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February 08, 2016 Articles

Pharma Industry Beware: Arrest of Pharma Executive Sends Strong Message

By Sam Felker

The pharmaceutical industry took note this fall when federal agents arrested the former president of an Allergan PLC division on charges of conspiring to pay kickbacks to physicians to induce them to prescribe the company's drugs. It is not every day that the Department of Justice (DOJ) prosecutes the leaders of a pharmaceutical company for health care fraud—in fact it almost never happens. In recent years, numerous pharma companies have faced major fines and criminal charges, but until now the target has not been on the back of management.

That changed when a grand jury in Massachusetts indicted Carl Reichel, who served as president of Warner Chilcott's pharmaceutical division between 2009 and 2011, on one count of violating the federal antikickback statute. Allergan acquired Warner Chilcott in 2013. The indictment alleges that Reichel designed an elaborate sales and marketing strategy and instructed the sales force he supervised to provide free meals, drinks, and bogus "speaker fees" to doctors to encourage them to prescribe Warner Chilcott drugs. The DOJ also announced that two other former sales managers for Allergan's Warner Chilcott unit pleaded guilty in July to charges of conspiracy to commit health fraud and await sentencing. Reichel pleaded not guilty to the charges.

In a related development, Warner Chilcott agreed to plead guilty to health care fraud and pay $125 million to settle related charges that it ran an elaborate and extravagant scheme to persuade doctors to prescribe its drugs in exchange for kickbacks, including lunches, dinners, drinks, and payment for speeches that were never made. The case was brought by two whistleblowers.

Bringing criminal charges against Reichel was a rare move by the DOJ, which in recent years has focused its prosecutorial efforts in health care fraud on corporate wrongdoing, not individual responsibility, under the False Claims Act. While the DOJ has pursued criminal charges against executives in three recent notorious food contamination cases (Stewart Parnell of Peanut Corp. of America; former Iowa egg producer Austin "Jack" DeCoster and his son; and a pair of Colorado brothers and cantaloupe farmers Eric and Ryan Jensen), it is highly unusual for the DOJ to bring criminal charges against corporate executives in the context of pharmaceutical health care fraud. The last such case in recent memory was in 2011, when Marc Hermelin, former chief executive of KV Pharmaceutical Co., was sentenced to 30 days in prison in connection with the company's shipment of painkillers. The DOJ's latest attempt to hold an upper level executive accountable for criminal violations in the context of pharmaceutical sales practices has everyone wondering if the indictment signals a new day for the enforcement of federal antikickback laws.

It may not be coincidence that the DOJ recently announced a policy to pursue individuals, not just their employers, for criminal violations of federal health care fraud laws. In a recent speech about the time of the indictment, Deputy Assistant Attorney General Benjamin C. Mizer, head of the DOJ's Civil Division, emphasized that the DOJ's enforcement efforts are about more than collecting large corporate fines:

Certainly, the most recent development that you may all have read about and that will affect future matters is the department's renewed commitment to ensuring that individuals who engage in fraud schemes and other wrongdoing are held accountable. Pursuing culpable individuals has many effects: it deters other persons from engaging in similar illegal conduct; it addresses the misconduct directly by focusing on the actors who made or executed the decisions within the organization; and it encourages changes in corporate culture.

Mizer highlighted the DOJ's commitment to pursuing not just the business involved in fraudulent behavior, but also the people whose decisions and actions caused the misconduct to occur. He emphasized three of the six components of the DOJ's new policy statement:

(1) If a company wants credit for cooperation, it has to identify all individuals involved in the wrongdoing, regardless of the individual's position or seniority in the company.

(2) The DOJ will focus on individuals from the outset of an investigation, on both the criminal and civil sides.

(3) The DOJ criminal and civil sides will work in collaboration toward a shared enforcement goal.

In light of these developments at the DOJ, the stakes are higher than ever for health care companies and their executives. Attorneys who practice in this area will want to advise senior level executives of this change in the DOJ's strategy for combating health care fraud. It is also more important than ever for internal investigations to focus on who knew about and participated in the alleged wrongdoing, and company executives should always be advised of their personal exposure, both civil and criminal, consistent with ethics rules. The pharmacy industry and their counsel will be watching closely to see whether the timing of these events and the DOJ pronouncements are merely coincidental, or whether they mark a new day in the fight against health care abuse.

Keywords: litigation, products liability, pharmaceutical industry, kickbacks, health care fraud, individual responsibility

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