DOJ Targets Small Pharma: Expects Companies To Mine Their Data For Misconduct; Finds Speaker Programs, Specialty Pharmacies, R&D “Prone to Abuse”

CBI’s Pharmaceutical Compliance Congress had an impressive array of presenters this year. The government speakers were all instructive and enlightening, especially the SEC address, which we highlighted yesterday. The Department of Justice panel also provided a helpful look into their enforcement perspectives when bringing cases against the pharmaceutical industry. U.S. Attorney speakers included Gregg Shapiro of the District of Massachusetts, Timothy Heaphy, a former U.S. Attorney for the Western District of Virginia and now a white collar defense attorney, Barry Grissom of the District of Kansas, and Jacob Elberg of the District of New Jersey.

DOJ Targeting Smaller Companies

“Big pharma has cleaned up quite a bit,” noted the panel. Indeed, the sheer volume of attendees at the compliance conference seemed to suggest that pharmaceutical companies are putting a lot of effort into robust compliance programs.

The companies that are next on the list, according to the U.S. Attorneys, are small and medium sized companies—perhaps young businesses without many resources that may be fighting tooth and nail to gain traction.

The DOJ panel cautioned the attendees, however, that the proliferation of mergers and acquisitions often entangle bigger, compliant companies into a potentially messy situation. Companies could be “buying themselves a major problem,” stated the prosecutors. Illustrating this point, the topic of “thorough due diligence” in the M&A space was highlighted throughout the conference.

As an example, the enforcement panel brought up the recent OtisMed and Stryker case. There, a small startup, OtisMed, “marketed the OtisKnee cutting guide as a tool to assist surgeons in making accurate bone cuts specific to individual patients’ anatomy based on [MRI] performed prior to surgery,” states DOJ. However, FDA hadn’t actually evaluated these claims before the company advertised them. OtisMed sold thousands of devices before submitting any documentation to FDA, and the agency actually ended up denying the company’s pre-market submission. DOJ alleged that the CEO, Charlie Chi, directed employees to continue to ship the devices even after FDA’s decision.

OtisMed was acquired by Stryker in November 2009. DOJ states: “[a]t the time the shipments were made in September 2009, Stryker executives were not aware that OtisMed and Chi had shipped cutting guides after the FDA had rejected the company’s application for marketing clearance for the device.” The DOJ credited Stryker with cooperating with the government regarding OtisMed’s “pre-acquisition conduct throughout the investigation,” but still required Stryker to agree “to a series of compliance measures aimed at preventing future misconduct.”

Unlike in larger manufacturers, where potentially unlawful business decisions are made through many layers of managers and higher-ups, the DOJ noted they often have an easier time linking bad conduct right up to senior management in smaller companies. That’s just what happened in OtisMed, whose co-founder and former CEO pleaded guilty to illegal marketing conduct, and is set for sentencing in a couple of weeks.

Open Payments

Since the earliest whispers of the Sunshine Act, manufacturers have been concerned that enforcers–not patients–will be the ones to truly mine the Open Payments database for alleged misconduct. The panel agreed that many different data streams are helping prosecutors find outliers. Further, they noted that this public Open Payments system leads to an expectation that companies will monitor both their own data and competitors’ data. 

The panel stated that companies should have processes in place to monitor healthcare professionals—both from a business perspective and a risk-management perspective regarding off-label use. “Companies should look hard at their own data,” stated the panel, and “quickly have appropriate answers” for payments that may seem to raise kickback and off-label red flags.

DOJ Targets

In answering a number of audience questions, DOJ honed in on speaker programs–another popular topic at the conference–as well as specialty pharmacies and research and development.

Speaker Programs

In terms of speaker programs, the panel stated: “Sales force chooses physicians to speak; sales reps care about how many scripts physicians write.” Thus, they are inherently “prone to abuse.” However, the DOJ conceded there were many legitimate speaker programs, and re-stated the kickback safe harbors surrounding them–namely that speaker payments should be laid out in a contract, tied to fair market value, and not incumbent upon business production. DOJ also mentioned the Novartis case (which we looked at in detail) as a template for what to avoid in speaker programs. 

Specialty Pharmacies

Second, the panel talked about how pharmacies–especially those that focus on high cost drugs–are prone to abuse where companies offer rebates. The panel brought up Johnson and Johnson’s settlement and Abbott’s settlement, which both touched on this issue. As the panel put it, when pharmacies negotiate terms like “give us rebates, and we’ll push the drug,” DOJ has an incentive to get involved. 

Research and Development 

Finally, DOJ spoke to what many expect to be the next enforcement frontier for life sciences companies–allegations of research fraud. This is the “classic controversy of science verses marketing,” stated the panel. Settlements focused on manufacturers “doctoring data,” as the panel called it, may be forthcoming. 

Early Self Disclosure

As noted yesterday in our SEC coverage, and last month in our article on medical device enforcement, the government loves self-disclosure. The DOJ panel was no exception, but advised that a pharmaceutical manufacturer’s view of self-disclosure may not be identical to DOJ’s view. Indeed, the panel noted that when they are investigating alleged misconduct, they will look to the full spectrum of alleged misconduct and what the company did upon notice of those actions—“what, when, and what you did once you uncovered it.” DOJ’s fundamental inquiry is whether misconduct occurred “despite or because of a company’s culture” regarding compliance. Additionally, DOJ urged companies to respond quickly to subpoenas and to facilitate a fast resolution to any investigations. 

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Last month, we wrote that at CBI’s medical device conference DOJ confirmed they were honing in on device companies. This week, they stated that small pharma was the target. While this may represent some fear-mongering, it’s clear the many U.S. Attorney’s offices across the country are focusing on healthcare fraud and have a lot more experience and data on their side than even a few years ago. Furthermore, the government expects companies to look at not just their own payment data, but their competitors’ data as well. With whistleblowers continuing to bring more cases in to prosecutors’ offices, it is important for the pharmaceutical industry to stay on top of the latest trends in enforcement. We will continue to provide updates on this important topic.