Prepared for ABA 31 st Annual National Institute on White Collar Crime Healthcare Fraud and Abuse Panel March 8, 2017 Panelists Greg Noonan (Moderator) Collora LLP Boston, Massachusetts Joseph F. Savage Goodwin LLP Boston, Massachusetts Laura G. Hoey Ropes & Gray LLP Chicago, Illinois Paul J. Fishman United States Attorney District of New Jersey Newark, New Jersey Catherine Dick Trial Attorney Organized Crime and Gang Section U.S. Department of Justice Washington, DC
2016 Statistics Health Care Fraud and Abuse Control Program Annual Report for Fiscal Year 2016: Over $3.3 billion recovered in civil and criminal healthcare fraud matters Criminal Actions in FY 2016: DOJ instituted 975 new criminal healthcare fraud investigations Criminal charges were filed in 480 cases involving 802 defendants 658 defendants were convicted of healthcare fraud-related crimes Civil Actions in FY 2016: DOJ instituted 930 new civil healthcare fraud investigations 1,422 civil matters were pending at the end of FY 2016 HHS-OIG excluded 3,635 individuals and entities from participation in federal healthcare programs Trends in Corporate Prosecutions Substantial focus in 2016 on corporate accountability and cooperation: Factors prosecutors should consider in investigating corporate entities, determining whether to bring charges, and negotiating plea agreements? New guidance on Evaluation of Corporate Compliance Programs issued by DOJ Criminal Division - Fraud Section on February 8, 2017 DOJ process for assessing corporate cooperation?
Trends in Corporate Prosecutions Notable corporate resolutions in 2016: Olympus Corp. (March 2016): distributor of endoscopes and related equipment paid $623.2 million ($312.4 million criminal penalty and $310.8 million civil FCA payment) to resolve criminal charges and civil FCA claims relating to a scheme to pay kickbacks to doctors and hospitals Largest total amount paid for AKS violations by a medical device manufacturer Resolution included a three-year Deferred Prosecution Agreement with DOJ and a five-year Corporate Integrity Agreement with HHS-OIG McKesson Corp. (Jan. 2017): McKesson agreed to pay a $150 million civil penalty for failure to implement and adhere to an effective system to detect and report suspicious orders for controlled substances The company was required to implement a compliance program as a result of similar violations in 2008 The new settlement imposes enhanced terms for five additional years and requires McKesson to engage an independent monitor to assess compliance Trends in Corporate Prosecutions Heightened interest in cases involving patient harm, threat of harm, and medically unnecessary services: United States v. Cadden et al. (NECC): former owner and head pharmacist of New England Compounding Pharmacy and other affiliated individuals charged with RICO conspiracy, mail and wire fraud, and FDCA violations in connection with patient deaths caused by a fungal meningitis outbreak allegedly resulting from defendants knowing failure to ensure drugs manufactured in sanitary environment First trial began in January 2017; two trials to follow United States v. Babich (Insys): several former executives of Insys Therapeutics indicted in December 2016 for RICO conspiracy, conspiracy to violate the AKS, and other charges, based on an alleged conspiracy to bribe practitioners to unnecessarily prescribe an addictive Fentanyl-based pain medication Tenet Healthcare: in October 2016 Tenet Healthcare agreed to pay a total of $513 million to resolve criminal charges and civil claims for allegedly bribing a pre-natal clinic to refer over 20,000 Medicaid patients to Tenet hospitals
AKS Violations as Predicate for FCA Liability Significant resolutions in addition to Olympus Corp. and Tenet Healthcare: Novartis (Nov. 2015): Novartis agreed to pay $390 million to resolve allegations under the FCA that it gave kickbacks to specialty pharmacies to recommend its products Shire Pharmaceuticals (January 2017): Shire and several of its subsidiaries agreed to pay $350 million to resolve civil state and federal FCA and AKS claims arising from a set of six qui tam lawsuits Cases still require proof of every element of the criminal AKS statute. Where does DOJ go from here? Will the new administration take a different approach to corporate prosecutions?
Trends in Individual Prosecutions In the wake of the Yates Memo, DOJ focused on holding individual executives responsible for corporate wrongdoing Notable Individual Prosecutions in 2016: United States v. Vascular Solutions and Howard Root (W.D. Tex.) United States v. Carl Reichel (D. Mass.) United States v. William Facteau and Patrick Fabian (D. Mass.) U.S. v. Vascular Solutions and Root (W.D. Tex.) July 2014: Vascular Solutions agreed to pay $520,000 to resolve qui tam suit alleging that company marketed the Vari-Lase Short Kit (a varicose vein treatment) for off-label uses Nov. 2014: Federal grand jury in San Antonio indicted Company and CEO Howard Root Government alleged that Root coached the sales force to promote the Vari-Lase Short Kit to treat veins deep in the leg, when it was FDAcleared only to treat superficial veins Defendants argued that this treatment was on-label, and that the alleged conduct concerned truthful and non-misleading speech protected by the First Amendment The court instructed the jury that solely truthful and not misleading speech to doctors could not be the basis for a misbranding conviction Feb. 2016: Company and CEO were acquitted of all charges
U.S. v. Carl Reichel (D. Mass.) Oct. 2015: former Warner Chilcott President, Carl Reichel, was arrested for one count of conspiracy to violate the AKS The same day, Warner Chilcott agreed to plead guilty to a felony health care fraud charge and to pay $125 million to resolve civil and criminal liability based on alleged AKS violations Reichel s indictment came after four-year investigation: 300+ witnesses interviewed, 50+ of which testified before the grand jury Government initially alleged that Reichel led a company-wide scheme to bribe doctors with free dinners and speaker fees Despite extensive investigation, little evidence of wrongdoing could be tied to Reichel and, as trial neared, government s theory collapsed from company-wide to involving only a dozen or so individuals Government cut witness list in half and did not call any of Reichel s direct reports at trial June 2016: following a month-long trial, the jury acquitted Reichel after deliberating less than three hours U.S. v. Facteau and Fabian (D. Mass.) July 2016: Acclarent, Inc. agreed to pay $18 million to resolve civil FCA liability for marketing and distributing Relieva Stratus sinus spacer for unapproved uses April 2015: Federal grand jury in Boston indicted former Acclarent Inc. CEO William Facteau and VP of Sales Patrick Fabian on FDCA off-label promotion charges Government alleged that defendants directed sales force to promote the Stratus device for an unapproved use as a drug delivery mechanism Defendants argued that they made only non-misleading, truthful statements about Stratus s off-label use Feb. 2016: following a six-week trial, Defendants were acquitted of ten felony misbranding charges, but convicted of ten misdemeanor counts under Park Defendants have challenged their convictions for strict liability misdemeanors on due process grounds Motion for Judgment of Acquittal is pending in D. Mass.
Themes in Individual Prosecutions Disconnect between Government and jurors in how they view severity of crime Jurors reluctant to find executives guilty based just on position Jurors may think that executives commit crimes but not that this executive committed a crime Violation of company rules violation of law Selling crime Just because corporation is found guilty does not mean executive will be Government view is that statutes are clear, but jurors may not think so Where does DOJ go from here? Is the focus on individual responsibility likely to change under the new administration?
Areas to Watch in 2017 Will DOJ seek to use RICO more broadly in the healthcare context? When should RICO be used? Experience with RICO in healthcare cases Current healthcare-related RICO prosecutions: Insys: former executives face RICO charges for allegedly bribing doctors to prescribe Fentanyl-based medication (Subsys) for off-label use in non-cancer patients and conspiring to defraud insurers by setting up reimbursement unit to obtain PAs for off-label uses Indictment alleges that Insys constitutes a racketeering enterprise NECC: former owner and head pharmacist indicted on RICO charges for roles in deadly fungal meningitis outbreak caused by contaminated vials of NECC-manufactured drug Charged with 25 predicate acts of second-degree murder Areas to Watch in 2017 The new wave of Anti-Kickback prosecutions: Increased Scrutiny of Drug Pricing and Patient Assistance Programs Prosecutions of Providers who receive kickbacks Use of Travel Act Use of Commercial Bribery
Qui Tam Actions How often does the government intervene in qui tam actions? What factors does the government consider in deciding whether to intervene? In what types of cases has the government been most likely to intervene? Qui Tam Actions Effect of Qui Tam lawsuit on parallel criminal investigation? How might actions taken in the civil proceeding affect resolution of the criminal matter? Considerations for the government? Strategies for defense counsel? When are global resolutions of civil and criminal proceedings available? Strategies for defense counsel when DOJ not willing to entertain a global resolution?