Policy and Medicine

Friedman vs. Sebelius: Purdue Executive Exclusion Upheld, but Terms Voided as Arbitrary and Capricious

The U.S. Court of Appeals for the District of Columbia recently held in Friedman v. Sebelius that the Department of Health and Human Services (HHS) was acting within its power when the agency excluded three former Purdue Pharma LP executives from doing business with federal health care programs.  The three executives pleaded guilty in 2007 along with a Purdue affiliate, which admitted misleading the public about the painkiller OxyContin's safety. 

HHS, through its Office of the Inspector General (OIG), has the authority to exclude individuals and entities from doing business with federal health care programs (e.g. Medicare and Medicaid), when such individuals or entities commit certain offenses or violations.  The Court upheld the exclusions because the conduct underlying the executives’ misdemeanor convictions was factually related to fraud under a “circumstance-specific approach: Their convictions for misdemeanor misbranding were predicated upon the company they led having pleaded guilty to fraudulently misbranding a drug and they admitted having ‘responsibility and authority either to prevent in the first instance or to promptly correct that fraud; they did neither.”   

The Court, however, held that HHS’ decision to exclude the executives for 12 years was arbitrary and capricious “for want of a reasoned explanation for the length of their exclusions.”  As a result, the Court remanded the case back to the U.S. District Court for the District of Columbia (“District Court”) to reconsider how long the executives should be excluded.  As reported by the Wall Street Journal, Carter Phillips, a lawyer for the three executives, said his clients were “gratified” that the court questioned the 12-year period.  He said his side continued to believe that the law didn’t permit exclusion and was “considering next steps.” 

This case will have a significant impact on the life sciences industry as well as other healthcare executives.  As WSJ noted, “Since drug companies rely on revenue from Medicare, Medicaid and other programs, it is difficult if not impossible for any excluded executive to get a job in the industry.”  

As more and more companies settle their off-label promotion cases with OIG and the corporate integrity agreements (CIAs) that result become more complex, federal health care law enforcement may begin to use the threat of excluding executives to deter future off-label promotion and to encourage greater compliance with federal health care laws.  In addition, this case will have a significant impact on whether company executives will accept criminal misdemeanor pleas moving forward, given that the D.C. Circuit has now recognized the Responsible Corporate Officer doctrine as a mechanism that OIG may use to exclude executives. 

“This case takes on added significance in light of recent efforts by prosecutors across the country to force senior pharmaceutical executives to plead guilty to RCO misdemeanors, and in light of statements by FDA officials that they intend to ‘get tough’ with companies alleged to have engaged in improper promotional practices,” said Washington Legal Foundation Chief Counsel Richard Samp.  “The case cries out for further review.  Officials at HHS’s Office of Inspector General have given every indication that they view the penalties imposed in this case as a model for other cases involving allegedly improper promotion.” 

Case Background 

Michael Friedman, Paul Goldenheim, and Howard Udell (“the executives” or “Appellants”) were senior corporate officers at the Purdue Frederick Company (“Purdue”) when it was involved misbranding the painkiller OxyContin, a schedule II controlled substance.  According to the Information initiating the criminal cases against the Appellants and the Company, the “misbranding” occurred when unnamed employees at Purdue, “with the intent to defraud or mislead, marketed and promoted OxyContin as less addictive, less subject to abuse and diversion, and less likely to cause tolerance and withdrawal than other pain medications." 

Purdue pleaded guilty to felony misbranding, in violation of 21 U.S.C. § 331(a) and § 333(a)(2).  Pursuant to the plea agreement, the district court put the Company on probation for five years, fined it $500,000, and imposed other monetary sanctions totaling approximately $600 million, of which approximately $160 million was earmarked for restitution to Federal and State health care agencies, which had been large buyers of the misbranded drug.  

At the same time, the Appellants pleaded guilty to misdemeanor misbranding, in violation of 21 U.S.C. § 331(a) and § 333(a)(1), for their admitted failure to prevent Purdue’s fraudulent marketing of OxyContin; each was sentenced to do 400 hours of community service, fined $5,000, and put on probation for three years.  The sentencing court also ordered the Appellants to disgorge compensation they had received from Purdue totaling approximately $34.5 million. 

HHS-OIG Exclusion 

Several months after the executives were convicted, OIG excluded from participation in Federal health care programs the executives for 20 years, pursuant to 42 U.S.C. § 1320a-7(b)(1) and (3).  OIG based the length of their exclusion upon three aggravating factors listed in the Department’s published regulations —(1) the conduct underlying the convictions lasting more than one year, (2) the amount of the financial loss, and (3) the significant adverse physical or mental impact upon program beneficiaries. 

The executives appealed the OIG’s determination to an Administrative Law Judge (ALJ) and ultimately to the Departmental Appeals Board (DAB), to which the Secretary had delegated authority to review decisions to exclude an individual.  During the pendency of the appeal to the ALJ, OIG reduced the length of the exclusion to 15 years because the Appellants had assisted law enforcement authorities to combat abuse of OxyContin, a mitigating factor.  The ALJ affirmed the 15-year exclusion as being within a “reasonable range.”  The DAB affirmed that decision, interpreting the statute to authorize the exclusion of an individual convicted of a misdemeanor when the facts underlying that conviction have a “nexus or common sense connection” either to fraud or to the distribution of a controlled substance.   

The DAB found the Appellants’ “misdemeanor misbranding offense” had the requisite connection to fraud because “[t]he actual misbranding that resulted in [their] conviction was the [Company’s] fraudulent misbranding of OxyContin.”  The DAB further reduced the length of the exclusion to 12 years on the ground the “ALJ’s finding that [the Appellants’] crimes had an adverse impact on program beneficiaries and others is not supported by substantial evidence” because there is no evidence the misbranded Oxycontin had any adverse effect.  The U.S. District Court upheld the length of the exclusion because it concluded the DAB’s application of the aggravating and mitigating factors was supported by substantial evidence.

The D.C. Circuit Court reviewed the judgment of the District Court “de novo” or “anew.”

The Circuit Court said it would uphold the Secretary’s decision to exclude the executives only if it was “based on substantial evidence in the record and correctly applie[d] the relevant legal standards.” 

Arguments 

The executives first argued that misdemeanor misbranding is not a “criminal offense consisting in a misdemeanor relating to fraud” because it lacks the allegedly requisite “‘generic’ relationship to fraud.”  It was not enough for the conduct underlying a particular conviction to be factually related to fraud; the generic misdemeanor must comprise the “core elements” of fraud, one of which is scienter.  The Court, however, noted that “Misdemeanor misbranding does not necessarily require a culpable mental state because a conviction for the offense may be, and in this case was, predicated upon the responsible corporate officer doctrine, which entails strict liability.”   

Under the “responsible corporate officer” (RCO) doctrine, a “corporate agent, through whose act, default, or omission the corporation committed a crime” in violation of the Food, Drug, and Cosmetic Act (FDCA) may be held criminally liable for the wrongdoing of the corporation “whether or not the crime required ‘consciousness of wrongdoing’” by the agent. United States v. Park, 421 U.S. 658, 670 (1975).  Criminal liability under the RCO doctrine extends “not only to those corporate agents who themselves committed the criminal act, but also to those who by virtue of their managerial positions or other similar relation to the actor could be deemed responsible for its commission.” Id.  A corporate officer may therefore be guilty of misdemeanor misbranding without “knowledge of, or personal participation in,” the underlying fraudulent conduct. Id.   

The Court noted that as part of their plea agreements, the executives admitted having “responsibility and authority either to prevent in the first instance or to promptly correct” the misrepresentations certain unnamed Purdue employees made regarding OxyContin and thereby, under the RCO doctrine, admitted being guilty of misdemeanor misbranding. 

HHS argued that under the DAB’s “‘intuitive, ordinary reading’ of the statute, [the Appellants’] convictions ... ‘relate to’ fraud or unlawful distribution of a controlled substance [because] there is a ‘nexus’ or ‘common sense connection’ between their convictions and those statutory bases for exclusion.”  As a result, the Court reasoned that the case “presents the question whether the phrase “misdemeanor relating to fraud” in section 1320a-7(b)(1)(A) refers to a (1) generic criminal offense or (2) to the facts underlying the particular defendant’s conviction.   

In ordinary speech, “words such as ‘crime,’ ‘felony,’ ‘offense,’ and the like sometimes refer to a generic crime, say, the crime of fraud or theft in general, and sometimes refer to the specific acts in which an offender engaged on a specific occasion, say, the fraud that the defendant planned and executed last month.” Nijhawan v. Holder, 557 U.S. 29, 33–34 (2009).  The “categorical approach,” according to which the statutory term refers to the generic criminal offense, “prohibits the later court from delving into particular facts disclosed by the record of conviction” and directs that court to “look only to the fact of conviction and the statutory definition of the prior offense,” including the elements of that offense. Shepard v. United States, 544 U.S. 13, 17 (2005). 

Under the “circumstance-specific” approach, by contrast, the statutory term refers to the particular conduct giving rise to the conviction and so the court “must look to the facts and circumstances underlying an offender’s conviction” to determine whether that conviction is covered by the statute. Nijhawan, 557 U.S. at 34.  Whether Congress intended the categorical or the circumstance-specific approach is to be discerned from the text, structure, and purpose of the particular statute at issue.   

The Executives argued that the Secretary’s interpretation of section 1320a-7(b)(1)(A) did not warrant deference: “Nothing in the exclusion statute evinces Congress’ intent to empower the agency to ‘speak with the force of law’ ... when addressing ambiguities in the phrase[] ‘misdemeanor relating to fraud.’”  They contended that Congress did not delegate authority to interpret the phrase “misdemeanor relating to fraud” because that phrase is a term of art in criminal law and therefore outside the scope of the Secretary’s subject-matter expertise and more suited to judicial interpretation.  

Courts defer to an agency’s interpretation of a law it administers only to the extent the Congress has delegated interpretive authority to the agency.  The D.C. Circuit, however, noted a “split in authority on the question whether to defer to an agency’s interpretation of a term drawn from criminal law but used in a statute the agency administers.”  The split is between the U.S. Third Circuit Court of Appeals (Wong Park v. Att’y Gen., 472 F.3d 66, 70 (3d Cir. 2006)) and the Second Circuit (James v. Mukasey, 522 F.3d 250, 254 (2d Cir. 2008) and Mugalli v. Ashcroft, 258 F.3d 52, 56 (2d Cir. 2001)).  This split represents a main reason why the U.S. Supreme Court may likely grant certiorari to hear this case on appeal. 

The D.C. Circuit did not decide whether the Congress authorized the Secretary “to speak with the force of law when [she] addresses ambiguity in the statute,” because the “statute unambiguously authorizes her to exclude the Appellants.”  The Circuit noted that the text, structure, and purpose of the exclusion statute, viz., to protect Federal health care programs from financial harm wrought by untrustworthy providers, “all indicate the Secretary’s circumstance-specific approach is proper; i.e., the statute authorizes exclusion of an individual whose conviction was for conduct factually related to fraud.” 

“Relating to” 

The Court maintained that the key phrase in the exclusion statute is “relating to,” the “ordinary meaning of [which] is a broad one — ‘to stand in some relation; to have bearing or concern; to pertain; refer; to bring into association with or connection with.’” Morales, 504 U.S. at 383 (quoting BLACK’S LAW DICTIONARY 1158 (5th ed. 1979)); see also Metropolitan Life Ins. Co. v. Mass., 471 U.S. 724, 739 (1985) (“The phrase ‘relate to’ [has a] broad common-sense meaning” and a statutory provision containing the phrase therefore has “broad scope”). 

Using this definition, the Court reasoned that the Secretary was correct in her contention that a misdemeanor “relat[es] to” fraud “in the normal sense of the phrase, if it has a connection with, or reference to” fraud.  The Court asserted that ‘relating to’ “includes any criminal conduct that has a factual “connection with” fraud, disagreeing with the executives’ argument that the exclusion provision refers only to generic misdemeanor offenses that share all the “core elements” of fraud. 

“The rest of section 1320a-7(b)(1)(A) confirms its broad scope.”  Specifically, the Court noted how the Secretary is authorized to exclude persons for a criminal offense consisting of a misdemeanor relating to … “other financial misconduct,” which “expressly refers to a type of ‘conduct,’ not to a genus of criminal offense.”  The Court thus reasoned that the relationship of a “misdemeanor” to “other financial misconduct” “must therefore be a factual one.”  The term “misdemeanor” accordingly refers to the particular circumstances of an individual’s conviction, and “relating to” must denote a factual relationship between the conduct underlying the misdemeanor and the conduct underlying a “fraud.” 

The Court also reasoned that the heading of section 1320a-7(b)(1) (“Conviction relating to fraud”) further supports this reading of the provision, and noted case law to support this reasoning.  “Although the title of a statute and the heading of a section cannot limit the plain meaning of the text, they remain tools available for the resolution of a doubt about statutory meaning.”   

In the provision itself, “relating to fraud” modifies “misdemeanor.”  Accordingly, the Court reasoned that Congress used “conviction” and “misdemeanor” interchangeably, and a “conviction,” meant a particular event on a particular occasion and “so refers to a set of facts, and not to a generic crime.”  Hence, the parallel between the heading of section 1320a-7(b)(1) and the text of section 1320a-7(b)(1)(A) implies the word “misdemeanor” also refers to the facts underlying a particular conviction. 

The Court also noted that the text and structure of the provisions adjoining section 1320a-7(b)(1)(A) further confirm this interpretation.  In both section (b)(1)(B) and section (b)(2), the phrase “relating to” denotes a factual relationship.  The former provision authorizes the Secretary to exclude a person convicted of “a criminal offense relating to fraud ... with respect to any act or omission in a program (other than a health care program) operated by or financed in whole or in part by any Federal, State, or local government agency.”  The phrase “fraud ... with respect to any act or omission in a program” does not refer to a generic offense but rather to criminal conduct that, as a matter of fact, relates to a program financed by a government agency. 

The Court noted that the limiting clause in section (b)(1)(B) does not pick out a generic class of offenses because there is no generic crime of defrauding a program other than a health care program financed in whole or in part by a government agency.  The limiting clause in section (b)(1)(B), therefore, restricts the scope of the named offense – fraud – to frauds committed in certain factual circumstances.  It follows that the “criminal offense” listed in section (b)(1)(B) must “relat[e] to fraud” because it has a factual relationship to conduct committed on a particular occasion. 

Another example the Court referenced was section 1320a-7(b)(2)(ii), which authorizes exclusion for any individual “convicted ... in connection with the interference with or obstruction of any investigation or audit related to ... the use of funds received ... from any Federal health care program.”  The phrase “the use of funds” does not refer to a generic offense and therefore must refer to specific facts on a particular occasion.  As a result, “related to” in this provision denotes a factual connection between an “investigation or audit” and “the use of funds.” 

Accordingly, the Court said it was “simply implausible that the Congress used ‘relating to’ in section 1320a-7(b)(1)(B) and the functionally identical phrase ‘related to’ in section 1320a-7(b)(2) to denote a relationship between factual situations but used the same phrase in section 1320a-7(b)(1) to denote a relationship between generic offenses. 

“The only reasonable interpretation is that in all three provisions the phrases refer to a factual relationship,” the Court said. See Mohamad v. Rajoub, 634 F.3d 604, 608 (D.C. Cir. 2011) (“the same word[s] appearing in different portions of a single provision or act [are] taken to have the same meaning in each appearance” (internal quotation marks and citation omitted)).  

Counterarguments 

The Executives first argued that applying the circumstance-specific approach gives no separate meaning to the phrase “relating to” in section (b)(1)(A) and the phrase “in connection with” in sections (b)(1)(A)(i) and (b)(2).  They argued that because “in connection with” denotes a factual relationship between the conviction and “the delivery of a health care item or service” in section (b)(1)(A)(i) and between the conviction and “the interference with or obstruction of any investigation or audit” in section (b)(2), “relating to” in section (b)(1)(A) must denote a generic, not a factual relationship.

The Court rejected this argument as “implausible,” noting that, “An interpretation that requires a single instance of a single word to carry two different meanings in two consecutive clauses of a single sentence simply cannot stand.”  Instead, the Court found “plausible” the Secretary’s reading that Congress used “relating to” and “in connection with” each to denote a factual relationship – respectively, the relationship between the facts underlying a person’s conviction and conduct that would qualify as “fraud”; and the relationship between that conduct and the delivery of health care.  Thus, the Court reasoned that “the use of the phrases ‘relating to’ and ‘in connection with,’ therefore does not imply ‘relating to’ must denote a non-factual, generic relationship.”

Next, the Executives analogized the text of section (b)(1)(A) to a provision of the Immigration and Naturalization Act (INA) which authorized the deportation of an alien “convicted of a violation of ... any law or regulation relating to the possession of or traffic in narcotic drugs.”  The Appellants, citing Castaneda de Esper v. INS, 557 F.2d 79 (6th Cir. 1977), contended the Congress “used a verbal formulation – ‘relating to [specified offenses]’ – that had long been used in the INA, and already had a settled meaning” denoting a generic, non-factual relationship.   

The Court, however, agreed with the Secretary that “relating to” in the INA has no such settled meaning, contrasting Castaneda with Urena-Ramirez v. Ashcroft, 341 F.3d 51 (1st Cir. 2003).  In addition, the Court noted that “the wording of the INA supports the application of the categorical approach much more readily than does the text of section (b)(1)(A),” because “relating to” in the INA is connected to “law or regulation” and “the possession of or traffic in narcotic drugs.”  The Court reasoned that, a “law or regulation,” unlike a “misdemeanor,” cannot refer to the facts of a particular incident. 

Third, the Executives argued that the circumstance-specific approach leads to an “absurd result,” to wit: “Individuals who negligently submit false or fraudulent claims ... are not subject to exclusion under [42 U.S.C. § 1320a-7a(a)]” whereas, under the Secretary’s approach to section 1320a-7(b), one “who pleads guilty of a strict liability misdemeanor offense that requires no proof of conscious wrongdoing, fraud, or falsehoods is excludable based on misconduct by others that he had no knowledge of.”

Disagreeing once again, the Court said that “the statute at issue here similarly authorizes exclusion but neither requires nor authorizes a fine; for a lesser penalty, a lesser mens rea requirement, or indeed no mens rea requirement at all, is not illogical.” 

Finally, the Executives argued that because the Secretary’s interpretation permits her to impose “careerending disabilities” upon someone whose criminal conviction required no mens rea, it raises a serious question of validity under the Due Process Clause of the Fifth Amendment to the Constitution of the United States.  The Supreme Court has upheld the constitutionality of strict liability crimes “in part, because their associated penalties ‘commonly are relatively small, and conviction does no grave damage to an offender’s reputation.’”  The Court clarified, however, that section 1320a-7(b)(1) is not a criminal statute and, although exclusion may indeed have serious consequences, the Court did “not think excluding an individual under 42 U.S.C. § 1320a-7(b) on the basis of his conviction for a strict liability offense raises any significant concern with due process.”   

“Exclusion effectively prohibits one from working for a government contractor or supplier.  Surely the Government constitutionally may refuse to deal further with senior corporate officers who could have but failed to prevent a fraud against the Government on their watch,” the Court said.  This is another area where appeal will be timely because it appears that the Court may have understated the effect exclusion has on individuals—essentially a death sentence from working in the healthcare industry.  

12 Years of Exclusion  

The Executives also challenged the Secretary’s decision to exclude them for fully 12 years, four times as long as the presumptive baseline in the statute: “the period of exclusion shall be 3 years” unless the Secretary adjusts the length of exclusion on the basis of aggravating or mitigating factors “in accordance with published regulations.”  They argued that the Secretary took into account two aggravating factors for which there was not substantial evidence, failed to take into account one mitigating factor without substantial evidence for so doing, and gave them too little credit with respect to a second mitigating factor.  They also argued the Secretary erred by failing to reconcile the length of their exclusion with the agency’s prior decisions. 

First, the Court rejected the argument that there was no financial loss, given that the Executives admitted responsibility for misdemeanor misbranding, which caused, at least in part, financial losses for which Purdue paid $160 million in “restitution.”  Moreover, the Court noted how Purdue had “almost $3 billion in revenues from OxyContin during the time it misbranded the drug, much of it from Federal and state health care programs which paid for prescriptions for OxyContin, some of which would not have been written but for the misbranding.” 

Second, the Executives argued that an aggravating factor was misapplied because it referred only to “acts” whereas their violations consisted solely of omissions.  The Court rejected this argument and noted that nothing turned “upon the distinction where it is made, and in light of the deference due the Secretary’s interpretation of her own regulation,” the Court concluded HHS’ interpretation equating the two terms when only “acts” are proscribed was a permissible one. 

Third, the Executives argued the Secretary erred in failing to take into account their lack of “conscious wrongdoing.”  The pertinent regulation establishes as a mitigating factor “that the individual has a mental, physical, or emotional condition ... that reduced the individual’s culpability.” 42 C.F.R. § 1001.201(b)(3)(ii).  The Appellants argued that their “lack of any awareness of wrongdoing” is one such “mental condition,” and the Secretary therefore erred in failing to give them credit for this mitigating factor.  The Court agreed with the Executives, and noted substantial evidence that HHS did not apply this mitigating factor. 

Fourth, the Court rejected the Executives argument that HHS gave insufficient weight to their cooperation with law enforcement agencies because the Executives did not show that the Secretary had abused her discretion.  

Finally, the Executives argued that the Secretary failed to justify the length of their exclusion in light of the agency’s prior decisions, as required by the Administrative Procedure Act (APA).  The Court agreed with the Executives that the APA authorizes review under the arbitrary and capricious standard, which requires that the Secretary provide a reasoned explanation for departing from agency precedent. 

In agreeing with the Executives, the Court noted that although the DAB had a number of prior decisions which excluded individuals for more than 10 years, those cases were “materially different.”  “Every one of the cases cited by the DAB involved a mandatory exclusion with a presumptive baseline of five years, not a discretionary exclusion with a presumptive baseline of three years; in addition, every cited case involved either a felony conviction or a conviction for Medicare fraud for which the defendant was incarcerated, none of which factors is present in this case.” 

“In fact, none of the cases cited by the DAB even concerned an exclusion under section 1320a-7(b)(1); it appears the Secretary has never excluded anyone for more than ten years under that provision of the statute,” the Court noted.  The longest period of exclusion the DAB had ever approved under section 1320a-7(b)(1) was four years.  The Court recognized that “when the DAB affirmed the Appellants’ 12-year exclusion the agency had never excluded anyone for more than ten years based upon a misdemeanor — a departure the agency does not even acknowledge, much less explain.” 

The Court explained that “simply pointing to prior cases with the same bottom line but arising under a different law and involving materially different facts does not provide a reasoned explanation for the agency’s apparent departure from precedent.”  Therefore “the decision of the DAB was arbitrary and capricious with respect to the length of the Appellants’ exclusion.” 

Williams Dissent 

Judge Williams disagreed with the majority’s finding that the exclusion should be upheld.  He took issue with how the court gave an extraordinarily broad definition of ‘relating to’ in which a “relationship” can be one of hostility or enmity, or can be orthogonal, so that for a literalist the statute is virtually meaningless.  Taken literally, the provision does not even ask for a “substantial relationship” or a “close relationship”; it calls only for a “relationship,” however attenuated.  Williams notes, however, that the parties appear to agree on narrowing the field a little, both assuming that the relationship must be one of overlap between the crime of fraud and the facts shown (or necessary to be shown) in appellants’ conviction of misdemeanor misbranding.   

The Executives viewed the required overlap fairly clearly: just as common law fraud requires a showing of scienter, the crime of conviction must have required proof of such an element.  The Secretary’s idea of the necessary overlap was more free floating—some sort of “nexus” between the convictions and fraud (or the other bases for exclusion).  But even this free-floating overlap (if it is to have any boundaries at all) requires some concept of “fraud, theft, embezzlement . . . or other financial misconduct,” Williams reasoned.  

Williams maintained that while “One can talk of ‘circumstance-specific’ relationships till one is blue in the face … in the end deciding whether the necessary overlap exists requires a definition (or at least an idea) of the types of conviction triggering § 1320a-7(b)(1)(A).  The conceptual battle cannot be avoided.”

The parties’ somewhat synthetic battle between “generic fraud” and the “circumstance-specific” approach lead “the court into an extensive showing that the statute is laced with requirements that in the end will require burrowing into facts.”  The majority argued that a statute rife with such intellectual exercises is not very likely to have clearly limited the Secretary to “generic fraud” for the fraud aspect of § 1320-7(b)(1)(A).  But the sense of all those “factual relationships” depends on conceptual relationships.  If the Secretary’s view is correct, “virtually any overlap between the facts required for fraud and those involved in (or required for) the offense of conviction is enough.” 

The meaning of a statute must not be confused with its simple linguistic potential.  Williams noted that “the linguistic potential of crime or ‘misdemeanor relating to fraud’ is almost infinite.”  The Secretary, though on common ground with appellants in understanding that the relation must be one of overlap, purports to see no other limit. The correct way, however, to read a statute is to “put it into context.”  Here the context suggests a requirement of at least some approximation of the moral turpitude associated with “fraud” itself. Williams reasoned:   

Very troublingly, without such an effort at seeking the legal meaning of the disputed clause, we have a reading by the Secretary that offers none of the “precision and guidance [that] are necessary so that those enforcing the law do not act in an arbitrary or discriminatory way.” FCC v. Fox Television Stations, Inc., 132 S. Ct. 2307, 2317 (2012).  That failing is especially acute for an action that excludes appellants from pursuing careers in the pharmaceutical industry—where they’ve spent their lifetimes accumulating industry-specific human capital.” 

“Misdemeanor” and “fraud” have well-established meanings.  The Secretary need only prescribe some specific meaning for the word “related.”  It might require that an excluded individual’s conviction rest on findings of all the elements of fraud, as the appellants argue; or it might require only that it rest on findings of the person’s culpable responsibility for a material misrepresentation.  It is for the Secretary to say, subject of course to judicial review.  But an invocation of “nexus,” though it fits linguistically, is simply not a legal interpretation as that process is normally understood.  It’s more accurately seen as a refusal to interpret.

GlaxoSmithKline (GSK) Settlement and Corporate Integrity Agreement

The Department of Justice (DOJ) announced its largest health care fraud settlement in U.S. history: $3 Billion from GlaxoSmithKline (GSK).  Continuing the long trend of settlements with pharmaceutical companies for off-label promotion, DOJ announced that the settlement includes GSK agreeing to plead guilty to a three-count criminal information, including two counts of introducing misbranded drugs, Paxil and Wellbutrin, into interstate commerce and one count of failing to report safety data about the drug Avandia to the Food and Drug Administration (FDA).  The press release describes the full array of misconduct and various products involved.  

Under the terms of the plea agreement, GSK will pay a total of $1 billion, including a criminal fine of $956,814,400 and forfeiture in the amount of $43,185,600.   The criminal plea agreement also includes certain non-monetary compliance commitments and certifications by GSK’s U.S. president and board of directors. 

GSK will also pay $2 billion to resolve its civil liabilities with the federal government under the False Claims Act, as well as the states.  The civil settlement resolves claims relating to Paxil, Wellbutrin and Avandia, as well as additional drugs, and also resolves pricing fraud allegations. 

As part of this global resolution, GSK has agreed to resolve its civil liability for the following alleged conduct:  (1) promoting the drugs Paxil, Wellbutrin, Advair, Lamictal and Zofran for off-label, non-covered uses and paying kickbacks to physicians to prescribe those drugs as well as the drugs Imitrex, Lotronex, Flovent and Valtrex; (2) making false and misleading statements concerning the safety of Avandia; and (3) reporting false best prices and underpaying rebates owed under the Medicaid Drug Rebate Program. 

Corporate Integrity Agreement 

Moving forward, GSK will be subject to stringent requirements under its corporate integrity agreement (CIA) with the Department of Health and Human Services (HHS), Office of the Inspector General (OIG); this agreement is designed to increase accountability and transparency and prevent future fraud and abuse. 

The five-year Corporate Integrity Agreement (CIA) includes novel provisions that require that GSK implement and/or maintain major changes to the way it does business, including changing the way its sales force is compensated to remove compensation based on sales goals for territories, one of the driving forces behind much of the conduct at issue in this matter. 

Under the CIA, GSK is required to change its executive compensation program to permit the company to recoup annual bonuses and long-term incentives from covered executives if they, or their subordinates, engage in significant misconduct. GSK may recoup monies from executives who are current employees and those who have left the company.  Among other things, the CIA also requires GSK to implement and maintain transparency in its research practices and publication policies and to follow specified policies in its contracts with various health care payors. 

“Our five-year integrity agreement with GlaxoSmithKline requires individual accountability of its board and executives,” said Daniel R. Levinson, Inspector General of the U.S. Department of Health and Human Services. “For example, company executives may have to forfeit annual bonuses if they or their subordinates engage in significant misconduct, and sales agents are now being paid based on quality of service rather than sales targets.” 

Specifically, GSK agreed that it will not provide financial reward (through compensation, including incentive compensation or otherwise) or discipline (through tangible employment action) its prescribing-customer-facing field sales professionals (pharmaceutical sales representatives) or their direct managers based upon the volume of sales of GSK products within a given employee’s own territory or the manager’s district. 

GSK’s Patient First program includes evaluations for sales representatives based on business acumen, customer engagement, and scientific knowledge about GSK’s products. GSK must continue its Patient First Program, or a substantially equivalent program, during the term of its CIA. GSK commits to maintaining for at least the duration of the CIA, absent agreement otherwise with the OIG, the restrictions on such tangible employment decisions set forth in its Use of Territory/Individual Sales Data policy. 

In addition, GSK must establish and maintain throughout the term of its CIA a financial recoupment program that puts at risk of forfeiture and recoupment an amount equivalent to up to 3 years of annual performance pay (i.e., annual bonus, plus long term incentives) for an executive who is discovered to have been involved in any significant misconduct (Executive Financial Recoupment Program).  This financial recoupment program applies to both covered executives who are either current GSK employees or who are former GSK employees at the time of a Recoupment Determination. 

Essentially, the annual cash bonus for each GSK employee based in the United States and the United Kingdom is at risk of forfeiture in the event of employee misconduct that is discovered by GSK before the bonus is paid.  In the event of misconduct by any GSK employee worldwide, GSK also has reserved the right and full discretion to void and forfeit any unvested share options and any unvested restricted share grants under the GSK Share Option Plan, Share Value Plan and Performance Share Plan (collectively, the “LTI Plans”).  If GSK discovers any employee misconduct that would implicate the forfeitures described in this paragraph, it shall evaluate the situation and make a determination about whether any forfeiture, and the terms of such forfeiture, must be implemented. 

In addition to the compensation forfeiture provisions already in place with respect to annual bonuses and the LTI Plans, within 120 days after the Effective Date of the CIA, GSK must modify and supplement its annual bonus plan and LTI Plan requirements (and any employment agreements, as appropriate) by imposing certain eligibility and repayment conditions on future bonuses and LTI Plan grants, as well as establishing the mandatory deferred annual bonus, tolling remedy, and additional remedies discussed below (collectively, “New Commitments”) to all members of GSK’s Corporate Executive Team (CET) and to any Vice Presidents and Senior Vice Presidents in Grades 0, 1, and 2 who are based in the United States (collectively “Covered Executives”). The New Commitments will apply prospectively to Covered Executives beginning with the 2013 bonus plan year and LTI Plan grants. 

GSK CME CIA Obligations 

GSK represented in its CIA that it gives grants for medical education of HCPs on a limited basis and that it provides such grants only to educational providers (including academic medical centers, hospital or delivery systems, or professional medical associations that represent HCPs who deliver patient care) that satisfy pre-set criteria established by GSK.  Potentially eligible educational providers are selected annually and invited to submit grant proposals for a future fiscal year.  GSK represents that it does not provide funding to any commercial providers of medical education. 

GSK’s Medical Affairs organization reviews the grant proposals from the potential providers and makes recommendations for approval based on objective criteria, compliance policies and procedures, and budget availability.  GSK represents that its commercial organization (including the sales and marketing departments) has no involvement in, or influence over, the review and approval of medical education grants.

GSK shall continue the medical education grant process described above (or an equivalent process) throughout the term of the CIA, and shall notify the OIG in writing at least 60 days prior to the implementation of any new system subsequent to the Effective Date. 

To the extent not already accomplished, within 120 days after the Effective Date, GSK must establish a Grants Monitoring Program through which it will conduct audits for each Reporting Period of at least 10 medical education grants for the first Reporting Period and 5 medical education grants for subsequent Reporting Periods.  

The Grants Monitoring Program must select grants for review both on a risk-based targeting approach and on a sampling approach.  GSK Monitoring Personnel conducting the Grants Monitoring Program must review proposal documents (including grant requests), approval documents, contracts, payments and materials relating to the grant office’s review of the requests, and documents and materials relating to the grants and any events or activities funded through the grants in order to assess whether the activities were conducted in a manner consistent with GSK’s Policies and Procedures. 

Results from the Grant Monitoring Programs, including the identification of potential violations of policies, must be compiled and reported to the Compliance Officer (or compliance personnel designee) for review and follow-up as appropriate.

Abbott Settlement and Corporate Integrity Agreement

Continuing the recent trend of large legal settlements with pharmaceutical companies, the Department of Justice (DOJ) this week announced that Abbott Laboratories Inc. (Abbott), pleaded guilty and agreed to pay $1.5 billion to resolve its criminal and civil liability arising from the company’s unlawful promotion of the prescription drug Depakote for uses not approved as safe and effective by the Food and Drug Administration (FDA). 

 

According to the DOJ press release, the resolution– the second largest payment by a drug company – includes a criminal fine and forfeiture totaling $700 million and civil settlements with the federal government and the states totaling $800 million.  Abbott also will be subject to court-supervised probation and reporting obligations for Abbott’s CEO and Board of Directors.  

 

Background 

 

The FDA is responsible for approving drugs as safe and effective for specified uses.  Under the Food, Drug and Cosmetic Act (FDCA), a company in its application to the FDA must specify each intended use of a drug.  A company’s promotional activities must be limited to only the intended uses that FDA approved.   In fact, promotion by the manufacturer for other uses – known as “off-label” uses – renders the product misbranded. 

 

 The FDA approved Depakote for only three uses: epileptic seizures, bipolar mania and the prevention of migraines.  The FDA never approved the drug as safe and effective for the off-label use of controlling behavioral disturbances in dementia patients.  In 1999, Abbott was forced to discontinue a clinical trial of Depakote in the treatment of dementia due to an increased incidence of adverse events, including somnolence, dehydration and anorexia experienced by the elderly study participants administered Depakote. 

 

Abbott pleaded guilty to misbranding Depakote by promoting the drug to control agitation and aggression in elderly dementia patients and to treat schizophrenia when neither of these uses was FDA approved.  In an agreed statement of facts filed in the criminal action, Abbott admits that from 1998 through 2006, the company maintained a specialized sales force trained to market Depakote in nursing homes for the control of agitation and aggression in elderly dementia patients, despite the absence of credible scientific evidence that Depakote was safe and effective for that use.  In addition, from 2001 through 2006, the company marketed Depakote in combination with atypical antipsychotic drugs to treat schizophrenia, even after its clinical trials failed to demonstrate that adding Depakote was any more effective than an atypical antipsychotic alone for that use. 

 

“Today’s settlement demonstrates our continued scrutiny of the sales and marketing practices of pharmaceutical companies that put profits ahead of patient health,” said U.S. Food and Drug Administration Commissioner Margaret Hamburg, M.D.  “The FDA will continue its due diligence and hold pharmaceutical companies accountable for marketing practices that undermine the drug approval process.”

 

Abbott has pleaded guilty to a criminal misdemeanor for misbranding Depakote in violation of the FDCA.  Under the plea agreement, Abbott will pay a criminal fine of $500 million, forfeit assets of $198.5 million, and submit to a term of probation for five years.   In addition, Abbott will also pay $1.5 million to the Virginia Medicaid Fraud Control Unit.  

 

As a condition of probation, Abbott will report any probable FDCA violations to the probation office, its CEO will certify compliance with this reporting requirement, and its board will report annually on the effectiveness of the company’s compliance program. 

 

In addition, Abbott agrees that during the term of probation, the company will not compensate sales representatives for off-label sales, will ensure that continuing medical education (CME) grant-making decisions are not controlled by sales and marketing, will require that letters communicating medical information to healthcare providers be accurate and unbiased, and will have policies designed to ensure that clinical trials are approved by the company’s medical or scientific organizations and published in a consistent and transparent manner. 

 

Corporate Integrity Agreement 

 

In addition to the criminal and civil resolutions, Abbott has also executed a Corporate Integrity Agreement(CIA) with the Department of Health and Human Services, Office of Inspector General (HHS-OIG).  The five-year CIA requires, among other things, that Abbott's board of directors review the effectiveness of the company's compliance program, that high-level executives certify to compliance, that Abbott maintain standardized risk assessment and mitigation processes, and that the company post on its website information about payments to doctors.  Abbott is subject to exclusion from federal health care programs, including Medicare and Medicaid, for a material breach of the CIA and subject to monetary penalties for less significant breaches. 

 

“As a result of OIG’s joint investigation with our federal and state partners, Abbott Laboratories will enter one of the pharmaceutical industry’s largest settlements and pay $1.5 billion for unlawfully promoting its drug Depakote, including to nursing home patients with dementia,” said HHS Inspector General Daniel R. Levinson.  “Our integrity agreement will hold Abbott accountable for preventing future violations of federal health care laws and FDA requirements, which will protect federal programs, taxpayers and our most vulnerable patients.” 

 

The CIA, among other things, has relevant provisions regarding continuing medical education (CME).  The CIA uses the boilerplate language to define the term “Third Party Educational Activity” as “any continuing medical education (CME), disease awareness, or other scientific, educational, or professional program, meeting, or event governed by Federal health care programs and/or FDA requirements and supported by PPG, including but not limited to, sponsorship of symposia at medical conferences.” 

 

“Covered persons” include “all contractors, subcontractors, agents, and other persons who perform any of the Covered Functions on behalf of PPG, including, but not limited to third party vendors who provide services relating to the Covered Functions (e.g., for speaker programs or medical education programs.)” 

 

Under the CIA, Abbott must implement written policies and procedures that address the “sponsorship or funding of grants (including educational grants) or charitable contributions.  These Policies and Procedures shall be designed to ensure that PPG’s funding and/or sponsorship complies with all applicable Federal health care program and FDA requirements.” (p. 14). 

 

Abbott must also must implement written policies and procedures that address funding of, or participation in, any Third Party Educational Activity.  These Policies and Procedures must be designed to ensure that PPG’s funding and/or sponsorship of such programs satisfies all applicable Federal health care program and FDA requirements. The Policies and Procedures must require CME grant-making decisions to be approved by Abbott’s financial or other organizations separate from sales and marketing and that financial support shall be provided only to programs that foster increased understanding of scientific, clinical or healthcare issues.” (p. 14).  The Policies and Procedures must require that: 
 

 

1)    Abbott disclose its financial support of the Third Party Educational Activity and, to the extent feasible consistent with the CIA, any financial relationships with faculty, speakers, or organizers at such Activity;

2)    as a condition of funding, the third party must agree to disclose Abbott’s financial support of the Third Party Educational Activity and to require faculty, speakers, or organizers at such Activity to disclose any financial relationship with Abbott;

3)    the Third Party Educational Activity have an educational focus;

4)    the content, organization, and operation of the Third Party Educational Activity (including the faculty, educational methods, materials, and venue) be independent of Abbott’s control;

5)    Abbott support only Third Party Educational Activity that is non-promotional in tone/nature; and

6)    Abbott’s support of a Third Party Educational Activity must be contingent on the provider’s commitment to provide information at the Third Party Educational Activity that is fair, balanced, accurate and not Misleading. (p. 15).  

 

Abbot must also develop and implement a monitoring program for medical education grants.  Grant requests must be submitted to a grant management department(s) in the finance organization(s) (or another organization that is separate from sales and marketing) and all such requests shall be processed in accordance with standardized criteria developed by the grant management department(s).  Abbott must continue the medical education grant process described above (or an equivalent process) throughout the term of the CIA, and must notify the OIG in writing at least 60 days prior to the implementation of any new process or system subsequent to the Effective Date. 

 

To the extent not already accomplished, within 120 days after the Effective Date,

 

Abbott must establish a Grants Monitoring Program through which it must conduct audits for each Reporting Period of at least 30 medical education grants in the United States.

 

The Grants Monitoring Program will select grants for review both on a risk-based targeting approach and on a sampling approach.  Abbott U.S. compliance personnel (or other appropriately trained Abbott personnel who are independent from the monitored functional area) will conduct Grants Monitoring by reviewing proposal documents (including grant requests), approval documents, contracts, payments and materials relating to the grant office’s review of the requests, and documents and materials relating to the grants and any events or activities funded through the grants in order to assess whether the activities were conducted in a manner consistent with Abbott’s Policies and Procedures.  Results from the Grant Monitoring Program, including the identification of potential violations of policies, will be compiled and reported to the U.S. Compliance Department for review and follow-up as appropriate. 

 

Abbott represented in the CIA that it posts, at least annually, information on its company website regarding educational grants and charitable donations to U.S medical and other health care professional organizations, patient organizations, academic institutions, hospitals, medical education companies and other scientific associations in amounts of more than $200.  The information posted on the company website includes: (1) definitions for the types of grants and donations posted; (2) list of recipients in alphabetical order; and (3) payment amount and purpose.   

 

Under the CIA, Abbott must continue to post (and provide updates to) the above-described information about Abbott-supported educational grants and charitable donations throughout the term of this CIA. Abbott must notify the OIG in writing at least 60 days prior to any change in the substance of its policies regarding the funding of such educational grants and charitable donations or posting of the above-referenced information relating to such funding. 

 

Conclusion 

 

This resolution is part of the government's emphasis on combating health care fraud and another step for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced in May 2009 by Attorney General Eric Holder and Kathleen Sebelius, Secretary of HHS.  The partnership between the two departments has focused efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation.   

 

One of the most powerful tools in that effort is the False Claims Act, which the Justice Department has used to recover more than $7.4 billion since January 2009 in cases involving fraud against federal health care programs.  With the settlement announced today, the Justice Department's total recoveries in False Claims Act cases since January 2009 will exceed $10.2 billion.   During this same time, the department has secured $3.9 billion in criminal fines, forfeiture, disgorgement, and restitution relating to violations of the FDCA.

Stryker Biotech: Case Dismissed Charges Dropped

Over the past few years, there has been no shortage of legal cases brought by federal and state prosecutors against drug and device manufacturers for promoting their products “off-label.”  These cases have led to hundreds of millions of dollars being collected by the federal government, and in a few recent cases, even billions of dollars. 

One recent case, however, had quite the opposite result.  Specifically, federal prosecutors last month walked into federal court with 13 felony charges against Stryker Biotech Corporation and six against its former national sales director and two former regional managers.  As an article from Rx Compliance Report recently described, the Department of Justice (DOJ) alleged an illegal off-label promotion scheme designed to enrich both the company and the individual defendants. 

Despite the significant stakes the company faced—mandatory exclusion from doing business with federal health care programs—Stryker’s defense team managed to turn the thirteen felony charges into a settlement for a single misdemeanor plea and a fine of $15 million from Stryker Biotech, a fraction of the total sales at issue.  As Rx Compliance Report noted, “the prosecution of Stryker Biotech represents the first bona fide off-label case against a pharmaceutical or medical device company to go to trial since the government’s enforcement initiative in those two sectors started in earnest roughly a decade ago.” 

Background of Off-Label Cases 

In general, the Food and Drug Administration (FDA) approves drugs and devices only for specific indications.  For example, a drug may only be approved to treat patients for cancer.  This indication is then approved and placed “on the label” of the drug and in its packaging.  FDA, however, does not regulate what indications a physician or other legally authorized healthcare professional can prescribe the product for.  Therefore, if a drug has been shown through clinical research to have other indications, that are “off-label,” and therefore not approved by FDA, a physician—based on his training, experience, education, and individual patient’s history and presentation—can prescribe a drug for that off-label indication. 

Drug and device manufacturers, however, cannot promote these off-label uses.  Doing so violates the Food, Drug, and Cosmetic Act (FDCA), and renders a product mislabeled or misbranded.  If a manufacturer submits claims for off-label uses of a drug or device, and Medicare or federal health programs pay for such off-label use, state and government prosecutors can go after companies not only for violating the FDCA, but also violating the False Claims Act (FCA) for causing false claims to be submitted to federal healthcare programs. 

DOJ has made violations of the FDCA a top priority for close to a decade and more recently, DOJ has repeatedly stated its intent to prosecute individuals along with companies. The case against Stryker Biotech was brought by the Healthcare Fraud Unit in the U.S. Attorney’s Office in Boston, which has played a central role in prosecuting drug and device companies over the past decade. This includes many of the largest corporate off-label cases, such as Pfizer’s $2.3 billion off-label settlement in 2009.   

More recently, it included the high-profile prosecution of former GSK attorney, Lauren Stevens. That case came to an abrupt conclusion when the judge threw the case out of court at the conclusion of the government’s evidence. 

The Case 

 “The core of the government’s allegations centered on alleged off-label promotion and the concealment of adverse events,” says WilmerHale’s Brent Gurney, who represented David Ard, one of the regional managers. “The government tried to turn it into a fraud case,” he says, “but that square would not fit in that circle.”  “The mistake they made in this case was not bad tactics,” says Gurney. “It was a case that never should have been brought.” 

The government alleged that Stryker Biotech had deliberately misled surgeons and put patients at risk by marketing an unapproved mixture of two separate products – OP-1 and Calstrux – used to generate human bone growth.  Assistant U.S. Attorney Susan Winkler told the jury in her opening statement that the mixture was never studied clinically; the company did not know whether it worked or was safe; and yet they still marketed it to doctors. 

Winkler promised to provide evidence that the defendants knew that promoting the mixture of OP-1 and Calstrux to doctors was illegal because it was not approved by FDA.  She said she would also show evidence that the three defendants and the corporation  “knew that doctors had been misled into thinking this product was all OP-1, that they didn’t even realize in many cases that Calstrux was involved, and that they would convince doctors to buy it on that basis.”  The evidence would also show that the defendants sought to put hundreds of thousands of dollars in their pockets through the scheme, she said. 

Stryker’s defense counsel, however, struck a sharp blow to the government’s case.  While the government specifically identified seven surgeons in its indictment who, it charged, had been deliberately misled by Stryker Biotech’s sales team, Ropes & Gray’s Brien O’Connor revealed during his opening argument that federal prosecutors had failed to speak with any of the surgeons and “never interviewed even one of these supposed victim surgeons. They never spoke with them. They never even tried to speak with them. They took two years before this indictment to investigate. They could have taken longer. There was no deadline to meet.” 

Instead, O’Connor told the jury, defense counsel did speak with the surgeons.  And as O’Connor told the jury further, these surgeons were going to take that witness stand and tell the jury “three things: The defendants did not lie to them; the defendants did not deceive them; the defendants did not defraud them in any way.” 

The next blow to the government came when the government’s first witness testified that doctors mixed the two products in question, because that is consistent with medical practice, not because they had been influenced by Stryker Biotech sales reps.

Shortly thereafter, the government agreed to dismiss all charges against the individuals and settle the case against the company with a single misdemeanor count of misbranding a medical device. A week later, DOJ dropped all charges against the remaining defendant, Mark Philip, who was president of the company from 2004 to 2008. 

One seeming advantage the government had was the fact that four Stryker sales reps had earlier pled guilty to felony misbranding charges in connection with the two products.  The problem for the government, says Levy, was the fact that the company itself had fired those individuals for forging documents.  Because of the humanitarian exempt status of the products, institutional review boards (IRB) had to sign off on the use of these products, he explains. The sales reps who later pled guilty had forged signatures associated with that process. 

Ironically, the company not only turned them in, says Levy, it also made four written voluntary reports about the incident to the FDA.  Prosecutors subsequently requested the company’s internal statements, he says, and then used them to start building a criminal case against Stryker Biotech.  “They pled guilty to felony misbranding with intent to deceive,” he says, “but they cut a deal with the government and were set to testify pursuant to personal cooperation agreements with the government at trial.” 

Post-Case Developments 

Shortly after the charges against Philip were dropped, U.S. Attorney Carmen Ortiz issued a statement regarding the outcome of the case. While she cited the “unparalleled” success the U.S. Attorney’s Office in Boston has achieved in combating fraud, she noted that “unfavorable pretrial rulings, combined with a strategic error in preparing for trial, led to the dismissal of charges against the individual defendants in the Stryker case.” Ortiz called it “a difficult decision” that was warranted by a “complex confluence of factors.” 

Although the company will pay a $15 million fine in connection with the misbranding misdemeanor. Ortiz noted that, “doing justice meant dismissing the charges, rather than subjecting these individuals to a protracted trial where the government could not put its most effective case before the jury.” 

According to the defense team, the government faced several significant problems from the outset.  First, they noted how surgeons are highly-skilled individuals who make their own decisions about how they use medical devices in complex spine and trauma surgeries. “The government claims they were victimized … but never spoke to them.” 

Second, the defense team showed that the products were in fact safe by showing that the number of adverse events totaled 63 out of 10,000 uses – or less than one percent.  Moreover, many of the adverse events were relatively minor conditions, such as fevers or infections that were quickly remedied. “I think we effectively defused the notion that the products were not safe,” says Joshua Levy, a partner with Ropes & Gray, which represented Stryker Biotech. 

Another problem with the government’s case was its characterization of the relationship between Stryker Biotech’s sales force and the physicians who would potentially use the products in question.  Gurney says that relationship is paramount for the company’s long-term success. “The company is interested in a long-term relationship with surgeons,” he explains.  “This isn’t a quick hit business.”  In short, he says, the notion that the company would deliberately attempt to trick sophisticated physicians into using a product by concealing important facts is “absurd.” 

In addition, says Gurney, there are many bone void fillers on the market. “It is almost a commodity,” he says, “so the idea that a surgeon would be confused about the two products or how they should be used is also absurd.” 

Finally, Levy points out that the products in question were approved under a humanitarian device exemption that precluded the company from making a profit. While the restriction was not necessarily a hard cap, he says, this further undermined the notion that the company was primarily interested in maximizing short-term sales. 

Conclusion 

Ultimately, the defense counsel credited DOJ with “doing the right thing” and dismissing the case.  Health care attorneys praised the defense counsel on this case and noted how they “out-investigated” the government and did an “exceptional job researching the elements of the government’s fraud theory and then investigating the facts and evidence. 

This case serves as an example for future off-label promotion cases that the government tries to turn into fraud cases.  The problem, as pointed out by defense counsel, was that these kinds of cases never get tested because companies don’t want to risk exclusion.  However, here, a “case got tested” and the government realized that off-label promotion is not just “black and white.” 

Given the risks companies face—mandatory exclusion from doing business with federal health care programs for a felony conviction—it is still uncertain whether this precedent will lead other companies to take their cases to court.  If anything, this case just demonstrates that the government, next time, is going to be bringing everything they have to win one of these cases. 

DOJ Failed Case against GSK Staff Lawyer Lauren Stevens: Lessons Learned

In November 2010, the Department of Justice (DOJ) issued a press release discussing a six-count indictment against Lauren Stevens that subjected her to a maximum of 60 years in federal prison.  When she was indicted, Stevens was a retired vice president and former in-house attorney for GlaxoSmithKline (GSK).  

The Maryland federal indictment charged Stevens with two counts of obstruction and four counts of making material false statements during a Food and Drug Administration (FDA) investigation into whether GSK improperly introduced a misbranded drug—Wellbutrin—into interstate commerce. 

Tony West, the Assistant Attorney General for the Civil Division noted that, “[w]here the facts and the law allow, the Justice Department will pursue individuals responsible for illegal conduct just as vigorously as we pursue corporations.”  A recent article from the Food and Drug Law Institute (FDLI) noted that DOJ “was vigorous indeed in its prosecution of Stevens.”  

On May 10, 2011 United States District Judge Roger Titus dismissed the government’s indictment for the second time. Judge Titus’s Order granting Stevens’ Rule 29 Motion discussed the appropriate parameters of attorney-client privilege and the importance of advice of counsel extensively.  The FDLI article recommended that, “All in-house and outside counsel should read Judge Titus’ Rule 29 Order dismissing the case for three important reasons.” 

1. First, it reminds us all of how important privileged and candid communications are between lawyer and client.
2. Second, it demonstrates how aggressively and effectively the government can prosecute a case, including seizing clearly privileged documents against a company’s wishes. 
3. Third, it serves to illustrate that there are times when a zealous, albeit respectful, defense is the best tactic, particularly when confronted with some of the government’s theories concerning enforcement under FDCA and its implementing regulations. 

In his Rule 29 Order, the Judge concluded that Stevens “should never have been prosecuted and that she should be permitted to resume her career.”  It was the first time he had granted a Rule 29 Order in his almost eight years on the bench. 

The FDA Investigation 

The FDA began its investigation into whether GSK improperly promoted the anti-depressant drug Wellbutrin SR for weight loss, an off-label use, in late 2002, almost a decade before Stevens was indicted.  On October 9, 2002, FDA sent GSK an initial letter requesting “copies of all slides . . . and other materials presented or distributed at any program or activity related to Wellbutrin” and “all compensation provided to individuals involved in programs or activities related to Wellbutrin.” 

Stevens, GSK’s Vice President and Associate General Counsel for U.S. Legal Operations at the time, headed up the company’s response to FDA’s inquiries. GSK agreed to make a good faith effort to voluntarily provide FDA with materials presented at GSK-sponsored promotional programs, including those presented by outside consultants. Stevens, aided by in-house GSK lawyers and outside counsel, initiated an internal investigation.  The legal team solicited documents from 550 out of over 2,000 consultants and received 40 responses from the doctors who worked with GSK. 

Twenty-eight of the slide decks received from these doctors discussed off-label uses for Wellbutrin. Stevens and her team sent follow-up letters to these physicians stating that she had “reviewed the content of your presentations and determined that they contained material relating to GSK products (e.g. Wellbutrin SR) and uses that are not currently FDA-approved indications for those products. Any affirmative presentation in a GSK-sponsored non-independent program suggesting that a GSK product is effective in conditions that are not approved indications is inconsistent with FDA requirements, GSK policy and your contract with GSK.” GSK responded to FDA’s inquiry in a number of separate written communications in the first half of 2003.  GSK, among many other things, represented that: 

• GSK had not developed a program or activity to encourage the use of Wellbutrin as a means to achieve weight loss.
• GSK had not developed or maintained promotional plans to promote Wellbutrin for weight loss.
• GSK had two types of advisory boards: national and local (omitting any mention of GSK’s “special issues boards”).
• Attendees were not paid, reimbursed or otherwise compensated to attend GSK’s speaker programs, “with the exception of reimbursement for parking fees in some cases.”  

The government charged all four of these statements as federal felonies. GSK’s initial letter to FDA in May 2003 included a spreadsheet containing titles of doctors’ presentations and noted that some appeared to contain information regarding of-label uses of Wellbutrin. 

Stevens and her team of lawyers did not provide the actual physician presentations to FDA at that time. It is worth noting that Stevens signed all of the letters to FDA. Nevertheless, the first drafts were done by outside counsel, and the inal submissions were the yield of a collaborative process that included two other in-house lawyers and GSK’s outside counsel.  The advice that she received from these lawyers would prove to be the most significant pillar of her defense strategy. 

The Government’s Case 

Before Stevens’ November 8, 2010 indictment was returned by a grand jury in Maryland, the government convinced a Massachusetts federal magistrate judge to order that attorney-client privileged documents from the time when GSK was interacting with FDA on the Wellbutrin matter be released to the government.  This was ordered pursuant to the crime fraud exception to the attorney-client privilege. 

The Crime Fraud Exception is designed to overcome the attorney-client privilege only when the evidence established that the client intended to perpetuate a crime or fraud and the communications at issue between the attorney and the client were made in furtherance of such crime or fraud.”  Judge Titus noted that the use of the crime fraud exception to force disclosure of clearly privileged documents was an “illustration of how aggressively the government prosecuted this case.”  Moreover, the government even declined to try the case in front of a judge, at the request of Stevens, and instead, insisted on its right to try the case to a jury. 

When he dismissed the government’s case, Judge Titus said that, “with the 20/20 vision of hindsight . . . the Massachusetts Order was an unfortunate one.” He went on to say that the government should not have been “permitted to forage through confidential files to support an argument for criminality of the conduct of the defendant.”  He further noted that the case had “profound implications for the free flow of communications

between a lawyer and client when the privilege is abrogated.”  Consequently, the article pointed out two examples of attorney-client communications that the government viewed as part of a crime in this case.  

First, the government attempted to prove the element of “corrupt intent” with excerpts from Stevens’ handwritten notes that weighed possible benefits of, and problems caused by, producing the doctors’ slide decks to the FDA. These were notes that she took in meetings with witnesses and with the lawyers with whom she was working to conduct the internal investigation.  They reflected her thoughts and legal conclusions.  They included summaries of information she received from other lawyers and how she viewed such information. These notes were actually quoted in the indictment against her. 

Second, the government believed that the memorandum, which was developed by GSK’s outside counsel, demonstrated that Stevens knew she was obstructing justice. The memo balances the pros and cons of producing the slide decks. 

Some Practical Recommendations 

Ultimately, Judge Titus stated in his Rule 29 Order at the conclusion of the government’s case that “a lawyer should never fear prosecution because of advice that he or she has given to a client who consults him or her . . . . here is an enormous potential for abuse in allowing prosecution of an attorney for the giving of legal advice.” 

This statement is directly tied to the very basic notion in the Preamble to the Model Rules of Professional Conduct that “it is a lawyer’s obligation to zealously protect and pursue a client’s legitimate interests, within the bounds of the law.” Judge Titus was quite clear that the life-line that drove his decision on Stevens’ Rule 29 Motion was her advice of counsel defense. The Judge concluded that Stevens was practicing law by zealously representing her client.  

Moving forward, “the use of the crime fraud exception to the attorney-client privilege should be carefully considered by the life sciences industry. Vigilant communication must be practiced, even in written product that is clearly at the core of the privilege. The article concluded by noting that, life science companies and their in-house counsel should consider the following: 

• Involve the company’s legal department.
• In complicated high-risk interactions with any agency, corporate lawyers should ensure they work “shoulder-to- shoulder” with a multi-disciplinary team of attorneys who understand the government entity with which they are dealing.
• Encourage company counsel to carefully consider whether outside counsel should sign any submission.
• Keep dialogue civil, even when company views the government as being unfair.
• Draft any written product with an eye toward how a criminal investigator would interpret writing with full benefit of hindsight. Particularly true of all submissions to government, although it is a warning that should be heeded for all documents, even those most lawyers would never expect to receive public scrutiny. 

Additionally, a client alert from the law firm Ober Kaler offered some recommendations based on the Stevens case as well.  

-       Lesson 1:  Know when to engage outside counsel.  In house counsel should make clear to government officials from the outset that they will be relying, in good faith, on the advice of outside counsel throughout the investigation, since it appears that their own guidance as in house counsel may not be enough in the eyes of government investigators.

-       Lesson 2: Engage Counsel Early On.  When served with a formal or informal government investigatory demand, engage counsel and specifically outside counsel early on in the investigation to take advantage of the attorney-client privilege and the advice of counsel defense from the get go. Indeed, in house counsel should take these steps to alleviate the risk of government charges upon receiving an investigation inquiry.

-       Lesson 3: Review the Engagement Letter Carefully.  At the outset, the scope of representation by outside counsel should be well defined in a detailed engagement letter. To that end, in house counsel should ensure that the engagement letter with outside counsel defines the scope of the bona fide representation. Make sure to state explicitly in the letter the extent to which in house counsel will rely on the advice of outside counsel. For example, the letter should clearly state whether outside counsel will submit documents to the government on the client’s behalf.

-       Lesson 4:  Create a Paper Trail.  Create a paper trail that documents the investigation process followed by in house counsel at the advice of outside counsel. Documentation alleviates the risk of an investigation going awry. In Stevens, the judge specifically relied on favorable evidence found in house counsel’s correspondence with outside counsel. The documents showed that outside counsel was intimately involved with GSK’s document production that triggered Steven’s indictment.  For example, the judge pointed to letters and emails between in house counsel and outside counsel that showed that in house counsel was diligently relying on outside counsel’s advice. Taking Judge Titus’ reasoning at face value, in house counsel should heed his advice and be confident in making full disclosures to outside counsel as a matter of good public policy. Doing so will help to ensure that the free flow of information from in house to outside counsel is well documented.

-       Lesson 5: General Counsel’s Must Educate Their In House Counsel.  In light of Stevens, the advice of counsel defense is worthy of a refresher for in house counsel. Taking precautions on the front end and educating your in house attorney staff can protect against criminal allegations.

CMS and OMB Announce New Fraud Measures

In 2010, the President announced three goals for cutting improper payments in federal health programs by 2012: reducing overall payment errors by $50 billion, cutting the Medicare fee-for-service error rate in half, and recovering $2 billion in improper payments.  The Obama Administration put these goals into a program called the “Campaign to Cut Waste.” 

This month, the Office of Management and Budget (OMB) announced that the Administration cut wasteful improper payments by $17.6 billion dollars in 2011 as part of Campaign to Cut Waste, fueled by decreases in payment errors in Medicare, Medicaid, Pell Grants, and Food Stamps.  

Additionally, OMB Director Jack Lew recently issued a memo to agencies directing them to step up their oversight of contractors and grant recipients in order to eliminate unnecessary risk of waste, fraud and abuse. Specifically, the guidance directs agencies to strengthen their suspension and debarment procedures – tools that allow the Federal government to stop doing business with bad actors who put taxpayer dollars at risk. 

Fighting Fraud, Waste and Abuse 

Combined with the improper payment cuts in 2010, agencies have avoided making over $20 billion in improper payments in the two years since President Obama issued an Executive Order initiating an aggressive campaign against wasteful payment errors. Vice President Joe Biden said, “The sharp reduction in payment errors … demonstrates this Administration is serious about cutting waste.” 

“Because of the sustained commitment from the President, the Vice President, and leaders across the Administration – and the effective use of technology – we are seeing real progress cracking down on this waste of taxpayer dollars that has persisted for far too long,” said OMB Director Jack Lew. 

“Through aggressive and innovative solutions being deployed by Federal agencies, we are on track to meet the President’s bold directive to prevent $50 billion in payment errors by the end of 2012. This is a good step, but not the end. We will continue to work day and night to prevent taxpayer dollars from being wasted in payments to the wrong people or in the wrong amount.” 

In addition to OMB’s announcement, the Centers for Medicare & Medicaid Services (CMS) recently announced that it will launch demonstration programs beginning in January 2012 targeting some of the most common factors that lead to improper payments in health programs.  

Cost Saving Projects will Help Protect Medicare and Medicaid  

Beginning on January 1, 2012, CMS will conduct demonstration projects that will strengthen Medicare by aiming at eliminating fraud, waste, and abuse.   Reductions in improper payments will help ensure the sound future of the Medicare Trust Fund and protect Medicare beneficiaries who depend upon it.  

• Recovery Audit Prepayment Review: The Recovery Audit Prepayment Review demonstration will allow Medicare Recovery Auditors (RACs) to review claims before they are paid to ensure that the provider complied with all Medicare payment rules.  The RACs will conduct prepayment reviews on certain types of claims that historically result in high rates of improper payments.   These reviews will focus on  seven states with high populations of fraud- and error-prone providers (FL, CA, MI, TX, NY, LA, IL) and four states with high claims volumes of short inpatient hospital stays (PA, OH, NC, MO) for a total of 11 states. This demonstration will also help lower the error rate by preventing improper payments rather than the traditional “pay and chase” methods of looking for improper payments after they have been made. 
• Prior Authorization for Certain Medical Equipment: The second demonstration will require Prior Authorization for certain medical equipment for all people with Medicare who reside in seven states with high populations of fraud- and error-prone providers (CA, FL, IL, MI, NY, NC and TX).  This demonstration will help ensure that a beneficiary’s medical condition warrants their medical equipment under existing coverage guidelines. Moreover, the program will assist in preserving a Medicare beneficiary’s right to receive quality products from accredited suppliers.  

The Prior Authorization demonstration will be implemented in two phases. During the first phase (the first three to nine months), the Medicare Administrative Contractors will conduct prepayment reviews on certain medical equipment claims. The second phase, for the remainder of this three-year demonstration, will implement prior authorization, a tool utilized by private-sector health care payers to prevent improper payments and deter the fraudulent provision of items or services.   

• Part A to Part B Rebilling: The third initiative will allow hospitals to rebill for 90 percent of the Part B payment when a Medicare contractor denies a Part A inpatient short stay claim as not reasonable and necessary due to the hospital billing for the wrong setting.  Currently, when outpatient services are billed as inpatient services, the entire claim is denied in full.  

This demonstration will be limited to a representative sample of 380 hospitals nationwide that volunteer to be part of the program. This demonstration will allow hospitals to resubmit claims for 90 percent of the allowable Part B payment when a Medicare Administrative Contractor, Recovery Auditor, or the Comprehensive Error Rate Testing Contractor finds that a Medicare patient met the requirements for Part B services but did not meet the requirements for a Part A inpatient stay.  In addition, this demonstration is expected to lower the appeals rate which will protect the trust fund and reduce hospital burden.   Beneficiaries will be held harmless with respect to changes in hospital coinsurance liability. 

CMS also noted a pilot project announced by HHS this past May under the Partnership Fund for Program Integrity Innovation to test an automated tool to screen providers for the risk of fraud.  Currently, HHS and States lack standardized Medicaid provider data, which hampers detection of potential fraud. 

New Projects Build on 2011 Savings  

CMS asserted that the 2012 projects will build on accomplishments in 2011 to reduce Medicare and Medicaid improper payment rates. For example, the Medicare fee-for-service error rate fell from 9.1 percent in 2010 to 8.6 percent in 2011.  Since 2009, the error rate has fallen more than 2 percentage points.  The overall error rate for Medicare programs fell from 10.2 percent in 2010 to 8.6 percent in 2011.  Since 2009, the error rate has fallen nearly 3.2 percentage points. 

• Medicare fee-for-service avoided about $7 billion in payment errors.
• Medicare Part C avoided about $5 billion in payment errors.
• Medicare Part D reported a composite error rate for the first time, with an error rate of 3.2 percent, well below the government average.
• In addition, the error rate for Medicaid fell to 8.1 percent in 2011 from 9.4 percent in 2010, avoiding about $4 billion in payment errors since 2009.

CMS is also reporting for the first time a composite improper payment rate for the Medicare Part D prescription drug program.  Based on payment year 2009, the improper payment rate is 3.2 percent, or $1.7 billion.  The improper payment rate for the Children’s Health Insurance Program (CHIP) will not be published until 2012. 

Other Fraud/CMS Developments

Nine months ago, the President proposed in his 2012 Budget even more aggressive tools that will help drive down this waste. If Congress passes these proposals, they will result in more than $160 billion in savings to the Federal Government over the next decade.  HHS Secretary Sebelius applaued the announcement of these figures, but noted that her agency still needs Congress to act on the President’s proposal.  “Until Congress acts, we will continue doing everything in our power to save money on behalf of the American people.”

Secretary Sebelius announced that HHS will launch four additional pilots to reduce the error rate and cut Medicare and Medicaid waste and fraud:

Let private inspectors catch wasteful spending before it happens by expanding the use of Recovery Audit Contractors.  At HHS and other agencies, private recovery audit contractors normally review payments and identify errors after the payments are made.  Then, the agency must track down and recover the improper payments.  Last year, private companies recovered hundreds of millions of taxpayer dollars by finding improper payments that have already been paid out.  The agency will now allow private companies to screen certain hospital payments before they are made, which will prevent improper Medicare payments from happening in the first place.

Test changes to outdated hospital billing system to help prevent over-billing.  Hospitals sometimes perform services as inpatient that Medicare requires to be outpatient.  Right now, when those hospitals bill Medicare, HHS does not allow them to re-bill as outpatient.  Under this pilot, HHS will allow some claims that are incorrectly made under the inpatient program to be resubmitted under the outpatient program.  This mistake—incorrect billing of services—is a leading cause of error in the Medicare program and wastes time and money in appeals.

Change its process for approving payments for medical equipment with high error rates.  One contributor to the Medicare improper payment rate is incorrect reimbursement for medical equipment that is not medically necessary.  This change will allow HHS to pilot a new process for reviewing these medical equipment claims before they are made, thus helping to reduce Medicare improper payments.

 Work with States to improve fraud detection.  HHS is initiating a pilot project under the Partnership Fund for Program Integrity Innovation to test an automated tool to screen providers for the risk of fraud.  Currently, HHS and States lack standardized Medicaid provider data, which hampers detection of potential fraud.  If successful, this tool will not only help prevent improper payments by weeding out fraudulent providers, but it will help States focus their resources where fraud is most likely to occur.

Sorrell vs. IMS Health: FDA’s Ban on Truthful Off Label Promotion May be Vulnerable

A recent panel of health lawyers discussed the Supreme Court decision in IMS v. Sorrell and further assessed the impact of the decision on marketing regulation. 

Richard M. Cooper, a partner at Williams & Connolly, noted that, “the most important recent development in First Amendment law is the Supreme Court’s decision in Sorrell v. IMS Health, Inc., where the Court struck down a Vermont statute that prohibited pharmaceutical companies from using individual prescriber information in detailing to physicians.”  An article from the Food and Drug Law Institute (FDLI) recently summarized the panel. 

In light of that decision, a recent case filed in the U.S. District Court for the District of Columbia, by Par Pharmaceutical, Inc. against the Food and Drug Administration (FDA), seeks declaratory judgment against the agency.  Par asserts the First Amendment and the Federal Food, Drug and Cosmetic Act (FDCA) bar application of certain regulations that FDA purport to criminalize Par’s “truthful and non-misleading speech to healthcare professionals concerning the FDA-approved use of its FDA-approved prescription drug.” 

As a result, they ask that the court invalidate the applicable FDA regulations and certain definitions and declare that a “manufacturer cannot be deemed to intend an off-label use merely because the manufacturer sells a drug with knowledge that physicians will prescribe the drug for an off-label use. 

The expert panel included: Harvey A. Ashman, Senior Vice President, General Counsel and External Affairs, IMS Health; Diane E. Bieri, Senior Vice President and General Counsel, PhRMA; and Bert W. Rein, Founding Partner, Wiley Rein LLP. John F. Kamp. PhD, Executive Director, Coalition for Healthcare Communication, served as moderator. 

Sorrell Discussion  

Cooper concluded that the Court’s determination that “in the fields of medicine and public health, . …information can save lives,” was a “ringing endorsement of First Amendment protection of truthful, non-misleading detailing.”  Cooper said that this language provides arguments for invalidating FDA’s prohibition of truthful, non-misleading, off-label promotion. 

Cooper explained that many passages in the opinion can be applied to off-label uses. For example, the Court reiterated its holding in Thompson v. Western States Medical Center  that “fear that people would make bad decisions if given truthful information’ cannot justify content-based burdens on speech.” 

The Court referred to “the government’s legitimate interest in protecting consumers from commercial harms.”  But Cooper stated that it is hard to think of any harms other than bad decisions, from truthful, non-misleading off-label promotion. 

Cooper asserted that, “FDA’s only defense for the ban on off-label promotion is the incentive it creates for manufacturers to file supplemental applications for approval or clearance of additional uses.”  But approved drugs and approved or cleared devices promoted off-label have already been through an approval/ clearance process, and the question arises whether they must go through the same process again and again for each additional use. 

He said that if FDA’s ban on off-label promotions is viewed as a restriction on speech subject to heightened scrutiny, it may be vulnerable for five reasons: 

1. “The ban is on truthful, non-misleading statements about a lawful use of a lawfully available product, as to which there is a strong public interest in the circulation of truthful, non-misleading information.”
2. The volume of information about off-label uses available from speakers other than manufacturers, suggests that the incentive to file supplements is “relatively ineffective.”
3. Physicians contemplating prescribing a drug for an off-label use can take into account the presence or absence of FDA’s imprimatur together with peer-reviewed literature and other information.
4. Banning truthful, non-misleading speech to induce participation in a lengthy review process is questionable under First Amendment procedural jurisprudence, particularly because there is a hefty fee. In addition, once a manufacturer submits a supplement, the incentive has worked, the interest in protecting FDA’s approval process would seem to be preserved, and a continued ban on promotion of that off-label use seems unjustified.
5. FDA could use less drastic means such as disclosures and warnings, require that supplements be filed when estimated off-label use reaches a specific level or other specified conditions are met. Or, FDA could restrict the quantity of a product that may be shipped so that the product would be limited to distribution only for its approved uses. 

Expert Panel’s Take on Sorrell 

Ashman was pleased that the Court was not confused by the technology involved and recognized that information saves lives.  He was also pleased that the paternalistic limit on information will not be accepted for physicians who are experts. 

Rein focused on the fact that the Court applied a heightened  scrutiny standard, rather than the rational basis test usually applied in administrative law cases. He said that food and drug lawyers have to become constitutional lawyers. This is an “information driven business,” he explained, and anything that prescribes or limits information “has a First Amendment overlay.” 

Bieri said that industry won a lot because the Court recognized that “an effective market is not evil.” She also said that physicians who want to hear about products from manufacturers also won. Bieri stressed the importance of providing information

to physicians , noting that “they need to be refreshed and taught about new uses for existing products.” The dialogue from industry is one way of educating doctors. 

Cooper also discussed a number of other cases involving First Amendment and off-label marketing challenges similar to Sorrell. 

Medical Product Manufacturer’s Citizens Petition 

Cooper discussed the petition filed by seven medical product manufacturers on July 5 asking FDA to clarify its policies and regulations regarding the dissemination of information relating to new uses of marketed drugs and medical devices. Specifically, the petition seeks clarification on four topics: 

1)    manufacturer responses to unsolicited requests for information about off-label uses;

2)    the concept of ‘scientific exchange” in 21 C.F.R. § 312.7;

3)    interactions with formulary committees, payers, and similar entities; and

4)    the dissemination of clinical practice guidelines issued by third parties.

United States v. Catonia

Cooper said that a key case to follow is an appeal to the Second Circuit in the Catonia case.  Alfred Catonia is a pharmaceutical salesman who was convicted of conspiring with others to introduce a misbranded drug into interstate commerce. The government argues that the crime of introducing a misbranded drug into commerce is not a charge involving speech, but rather conduct. 

The government claims that Catonia’s off-label promotion while detailing a doctor is merely evidence of a drug’s intended use. Under the government’s theory, intended use relates to the subjective intent in the minds of regulated firms and their employees. 

Cooper disagreed with this theory, stating that “intended use is a matter not of subjective intent, but of what FDA’s regulations (21 C.F.R.§§ 201.128 and 801.4) call “objective intent.” 

Beeman v. Anthem Prescription Management, LLC 

Last July, a divided Ninth Circuit panel upheld a California law against a first amendment challenge; the law was previously found to be unconstitutional by three decisions at the intermediate level. The law requires pharmacy benefit managers to conduct or otherwise obtain studies of retail drug prices paid by uninsured private customers and to report the results to their third-party-payer clients. 

The court held that the law did not chill, limit, or burden any speech by the PBM and did not prevent them from conveying to their clients any messages they wanted to convey. The court also stated that “the government may not prohibit speakers from disseminating facts.”  Cooper stated “Of course, the ban on off-label promotion often does exactly that.” 

Tobacco Control Act 

Cooper said that the outcome of a suit filed by the tobacco industry in the Western District of Kentucky may shed some light on the status of the ban on off-label promotion. The cigarette manufacturers challenged the Tobacco Control Acts’ provision

barring product manufacturers from making any reduced risk claim for a tobacco product without prior FDA approval. Cooper said that this is structurally similar to the ban on off-label promotion of a drug or device: 

• The product is already on the market lawfully
• The ban applies to speech that is truthful and not misleading
• The ban discriminates as to speakers and content in that anyone else can say whatever they want about the relative risk of different tobacco products. 

The Use of the Threat of Exclusion to Suppress Speech 

Cooper was particularly disturbed by the fact that companies under criminal investigation for off-label promotion cannot risk defending a criminal prosecution in court and asserting a First Amendment right to engage in such promotion. Cooper explained

 that “a mere indictment creates a risk of permissive exclusion from federal healthcare programs; conviction of certain offenses results in mandatory exclusion.” 

Because of the broad coverage of Medicare, Medicaid, veteran’s healthcare, and other federal healthcare programs, “exclusion is a corporate death sentence.” That is why companies pay huge sums – in many cases hundreds of millions of dollars and even more than billion in some cases – to settle criminal investigations of off-label promotion

The Park Doctrine and FDCA Violations: Holding Corporate Executives Accountable

Over the past several months, the life sciences industry has been discussing a recent development in law enforcement: the Department of Justice’s (DOJ’s) and Food and Drug Administration’s (FDA’s) recent interpretations of the so-called Park Doctrine as creating strict liability—meaning that a prosecutor does not need to prove criminal intent.   

As noted by a recent article from the Food and Drug Law Institute (FDLI), “DOJ and FDA have demonstrated an increasingly aggressive view of the Park Doctrine, bringing prosecutions against corporate officers even absent any proof of knowledge or intent to commit a violation under the Food, Drug, and Cosmetic Act (FDCA).”

In fact, just this week, a federal judge sentenced executives of the medical device company Synthes North America to prison for unapproved testing of bone cement that left three people dead.  The executives are among the first corporate officials sent to prison for misdemeanor pleas as "responsible corporate officers" under the 1975 Park Doctrine.

Former President Michael Huggins, and former Senior Vice President Thomas B. Higgins, were sentenced to nine months in prison. John J. Walsh, the former director of regulatory and clinical affairs, received a five-month sentence.  All four executives have lost their careers and agreed to pay fines of $100,000 apiece.

According to U.S. District Judge Legrome D. Davis, the Synthes officials wanted to beat their competitors to market without going through the lengthy process of getting the bone cement product approved by FDA. So they plotted to train select surgeons in its off-label use and then have the doctors publish their findings, the judge said.

The program continued even after a patient died in surgery in Texas in 2003 and another died in California. The patients suffered sharp drops in blood pressure after the bone cement compound was injected into their spines. Synthes only halted the training after a third death in California in 2004.  "One adverse event should have been enough to let you know that this course was not right," the judge said.

The bone cement, Norian XR, had been approved for surgical use in the arm but not in the weight-bearing spine.  Pilot studies had shown it could cause blood clots in humans, and pig research suggested the clots could move to the lungs, causing death within 30 seconds, government experts said. Synthes used the cement in about 200 spine patients.  None of the surgeons could rule out the bone cement as a factor in the three deaths, but it also wasn't definitively blamed for them.

According to prosecutors, the Synthes North America executives also failed to report the patient deaths and lied to FDA investigators during an on-site audit. The government applauded the sentences Monday.  "It sends the right message, that lying to the FDA and disregarding patient safety has consequences," Assistant U.S. Attorney Mary Crawley said.

The judge called the officers' conduct egregious and said they showed "disregard for the safety of others ... and for the sanctity of human life." He sent Huggins to prison immediately. Higgins, who ran the spine unit, was given two weeks to report to prison because of family issues. Walsh got a week to report to celebrate his child's birthday.

Both Synthes and its former subsidiary Norian Corp. pleaded guilty to corporate health care fraud charges and agreed to pay $23 million in fines. As part of the plea, Synthes agreed to sell the subsidiary. In April, Johnson & Johnson agreed to buy Synthes Inc., which had its global headquarters in Switzerland, for $21.3 billion.

Park Doctrine and Responsible Corporate Officer 

The article explained how “The decision in United States v. Park represents the furthest reach of misdemeanor liability under the FDCA to have been sanctioned by the U.S. Supreme Court.  The Park decision is often interpreted as creating strict liability.”  

However, the article asserted that “DOJ’s and FDA’s recent interpretations treating Park as a strict liability doctrine fly in the face of the Court’s language and the underlying facts of Park itself, newer Supreme Court precedent, congressional intent and notions of fundamental fairness long engrained in criminal law.” 

Contrary to these misapplications of the Court’s decision, the article asserted that, “Park liability must require, at a very minimum, proof of knowledge and failure to act as a reasonably prudent corporate manager would have acted in a similar situation—the touchstone of negligence.”  The authors maintained that, “As Park is now being applied, it is not possible for even the most conscientious corporate managers to protect themselves from liability.” 

The article then went on to explain how common law “crimes require not only a criminal act, but also a criminal state of mind.”  But the article recognized that the Supreme Court has sometimes dispensed with the criminal mind (mens rea) requirement and noted that, “It is settled law in the area of food and drug regulation that a guilty intent is not always a prerequisite to the imposition of criminal sanctions.” 

The article then explained the “responsible corporate officer (RCO) doctrine,” established by United States v. Dotterweich and Park (reaffirming Dotterweich), which provides “that a corporate agent who stands in a ‘responsible relation’ to misconduct may be held criminally liable even without having played any direct role in the misconduct. 

Standing in such a “responsible relation” means the corporate agent must have “had, by reason of his position in the corporation, responsibility and authority either to prevent in the first instance, or promptly to correct, the violation complained of, and that he failed to do so.” 

FDA & DOJ View and Application of the Park Doctrine

The article recognized that “FDA and DOJ have demonstrated an increasingly aggressive and disconcerting view of the Park Doctrine” in recent years. For example, the authors pointed to a public letter from FDA Commissioner Margaret Hamburg to Senator Charles Grassley in March 2010, advising him that FDA recommended “increas[ing] the appropriate use of misdemeanor prosecutions, a valuable enforcement tool, to hold responsible corporate officers accountable.” Hamburg’s letter also informed Grassley, “Criteria now have been developed for consideration in selection of misdemeanor prosecution cases,” but did not specify what those criteria were. 

In January 2011, following persistent prodding in the form of a Freedom of Information Act request and two administrative appeals by the law firm of Ropes & Gray, FDA published  its criteria for recommending Park Doctrine prosecutions. These nonbinding criteria instruct FDA personnel to consider: 

• The individual’s position in the company  
• The Individual’s relationship to the violation, and
• Whether the official had the authority to correct or prevent the violation.” 

With regard to criminal intent (mens rea), FDA asserts that under the Park Doctrine: 

[A] responsible corporate official can be held liable . . . without proof that the corporate official acted with intent or even negligence, and even if such corporate official did not have any actual knowledge of, or participation in, the specific offense. . . . Knowledge of and actual participation in the violation are not a prerequisite to a misdemeanor prosecution but are factors that may be relevant when deciding whether to recommend charging a misdemeanor violation. 

FDA also provides a non-exhaustive list of seven “[o]ther factors” to consider, making clear that “the absence of some factors does not mean that a referral is inappropriate where other factors are evident,” including: 

(1)  whether the violation involves actual or potential harm to the public

(2)  whether the violation is obvious;

(3)  whether the violation reflects a pattern of illegal behavior and/or failure to heed prior warnings;

(4)  whether the violation is widespread;

(5)  whether the violation is serious;

(6)  the quality of the legal and factual support for the proposed prosecution; and

(7)  whether the proposed prosecution is a prudent use of agency resources.

The FDA Law Blog noted that, “these criteria are hardly unique and the same as those considered in any decision of whether to proceed criminally, misdemeanor or felony.”  These criteria instruct that: 

Personal knowledge of an FDCA violation is not required, but is only a factor that “may be relevant” (and presumably, may be wholly irrelevant) in deciding whether to bring criminal charges likely to end careers by way of exclusion from participation in federal health care programs by the Office of Inspector General (OIG) of the U.S. Department of Health and Human Services. 

In FDA’s view of the Park Doctrine, criminal liability requires the same proof of intent or knowledge – that is to say, none whatsoever – to convict corporate managers as tort law imposes on possessors of wild animals. 

Consequently, it was noted that DOJ and some federal courts have been willing to apply the Park doctrine and this criteria.  For example, in 2007, a federal district court accepted the plea agreements of three Purdue Frederick Company executives who pleaded guilty to an FDCA misdemeanor charge of misbranding OxyContin. These executives pleaded guilty “solely as responsible corporate officers;” they were “not charged with personal knowledge of the misbranding or with any personal intent to defraud.” 

The article also noted that the Office of the Inspector General (OIG) at the Department of Health and Human Services (HHS) “has also grown increasingly willing to exclude individuals with no evidence of personal wrongdoing or knowledge.”  For example, in “December 2010, another district court upheld the same Purdue Frederick executives’ 12-year period of exclusion (previously reduced from 20 years), even where the parties had stipulated that none of the excluded individuals had personal knowledge of the misbranding conduct.” 

In addition, OIG notified the CEO of Forest Laboratories in April 2011, “that it was seeking to exclude him based on last year’s guilty plea and $313 million payment by the company in connection with sales related FDCA misdemeanors.”  However, “OIG’s action came in the absence of any allegation of misconduct or knowledge by the CEO and without any underlying RCO case against or guilty plea by him. In August 2011, following significant publicity, OIG reversed course and notified Forest it would not seek to exclude its CEO. 

Supreme Court Precedent in Park at Odds with DOJ/FDA  

The authors recognized that the Park Doctrine “requires minimum mental culpability of negligence.”  However, the authors maintained that, “Viewing this doctrine as creating true strict liability does not square with Supreme Court case law, nor is it what Congress had in mind for the FDCA.”  For example, the article noted that, “In Park itself, the Supreme Court imposed certain limits on strict liability under the FDCA:” 

[T]he Act, in its criminal aspect, does not require that which is objectively impossible. The theory upon which responsible corporate agents are held criminally accountable for ‘causing’ violations of the Act permits a claim that a defendant was ‘powerless’ to prevent or correct the violation to ‘be raised defensively at a trial on the merits.’    

These Supreme Court-imposed bounds accord with the government’s own position in Park. In its Supreme Court brief, DOJ represented: 

“The government’s policy is to prosecute only those individuals who are in a position and who have an opportunity to prevent or correct violations, but fail to do so.” 

Moreover, the underlying facts in Park included unmistakable negligence by the defendant, who was on notice of a serious but solvable problem (rodent infestation of a food warehouse) that he chose to ignore. This made him negligent, at best, in that he failed to act as a reasonably prudent corporate manager would have acted in a similar situation.   

personally had received a letter from FDA . . . advising him of serious rodent infestation in [the company’s] warehouse . . . . [but] simply passed FDA’s report on to his subordinates, as if he had no personal responsibility to require effective measures to put an end to the serious existing violations of the Act that had been brought to his attention. Simply put, the defendant in Park.

As one analysis has found: 

Of the few cases that invoke “responsible corporate officer” liability, the overwhelming majority (if not all) have involved a defendant who was aware of the conduct giving rise to the violation but failed to correct it.  In Park itself, for instance, FDA had repeatedly notified the company about the infestation problems in its warehouses, and Park had personally received notice of at least one failed inspection. 

Congressional Intent at Odds With DOJ/FDA 

The authors also explained how Congress’s reaction to Park also shows that true strict liability under the FDCA is improper.  For example, in  the Park decision’s aftermath, Congress considered amending the FDCA to “requir[e] proof of negligence, knowledge, or intent” for a misdemeanor conviction under the Act.  The Department of Health, Education, and Welfare, then parent agency to FDA, opposed this amendment on the ground that “properly construed,” the Act already included this requirement(observing, “It is the officer’s personal neglect that is punishable.”). 

The Senate Committee concluded the amendment was unnecessary because “introducing statutorily the concept of negligence” would merely “codify existing policy with respect to enforcement of the Act.” 

The article noted that, “Because the FDCA’s misdemeanor provision is silent as to intent, the question of whether it requires some degree of mens rea is a question of law to be determined by the court. This is a question of legislative intent.”  Accordingly, “Given Congress’s reaction to the Park decision, it is entirely feasible that the Supreme Court will conclude, when it next faces the issue, that Congress intended to require some level of mental culpability for misdemeanor FDCA liability.”  The article noted four recent Supreme Court holdings, which lend further support to this reading of Park—the companion cases of Skilling v. United States, and Black v. United States(on the issue of fair notice); United States v. Santos,(on the rule of lenity), and Arthur Andersen LLP v. United States(requiring proof of consciousness of wrongdoing to provide fair warning of criminal line drawing) 

The authors noted that in Skilling and Santos, the Court recognized the familiar principle that ‘ambiguity concerning the ambit of criminal statutes should be resolved in favor of’ defendant.  The Court explained that, “The rule of lenity requires ambiguous criminal laws to be interpreted in favor of the defendants subjected to them. This venerable rule . . . vindicates the fundamental principle that no citizen should be held accountable for a violation of a statute whose commands are uncertain, or subjected to punishment that is not clearly prescribed.” 

Conclusion 

“A broad theme in law enforcement these days is holding individuals accountable,” explained Mary E. Riordan, Senior Counsel in the Administrative & Civil Remedies Branch of HHS OIG. “Million dollar settlements do not change behavior, but holding individuals accountable does.” 

During a recent FDLI panel, Riordan warned that companies “will continue to see cases against individuals … and the device industry is not immune.”  She recommended “that even if your corporation is not under a corporate integrity agreement (CIA), you should be thoughtful about what kinds of activities would or should be audited.” 

Riordan emphasized that individual accountability is also becoming an increasingly prevalent theme in the HHS exclusion context, primarily resulting from an individual criminal plea or a violation of the role of responsible corporate officers. 

Ultimately, the authors concluded that these “recent Supreme Court decisions cast serious doubt on FDA and DOJ’s increasingly manifest view of Park as a strict liability doctrine.”  They asserted that, “the FDCA’s misdemeanor provision wholly fails to provide fair notice or warning that corporate managers can be held criminally accountable for violations in the absence of any personal knowledge. This is true not only on the face of the statutory language (which is silent as to intent), but also in light of the Supreme Court’s decision in Park itself and legislative history in Park’s aftermath.” 

Accordingly, the authors maintained that given “there is good evidence that neither the Park Court nor Congress intended” strict liability, “Contrary to FDA’s recent criteria, Park liability must require, at a very minimum, proof of personal knowledge and failure to act as a reasonably prudent corporate manager would have acted in a similar situation, the touchstone of negligence.”

DOJ Outlines Balance between Encouragement and Enforcement in Healthcare Industry

With the announcement of a recent settlement between the Department of Justice (DOJ) and drugmaker GlaxoSmithKline for the drug Avandia, in what will be the largest settlement yet--$3 billion—for alleged “off-label” promotion, it appears that the Obama Administration and federal health and law enforcement agencies are continuing their tremendous pressure and scrutiny on life sciences company. 

This means that companies need to begin quickly implementing compliance programs, particularly those mandated by corporate integrity agreements. Implementation of such program entails rigorous training and education of all levels of employees, from executives to sales, and everything in between, especially because it would appear that prosecution of companies will only grow with respect to many provisions of the Affordable Care Act. 

For example, earlier this month, DOJ’s Assistant Attorney General Tony West gave a keynote address at the Twelfth Annual Pharmaceutical Regulatory and Compliance Congress in Washington, DC.  West addressed a crowd of compliance officers, pharmaceutical and health care executives, physicians, nurses, legal counsel and other industry professionals, who he acknowledged “play an integral role in ensuring that the medicines we rely on to ease pain, heal sickness and improve lives are the safest in the world.” 

He noted to that these individuals, “make good companies better by your advice and guidance; by your commitment to a level playing field that recognizes that fair competition and ethical compliance are the foundation of a vibrant, successful pharmaceutical industry.” 

West first acknowledged that having a compliance program “in name only” isn’t enough, and that “the best compliance policies are wasted if a company lacks the corporate culture and the employee support system to encourage self-reporting and honest self-assessment.”  He maintained that. “where nearly one in every ten health care dollars is spent on your products, reducing fraud is not only good for business, it’s essential to the sustainability of a sound, efficient health care system on which millions of Americans depend.” 

DOJ and Fraud 

West then moved into a discussion about the Justice Department’s “comprehensive approach” to health care fraud, an approach he said, “that aims to secure better, quality coverage at lower costs for all of us:  patients, health care providers, businesses and taxpayers.”  He pointed to the  “Affordable Care Act­---with its innovative reforms, anti-fraud measures, and improvements to the overall health care process---as part of that comprehensive approach; as is the President’s recent Executive Order, which focuses on better managing prescription drug shortages to ensure that patients get the medicines they need in the event of low supply.” 

He asserted that, “these efforts aim to reduce the costs of delivering quality health care while extending coverage by achieving efficiencies and implementing key reforms.”  West also talked about the Health Care Fraud Prevention and Enforcement Action Team, or “HEAT,” which since May 2009, has “aggressively battled health care fraud.” 

He noted how “HEAT is an effort led by Attorney General Eric Holder and Health and Human Services (HHS) Secretary Kathleen Sebelius that has, over the last two years, synergized the health care fraud prevention and enforcement efforts of HHS and DOJ as never before.”  West noted how he and his colleague, Criminal Division Assistant Attorney General Lanny Breuer, have dedicated much of their time and attention to HEAT, and today, when it comes to health care fraud, there is unprecedented coordination, greater information- and data-sharing, and closer collaboration between these two key federal agencies.” 

West also talked about the success the HEAT team has had over the past three years.  He noted that “for every dollar Congress has provided for health care enforcement over the past three years, we have recovered nearly seven, and since HEAT’s inception, the Justice Department’s Civil Division has worked with HHS, as well as U.S. Attorneys’ Offices and state law enforcement offices around the country, to open more health care fraud investigations, charge more criminal health care fraud defendants, and obtain more money on behalf of taxpayers – over $8 billion in settlements, judgments, penalties and fines – than ever before.” 

He noted that this “record-breaking recovery reflects the broad approach” the Civil Division has taken with respect to health care fraud enforcement over the last two-and-a-half years—an approach that includes not only the off-label marketing and False Claims Act cases with which many of you are familiar, but other, equally important enforcement efforts, as well.  

For example, he noted the newly-reorganized Consumer Protection Branch, which has dedicated a team of DOJ professionals to pursue counterfeit pharmaceutical fraud.  West also mentioned that DOJ is “pursuing drug diversion schemes that undermine the integrity of the legitimate drug supply chain and threaten the safety and quality of pharmaceuticals.”   

He also discussed prosecuting providers that pay illegal kickbacks, which he noted, “can damage the trust relationship between doctor and patient by creating an unwelcome conflict of interest.”  West also explained that the DOJ is “taking a closer look at fraud in the home health care industry,” and that he personally has “taken a particular interest in cracking down on elder abuse in nursing homes.”  He described certain details of cases the DOJ has uncovered such as “nursing homes that failed to dispense prescribed medications; facility residents whose basic needs were so neglected they suffered from dehydration and malnutrition; bed-ridden patients who were so long ignored by nursing home staff that they developed bed sores infected by maggots, leading to amputations.” 

Pharma and Fraud 

West then shifted his speech to discuss what he called DOJ’s “most significant enforcement work, both civilly and criminally, which involves health care fraud in the pharmaceutical industry.”  He said it is the most significant for 3 reasons. 

“First, the money involved in this industry’s participation in health care is staggering, and we all share in the responsibility of making sure that money isn’t wasted on fraud or abuse.  Health care spending in the United States surpassed $2.5 trillion in 2009, and, according to independent estimates, 10% of that ‒ $250 billion ‒ was spent on prescription drugs.  Not an insignificant amount.” 

“Second, this industry’s importance increases as the number of Americans who use pharmaceutical products continues to grow.  Nearly two-thirds of Americans use prescription medicines on a regular basis, including 90% of seniors.  That’s almost 200 million people in this country who are depending on the safety and efficacy of the products many of your companies manufacture.  This is a significant responsibility.” 

“And, finally, given the size, scope and reach of the pharmaceutical industry, we know that the victories we achieve when fighting fraud here will have a profound impact—not just on the health care economy, but on the lives of countless Americans.”  

West asserted that these three reasons are why DOJ and the Administration have “not hesitated to demand more accountability in our health care fraud cases, holding providers, companies and physicians responsible in connection with fraud violations, and meeting those violations with serious civil and, if appropriate, criminal sanctions, including felony charges where the law and facts provide.”  

He acknowledged how DOJ has “aggressively pursued cases where we find products marketed off-label for purposes not approved as safe and effective by the FDA, like those involving Novartis, where allegations regarding the illegal marketing of Trileptal were resolved for $422 million; or Pfizer and Pharmacia & Upjohn’s 2009 $2.3 billion settlement involving Bextra and other drugs, the largest health care fraud settlement in history.” 

Additionally, he mentioned investigations into companies whose failures in drug manufacturing lead to products that materially differ from the strength, purity, or quality of what was required.  In order to get accountability from companies, West asserted that DOJ “will consider prosecutions against individuals, including misdemeanor prosecutions under the Park doctrine, which provides that responsible corporate officers can, in appropriate circumstances, be held strictly liable for criminal violations of the Food, Drug, and Cosmetic Act.” 

Nevertheless, West emphasized that DOJ “can’t enforce our way out of the health care fraud challenge,” but rather, seeks “to promote a culture of compliance by emphasizing deterrence.”  He explained that, “a comprehensive approach to health care fraud requires preventative efforts and strong compliance programs,” which he said that many companies “currently promote.”   

He added that compliance “requires guidance and dialogue between government and the private sector.  It requires creativity when negotiating resolutions, such as non-monetary measures that give companies the tools to build and maintain real change; tools that allow them to reduce recidivism and meaningfully prevent and detect violations in the future.”  

For example, West noted that DOJ “may ask courts to impose post-conviction supervision over companies, or consider using our own civil authority to obtain injunctions toward the same end.”  He also emphasized that DOJ “will work with regulating agencies in monitoring compliance with consent decrees and will not hesitate to bring contempt actions when illegal practices re-occur or consent decree requirements are ignored.”  

Despite what seemed to be mostly an aggressive speech, West did recognize that fighting health care fraud also “means being fair” and “acknowledging when companies and individuals do the right thing and voluntarily disclose wrongdoing to law enforcement officials.”  He even took the time to point out that, “most health care companies and providers are trying to play by the rules.”   

West noted how, “Navigating the complexities of the health care landscape is not always easy, and many companies and individuals in this industry do their best to get it right.”  He said that the Administration knows that “most of the public’s health care dollars are being spent legitimately, in ways that soothe suffering and improve the quality of our lives.” 

He said that DOJ encourages companies to “come forward and voluntarily disclose any instances of fraud,” and that throughout his tenure in the Civil Division he has credited early disclosure by companies.  West explained that “when a company or individual acts responsibly by timely and voluntarily disclosing unlawful conduct, DOJ will consider that disclosure in deciding whether or how to charge or resolve a health care fraud matter.” 

He also said that DOJ will “take into account the extent to which a company or individual cooperates once an investigation has begun.  Because that kind of cooperation –producing documents and information quickly and completely, for example – allows DOJ to complete our investigation and the resolve each case more efficiently and expeditiously.” 

Conclusion 

In concluding his remarks, West noted while the DOJ and the life sciences industries serve different missions; approach the health care landscape from different vantage points; and employ different methods and use different tools—both groups share a common goal.  That goal, he said, is “the notion that a competitive health care marketplace, undistorted by fraud, is good for patients and providers alike; a goal that recognizes the unique public trust that all of us in this room share, as stewards, participants and consumers of that health care marketplace.” 

He asserted that companies presence at the meeting demonstrated their commitment to that goal.  West closed by noting that, while it may not be able possible “to eliminate all waste, fraud, and abuse from our health care system,” DOJ and the industry can bring together their “combined expertise, commitment, energy and creativity to this task, and can move closer to the day when all Americans get the safest, most efficient, highest quality health care available; care they need, and care they deserve.”

 

Par Pharmaceuticals vs. FDA Calling for Truthful Speech vs. FDA Approved

Last June, the United States Supreme Court, in a landmark decision, invalidated a Vermont law, which tried to restrict commercial speech of certain healthcare companies and stakeholders. 

In the IMS v. Sorell case, writing for the Majority, Justice Anthony Kennedy reasoned that, "Speech in aid of pharmaceutical marketing...is a form of expression protected by the Free Speech Clause of the First Amendment,” and as “a consequence, Vermont's statute must be subjected to heightened judicial scrutiny.”

In light of that decision, many legal and health policy authorities have begun to debate the impact of the IMS case on other areas of healthcare marketing and commercial speech.  Consequently, a recent case filed in the U.S. District Court for the District of Columbia, is likely to resolve this debate.

Par Pharmaceutical, Inc. v. FDA

The case, filed by Par Pharmaceutical, Inc. against the Food and Drug Administration (FDA), seeks declaratory judgment against the agency and asserts the First Amendment and the Federal Food, Drug and Cosmetic Act (FDCA) bar application of certain regulations that FDA purport to criminalize Par’s “truthful and non-misleading speech to healthcare professionals concerning the FDA-approved use of its FDA-approved prescription drug.”  As a result, they ask that the court invalidate the applicable FDA regulations and certain definitions and declare that a “manufacturer cannot be deemed to intend an off-label use merely because the manufacturer sells a drug with knowledge that physicians will prescribe the drug for an off-label use. 

John Kamp, Executive Director of the Coalition for Healthcare Communication, who played a critical role in the IMS case, noted that, “Par's challenge goes directly to the heart of FDA's jurisdiction to censor truthful speech by drug sponsors.  After the Supreme Court decision in IMS, someone was bound to bring it. Now, the whole industry will be watching.”

The specific product in question is Megace ES, which is used for the treatment of anorexia (loss of appetite), cachexia (severe malnutrition), or unexplained, significant weight loss in patients diagnosed with AIDS (“wasting”). The brief filed by Par contains detailed information and cites scientific evidence about the use of Megace.  One particular piece of information stood out.

Specifically, Par acknowledged that the off-label use of megestrol acetate to treat wasting in cancer and geriatric patients is so widely accepted that “Par could not conduct placebo-controlled clinical trials that are the standard prerequisites to obtain FDA approval for a new use of an approved drug … because physicians would not agree to administer a placebo to cancer patients suffering from wasting, because the course of treatment would be contrary to the best interest of the patients, in light of the accepted off-label use of megestrol acetate.”

Par also noted that CMS subsidizes off-label use of Megace ES to treat wasting in non-AIDS cancer and geriatric patients and is “medically accepted” for off-label uses.

Legal Background

As noted by the brief filed by Par, FDA regulations provide that a pharmaceutical manufacturer commits a crime if it speaks to healthcare professionals about an FDA-approved prescription drug for a medical use that the FDA has not approved.  The government commonly refers to manufacturers’’ speech about unapproved uses of approved drugs as “off-label promotion.” 

However, these regulations do not limit or interfere with the authority of healthcare professionals to prescribe or administer any FDA-approved drug to any patient to treat any condition or disease.  As FDA explained in its Good Reprint Practices for the Distribution of Medical Journal Articles and Medical or Scientific Reference Publications on Unapproved New Uses of Approved Drugs and Approved or Cleared Medical devices, “once a drug or medical device has been approved or cleared by DFA, generally, healthcare professionals may lawfully use or prescribe that product for uses or treatment regiments that are not included in the product’s approved labeling.”

Par asserted that FDA’s regulations also “purport to criminalize a manufacturer’s truthful and non-misleading speech about the FDA-approved uses of a prescription drug to physicians who may use the drug for approved uses but are more likely to use the drug for unapproved uses.

Based on these provisions, Par asserts that the “ongoing threat of prosecution for alleged ‘off-label promotion’ based on Par’s truthful and non-misleading speech to healthcare professionals concerning FDA-approved use of Par’s FDA-approved prescription drug currently chills Par’s speech.  The brief cites to numerous recent cases and settlements from the Department of Justice and Inspector General and various press releases, in which government officials reaffirm their prosecutorial passion for off-label promotion cases. 

Accordingly, Par filed suit, “seeking declaratory and injunctive relief to ensure its ability to engage in this protected speech free form the risk of criminal liability.”  Moreover, Par asserts that FDA’s regulations are “contrary to constitutional right” and “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law,” as applied to Par’s truthful and non-misleading speech to healthcare professions.

Specifically, Par argues that FDA and the government are interpreting the regulations “to prohibit a manufacturer from speaking to healthcare professionals about the FDA-approved, on-label uses of a prescription drug in a setting where physicians may prescribe the drug for both approved and unapproved uses.”

Moreover, Par points out that under FDA’s definition of “labeling,” it is unlawful for a manufacturer to provide any tangible materials (i.e. brochures, booklets, mailing pieces, etc.) to healthcare professionals containing manufacturer-supplied drug information if those materials prescribe, recommend, or suggest an unapproved use of an approved prescription drug.

Par explains how the FDCA provides that a drug’s “labeling” must bear “adequate directions for use” as long as the drug’s “label” repeats the doctor’s directions to a patient set forth in the prescription itself.  However, Par points out that an FDA regulation “nullifies this exemption by providing that a prescription drug’s labeling must bear “adequate directions for use” unless the label bears “adequate information for its use.”

FDA’s regulations define “adequate information” for a prescription drug’s use to mean directions under which medical professionals “can use the drug safely and for the purposes for which it is intended.”  Under the regulation, a drug’s “intended” uses are not limited to the uses set forth in its FDA-approved labeling, but rather encompass “all purposes for which [the drug] is advertised or represented.” 

If a manufacturer advertises or represents an approved prescription drug for an off-label use, the FDA’s regulation purports to require the manufacturer to provide “adequate directions” or “adequate information” for that off-label use in the drug’s labeling.   

However as Par pointed out, under these provisions, “a manufacturer cannot include directions or information for any off-label use in a drug’s “labeling,” or else the drug would constitute a “new drug” that cannot lawfully be sold.”  Thus, Par asserted that, “a prescription drug that is “advertised or represented” for an off-label use necessarily lacks “adequate directions” and “adequate information” for that off-label use.

Under FDA’s regulation, the drug is then automatically “misbranded” and liable for criminal violations.  Based on this reasoning, Par asserted that FDA’s regulation thus criminalizes the manufacturer’s truthful speech regarding a lawful, off-label use of an approved prescription drug.

Par also analyzed FDA’s regulation which defines a drug’s “intended uses” based on a manufacturer’s “objective intent,” which can be established based on the manufacturer’s “expressions” in any forum, including in “labeling claims, advertising matter, or oral or written statements.”  The manufacturer’s “objective intent” also can be established based on “circumstances that the article is, with the knowledge of such persons or their representatives, offered and used for a purpose for which it is neither labeled nor advertised.”

Under “the intended use” regulations, Par asserted that a manufacturer’s “speech concerning exclusively the FDA-approved, on-label uses of a prescription drug may demonstrate the manufacturer’s “objective intent” that the drug should be used for off-label purposes. 

For example, Par explained that, “if a manufacturer speaks about the on-label uses of a drug in a setting where physicians exercising independent medical judgment prescribe the drug off-label, the government interprets the FDA’s “intended use” regulations to require the manufacturer to provide “adequate directions” or “adequate information” for the off-label use in the drug’s labeling.

However, as Par recognized, “if the manufacturer made such a modification to a drug’s FDA-approved “labeling,” the drug would constitute a “new drug” that could not lawfully be sold under the FDCA.”  Accordingly, Par maintained that “when a manufacturer speaks about an on-label use of its drug in a medical facility where physciains prescribe the drug off-lable, the manufacturer is caught in a Catch-22: changing the drug’s labeling to add directions for the off-label use violates the Act’s criminal “new drug” rule, but based on the government’s view of the FDA’s “intended use” regulations, not changing the labeling to add those directions violates the Act’s criminal “misbranding” rule. 

The manufacturer’s “truthful speech about on-label use of its drug thus violates at least one of these criminal provisions.”

Discussion

As noted in Par’s brief, “once a drug is approved for marketing, FDA does not generally regulate how, and for what uses, physicians prescribe that drug,” and healthcare professionals may lawfully prescribe or administer an FDA-approved drug for uses that the FDA has not approved and thus are not included in the drug’s labeling.”

Par recognized that “many off-label uses of FDA-approved prescription drugs are widespread, medically accepted, and subsidized by the federal government under the Medicare and Medicaid programs. “  They further emphasized that in “some medical specialities, such as oncology, the majority of prescriptions are written for off-label uses of approved drugs.” 

Par also pointed to the fact that FDA itself has acknowledged that “in certain circumstances, off label uses of approved products are appropriate, rational, and accepted medical practice.”  They even cited to a statement from FDA Good Reprint Practices which clearly recognized that, “off-lable uses or treatment regimens may be important and may even constitute a medically recognized standard of care.”

Because of the “widespread, medically accepted, and government-subsidized off-label uses of numerous FDA-approved prescription drugs,” Par argued that it is “critical that healthcare professionals have access to accurate, comprehensive, and current information concerning off-label uses.”  Citing then-FDA Associate Commissioner for Health Affiars Stuart J. Nightingale, Par noted that the “principle for the FDA is that the very latest information that can be of value to physicians, pharmacists, and patients must be made available as soon as possible.” 

Conclusion

Given the Supreme Court’s recent decision in IMS and the explicit language they used to protect the commercial speech of healthcare stakeholders, Par may have a strong case.  For example, the majority in IMS noted that, “the fear that people would make bad decisions if given truthful information” cannot justify content-based burdens on speech.”  The Court added that, laws “may not burden protected expression in order to tilt public debate in a preferred direction,” and that ““fear that speech might persuade provides no lawful basis for quieting it.”

It should also be noted that a similar case, filed by the Washington Legal Foundation, is being considered in the Second Circuit already, which could lead to a quicker route to the Supreme Court if the cases were consolidated. 

While it will likely be years before this case reaches the Supreme Court, it still sends a strong message to FDA and the Obama Administration’s efforts at prosecuting off-label promotion, especially given last year, the DOJ, as part of a settlement, asked Allergan to drop a similar First Amendment claim.

It should be noted that if this case were to be decided in favor of Par and the industry, there is a possibility that the government would not appeal the case because if it were to make its way up to the Supreme Court and be decided in favor of industry, FDA and the Obama administration would have an extremely difficult precedent to overcome.