Life Science Compliance Update

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January 27, 2017

Advanced BioHealing (Shire) Settlement Largest in Medical Device History

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Earlier this month, the Department of Justice (DOJ) announced that Shire Pharmaceuticals LLC and other subsidiaries of Shire plc will pay $350 million to settle federal and state False Claims Act (FCA) allegations that Shire and Advanced BioHealing (ABH) – a company Shire acquired in 2011 – employed kickbacks and other unlawful methods to induce clinics and physicians to use or overuse its product Dermagraft, a bioengineered human skin substitute approved by the Food and Drug Administration (FDA) for the treatment of diabetic foot ulcers.

The DOJ initiated both civil and criminal investigations in June 2011, with U.S. attorneys in Florida and Washington, D.C., participating in the process. Shire mentioned the investigation two-and-a-half years later when it sold off Dermagraft at a loss of $650 million, saying that it would retain the liabilities of the investigation. The proposed settlement, if finalized, will be the second that Shire has reached with the government over FCA violations in as many years.

The allegations resolved by the settlements were brought in six separate lawsuits filed under the qui tam provisions of the FCA, all of which were either filed or transferred to the U.S. District Court for the Middle District of Florida. The matters were investigated by a wide array of stakeholders, including: the Civil Division’s Commercial Litigation Branch; the U.S. Attorneys’ Offices for the Middle District of Florida, District of Columbia, Middle District of Tennessee, and Eastern District of Pennsylvania; the FBI; the U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG); the VA OIG and the Department of Defense Criminal Investigative Service.

The settlement resolves allegations that salespeople for Dermagraft unlawfully induced clinics and physicians with lavish dinners, drinks, entertainment and travel; medical equipment and supplies; unwarranted payments for purported speaking engagements and bogus case studies; and cash, credits and rebates, to induce the use of Dermagraft. The United States alleges that as a result of their violations of provisions of the Anti-Kickback Statute, ABH and Shire submitted or caused to be submitted to federally-funded health care programs hundreds of millions of dollars of false claims for Dermagraft.

In addition to the kickback allegations, the settlement also resolved allegations that Shire and its predecessor ABH unlawfully marketed Dermagraft for purposes not approved by the FDA, made false statements to inflate the price of Dermagraft, and caused improper coding, verification, or certification of Dermagraft claims and related services.

This settlement is the largest FCA recovery by the United States in a kickback case involving a medical device. Principal Deputy Assistant Attorney General Benjamin C. Mizer noted as such, and continued, saying, “Kickbacks by suppliers of healthcare goods and services cast a pall over the integrity of our health care system. Patients deserve the unfettered, independent judgment of their health care professionals.”

Shire cooperated in the government’s investigation and has been operating under a Corporate Integrity Agreement entered into with HHS that was implemented in late 2014, after the alleged unlawful conduct resolved by today’s settlement occurred, in connection with the settlement of separate False Claims Act allegations.

“Patients must be able to trust that decisions made by their doctors are based on unbiased professional judgment and not personal gain,” said Chief Counsel Gregory E. Demske to the HHS Inspector General. “The Office of the Inspector General will continue to monitor Shire’s compliance with federal healthcare programs through its oversight of Shire’s Corporate Integrity Agreement.”

BioHealing Executives Charged

This settlement follows an arrest in March 2016 of Advanced BioHealing Inc. executive Todd Clawson. Clawson was charged with bribery and health care fraud for paying kickbacks to VA podiatrists and clinicians who promoted the company’s product. In court papers, the prosecutors stated that Clawson and his coworkers at Advanced BioHealing and VA physicians conspired to “defraud the United States by impeding and impairing the governmental functions of the VA, including those intended to regulate the ethical practice of physicians working for the VA.”

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