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.  

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.

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