Policy and Medicine

Physician Payment Sunshine Act: Washington Legal Foundation Comments Question the Constitutionality of Reporting for Reprints and Textbooks

The Washington Legal Foundation (WLF) submitted comments to the Centers for Medicare & Medicaid Services (CMS) regarding the final rule on the Physician Payment Sunshine Act.  Specifically, WLF made extensive comments about CMS’ failure to “include medical textbooks within the definition of ‘educational materials that directly benefit patients,’” raising several issues under the First Amendment.   

The WLF is a public interest law and policy center with members and supporters in all 50 States, including many patients and physicians who seek unfettered access to truthful information about well-recognized medical treatments.  WLF has devoted substantial resources over the years to promoting the free speech rights of the business community, appearing before numerous federal courts in cases raising First Amendment issues.  In fact, WLF played a critical role in the Sorrell v. IMS Health Inc. and United States v. Caronia cases. 

Background 

On February 8, 2013, CMS announced its determination that medical textbooks do not fall within the statutory exclusion for “educational materials” and thus that gifts of medical textbooks are reportable under the Act. 

WLF noted that numerous commenter’s urged CMS to determine that medical textbooks fall within the statutory exclusion and that a number of individuals and textbook publishers have contacted CMS to argue that:  

(1)  CMS’s interpretation of the educational materials exclusion is based on a misunderstanding of congressional intent;

(2)  CMS’s classification of medical textbooks under the Act is inconsistent with its classification of other educational materials;

(3)  medical textbooks are impartial and important sources of medical information for doctors and thus are essential for optimal patient care; and

(4)  if medical textbooks are deemed reportable under the Act, patient care will suffer because most drug companies will cease providing textbooks as gifts and most doctors will become unwilling to accept such gifts. 

WLF agreed with these concerns but also focused on an additional issue: applying the reporting requirements to medical textbooks would constitute a serious infringement on the First Amendment rights of pharmaceutical companies to disseminate medical texts and the First Amendment rights of doctors to receive such information.  

“Both groups have strong reason to believe that they will be subject to harassment and/or investigation if forced to report such speech activity to CMS, with the result that their speech will be chilled considerably,” WLF writes.  The U.S. Supreme Court has repeatedly held that disclosure requirements of this sort are subject to “exacting scrutiny” and can pass muster under the First Amendment only if shown to serve important government interests that outweigh the burdens they impose on speakers.  

WLF has seen no indication that CMS has given any consideration to the First Amendment implication of its interpretation of the Act’s educational materials exclusion.  For example, there is no indication that CMS is even aware that the Food and Drug Administration (FDA), as a result of its ill-considered attempts in the 1990s to restrict manufacturer dissemination of medical textbooks, is subject to a permanent federal court injunction that imposes strict limits on any such restrictions. See Washington Legal Found. v. Friedman, 13 F. Supp. 2d 51, 73-74 (D.D.C. 1998) (“WLF I”), appeal dism’d, 202 F.3d 331 (D.C.Cir. 2000) (“WLF III”). 

While WLF has no objections to CMS’s decision to begin enforcement of other portions of the Act’s reporting requirements effective August 1, 2013, WLF urges CMS to “delay any decision to apply the reporting requirements to medical textbooks until it has had an opportunity to examine the First Amendment implications of such a decision.”  Specifically, they urge CMS to “investigate whether such a decision would (as many observers have predicted) result in a significant reduction in manufacturer dissemination of medical textbooks; if so, then CMS’s policy almost surely could not withstand First Amendment scrutiny.”   

Otherwise, WLF warned that CMS will likely find itself the target of a First Amendment lawsuit by affected parties.  Below is a brief summary of the comments WLF submitted. 

The Distribution of Medical Textbooks Is Speech Protected by the First Amendment 

After giving some background on the PhRMA Code of Interactions with Healthcare Professionals, WLF noted that many of the payments reportable under the Sunshine Act, such as meals, travel, etc., have no communicative component, and thus do not implicate First Amendment concerns.  On the other hand, “a gift of a medical textbook clearly does implicate such concerns; the sole purpose of disseminating a textbook is to convey the ideas contained therein, and it possesses value solely by virtue of the value of those ideas.” 

Citing Sorrell, WLF recognized that the “U.S. Supreme Court has explicitly held that the speech of pharmaceutical companies to doctors – even speech designed solely for the purpose of selling a product – is entitled to First Amendment protection.”  WLF emphasized that “federal courts have repeatedly rejected federal government arguments that the First Amendment is inapplicable to its regulation of the expressive activity of a drug company because (the government asserts) its regulation focuses on the company’s commercial conduct, not its speech.  

For example, in rejecting that government argument raised in response to WLF’s challenge to FDA restrictions on dissemination of medical textbooks to doctors, a federal district court stated: 

[T]he activities at issue in this case are only “conduct” to the extent that moving one’s lips is “conduct,” or to the extent that affixing a stamp and distributing information through the mails is “conduct.” . . . This court is hard-pressed to believe that the agency is seriously contending that “promotion” of an activity is conduct and not speech, or that “promotion” is entitled to no First Amendment protection. 

WLF further asserted that the “First Amendment provides particularly strong protection to the speech at issue here because all concede that medical textbooks are truthful and (because they are prepared by reputable, independent medical publishers) are unbiased.”  Moreover, citing FDA’s 1996 guidance document on dissemination of textbooks, FDA observed that “[t]hese tests typically discuss a wide range of medical diagnoses and treatments, including drug product utilization, surgical techniques, and other medical topics, and are often useful to clinicians in the practice of medicine.”  Accordingly, WLF maintained that “any federal regulations that inhibit distribution of medical textbooks are subject to First Amendment scrutiny.” 

“CMS should be aware that the federal courts struck down FDA’s Textbook Guidance on First Amendment grounds and permanently enjoined its enforcement.  The district court later clarified that its injunction applied not only to the Textbook Guidance itself but also to any subsequent documents that purported to adopt the policies of that document.” 

Moreover, while the Sunshine Act’s intent is to bring transparency to certain payments or transfers of value that may amount to kickbacks or other inappropriate relationships or conflicts of interest, WLF recognized that medical textbooks do not pose such risk.  Specifically, WLF cited to FDA’s limited definition of what it deemed to constitute a medical textbook, as follows:  

“The reference text should not have been written, edited excerpted, or published specifically for, or at the request of a drug, device, or biologic firm, unless the text was prepared in a manner that results in a balanced presentation of the subject matter,” and “The content of the reference text should not have been reviewed, edited or significantly influenced by a drug, device, or biologic firm, or agent thereof, unless the text was prepared in a manner that results in a balanced presentation of the subject matter.” 

Although CMS Is Not Banning Speech, It Is Substantially Burdening Speech, and Such Burdens Are Subject to First Amendment Constraints 

Although the Act’s reporting requirement includes an explicit exemption for “educational materials that directly benefit patients,” 42 U.S.C. § 1320a-7h(e)(10(B)(iii), WLF noted that “CMS has interpreted that exemption as being inapplicable to medical textbooks.”  While the disclosure requirement does not “flatly prohibit any speech” and manufacturers may still “freely distribute medical textbooks ,” WLF recognized that “courts have repeatedly held that mandatory disclosure of expressive activity imposes a burden on the expressive activity and thus is subject to First Amendment constraints.” 

In fact, WLF maintained that the “First Amendment scrutiny is at its highest when, as here, the speech is truthful and seeks to convey information that is of significant public interest – in this case, information critical to the effective delivery of medical care.”  Although drug manufacturers are commercial entities, WLF argued that “there is no plausible basis for asserting that their distribution of medical textbooks constitutes “commercial speech” – a category of speech that is entitled to a lessened (but still substantial) degree of First Amendment protection.”   

“Moreover, the public importance of the information conveyed in a medical textbook is not reduced simply because a doctor receives the textbook as a gift from a drug company rather than by purchasing it with his own funds” (citing various Supreme Court cases).  

WLF then outlined the standard Courts use to determine the constitutionality of a disclosure requirement, which balances (on the one hand) the burdens that the requirement imposes on speakers, against (on the other hand) the government interests allegedly served by the requirement.  Specifically, quoting the Supreme Court: 

We have repeatedly found that compelled disclosure, in itself, can seriously infringe on privacy of association and belief guaranteed by the First Amendment. As a result, we have closely scrutinized disclosure requirements. . . . To survive this scrutiny, significant encroachments “cannot be justified by a mere showing of some legitimate government interest.” Instead, there must be a “relevant correlation” or “substantial relation” between the governmental interest and the information required to be disclosed, and the government interest “must survive exacting scrutiny.” That is, the strength of the governmental interest must reflect the seriousness of the actual burden on First Amendment rights. 

Based on this legal balancing, WLF argued that “the disclosure requirement will severely burden the First Amendment right of drug and device companies to disseminate medical textbooks – even to the point of causing all such dissemination to cease,” and that there is no “substantial government interest that would be served by applying the Act’s disclosure requirement to medical textbooks.” 

The Disclosure Requirement Imposes a Substantial Burden on the Right to Speak by Distributing Medical Textbooks 

WLF noted that the Sunshine Act will require manufacturers to keep track of every medical textbook they disseminate, because every textbook has a retail value that exceeds the Act’s $10 threshold, and they will have to track such textbooks for the $100 annual aggregate purpose.  Doctors will also have to keep detailed records regarding any textbook they are given, so that they can be in a position, if necessary, to dispute HHS reports regarding gifts they have received.  This, as the American Medical Association (AMA) noted in its comments on the proposed Sunshine rule, would impose a significant time and resource burden on physicians that CMS “greatly underestimated.”  Manufacturers, of course, will face significant penalties—up to $1.15 million per year—for failing to make required reports. 

As a result, WLF maintained that this provision will cause a “significant reduction in speech,” as “Manufacturers will be able to reduce compliance costs and potential fines by reducing the number of medical textbooks they disseminate.”  Moreover, doctors will reduce compliance costs by declining to accept medical texts and will also decline such texts to avoid inclusion of their names on public lists of doctors who are accused of being on the “payroll” of pharmaceutical companies. 

“While many doctors wish to receive the information contained in medical textbooks, their willingness to exercise their First Amendment rights to receive such information is greatly tempered by an unwillingness to expose themselves to the potential harassment and censure that can accompany inclusion on lists of doctors who received payments from drug or device companies,” WLF wrote.  For example, doctors will “quickly forgo receipt of [medical textbooks] if they conclude that accepting the information will lead to any amount of harassment” 

In addition, WLF argued that the legislative history of the Sunshine Act “confirms that Congress required disclosure not so that patients could use the information as part of a careful evaluation of which doctors to use, but to discourage doctors from accepting gifts that lack an educational purpose.”  Further, “[t]here is little evidence that Congress intended to single out textbook dissemination and other expressive activities for special disapprobation, but the effect of the Act (as interpreted by CMS) is to burden this expressive activity to such an extent that much of the activity will cease,” WLF wrote. 

WLF emphasized further that the burdens on speech “are also particularly onerous because the Act is being applied to speech whose truthfulness CMS does not contest.”  Additionally, WLF recognized that the “burdens that CMS is imposing on speech rights are also subject to special scrutiny” because “Anyone other than a drug or device company is free to distribute medical textbooks to doctors without being burdened by the Act’s reporting requirements. Only the speech of drug and device companies is subjected to special disapprobation.”  The Supreme Court has repeatedly subjected such “speaker-based restrictions” to heightened First Amendment scrutiny (citing Sorrell).   

Application of the Act to Medical Textbooks Does Not Serve Any Substantial Government Interests 

WLF explained that the principal government interest served by the Act is the “prevention of corruption.”  CMS, which provides billions of dollars each year to reimburse the costs of medical devices and prescription drugs, “has a strong interest in ensuring that a doctor prescribes use of medical products only when their use is indicated, and not because the doctor has been bribed to write such a prescription.”  By requiring drug companies to report to HHS gifts they make to doctors, “the federal government can ascertain which doctors are receiving inordinately large gifts and thus can more easily ascertain whether a doctor’s prescription-writing practices have been corrupted.” 

They argued that the “likelihood that a gift of a medical textbook could corrupt a doctor’s prescribing practices is negligible,” noting that even the most expensive medical textbooks supplied by drug companies to doctors cost only a small fraction compared to travel or research.  This is important, as WLF noted, because the Supreme Court has generally limited disclosure for purposes of deterring corruption for “large” expenditures that legitimately could be viewed as having the potential to corrupt. 

WLF notes that it is “ironic that CMS has interpreted the Act as prohibiting dissemination of a medical text only if it has real medical value. A book has value only to the extent that the book contains valuable information. Thus, a drug company sales representative need not report that, during one of his sales visit to the doctor’s office, he has left off a copy of a promotional brochure regarding one of his company’s drugs or a Harlequin romance novel, because no doctor – or anyone else – would value the material as exceeding the Act’s $10 reporting threshold.” 

“It is only because doctors and their patients can actually make use of information contained in bona fide medical textbooks that doctors (and the market in general) assign a sufficiently large value to the textbooks to render them reportable. Yet, CMS has produced no evidence – and WLF is not aware of any – that the modest value of a single copy of a medical textbook is sufficient to tempt a doctor to adopt corrupt prescribing practices.” 

Moreover, WLF notes that other than “an interest in preventing fraud, the Act serves no legitimate government interest.  Congress never attempted to justify the Act based on its informational value – that is, that patients might use the information contained in HHS reports in deciding which doctor to choose.” 

CMS Can Avoid First Amendment Difficulties by Construing the Act as Inapplicable to Medical Textbooks 

WLF next maintained that there is no language in the Act that can be construed as a “clear indication” that Congress intended to require that medical textbooks be included in the reporting requirement.  Although the Act requires that “payments or other transfers of value” from drug companies to doctors be included in annual reports submitted to HHS, it explicitly excludes from the reporting requirement “educational materials that directly benefit patients or are intended for patient use.” 

By all accounts, medical textbooks supplied by drug companies to doctors “directly benefit patients” – doctors regularly use information gleaned from the textbooks in their treatment of patients, and they often show the textbooks to patients while explaining treatment options. At the very least, therefore, there is a plausible statutory basis for exempting medical textbooks from the Act’s reporting requirement. By adopting that construction of the Act, courts could avoid the serious constitutional questions that they would otherwise be required to confront. 

WLF argued that “because the only value of information contained in a medical textbook derives from a doctor’s ability to use that information in treating patients, the relationship between a medical textbook and benefits to patients is far closer – and thus is the sort of educational material that most people would consider to be of “direct” benefit to patients.”  Thus, CMS’ interpretation was not the most natural reading of “directly benefits patients”, particularly in light of evidence that patients derive numerous benefits from the medical textbooks disseminated to doctors.

HHS-OIG: Podcast on Improper Payments

The Office of Inspector General (OIG) for the U.S. Department of Health and Human Services (HHS) offers a wide array of resources and tools for healthcare providers, patients and various stakeholders on their webpage.  Included in this list of resources are a number of Podcasts about important issues the healthcare industry is facing.  We previously reported about the significance of healthcare compliance for corporate boards.   

Consequently, OIG recently posted a new podcast with Kay Daly, the Assistant Inspector General for Audit Services, who discussed a report about improper payment reporting.  Daly explained that “An improper payment is a payment that should not have been because it did not meet program rules, or was an incorrect amount. It includes both overpayments and underpayments.” 

“Improper payments are NOT estimates of fraud.  While all payments obtained by fraud are improper, NOT all improper payments are fraudulent.  Tools that measure improper payments are not designed to detect or measure the amount of fraud in programs such as Medicare,” Daly added. 

The Improper Payments Elimination and Recovery Act of 2010 (IPERA), P.L. No. 111-204, requires Offices of Inspector General (OIG) to review and report on agencies’ annual improper payment information included in their Agency Financial Reports (AFR) to determine compliance with the Improper Payments Information Act of 2002 (P.L. No. 107-300) as amended by the IPERA.  OIG makes determinations on requirements in the law, for example:  

• Did the agency assess the program’s risk level?
• Did it develop improper payment estimates and were the error rates below 10 percent?
• Did it establish and meet targets to reduce improper payments?
• Did the agency publish plans to correct the problems?  

As required by the Office of Management and Budget (OMB), agencies must comply in seven key areas, which are (1) publishing an AFR and posting it on the agency Web site, (2) conducting a program-specific risk assessment, (3) developing improper payment estimates for programs and activities identified as risk susceptible, (4) publishing corrective action plans, (5) establishing annual reduction targets for those risk-susceptible programs, (6) reporting gross improper payment rates of less than 10 percent, and (7) reporting on its efforts to recapture improper payments. 

In 2012, HHS reported almost $65 billion dollars in improper payments across eight high-risk programs.  Daly noted that this is over half of all improper payments reported across the Federal Government.  HHS did not report an error rate for the ninth high-risk program, called Temporary Assistance for Needy Families, or TANF, because HHS does not have authority to require states to provide the necessary data.  So there is no estimate for that program.

Seven of the eight programs had rates below 10 percent.  Medicare Advantage did not.  Its improper payment rate was 11.4 percent, which is over $13 billion dollars in estimated improper payments.  In response to how OIG and HHS responded to reducing improper payments, Daly noted that four programs: (1) Medicaid, (2) Medicare Prescription Drugs, (3) Head Start, and the (4) Child Care and Development Fund, met their improper payment rate reduction targets.  

However, three programs, (1) the Medicare Fee for Service, (2) Medicare Advantage, and (3) Foster Care programs had targets that they did not meet.  So the two remaining programs, TANF and the Children's Health Insurance Program, or CHIP, did not have established targets.  

In response to these findings, HHS developed plans for 7 of the 9 programs.  For TANF, this requirement did not apply because there was no estimate.  HHS did not publish a corrective action plan for CHIP, but reported it was working with states to develop corrective action plans for that program.  Ultimately, OIG recommended that HHS should: 

• Continue reducing improper payments, and meet its target rates
• Develop error rate reduction targets and corrective action plans for CHIP
• Ensure that amounts used in the computations for reporting improper payments are accurate and complete.

 

Proactive Planning for HHS-OIG-DOJ Investigations

Over the last four years, the U.S. Department of Justice (DOJ) along with the U.S. Department Health and Human Services (HHS) has recovered over $13.9 billion in healthcare fraud settlements through their joint Health Care Fraud Prevention and Enforcement Action Team (HEAT).  “DOJ alone initiated over 1,100 new criminal health care fraud investigations in 2012 and convicted over 800 defendants of health care fraud-related crimes during the year,” recovering $7.90 for each dollar spent—the highest three-year average return on investment since the Health Care Fraud and Abuse (HCFAC) Program began 16 years ago. 

Part of the increased enforcement comes from DOJ and HHS coordinating activities with State and local officials, “including several leading private health insurance organizations.”  As a result, “the environment is ripe for continued focus on health care fraud enforcement making it critical that compliance officers and in-house counsel understand how to properly handle both internal and governmental investigations,” according to a recent article written by Kirk Ogrosky, partner at Arnold & Porter LLP, published by the Health Care Compliance Institute. 

Previously, Ogrosky was the head of healthcare fraud enforcement in the Criminal Division of DOJ, where he created and managed the Medicare Fraud Strike Force.  He also served as an Assistant U.S. Attorney in the Southern District of Florida from 1999 to 2004, and as an Assistant Attorney General in Kentucky from 1996 to 1998.   

Governmental healthcare investigations “disrupt operations, impair business initiatives, exhaust resources and expose organizations to negative public relation campaigns”, and “[t]hese costs occur even prior to ascertaining whether there will be consequential administrative, civil or criminal liability.”  Companies must have a proactive plan to respond to allegations of wrongdoing because the “consequences of criminal prosecution are so severe”—such as exclusion.  Thus, “When issues arise—whether through a hotline complaint, internal report, civil subpoena, grand jury subpoena, search warrant or a simple request—organizations and their counsel need to have a basic understanding of the investigatory process and how to communicate with agents and prosecutors.”    

“Regardless of the origin of the investigation, or the depth of the organization’s potential involvement in the matter, the first priority should always be to get the facts”, Ogrosky wrote.  Why?  Since the government typically proceeds “with limited information while it collects additional information,” an organization that fully understands the facts can “develop a relationship with the investigating agency” and “can influence the way the government perceives the case by guiding investigators through documents and witnesses.”  In addition, compliance officers and counsel need to establish personal credibility because losing “credibility internally or with the government will draw added scrutiny to their organizations, whereas individuals who establish credibility may receive the benefit of the doubt.”   

To build credibility, counsel and officers must develop “a complete understanding of the investigatory process and the facts at issue.”  Accordingly, the article provides an overview of the investigative process “to assist compliance officers and counsel so that they may seek to reduce the negative impacts of investigations.”  The article outlines how compliance officers and counsel can improve on how they conduct internal investigations and how to respond to subpoenas, search warrants and interview requests.  The former DOJ healthcare leader maintained that, “well-conceived and managed internal inquiries are critical for organizations to ameliorate the negative consequences of investigations.” 

THE START OF GOVERNMENTAL INVESTIGATIONS 

Ogrosky noted that “Governmental investigations typically begin when a source of information, usually an employee or former employee, reports allegations of wrongdoing to a Zone Program Integrity Contractor (“ZPIC”), Medicare Administrative Contractor (“MAC”), HHS Office of Inspector General (“OIG”), Federal Bureau of Investigations (“FBI”) or Medicaid Fraud Control Unit (“MFCU”).  More recently under the direction of HEAT, investigations are being started when anomalies in claims are detected by HHS-OIG and FBI agents working with a Medicare Fraud Strike Force (“MFSF”) and through an increased focus on data-mining and sharing among various government agencies.”   Other agencies that may join in healthcare fraud investigations include the Internal Revenue Service (“IRS”), the Postal Inspection Service, Department of Defense (“DOD”), Veterans Administration (“VA”), Railroad Retirement Commission and State Insurance Departments (“DOI”).  Relators in qui tam cases brought under the False Claims Act (FCA) lead to almost identical investigations. 

“In most cases, the first sign of an investigation is agent contact with a current or former employee or a letter requesting information,” which is “often followed by administrative, civil or criminal subpoenas.  Less often, organizations learn of an investigation during the execution of a search warrant,” which happened recently when an MFSF coordinated a single-day takedown across seven cities in May 2012 that resulted in over 100 individual arrests and 20 executed search warrants.  Whatever the initiating government contact, organizations must (1) seek to understand how the government views the allegations; (2) quickly ascertain their status in the investigation—target, subject or witness; and (3) must understand their rights and those of their employees. 

A. Requests 

If an employee reports that government agents approached them, “counsel should talk with the employees and attempt to ascertain the nature of the government’s investigation.”  Since a “witness is the property of neither the government nor the organization, both sides have equal access to the witness.”  Accordingly, Ogrosky said it is “appropriate for an organization to apprise its employees of their rights and obligations should they be contacted by agents and asked to submit to an interview.” 

Ogrosky noted that, “Organizations should assure individual employees that they are free to answer questions from government agents and that all answers must be truthful if they elect to answer questions.”  However, employees that meet first with counsel “will better understand the government’s methods and objectives.”  He recommended that organizations inform individual employees to request an agent’s name, agency and phone number if investigators approach them, and “all contacts should be handled immediately and as confidentially as possible.”   

Organizations must also inform employees to treat government agents seriously and accord them with respect because “prosecutors who sense obstructive conduct will respond by escalating the investigation, and may open new investigations into additional criminal conduct such as obstruction of justice.” 

“Individuals may elect to be represented by counsel during the interview.  For those individuals, the organization must determine whether the employee requires separate counsel and whether the organization will assume the cost of such representation.”  Ogrosky noted that, counsel for the organization must always keep in mind the ethical rules and “make clear to individuals that they represent the organization,” and “not cross the line of representing an individual in a personal capacity.”  Informing employees of their rights “necessarily will vary depending on the circumstances of the case, including the number of employees involved, their positions and locations, and the likelihood that the government may contact them before they can be interviewed by the organization.”  Thus, Ogrosky recommended that organizations “consult counsel regarding the preparation of a contact letter or before initiating any other contact.” 

B. Subpoenas and Search Warrants 

After the government’s initial contact, organizations may receive an administrative, civil and/or criminal subpoena, which they should refer to counsel.  Once the subpoenas validity is established, and to ensure that responsive communications are retained, counsel may issue a memorandum or “hold notice” to employees, which explains “in plain English … what documents should be retained, who will be collecting the documents, and contain instructions on how to collect documents for those participating in the collection.” 

Ogrosky recommended that counsel evaluating a subpoena “should have their client detail the state of its records and its ability to comply with the request,” and should convey this information to the government “to discuss compliance issues.”  He noted that counsel for the government “will entertain reasonable requests to narrow subpoenas” that may be overbroad, vague, cover expansive time periods, or request privileged materials and recommended that counsel for the organization exhaust “all avenues with the government” before pursuing a motion to quash the subpoena. 

Although search warrants are “rarely” used in healthcare matters that involve organizations that are in the business of providing real care, the government will use such warrants “when it believes there is a substantial risk that evidence will be destroyed.”  If a search warrant is obtained, the former DOJ leader recommended that employees “contact counsel or a designated employee immediately.”  An organization employee served with a warrant “must inspect the warrant for facial sufficiency (location, time, date and scope) and comply with its terms.”   

Ogrosky also recommended that non-essential employees (those not involved in patient care) be sent home “immediately to assure that their actions are not misinterpreted as interfering with the search,” minimize the number of interviews, and “assure that employees do not expand the scope of the search by consent.”  The responsible organization employee, if counsel is not on-site, should communicate with the agent in charge of the search “to ascertain the nature of the allegations” and counsel should seek a copy of the affidavit filed in support of the warrant.  Counsel for the organization may want to assist the government locate the items listed to speed up the process and reduce its scope. 

Finally, because warrants permit the government to seize original documents, Ogrosky recommend that counsel “request copies of items seized and/or the return of critical documents.”  At a minimum, “the senior person on the scene should keep track of the areas searched, questions asked and items taken” and at the end of the search, “counsel should request an inventory and attempt to assure that the inventory fully describes the items seized.” 

CONDUCTING INTERNAL INVESTIGATIONS 

When an organization learns of a government investigation or a serious internal issue, Ogrosky recommended that counsel “perform a thorough [internal] investigation if the organization may be involved in the alleged misconduct or may have direct exposure (criminal, civil or administrative), or when the government’s claims may involve senior management, board members or employed providers.” 

Before commencing an internal investigation, counsel must understand the allegations, the nature of the investigation and the organization’s exposure, which is critical to “designing and implementing a thorough internal investigation plan.”  To do so, Ogrosky recommended that counsel ask the government or source of information to describe the role of the organization and its key employees in the alleged misconduct.  “If the matter is a government investigation, the organization should ask whether they are a target or subject of a criminal investigation.”  The former prosecutor noted that although the government might not always accommodate the request, there is no harm in seeking such information as long as the inquiry is a genuine attempt to understand the investigation and done professionally. 

Where there is an active criminal investigation, “organizations should not conduct an internal review until the parameters of the review have been discussed with agents and prosecutors, as it might compromise on-going law enforcement activities,” Ogrosky maintained. 

A. Who Should Conduct the Internal Investigation 

Because legal questions related to whether the conduct at issue constitutes a violation are the heart of any investigation, Ogrosky noted that “counsel should conduct or supervise the investigation” as a general rule, particularly since DOJ’s revised corporate prosecution guidelines offer counsel conducting such investigations certain protections under the attorney-client privilege and the work product doctrine.  Nevertheless, choosing in-house or outside counsel to conduct the investigation “is subject to a number of general considerations.”   

In-house counsel “may be better acquainted with the company’s history, structure, procedures and operations,” and “company employees are more likely to be open with in-house counsel because employees are more familiar with them.  However, the government may view in-house counsel “as lacking independence due to their status within the management structure.  This is true particularly where alleged wrongdoing implicates an individual who has regular contact with in-house counsel.”  Thus, the organization should seek outside counsel. 

Companies may also prefer using outside counsel because “it may be more difficult for in-house counsel to establish and maintain privilege because they are frequently called upon to provide business advice.  This problem is exacerbated when information obtained in the internal investigation is shared by in- house counsel with auditors, accountants, underwriters and corporate officials not involved in defending the organization.”  The sharing of this information may waive the privilege, which could extend to civil litigation (e.g., product liability).   

Moreover, outside counsel will be more experienced in defending government investigations and “may be more objective in assessing practices” because they “are less familiar with the company’s activities and personnel.”  Because of their experience with subtle problems that often arise during internal investigations, outside counsel “may be better able to avoid unfounded allegations of witness interference and obstruction of justice.”  Using outside counsel is also preferable where “the government perceives a conflict between the interests of a company’s management and the interests of its employees.”  Accordingly, Ogrosky recommended using outside counsel for internal investigations, in close coordination with in-house counsel. 

B. Documents &Witnesses 

“The two principal components of an internal investigation are: (i) an analysis of relevant documents; and (ii) interviews of employees who may be able to provide relevant information. Generally, it is preferable to review documents prior to commencing interviews.  The documents are a source of the identities of the individuals who will need to be interviewed as the internal investigation progresses.  The government also identifies the employees it would like to interview based upon the documents.  Further, the documents often raise questions which can be answered only through interviews of employees.  The documents also may help refresh the recollections of the individuals being interviewed and avoid mistaken responses that may throw the internal investigation off course.”

When interviewing employees, Ogrosky noted that counsel should advise “each interviewee: (i) that the government is conducting an investigation; (ii) of the nature of the problem being investigated; (iii) that counsel has been retained to provide advice to the organization; and (iv) that the interview is necessary in order for counsel to obtain the information needed to provide appropriate advice.”  Interviewers must advise employees that they are “not counsel to the employee, that any privilege belongs to the organization,” and that the organization may waive the privilege and disclose the substance of the interview to company officials or the government.  During interviews, counsel should avoid “characterizations of an organization’s position on issues” that may be “misconstrued as an attempt to influence the witness’s testimony.” 

“After any interview, it should be reduced to a memorandum.  As the organization may ultimately decide to waive the attorney-client privilege and work product protection, counsel should draft fact-based summaries without opinion.”  With regard to the potential of waiver, Ogrosky cited former director of the Executive Office of United States Attorneys (“EOUSA”) Mary Beth Buchanan who previously noted that “[t]o avoid any such disclosure unnecessarily, experienced attorneys will refrain from including mental impressions and strategy in their notes of witness interviews.” 

C. Determining Who Needs Counsel 

Ogrosky noted that “where an organization is the subject of a criminal investigation, there often is a serious potential for the existence of a conflict between it and its employees”—particularly in light of the increased use of exclusion by HHS-OIG and the Park doctrine by FDA against corporate executives.  “For example, an employee may have taken a questioned action based upon information or direction received from a supervisor.  Even if contrary to company policy, the action would in all likelihood be attributable to the company, and the company could be held vicariously liable if the individuals involved possessed the requisite knowledge and intent.  In such a situation, the interests of the company, the supervisor and the employee may vary. Accordingly, counsel for the company should refrain from saying anything that may be construed as legal advice to a witness.” 

Where an individual has committed a crime, the corporation has an interest in punishing and disclosing the conduct.  EOUSA Director Buchanan previously advised that “a zero tolerance approach to employee crime is integral to the organizational culture of a good corporate citizen and can be based on rewards as well as punitive action . . . .Employees who have committed crimes using the corporate structure, however, cannot expect protection from their corporate employer.” 

D. Finalizing Findings, Voluntary Disclosure, and Cooperation 

“After counsel has reviewed the documents and interviewed those knowledgeable about the matter, it is helpful to prepare a memorandum that: (i) summarizes the facts developed through the internal investigation; (ii) analyzes applicable legal principles; (iii) identifies any weaknesses in the company’s practices or procedures; (iv) prosecution or administrative sanctions; and (v) recommends any corrective actions or other measures which would improve operations and enhance the company’s defenses.”   Using this memo, counsel must advice the organization of its options, using “heavily fact-specific information.”  

Ogrosky pointed out differing obligations that may arise when internal investigations are conducted.  “For example, the Centers for Medicare and Medicaid Services (“CMS”) requires certain disclosures for Medicare Advantage and Medicaid managed care providers, and many state laws require nursing homes to report all alleged incidents of abuse, mistreatment, neglect, and misappropriation of resident property.  Such reports to state officials may implicate a false claims analysis should the quality of care be so low that DOJ considers program payments excessive.” 

On the other hand, investigations that reveal evidence of illegality or misconduct may require disclosure under the Sarbanes- Oxley Act, which requires that the corporate officer signing a company’s periodic report certify that any fraud which involves management (or other employees who have a significant role in the company’s internal controls), whether or not material, be disclosed to the auditors and the audit committee. 

In addition to mandatory disclosure, Ogrosky also discussed the possibility of making a voluntary disclosure under the OIG’s self disclosure protocol (“SDP”) or CMS’s Self-Referral Disclosure Protocol (“SRDP”), “which saw increased utilization in 2012.”  Organizations should not make such disclosure, however, “before undergoing thorough investigation, evaluation and judgment, and seeking the assistance of legal counsel.”  Accordingly, Ogrosky discussed several factors organizations should consider before self-disclosing. 

For example, disclosing to OIG may demonstrate in good faith “that an organization embraces a culture of compliance and is committed to interacting with federal healthcare programs with integrity.”  As a result, OIG may reduce the amount of civil monetary penalties (“CMP”) or waive the imposition of a corporate integrity agreement (“CIA”), “which can significantly burden an organization with years of costly oversight obligations.”  However, OIG “makes no guarantee of leniency, benefit or immunity to those that take advantage of the SDP.” 

Self-disclosure is also “expensive, time consuming and disruptive” and “may trigger a new investigation or expand an existing investigation into new territory by OIG or other agencies.”  Further, “the disclosure to OIG of internal investigation reports and underlying documentation may create waiver issues related to the attorney-client privilege and work product protections, creating potentially significant issues in any subsequent civil litigation,” Ogrosky writes. 

Lastly, “if criminal conduct is discovered during an investigation, an organization must decide how to proceed.”  “Where the conduct poses the risk of corporate indictment, organizations have little choice but to cooperate given the risk of exclusion.”  Ogrosky, however, noted that only “full cooperation is worth undertaking, and attempts at partial cooperation may be worse than none at all.”  The need for full cooperation underscores the importance of counsel “conducting the investigation thoroughly” and examining key documents and witnesses to make sure that all the facts are known.  In addition, cooperating will require counsel to decide whether “there will be a written or oral presentation of findings [to the government] and what impact this may have upon waiver of the attorney-client privilege and work product protections.” 

E. Preparation for Interviews 

Regardless of cooperation and the presentation of internal findings or reports, the government typically will conduct witness interviews to confirm findings.  In addition to informal requests for interviews, “the government’s use of civil investigative demands (“CIDs”) has greatly increased with the adoption of new rules in 2010 allowing the Attorney General to delegate authority to issue CIDs to individual U.S. Attorneys and the Assistant Attorney General for the Civil Division,” Ogrosky noted.  These new rules have forced “organizations to move even more swiftly in conducting its internal investigation and requiring prompt production of witnesses and documents for government inspection.”   

As a result, Ogrosky emphasized the importance of preparing witnesses, who otherwise “may inadvertently make statements that confuse issues or create the impression of improprieties that do not exist,” which is “especially true when witnesses are questioned by agents with a preconceived theory of the case.”  The former healthcare prosecutor added that unprepared witnesses may also unintentionally “make statements that contain inaccuracies that later can create credibility concerns or give rise to of perjury.”  However, he emphasized that “preparation of individuals by counsel in advance of government interviews must be free from undue influence and misleading conduct,” and counsel (for the company or separate) “must explain the importance of answering questions truthfully and with complete candor.” 

CONCLUSION 

“When faced with a healthcare fraud investigation, organizations must have a plan to effectively ascertain the relevant facts and develop a strategy of open communication with the government,” Ogrosky maintained.  Such communication is critical to achieving workable compromises.  In addition, in order for “compliance officers and counsel to have credibility in its interactions with the government, they must understand the facts, the investigation and the potential exposure.”  Ultimately, the former DOJ healthcare strike force founder asserted that “all well-grounded action plans to protect organizational interests depend upon a command of the facts and an ability to persuasively communicate the facts.”

US Court of Appeals Rules that Off Label Promotion May Be Treated as Racketeering in Civil Litigation

Earlier this month, as reported by Reuters, the U.S. Court of Appeals for the First Circuit issued an opinion that may allow third-party payers, such as private insurers, to bring “class-action racketeering claims” against Pfizer for its illegal off-label marketing of Neurontin.  The off-label chargers stem from a $240 million criminal fine in 2004 paid by Pfizer’s Warner-Lambert unit, as well as a $190 million civil fine paid by Pfizer in connection with the off-label marketing.  “Neurontin, developed by a Warner-Lambert unit, was approved in 1993 to treat seizures at a maximum dose of 1800 milligrams per day. Warner-Lambert was later acquired by Pfizer,” Reuters notes. 

The Neurontin settlement, one of the earlier off-label cases, was also notable because the settlement provided a $21 million Consumer and Prescriber Education grant program to be administered by a Special Committee of State Attorneys General pursuant to an Oregon Court Order.  This Program funds organizations such as PharmedOut, the National Physicians Alliance, and the Institute for Medicine as a Profession. 

The First Circuit’s ruling means that Pfizer may have to pay $142 million (unless it appeals to the U.S. Supreme Court) to cover costs of private insurers, such as Kaiser Foundation Health Plan, which brought one of the cases.  Kaiser claimed that “it had been damaged after prescribing Neurontin for conditions it did not effectively treat, based on fraudulent marketing by Pfizer, the largest U.S. drugmaker.”  The case name is Kaiser Foundation Health Plan et al v. Pfizer Inc et al. 11-1904 and 11-2096 (1st Cir. 2013). 

“In related appeals, the panel also revived similar claims from insurer Aetna and class action allegations from Harden Manufacturing Corp, restoring lawsuits that had been thrown out by a lower court,” reported Reuters.  That case name is In RE Neurontin Marketing and Sales Practices Litigation, 11-1806 (1st Cir. 2013). 

This case has the potential for monumental implications in the life sciences industry.  Similar to the actions brought by the federal government under the False Claims Act (FCA), and state-related false claims statutes, private insurers may be able to allege—using predicate federal or state settlements, convictions, please or disclosures—that their payment for off-label or unapproved uses was improper due to the off-label marketing.   

In the context of physicians and companies, this means that if private insurers catch wind of an off-label investigation, they may begin to deny or delay the payment of claims until the investigation is resolved.  This approach may be difficult for private insurers to implement, but is nonetheless possible, particularly given this recent court opinion and the larger cost cutting requirements and efficiencies that are being demanded of the private health insurance market.   

This is particularly troubling given the recent reports that patient adherence to medication is already at all-time lows, which continue to cost the government and states significant amount of money.  Even more problematic, a 2011 National Health Interview Survey, recently released by the US Centers for Disease Control and Prevention (CDC), showed that people between the ages of “18 and 64 were twice as likely to not have taken medication as prescribed to save money compared with adults aged 65 and over - 12.6 percent compared with 5.8 percent,” reported by Pharmalot.  With the federal government tinkering with Medicare Part D and private insurers seeking to save money any way they can, this court opinion may add even more fuel to the fire. 

Moreover, with the upcoming implementation of the Physician Payment Sunshine Act, this case may have significant repercussions from an increased transparency standpoint.  Specifically, insurers will be able to use the Sunshine Act database published by the Centers for Medicare & Medicaid Services (CMS), and similar to state and federal prosecutors, they may use a physician’s reported specialty to determine if payments are being made to a physician for an off-label use (e.g., a psychiatrist receives a payment related to an anti-epileptic drug). 

Then, based off this recent opinion, they could deny, delay, or dispute these claims using the Sunshine database, and call into question the individual physician, hospital, or group practice’s clinical treatment of patients.  Further, private payers may call into question the medical necessity of treatment provided and to analyze claims tied to physicians, “including the number of surgeries conducted, and prescriptions for off-label use of medications or high cost drugs,” which could lead to further fraud or racketeering charges by private payers.  This could also lead to increased questioning over when a physician prescribes a brand name medication instead of a generic, even when drugs may be reimbursable by CMS because they are listed in one of the three CMS-recognized compendia. 

Although uncertain to what extent this opinion will generate such practices based on the recent opinion, the recent Amgen settlement eluded to this type of alleged fraud.  Specifically, the government alleged that Amgen used journal articles that were insufficient to support the safety and efficacy of the off-label uses at issue, and improperly obtained listings in medical compendia in an effort to establish that the off-label uses were medically accepted, and thereby eligible for coverage by federal health care programs.  It is possible that private payers may make similar allegations. 

Finally, while it is not clear whether private insurers will be able to request or have access to NPI numbers (which CMS said academic researchers likely will have access to), on CMS’ database, they likely have such information already.  As a result, private payers may be able to use NPI numbers to to link information on providers’ financial relationships to private claims data (e.g., drugs) to evaluate the impact of these interactions on prescribing practices.   

Kaiser said it was “very pleased” and that “justice has been achieved for our members and the physicians, pharmacists and staff who care for them.”  David Frederick, an attorney for Kaiser, said he was “gratified by the court's carefully crafted decision.”

Pfizer was less satisfied, saying in a statement it believes “there was no basis in fact or law” for the awards in the Kaiser case.  In the Aetna and Harden cases, Pfizer said it believed the lower court’s dismissals were the right move and that it “disagrees with the conclusions” of the appeals court.

“There is so much here and so many negative implications for pharma that a certiori petition to the U.S. Supreme Court seems almost inevitable,” attorney Arnie Friede (Arnold I. Friede & Associates) told FDA Webview, former counsel to Pfizer.

The primary evidence used to support the appeals ruling was the expert testimony by Harvard professor Meredith Rosenthal, who used aggregate data and statistical approaches to link patterns in promotional spending to patterns in Neurontin’s prescribing. “Her regression analysis found a causal connection between the fraudulent marketing and the quantity of prescriptions written for off-label indications,” the court said.

The ruling is “exceptionally important because it is the first time a court has held that a third-party payor may recover for the ‘damages’ it incurred in paying for prescriptions for off-label use of a drug that were caused by a pharmaceutical company’s promotional activities,” Friede said. “If accepted in other circuits, the reasoning of the First Circuit panel in this case (which included retired Supreme Court Justice Souter) could open up a mass of litigation by third-party payors relating to all other drugs that were heavily promoted off-label. Subject to statute of limitation concerns, this result would effectively open the floodgates to actions by third party payors to recover the ‘damages’ they incurred in paying for prescriptions for off-label use.”

Previously, courts that have reviewed such claims held that third-party payors could not maintain a damages action for off-label use, “primarily because they could not establish on a doctor-by-doctor basis that the off-label prescribing was caused, as a legal and factual matter, by the company’s off-label promotional activity,” Friede continued.  “Here, the court allowed causation to be proved by aggregate statistical evidence from an expert (Dr. Rosenthal) and did not require doctor-by-doctor proof to establish causation.”

 

Friede said Pfizer will undoubtedly seek Supreme Court review of this decision because of the contingent liability it creates for the company and industry.Previously, courts that have reviewed such claims held that third-party payors could not maintain a damages action for off-label use, “primarily because they could not establish on a doctor-by-doctor basis that the off-label prescribing was caused, as a legal and factual matter, by the company’s off-label promotional activity,” Friede continued. “Here, the court allowed causation to be proved by aggregate statistical evidence from an expert (Dr. Rosenthal) and did not require doctor-by-doctor proof to establish causation.”  Friede said Pfizer will undoubtedly seek Supreme Court review of this decision because of the contingent liability it creates for the company and industry.

Court Upholds InterMune Executive Conviction on Misleading Speech

In December of last year, we reported on a landmark ruling from the United States Court of Appeals for the Second Circuit (New York), which ruled in United States v. Caronia, " that the government cannot prosecute pharmaceutical manufacturers adn their representatives under the FDCA for speech promoting the lawful, off label use of an FDA-approved drug."  While the victory for industry and free speech advocates has remained uncertain.  In practice, several other closely watched First Ammendement cases involing the pharmaceutical industry were being closley looked at.  Consequently, the U.S. Court of Appeals of the Ninth Circut decided one of those cases in early March.

Specifically, former InterMune Inc. Chief Executive W. Scott Harkonen appealed his 2009 wire fraud conviction for a news release that trumpeted the purported survival benefits of Actimmune, made to treat fatal lung disease.  As noted by Bloomberg News, “Harkonen, a physician, was accused of crafting a deceptive press release in 2002 to boost sales of Actimmune. InterMune marketed Actimmune as a safe, effective treatment for idiopathic pulmonary fibrosis, or IPF, a fatal lung disease, although the drug wasn’t approved by the U.S. Food and Drug Administration, prosecutors said.”

Harkonen’s press release, which said Actimmune reduced deaths by 70 percent in patients with mild to moderate IPF, was false and misleading, according to a March 2008 federal grand jury indictment. After the company’s clinical trials failed to show that Actimmune was effective in treating IPF, Harkonen directed employees to conduct additional analyses of death-rate data by breaking patients up into subgroups, according to the indictment.

The government, which indicted Dr. Harkonen in 2008, maintained in its brief that the First Amendment doesn't bar a “criminal prosecution of false statements with an intent to defraud" just because they "concern scientific matters.”  “It is important to the FDA to preserve the notion that you can't sell a medicine for an unapproved purpose,” said Washington attorney Bert W. Rein of Wiley Rein, who has represented an opponent of FDA marketing rules.  “That agency is so vested in its regulatory scheme that they will fight.”  PhRMA filed an amicus brief on Dr. Harkonen's side, calling the case “an unprecedented prosecution of a pharmaceutical executive for expressing in a news release his scientific opinion about the development of a drug to treat disease.

His attorneys contended that the conviction should be reversed because the release “expressed a scientific view” that is protected by First Amendment free-speech rights, the Wall Street Journal reported. Harkonen was also excluded by HHS-OIG, and is appealing that decision as well in the U.S. District Court of Northern California, San Francisco Division.

InterMune, which made Actimmune to treat rare bone and immune disorders, agreed in 2006 to pay $36.9 million to settle U.S. claims it illegally marketed the drug for unapproved uses and caused false claims for reimbursement from government health programs.

Rejecting Harkonen’s First Amendment arguments, the Ninth Circuit upheld his convictions for disseminating misleading information about Actimmune.  “A jury found, beyond a reasonable doubt, that Harkonen issued the press release with the specific intent to defraud, and that finding is supported by the evidence presented at trial,” the court said in an opinion.

Harkonen’s case was closely watched by the pharmaceutical industry. The Pharmaceutical Research and Manufacturers of America, a trade association for drug companies, filed a brief in support of Harkonen’s appeal.

Harkonen will seek review of his case by a larger panel of appeals court judges, his lawyer told Bloomberg.  “The central issue is whether the government may criminally prosecute a speaker for his scientific interpretation of valid study results,” Mark Haddad, his lawyer, said in an e- mail. “The implications of the decision, if allowed to stand, are profound.

First Amendment Analysis

In approaching the case, the Ninth Circuit recognized that the First Amendment does not protect fraudulent speech, so the core constitutional issue in Harkonen’s case is whether the facts the jury found establish that the Press Release was fraudulent.  Accordingly, the Court engaged in a two-step inquiry.

First, the Court sought to determine whether sufficient evidence supported the verdict.  The Court went through the three elements of wire fraud: (1) knowing participation in a scheme to defraud; (2) use of the wires in furtherance of the scheme; and (3) a specific intent to deceive or defraud.  The court noted that the second element was uncontested on appeal and was irrelevant for First Amendment purposes.

For the knowing participation, the Court acknowledged that practically everyone involved in the clinical trial in question testified that the Press Release misrepresented the results.  Based on this and other facts, the Court found this element satisfied.

For the third element, the Court used the same evidence in the first factor, coupled with circumstantial evidence, to show his intent.  “Given his clear financial incentive to find a positive result in the face of GIPF-001’s failure to meet its pre-determined goals,” the court concluded that “the evidence sufficiently supports the jury’s determination that Harkonen had the specific intent to defraud.”

The Court then engaged in an analysis under a 1902 U.S. Supreme Court Case, American School of Magnetic Healing v. McAnnulty, 187 U.S. 94 (1902).  Under this case, Harkonen argued that the Court should reverse his conviction because “genuine debates over whether a given treatment caused a particular effect are outside the scope of the mail and wire fraud statutes.”

First, the court noted that McAnnulty does not categorically prohibit fraud prosecutions for statements about the efficacy of a particular drug; indeed, “[t]hat false and fraudulent representations may be made with respect to the curative effect of substances is obvious.  Here, the government alleged the Press Release contained “false and misleading information” about Actimmune, and the government was permitted to go to trial on that theory.”

Second, Harkonen’s McAnnulty-based argument that his statements were fraudulent only if they were universally considered objectively false “is unavailing,” the Court wrote.  As used in the criminal mail fraud statutes, the term “to defraud” has its commonplace definition and includes any sort of “dishonest method[] or scheme[],” and any “trick, deceit, chicane or overreaching.”

Third, Harkonen’s request that the Court reverse his conviction because he was engaging in a genuine scientific debate “is hardly different than arguing that he is innocent; genuine debates of any sort are, by definition, not fraudulent.”  Here, a jury found, beyond a reasonable doubt, that Harkonen issued the Press Release with the “specific intent to defraud, and that finding is supported by the evidence presented at trial,” the Court wrote.  

It remains to be seen when and whether Harknonen’s appeal will take place—and it is uncertain whether his challenge has any merit.  Now that Par Pharmaceutical has settled their case and dropped their First Amendment challenge, the Caronia decision remains the only positive sign of a shift in First Amendment jurisprudence for industry. 

Caronia and How Settlements May Not Be So Good for Public Health

In a detailed article about the Caronia decision, Scott Gottlieb, MD, a resident fellow at the American Enterprise Institute (AEI) and former FDA official, discussed how the Caronia opinion sheds light on how manufacturers have feared off-label investigations for years.  He explained American medical knowledge is constantly evolving, and medical professionals should be trusted to intelligently weigh available information to properly treat their patients.  

Unfortunately, however, DOJ “threatens to offset the balance of medical information flow through continued expansion in the scope of False Claims Act probes into drug makers that allegedly promote their products for “off-label” uses.  Though objectionable promotion exists, “DOJ investigations rarely—if ever—go to federal court, and instead cause biopharmaceutical companies to clamp down on potentially useful medical discourse for fear of being investigated.”   As a result, DOJ curtails “even lawful information sharing, which in turn threatens to stifle medical discourse and create less-informed doctors and more vulnerable patients.” 

Accordingly, Gottlieb recommended that when pursuing such cases, DOJ should better clarify whether sharing certain types of off-label information is legal and considered appropriate by health authorities, and establish clearer boundaries for distributing medical information. Specifically, to promote the exchange of straightforward, truthful medical information, Gottlieb asserted that DOJ must:  

• encourage more thorough determination of whether alleged off-label information is actually standard medical convention,
• remove the penalty of exclusion from public health programs for corporate integrity agreement companies, and
• establish clearer boundaries for useful medical information sharing.  

While DOJ touts the cumulative amount of money it has recouped for taxpayers as a result of off-label cases, Gottlieb noted that Americans should be asking “whether there are also public health costs in the form of less-informed patients and doctors as a result of this legal wrangling and the ensuing chill that it puts on some useful medical discourse.”  Although this enforcement activity has curtailed a lot of the unscrupulous promotional activity, particularly for big drug makers, and prosecutors’ actions have “played a key role in restraining dodgy behavior that was, at one time, pervasive,” Gottlieb pointed out that “fewer drug makers are committing infractions that, in many cases today, are far less obvious.” 

This is because many of the big drug makers have cleaned up their activities.  They are bent on reducing the chance of incurring the financial and reputational costs of being investigated for alleged violations of government rules that restrict certain kinds of information sharing.  There are still bad actors and cases of questionable activity.  But many of the current investigations regard behavior that occurred a decade ago.

To avoid even inadvertent violations by individual employees, “drug makers are erring on the side of extreme caution when it comes to exchange of information, and curtailing broad areas of communications.”  Taken as a whole, the drug firms have in place today very restrictive procedures meant to prevent allegations of unlawful promotion.   

For example, in some cases, companies will not even share rigorous and peer-reviewed scientific journal articles with doctors for fear that these reprints could contain some off-label information and thus could be used as evidence in investigations brought by prosecutors.  This increasingly cautious behavior by drug makers has, in turn, meant that prosecutors bringing modern-day investigations have had to target more doubtful evidence in the new cases they bring—communications activities where it is murkier as to whether the speech violates FDA regulations.  In some cases, this includes communications  that straddle the line between unlawful promotion and commercial speech that may be legally protected under the First Amendment. 

The result?  There could be some public health downsides to the current probes, and the behavior that they instigate at companies fearful of investigations, and then bent on reducing the companies’ risk under these legal regimes.  Moreover, because these investigations never go to court, the allegations constitute the entire legal action.  As a result, there is never a definitive test of whether the alleged activity is permissible or even appropriate.  Companies are unable to risk challenging the government. 

Aside from the legal fitness of DOJ strategy, there could be a public health price being paid as companies clamp down on all manner of communications, restricting the flow of even clinically useful information at the same time that they shut down the “promotion” that is viewed as questionable or alleged unlawful.  As DOJ reconsiders its tactics and legal policies on the heels of this Caronia defeat, it should consider all of the public health issues that are also at stake. 

“While DOJ attorneys see risk in some of the off-label claims that sponsors have made about products, in other cases, there are equal risks brought about by the suppression of truthful, nonmisleading information.”  This is especially true for fast-moving medical fields in which the state of clinical practice is defined by what is in the academic literature and not necessarily what appears on a drug label.  The issue is whether a more careful approach to how these investigations are brought, and a legal framework that lets these government claims be the subject of occasional challenge, could strike a better balance between restraining objectionable promotion and enabling useful medical discourse. 

Encroaching on Useful Speech? 

The critical question asked by Gottlieb “is whether the sharing of some of this speech helps promote public health goals, and, as a consequence, whether the restrictive practices that drug makers adopt in response to the legal regimes can sometimes cause harm.”  Because of the risk of being investigated, most of the large drug firms now tightly control how they promote their drugs to doctors. 

Drug makers are therefore clamping down on all manner of communications, restricting the flow of even permissible information such as journal reprints—erring on the side of extreme caution and curtailing any practice that could plausibly be invoked in promotion cases.  As the investigations themselves get more expansive and seek to rope in speech that was until that time viewed as permissible, companies must become even more conservative when judging what activities to curtail to stay ahead of the expanding nature of the investigative activity. 

Many observers point to the restrictions that drug firms agree to, as part of settlements with the government, for the self-policing.  In recent years, most big drug makers signed corporate integrity agreements with the government. These legal concessions—made as part of qui tam settlements—are aimed at ensuring future compliance with laws governing off-label promotion.  But the agreements focus on process rather than substance, meaning the agreements do not themselves require a more restrictive approach among companies operating under these schemes. 

Consequently, any “chill” on the exchange of information does not flow from the settlements themselves, but from self-censorship by drug companies bent on avoiding subsequent investigations.  In other words, it is the investigations and the jeopardy they create that has been the major factor in driving behavioral changes.  It is this self-policing—rather than the investigations themselves—that may have adverse consequences for public health considerations.  While prosecutors do not demand many of the most extensive restrictions, the expansive nature of their legal investigations encourages the behavior. 

The risk, in turn, is that the restraint on this communication is leaving doctors less rather than better informed, ultimately making patients more vulnerable.  While drug makers are self-imposing the most restrictive practices, the way the investigations get brought and sanctions that prosecutors are able to threaten drug makers with make the self-censorship a predictable, if not compulsory, response. 

These questions about any potential public health downside to these legal activities get short shrift, but they are worth considering as we take continual steps toward optimizing the regulatory framework that governs pharmaceutical promotion.  For example, consumers and government agencies are increasingly demanding more information about the comparative value of drugs.  Much of this material—when it is generated by the industry—constitutes “off-label” information because the FDA rarely allows comparative claims in its approved drug labeling. To these ends, the existing legal regime may be actively discouraging the generation of the very information that other government agencies are funding and trying to stimulate. 

Today, some drug makers will not even distribute reprints of pivotal studies that appear in leading medical journals if those articles contain any mention of an off-label use of their products.  Much of this discourse involves bottom-line medical data about clinically acceptable uses of drugs.  This includes the studies that formed the basis of the FDA approvals.  Since many studies include doses that do not get into the FDA-approved label, this means that almost any journal reprint could be disqualified. 

All of this also begs the question of whether at least some of this alleged “promotional” activity is legally permissible in the first place.  In recent years, the activity used as evidence of promotion has included advisory board meetings that companies sponsored to share information and get scientific feedback from doctors, sponsorship of medical education, and the sharing of clinical-trial results.  These allegations are complicated by the fact that there is no standard definition of “promotion” in this context.  When this speech is truthful, nonmisleading, and promulgated in an educational context, it is quite possible that the speech would be deemed constitutionally protected by the courts under doctrines that recognize commercial speech as being subject to First Amendment considerations. 

Legal observers across the political spectrum concede that if the FDA were to definitively lose more First Amendment challenges, it could not only curtail the qui tam actions, but also put at risk the agency’s other regulatory prerogatives.  Owing to the FDA’s longstanding concerns around the interplay between its regulatory prerogatives and constitutional protections that are generally afforded to commercial speech, the agency has at times been intentionally ambiguous around its policies regarding certain aspects of commercial speech.  The FDA is generally reluctant to promulgate restrictions in regulation or final agency action that would invite a definitive constitutional challenge to its policies. 

But similar concerns remain largely absent from the qui tam cases.  Prosecutors have grown accustomed to the fact that they are unlikely to face court challenges in these cases.  Therefore, judges and juries do not scrutinize the constitutionality and appropriateness of the speech.  “The legal challenge that is pending in the ninth circuit was not brought by a company involved in a qui tam investigation.  An individual who was the target of a criminal prosecution brought this challenges.” 

Scope of the Enforcement Activity 

Off-label investigations and cases are so successful because of the government’s use of the False Claims Act (FCA), which imposes liability on persons and companies that defraud governmental programs.  The law includes a “qui tam” provision that allows people who are not affiliated with the government to file actions on behalf of the government.  When these “whistle-blowers” file suits under the FCA, they stand to receive a portion (usually about 15 to 25%) of any recovered damages—an inducement for people to come forward with evidence of wrongdoing.  “By one estimate, the government recoups $15 for every $1 spent on civil qui tam cases that it brings.” 

Qui tam suits typically follow a predictable formula: a former employee of a drug company alleging that the manufacturer engaged in deliberate and systematic efforts to promote the off-label use of one or more of the company’s products to physicians.  The employee will normally offer as evidence of the alleged promotion instances in which the company allegedly undertook deliberate efforts to share off-label information with doctors.  This often takes the form of medical education programs, sponsored patient registries, investigator meetings, advisory boards, consulting relationships, and medical literature that companies distributed. 

The allegation is that these activities constituted promotional activity that “caused” doctors to write prescriptions for a particular drug for the off-label use.  This, in turn, triggered Medicare or Medicaid to be billed for applications of the drug that were not approved by the FDA.  As a result, the claim against Medicare for payment on the off-label prescription constitutes the “false claim” against the government, since drug makers are not permitted under federal law to promote their products for off-label uses. 

“While hundreds of such investigations have been brought against drug makers under the FCA, not a single one of these qui tam suits has gone to trial in federal court,” Gottlieb explained.  “This is because the drug makers, for their part, invariably settle these claims,” in order to avoid exclusion—the economic death penalty—allowing   prosecutors to extract a significant financial settlement.  

Given that DOJ knows these cases will rarely be litigated and thus, prosecutors recognize that they will not have to defend their allegations in court, the investigations “are said to generally undergo less rigorous scrutiny inside DOJ.  Prosecutors can take greater license in terms of the scope of evidence that they fold into these cases.”  However, as Gottlieb recognized, “the government cannot afford to exclude a major drug maker from doing business with Medicare since the drugs are vital products in that they could not be denied to Medicare recipients.”  

Nonetheless, the threat of exclusion is a blunt instrument that can be used to extract easier submission in these cases.  In fact, “because the sanctions are so severe and discourage firms from challenging allegations, prosecutors can take the risk of weaving into their allegations alleged speech that might be viewed as permissible, if not useful. Since the allegations do not get litigated, there is limited downside to expanding the scope of the facts that get invoked in these investigations—the investigation generally comprises the entire case.”  

As a result, over time, “there has been a cyclical loosening of the kinds of facts that get introduced during these cases as evidence of promotion—in part driven by an industry that is more cautious (leaving prosecutors with fewer glaring infractions) and also driven by prosecutors that take greater liberties in the allegations they make, knowing that they are unlikely to face scrutiny,” Gottlieb writes.

 The Public Health Dimension 

Drug makers’ self-censorship would present “fewer potential tradeoffs in a world in which the information is diffused easily through other channels, and where the FDA rapidly reviews and approves promising new indications for already marketed drugs to get these claims into product labeling.”  But neither of these latter propositions is generally true, Gottlieb noted. 

“The FDA will often take years to review and approve new indications, even when the clinical trials are completed, using multiple cycles to review applications.  The clinical trials that the FDA often demands require patients to be carefully randomized and placebo-controlled in settings where it is sometimes hard, if not impossible, to get patients to enroll in trials since the study drug is already available to them.  This is especially true for studies targeted to serious diseases like cancer.” 

“For serious conditions, if a drug shows promise and is already marketed for other uses, patients will be reluctant to enroll in studies in which they might get a placebo rather than the active medicine.  For these reasons, the FDA’s requirements sometimes make it unlikely that a drug’s FDA-approved labeling will set forth all that is relevant to the medical community about a drug’s potentially beneficial uses.” 

In view of these facts, the FDA admits that “advances in medical knowledge and practice inevitably precede labeling revision by the manufacturer and formal labeling approval by [the FDA].”  This is one reason why such a high percentage of drug prescribing is for off-label uses.  The American Medical Association estimates that off-label uses account for 40 to 60 percent of all prescriptions written each year, Gottlieb cited. 

“The inherent lag between the development of new science and FDA approval means that physicians are not always able to wait for the issuance of FDA-approved labeling before prescribing a drug.”  Consistent with this reality is the FDA’s policy that “[g]ood medical practice and the best interests of the patient require that physicians use legally available drugs, biologics and devices according to their best knowledge and judgment,” regardless of whether the FDA has approved the drug for that specific use.  The FDA has recognized that in certain situations, off-label uses or treatment regimens may, in fact, constitute “a medically recognized standard of care.” 

The restrictions on off-label use “are premised on a belief that doctors will be misled by the scientific information,” Gottlieb explained.  In highly specialized fields in which communication concerns truthful, nonmisleading scientific material, “physicians should be trusted to properly weigh a wide variety of information.”  In fast-moving fields of medicine such as cancer, where the science and treatment regimens evolve quickly based on advances published in the medical literature, there will inevitably be off-label use of drugs.  “The only question is whether the off-label prescribing will be carefully based on the available science.” 

Drug makers are one of the few groups of actors with the resources to push bottom-line scientific information to doctors.  “In the absence of this activity, patients will be dependent on the doctors’ motivation and time to seek out all this data on their own,” time which very few, if any, physicians have. 

Proposals for Reforming the Process 

There is a real danger that the legal risk created by investigations brought under the FCA, as well as the murky boundaries placed on the kinds of activities that will be invoked as “evidence of promotion” in these cases, “have now transformed the drug industry from one that sometimes violated promotional restrictions into one that now restricts even reasonable, if not important, flows of information,” Gottlieb asserted.  To mitigate this risk and create the right public health balance, there are some steps that the DOJ can take in pursuing these cases to strike a more careful balance. 

First, “DOJ can add to its staff manual for front-line prosecutors a clearer requirement that attorneys more thoroughly check with public health authorities both inside and outside the government as to whether the use of a drug that is alleged to have been the subject of off-label promotion falls within or outside standard medical convention.  If a use is deemed appropriate by health authorities, prosecutors should be asked to apply more scrutiny as to whether pursuing an investigation based on the dissemination of information around the questioned prescribing could be in conflict with broader public health goals.” 

Second, if drug companies agree to cooperate under a voluntary corporate integrity agreement (CIA)—which gives the government greater scrutiny over the companies’ business activities (including marketing functions)—then the government should agree in return to take exclusion off the table as a potential penalty.  If companies agree to voluntarily operate under CIAs in exchange for eliminating the risk of exclusion, the government will gain greater assuredness that firms will not engage in frivolous, off-label marketing owing to the scrutiny that the CIA affords the government. 

“In turn, drug companies would be more inclined to strike a proper balance regarding how they share information with doctors.  They would also be willing to challenge investigations brought based on alleged off-label promotion when the allegations turn on commercial speech that may be constitutionally protected or serve a broader public health interest.  With the risk of exclusion off the table, firms would be able to have their day in court and resolve any lingering legal questions around where the constitutional boundaries rest when it comes to truthful, nonmisleading commercial speech done in an educational context.”  

Third, FDA should establish clearer boundaries on what information it deems useful from a public health standpoint and worthy of being shared, or it should establish those communications that it judges to be outside its legal authority to regulate, such as activities aimed at legitimate medical education.  In the early 1990s, FDA established guidance documents that set forth certain safe harbors that spoke to its aim of enabling certain kinds of commercial communications.  “These documents are now woefully out of date” Gottlieb recognized.  The documents should be updated to reflect changes in the industry’s practices, the impact of the enforcement activity that has unfolded in the intervening years, new vehicles for communicating information, and the influence of recent First Amendment litigation.  “FDA can also establish additional safe harbors, for example, around commercial speech involving comparative effectiveness information targeted at purchasers of health care products such as formulary committees.” 

Finally, “the drug industry needs to be willing to take the prerogative to challenge the facts in some of these cases and have that day in court.”  When investigations turn on the sharing of truthful, nonmisleading information about widely accepted uses of drugs, in fast moving fields like cancer, “there is a legitimate question about whether public health is being served by suppressing this sort of information.”  However, until these cases are challenged in court, there will remain ambiguity around where the appropriate lines rest, what speech is constitutionally protected commercial speech or clearly violative, and how public health is best served. 

In the practice of medicine, treatment decisions are always evolving as a result of the cumulative knowledge available at any given time, which is derived from a mosaic of scientific studies, all of various qualities, content, degrees of rigor, and stages of FDA review.  “We must trust professionally trained adults in the medical community to carefully weigh available information.  Moreover, many patients want to take chances in dealing with vexing conditions that are poorly served by available drugs.”

The Impact of Caronia Case: What Happens Next?

Last month, in a landmark ruling, the United States Court of Appeals for the Second Circuit in United States v. Caronia, vacated the criminal conviction of a pharmaceutical sales representative who was found guilty of conspiracy to introduce a misbranded drug, under the Food, Drug & Cosmetic Act (FDCA), because he spoke about off-label uses of a particular drug.  The court held “that the government cannot prosecute pharmaceutical manufacturers and their representatives under the FDCA for speech promoting the lawful, off-label use of an FDA-approved drug.” 

In a client alert written by the law firm Arnold & Porter, LLP—which are the counsel representing Par Pharmaceutical in their similar First Amendment case—the FDA attorneys noted how the Second Circuit “applied the First Amendment analysis set forth in Sorrell v. IMS Health Inc., a case that Arnold & Porter handled at the trial and appellate stages, including the petition and merits phases in the U.S. Supreme Court.” 

The Caronia court explained “that FDCA prosecutions premised on off-label promotion impermissibly discriminate against pharmaceutical companies based on the content of their speech.  Anyone other than pharmaceutical companies, even individuals or entities outside the healthcare field, may freely discuss off-label uses of approved drugs.  Yet, under the government’s theory of prosecution, the same speech becomes criminal when uttered by pharmaceutical companies – entities who arguably are the most knowledgeable about the drugs under discussion.”  

“The Caronia court ruled that this restriction on the free flow of information not only fails to advance directly the government’s substantial interests in drug safety and public health, but also is far more restrictive of protected speech than necessary to achieve the government’s stated ends. Because the First Amendment bars the government from prohibiting pharmaceutical companies from engaging in truthful and non-misleading speech about off-label uses, the Second Circuit interpreted the FDCA not to prohibit this speech. 

Arnold & Porter wrote that, “This landmark ruling calls into question the core prosecutorial theory used by the government to bring criminal enforcement actions for off-label promotion under FDA’s “intended use” regulations and may also limit the ability of the government and private plaintiffs to argue that off-label promotion leads to the submission of false claims.” 

An article from Forbes maintained that Caronia decision made clear that the government can no longer prohibit and criminalize “truthful off-label promotion of FDA-approved prescription drugs.”  This seemingly eliminates the distinction between misdemeanor and felony misbranding for pharmaceutical drugs: both now require proof that off-label promotional statements are either “false or misleading” or made with “an intent to defraud or mislead.” 

In addition to the Caronia decision, another First Amendment case recently had oral arguments in the U.S. Ninth Circuit Court of Appeals.  Specifically, former InterMune Inc. Chief Executive W. Scott Harkonen is appealing a 2009 wire fraud conviction for a news release that trumpeted the purported survival benefits of Actimmune, made to treat fatal lung disease.  His attorneys contend the conviction should be reversed because the release “expressed a scientific view” that is protected by First Amendment free-speech rights, the Wall Street Journal reported.  Harkonen was also excluded by HHS-OIG, and is appealing that decision as well in the HHS Departmental Appeals Board (DAB).  

The government, which indicted Dr. Harkonen in 2008, maintains in its brief that the First Amendment doesn't bar a “criminal prosecution of false statements with an intent to defraud" just because they "concern scientific matters.”  “It is important to the FDA to preserve the notion that you can't sell a medicine for an unapproved purpose,” said Washington attorney Bert W. Rein of Wiley Rein, who has represented an opponent of FDA marketing rules.  “That agency is so vested in its regulatory scheme that they will fight.”  PhRMA filed an amicus brief on Dr. Harkonen's side, calling the case “an unprecedented prosecution of a pharmaceutical executive for expressing in a news release his scientific opinion about the development of a drug to treat disease.” 

What Now? 

There has been a significant amount of speculation about the potential impact the Caronia decision will have on the Food and Drug Administration’s (FDA) ability to prosecute pharmaceutical companies for off-label promotion, and the subsequent affect this will have on the Department of Justice’s (DOJ) ability to recover large settlements and fines from companies.  There is also speculation about how this case may affect Corporate Integrity Agreements (CIA) that companies are currently under or may be in negotiations for with the Office of the Inspector General (OIG) for the Department of Health and Human Services (HHS).  In addition, decision may also render several guidance documents from the FDA and OIG moot.  Accordingly, this article offers a collection, analysis and summary of various articles that have been written in the weeks following the Caronia decision. 

First, Mit Spears, General Counsel for the Pharmaceutical Research and Manufacturers of America (PhRMA), wrote an editorial—oddly enough in the typically anti-industry Milwaukee Journal Sentinel—applauding the Caronia decision.  He asserted that while critics believe the “2nd Circuit’s decision will undermine the integrity of the FDA’s regulatory processes and leave patients exposed to potentially unsafe products,” “Nothing could be further from the truth.”  

Instead, he maintained that, “The 2nd Circuit's decision protects only truthful and non-misleading speech.  By encouraging regulators to focus on the truthfulness of these communications as opposed to searching for promotional intent behind a company's communication, we can develop clear standards that will reduce regulatory uncertainty and better ensure that physicians receive information critical to protecting patient health and improving health outcomes.” 

Accordingly, the PhRMA General Counsel welcomed the opportunity to work “constructively with the FDA to develop a regulatory paradigm that protects its critical mission and fosters the provision of truthful and non-misleading communications.”  He noted that “as we move into a new health care environment where controlling costs and employing the best possible therapies are paramount, it is even more important to ensure that communications between biopharmaceutical companies and healthcare professionals are robust and timely.” 

“One of the things this decision does is to switch the burden of proof,” Alan Bennett, partner at the law firm Ropes & Gray, and a former attorney in FDA’s Office of the General Counsel, to the PharmExecBlog.  “It’s very easy to say something is off-label.  This decision certainly maintains, as it should, that FDA has the authority to go after false or misleading speech.  But I think it switches the burden of proof, so that FDA has to show that something is false or misleading rather than simply off-label.” 

The decision, however, “does not prevent government regulators from prosecuting other types of misbranding, such as the failure to present fair and balanced information in advertisements, for example,” but if the decision stands – and Bennett says it’s too early to tell how this decision will shake out – it puts an end to the “blanket rule that says: off-label speech is a violation and by itself creates misbranding.”   

The decision “should lead, I hope, to a thoughtful reassessment about the way the regulatory system [for pharmaceuticals] works,” says Bennett. “I do think there’s some information out there that’s outside of the technical four corners of the label that would be useful for physicians to have, and companies have the means to disseminate that information, as long as it’s truthful and not misleading.”   

Indeed, under the “existing rules of the FDA, using comparative effectiveness research (CER) in marketing materials is most often illegal for companies,” says John Kamp, executive director of the Coalition for Healthcare Communication, and a First Amendment advocate, due to the fact that CER is compiled after a drug and its label hit the market. “But it is not illegal for anyone else to use economic studies against companies.”  Bennett offered the example of treatment guidelines, which are “developed independently of companies, sometimes by government…and to say that everybody else can talk about that information, and that it’s good information, but that the company itself can’t talk about it, that doesn’t seem like a great system.” 

Assuming the decision stands, and “drug labels lose their status as preeminent deciders of what in fact is true in relation to a prescribed medicine,” the blog post asked: “How might regulators – and pharmaceutical companies – agree on what constitutes the truth?”  “My guess is, the safest way for the FDA to assess truth would be to begin using the Federal Trade Commission (FTC) standard,” says Kamp.  “It’s safe, because it has been litigated under the First Amendment for 40 years.” 

The FTC’s jurisdiction extends to over-the-counter (OTC) products, and the test it applies to assess whether speech is misleading is “quite a strict one,” says Lee Peeler, president and CEO of the National Advertising Review Council, and the FTC’s former deputy director of the Bureau of Consumer Protection.  “If you conduct a test and find that [commercial speech] is misleading to 20 percent or more of the [targeted] consumers, then that has been held to be actionable under the FTC Act.” 

Further, under the FTC Act, “speech is, per se, misleading if you don’t have competent, reliable scientific evidence supporting the claims that you’re making,” said Peeler.  “You can’t go out and say things in advertisements – for laundry detergent, diapers, OTC drugs, whatever – unless you have good strong viable data showing that the claim as the consumer perceives it, is true.” 

Manufacturers and regulators, however, will likely disagree on what constitutes legitimate, or at least reliable, scientific data.  Peeler said FTC “has a multi-pronged test that it uses to evaluate” the veracity of scientific data.  “One of the key pieces of the test is that the data be of a quality and type that experts in the field would consider to be reliable,” said Peeler.  “In a number of recent cases in the food and dietary supplement area, FTC has required two well-controlled clinical studies for any claims about the effectiveness of a product on the structure and function of the human body.” 

Asked what does or should constitute – or better yet define – truthful versus misleading or false speech in the context of off-label discussions, PhRMA’s EVP and general counsel Mit Spears issued the following statement: “Federal jurisprudence provides a rich body of precedent, drawn from cases arising under the Lanham Act, FTC Act and a host of other statutory and regulatory regimes, that balances the rights of companies to engage in commercial speech with the consumer’s right to receive accurate and truthful information.  As always, PhRMA stands ready to work with FDA to make sure that both patients and health care professionals receive timely and accurate information about medicines, which will improve health outcomes and protect patients.” 

The FDA Law Blog predicted that “industry can expect to see even closer review of criminal charges to ensure there is strong evidence that a company lied about the safety or efficacy of a drug or device, or made mistakes and/or incomplete statements about the product at issue.”  They noted, however, that it “is unlikely that we will see prosecutors bringing criminal charges against companies, and companies willing to pay money, in cases in which there is strong scientific support for an unapproved use of a product, absent clear evidence that there also were false or misleading statements.”   

The Next Step for The Department of Justice 

In an article from Forbes, the author asserted that despite the Caronia opinion, “off-label pharma prosecutions won’t be silenced.”  In fact, she asserted that the decision should not “slow the Justice Department’s off-label investigations and pending settlements, such as the multi-billion-dollar one against Johnson & Johnson for the alleged off-label marketing of Risperdal and other drugs for uses that the Food and Drug Administration hasn’t approved.”  The predictions, however, should be taken with a grain of salt given that the attorney writing the article represented several of the whistleblowers involved in the Caronia case, as well as several other whistleblowers in the Amgen, GSK, and Pfizer settlements.  

The author noted how the court’s opinion indicated that off-label promotional statements may be evidence of the manufacturer’s “intended use” for a drug, and thus support prosecution for “misbranding” violations under the FDCA.  Misbranding under the FDCA is couched in terms of whether the drug’s label is adequate for its “intended use.”

The author argued that while J&J’s case may not be affected by the decision, what will be different about the J&J case and other future off-label cases “is the vocabulary used in describing the violations.”  Expect to hear the term “misbranding” being emphasized more than “off-label,” and “intended use” replacing “promotion” in supporting the misbranding charges brought by the government. 

“This shift in vocabulary is already evident in the DOJ’s recent press releases announcing misbranding (née off-label) settlements,” the article explained.  DOJ chose its words carefully in its post-Caronia announcement of the Amgen settlement on Dec. 19, explaining that “it is illegal for drug companies to introduce into the marketplace drugs that the company intends will be used ‘off-label,’ i.e., for uses or at doses not approved by the FDA.” 

In comparison, DOJ’s pre-Caronia announcement of GlaxoSmithKline’s $3 billion settlement described the basis of illegality somewhat differently:  “Promotion by the manufacturer of other [unapproved] uses – known as ‘off-label uses’ – renders the product ‘misbranded.’ 

Another article explained that if the Caronia opinion stands, “the inevitable outcome should be a guidance document from FDA that lays out the parameters of a true First Amendment “safe harbor,” i.e., one in which truthful, accurate and non-misleading off-label speech under certain circumstances will not be used as evidence in a misbranding prosecution.”  However, such guidance is “a long way off.” 

The article, authored by Jose P. Sierra, at attorney at Fish & Richardson PC, noted how even though the court held for the first time that truthful off-label speech is protected under the First Amendment both the majority and dissent wre in agreement on one important point:  “the Feds have a substantial (maybe even compelling) interest in ensuring that manufacturers don’t evade the the FDA drug approval process and seek FDA approval for new indications.” 

Sierra pointed out that “the majority didn’t reject the Government’s argument that it could use truthful off-label speech as evidence of intent to sell off-label — it merely held that such speech can’t be the only evidence of such intent — and offered no protection for off-label speech that isn’t truthful, accurate and non-misleading.”

In response to the Caronia holding, Sierra noted that Par Pharmaceutical—who is in ongoing litigation over a similar First Amendment claim regarding off-label speech—filed “yet another stay with the D.C. District Court.”  Although Caronia has almost certainly strengthened Par’s negotiating hand, Sierra noted that “if the parties settle, we may never learn how much the Government gave up as a result of the constitutional challenges”—as was the case a few years ago when Allergan filed  a First Amendment suit, but agreed to drop it as part of its $600 million settlement with the Government. 

“It would indeed be disappointing if the Government settles quietly with Par, confines Caronia to the boundaries of the Second Circuit, and conducts business as usual — betting that most companies either won’t file a First Amendment challenge or will just use the First Amendment as leverage to get a better deal,” Sierra wrote.

One option that many FDA lawyers predict is that the Government will not appeal the Caronia decision and risk a worse ruling from the Supreme Court.  But until the government makes clear its position, Sierra maintained that “most manufacturers will continue to institute policies, practices and controls that steer clear of the Government’s reach.” 

Ultimately, Sierra maintained that the government “should accept the Caronia decision and use it to draft a guidance document that would provide manufacturers with a meaningful First Amendment safe harbor — unlike the widely (and rightfully) criticized guidance document on “Responding to Unsolicited Requests for Off-Label Information” it issued a year ago.  Such a “guidance document could start with the simple proposition that accurate, truthful and non-misleading off-label speech that is reviewed and approved by a manufacturer’s ‘promotional materials review committee’ for accuracy, truthfulness and fair balance will not be used as evidence of intent to distribute/sell off-label, especially where the off-label use is medically accepted (as evidenced by inclusion in recognized medical compendia) and reimbursed by Medicare, Medicaid and/or other federal healthcare programs.” 

Off-Label, Not Off-Limits: The Need for a Safe Harbor 

In another article published by the Manhattan Institute, Paul Howard and James Copeland asserted that in light of the Caronia decision, “FDA needs to rethink its off-label speech regulations, which have become overly broad and unnecessarily opaque.”  Specifically, the authors call on FDA to adopt a “safe harbor” to allow drug companies to communicate truthful information about off-label drug use to physicians in order “to improve medical research and public health by increasing learning about what happens after drugs are licensed and making the best use of pharmaceuticals on the market.” 

The big problem, from a public health perspective, “is that doctors often lack adequate information about off-label drug use because those best-positioned to inform them about the benefits and risks associated with such uses—the drug manufacturers themselves—are effectively precluded from doing so by the FDA.”  FDA “is all for a robust exchange of scientific information between a drug or device company and the research and patient community,” and has even recognized that companies often have the most up-to-date information on a drug’s risks and benefits.  However, FDA draws a line: companies can “share only ‘scientific’ information, not ‘promotional’ information.”   

The line between promotion and scientific, however, can be “blurry” and “ignores the fact that much information about a product's potential uses (both from a safety and an efficacy perspective) evolves when patients and physicians experiment with FDA-approved medicines outside of the constructs of clinical trials and science journals.”  For instance, companies must tell patients and doctors about safety issues related to off-label uses when it learns about them.  

But FDA won’t let companies talk about the efficacy of off-label drug use because that would be “promotional.”  For example, FDA would not let Allergan warn doctors that a commonly used dose of its cosmetic drug Botox, used off-label for juvenile cerebral palsy, was likely too high for that patient class, because it would have implied that the lower dose was safe and effective—a judgment that the FDA didn’t want to endorse. Instead, the FDA would allow only a much more generalized—and potentially less effective—warning regarding all juvenile uses. 

The 1997 FDA Modernization Act (FDAMA), and implementing regulations, authorized companies to communicate scientific information on their medicines by distributing independent articles from medical journals.  However, since companies sponsor “the lion’s share of all drug research, much of the relevant literature will be disqualified by the FDA’s rules.  Even those articles that make the cut may be months or years behind the latest research and may touch only a small fraction of what a company may know about the off-label uses of its products.” 

In addition, individuals attending scientific conferences who ask companies about off-label uses cannot receive an answer in a room full of other individuals—even when the answer would interest everyone in the room.  Instead, the researcher will tell you to wait for a sidebar and then convey the information to you one-on-one because if “the researcher communicates to the broader audience, the government might deem that promotional.”   

“Ironically, patients, doctors, insurers, and government researchers are free to say whatever they want about off-label uses—even to the point of saying that generic X is a better off-label treatment than branded drug Y—but the company isn't allowed to enter into that debate or dialogue.  In practice, companies face a minefield without a map.”  

“Companies such as Par Pharmaceuticals are even worried about talking to doctors about on-label indications, such as AIDS-associated wasting for one of their drugs, because so many doctors use the drug off-label for cancer.  Just explaining the drug’s ability to stimulate appetite to a doctor who also treated cancer patients might, in itself, be evidence of the company's ‘intent’ to misbrand the drug and set the company up for government civil or criminal action.” 

The most serious consequence of FDA’s onerous limitations on off-label drug promotion, amplified by the heavy hand of federal criminal law, is “the regime’s adverse impact on public health.”  The authors maintained that “limiting companies’ ability to communicate with doctors about new advances in medicine serves patients poorly.”  The American Medical Association (AMA) has called for streamlining the process for adding new indications to a drug's FDA-approved label, which would ameliorate the economic calculus that leads companies to forgo the multiyear, exceptionally expensive “supplemental new drug application” process for gaining a new label indication under current FDA guidelines. 

While streamlining may take years, the authors suggest scientific knowledge be captured and disseminated through a “safe harbor” on off-label drug use and promotion that recognizes that patients and physicians are collaborators in developing information on when a drug works (or doesn't work), and for whom.  Under such a safe harbor, “FDA would give companies the ability to communicate truthful science-based off-label information about their products to the physician community.”  

However, companies would also be required to share comprehensive data on safety and efficacy for off-label uses with researchers, regulators, and insurers, who can then mine the information to rapidly validate emerging uses for established therapies.  Instead of calling them off-label uses, they could be referred to as “emerging uses” the authors suggest. 

The physician community is highly trained and sophisticated, and a supplemental warning accompanying such information—emphasizing that the use in question is not FDA-approved and that safety and efficacy information is still emerging from additional research—should enable physicians to evaluate the information with due skepticism.

Ideally, FDA would couple the safe harbor with a streamlined FDA system for adding (or removing) new label indications, including information for specific subpopulations of patients.  This would provide a valuable tool for researchers and patients looking for objective information on new treatments as well as repurpose older medicines for new uses. 

In the end, the authors assert that FDA “needs to allow those with the greatest knowledge of—and greatest incentive to disseminate information about—medical advances to communicate with prescribing physicians.”  They noted that “Americans should be concerned that they may not get the medicines they need because their physicians are unaware of new medical applications that may help them, due to the heavy hand of federal criminal law discouraging truthful speech.”  

Ultimately, “We shouldn't be telling companies to shut up when what they have to say can save lives—a message that Congress and the FDA should embrace.” 

Future Legal Status of Caronia 

As explained by the FDA Law Blog, the government has a few options for handling the Second Circuit’s decision.  The government could petition the Second Circuit for a rehearing, or a rehearing en banc, or both.  Rehearing is generally disfavored, and will not be ordered unless “en banc consideration is necessary to secure or maintain uniformity of the court’s decisions; or . . . the proceeding involves a question of exceptional importance.”  Should the government proceed with a rehearing, it must file its petition within 14 days after the entry of judgment, which occurred on December 3, 2012.  Therefore, the deadline for this petition is December 17, 2013. 

Alternatively, the government may petition for writ of certiorari to the United States Supreme Court.  A writ of certiorari is not a matter of right, but of judicial discretion, and the Court may consider granting certiorari if a “Circuit Court decision conflicts with that of another Circuit Court on the same ‘important matter.’”   

The petition must be filed with the Supreme Court clerk within 90 days of entry of the judgment.  Therefore, if no petition for rehearing or rehearing en banc is filed, the government must file a writ of certiorari by March 4, 2013.  If the government petitions for a rehearing and/or en banc, then the time to file a writ of certiorari is 90 days from the date of the denial of the rehearing.  Even if the Supreme Court grants review, it may dispose of the case by summary affirmance or reversal, or by simply vacating the judgment below and remanding for further proceedings.

 

The Supreme Court and "Pay for Delay:" The Potential Impact on Pharma

In early December of last year, the U.S. Supreme Court agreed to hear a case to decide whether agreements between brand-name pharmaceutical companies and generic makers to delay the entry of generic drugs to the market—so called “pay for delay” deals—violate antitrust laws.  “In a typical case, a generic rival challenges the patent of a brand-name competitor, which then pays the rival a sum of money to drop its challenge,” reported Reuters.  

Patents on drugs can last as long as 20 years and drug companies can sometimes extend the protection for their products by obtaining separate patents for a coating or a slightly different product that includes inactive ingredients. 

In 1984, Congress passed the Hatch-Waxman Act to help speed the introduction of low-cost generic drugs to market.”  The legislation encouraged generic makers to contest the extended patents for costly drugs because typically, “when a generic firm puts a copycat version on the market, the price for the drug immediately drops about 30%.  When more than one generic maker is competing for sales, the price of the original brand-name drug can fall as much as 90%.”  As a result, the maker of a brand-name drug has a huge incentive to try to preserve its monopoly as long as possible. 

Under the Act, the first company to win UFDA approval to sell a generic drug before the underlying patent expires has a 180-day exclusive right to market that product.  This incentive, however, has created “lengthy legal battles over the validity of a drug’s patents.”  Accordingly, lawyers for the brand-name makers got clever and “decided that it often made sense to settle the litigation by paying the generic firm not to enter the market for several months or years.” 

As the Los Angeles Times noted, several federal courts in the last decade “have upheld such agreements on the grounds that they are settlements of disputes over patents.”  The FTC case will be decided by an eight-member court.  Justice Samuel Alito recused himself, without giving a reason.  Oral arguments will be in the spring, with a decision expected by the end of June.  

The Federal Trade Commission (FTC), however, has been challenging these agreements as illegally stifling competition and preserving monopolies.  Last year, FTC said that 28 such deals were made, and between 127 of such arrangements were struck between 2005 and 2011, at an annual cost to consumers of $3.5 billion in artificially higher prices.  “When drug companies agree not to compete, consumers lose,” FTC Chairman Jon Leibowitz said.  FTC added that generic-drug makers in the 1990s and early 2000s won about 75 percent of the patent suits that have been litigated to final judgment.  

FTC and several other agencies have called on Congress to pass legislation that would prohibit or severely restrict such deals.  For example, in November 2011, the nonpartisan Congressional Budget Office (CBO) said a U.S. Senate bill to ban reverse payments would save the government $4.79 billion and lower U.S. spending on prescription drugs by $11 billion over a decade.  The bill – S.27: Preserve Access to Affordable Generics Act – would modify how FTC conducts enforcement proceedings against parties to an agreement to settle a claim of patent infringement in specific cases.  Under the bill, certain settlement agreements between drug companies would be presumed anti-competitive and unlawful; they would only be allowed if the parties can demonstrate by clear and convincing evidence that the pro-competitive benefits of the agreement outweigh the anti-competitive effects of the agreement.  

The agreements affected by the bill are ones in which the manufacturer of the generic version of the drug receives anything of value from the manufacturer of the brand-name drug and the generic drug manufacturer agrees to limit or forgo research, development, manufacturing, marketing, or sale of the generic drug for any period of time.  The bill, however, would permit a brand manufacturer to grant certain types of consideration to the manufacturer of the generic version of the drug under settlement agreements. Such exemptions include the right to market the generic drug before the expiration of patents or other statutory restrictions that aim to prevent such marketing. The legislation also would allow FTC to establish additional exemptions through rulemaking procedures. 

In addition, Attorneys general from 31 states have joined the FTC in urging the Supreme Court to review the legality of — and halt — generic and brand-drug makers’ pay-for-delay agreements by overturning an 11th Circuit Court’s decision that upheld the legality of reverse patent settlements.  The states said the court should take up the issue to resolve a lower-court split that has spurred industry uncertainty.  In addition, the American Medical Association took a different stance recently, voting at its semiannual policy-making meeting to back ending the practice of pay-for-delay settlements. 

“The federal antitrust laws flatly prohibit potential competitors from forming naked agreements not to compete,” the FTC said in a petition it filed with the Supreme Court.  The pharmaceutical industry has argued that “the patent settlements are good for competition because they allow generic drugs on the market before the patent expires on a branded drug, while removing the uncertainty of litigation for both sides,” the Wall Street Journal reported. 

 “At the most fundamental level, a patent owner has the right to defend a valid patent, and settlements are a tool that can allow this to happen without the burden of engaging in a costly, extensive legal battle,” said Matthew Bennett, vice president of the Pharmaceutical Research and Manufacturers of America (PhRMA). 

“The deals also are referred to as reverse-payment agreements because the patent holder pays the generic firm not to sell the generic version for a set period of time.  That’s the reverse of the typical situation in which a patent holder wins damages from the violator, either in court or in a settlement,” the LA Times noted. 

Politico reported that “Both the generic and name-brand pharmaceutical industries defend the settlements … [because] the deals are an efficient and, from a business perspective, predictable alternative to the uncertainty about expensive patent lawsuits fought to the bitter end.”  The drug industry argues that in all cases, “generics come on the market before the original patents expire and sometimes sooner than they would have even in the case of a successful patent challenge.” 

Generic drug makers say that the payments preserve a system that has saved American consumers hundreds of billions of dollars.  “This case could determine how an entire industry does business because it would dramatically affect the economics of each decision to introduce a new generic drug,” Ralph G. Neas, president of the Generic Pharmaceutical Association, said in a statement to the New York Times.  “The current industry paradigm of challenging patents on branded drugs in order to bring new generics to market as soon as possible has produced $1.06 trillion in savings over the past 10 years.” “The facts are clear. Patent settlements save. They are pro competition, pro-consumer and have saved consumers and taxpayers billions of dollars.” 

FTC v. Watson 

The Supreme Court said that it would rule early next year on whether a deal between the Abbott Laboratories unit Solvay Pharmaceuticals Inc. and Watson Pharmaceuticals Inc. could be challenged under federal antitrust laws.  FTC alleges that Solvay entered into anticompetitive patent settlements with Watson and generic-drug makers Par Pharmaceutical Cos. and Paddock Holdings Inc. to delay the introduction of a generic competitor to the testosterone-replacement drug AndroGel.  The court will also hear two similar cases.   

The drug generated nearly $875 million in sales last year.  Solvay agreed to pay more than $19 million a year to Watson to help market the drug in return for Watson’s promise not to introduce a competitive pill until 2015.  Solvay’s patent had expired.  Reuters reported that annual payments from Solvay ranged from $31 million to $42 million, and were intended to help Solvay preserve annual profits estimated at $125 million. 

The U.S. 11th Circuit Court of Appeals in Atlanta decided that the pay-for-delay agreement over AndroGel did not constitute an illegal restraint of trade.  The court ruled for the brand-name “drug makers, saying a patent is a government-granted monopoly that allows a drug company to exclude competitors from using the patented invention.”  This was the third time since 2003 a federal court has upheld such agreements—doing so “as long as the allegedly anticompetitive behavior that results — in this case, keeping the generic drug off the market — is the same thing that would take place if the brand-name company’s patent were upheld.”  The other cases were in the Federal Circuit and the Second Circuit. 

The generic-drug companies in 2003 asserted in filings with the Food and Drug Administration (FDA) that their proposed generic versions “wouldn’t infringe Solvay’s AndroGel patent and argued that the patent was invalid.  Patent-infringement litigation between the companies was pending in federal court when the sides agreed to the settlements in 2006,” WSJ reported. 

“The FTC said Solvay bought itself years of drug exclusivity by paying the generic-drug makers tens of millions of dollars annually to stay out of the market until 2015, by which time Solvay planned to shift patients to a new drug with no generic equivalent.”  The agency said that if the patent litigation hadn’t been settled, Solvay likely would have lost in court, which would have cleared the way for the generic-drug makers to move forward with less-expensive AndroGel copycats. 

“Solvay and the generic-drug makers said the 2015 market-entry date provided by the settlements was five years earlier than when the Solvay patent expired. The generic-drug companies said there was no guarantee that they would have won a court fight.  Solvay said the money it agreed to pay in the settlement was for marketing and manufacturing services provide by the generic-drug companies.” 

The FTC’s position “would have a tremendously detrimental impact on the availability of generic alternatives in the marketplace,” generic-drug maker Watson Pharmaceuticals Inc. said in a brief it filed with the court.  “Solvay agreed to less exclusion than it lawfully and realistically might have obtained in the exercise of its constitutionally protected right to assert its patent reasonably,” the Abbott unit argued in court papers reported by Bloomberg News.  The companies say the payments were compensation for services to be provided by the generic-drug makers, including Watson’s marketing of Androgel to urologists. 

The FTC says it has less concern about settlements that set a date for generic entry without involving a payment, accords the agency says may simply reflect the prospects of success in the infringement case.  A reverse payment, by contrast, “is most naturally understood as consideration for the generic manufacturer’s agreement to delay market entry,” the FTC said.  

Other “Pay for Delay” Cases  

Although the 11^th Circuit upheld the reverse payment agreement, the U.S. 3rd Circuit Court of Appeals in Philadelphia took the opposite view in a case involving K-Dur, a drug used to treat a potassium deficiency.  The court ruled in July 2012 that “drug-patent settlements are legally suspect unless the drug makers involved can show that such agreements are good for competition.  The decision revived a class-action antitrust lawsuit challenging an agreement between a Merck & Co. unit and a generic-drug maker that delayed a competing generic version.  Upsher-Smith Laboratories Inc was paid more than $60 million, court records show.   

A client alert from Arnold & Porter LLP gives an in-depth summary and analysis of the case.  According to the alert, the court held that “although such settlements are not illegal per se, they are presumptively unlawful under the rule of reason. In so doing it rejected the approach adopted by the Second, Eleventh, and Federal Circuits, all of which have held that a settlement that does not restrain trade beyond what would result if the patent holder won the litigation is not unlawful, regardless of the existence of a reverse payment. 

The Third Circuit rejected the drugmakers’ “scope of the patent test” argument in the case and said that any form of payment flowing from the patent holder to the challenger who agrees to delay market entry was an "unreasonable restraint of trade.”  Senator Charles E. Grassley, an Iowa Republican who co-sponsored the Senate bill noted above, which never came to the floor for a vote, praised the decision.  “The split between the circuits set the stage for the high court to intervene (FTC vs. Watson Pharmaceuticals),” the LA Times noted.  In August, Merck & Co. asked the Supreme Court to review that case. 

“This case presents one of the most significant unresolved legal questions currently affecting the pharmaceutical industry: what is the appropriate antitrust standard for evaluating settlements of patent litigation between brand manufacturers and generic manufacturers, where the settlement includes a payment from the brand manufacturer to the generic manufacturer?” Merck lawyers wrote at the time.  

“That question has been percolating in the lower courts for more than a decade. Until the decision in this case, the courts of appeals had consistently held that the federal antitrust laws generally permit a settlement that includes a payment from the brand manufacturer to the generic manufacturer, as long as the settlement does not exclude competition beyond the scope of the patent. The Third Circuit’s decision in this case dramatically departs from the prevailing view,” Merck lawyers wrote in their brief. 

In an amicus brief written by PhRMA, the trade group asserted that “By restricting the ability of innovator companies to manage risk and avoid the costs and uncertainty of litigation, the 3rd Circuit’s rule dramatically diminishes incentives for innovation and product development,” the trade group argued. 

A similar case is pending before the California Supreme Court.  The state attorney general’s office intervened in a lawsuit against Bayer over a deal to delay a generic version of its Cipro antibiotic drug.  "During its monopoly period, a single Cipro pill costs consumers upward of $5.30, while with generic competition, the same pill should have cost only $1.10,” the state said. 

Authorized Generic Deals 

Adding into the mix of pay for delay deals, a New Jersey court recently threw out an antitrust lawsuit against Teva and GlaxoSmithKline, “ruling that patent settlements that involve authorized generic (AG) agreements are not illegal.  An AG is a drug that is chemically identical to the branded drug but sold as a generic product.  As noted by a recent client alert from Arnold & Porter, the “FTC has devoted considerable effort to analyzing the competitive implications of AGs in the pharmaceutical industry,” including a multi-year study of the issue and releasing an extensive report of its findings in August 2011, concluding that the launching of AGs can reduce both retail and wholesale drug costs 

Authorized generic deals would not be considered “reverse payments” under the 3rd Circuit’s July K-Dur decision, says the district court, which falls under that circuit’s jurisdiction.  A post from the FDA Law Blog provided a good analysis of this case, which may find itself in the mix of pay for delay decisions. 

The New Jersey case was brought against GlaxoSmithKline (“GSK”) and Teva Pharmaceutical Pharmaceuticals, (“Teva”) by direct purchasers of certain anti-epileptic drug products containing the active ingredient lamotrigine and marketed by GSK as LAMICTAL.  “The direct purchaser plaintiffs allege that GSK and Teva violated Sections 1 and 2 of the Sherman Act when they entered into an agreement providing, among other thing, that GSK would not market an authorized generic version of Lamictal Tablets and Lamictal Chewables, and that such agreement was well beyond the exclusionary scope of a now-expired patent listed in the Orange Book for GSK’s lamotrigine drug products and constitutes a naked market allocation agreement.”  

According to the post, “GSK and Teva each filed a Motion to Dismiss the case arguing that there was no reverse payment, but only a negotiated early entry date for marketing the generic LAMICTAL drug products.  FTC, whose motion to file an amicus brief in the case was granted, took the position that a branded drug company’s commitment, as part of a drug patent settlement agreement, not to launch an authorized generic to compete with a generic version of the product approved under an ANDA – a “no-AG” agreement – constitutes a “payment” under the Third Circuit’s K-Dur decision.” 

In an unpublished decision handed down just one day before the U.S. Supreme Court decided to hear the ANDROGEL drug patent settlement agreement case, Senior District Judge William H. Walls granted GSK’s and Teva’s Motions to Dismiss the case on the basis that a “drug patent settlement agreement based on negotiated entry dates is not subject to antitrust scrutiny.”  “Judge Walls’ decision turned on the interpretation of what constitutes a “payment” under the Third Circuit’s K-Dur decision.  “The Court finds that the term ‘reverse payment’ is not sufficiently broad to encompass any benefit that may fall to Teva in a negotiated settlement.  The Third Circuit’s K-Dur opinion is directed towards settlements when a generic manufacturer is paid off with money, which is not the case here,” wrote Judge Walls.   

The FDA Law Blog explained how the opinion discussed four separate bases supporting his decision: “a careful reading of K-Dur shows that the Third Circuit contemplates a cash payment when it uses the term ‘reverse payment,’” the lack of any case in which a drug patent settlement agreement without a cash payment was subject to antitrust scrutiny, and that the lamotrigine agreement actually created generic competition sooner than otherwise would have occurred had Teva not challenged GSK’s patent. 

The lamotrigine case is the second case in which the FTC has expressed concern that a “no-AG” agreement constitutes a “payment” under the Third Circuit’s K-Dur decision.  In August, the FTC sought leave to file an amicus brief in private antitrust litigation pending in the U.S. District Court for the District of New Jersey before Judge Joel A. Pisano concerning Wyeth Pharmaceuticals Inc.’s anti-depressant drug EFFEXOR XR (venlafaxine HCl) Extended-release Tablets.  Judge Pisano denied the FTC’s motion for leave to file its  amicus brief.  The case has been stayed pending the conclusion of the proceedings in the U.S. Supreme Court in In re K-Dur Antitrust Litig.   

Another AG case was also announced last fall, in which the FTC has moved for leave to file an amicus brief in US District Court in New Jersey in In re Effexor XR Antitrust Litigation, arguing that a branded company’s commitment not to launch an AG in competition with a generic company (a “no-AG commitment”) as part of a patent settlement constitutes a “payment” for delayed generic entry under the Third Circuit’s decision in In re K-Dur Antitrust Litigation adopting the FTC’s position on the standard for antitrust review of pharmaceutical patent settlements.  The Arnold & Porter client alert noted above gives an in-depth analysis of this litigation and its potential impact. 

In the end, the law firm recommend that pharmaceutical companies “closely scrutinize the antitrust implications of proposed agreements involving patents” because “Patent licensing agreements may soon be subject to more inclusive rules requiring a larger number of such agreements to be considered asset acquisitions subject to the filing requirements of the HSR Act.” 

Moving Forward 

In light of the recent case law in this area, the law firm of Arnold & Porter wrote a detailed client advisory explaining some of the implications these cases and FTC action may have on the pharmaceutical industry.  For example, the advisory notes that on August 13, 2012, the FTC made public a proposed rule to amend the Hart-Scott Rodino (HSR) premerger notification rules that would increase the number of pharmaceutical patent licensing agreements that would be subject to pre-consummation filing and review. 

 The HSR Act and its implementing rules require that certain mergers and acquisitions be filed with the FTC and the Antitrust Division of the Justice Department and that the parties observe a waiting period prior to consummating the transaction.  Previously, the FTC stated in guidance that the grant of an “exclusive” patent license (that is exclusive against the licensor and all third parties, i.e., not subject to preexisting licenses) is a potentially reportable asset acquisition under the HSR Act and rules.  The FTC’s proposed revisions to the HSR rules, however, “would change this standard—though only for licenses relating to pharmaceutical patents.” 

Under the proposal, a transfer of “all commercially significant rights” to a pharmaceutical patent—defined as including biologics, in-vitro diagnostics, as well as pharmaceuticals9 —is reportable if it otherwise meets the HSR Act’s size-of-transaction and size-of-person thresholds.  The FTC defines “all commercially significant rights” as “the exclusive rights to a patent that allow only the recipient of the exclusive patent rights to use the patent in a particular therapeutic area (or specific indication within a therapeutic area. 

A transfer of “all commercially significant rights” occurs even if the patent holder retains the right to manufacture solely for the rights recipient (licensee) or retains rights to assist the recipient in developing and commercializing products covered by the patent (so-called “co-rights”).  “Thus, an agreement under which the patent holder grants an exclusive license to make and use products for cardiovascular use under a patent and retains the rights to manufacture such products solely for the licensee could be a reportable transaction (subject to satisfying other aspects of the HSR reportability test), even if the patent holder retains the right to manufacture products for third parties in other therapeutic areas.”

FDLI: Insights in Enforcement, Litigation & Compliance for Pharmaceutical and Medical Device Manufacturers

Last week, we were fortunate enough to attend the Food and Drug Law Institute’s (FDLI) Enforcement, Litigation & Compliance conference, hosted in Washington, DC.  The two-day conference and agenda was packed with extremely informative topics, and included an astounding number of high-level government officials from the Food and Drug Administration (FDA), the Department of Health and Human Services (HHS) Office of the Inspector General (OIG), the Department of Justice (DOJ), and several other related offices.  

Below is a summary of some of the panels we attended, quotes from participants, and some overall analysis and commentary.  It should be noted that all participants from the government spoke on their own behalf and were not speaking on behalf of their respective agencies. 

New Faces of Enforcement 

The first panel of the conference included some of the top officials in food and drug law and healthcare enforcement.  The panel, moderated by Eugene M. Thirolf, former Director of the DOJ Consumer Protection Branch, consisted of:  

• Michael S. Blume, Director, Consumer Protection Branch, U.S. Department of Justice
• Gregory Demske, Chief Counsel to the Inspector General, HHS-OIG
• Joseph Rannazzisi, Deputy Assistant Administrator, Office of Diversion Control, U.S. Drug Enforcement Administration (DEA)
• John Roth, Director, Office of Criminal Investigation, FDA 

Greg Demske spoke first, nothing that although OIG will not make any major changes to its enforcement priorities, there will be different approaches to the way OIG approaches cases.  He mentioned the need for change given the continuously large settlements, questioning whether OIG and healthcare law enforcement is doing enough.  Demske assured the audience that OIG will continue to work closely with industry to engage in a productive dialogue, promote voluntary compliance, and to identify best practices for compliance and fighting healthcare fraud and waste.  He noted that OIG will hopefully continue to engage industry like it has in the past year, with more industry roundtables. 

Demske did emphasize that OIG will “focus on individuals and the decisions they are making,” in reference to DOJ’s more recent focus on the Park doctrine, and OIG’s use of convictions under that doctrine to exclude individuals.  In making this remark, he explained to the audience OIG’s exclusion authority, the differences between mandatory and permissive exclusion, and discussed the Synthes and Purdue Pharma cases.  Demske also discussed the use of corporate integrity agreements (CIAs), and how OIG decides whether to waive exclusion in order for the company or entity to enter into a CIA.  In referencing the Purdue case, he noted how the D.C. Circuit court denied the executives request for a hearing en banc (all judges of the court), leaving the executives with only the option of petitioning the Supreme Court for a writ of certiorari.   

Finally, Demske discussed GlaxoSmithKline’s (GSK) recent CIA with OIG, and the new provisions addressing the “Patient First Program” and the “claw back” provisions for executive compensation and bonuses.   

Joseph Rannazzisi gave the next presentation, which focused primarily on the tremendous public health concern our country is facing regarding opioids and other pain killers.  His animated presentation gave useful data and insight into the tremendous extent of this problem and the harmful effects it is having on our healthcare system and as well as the costs.  He gave an overview of how the DEA operates and its legal authority and jurisdiction under the Controlled Substances Act (CSA), and his agency’s work with DOJ, FBI, and other federal healthcare law enforcement.  He also discussed several cases, including one in which individuals were driving from Massachusetts all the way to Florida to get opioids.   

Next, John Roth gave a presentation on FDA’s Office of Criminal Investigations (OCI).  He gave a broad overview of OCI’s mission and explained the nature of their work and gave some examples of recent actions and cases.  OCI mainly deals with injunctions, seizures and criminal enforcement of the Food, Drug & Cosmetic Act.  OCI works with DOJ and other law enforcement to protect the public health and has highly trained investigators help carry out its work.  OCI works closely with the centers at FDA (e.g. CDER, CDRH) to get information about where its enforcement priorities should be and where to investigate.   

OCI has recently handled the counterfeiting of Avastin.  OCI is also responsible for investigating companies that may have committed clinical trial fraud or made misrepresentations to FDA in their product application or required post-market reporting.   

Finally, Michael Blume discussed DOJ’s enforcement priorities and how his office handles cases.  The Consumer Protection Branch (CPB) is involved in all cases involving the FDCA and is largely involved in many of the off-label promotion cases we have written about frequently.  Blume noted that his office is working in an environment of limited resources, but nevertheless, uses data from various sources to help determine a proactive approach at purusing cases.  He said that CPB is reaching out more aggressively to stakeholders in the industry and consumers, and looking for cases that will change the behavior of industry and have a larger impact on stakeholders, rather than just looking for only big money settlements.   

Blume noted that his office is being more transparent about the facts of each case and the unlawful conduct that occurred so the office can send a message or signal to everyone else.  In other words, those facts and unlawful conduct made public are a sign for companies to know that they may get a knock on their door if similar conduct occurs in their business.  Finally, Blume also noted CPB’s look into requiring more compliance, despite OIG’s role.  He noted that his office is working with OIG and having discussion about ways to hold companies responsible and the right factual circumstances to include enhanced penalties such as required compliance that is separate and additional to a CIA. Blume also noted that CPB is seeing more medical device cases, involving defects or failure to make required reporting, and that this may be a growth area for the office.   

Compliance Central with FDA Center Compliance Directors 

This panel included some of the top officials from all of FDA’s Centers, including drugs, devices, biologics, foods, tobacco and veterinary medicine.  A good amount of discussion from CDER focused on the new authorities under the Food and Drug Administration Safety and Innovation Act (FDASIA) regarding the drug supply chain.  Douglas Stearn discussed the new office in CDER that deals with drug supply chain issues and counterfeiting, and also discussing a new trend in enforcement letters from FDA dealing with current good manufacturing practices (cGMP) violations.   

In response to a question about why FDA sent a cGMP warning letter directly to a CEO or senior level officials, Stearns noted that the agency did so because quality control is a corporate commitment that FDA believes needs to be taken seriously by senior management.  He noted how quality control is now an aspect of the company that is integreated, and also a lot of outsourcing, so it is important that someone is held accountable.   

The CDRH presentation also included a very interesting discussion of new programs the center is working on such as the Single Audit Program and the Case for Quality Initiative. 

Advanced Applications Panel 

This panel consisted of Jill Furman, Deputy Director of CPB, and two defense attorney’s who represent pharmaceutical companies and/or their executives.  This panel was very informative in that it traced some of the steps the government goes through in deciding to bring a case for an alleged FDCA violation.  First, Ms. Furman noted that a large number of cases that CPB handles come from qui tam relators or “whistleblowers.”  Under the Qui Tam statute, the government must review each qui tam, however, the discretion and process for such review varies by office and agency, and there is not necessarily a statutory outline for what factors and considerations the government will look at.   

Instead, Furman noted that CPB will look at whether there have been any regulatory actions against the alleged company or product by FDA or the specific center; whether there is a public health concern, whether there have been a large number of warning letters and several other factors.  She also noted the importance of what a company did when it found out about the problem, where the response came from, the perspective of fixing the problem, and who was hurt.  In general, she noted that the focus of CPB is the harm to patients/consumers affected by the product.  She also discussed where the product fits in at the company, the regulatory and/or enforcement history of the company, any communications between the agency and the company about the product, and the pervasiveness of the conduct or actions. 

Another important factor she mentioned was how the alleged conduct affects the regulatory or approval process or oversight of the agency.  Consequently, she noted that her office decides on pursuing cases, issuing subpoenas, looking at documents, etc., when the basic fact and factors noted above, show that a likely result will be restitution that is worth the resources put into it.  Nevertheless, she noted that cases brought to CPB require a lot of resources, sometimes 2-3 agents and 2-3 lawyers, which can sometimes be full-time—which has consequences because those government actors can’t pursue any other cases or work.   

There was also a brief discussion about when DOJ Criminal decides to get involved in FDCA violation cases, although there was not really a clear process outlined.  Mainly, it was noted that DOJ Criminal, CPB, FDA, and other enforcement agencies work together sharing information about a particular case and based on that work make a decision whether to pursue criminal charges.  This raised concerns from the criminal defense attorneys because many companies and executives have a distrust about DOJ coming back after the civil case is resolved and bringing criminal cases.  They expressed their preference of resolving cases “globally,” to avoid this problem.   

Chris Mead, the attorney who represented Mark Hermelin, the former KV Pharmaceutical CEO who was excluded from federal health programs last year, discussed several aspects of the case and made a recommendation based on his experience.  He said that CEO’s should not be more involved in clinical and quality decisions then they need to be.  In the case of Hermelin, he was heavily involved in the decision making that led to the company using improper machines that resulted in the creating of adulterated products.  This involvement was the primary conduct that led to his convictions and eventual exclusions.  Because it appeared based on his role as CEO that these decisions were made out of greed and a total disregard for public health and patient safety, Mead said that other executives should take a hands-off approach in manufacturing and clinical decisions.  Doing so may ensure that the company’s decisions are being made in an unbiased and impartial way that prioritizes public health and patient safety over profits.  

Hot Topics and U.S. v. Caronia 

The last panel of the first day included a healthy discussion of the recent 2^nd Circuit Opinion in U.S. v. Caronia.  The various panel members discussed their viewpoints and made predictions about the future of the case and its potential implications.  Several interesting points were made. 

First, one commentator noted that for many of the companies that are involved in off-label promotion cases, the company usually communicated with FDA about pursuing an off-label indication.  Consequently, the panel noted that if FDA expressly denies a company’s claim about another use or the company submits additional data about pursing an off-label indication, with which FDA disputes, and then a company goes and promotes it off-label—Caronia makes it uncertain what the outcome would be if FDA prosecuted such conduct.  It was noted, however, that under such facts, a company may be misleading or making false statements about its product given FDA’s rejection or dispute regarding the off-label use.  

The panel also noted that given this opinion, the calculation and negotiation of damages with the government, particularly when false claims are involved, may be affected.  For example, in calculating damages and false claims, the government typically tries to quantify the amount of prescriptions or the “market” for off-label use.  In making this calculation, they may consider a certain percentage of doctors who were prescribing off-label without the effect of detailing or sales reps.  With Caronia, now, as long as a sales rep’s speech was truthful and non-misleading, then the claims being submitted for them may no longer be “false.” 

Later this week, we will have a second story on the FDLI conference, which will include summaries of several panels that discussed the Caronia decision, and we will have further analysis into the implications the case may have on off-label promotion.

United States v. Caronia: A Victory for Free Speech vs. Off Label Promotion

The United States Court of Appeals for the Second Circuit (New York), in a 2-1 opinion, vacated the criminal conviction of a pharmaceutical sales representative who was found guilty of conspiracy to introduce a misbranded drug, under the Food, Drug & Cosmetic Act (FDCA), because he spoke about off-label uses of a particular drug.  The government used recorded conversations between the sales reps and doctors to bring the criminal action.  The case is United States v. Caronia. 

As we have written several times, the Food, Drug & Cosmetic Act (FDCA) allows companies to promote their drugs for only intended uses approved by the agency.  While doctors may prescribe and patients may take drugs for unapproved or off-label uses, and private and government payors frequently reimburse such uses, pharmaceutical companies had been prohibited from promoting such uses directly to healthcare providers.  

The court held “that the government cannot prosecute pharmaceutical manufacturers and their representatives under the FDCA for speech promoting the lawful, off-label use of an FDA-approved drug."

The landmark ruling, which based much of its reasoning off the United States Supreme Court Case IMS v. Sorrell, is a tremendous victory for the life sciences industry, and may have a significant impact on the way the Food and Drug Administration (FDA) and other federal health agencies continue to enforce the misbranding and adulteration provisions of the FDCA.  Off-label promotion has been at the heart of almost every major settlement between pharmaceutical companies, the Department of Justice (DOJ) and the Office of the Inspector General (OIG) for the Department of Health and Human Services (HHS). 

While technically the court’s ruling only applies to State’s located in the 2^nd Circuit, the opinion is likely to provide fuel to many companies who are currently in various stages of investigations or negotiations with the federal government regarding alleged off-label promotion.  Mr. Caronia's attorney, Thomas Liotti, described the decision to the Wall Street Journal as “a very broad ruling on First Amendment grounds.”  He told Reuters that the decision “increases the marketability of drugs, and means consumers can be fully informed by sales representatives, manufacturers and their own physicians.” 

Michael Carvin, an attorney representing the Washington Legal Foundation (WLF) on Mr. Caronia's behalf, said, “The opinion quite clearly says the FDA regulatory scheme is unconstitutional.”   “By prosecuting those engaged in truthful speech about off-label uses of medical products, the federal government has significantly hindering health care delivery in this country,” said WLF Chief Counsel Richard Samp following the court’s decision.  “Off-label use is essential to good medical practice because the medical community’s knowledge of the drug effectiveness inevitably outpaces the painstaking FDA approval process for label changes.  In many circumstances off-label use is standard-of-care medicine,” Samp said. 

“Most if not all of these cases have been based on a central premise: that it is unlawful for a company and one of its employees to be promoting a drug or a medical device off-label,” said John R. Fleder, a director at the law firm Hyman, Phelps & McNamara, speaking to the New York Times.  “And this decision hits at the heart of the government’s theory.”

Gerald Masoudi, a former chief counsel of FDA, said the ruling made a distinction between truthful discussion of off-label uses of drugs, many of which are considered legitimate by the medical community, and those that are misleading or false.  He noted that “anyone on the planet” could discuss off-label uses of drugs, except for pharmaceutical companies.  “It’s very significant,” he said, “because it’s going to make FDA, in its promotion cases, focus on the kinds of speech that are more likely to harm consumers, such as false or misleading marketing versus something that is not approved.”

The Pharmaceutical Research and Manufacturers of America, said it was pleased with the ruling. “PhRMA believes that truthful and nonmisleading communication between biopharmaceutical companies and health care professionals is good for patients, because it facilitates the exchange of up-to-date and scientifically accurate information about new treatments,” the statement said.

“FDA is not going to roll over and play dead on this,” said John Kamp of the Coalition for Healthcare Communication, predicting a long slog through the courts.  “It's too important to them—it attacks the basis of most promotional regulation by FDA.”  Below is a summary of the facts and legal background of the case, and an in-depth discussion of the opinion. 

Factual Background 

The alleged off-label conduct in this case centered on a drug called Xyrem, manufactured by Orphan Medical, Inc. (Orphan), now known as Jazz Pharmaceuticals, which is a specialty pharmaceutical company focused on identifying, developing, and commercializing products to treat pain, sleep disorders and central nervous system disorders.  Xyrem is a sleep inducing depressant whose principal ingredient was gamma-hydroxybutyrate (“GHB”).  Xyrem was first approved by FDA in July 2002 to treat patients with narcolepsy who experience episodes of cataplexy, a condition associated with weak and paralyzed muscles.  In  November 2005, FDA approved Xyrem to treat excessive daytime sleepiness (“EDS”) in patients with narcolepsy. Xyrem is not approved for any other medical indications. 

Abuse of Xyrem can lead to dependence and withdrawal symptoms as well as medical roblems including seizures, coma, and death.  Due to the FDA’s concerns over Xyrem’s potential serious risks, FDA required, prior to approval, that Xyrem’s label include a “black box” warning.  In addition, distribution of Xyrem was restricted and subject to several conditions.  For example, Orphan only distributed it through a single, centralized pharmacy, was required to provide physician and patient education, maintain a physician and patient registry, track prescription usage and detail patient surveillance. 

In April 2005 FDA’s Office of Criminal Investigations, Special Prosecutions Staff, pened a criminal investigation of alleged off-label promotion of Xyrem.  As part of its investigation, the government used a physician as an undercover cooperating witness to determine if the allegations were true.  The government charged that on October 26, 2005, Caronia promoted several off-label uses of Xyrem including fibromyalgia, EDS, muscle disorders, chronic pain and fatigue to its undercover witness.  The government further alleged that, on November 2, 2005, Caronia introduced to the undercover witness another Orphan-paid physician who also promoted Xyrem for off-label indications, including fibromyalgia, EDS, sleepiness, weight loss and chronic fatigue. 

Pursuant to its misbranding regulations, the U.S. government filed a two-count misdemeanor information against Caronia.  Count one of alleged that, between March 2005 and March 2006, Caronia knowingly and intentionally conspired with others to misbrand a drug by marketing Xyrem for off-label uses in violation of 21 U.S.C. §§ 331(a), (k), 333(a)(1) and 18 U.S.C. § 371. Count two charged Caronia with a substantive violation of misbranding a drug while it was held for sale after shipment in interstate commerce, violating 21 U.S.C. §§ 331(k) and 333(a)(1).  Orphan, and another physician involved in the alleged misconduct were also charged under the misbranding provisions of the FDCA; both pled guilty. 

Procedural and Legal Background 

Caronia moved to dismiss on several bases, including that the misbranding provisions of the FDCA violated the Free Speech Clause of the First Amendment.  The Caronia Court quickly rejected Caronia’s first two arguments in support of his motion to dismiss. But, the Court spent considerable analysis on Caronia’s First Amendment argument as the constitutional issues raised by Caronia were “very much unsettled, not only in this circuit but nationwide.”  Nevertheless, the U.S. District Court for the Eastern District rejected Caronia’s First Amendment arguments, instead finding that the FDCA’s prohibition against off label promotion was a reasonable fit for the government’s interest in protecting the public health.   

During the jury trial, the government argued repeatedly that Caronia was guilty because he, with others, conspired to promote and market Xyrem for off-label use.  The “government's theory of prosecution identified Caronia’s speech alone as the proscribed conduct,” the 2nd Circuit wrote.  Moreover, “The district court, in its jury charge, reinforced the idea that Caronia’s promotional speech was enough to support a guilty verdict.”  The jury convicted Caronia of conspiring to introduce a “misbranded” drug into interstate commerce. 

Caronia appealed his 2009 conviction to the 2^nd Circuit, arguing that he was convicted for his speech -- for promoting an FDA-approved drug for off-label use -- in violation of his right of free speech under the First Amendment.  During the appeal, the U.S. Supreme Court issued its opinion in IMS v. Sorrell.  As a result, the 2nd Circuit called on Caronia and the government to re-brief the matter based on the Sorrell case.   

On appeal, Caronia principally argued that the misbranding provisions of the FDCA prohibit off-label promotion, and therefore, unconstitutionally restrict speech.8 Caronia argues that the First Amendment does not permit the government to prohibit and criminalize a pharmaceutical manufacturer's truthful and non-misleading promotion of an FDA-approved drug to physicians for offlabel use where such use is not itself illegal and others are permitted to engage in such speech. 

Thus, the issue on appeal was “whether the government’s prosecution of Caronia under the FDCA only for promoting an FDA-approved drug for off-label use was constitutionally permissible. 

Reasoning 

While the FDCA makes it a crime to misbrand or conspire to misbrand a drug, the statute and its accompanying regulations do not expressly prohibit or

criminalize the "promotion" or "marketing" of drugs for off-label use.  Rather, the FDCA and FDA regulations reference "promotion" only as evidence of a drug's intended use. See 21 U.S.C. § 201.128 (discussing how drug's intended use can be demonstrated).  Thus, under the principle of constitutional avoidance, the court construed the FDCA as not criminalizing the simple promotion of a drug's off-label use because such a construction would raise First Amendment concerns.   

The regulations do recognize that promotional statements by a pharmaceutical company or its representatives can serve as proof of a drug's intended use. See 21 C.F.R. § 201.5.  Off-label promotional statements could thus presumably constitute evidence of an intended use of a drug that the FDA has not approved.  The FDA, however, has concluded that "[a]n approved drug that is marketed for an unapproved use (whether in labeling or not) is misbranded because the labeling of such drug does not include 'adequate directions for use.'" (quoting 21 U.S.C. § 352(f)); see also Gov't Br. 48 n.18 (contending no set of directions can constitute adequate labeling for drug's off-label use).  Thus, the government has treated promotional speech as more than merely evidence of a drug's intended use -- it has construed the FDCA to prohibit promotional speech as misbranding itself. 

Speech versus Evidence of Intent 

The government argued that the First Amendment is not implicated in this case.  Specifically, the government argued that "[p]romoting an approved drug for off-label uses is not itself a prohibited act under the FDCA" and "the promotion of off-label uses plays an evidentiary role in determining whether a drug is misbranded under 21 U.S.C. § 352(f)(1)."   The government contended that Caronia was not prosecuted for his speech, but that Caronia's promotion of Xyrem for off-label use served merely as "evidence of intent," or evidence that the "off-label uses were intended ones[] for which Xyrem's labeling failed to provide any directions."  Even assuming the government could offer evidence of a defendant's off-label promotion to prove a drug's intended use and, thus, mislabeling for that intended use, “that is not what happened in this case,” the court wrote.

First, the government's contention that it did not prosecute Caronia for promoting the off-label use of an FDA approved drug was belied by its conduct and arguments at trial. Citing the trial record, “The government repeatedly argued that Caronia engaged in criminal conduct by promoting and marketing the off-label use of Xyrem, an FDA-approved drug,” and Caronia “was, in fact, prosecuted and convicted for promoting Xyrem off-label.” 

Second, the government's assertion that it used Caronia's efforts to promote Xyrem for off-label use only as evidence of intent “is simply not true.”  Even if the government could have used Caronia's speech as evidence of intent, the district court record clearly showed “that the government did not so limit its use of that evidence.”  The government never (1) argued in summation or rebuttal that the promotion was evidence of intent; (2) suggested that Caronia engaged in any form of misbranding other than the promotion of the off-label use of an FDA-approved drug; (3) suggested, for example, that Caronia conspired to place false or deficient labeling on a drug.  Rather, the record makes clear that the government prosecuted Caronia for his promotion and marketing efforts. 

Third, the government's summation and the district court's instruction left the jury to understand that Caronia's speech was itself the proscribed conduct.  The district court flatly stated to the jury that pharmaceutical representatives are prohibited

from engaging in off-label promotion.  This specific instruction -- together with the government's summation -- would have led the jury to believe that Caronia's promotional speech was, by itself, determinative of his guilt. 

Fourth, the government clearly prosecuted Caronia for his words –- for his speech.

A pharmaceutical representative's promotion of an FDA-approved drug's off-label use is speech.  As the Supreme Court has held: "Speech in aid of pharmaceutical marketing . . . is a form of expression protected by the Free Speech Clause of the First Amendment."

Sorrell v. IMS Health, Inc.  Here, the proscribed conduct for which Caronia was prosecuted was precisely his speech in aid of pharmaceutical marketing.  Accordingly, we conclude that the government did prosecute Caronia for his speech, and we turn to whether the prosecution was permissible. 

The Prosecution of Caronia’s Speech 

While the government and the FDA construed the FDCA's misbranding provisions to prohibit off-label promotion by pharmaceutical manufacturers, the FDCA itself does not expressly prohibit or criminalize off-label promotion.  The FDCA defines misbranding in terms of whether a drug's labeling is adequate for its intended use, and permits the government to prove intended use by reference to promotional statements made by drug manufacturers or their representatives.  Assuming that this approach to the use of evidence of speech is permissible, “it affords little support to the government on this appeal because Caronia was not prosecuted on this basis.”  Rather, the government's theory of prosecution identified Caronia's speech alone as the proscribed conduct. 

The court declined the government's invitation to construe the FDCA's misbranding provisions to criminalize the simple promotion of a drug's off-label use by pharmaceutical manufacturers and their representatives because such a construction -- and a conviction obtained under the government's application of the FDCA -- would run afoul of the First Amendment. 

Applicable First Amendment Doctrine 

The First Amendment protects against government regulation and suppression of speech on account of its content.  Non-content-based regulation and regulation of commercial speech -- expression solely related to the economic interests of the speaker and its audience -- are subject to intermediate scrutiny.  Criminal regulatory schemes, moreover, warrant even more careful scrutiny. 

In applying these principles, the 2nd Circuit relied on Sorrell, where the Vermont Prescription Confidentiality Law (the "VPCL") prohibited pharmaceutical companies and similar entities from using prescriber-identifying information for marketing purposes; it was challenged on First Amendment grounds.  The Court held that the Vermont statute set forth content- and speaker-based restrictions, and that the statute was therefore subject to heightened scrutiny.  Because the VPCL disfavored speech with a particular content (marketing) when expressed by certain disfavored speakers (pharmaceutical manufacturers), the Court held that it unconstitutionally restricted speech.  

In reaching this conclusion, Sorrell engaged in a two-step inquiry.  First, the Court considered whether the government regulation restricting speech was content- and speaker-based.  The Court held that it was; the regulation was therefore subject to heightened scrutiny and was "presumptively invalid."  

Second, the Court considered whether the government had shown that the restriction on speech was consistent with the First Amendment under the applicable level of heightened scrutiny.  The Court did not decide the level of heightened scrutiny to be applied, that is, strict, intermediate, or some other form of heightened scrutiny.  Rather, after observing that "[i]n the ordinary case, it is all but dispositive to conclude that a law is content based," the Court concluded that the Vermont statute was unconstitutional even under the lesser intermediate standard set forth in Central Hudson.  The Court further observed that the "outcome is the same whether a special commercial speech inquiry or a stricter form of judicial scrutiny is applied."  

In considering whether the government had shown that the restriction on speech was consistent with the First Amendment, the Sorrell Court turned to Central Hudson, which sets forth a four-part test to determine whether commercial speech is protected by the First Amendment.   

First, as a threshold matter, to warrant First Amendment protection, the speech in question must not be misleading and must concern lawful activity.  Second, to justify regulations restricting speech, the asserted government interest must be substantial.  Third, the regulation must directly advance the governmental interest asserted,  "to a material degree,"  "[A] commercial speech regulation 'may not be sustained if it provides only ineffective or remote support for the government's purpose.'"  Fourth, the regulation must be "narrowly drawn," and may not be more extensive than necessary to serve the interest.  The government cannot "completely suppress information when narrower restrictions on expression would serve its interests as well."  "Under the commercial speech inquiry, it is the [government's] burden to justify its content-based law as consistent with the First Amendment." 

Application of Sorrell and Central Hudson to Caronia 

Using the two-step analysis from Sorrell, the 2nd circuit first concluded “that the government's construction of the FDCA's misbranding provisions imposes content- and speaker-based restrictions on speech subject to heightened scrutiny.”  Second, the court concluded that “the government cannot justify a criminal prohibition of off-label promotion even under Central Hudson's less rigorous intermediate test.” 

First, the government's interpretation of the FDCA's misbranding provisions to prohibit off-label promotion is content-based because it distinguishes between "favored speech" and "disfavored speech on the basis of the ideas or views expressed."  Under this construction, speech about the government-approved use of drugs is permitted, while certain speech about the off-label use of drugs -- that is, uses not approved by the government -- is prohibited, even though the off-label use itself is not. See 21 U.S.C. §§ 331(a), 333(a)(2).  Indeed, the content of the regulated speech drives this construction of the FDCA; as in Sorrell, the "express purpose and practical effect" of the government's ban on promotion is to "diminish the effectiveness of [off-label drug] marketing by manufacturers." 

Second, this construction is speaker-based because it targets one kind of speaker – pharmaceutical manufacturers -- while allowing others to speak without

restriction.  In Sorrell, pharmaceutical companies were barred from obtaining and using prescriber-identifying information for marketing purposes, but a wide range of other speakers, including private and academic researchers, could acquire and use the information.  

Similarly, here, “because off-label prescriptions and drug use are legal, the government's application of the FDCA permits physicians and academics, for example, to speak about off-label use without consequence, while the same speech is prohibited when delivered by pharmaceutical manufacturers.”  This construction "thus has the effect of preventing [pharmaceutical manufacturers] -- and only [pharmaceutical manufacturers] -- from communicating with physicians in an effective and informative manner." 

Additionally, a claim to First Amendment protection “here is more compelling than in Sorrell because this case involves a criminal regulatory scheme subject to more careful scrutiny.”  Accordingly, the government's construction of the FDCA's misbranding provisions to prohibit and criminalize off-label promotion is content- and speaker-based, and subject to heightened scrutiny under Sorrell 

Central Hudson 

The 2nd Circuit found the first two prongs of Central Hudson were easily satisfied.  First, promoting off-label drug use concerns lawful activity (off-label drug use), and the promotion of off-label drug use is not in and of itself false or misleading. 

Second, the government's asserted interests in drug safety and public health are substantial.  Specifically, the government asserts an interest in preserving the effectiveness and integrity of the FDCA's drug approval process, and an interest in reducing patient exposure to unsafe and ineffective drugs. 

The third and fourth prongs of Central Hudson require that the regulation directly advance the government's interests and be narrowly drawn.  The court concluded that “The government's construction of the FDCA as prohibiting off-label promotion does not, by itself, withstand scrutiny under Central Hudson's third prong.” 

First, off-label drug usage is not unlawful, and the FDA's drug approval process generally contemplates that approved drugs will be used in off-label ways.  In effect, even if pharmaceutical manufacturers are barred from off-label promotion, physicians can prescribe, and patients can use drugs for off-label purposes.  As off-label drug use itself is not prohibited, “it does not follow that prohibiting the truthful promotion of off-label drug usage by a particular class of speakers would directly further the government's goals of preserving the efficacy and integrity of the FDA's drug approval process and reducing patient exposure to unsafe and ineffective drugs.” See Sorrell, 131 S. Ct. at 2668-69 (holding government interest in protecting physician privacy not directly served when law made prescriber-identifying information available to "all but a narrow class of disfavored speakers"). 

Second, prohibiting off-label promotion by a pharmaceutical manufacturer while simultaneously allowing off-label use "paternalistically" interferes with the ability of physicians and patients to receive potentially relevant treatment information; such barriers to information about off-label use could inhibit, to the public's detriment, informed and intelligent treatment decisions. see also Sorrell, 131 S. Ct. at 2670-72 ("[The] fear that [physicians, sophisticated and experienced customers,] would make bad decisions if given truthful information" cannot justify content-based burdens on speech.")  The First Amendment directs us to be especially skeptical of regulations that seek to keep people in the dark for what the government perceives to be their own good."). 

In fact, in granting safe harbor to manufacturers by permitting the dissemination of off-label information through scientific journals, the FDA itself "recognizes that public health can be served when health care professionals receive truthful and non-misleading scientific and medical information on unapproved uses" of approved drugs. (citing Dep't of Health and Human Serv., Good Reprint Practices; see Wash. Legal Found. v. Henney, 202 F.3d 331, 335 (D.C. Cir. 2000) (discussing FDA "safe harbor," where certain forums for off-label discussion, such as continuing medical education programs and scientific publications, would not be used against manufacturers in misbranding enforcement actions). 

Here, as the FDA recognizes, it is the physician's role to consider multiple factors, including a drug's FDA approval status, to determine the best course of action for her patient.  see also Thompson, 535 U.S. at 367 (discussing the "general rule" that "the speaker and the audience, not the government, assess the value of the information presented").   

While some off-label information could certainly be misleading or unhelpful, “this case does not involve false or misleading promotion.”  Moreover, in the fields of medicine and public health, "where information can save lives," it only furthers the public interest to ensure that decisions about the use of prescription drugs, including off-label usage, are intelligent and well-informed (quoting Sorrell). 

The government did not contend that off-label promotion was in and of itself false or misleading, and the court recognized that “off-label promotion that is false or misleading is not entitled to First Amendment protection.”  Under 21 U.S.C. § 331(a), a defendant may be prosecuted for untruthfully promoting the off-label use of an FDA-approved drug, e.g., making false or misleading statements about a drug.  The government did not argue at trial, nor on appeal, that the promotion in question was false or misleading.   

“The government's construction of the FDCA essentially legalizes the outcome -- off-label use – but prohibits the free flow of information that would inform that outcome. If the government's objective is to shepherd physicians to prescribe drugs only on-label, criminalizing manufacturer promotion of off-label use while permitting others to promote such use to physicians is an indirect and questionably effective means to achieve that goal.”  Thus, the government's construction of the FDCA's misbranding provisions does not directly advance its interest in reducing patient exposure to off-label drugs or in preserving the efficacy of the FDA drug approval process because the off-label use of such drugs continues to be generally lawful.  Accordingly, the government's prohibition of off-label promotion by pharmaceutical manufacturers "provides only ineffective or remote support for the government's purpose."  

The last prong of Central Hudson requires the government's regulation to be narrowly drawn to further the interests served.  Here, the government's construction of the FDCA to impose a complete and criminal ban on off-label promotion by pharmaceutical manufacturers “is more extensive than necessary to achieve the government's substantial interests.”  The court noted that “Numerous, less speech-restrictive alternatives are available, as are non-criminal penalties.”  To advance the integrity of the FDA's drug approval process and increase the safety of off-label drug use, the government could pursue several alternatives without excessive First Amendment restrictions.  

For example, if the government is concerned about the use of drugs off-label, it could more directly address the issue.  If the government is concerned that off-label promotion may mislead physicians, it could guide physicians and patients in differentiating between misleading and false promotion, exaggerations and embellishments, and truthful or non-misleading information. The government could develop its warning or disclaimer systems, or develop safety tiers within the off-label market, to distinguish between drugs.  The government could require pharmaceutical manufacturers to list all applicable or intended indications when they first apply for FDA approval, enabling physicians, the government, and patients to track a drug's development. 

To minimize off-label use, or manufacturer evasion of the approval process for such use, the government could create other limits, including ceilings or caps on off-label prescriptions.  The FDA could further remind physicians and manufacturers of, and even perhaps further regulate, the legal liability surrounding off-label promotion and treatment decisions.  Finally, where off-label drug use is exceptionally concerning, the government could prohibit the off-label use altogether. See, e.g., Bader, 678 F.3d at

873-75 & n.10 (citing 21 U.S.C. § 333(e) (prohibiting off-label use of human growth hormone)). The possibilities are numerous indeed. 

"If the First Amendment means anything, it means that regulating speech must be a last -- not first -- resort."  The government has not established a "reasonable fit" among its interests in drug safety and public health, the lawfulness of off-label use, and its construction of the FDCA to prohibit off-label promotion.  The government's interests could be served equally well by more limited and targeted restrictions on speech.  

The government argued that these alternative means of reducing patient exposure to unsafe, untested drugs and maintaining the integrity of the FDA-approval process are "indefensible", because they are not administrable, feasible, or otherwise effective.  In the absence of any support, such conclusory assertions are insufficient to sustain the government's burden of demonstrating that the proposed alternatives are less effective than its proposed construction of the FDCA in furthering the government interests identified.  Accordingly, even if speech can be used as evidence of a drug's intended use, the court declined to adopt the government's construction of the FDCA's misbranding provisions to prohibit manufacturer promotion alone as it would unconstitutionally restrict free speech.   

The court construed the misbranding provisions of the FDCA as not prohibiting and criminalizing the truthful off-label promotion of FDA approved prescription drugs.  The court’s conclusion “is limited to FDA-approved drugs for which off-label use is not prohibited,” and the court did not hold, “that the FDA cannot regulate the marketing of prescription drugs.”  The court simply concluded “that the government cannot prosecute pharmaceutical manufacturers and their representatives under the FDCA for speech promoting the lawful, off-label use of an FDA-approved drug.”

The court posed an interesting hypothetical, but did not address it because the facts of Caronia did not implicate them.  The court noted how it “remains unclear how the government would identify criminal misbranding from communications between drug manufacturers and physicians authorized to prescribe drugs for off-label use.  For example, would a manufacturer be guilty of misbranding if it ships Xyrem to a doctor who, in placing his order, reveals that he prescribes the drug for off-label use -- on a theory that the manufacturer now knows that the drug is not properly labeled for that use -- but not if the manufacturer ships to a doctor who does not reveal that he prescribes the drug off-label?   

Dissent 

The lone dissenting judge, Judge Debra Ann Livingston, vigorously disagreed, arguing that by throwing out Mr. Caronia’s conviction “the majority calls into question the very foundations of our century-old system of drug regulation.” She argued that if drug companies “were allowed to promote F.D.A.-approved drugs for nonapproved uses, they would have little incentive to seek F.D.A. approval for those uses.”