Scrutiny of medical device companies by federal prosecutors is expected to increase in the coming years. As reported in a recent trade publication, Susan Winkler, a lawyer in the U.S. Attorney’s Office in the District of Massachusetts and former chief of that Office’s healthcare fraud unit, has stated that device companies have received less attention from prosecutors than pharmaceutical companies, but that may be changing. A particular area of concern, she noted, is whether the clearance or approval of new devices is supported by clinical trial data that are fair and accurate. She also stated that the government will scrutinize payments to physicians that exceed fair market value.
Device applications that are not supported by accurate data could be prosecuted for false statements to FDA under 18 U.S.C. § 1001, and payments to physicians that exceed fair market value may lead to liability under the federal Anti-Kickback Statute.
In light of recent enforcement actions against pharmaceutical companies, device companies should ensure they are prepared. Over the past year, pharmaceutical companies have made record-setting payments to settle longstanding investigations by the Department of Justice and other federal agencies and the states. Abbott Laboratories paid $1.6 billion in May to settle an investigation into violations of the Federal Food, Drug, and Cosmetic Act in connection with marketing of the drug Depakote. This was the largest settlement for a single drug to date. In July, GSK paid $3 billion to resolve criminal and civil liability arising from the company’s unlawful promotion of certain prescription drugs, its failure to report certain safety data, and its civil liability for false price reporting practices. This was the largest healthcare fraud settlement in history and the largest amount ever paid by a drug company.
Although pharmaceutical companies seem to have been the a more frequent target enforcement actions, device companies have also been the subject of investigations and even criminal indictments. Notably, in October 2009, Stryker Biotech, its former President Mark Philip, and three current sales managers were indicted on several counts, including conspiracy to defraud hospitals and physicians into using an unapproved mixture of products to stimulate bone growth. Stryker and Philip were also charged with making false statements to FDA. In January 2011, after trial had already begun, the government agreed to settle with the company and dismiss the charges against the sales managers. Stryker pled guilty to one count of misdemeanor misbranding of a medical device in violation of 21 U.S.C. §§ 331(k), 333(a)(1), and 352(f)(1), and paid $15,000,000 to resolve the matter. The government later agreed to dismiss the charges against Philip.
The Second Circuit’s recent decision in United States v. Caronia could affect some settlements in the future, but its ultimate impact remains to be determined, and it is not likely to affect most of the types of violations identified by Winkler. For a complete discussion of the Caronia decision, see our client alert.