lobal consulting firm McKinsey & Co. has agreed to pay $650 million to settle a Department of Justice investigation into the firm’s consulting work with opioids manufacturer Purdue Pharma. The DoJ had accused McKinsey of fueling the opioid epidemic with its aggressive sales and marketing advice to Purdue, including a 2013 engagement in which McKinsey advised on steps to “turbocharge” sales of OxyContin.

McKinsey has agreed to pay a penalty of over $231 million, a forfeiture amount of over $93 million and a payment of $2 million to the Virginia Medicaid Fraud Control Unit to resolve the criminal allegations.

The settlement marks the first time a management consulting firm has been held criminally responsible for advice resulting in the commission of a crime by a client and reflects the Justice Department’s ongoing efforts to hold those responsible for their roles in the opioid crisis to account. The resolution is also the largest civil recovery for such conduct.

“For the first time in history, the Justice Department is holding a management consulting firm and one of its senior executives criminally responsible for the sales and marketing advice it gave resulting in the commission of crime by a client,” said Attorney Christopher Kavanaugh for the Western District of Virginia. “This ground-breaking resolution demonstrates the Justice Department’s ongoing commitment to hold accountable those companies and individuals who profited from our Nation’s opioid crisis.”

McKinsey also has entered into a civil settlement agreement in which it will pay over $323 million to resolve its liability under the False Claims Act for allegedly providing advice to Purdue that caused the submission of false and fraudulent claims to federal healthcare programs for medically unnecessary prescriptions of OxyContin, as well as allegedly failing to disclose to the U.S. Food and Drug Administration conflicts of interest arising from McKinsey’s concurrent work for Purdue and the FDA. This brings the total payments under the global resolution to $650 million.

McKinsey’s Criminal Liability for Misbranding

The criminal misbranding charge was based on McKinsey’s advice to the titan opioids manufacturer. Between 2004 and 2019, McKinsey contracted with Purdue on 75 different occasions in the United States. In 2007, a Purdue affiliate pleaded guilty to misbranding OxyContin, from 1996 through 2001, by falsely marketing it as less addictive, less subject to abuse and diversion, and less likely to cause dependence and withdrawal than other pain medications, and Purdue entered into a five-year corporate integrity agreement with the Department of Health and Human Services Office of Inspector General. After the 2007 guilty plea, McKinsey partners maintained close contact with Purdue, and in 2009, worked with Purdue to enhance “brand loyalty” for OxyContin and protect market share.

In 2010 McKinsey worked with Purdue to obtain FDA approval for a version of OxyContin that was reformulated with abuse-deterrent properties. Following the introduction of reformulated OxyContin in August 2010, OxyContin sales immediately began to decline. Purdue studied the drivers for this decline and attributed it, in large part, to a drop in prescriptions for individuals abusing OxyContin and increases in regulatory safeguards intended to hinder medically unnecessary prescribing of OxyContin.

In May 2013, Purdue retained McKinsey to conduct a rapid assessment of the underlying drivers of OxyContin performance, identify key opportunities to increase near-term OxyContin revenue and develop plans to capture priority opportunities. This 2013 effort was called Evolve to Excellence, or “E2E,” and included McKinsey advising Purdue on how to “turbocharge” the sales pipeline for OxyContin by, among other strategies, intensifying marketing to High Value Prescribers, included prescribers who were writing opioid prescriptions for uses that were unsafe, ineffective, and medically unnecessary.

McKinsey consultants spoke with Purdue about the concerns and increasing reluctance of pharmacists and pharmacy chains to fill prescriptions for OxyContin as abuse of the drug rose. McKinsey consultants also went on several “ride-alongs” with Purdue sales representatives in the field, as these sales representatives called on prescribers and pharmacists. In notes about one of these ride-alongs, a McKinsey consultant wrote, in part, “Pharmacist; [had] a gun and was shaking; abuse is definitely a huge issue[.]”

In August 2013, McKinsey partners met with certain members of the Purdue Board of Directors to present McKinsey’s findings and proposal; as one McKinsey partner reported afterwards, “[b]y the end of the meeting the findings were crystal clear to everyone and they gave a ringing endorsement of ‘moving forward fast.’” McKinsey also described for Purdue the financial value at stake: “hundreds of millions, not tens of millions.”

For Purdue and McKinsey, E2E was a financial success. Their targeting of High Value Prescribers slowed OxyContin’s declining sales and kept Purdue’s profits flowing at the expense of public health. After the conclusion of McKinsey’s work for Purdue on E2E, McKinsey performed additional work with Purdue that also sought to maximize OxyContin sales by further targeting sales efforts to High Value Prescribers.

False Claims to Federal Healthcare Programs and the FDA

The department’s civil False Claims Act settlement relates to allegations that, from 2013 to 2014, McKinsey, by advising Purdue to turbocharge OxyContin marketing to High Value Prescribers as a means to increase OxyContin sales, and despite its awareness of the opioid crises, knowingly caused false and fraudulent claims for OxyContin to be submitted to Medicare, Medicaid, TRICARE, the Federal Employees Health Benefit Program and the Veterans Health Administration.

The large $650 million fine also settles allegations that, from 2014 to 2017, McKinsey knowingly misled the FDA by assigning consultants to concurrently work on both FDA projects and competitively sensitive Purdue projects, contrary to McKinsey US’ conflict of interest policy. While soliciting a contract from the FDA, McKinsey US represented to the FDA that it had a conflict-of-interest policy in which its consultants serving the FDA would not be assigned to a competitively sensitive project for a significant period of time following an assignment for FDA.

The FDA then awarded McKinsey US the first in a series of contracts on a project relating to the monitoring of the safety of FDA-regulated products. McKinsey US admitted that it did not inform the FDA that its consultants worked on the Purdue projects around the same time those consultants also worked on the FDA project.

McKinsey’s Remedial Measures

As part of the resolution, McKinsey has agreed to implement a significant compliance program, including a system of policies and procedures designed to identify and assess high-risk client engagements. As part of this compliance program, McKinsey will implement new document retention procedures and training for all partners, officers and employees who provide or implement advice to clients. This compliance program is in addition to the provisions negotiated between McKinsey and the DoJ in a concurrent resolution with McKinsey & Company Africa that was announced on December 5^th.

McKinsey has also agreed that it will not do any work related to the marketing, sale, promotion or distribution of controlled substances during the five-year term of the DPA. The settlement requires McKinsey’s Managing Partner to certify, on an annual basis, the firm’s compliance with its obligations under the DPA and federal law.  

Jacob Horowitz is a contributing editor at Compliance Chief 360°

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By law, insurance companies must offer plans that cover a minimum required portion of drug costs, with the government and Medicare beneficiaries covering the rest, according to the release. Insurance companies are then required to submit bids in which they report the benefits they propose to cover and confirm the ones that meet Part D’s minimum coverage, the release states.

The lawsuit arose out of allegations made by whistleblower and  former actuary for Humana, Steven Scott. Scott’s complaint claims that the insurance giant inflated its bids to the government on an unsupported basis solely for the purpose of generating profit.

According to Scott, Humana accurately predicted the costs for the Walmart Plan but instead decided to base its bids off of unreasonable assumptions. “Although Humana asserted in court documents that the predictions underlying its bids were merely estimates about future behavior, they worked in Humana’s favor 100% of the time over seven years and for 245 bids,” Edward Arens of Phillips & Cohen, one of Scott’s attorneys, said in a statement. “The odds that a big insurer would ‘miss’ on an important assumption in the same way that many times in a row are too small to measure.”

According to Scott, Humana kept two sets of books for the purpose of valuing its drug plan. One was used to report the actuarial value of the Walmart Plan to CMS and “justify the award of the contract, “while the other was used to set Humana’s own internal operating budget, Scott alleged. Scott’s attorneys stated that Humana’s internal assumptions proved accurate every year while the underlying bids were “wildly off and always in Humana’s favor, benefiting the insurance company by hundreds of millions of dollars.”

Humana’s alleged illegal practice ranged from 2011 to 2017 in which the company reportedly generated $84 million in additional profit. “The Part D program depends on insurance companies paying their minimum share of drug costs. … Humana shirked its responsibility by telling the government that its plan would cover drug costs that Humana did not actually plan to cover. Our complaint detailed how the government and beneficiaries were left with paying tens of millions of dollars more than Congress intended for years, while Humana pocketed the money as ‘savings,’” Claire Sylvia, a whistleblower attorney who filed the case, said in the release.

In a statement, Humana says it “firmly believes that the actuarial assumptions in its prescription drug plan were reasonable and in full compliance with all laws and regulatory requirements, and that the plaintiff’s claims in the case are without merit. After a thorough investigation into the allegations, the US Department of Justice chose not to intervene in the case. While we are confident in our position and expected to prevail at trial, we have decided to enter into a settlement agreement without admitting any wrongdoing to avoid the uncertainty, distraction, inconvenience, and expense of a lengthy jury trial.”  

Jacob Horowitz is a contributing editor at Compliance Chief 360°

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The company said that it expects an administrative order from the SEC to resolve previously disclosed criminal and civil investigations into “improper payments made by Raytheon Company and its joint venture, Thales-Raytheon Systems, in connection with certain Middle East contracts since 2012.”

The company also expects to enter into the deferred agreement and False Claims Act settlement with the DoJ to resolve investigations regarding defective pricing claims for “specific legacy Raytheon Company contracts from 2011 to 2013 and in 2017.”

“The charge also includes the impact of certain voluntarily disclosed export controls violations primarily identified in connection with the integration of Rockwell Collins and, to a lesser extent, Raytheon Company into RTX, including certain violations expected to be resolved pursuant to a consent agreement with the Department of State,” according to RTX’s financial disclosure.

It was reported in 2021 that the U.S. was investigating whether payments made by Raytheon to a consultant for the Qatar Armed Forces were actually bribes intended for a member of the ruling royal family.

“While the financial impact of these items is above what we had previously reserved, we believe the provisions we have taken put these issues behind us financially, and we will continue to cooperate with the government and external monitors as we move forward,” Neil Mitchill Jr., RTX’s chief financial officer, said on an earnings call. The company has described the bribery and contract pricing matters as legacy issues as it merged with United Technologies in 2020.

RTX said that prosecutors will seek to dismiss charges if the company adheres to the deferred prosecution agreements for a three-year period. These agreement mandates the company to enhance its compliance programs and implement other measures to prevent future violations.  

Jacob Horowitz is a contributing editor at Compliance Chief 360° 

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“Protecting taxpayer dollars from fraud and abuse is of paramount importance to the Department of Justice – and these enforcement figures prove it,” said Acting Associate Attorney General Benjamin Mizer. “The False Claims Act remains one of our most important tools for rooting out fraud, ensuring that public funds are spent properly, and safeguarding critical government programs.”

The False Claims Act penalizes those who knowingly and falsely claim money from the United States or knowingly fail to pay money owed to the United States. Its purpose is to safeguard government programs and operations that provide access to medical care, support our military and first responders, protect American businesses and workers, help build and repair infrastructure, offer disaster and other emergency relief, and provide many other critical services and benefits.

“As the record-breaking number of recoveries reflects, those who seek to defraud the government will pay a high price,” said Assistant Attorney General Boynton, head of the DoJ’s Civil Division. “The American taxpayers deserve to know that their hard-earned dollars will be used to support the important government programs and operations for which they were intended.”

Of the more than $2.68 billion in False Claims Act settlements and judgments reported by the DoJ this past fiscal year, over $1.8 billion related to matters that involved the health care industry, including managed care providers, hospitals, pharmacies, laboratories, long-term acute care facilities, and physicians. The $1.8 billion only include recoveries arising from federal losses, but in many of these cases, the department was instrumental in recovering additional amounts for state Medicaid programs.

Health Care Fraud

In 2023, health care fraud remained a leading source of False Claims Act settlements and judgments. These recoveries restore funds to federal programs such as Medicare, Medicaid, and TRICARE, the health care program for service members and their families. But just as important, enforcement of the False Claims Act deters others who might try to cheat the system for their own gain, and in many cases, also protects patients from medically unnecessary or potentially harmful actions. As in years past, the act was used to pursue matters involving a wide array of health care providers, goods, and services.

In one of its largest settlements, The Cigna Group agreed to pay more than $172 million for allegations that it submitted inaccurate diagnosis codes for its Medicare Advantage Plan enrollees in order to increase its payments from Medicare. The DoJ obtained another $22.5 million from Martin’s Point Health Care for similar allegations.

The Department also received numerous settlements and judgements from companies who engaged in unnecessary services and substantial care, the opioid epidemic, and unlawful kickbacks.

Although these actions exhibit the DoJ’s focus on the healthcare industry, the recoveries in 2023 also reflect the department’s focus on key enforcement priorities, including fraud in pandemic relief programs and alleged violations of cybersecurity requirements in government contracts and grants. However, considering the trends of the past year, it is reasonable to anticipate that healthcare will continue to be a primary focus for the Department.  

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The DoJ said that H. Lee Moffitt Cancer Center & Research Institute Hospital will pay $19 million to settle the charges and that the hospital received credit for cooperating with the agency’s investigation, including self-disclosing its alleged misconduct, remediating the issues, and upgrading compliance measures around billing.

This settlement resolves Moffitt’s liability for claims that it submitted to Medicare and other federal healthcare programs during the period from 2014 to 2020 for services that were not legally reimbursable. Specifically, Moffitt billed federal healthcare programs for items and services provided as part of clinical trial research that should have been billed to non-government trial sponsors.

After learning of these issues, Moffitt began its own investigation and compliance review and voluntarily provided the government with a written disclosure of its discoveries. Moffitt cooperated fully with the government’s investigation of the conduct and implemented quick and significant corrective measures.

Improved Compliance Measures

According to the settlement, Moffit took the following steps to correct the issues with its billing system:

• Establishing a new unit within its finance department responsible for ensuring compliant billing of services provided in clinical trials;
• Updating its policies and procedures relating to the billing of services provided in clinical trials;
• Hiring additional staff to implement these new policies and procedures; and
• Placing a blanket hold on all charges associated with clinical trials until it could ensure the new policies and procedures were working effectively.

“Healthcare providers participating in federal healthcare programs must ensure that they comply with applicable rules and regulations, including those relating to the submission of claims in connection with clinical research,” said Attorney General Brian Boynton, head of the Justice Department’s Civil Division. “As today’s settlement reflects, when providers run afoul of their obligations, they can mitigate the consequences by making timely self-disclosures, cooperating with investigations and taking appropriate remedial measures.”

Roger Handberg, an attorney for the Middle District of Florida, stresses how crucial it is to protect the nation’s healthcare programs. He highlights the encouragement for those receiving funds from government healthcare to quickly disclose and cooperate when they find improper claims. “Protecting the nation’s healthcare programs is a top priority of our office,” said Handberg. “When those who receive funds from government healthcare programs discover that they have submitted improper claims, we encourage them to promptly disclose the issues and cooperate fully with investigators to reach an appropriate and swift settlement. That’s what Moffitt did here: self-reported its improper claims, cooperated with government investigators and took action to remediate its billing systems.”

“Providers participating in clinical trials funded by federal health care programs must abide by specific guidelines that safeguard these programs,” said Special Agent Fernando Porras of the Department of Health and Human Services Office of Inspector General. “Providers will be held accountable if they bill for services outside the rules governing reimbursement. Together, with our law enforcement partners, we will continue to maintain the fiscal integrity of federal healthcare programs.”  

Jacob Horowitz is a contributing editor at Compliance Chief 360°

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