Life Science Compliance Update

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June 20, 2016

Carl Reichel Warner Chilcott Executive Acquittal Deals Blow to Yates Memo

In a blow to the Department of Justice and the Yates Memo, a Massachusetts jury acquitted Warner Chilcott executive Carl Reichel. Reichel was facing charges that he violated the Anti-Kickback statute by communicating to sales representatives that they could (and should) use "sham" promotional education dinners to build relationships with physicians and force those physicians to make commitments to purchase Warner Chilcott products.

Prosecutors also alleged that Reichel instructed Warner Chilcott sales staff to bring food and drink to reward staff at physicians' offices for submitting requests to insurance companies to pay for prescriptions of Warner Chilcott drugs. The alleged wrongdoing occurred between 2009 and 2011.

Reichel pleaded not guilty, and in court documents, his attorneys noted that they felt there was no evidence that Reichel had intended to violate the anti-kickback law, nor did he have any knowledge of doing anything illegal.

Warner Chilcott

In October 2015, Warner Chilcott agreed to plead guilty to a criminal charge of health care fraud, arising out of similar allegations, and to pay $125 million to resolve a Department of Justice investigation into its payments to physicians and other parties.

Yates Memo

In September 2015, Deputy Attorney General Sally Quillian Yates issued a memo that has became known as the "Yates memo" that laid out the various steps Justice Department attorneys should take in their investigations to focus more on individuals. The DOJ is hopeful that a focus on individuals will do a better job at deterring future illegal activity and ensure that "the proper parties are held responsible for their actions."

Helpful Jury Instructions

The jury instructions may have helped Reichel out, as they provided that

A defendant cannot be convicted of the Anti-Kickback statute merely because he sought to cultivate a business relationship or create a reservoir of goodwill that might ultimately affect one or more unspecified purchase or order decisions.  If the remuneration is only for a purpose other than seeking to effect a quid pro quo transaction of payments of remuneration for order or purchase of drugs, it is not within the scope of the Anti-Kickback Statute.

Conclusion

The jury's acquittal of Reichel (following guilty pleas by several other, less senior executives) reinforces that, despite the government's recent emphasis on holding individuals responsible for corporate misconduct, successfully convincing a jury of criminal guilt remains challenging.

Prior cases have been difficult because it is tough for prosecutors to successfully prove that an individual had criminal intent in a corporate setting where decision-making tends to be spread among many.

Another criminal trial with a similar fact pattern recently began in Boston, focused on alleged wrongdoing by the former CEO of Johnson & Johnson's Acclarent unit, William Facteau and the former vice president of sales, Patrick Fabian. Both were indicted in April 2015 on charges including conspiring to market a medical device for a use not approved by the FDA and conspiring to commit securities fraud by not disclosing the conduct to Johnson & Johnson when it acquired Acclarent in 2010. Both parties have pled not guilty.

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