Life Science Compliance Update

February 06, 2017

Department of Justice Increases FCA Civil Penalties, Again

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On February 3, 2017, the Department of Justice (DOJ) announced that False Claims Act (FCA) penalties will once again be increasing, effective immediately. Pursuant to the 2015 budget bill, which requires annual re-indexing of FCA penalties for inflation, the minimum per-claim penalty will increase from $10,781 to $10,957 (it jumped from $5,500 to $10,781 last year). The maximum per claim penalty will increase to $21,916 (after jumping from $11,000 to $21,563 last year). The penalties will continue to be adjusted each year to reflect changes in the inflation rate, required to be done no later than January 15th of every year. Each agency is to publish regulations in the Federal Register that note the adjustment of civil monetary penalties (CMP) within its jurisdiction.

As we have previously written about in our sister publication, Life Science Compliance Update, the Bipartisan Budget Act of 2015 requires all federal agencies to increase the civil monetary penalties within their purview, an annual “cost-of-living-adjustment.” Prior to last year, the last time FCA penalties were adjusted was in 1986.

The cost-of-living adjustment is the percentage (if any) for each CMP by which the Consumer Price Index (CPI) for the month of October preceding the date of the adjustment (January 15) exceeds the CPI for the month of October in the previous calendar year.

These increases apply to any FCA penalties assessed, starting last Friday, for FCA violations that occurred on or after November 2, 2015. Violations that occurred from November 3, 2015 to February 2, 2017, will be assessed at last year’s rates. For any violations that occurred prior to November 2, 2015, the $5,500-$11,000 penalty range still applies.

While many predicted that the previous increase in FCA civil penalties created a situation ripe for constitutional challenges, we have not seen that play out. While this year’s increase is smaller than last year’s (i.e., doesn’t almost double from one year to the next), it is certainly still possible to see some court action on this move.  

February 02, 2017

Zimmer Biomet Pays $30 Million to Resolve New FCPA Charges

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Medical device maker Zimmer Biomet Holdings, Inc., agreed to pay $30.5 million to resolve Department of Justice (DOJ) and Securities and Exchange Commission (SEC) investigations into the company’s “repeat” violations of the Foreign Corrupt Practices Act (FCPA). The $30.5 million is split between a criminal fine of $17.46 million and an SEC penalty of $13 million (consisting of $6.5 million in disgorgement and interest and a $6.5 million penalty).

Biomet entered into a deferred prosecution agreement (DPA) with the DOJ, requiring them to retain an independent compliance monitor for three years, and settled the claims with the SEC through an internal administrative order, halting the need to go to court.

Previous Charges

Biomet first faced FCPA charges from both the DOJ and SEC in March 2012, paying nearly $23 million to settle that enforcement action. At that time, Biomet entered into a DPA with the DOJ and also retained an independent compliance monitor for three years. In 2013, Biomet learned about more potential anti-bribery violations in Brazil and Mexico and notified the monitor.

Even after the 2012 DPA, according to the DOJ, Biomet “knowingly and willfully continued to use a third party distributor in Brazil known to have paid bribes to government officials on Biomet’s behalf.” In Mexico, Biomet failed to implement an adequate system of internal accounting controls at a subsidiary, “despite employees and executives having been made aware of red flags suggesting that bribes were being paid.”

The 2012 enforcement action involved Biomet’s bribery of government officials in Argentina, Brazil, and China. The three-year DPA from 2012 was extended by the DOJ for another year after Biomet reported to the monitor the suspected bribery in Brazil and Mexico. At the end of that year, according to the DOJ, “the independent monitor was unable to certify that the company’s compliance program satisfied the requirements of the 2012 DPA.” In 2015, Zimmer bought Biomet in 2015 for about $14 billion, and the combined company trades on the Stock Exchange under ZBH.

Repeat Violations

In June 2016, the DOJ said that Biomet had breached the 2012 DPA “based on conduct in Brazil and Mexico.” Once the DOJ told Zimmer Biomet it was in breach of the 2012 DPA, the company “fully cooperated” and provided information about individuals involved in the misconduct. This agreement imposes another three-year DPA on Zimmer Biomet with an independent compliance monitor.

Assistant Attorney General Leslie R. Caldwell said, “In appropriate circumstances the department will resolve serious criminal conduct through alternative means, but there will be consequences for those companies that refuse to take these agreements seriously.”

A statement from the company said the money to be paid was previously recorded in financial statements. Chad Phipps, senior vice president, general counsel, and secretary at Zimmer Biomet, said that the company is pleased to have resolved “legacy Biomet FCPA compliance matters.” Phipps also said, “Zimmer Biomet is committed to upholding the highest ethical and legal standards in our business practices across the globe, and we look forward to continuing to integrate the legacy Biomet business operations into our robust corporate compliance program.”

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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