Recent free trade agreements with Korea and Australia have included provisions regulating pharmaceutical reimbursement programs operated at the “central level of government” of member countries.  Currently, the U.S. is in negotiations to complete the Trans Pacific Partnership (TPP) Agreement, which insiders say will likely include language similar to that in the Korea agreement.  Each of these agreements binds all signing parties to the provisions it contains—including the U.S.  Compliance with these agreements could require significant changes to American federal health care programs.

In particular, Article 5.2(c) of the Korea agreement requires health authorities to “permit a manufacturer… to apply for reimbursement of additional medical indications for the product, based on evidence the manufacturer provides on the product’s safety or efficacy.”  To comply with this provision, the U.S. may need to modify existing federal laws regarding “off-label” marketing by drug manufactures, and prohibit certain cost-saving mechanisms used by state Medicaid agencies.

Under the Food, Drug and Cosmetic Act (FDCA), drug manufacturers are prohibited from selling “misbranded” drugs.[1] A drug is considered misbranded if “its labeling is false or misleading in any particular.”[2] As such, the drug label must include information regarding directions for use, adequate warnings regarding any unsafe dosage amounts or methods, or any medical conditions that increase the potential harm of the medication.[3] In addition, regulations promulgated by the FDA prohibit so-called “off-label” marketing—any drug advertisement recommending “any use that is not in the labeling” approved by the FDA.[4]

In addition to the FDCA, promoting an off-label use may also violate the False Claims Act (FCA).[5] Under the FCA, any person who “knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the government” is liable to the government for a civil penalty plus treble damages.[6] Most of the FCA suits against drug manufacturers allege fraudulent claims submitted to Medicare or Medicaid—programs which cover approximately 85% of drug costs in the United States.[7] Prosecution of off-label marketing under the FCA can result in significant civil penalties paid to both Medicare and Medicaid to reimburse payments made for unlawfully promoted off-label use.  For example, earlier this month, Novo Nordisk pleaded guilty to off-label promotion of its epilepsy drug and paid $15.8 million to the federal government for Medicare and Medicaid claims, and $9.9 million to state Medicaid agencies.[8] In September, 2010, Allergan pleaded guilty to off-label promotion of Botox®, and paid the federal government over $210 million and state Medicaid agencies almost $15 million.[9]

The FCA is a very important means for the government to combat fraud in the Medicaid and Medicare programs.  If strictly interpreted, Article 5.2(c) of the Korea agreement could restrict the Department of Justice’s ability to prosecute FCA violations by drug manufacturers for off-label promotion within the Medicare and Medicaid programs, and as such hamper the government’s ability to recover money paid for false claims paid by these programs.

Although the Korea free trade agreement regulates pharmaceutical programs operated at the central level of government, it also includes a footnote which exempts Medicaid from the pharmaceutical provisions.[10] However, if the TPP agreement does not include the same exemption, state Medicaid programs would be required to abide by the pharmaceutical provisions, which would be a great detriment to those programs.  While there is no prohibition against a physician prescribing a medication for a use that has not been approved by the FDA, some state Medicaid programs limit the off-label use of certain medications as a way to control costs and ensure patient safety.

In particular, Medi-Cal, California’s Medicaid program, which spent over $41 billion in 2009 to provide health care to its 6 million beneficiaries, often limits the use of certain medications to only one indication.[11] For example, Medi-Cal limits the use of Relafen® (nabumetone) to the treatment of arthrhitis, which is the only FDA-approved indication.[12] If the manufacturer were to petition Medi-Cal to pay for it when it is used to treat back pain, or chronic fatigue syndrome symptoms, that company would be promoting an off-label use and may be violating the FDCA and the FCA.  In addition, accepting the manufacturer’s request could lead to increased Medi-Cal costs if the drug is used to treat a condition for which there is a less-expensive, FDA-approved medication that could be used instead.

Because there are so many intricate mechanisms in place to control costs in the Medicaid program, interfering with any one cost-saving protocol could cause an extensive ripple effect throughout the program.  Something that seems innocuous, such as an appeal provision in a free trade agreement, could significantly damage the already fragile Medicaid program.  As the TPP Agreement negotiations continue, U.S. Trade Representatives should be sure to completely understand all of the potential implications before binding the U.S. to regulations with which it does not currently comply.


[1] 21 U.S.C. § 331 (2010).

[2] 21 U.S.C. § 352(a) (2010).

[3] Id. at (f).

[4] 21 C.F.R. § 202.1(e)(4)(i)(a) (2010).

[5] 31 U.S.C. §§ 3727 et. seq. (2010); See also Allison D. Burroughs et al., Off-Label Promotion: Government Theories of Prosecution and Facts That Drive Them, 65 Food & Drug L. J. 555, 557 (2010); Randall S. Stafford, Regulating Off-Label Drug Use—Rethinking the Role of the FDA, 358 N. Eng. J. Med. 1427, 1428 (2008).

[6] 31 U.S.C. § 3727(a)(2) (2010).

[7] Burroughs, Supra note 5 at 557; See also Kaiser Family Foundation, Prescription Drug Trends, May 2010

[8] Press Release, U.S. Dep’t of Justice, U.S. Subsidiary of Belgian Pharmaceutical Manufacturer Pleads Guilty to Off-Label Promotion; Company to Pay More Than $34 Million (June 9, 2011) available at

[9] Press Release, U.S. Dep’t of Justice, Allergan Agrees to Plead Guilty and Pay $600 Million to Resolve Allegations of Off-Label Promotion of Botox® (Sept. 1, 2010) available at

[10] Footnote 3 in the Korea free trade agreement states that Medicaid is a “regional level of government” program, thereby exempting it from the agreement.  There is not yet any indication whether Medicaid will also be exempted from the TPP agreement.

[11] See Kaiser Family Foundation, State Medicaid Fact Sheet, Feb. 2011,

[12] See Medi-Cal Contract Drug List,; and Relafen Prescribing Information,