Life Science Compliance Update

January 04, 2017

Former Tuomey CEO Settles with DOJ for $1 Million


In fall 2016, the Department of Justice (DOJ) reached a settlement agreement with Ralph J. Cox, III, the former CEO for Tuomey Health System, Inc (Tuomey). The settlement resolved allegations that Cox was personally involved in the notable Tuomey Stark Law case.

The government then alleged that Cox, in hopes of addressing competition from a new freestanding surgery center, caused Tuomey to enter into illegal compensation agreements with nineteen physician specialists. The contracts required the physicians to refer their outpatient procedures to Tuomey and, in exchange, paid them compensation that far exceeded fair market value and included part of the money Tuomey received from Medicare for the referred procedures. During litigation of the Tuomey case, the government argued that Cox both ignored and suppressed warnings from one of Tuomey’s attorneys that the physician contracts were “risky” and “raised red flags.”

On May 8, 2013, a South Carolina jury determined that the contracts did violated the Stark Law, also conclusing that Tuomey had filed more than 21,000 false claims with Medicare. In the fall of 2013, Cox was terminated as Tuomey’s CEO. On October 2, 2013, the Court entered a judgment under the False Claims Act in favor of the United States for $237.4 million. The United States Court of Appeals for the Fourth Circuit affirmed the judgment July 2, 2015. However, to avoid the judgment, Tuomey entered into a settlement agreement with the federal government in October 2015 for $72.4 million, and agreed to be sold to Columbia, South Carolina-based Palmetto Health.

According to Principal Deputy Assistant Attorney General Benjamin C. Mizer, “Sweetheart deals between hospitals and referring physicians distort medical decision making and drive up the cost of healthcare for patients and insurers alike. Patients have a right to be confident that a physician who orders a procedure or test does so because that service is in the patient’s best interest, and not because the physician stands to gain financially from the referral.”

The settlement with Cox personally is significant given the high level positions Cox held as CEO and board member, highlighting the fact that the DOJ “and its law enforcement partners will hold individual decision makers accountable for their involvement in causing the companies and facilities they run to engage in unlawful activities.”

The settlement agreement includes a four-year exclusion from participation in the federal healthcare programs and a $1 million penalty that Cox will personally pay to resolve his involvement in the case. Cox also agreed to release Tuomey from any indemnification claims or reimbursement of the settlement payment amount.

In coming to the personal payment amount of $1 million, it seems as though the DOJ relied on sworn financial statements provided by Cox. However, if the DOJ learns that Cox failed to disclose more than $150,000 of his assets, it may rescind the settlement agreement, or collect the full settlement amount plus the entire value of Cox’ undisclosed net worth.

In perhaps a signal of what is to come, Cox agreed to fully cooperate with the DOJ’s ongoing investigation of other individuals and entities associated with the Tuomey case.

December 27, 2016

Teva Pharmaceutical to Pay $519 Million to Settle FCPA Charges


Right before the holiday weekend, news broke that Teva Pharmaceutical Industries had come to an agreement to pay $519 million in a deferred prosecution agreement (DPA) and civil settlement, and a subsidiary will plead guilty after the pharma giant admitted it paid bribes to government officials in Russia, Ukraine, and Mexico.

The settlement money is split between a criminal penalty of $283 million and an additional $236 million to settle civil charges. According to Assistant Attorney General Leslie R. Caldwell, “Teva and its subsidiaries paid millions of dollars in bribes to government officials in various countries, and intentionally failed to implement a system of internal controls that would prevent bribery. Companies that compete fairly, ethically and honestly deserve a level playing field, and we will continue to prosecute those who undermine that goal.”

According to the companies’ admissions, Teva executives and Teva Russia employees paid bribes to a high-ranking Russian government official intending to influence the official to use his authority to increase sales of Teva’s multiple sclerosis drug, Copaxone, in annual drug purchase auctions held by the Russian Ministry of Health. The arrangement took place at the same time the Russian government was seeking to reduce the amount spent on costly foreign pharmaceutical products, such as Copaxone. Between 2010 and 2012 (possibly even later), pursuant to an agreement with a repackaging and distribution company owned by the Russian government official, Teva earned more than $200 million in profits on Copaxone sales to the Russian government. Additionally, the Russian official earned roughly $65 million in corrupt profits through inflated profit margins granted to the official’s company.

Teva also admitted to paying bribes to a senior government official within the Ukrainian Ministry of Health to influence the Ukrainian government’s approval of Teva drug registrations, which were necessary for the company to market and sell its products in the country. From 2001 to 2011, Teva paid the official a monthly fee as a “registration consultant,” also paying for travel and other things of value totaling approximately $200,000.00. In exchange for the benefits received from Teva, the official used his position and influence within the Ukrainian government to influence the registration in Ukraine of Teva products, including Copaxone.

In Mexico, Teva admitted that it failed to implement an adequate system of internal accounting controls and failed to enforce the controls it had in place at its Mexican subsidiary, which allowed bribes to be paid by the subsidiary to doctors employed by the Mexican government. Teva’s Mexican subsidiary had been bribing these doctors to prescribe Copaxone since at least 2005. While Teva executives in Israel were responsible for the development of the company’s anti-corruption compliance program, they were also aware of the bribes paid to government doctors in Mexico. Nevertheless, Teva executives approved policies and procedures that they knew were not sufficient to meet the risks posed by Teva’s business and were not adequate to prevent or detect payments to foreign officials. Teva also admitted that its executives put in place managers to oversee the compliance function, but those executives were unable or unwilling to enforce the anti-corruption policies that had been put in place.

Criminal Information and Charges

Teva entered into a DPA in connection with a criminal information filed in the Southern District of Florida on December 22, 2016. The information charged the company with one count of conspiracy to violate the anti-bribery provisions of the FCPA and one count of failing to implement adequate internal controls. The DPA also included a provision requiring Teva to pay a criminal penalty in the amount of $283,177,348. Teva also agreed to continue to cooperate with any ongoing DOJ investigations, enhance its compliance program, implement rigorous controls and retain an independent corporate compliance monitor for three years. 

Teva Russia signed a plea agreement (subject to court approval), agreeing to plead guilty to a one-count criminal information, charging the company with conspiring to violate the anti-bribery provisions of the FCPA. The case has been assigned U.S. District Judge Kathleen M. Williams and Teva Russia’s initial court appearance is scheduled for January 12, 2017.

Securities and Exchange Commission

The United States Securities and Exchange Commission (SEC) filed a cease and desist order against Teva, whereby the company agreed by pay roughly $236 million in disgorgement of profits to the SEC, including prejudgment interest. The SEC’s complaint alleges that the company made more than $214 million in illicit profits by making the influential payments to increase its market share and obtain regulatory and formulary approvals as well as favorable drug purchase and prescription decisions.


The Criminal Division’s Fraud Section reached the resolution based on a variety of factors, including that Teva did not timely voluntarily self-disclose the conduct, but did cooperate with the department’s investigation after the SEC served it with a subpoena. Teva received a twenty percent discount off the low end of the United States Sentencing Guidelines fine range because of substantial cooperation and remediation. The company did not receive full cooperation credit, because, according to the DOJ, there were several issues that resulted in delays in the early stages of the investigation, including vastly overbroad attorney-client privilege assertions and failure to timely produce relevant documents.

However, the announcement by the DOJ made no mention of any resolution of bribery probes that Teva had previously acknowledged in Argentina and Romania. According to Teva, the Argentina internal review has been closed, but still no mention of a resolution involving Romania.

The Teva settlement at $519 million joins the ranks of Seimens ($800 million), Alstrom ($772 million), and KBR/Halliburton ($579 Million) as number five in the largest FCPA settlements in history.

November 22, 2016

Tenet Healthcare to Pay $514 Million to Settle Kickback Allegations


The Department of Justice (DOJ) recently announced a settlement with Tenet Healthcare Corporation and several subsidiaries, resolving criminal charges and civil claims relating to a scheme to defraud the United States and to pay kickbacks in exchange for patient referrals.

Criminal Charges

Two of the subsidiaries, Atlanta Medical Center Inc. and North Fulton Medical Center Inc., agreed to plead guilty to conspiracy to defraud the United States and to violate the Anti-Kickback statute by paying health care kickbacks and bribes.

Atlanta Medical Center Inc. and North Fulton Medical Center Inc. were charged in a criminal information in federal court in Atlanta with conspiracy to defraud the United States by obstructing the lawful government functions of the Department of Health and Human Services (HHS) and to violate the AKS. The information alleges that the subsidiaries paid bribes and kickbacks to the owners and operators of prenatal care clinics serving primarily undocumented Hispanic women, in return for the referral of those patients for labor and delivery medical services at Tenet hospitals. These kickbacks and bribes allegedly helped Tenet obtain more than $145 million in Medicare and Medicaid funds based on the resulting patient referrals.

Some of the pregnant women were told at the prenatal clinics that Medicaid would cover the costs associated with their childbirth and the care of their newborn only if they delivered at one of the Tenet hospitals, and in other cases were told that they were required to deliver at one of the Tenet hospitals, leaving them with the false belief that they could not select a hospital of their choice. The information alleges that as a result of these false and misleading statements and representations, many expecting mothers were forced to travel long distances from their homes to deliver their babies, placing their health and safety, and that of their babies, at risk. 

According to Special Agent in Charge Jackson,

OIG continues to emphasize investigation of improper financial relationships between health care providers. Using their positions of trust, health providers – after receiving payments from Tenet – sent expectant women specifically to Tenet hospitals. Patients were often directed to Tenet facilities miles and miles from their homes and on their journeys passed other hospitals that could have provided needed care. These women were thereby placed at increased risk during one of the most vulnerable points in their lives. HHS-OIG will continue to protect patients by exposing such illegal arrangements.

In addition to pleading guilty to the allegations in the information filed, the subsidiaries will forfeit over $145 million to the United States – the amount paid to the subsidiaries by the Medicare and Georgia Medicaid programs for services provided to patients referred as part of the scheme.

Non-Prosecution Agreement

Tenet and the subsidiaries entered into a non-prosecution agreement (NPA) with the Criminal Division’s Fraud Section and the United States Attorney’s Office of the Northern District of Georgia as to the charges in the criminal information. Under the NPA, Tenet and its subsidiaries will avoid prosecution if they, among other requirements, cooperate with the government’s ongoing investigation and work to enhance their compliance and ethics program, as well as internal controls. Tenet also agreed to retain an independent compliance monitor to address and reduce the risk of any additional violations of the AKS by any entity owned in whole, or in part, by Tenet. The NPA is for a term of three years, but may be extended for up to one year.

Civil Settlement

In the civil settlement, Tenet agrees to pay $368 million to the federal government, the state of Georgia, and the state of South Carolina to resolve claims asserted in United States ex rel. Williams v. Health Mgmt. Assocs., Tenet Healthcare, et al., a lawsuit filed under the federal and Georgia False Claims Acts by Ralph D. Williams, a whistleblower. The federal share of the settlement is $244,227,535.30, Georgia will receive $122,880,339.70, and South Carolina will recover $892,125. Mr. Williams will receive roughly $84.43 million as his whistleblower share.

According to Tenet CEO Trevor Fetter,

The conduct in this matter was unacceptable and failed to live up to our high expectations for integrity. The relationships between the four hospitals and Clinica de la Mama violated the explicit requirements of our own compliance program and were inconsistent with the strong culture of compliance we’ve worked hard to establish at Tenet. We take seriously our responsibility to operate our business in accordance with the highest ethical standards, every day and in every interaction.

While the DOJ and the parties have reached agreements, the agreements remain subject to court acceptance. Also important to note, Tenet previously sold both Georgia hospitals that were at the heart of the investigation and one of the South Carolina hospitals.

The breakdown in Tenet’s compliance program reiterates how critical it is to develop clear, comprehensive, and understandable protocols regarding referral and marketing relationships in the health care industry. It also underscores the importance of building a culture of transparency, including with legal counsel.


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