for the enrolled patients and having the patients fill the prescriptions. The prescribing physicians conducted three regularly scheduled visits for each enrolled patient, which involved no additional work for the physicians, and completed short multiple choice questionnaires. The payments exceeded the reasonable fair market value of the physicians’ time necessary to enroll the patients and complete the questionnaires. Furthermore, Biovail’s stated objectives in conducting the study included accelerating the uptake of prescriptions of Cardizem L.A. among primary care physicians. See, e.g. , Health Care Fraud and Abuse: Practical Perspectives: 2 nd Edition—2009 Cumulative Supplement, Ch.11.II.A.2.b., p. 436.
14 31 U.S.C. § 3729 et seq.
15 Id.

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