Life Science Compliance Update

July 27, 2016

Acclarent Executive Convicted of Misdemeanors and Acquitted of Felonies

The former Chief Executive Officer and Vice President of Sales of Acclarent, Inc., a medical device company and division of Johnson & Johnson, were recently convicted of ten misdemeanor counts of fraud. However, the two execs each were acquitted on fourteen felony counts of fraud. The indictments can be found here, and they outline the charges against the executives,

William Facteau and Patrick Fabian were convicted of ten counts of introducing adulterated and misbranded medical devices into interstate commerce following a six-week jury trial. The jury concluded that the executives caused the unlawful distribution of a medical device (Relieva Stratus Microflow Spacer ("Stratus")) for uses that were not clearly approved by the United States Food and Drug Administration ("FDA"). Acclarent had sought approval from the FDA for the product to be used to deliver steroids, but the FDA denied the request. In spite of the fact that both Facteau and Fabian told the FDA that the Stratus was a medical device intended to maintain an opening in a patient's sinus, the company launched the product with the intent of it being used as a steroid delivery device.

The evidence presented at trial demonstrated that the executives sought to quickly develop and market products to create a revenue stream that would make Acclarent an attractive business for an initial public offering ("IPO") or acquisition, according to the United States Attorney's Office.

The charge of violating the Food, Drug and Cosmetics Act allows for a sentence of no greater than one year in prison for each count, one year of supervised release and fine of $100,000 or twice the gross gain or loss. Actual sentences for federal crimes tend to be less than the maximum penalties.

Facteau and Fabian plan to ask the court to set aside the convictions on the misdemeanor counts. Frank Libby, principal with LibbyHoopes PC and representative of Patrick Fabian, noted that, "The government was casting it as a felony, with fraud, lying and cheating and deceiving the FDA and others and the jury simply wasn't busing it and rejected it across the board." Libby believes that the misdemeanor counts are a "common concern of everyone in the medical device industry," because they do not require a showing of criminal intent for conviction.

Reid Weingarten, another attorney, made a similar statement, discussing his gratefulness that the jury exonerated Mr. Facteau of all charges that require criminal intent and concluded that the case did not involve false or misleading statements, noting that "It is difficult to understand how someone in America could be convicted of even misdemeanor crimes without a finding of intentional wrongdoing."

Similar to Reichel…

This is the second recent case in which healthcare executives escaped potentially serious consequences for alleged corporate misconduct. Earlier this year, a federal jury in Boston found W. Carl Reichel of Warner Chilcott not guilty of conspiring with members of Warner Chilcott's sales force to pay kickbacks to physicians in exchange for writing prescriptions. It is likely that an important argument advanced by attorneys for Facteau and Fabian revolved around the jury instructions given in the Reichel case: "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 1 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."

Settlement Allegations

Acclarent has agreed to pay $18 million to resolve allegations over false claims submitted to Medicare and other federal health care programs, connected to Stratus.

July 06, 2016

Cardiovascular Systems Inc. False Claims Act and Anti Kickback Settlement

Cardiovascular Systems, Inc. (CSI) has agreed to pay $8 million and sign a corporate integrity agreement (CIA) to settle a False Claims Act (FCA) lawsuit filed against them. The suit is based on allegations from a former sales representative that the company ran kickbacks and an off-label marketing scheme to boost sales on its orbital atherectomy devices.

According to allegations in the court documents, CSI executed a kickback scheme to induce the use of its medical devices by physicians. The government alleges that CSI violated the FCA by providing marketing and other practice development services to physicians who utilized CSI's devices to perform artherectomies (a procedure that clears blockages restricting blood circulation in arteries). The government further alleges that CSI developed and distributed marketing materials to referring physicians to promote physicians who utilized CSI's devices; coordinated meetings between utilizing and referring physicians; and developed and implemented business expansion plans for physicians who utilized their devices. CSI allegedly engaged in these activities, and others like them, to induce doctors to begin to use or continue to use CSI's devices.

The False Claims Act suit, filed in 2013, accused CSI of inducing physicians to use its products by offering free, all-expense paid training programs. The programs were then followed by "explicit demands by CSI employees that attendees use CSI products on future patients." CSI would give the product away for free, use third party referral channel marketing, and sham speaker payments for high-prescribers and those with whom CSI sought to cultivate relationships.

The lawsuit also accused the company of running an off-label promotion scheme to push sales of an unapproved French catheter and promoting its devices for use in areas of the body it is not approved for, such as coronary arteries, and for conditions (i.e., chronic total occlusion) for which it is not approved.

The settlement calls for the company to pay $3 million immediately and then the remaining $5 million in eleven quarterly installments, beginning January 2017, with a 1.8% annual interest rate. The settlement agreement also requires CSI to pay reasonable expenses, costs, and attorneys' fees for Travis Thams, the previous employee and qui tam whistleblower.

Cardiovascular Systems admits no liability in the settlement and the CIA requires CSI to maintain and expand its existing compliance programs and hire an independent review organization to audit its compliance with federal health care programs.

According to United States Attorney Jill Westmoreland Rose, U.S. Attorney for the Western District of North Carolina, the division of the U.S. Attorney's Office that investigated these allegations,

Doctors are expected to provide medical advice and treatment options that benefit patients, not their own practice. A company cannot reward physicians for using its medical devices over those of competitors. The type of kickback scheme alleged in this case compromises good medical care and can lead to inefficient use of limited healthcare resources. My office is committed to preventing medical device manufacturers from improperly influencing physicians' medical judgment. We will thoroughly investigate any such allegations.

Derrick L. Johnson, Special Agent in Charge with the Department of Health and Human Services, noted,

Medical device companies engaging in kickbacks to boost profits undermine physicians' medical judgment and drive up health care costs for everyone. Our agency will continue to work with our law enforcement partners to investigate and recover Medicare money that was improperly paid.

June 16, 2016

Detecting the “Sham” in Speaker Programs

In late March 2016, Novartis Pharmaceuticals Corp. (NPC) and the U.S. Department of Justice and the State of New York (collectively, "Government") corresponded with the presiding U.S. District Judge about an alleged "nationwide kickback scheme, spanning 10 years, to induce doctors to write prescriptions."

It is alleged by the Government that NPC routinely conducted "promotional events that had little to no educational value," "frequently providing lavish meals," allowing the "same doctors attend the same events over and over again" and other related allegations. From these correspondences, the Government has delineated nine factual bases for determining whether a speaker program is a "sham" and a potential violation of the Anti-Kickback Statue (AKS) and False Claims Act (FCA).

We thought it would be significant if the publicly available Open Payments data can be employed, using the same factual basis as the Government has stated, to detect potential "sham" speaker programs.

Read Full Article in the June 2016 Issue of Life Science Compliance Update

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