Last month, Food and Drug Administration (FDA) Deputy Chief for Litigation Eric Blumberg told Bloomberg news that, “Drugmaker executives whose companies promote unauthorized uses of their medicines may be targeted by U.S. regulators for misdemeanor prosecutions.” In other words, the FDA is considering prosecuting the CEOs. Although Blumberg said he was not speaking for the agency, he said that industry executives should not wait until the first charges are brought to bring their marketing into compliance.
Blumberg’s statement appears to arise from the fact that federal agencies are “not getting the job done” of deterring fraud and abuse with large, monetary settlements. He asserted that “Unless the government shows more resolve to criminally charge individuals at all levels in the company, we cannot expect to make progress in deterring off-label promotion.”
Additionally, it appeared as though Blumberg was making a warning by stating that, “If you’re a corporate executive or are advising a corporate executive, now is the time to comply … because that conduct may already be under the criminal microscope.”
Companies such as Pfizer however, maintain that they are investing substantial “resources in order to create a compliance program that consists of mandatory training for employees, proactive monitoring and surveillance, and strict enforcement of all federal and state health-care laws.” Many companies are taking similar measures as a result of corporate integrity agreements and criminal settlements with the Department of Justice (DOJ).
In response to Blumberg’s comments, Wes Metheny, senior vice president of the Pharmaceutical Research and Manufacturers of America, said the FDA “should use its enforcement powers proportionately, especially if it is considering charging employees with an alleged crime for which they had no knowledge.”
Prosecuting Executives
The FDA, either through HHS or DOJ, would be able to prosecute executives with misdemeanors for violations of the federal Food, Drug and Cosmetic Act under the Park Doctrine, named after the 1975 U.S. Supreme Court case against a retail food chain president. However, the strategy has not been widely used for drug industry cases in the past two decades.
Executives would face as much as $100,000 fines and one year in jail. The FDA could also bar individuals from working in the drug industry. Douglas Farquhar, an attorney with Hyman, Phelps & McNamara in Washington, DC, noted that “This can be a career-ending move.”
In light of comments such as these, and the steady amount of settlements, Jim Prutow, a consultant who helps drugmakers and medical- device companies comply with FDA rules, said he expects the Park Doctrine to be used within the next six months. The Park Doctrine first resurfaced when FDA Commissioner Margaret Hamburg promised more misdemeanor prosecutions in a March 4 letter to Iowa Republican Senator Charles Grassley.
Part of the reason the Park Doctrine was not used after the early 1990s was because officials in the FDA’s office of criminal investigations focused on felony cases. The difference back then was that “off-label marketing was not a major concern, and federal prosecutors tended to press cases that didn’t always result in quick settlements.” Consequently, concern about prosecuting executives also arose around this time when the Government Accountability Office (GAO) published a report indicating that FDA’s office of criminal investigations (OCI) suffers from lax oversight, despite increased in funding and staffing over the past decade.
Nevertheless, Scott Gottlieb, a former FDA deputy commissioner who is now a partner at Arcoda Capital in New York, warned that prosecuting executives could have undesirable consequences. He noted that, “As a society, we need to be very careful when we start to criminalize conduct by an individual that doesn’t involve them actually committing a crime.” If that were to happen, Gottlieb predicts that “one of these cases is going to get challenged through the court system.”
No sooner than some predicted, a pharmaceutical executive was ousted last week. Marc Hermelin resigned as a director of KV Pharmaceutical Co., and will sell his controlling interest after being banned from doing business with the U.S. government for two decades. Hermelin had been chief executive since 1974 and is the son of Victor Hermelin, who started the business KV is based on in 1942. In December 2008, the KV board fired Hermelin as CEO and chairman after investigating allegations of unspecified misconduct. Hermelin said he retired four days earlier.
His ban took effect last week. According to the DOJ, a KV subsidiary, Ethex Corp., pleaded guilty to two felonies of making oversized prescription generic-drug tablets and intentionally withholding data from the FDA, putting patients at risk. KV paid a $23.4 million fine in March for these charges.
Hermelin becomes the first drug-company owner or executive barred from doing business with the government in an antifraud push involving Medicare and Medicaid.
After announcing these changes, KV said in a statement that “it has resolved its remaining issues with respect to HHS OIG and is positioned to continue to participate in federal health care programs now and in the future.”
As long as Hermelin and KV comply with the settlement with the inspector general, the agency agreed not to ban KV from doing business with the government, KV said. The company also agreed to dissolve Ethex and dispose of its remaining assets by April 28.
Discussion
The issue of prosecuting company executives has become more relevant recently, given the financial crisis and the large drug settlements. In fact, the House passed a bill in late September of this year that would ban corporate execs from doing business with Medicare and Medicaid if their companies were convicted of fraud. While Congress will almost certainly not get to this issue by the end of this session, it may reconsider the issue next year, especially given the publicity of large settlements with drug companies, and the focus of health care reform on fighting fraud and abuse.