Implementing US-style anti-fraud laws in the Australian pharmaceutical and health care industries

Thomas A Faunce, Gregor Urbas and Lesley Skillen
Med J Aust 2011; 194 (9): 474-478. || doi: 10.5694/j.1326-5377.2011.tb03066.x
Published online: 2 May 2011


Government expenditure on medicines and health care in Australia runs to billions of dollars annually. Federal expenditure on the Pharmaceuticals Benefits Scheme (PBS) increased from A$3.2 billion in the 1998–99 financial year to A$8.3 billion in 2009–10.1 In 2008, the federal government spent A$45 billion on health care and state governments spent A$26 billion.2 Federal expenditure on health care in general is expected to be over A$70 billion in 2011 and will increase partly as a result of projected changes to federal–state administrative arrangements.3 Per capita yearly government expenditure on health (calculated using the average exchange rate) is about US$4000 in Australia and US$7000 in the United States.4

Risks of corporate fraud in Australian health care

In the US, the health sector is a major target for fraudulent corporate activities, such as reporting false claims or costs, billing for services or procedures not performed or medically unnecessary, hiding improper financial arrangements with health care goods and service providers, as well as promoting off-label uses to physicians, lying about the true wholesale price and submitting false performance records5 (Box 1).

In Australia, a recent representative proceeding (class action) in the Federal Court found that Merck Sharpe and Dohme trained its representatives to minimise physician concerns about adverse cardiovascular effects of Vioxx (rofecoxib). The company even created a publication called the Australasian Journal of Bone and Joint Medicine, which was neither peer-reviewed nor independent, to advertise a product subsequently found under the Trade Practices Act 1974 (Cwlth) to be defective (s 75AD) and not reasonably fit for purpose (s 74B) or of merchantable quality (s 74D).6 This heightens concerns that the Australian pharmaceutical market is unlikely to be immune from US-style false claims and fraud, if only because most of the major drug companies proven to have engaged in such conduct against the US government also dominate the Australian market (Box 2). A report by the University of Melbourne and KPMG estimated that the total amount of money lost to corporate fraud in Australia, including in the health care sector, was about A$350 million in 2010 and growing at an annual rate of 7%, with only a third being detected.7

Under the Medicare Australia Act 1973 (Cwlth), Medicare is empowered to monitor payments on claims paid for both Medicare and the PBS for fraud. It does this through a program of audits as well as sophisticated methods of data analysis. Under the Health Insurance Act 1973 (Cwlth), civil penalties can be imposed on providers of pathology or diagnostic services for asking for or accepting prohibited benefits (s 23DZZIK), offering or providing prohibited benefits (s 23DZZIL) and making threats to induce the above conduct (s 23DZZIM) (Box 3). Within 6 years of a wrongdoer contravening a civil penalty provision, the Chief Executive Officer of Medicare Australia may apply on behalf of the Commonwealth to the Federal Court for an order that the wrongdoer pay the Commonwealth a pecuniary penalty (s 125A(1)). In the 2006–07 financial year, Medicare pursued 499 individuals for A$3.4 million in “incorrect payments” and 550 investigations into fraudulent claiming were begun, with 79 referred to the Commonwealth Director of Public Prosecutions, who successfully prosecuted 56 individuals to recover A$312 927.8 Yet in Australia (unlike the US) large-scale anti-fraud and anti-competitive prosecutions in the pharmaceutical sector have been rare. One example was the 2001 Australian Competition and Consumer Commission prosecution in the Federal Court of Roche Vitamins Australia (A$15 million penalty), BASF Australia (A$7.5 million) and Aventis Animal Nutrition (A$3.5 million), in connection with a global price-fixing cartel supplying vitamins A and E in animal feeds, which inflated general food prices.9

Comparison with the anti-fraud measures in the US health care sector

The False Claims Act (31 US Code ss 3729-3733) (FCA) began during the US Civil War and was substantially amended in 1986 by the Reagan administration, and in 2009 by the Obama administration. It now imposes liability upon anyone who knowingly or with “deliberate ignorance” or “reckless disregard” of the truth submits, or conspires with another to submit, a false claim or related false record:

Qui tam provisions are a component of these false claims laws that have proved extremely effective in encouraging whistleblowers to provide (in a private–public enforcement partnership) crucial “insider” evidence about corporate fraud in a wide range of settings (Box 1). The words qui tam are an abbreviation of a Latin legal maxim broadly meaning “he who sues on behalf of himself also sues on behalf of the state”. Qui tam laws allow private citizens (relators) the right to provide documents establishing fraud or false claims (the terms are generally interchangeable in this context) upon the government to a no win–no fee lawyer who, if convinced of the merits, will fund and file with a Department of Justice office a lawsuit under seal (not initially disclosed to the defendant) (s 3730(b)). Whistleblowers are rewarded with between 15% and 30% of whatever proceeds the government recovers from the civil suit (ss 3729(a), 3730(d)(1), 3730(d)(2)).10 The prospects of success are greater if federal or state justice department officials can be convinced to join the case.11 In such instances, the qui tam relator and his or her counsel act as force multipliers for the often cash-strapped public prosecutors, contributing valuable human and financial resources to the action.

Qui tam whistleblower suits constitute about 80% of all false claims actions and have been very successful in achieving substantial recoveries from corporations in the health service, pharmaceutical, education, defence, and oil and gas sectors.12 In 2010, recoveries from pharmaceutical and medical device companies accounted for 65% of the US$2.5 billion recovered from health care fraud claims.13 Qui tam actions against pharmaceutical companies are now the most successful type of anti-false claims litigation14 (Box 4). In recent years, nearly half of all US states have enacted their own anti-false claims statutes.

Treble damages, civil penalties and criminal offences

In addition to prosecution for criminal offences and penalties, since 1986, the FCA has provided for treble damages, which the US Supreme Court has held to be largely compensatory or remedial rather than punitive.15 Treble damages give public law enforcement agencies a substantial financial incentive to undertake protracted investigations and actions, while the potential to receive 15%–30% of that amount creates a critical incentive for corporate insiders to overcome their concerns about the risks associated with whistleblowing (such as intimidation, loss of livelihood, friends and family, and mental anguish).16 Civil fines of about US$11 000 per claim (eg, per billing item) are also imposed. Companies convicted of offences under the FCA can be barred from involvement in government programs, though some companies appear to have circumvented this by shifting liability to subsidiary corporate entities.

The expanding scope of the FCA

The range of fraudulent activities in health care covered by the FCA is fairly broad and extends to prohibited conduct prescribed in other federal statutes, such as the Anti-Kickback Statute of 1972, the Anti-Self Referral (“Stark”) Law of 1995, the Fraud Enforcement and Recovery Act 2009 and the Patient Protection and Affordable Care Act 2010. False claims liability was an important public interest protection built into the financial sector bailouts of the Troubled Asset Relief Program under the Emergency Economic Stabilization Act 2008.

Although the FCA traditionally did not apply to taxation, in the circumstances specified in the Tax Relief and Health Care Act 2006 (s 406), treble damages and whistleblower awards of 15%–30% of the amount recovered by the Internal Revenue Service apply if the tax, penalties and interest in dispute exceed US$2 million. It is even arguable that anti-false claims actions may be available under the Family Smoking Prevention and Tobacco Control Act (Tobacco Control Act) 2009, by which the US Food and Drug Administration specifies criteria for manufacturing, registration and marketing approvals for tobacco products (including receiving all relevant corporate research [s 904]), among other reasons to restrain government payments under Medicare and Medicaid for tobacco-related illness.

In the words of the US Supreme Court, “the [FCA] was intended to reach all types of fraud, without qualification, that might result in financial loss to the Government.”17 The enforcement partnership has proven extremely cost-effective, recouping US$15 for every US$1 spent on qui tam investigations and litigation.18 Qui tam laws can act as potent deterrents for fraudulent activities as they amplify the threat of detection and prosecution, and create incentives for compliance with government requirements and conditions. The relevant government law enforcement body retains control. Where the government decides to intervene in the action, it takes over the prosecution of the claim, and the relator must tender full cooperation, or the government may compel the court to limit the relator’s role in litigation (ss 3730(b)(4), 3730(c)(1), 3730(c)(2)(B), 3730(c)(2)(C)). Even if the government refuses to intervene, allowing the relator to proceed with the lawsuit on the government’s behalf (s 3730(b)(4)(B)), it still actively monitors the case and has a right to review all pleadings and to later join the case where good cause is shown (ss 3730(b)(3), 3730(c)(3)). As such, fears about perverse incentives driving enforcement19 or over-enforcement,20 are unfounded.

Implementing qui tam legislation in Australia

A comparison with the situation in the US strongly suggests that one reason for the lack of large-scale anti-fraud and anti-false claims actions in the pharmaceutical and health care sectors in Australia may relate to the lack of insider information from private corporations provided to law enforcement officials. Whistleblowing is an infrequent phenomenon from within the Australian health care sector; it is not encouraged, rewarded or adequately protected.22 In 1989, a federal committee recommended that qui tam laws were incompatible with accepted practice in the Australian legal system.23 By 2011, however, significant progress has been made in Australia towards a uniform legislative regime for protecting whistleblowers from unjust reprisals.24 The potential application of US qui tam laws to facilitate whistleblowing about fraud and false claims from within the Australian private corporate health care and pharmaceutical sectors again has been suggested to the Australian Government (T A F, invited oral testimony to the Australian House of Representatives Standing Committee on Legal and Constitutional Affairs,18 Sep 2008). Given the scale of public investment in the Australian health care service, pharmaceutical, medical device and other health-related industries, we believe that an anti-fraud regime based on that of the US should be introduced in Australia. Such laws comport with developing Australian legal principles and are likely to prove as effective here as they have been in the US.

Over the past 20 years, anti-competitive behaviour has increasingly been regarded as a serious crime by Australian regulators. No win–no fee advertising is now common, and litigation funding companies are permitted to back public interest class actions.25 The Australian High Court has now supported the right of any person to seek injunctive relief for a breach of specified provisions of the Trade Practices Act against a corporation.26 It has also upheld the capacity of a plaintiff to bring an action, not to vindicate a private right, but to prevent the violation of a public right or to enforce the performance of a public duty.27,28

Litigation-funding companies in Australia already accept the risk of paying the other side’s costs if a case fails, in return for a set share of the proceeds if it succeeds. These arrangements have withstood challenges in Australian courts, in part because they fulfil public policy imperatives such as access to justice, particularly in public health-related class actions.25While some Australian courts may consider the treble damages provided for under the FCA to be an extraordinary remedy, appropriate only in cases of truly outrageous conduct,29 others are likely to agree with US courts that treble damages in qui tam actions are primarily remedial in nature10 or even justifiably punitive.30 Moreover, treble damages have been considered previously as a deterrent for insider trading, and Australian regulators have generally been in favour of them.31 Considerable financial benefits would arise from applying such damages even to existing penalties under, for example, the Health Insurance Act (Box 3). The recently announced Tobacco Plain Packaging Bill 2011 could include provisions establishing an anti-fraud system related to industry claims required to be made under government regulation of the manufacture and marketing of tobacco (including mandatory disclosure of tobacco industry research about the harmfulness or addictiveness of its products).

The key strengths of the US qui tam anti-fraud regime, particularly in a period of financial stringency, lie in its recovery of large amounts of public monies, its encouragement of good corporate practice, the incentives it provides and the protection it affords whistleblowers from within the private sector, and its various checks and balances to ensure that only presumptively meritorious claims are processed. If designed carefully, Australian qui tam anti-fraud laws may provide a mechanism for sustained and diligent oversight of claims by health care services, the financial sector, and the pharmaceutical, medical device, defence and fossil fuel industries on the public purse without significantly impeding their growth. Australian qui tam legislation could also play a significant role in reducing fraud and false claims in relation to other large investments or redistributions of public monies in public health-related fields such as carbon emissions compensation and the costs of treating tobacco-related illness.

1 Types of fraudulent and false claims successfully prosecuted under the United States False Claims Act*

* Source: False Claims Act Legal Center website at

4 Prominent qui tam claims in the United States pharmaceutical industry, 2001–2010



Settlement* (US$ million)

Relator’s share (US$ million)


Fraudulent or false claim




95.0 (10.9%)


Reported false average sale price for drugs reimbursed by Medicare and Medicaid; anti-kickback violations




34.2 (13.3%)

Cipro, Adalat CC

Illegal sale of cheaper relabelled drugs to private payers; falsified information to avoid paying rebates to the government




24.6 (5.7%)


Illegal marketing for off-label use unapproved by the FDA; false claims about the safety of the drug




31.7 (9.2%)


Anti-kickback violations to protect top-selling allergy drug




26.0 (17.3%)

Zofran, Kytril

Reported false average sale price for drugs reimbursed by Medicare and Medicaid




51.8 (7.4%)


Anti-kickback violations to make patients appear to be candidates for the drug

Bristol-Myers Squibb



50.0 (9.7%)

Pravachol, Glucophage and others

Illegal marketing for off-label uses unapproved by the FDA; anti-kickback violations to induce prescription




68.0 (10.5%)

Vioxx, Pepcid

Anti-kickback violations to induce prescription; failed to administer proper rebates to government programs




46.5 (11.0%)

Provigil, Gabitril, Actiq

Illegal marketing for off-label uses unapproved by the FDA

Eli Lilly



79.0 (5.6%)

Zyprexa and others

Illegal marketing for off-label uses to children and to elderly patients in long-term care facilities; false claims about the safety of the drug

Alpharma Inc.



5.3 (12.5%)


Anti-kickback violations to induce prescriptions; false claims about the safety and efficacy of the drug

Pfizer Inc.



102.0 (4.4%)

Bextra and others

False claims submitted to Medicare and Medicaid based on off-label uses unapproved by the FDA

Novartis Pharmaceuticals



7.8 (10.8%)


False claims submitted to Medicare and Medicaid based on off-label uses unapproved by the FDA

Johnson and Johnson



9.0 (11.1%)


Illegal marketing for off-label uses unapproved by the FDA; anti-kickback violations to induce prescriptions




45.0 (8.7%)


Anti-kickback violations; illegal marketing for off-label uses unapproved by the FDA




96.0 (12.8%)

Paxil CR, Avandamet, Bactroban, Kytril

Manufactured and distributed defective and adulterated drugs from now-closed manufacturing facility in Puerto Rico

FDA = Food and Drug Administration.
* Includes criminal fines.
Average relator’s share = US$50.8 million (10.4%). Percentages are calculated against the entire recovery to government, including criminal fines and civil recoveries to the federal and state governments. In practice, the relator does not receive a share of the criminal fine or the civil recovery to a state that does not have a qui tam statute; thus percentages and amounts eligible for relator’s share would be higher than those reported here.

Provenance: Commissioned; externally peer reviewed.

  • Thomas A Faunce1,2
  • Gregor Urbas3
  • Lesley Skillen4

  • 1 College of Medicine, Biology and Environment, Australian National University, Canberra, ACT.
  • 2 Australian Research Council, Canberra, ACT.
  • 3 College of Law, Australian National University, Canberra, ACT.
  • 4 Getnick and Getnick LLP, New York, NY, USA.


Competing interests:

Thomas Faunce and Gregor Urbas are Chief Investigators and Lesley Skillen is a Partner Investigator on an Australian Research Council (ARC) Discovery Grant in this area. The ARC was not involved in the writing of this paper. Lesley Skillen is a senior partner with Getnick and Getnick LLP, a US firm specialising in anti-false claims litigation.

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