Guidant Defibrillator Enforcement Reaches a Conclusion
On January 12, the U.S. District Court for the District of Minnesota convicted and sentenced Guidant LLC for criminal violations of the Federal Food, Drug, and Cosmetic Act, nearly a year after charges were filed. The Court ordered Guidant to submit to three years probation, against the recommendation of the prosecution, and to pay more than $296 million in fines and forfeitures included within the plea agreement.
The Charges
On February 25, 2010, the Department of Justice (DOJ) brought charges against the Boston Scientific Corp. subsidiary and medical device manufacturer for “its mishandling of short-circuiting failures of three models of its implantable cardioverter defibrillators” (according to a recent press release).
After a four-year investigation, the DOJ concluded that Guidant became aware of design defects which rendered its products inoperative in 2002 and 2004. Guidant was charged with “making materially false and misleading statements on report(s) required to be filed” with the Food and Drug Administration (FDA) on Aug. 19, 2003, when it informed the FDA that a design change to correct the flaw did not affect the safety and effectiveness of device. Guidant was also charged with “failing to promptly notify” the FDA of a device “correction” which was made to “reduce a risk of health posed by the device.” In 2005, Guidant recalled the ICD devices.
The Court Rejects the Plea Agreement
On March 11, 2010 — within a month of the indictment — Guidant and the Department of Justice submitted a plea agreement in which Guidant agreed to plead guilty to both counts, to pay a criminal fine in the amount of $253,962,251, and to pay a criminal forfeiture of $42,079,576. On April 5, 2010, Guidant pled guilty and FDA Commissioner Margaret A. Hamburg, M.D. declared that the “entry of a guilty plea by Guidant LLC and the proposed resolution would represent the largest criminal penalty ever imposed on a device manufacturer for violating the Food Drug and Cosmetic Act.”
However, on April 27, 2010, District Judge Donovan W. Frank rejected the plea agreement. He found that “after careful deliberation,” it was “not in the best interests of justice and [did] not serve the public’s interests.” In his opinion, Judge Frank cited arguments raised by a class of “consumers of Guidant products at issue” regarding restitution and the absence of a probation provision among the reasons for his delayed decision. He concluded that restitution was inappropriate because there were “no victims directly and proximately harmed by Guidant’s criminal conduct.”
The absence of a provision requiring probation proved fatal to the agreement. Specifically, Judge Frank stated that Guidant “could be ordered to perform community service designed to repair the harm caused by its offenses…” or to establish or expand a compliance and ethics program. Furthermore, the presentence investigation report would enable “the Court to consider the feasibility of any of these suggestions or of additional conditions of probation.”
The Sentencing Hearing
On January 4, 2011, both parties submitted further information in anticipation of the January 12 sentencing hearing. Guidant provided summary information regarding its continued and expanded compliance activities, including its five-year Corporate Integrity Agreement with HHS-OIG, and its charitable and community service activities. The government stood by its original plea agreement and did not advocate for probation.
On January 12, the Court signed the plea agreement with modification. In addition to Guidant’s payment of the fines and forfeitures outlined in the agreement, Guidant will submit to probationary period of three years. According to the DOJ, “Guidant is required to make quarterly reports to the Probation Office and to submit to regular, unannounced inspections of its records by the Probation Office. The court also required Guidant to notify its employees and shareholders of its criminal conviction.”
Looking Ahead
Having been hailed the “largest criminal penalty ever imposed on a device manufacturer for violating the Food Drug and Cosmetic Act,” it is noteworthy that the Court did not accept the sentencing recommendations offered in the plea agreement. Despite evidence of compliance changes and a five-year Corporate Integrity Agreement with the HHS-OIG, the Court felt it necessary to add probation to Guidant’s sentence.
In a time when individuals face exclusions from federal health programs even absent criminal sanctions, health-related corporations should likewise keep an eye on the resolution of future criminal cases. Is this a single “victory for one federal judge who put his foot down… until he got what he thought was a fair deal,” as Law.com reports, or the start of a trend?
A complete record of the filings can be found here.
An Evening with New Jersey’s Top Cop
On September 23rd, 2010, Paul J. Fishman, United States Attorney for the District of New Jersey, provided insight into his state’s approach to prosecuting health care fraud. He spoke here at Seton Hall Law School, presented by our Center for Health & Pharmaceutical Law & Policy.
First, some background on the U.S. Attorney. Mr. Fishman graduated magna cum laude in 1978 from Princeton University and cum laude in 1982 from Harvard Law, where he served as the Managing Editor of the Harvard Law Review. After a clerkship with the Hon. Edward R. Becker of the U.S. Court of Appeals for the Third Circuit, he became an Assistant U.S. Attorney for the District of New Jersey, where he served as Deputy Chief of the Criminal Division, Chief of Narcotics, Chief of the Criminal Division, and First U.S. Attorney. From 1994 to 1997, Mr. Fishman served as a senior advisor to the Attorney General and Deputy Attorney General of the United States on a variety of law enforcement, policy, legislative, national security, and international matters, as well as on specific investigations and prosecutions.
Mr. Fishman’s talk, entitled “Why Prosecuting Health Care Fraud is a Top Priority in New Jersey,” drew a diverse crowd comprised of professors and law students from Seton Hall, as well as many in the health care industry and government who were presumably keen to divine the U.S. Attorney’s future prosecutorial plans. The talk opened with an acknowledgment that the Department of Justice (DOJ) and the Department of Health & Human Services are working more closely than ever in terms of combating health care fraud. Mr. Fishman noted the importance of this relationship given the myriad opportunities for health care fraud that present themselves throughout the sector’s vast supply chain.
At the outset, Mr. Fishman underscored his desire to leverage emerging technology to better distill trends in the flow of health care dollars in New Jersey. Such analytical technology — already being employed in New Jersey — can help detect anomalous spending patterns that may signal potential fraudulent activity.
Mr. Fishman stated that over the next few years, the number of cases being prosecuted will go up, including both criminal and civil fraud prosecutions. Recognizing the budget shortfall facing New Jersey, Mr. Fishman was quick to note that DOJ is in fact cash flow positive, citing research finding that the DOJ collects $4 for every 1$ spent on investigations.
The U.S. Attorney discussed New Jersey’s unique demographics. With over 100 hospitals, 360-plus nursing homes, 200 private pay home care agencies, and scores of pharmaceutical companies, the New Jersey health care industry is robust — making it a sizable target for health care fraud.
But as Mr. Fishman notes, it is not just the medical-industrial complex that distinguishes the Garden State’s health care landscape: 38 percent of NJ’s population is overweight, the state ranks ninth in the U.S. in terms of the percentage of elderly residents, and it spends 20 percent more on health care spending on the elderly than the national average. These statistics, according to Mr. Fishman, make the New Jersey health care system an even larger opportunity for fraud.
Mr. Fishman noted a number of specific areas of criminal activity that his office will be focusing on, including:
- Cases in which people are providing services in a way that is “inconsistent with their stature in the health care industry.” This category would include, for example, individuals pretending to be licensed physicians.
- Prosecuting fraudulent prescriptions that are written for unneeded services. Mr. Fishman mentioned fraudulent activity in the durable medical equipment field as an example.
- Staged accidents that seek to defraud the reimbursement system.
- Traditional Stark and Anti-kickback issues.
On the civil side Mr. Fishman mentioned a desire to reach out to those representing qui tam relators, presumably in an effort to increase the number of qui tam cases brought to his New Jersey office. Mr. Fishman’s qui tam discussion was followed by his general goal of broadening outreach efforts so as to take advantage of the possible early detection of fraud by individuals who may spot a fraudulent activity before such activity is formally recognized. Accompanying greater outreach efforts will be a tighter integration between the criminal and civil investigatory arms.
Mr. Fishman rounded up his talk with a discussion of deferred prosecution agreements — noting that while the DOJ often places a huge premium on resolving suits they have not historically focused enough on individual culpability. Accordingly, Mr. Fishman expressed a willingness to go after individuals, and not just corporations, for their actions — predicting an increase in individual prosecutions but maintaining that rates of corporate prosecutions will hold steady.
On the topic of the monitorships that take place in response to non-prosecution and deferred prosecution agreements, Mr. Fishman posited that the monitors should be located in or near the city in which the health care entity is headquartered. Thus, the New Jersey office will be encouraging those in non-prosecution and deferred prosecution to look for monitors in their area. Furthermore, monitors should not have clients with interests that are adverse to the DOJ office, and remained skeptical of the propriety of having white collar defense lawyers acting as the monitors of first resort, notwithstanding their skills. Rather, it is thought that health care entities should look outside the criminal defense bar for monitors, while ensuring that the entity has the requisite integrity and experience to tackle highly complex health care law issues.
In conclusion, Mr. Fishman underscored that deterrence was his guiding principle, with the ultimate goal being the wholesale prevention of health care fraud. Mr. Fishman focused on institutional shortcomings — particularly the lack of a robust relationship between his Office and the health care industry — as a reason his office has failed to sufficiently prevent health care fraud. However deficient DOJ’s approach to health care fraud has been, the zealousness and creativity of the newly-appointed Mr. Fishman should make even the most seasoned New Jersey health care fraudster nervous.
Trouble Brewing for Pharmaceutical Companies
Bribery and recalls. Federal agencies are turning up the heat on pharmaceutical companies. Were you surprised by the eight recalls of Johnson & Johnson products this year? Maybe you shouldn’t be. As HealthReformWatch.com reported in We May Need More Than a Spoonful of Sugar to Help Our Medicine Go Down, drug recalls reached a record high 1,742 in 2009 — more than four times the amount in 2008. Bowman Cox, managing editor of the Gold Sheet (which first broke the story) told CNN Money that in light of the 296 recalls issued in the first six months of 2010, there could be 600 or more recalls this year.
Why So Many Recalls?
Analysts and legislators are examining the recall statistics to find sources and solutions to the pharmaceutical safety issue.
1. Drug repackaging
Advantage Dose, a now-defunct Shreveport, LA based drug repackager, was responsible for more than 1,000 of the 2009 recalls. Companies like Advantage Dose repackage and relabel drugs into smaller units for resale or distribution to health care facilities. After excluding Advantage Dose from the count, there still remains a 50% jump in recalls from 2008 to 2009.
2. The generic rush
Gold Sheet’s Cox suggests that generic manufacturers cut drug design costs in their rush to be first to market after a branded-drug’s patent protection expires, decreasing quality. “The first applicant typically gets the lion’s share of the business for the new drug… So they get the application. They make and market the drug, but they could still have problems down the road if they haven’t really understood the optimum way to make that drug.” One example of a design failure is Caraco Pharmaceutical Laboratories’ “tablet thickness” recalls in March 2009.
3. Manufacturing lapses
Some experts say the biggest culprits include the quality of raw materials and contamination. Approximately one month ago, HealthReformWatch.com reported in Pharmaceutical Outsourcing: Trading Quality for Lower Costs? that India’s largest pharmaceutical manufacturer had been cited several times in recent years for manufacturing violations. Additional recalls include vaccines produced by Shantha Biotechnics for Sanofi-Aventis and injectible drugs made by Claris Lifesciences for Pfizer. The FDA stated its intent on May 5, 2010 to “propose stronger regulation for pharmaceutical companies that outsource manufacturing, putting more responsibility on the companies to ensure the purity and safety of the products…”
4. Increased FDA scrutiny of manufacturing facilities
Which came first, the chicken or the egg? Increased FDA oversight may or may not have led to the increased number of recalls; however, the recalls will probably lead to increased FDA regulatory power.
As Jennifer Jascoll reported, Senator Michael F. Bennet (D-CO) proposed the Drug Safety and Accountability Act of 2010 on August 3, 2010. According to Bennet’s press release, “[t]he bill would strengthen manufacturer quality standards, enhance the FDA’s ability to protect Americans through improved tracking of foreign manufacturing sites, and give the FDA much-needed authority to recall potentially dangerous drugs.” Currently, the FDA is empowered to issue warnings and recommend that a manufacturer issue a recall.
Two prior bills would also increase FDA powers to mandate a recall:
- The Protect Consumers Act of 2009 (sponsored by Rep. Betty Sutton, D-OH) would require the Secretary of HHS implement a recall if it is determined to be necessary.
- H.R. 6740 (sponsored by Rep. Edolphus Towns, D-NY) would provide the Secretary of HHS with the ability to mandate a recall “if the Secretary has reason to believe that the use or consumption of, or exposure to, a drug (or an ingredient or component used in any such drug) may cause serious adverse health consequences or death to humans or animals.”
According to CNN Money, the FDA has not identified any alarming pattern. FDA spokeswoman Elaine Gansz Bobo stated, “[s]ince every recall situation is unique, it would be difficult to assess whether there are any trends or increases in recalls this year… At this time, however, we have not identified any trends.” Despite the FDA’s lack of concern, other federal agencies are interested in the practices of pharmaceutical companies.
Further Federal Investigations
According to the N.Y.Times, federal prosecutors and securities regulators are investigating pharmaceutical companies for potential violations of the Foreign Corrupt Practices Act (FCPA). The FCPA is an anti-bribery law which bars companies from offering foreign government officials items of value for profit. For instance, Pfizer disclosed in April “that it paid $35m over six months to 4,500 doctors in private practice for education and the development and marketing of new drugs.” Although this practice is legal in the U.S., such payments are illegal in many foreign countries where physicians are employed by the government.
On November 17, 2009, Assistant Attorney General Lanny A. Breuer stated that the Department of Justice intended to focus its attention on the pharmaceutical industry:
In some foreign countries and under certain circumstances, nearly every aspect of the approval, manufacture, import, export, pricing, sale and marketing of a drug product may involve a “foreign official” within the meaning of the FCPA. The depth of government involvement in foreign health systems, combined with fierce industry competition and the closed nature of many public formularies, creates, in our view, a significant risk that corrupt payments will infect the process. Our remarkable FCPA unit and our terrific health care fraud unit will be working together to investigate FCPA violations in the pharmaceutical industry in an effort to maximize our ability to effectively enforce the law in this high-risk area.
“Corrupt practices” under the FCPA are not limited to cash in envelopes. Inappropriate payments for lavish hospitality, consulting, licensing agreements, and even charitable donations may raise red flags for government investigators.
Could bribery be contributing to decreased quality and the sudden rise in recalls? According to the Financial Times, the DoJ is focusing its efforts elsewhere:
[T]he DoJ is particularly interested in corrupt payments that may have influenced the reliability or integrity of data in clinical trials performed outside the US. A recent report by the Department of Health and Human Services found 80 percent of marketing applications for drugs approved by the Food and Drug Administration in the US had relied on at least one foreign trial.
It appears that the DoJ’s scrutiny of clinical trials is not without merit. The N.Y.Times reports that “[l]ast month, a federal drug official reported that he found repeated instances in a landmark clinical trial of Avandia, a controversial diabetes medicine, in which patients taking Avandia appeared to suffer serious heart problems that were not counted in the study’s crucial tally of adverse events.” The clinical trials for Avandia included many foreign trial sites, which were submitted in support of the drugs’ application to enter and remain on the U.S. market. GlaxoSmithKline, the trial’s sponsor, has not been accused of fraud.
According to recent regulatory filings, the following companies are under investigation for possible violations of the FCPA:
- Merck is cooperating with a federal investigation of company activities in multiple foreign nations.
- Medtronic is cooperating with investigations of company activities in Greece, Poland, Germany, Turkey, Italy, and Malaysia.
- Eli Lilly is cooperating with the investigations of subsidiaries in several countries, including Poland.
- Federal investigators are looking into improper payments related to the sale of Zimmer products abroad.
- Johnson & Johnson voluntary disclosed the possibility that company subsidiaries abroad had made improper payments to government officials in two countries relating to the sale of medical devices.
- Pfizer and Bristol-Myers Squibb have also disclosed that they are subject to federal investigations. AstraZeneca, GlaxoSmithKline, and Baxter SciClone have also received inquiries from federal enforcement agencies.
Home Health Area Especially Vulnerable To Medicare Fraud And Abuse
Photo by consumerfriendly via Flickr
American Health Lawyers Association reports that the increased amount of federal spending on home health benefits has led to the rise of fraud and abuse issues. AHLA reports that federal “spending on home health grew approximately 44% from 2002 through 2006 ….”
AHLA states:
Gaps in the Centers for Medicare and Medicaid Services’ (CMS’) administration of the $12.9 billion Medicare home health benefit have left the program vulnerable to improper payments, including payments for claims resulting from fraudulent and abusive practices, the Government Accountability Office (GAO) found in a recent report.
The opportunities for fraud and abuse issues concerning home health care are manifold. AHLA states that the “common types of upcoding and billing for unnecessary care in home health were: billing for outlier cases when that level of care was not required, billing for beneficiaries who were not homebound, and billing for therapy visits that may have been medically unnecessary. ”
The Department of Justice defines upcoding as “the practice of improperly assigning a diagnosis code to a patient discharge that is not supported by the medical record for the purpose of obtaining a higher level of reimbursement for that hospital discharge than the hospital would otherwise receive.”
AHLA also reports that Home Health Agencies (HHAs) “are not routinely subject to revalidation and that CMS generally does not include physicians, who are in a position to detect certain types of improper billing, in the agency’s efforts to detect improper payments.”
AHLA reports that CMS is considering adopting two of the four actions recommended by GAO:
CMS stated that it would consider two of GAO’s four recommendations–to amend regulations to expand the types of improper billing practices that are grounds for revocation of billing privileges and to provide physicians who certify or recertify plans of care with a statement of services received by beneficiaries. The agency “neither agreed nor disagreed with our other two recommendations,” GAO explained.
AHLA reports that the four recommendations for CMS are:
- Assess the feasibility of verifying the criminal history of all key officials named on an HHA enrollment application.
- Provide physicians whose identification number was used to certify or recertify a plan of care with a statement of services the HHA provided to that beneficiary based on the physician’s certification.
- Direct CMS contractors to conduct post-payment medical reviews on claims submitted by HHAs with high rates of improper billing identified through prepayment review.
- Amend current regulations to expand the types of improper billing practices that are grounds for revocation of billing privileges.
The DOJ Sets Its Sights On Forest Laboratories
Photo by neur0nz via Flickr
Forbes reports in its article, “Forest says 11 states will join fraud lawsuit,” and the New York Times reports in its article, “Drug Maker Is Accused of Fraud,” that a civil claim was filed against Forest Laboratories Inc. under the False Claims Act. The claim relates to the advertisement of the “off-label” use of certain drugs.
Forbes reports:
The Justice Department said Forest promoted Lexapro and Celexa for use by children even though it is not allowed to do so. While doctors are allowed to prescribe drugs for uses not listed on the labels, companies are not allowed to actively promote the drugs for that kind of “off-label” use.
This suit is similar to the qui tam actions against Scios. Both the cases against Scios and the suits against Forest Laboratories involve the off-label marketing of the unapproved uses of certain prescription drugs. And like the claims against Scios, it appears that the case against Forrest Laboratories began as a qui tam action.
The NY Times reports:
The filing follows a long-running federal investigation that began with complaints filed by two former company officials. Under the civil charges brought against Forest, the government is seeking to recover up to three times the amount of money spent by federal programs to pay for pediatric prescriptions of Celexa and Lexapro, but did not specify a figure.
This case is consistent with the DOJ’s heightened investigation of the pharmaceutical industry and shows the federal government’s reliance on qui tam actions. As the number of cases against pharmaceutical companies for the off-label advertising of the unapproved uses of drugs increases, the gap between the FDA approval of the use of drugs and the actions of pharmaceutical companies is becoming more apparent.
To some extent, the Civil False Claims Act is bridging this compliance gap by functioning as a mechanism to enforce FDA decisions on the uses of drugs. But perhaps a legitimate question to ask is whether this increasing reliance upon an “outsourcing” of regulatory compliance is the appropriate mechanism by which to fix this inefficiency. Or, might we consider, as recommended by the recent Center for Health & Pharmaceutical Law & Policy whitepaper, being that “estimates suggest that as many as 40% of all prescriptions are for off-label uses,” that we give the “FDA the authority to mandate scientific studies for off-label medications and devices that have high sales volumes or large profits but lack needed evidence of efficacy or safety?”
As the Center stated, “this would protect the interests of patients and advance sound choices about the risks, benefits, and economic value of off-label uses.”
DOJ Plans To Intervene In Two Qui Tam Actions Against Scios
Photo by Feliz63 via Flickr
Kaiser Family Foundation reports the intervention of two qui tam civil False Claims Act actions. The qui tam actions involve the off-label marketing of medication unapproved for certain usages. The medication in question is Natrecor, a heart failure medication. There are two qui tam actions against Scios, a subsidiary of Johnson and Johnson. Kaiser states:
The Department of Justice on Thursday announced plans to join two whistleblower lawsuits filed against Johnson & Johnson subsidiary Scios over allegations that the company illegally marketed the heart failure medication Natrecor for unapproved uses and defrauded Medicare and other federal health care programs, the San Francisco Chronicle reports. FDA in 2001 approved Natrecor for use in hospital patients who experienced shortness of breath caused by acute congestive heart failure (Egelko, San Francisco Chronicle, 2/20).
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