FDA Message to Pharma: Misdemeanor Criminal Charges can Result from Promoting Off-Label Drug Uses

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The FDA should target for misdemeanor criminal prosecution the executives of pharmaceutical companies which promote unauthorized uses of their medicines.

This is the latest message from Eric Blumberg, Deputy Chief for Litigation for the U.S. Food and Drug Administration. Speaking at the “Enforcement and Litigation Conference” for the Food and Drug Law Institute on October 13, 2010, Blumberg said, “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.”

Blumberg cited a recent case involving Pfizer in which the company agreed to pay a $2.3 billion fine for the off-label marketing of several products. Some industry analysts point to the Pfizer case as evidence that big pharma increasingly sees FDA fines and settlement agreements referencing “corporate integrity” as nothing more than a cost of doing business, and not changing industry practices. “Its clear were not getting the job done with large, monetary settlements,” Blumberg added.

This is not the first time Blumberg “ and the FDA “ has talked about getting tough with criminal prosecutions for drug law violations.

Not long after his appointment as the FDAs top litigator in 2005, Blumberg stated that senior executives should be held accountable for company actions under Federal Food, Drug and Cosmetic Act (FD&C Act). He warned that ignorance is not bliss, and also is not a defense in court. “The FD&C Act is a strict liability statute,” Blumberg said to a conference of pharmaceutical companies. “That means you may be found criminally responsible for a violation of the FD&C Act, even though you did not participate in the violation, you were not aware of the violation, or you did not act with criminal intent, or even negligence.”

Blumbergs words echo the so-called Park Doctrine, named after the Supreme Court decision in United States v. Park, 421 U.S. 658 (1975). This doctrine allows the government to seek criminal convictions against company officials for alleged violations of the FD&C Act.

In that case, the conviction of John Park, President of a national retail food chain, was upheld by the Supreme Court. The Court ruled that senior executives of companies manufacturing or selling FDA-regulated products have an affirmative duty to ensure the safety of those products. The Court further held that the U.S. Government can criminally prosecute corporate officers who are in a “responsible relationship” to an illegal activity by a company even if the person did not take part in, or even know of, the companys activities. The FD&C Act, according to the Court, imposes a positive duty on senior company officers to seek out and remedy violations when they occur as well as implement processes to prevent violations in the first place.

The Doctrine was used extensively by the FDA in the 1970s in strict liability cases usually involving “dirty warehouses” “ unsanitary facilities maintained by a company. But by the early 1980s, use of the Park Doctrine in criminal prosecutions had fallen off, due in part perhaps, to the meager penalties for misdemeanor convictions, which often were as low as $50.

Then in 2008, the U.S. Sentencing Commission adopted new guidelines that increased the likelihood that misdemeanor convictions under the Doctrine will result in prison time. These changes, along with higher penalties and the passage of new laws increasing the FDAs enforcement authorities and postures seem to have resurrected use of the Park Doctrine.

While Blumberg stated yesterday that his comments did not reflect FDA policy, they do reflect the thinking of the agencys senior management. In a March 2010 letter from FDA Administrator Margaret Hamburg to the Senate Finance Committee, Hamburg also stated that the FDA plans to increase misdemeanor prosecutions of pharma industry executives as it refocuses its Office of Criminal Investigations on stricter enforcement measures.

Blumberg added yesterday that pharmaceutical company officials shouldnt wait until they are criminally charged to begin bringing their marketing campaigns into compliance with FDA regulations. “If youre a corporate executive or are advising a corporate executive, now is the time to comply,” he said. “That conduct may already be under the criminal microscope.”

And quite a microscope it is. Under current law, misdemeanor cases carry sentences for company execs of up to a year in prison and/or a maximum fine of $100,000 per count. If the crime results in death, however, the maximum fine for an individual is $250,000. The FDA also can bar individuals from working in the industry.

Money Laundering charges now require proof that a transaction has the purpose of concealing illegal monies

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Recently two cases involving the amount of proof required to sustain criminal convictions for money laundering were decided before the United States Court of Appeals for the Sixth Circuit, based out of Cincinnati. Money laundering charges in recent years have been a powerful weapon for prosecutors in fraud cases, because money laundering convictions often carried much higher penalties than for fraud from which the money being laundered was derived. These new cases are interesting because they arise after Cuellar v. United States, a case decided in 2008 where the Supreme Court changed the quantum of proof necessary to convict someone of money laundering, and thereby making it harder for prosecutors to sustain money laundering charges.

United States v. Faulkenberry and United States v. Donald Ayers both arose from a prosecution of a securities fraud scheme involving National Century Financial Enterprises. As part of the prosecution of the fraud scheme, the government charged both defendants with money laundering for monetary transactions conducted during the fraudulent scheme with phony documents. Although the Court of Appeals found sufficient evidence that the defendants committed fraud, it found that there was insufficient evidence to prove money laundering under the standards set by the Supreme Court in Cuellar v. United States.

The Supreme Court in Cuellar held that to prove money laundering, the government must prove that a monetary transaction must be “designed in whole or in partto conceal or disguise” the nature and source of the fraudulently obtained money.  The Supreme Court held that this means that the purpose of the monetary transaction must be to conceal of disguise the illegal monies. The Court of Appeals, following the Cuellar case, found in, that although the government proved the defendants knew about the monetary transactions and that they were structured to conceal the funds, there was insufficient evidence that the purpose of the monetary transaction was to conceal the money, as opposed to merely facilitating the fraud.  Engaging in monetary transactions for the purpose of facilitating a fraud, instead of the purpose of concealing the money, is not money laundering according to the Court of Appeals. As stated by the Court in Faulkenberry, “money in motion does not necessarily equal money laundering”.

As Courts construe the new proof requirements of Cuellar, prosecutors will find it more difficult to convict defendants of money laundering unless the government has specific proof that monetary transactions were specifically conducted with the purpose of concealing illegal monies. This removes a potent weapon from prosecutors armory in many fraud cases, but is more in line with the purposes of the money laundering laws: to criminalize the intentional secreting of illegal monies separate and apart from the conduct that earned the illegal monies in the first place.

DC Circuit Court Allows “Rivals” in Research who are Competing for Federal Grants to Challenge Agency Actions that Benefit Their Opposition

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On June 25, 2010, the United States Court of Appeals for the District of Columbia Circuit issued an opinion holding that two doctors who were applying to the National Institute of Health (NIH) for funding of projects involving human adult stem cells (hASCs) had standing to challenge newly promulgated guidelines of the NIH permitting the funding of human embryonic stem cell research (hESC).

The National Institute of Health (NIH) has provided funding for hASCs for about 50 years; however, research of hESCs has only been done since 1998. Both plaintiffs, Dr. James Sherley and Dr. Theresa Deisher, conduct research on hASCs and have never conducted research on hESCs. The NIH did not provide any funding for hESCs research until 2001, when President Bush authorized some funding subject to the limitation that only hESCs derived from then-extent stem cells could be used.  In Executive Order 13,505, President Obama expanded hESCs research and directed the Secretary of Health and Human Services, through the Director of NIH to “support and conduct responsible scientifically worthy human stem cell research, including human embryonic stem cell research, to the extent permitted by law” and to “issue new NIH guidance on such research that is consistent with this order.  These Guidelines permitted the NIH to fund more projects involving hESCs. 

Plaintiffs, Dr. Sherley and Dr. Deisher, along with Christian Adoption Groups opposed to hESC research, filed a lawsuit in the United States District Court for the District of Columbia, requesting an injunction to block federal funding of hESCs research and a declaration stating the NIH Guidelines are invalid. The plaintiffs argued in their complaint that the NIH did not promulgate the Guidelines in accordance with law, specifically the “Dickey-Wicker Amendment”, which has been a provision of the Omnibus Appropriations Act for over a decade.  The pertinent part of the Act is Section 509:

(a) None of the funds made available in this Act may be used for–
(1) the creation of a human embryo or embryos for research purposes; or
(2) research in which a human embryo or embryos are destroyed, discarded, or knowingly subjected to risk of injury or death greater than that allowed for research on fetuses in utero under 45 CFR 46.204(b) and section 498(b) of the Public Health Service Act ( 42 U.S.C. 289g(b)).

The United States District Court for the District of Columbia dismissed the complaint, holding the plaintiffs did not have standing to challenge the NIH Guidelines.  Drs. Sherley and Deisher argued they had standing under the competitive standing doctrine, as “the new guidelines will result in increased competition for limited federal funding and will injure their ability to successfully compete for NIH stem cell research funds.” The District Court rejected this argument, finding Drs. Sherley and Deisher were “not participants in strictly regulated economic markets, but are applicants for research grants, where unlike an economic market, an increase in competition for funding does not mean that all other applicants are harmed.” The District Court further described the competitive process to receive NIH funding, and stated that even if the regulations did not exist, the doctors were not assured of receiving funding for adult stem cell research.  It also emphasized in its opinion that only about 22 percent of applications to NIH actually received funding.  The District Court found that the Guidelines neither prevented nor hindered either doctors opportunity to compete for funding. Their respective proposals would still receive funding if they survived the two-tier review process that all applications undergo. 

            The United States Court of Appeals for the District of Columbia reversed, noting in its opinion that it could see “no reason a person competing for a government benefit should not be able to assert competitor standing when the Government takes a step that benefits his rival and therefore injures him economically.” 

The specific rivalry between the hASC research and hESC research is acknowledged by the NIH on its website under the “Frequently Asked Questions”:

Question: Why not use adult stem cells instead of using human embryonic stem cells in research?
Answer: Human embryonic stem cells are thought to have much greater developmental potential than adult stem cells. This means that embryonic stem cells may be pluripotent”that is, able to give rise to cells found in all tissues of the embryo except for germ cells rather than being merely multipotent”restricted to specific subpopulations of cell types, as adult stem cells are thought to be.

The Court of Appeals found there was “no doubt that the Guidelines will elicit an increase in the number of grant applications involving hESCs.” It also noted that the Guidelines “intensified the competition for a fixed share of money” and will force the plaintiffs to “invest more time and resources to craft a successful grant application.”  The injury in fact to researchers of hASCs applying for NIH grants was more “imminent” and “traceable to the challenged guidelines” than the injury to all researchers applying for NIH grants because hESCs and hASCs could often be used as substitutes for each other. The Court of Appeals acknowledged that the actual loss of funding by researchers of hASCs could not be determined, but the substantial possibility of the imminent injury was sufficient for purposes of the competitor standing doctrine. 

The holding of the Court of Appeals is narrow. It merely has the effect of permitting obvious rivals in an area of research to have standing to bring suit when a government action eases their oppositions entry into the competition for federal grants. Whether the new NIH guidelines are in conflict with the Dickey-Wicker Amendment, and are thus unenforceable, are still questions to be decided by the District Court on remand.    

If you have any questions pertaining to new NIH guidelines, or the application process for receiving NIH grants, contact Fuerst Ittleman PL at contact@fidjlaw.com.

Medicare Fraud of $251 Million, 94 Suspects Indicted

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On Friday, July 16, the Department of Justice (DOJ) and Department of Health and Human Services (HHS) announced that the joint DOJ-HHS Medicare Fraud Strike Force has charged 94 people for alleged participation in Medicare schemes.  The suspects, collectively, submitted more than $251 million in false claims to the Medicare program. 

More than 360 law enforcement agents from federal and state agencies participated in the operation.  According to the DOJ and HHS, the operation is the largest federal health care fraud takedown since the inception of the Strike Force in 2007.  Last Friday, 36 of the 94 individuals were arrested in Miami, New York, Baton Rouge, and Detroit.  The individuals charged are doctors, nurses, health care company owners, and executives.

The 94 individuals involved in this takedown have been accused of various Medicare fraud-related offenses, including conspiracy to defraud the Medicare program, criminal false claims, violations of the anti-kickback statutes and money laundering.  The alleged schemes involve physical and occupational therapy schemes, home health care schemes, HIV infusion fraud schemes, and durable medical equipment (DME) schemes. 

In Miami, 25 defendants have been charged for allegedly participating in fraud schemes leading to approximately $103 million in false billings.  The defendants include a medical biller who allegedly billed approximately $49 million for fraudulent services. 

The Strike Force in Miami, and other cities across the country, is part of the Health Care Fraud Prevention & Enforcement Action Team (HEAT).  HEAT is part of the joint DOJ-HHS initiative to fight fraud and enforce anti-fraud laws around the country.  Phase 1 of the initiative began in South Florida in March 2007 and has expanded north to Tampa, Florida.  Since March 2007 the Strike Force has obtained indictments of more than 810 individuals and organizations that have billed the Medicare program, collectively, for more than $1.85 billion.

For information about Fuerst Ittlemans experience litigating white collar criminal cases, including health care fraud cases, please contact us at contact@fidjlaw.com.

“Theft of Honest Services” Fraud Statute Narrowed by Supreme Court

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A number of high profile white collar criminal prosecutions have included fraud charges based on the “theft of honest services ” fraud statute, 18 U.S.C. Sec. 3146.  This statute provides that the term, “scheme or artifice to defraud” includes not only a scheme to defraud someone of money, but also to deprive another of the intangible right of honest services.  Since its enactment, the “honest services” fraud statute has been a favorite charging statute for federal prosecutors.  For example, it is being used to prosecute former Illinois Governor Ron Blagojevich for his alleged attempt to sell a senate seat.  It has also been used to prosecute college basketball coaches who helped players violate rules to obtain scholarships.  Most notoriously, it was used to prosecute Enron executives for lying to auditors, and to prosecute Conrad Black, the former chair and CEO of Hollinger International, for paying himself illegitimate “noncompetition” fees that he failed to disclose to the board of directors.

A number of appeals courts have expressed concerns that the “honest services” fraud statute violates due process rights by failing to provide fair notice to defendants of what conduct violates the statute. The Supreme Court, in a June 24th decision, has now held that as interpreted in previous prosecutions, the statute is impermissibly vague, thereby violating the Constitution. In Skilling v. United States, the Supreme Court sharply limited the scope of the “honest services” statute, by ruling that it is unconstitutionally vague except in cases involving bribery and kickback schemes. The decision rejected the statutes constitutionality in cases where public officials or private-sector employees are charged with engaging in self-dealing or having undisclosed conflicts of interest, without a bribery or kickback scheme.  The Supreme Court stated that by limiting the “honest services” fraud statute to bribery or kickback schemes,  it “establishes a uniform national standard, define[s] honest services with clarity, (and) reach[es] only seriously culpable conduct”.

The effect of the Supreme Courts decision is to remove a tool from the government that was increasingly used to prosecute violations of ethics where there was no victim harm or proof that  a payment or inducement had actually affected any official action.  Now that the “honest services” fraud statute has been narrowed by the Court, it may be of minimal value to prosecutors who already have ample federal bribery and extortion statutes with which to prosecute wrongdoers. What the decision leaves businessmen and public officials alike, is with a more definite awareness of what conduct will be considered a violation of the federal criminal fraud statute.

Harsh Sentence for Miami Check-Cashing Store Owner

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The owner of Miami, Florida’s La Bamba Check Cashing store, Juan Rene Caro was sentenced in Federal court on June 23, 2009 to serve 216 months in prison, pay a $250,000 penalty, and forfeit $11 million in assets for his conviction on conspiracy and fraud charges in violation of the Bank Secrecy Act.Caro’s now-defunct store offered illegal check-cashing services to construction companies and other business people seeking to mask the identity of the true recipients of the funds. A company would engage La Bamba to cash a check in the name of a shell corporation, but the real company’s owner would take cash. Most of these companies were local construction companies and subcontractors.

Under the Bank Secrecy Act, financial institutions – including check-cashing stores – are required to file currency transaction reports (CTRs), a notification to the U.S. Department of Treasury, disclosing the identity of parties to a transaction when amounts greater than $10,000 are involved. The financial institution must also verify and record the identity, social security number, or taxpayer ID number of the person benefiting from the transaction.

The companies using La Bamba’s services evaded taxation on an amalgamated total of $132 million. La Bamba profited from the filing of false CTRs by taking a fee of between 3% and 5% for performing such transactions.

U.S. Department of Justice enforcement of CTR requirements has ramped up recently with charges against small and big-time players alike. For example, Newport Beach, California, financier Danny Pang was accused this Spring of structuring transactions to avoid filing CTRs, as were the owners of a small machine shop in Rhode Island who similarly avoided CTRs in order to conceal business receipts and thereby evade taxation.

Although Caro’s attorney called the sentence unfair, comments from the Department of Justice and the Judge Joan Lenard’s hefty sentence indicate broad acceptance of a zero-tolerance attitude towards fraud and financial crimes that harm the American taxpayer. It should also be noted that the prosecution sought a longer prison term and more assets than those ordered to be forfeited by Judge Lenard.

Read the Department of Justice’s posting of the indictment against Mr. Caro for a detailed description of the mechanics of Caro’s crime as well as a list of the assets sought by the government.

For insight and strategies on maintaining compliance with state and federal regulation of financial services, please contact Fuerst Ittleman at 305-350-5690 or contact@fidjlaw.com.

New Indictments, Arrests in Multi-State Health Care Fraud Scheme

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On June 24, 2009, Federal agents descended on Miami, Detroit and Denver, as well as other major cities, in a new round of arrests targeting Medicare fraud in those cities. Fifty-three Federal indictments were handed down early in the day by a grand jury in Detroit, and a wave of arrests soon followed. All tolled, the newly indicted suspects are charged with conspiring to defraud Medicare of over $56 million.

The indictments involve fake prescriptions, cash bribes, and stolen Medicare information, including physician identification numbers. As reported in our earlier blog posting, Federal and state government authorities under the Health Care Fraud Prevention & Enforcement Action Team (HEAT) taskforce have recognized the severity of healthcare fraud in South Florida and have been cracking down on these fraudulent schemes. Heightened enforcement in South Florida forced the group to extend their scheme to Detroit, which has become the latest site for Medicare fraud, and other cities to take advantage of Medicare funds.

According to the indictments, the defendants – including doctors, clinic owners, assistants, and patients – submitted millions of dollars in false claims to Medicare for infusion therapy, injection therapy, and other high-priced medical treatments that are designed to treat patients suffering from illnesses such as HIV, AIDS, and cancer.

“As demonstrated by today’s charges and arrests, we will strike back against those whose fraudulent schemes not only undermine a program upon which 45 million aged and disabled Americans depend, but which also contribute directly to rising healthcare costs that all Americans must bear,” U.S. Attorney General Eric Holder said at the press conference announcing the indictments and arrests.

The suspects identified in the Detroit indictments have clear connections to Miami, Florida. In 2008, it is estimated that that city’s prosecutions account for more than one-third of all Medicare fraud cases nationwide. “In fact, ten of the defendants named in the indictments unsealed today are alleged to have brought their fraud schemes from Miami to Detroit,” reported Holder. “Strike force operations in Miami have seen instances of fraud spread quickly through communities in that area. After we arrested and charged criminals in Miami, their cohorts simply moved their schemes to Detroit.”

All together, strikes forces in Miami, Los Angeles and Detroit have charged 249 defendants for Medicare fraud involving about $600 million in false claims for mostly HIV infusion services and medical equipment.

For the U.S. Attorney General’s press release on the indictments and arrests, click here.

For more information about how Fuerst Ittleman can assist your Medicare and health care regulatory compliance and protect against fraud, please contact us at 305-350-5690 or contact@fidjlaw.com.

Healthcare Fraud Crackdown Expanded in Miami-Dade County

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Efforts to crack down on Medicare and Medicaid fraud has focused the radars of federal and state law enforcement onto the Miami-Dade county area. On June 19, 2009, state investigators from the Florida Agency for Health Care Administration (“AHCA”) revealed more Medicaid fraud in Miami-Dade: the state paid for unnecessary or unaccounted oxygen equipment.

Recent government studies have estimated Medicare and Medicaid fraud to be at least $60 billion a year nationwide. According to the FBI and the Department of Justice, Medicare and Medicaid fraud is big business in Miami Dade County reaching at least $2.5 billion a year.

Fraudulent billing for medical equipment is the latest scam plaguing Medicaid which, according to the AHCA, spent over $90 million on medical equipment last year alone. When over $1.4 million was spent on oxygen equipment in Miami-Dade County last year, this raised the suspicions of the AHCA.

Attempts to curb Medicaid and Medicare fraud in South Florida are nothing new. In March, Medicaid investigators commenced similar investigations of Miami-Dade’s home health industry. On June 15th, Governor Charlie Christ signed into law a bill that declared Miami-Dade a “crisis area for healthcare fraud” and tightened regulations on home health agencies, home medical equipment providers, and health care clinics.

These recent efforts by the state come on top of increased efforts by the federal government to stem the tide of fraud and wasteful government spending in Medicare and Medicaid. The first of these efforts, the Medicare Strike Force, was started in 2007. In two years, federal prosecutors have filed 87 indictments charging 159 defendants with fraud offenses. This past May, the federal government announced a new task force – the Health Care Fraud Prevention and Enforcement Team, or HEAT – which will increase healthcare fraud enforcement in Miami-Dade County.

With increased efforts of law enforcement cracking down on the industry, let FHI help your health care business with its regulatory compliance. Contact us at 305-350-5690 or contact@fidjlaw.com.

U.S.-Swiss Tax Treaty Amendments: Stricter Cooperation and Enforcement on the Horizon

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The U.S. Department of the Treasury issued a press release on June 19, 2009 to mark the successful conclusion of treaty negotiations on a plan to share tax information between the United States and Switzerland. 

From the American perspective, the treaty revisions embody an Obama Administration policy goal:  to edge closer to full enforcement of the tax-code by eliminating havens for tax evasion.  From a global perspective, the treaty revisions mark a broader campaign to meet the requirements of Article 26 of the Organization for Economic Co-operation and Development’s (OECD) Model Tax Convention on Income and Capital.  IRS Commissioner Douglas Shulman indicated participation in this global shift only a month ago at the Forum on Tax Administration, warning those “who hide assets overseas [to] expect an increasing number of revenue bodies to cooperate and share information.”

OECD summarizes Article 26 as a tool for eliminating bank secrecy in the face of warranted searches for financial information outside of signatory nations’ borders.  Several countries that historically manage large amounts of foreign capital have indicated a transition to adherence to Article 26.  Some of these jurisdictions include Hong Kong, Singapore, Austria, and Liechtenstein.  OECD’s Secretary General called these developments “a fundamental change and an important moment in the history of international tax cooperation” and characterized tax enforcement as a critical part of recovery from the global economic crisis.

Negotiations took place over about two months to revise the current treaty on tax information sharing between the two countries.  The Treasury Department expects official signing of the treaty within months.  So far in 2009, the U.S. has come to agreement on similar revisions with France and Luxembourg.

For the complete text of the IRS press release on the U.S.-Swiss tax treaty amendments, please click here.

Our professionals at FHI will be tracking this issue as it develops and the Obama Administration – in Treasury Secretary Tim Geithner’s words – carries out its “commit[ment] to reducing off shore tax evasion to help ensure that all U.S. taxpayers are playing by the same rules.”

For assistance with navigating the changing waters of international taxation and enforcement, please contact Fuerst Ittleman at 305-350-5690 or contact@fidjlaw.com.

Fuerst Ittleman Assists Clients and Earns a “Thank You”

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Bio-Nucleonics, Inc., a leading Florida company specializing in radiopharmaceuticals, medical devices and imaging agents, gave a hearty “Thanks” to Fuerst Ittleman in its most recent issue of BioBulletin, the companys newsletter.

Fuerst Ittleman recently assisted Bio-Nucleonics with gaining FDA approval for the companys new Doral, Florida product manufacturing facility. The FDAs approval certifies that Bio-Nucleonics uses “current Good Manufacturing Practice” (cGMP) in all its production at this state-of-the art facility.

The FDA also gave approval to Bio-Nucleonics for its proposed release criteria and timeframes for specific lot release tests to be completed prior to shipment of finished drug products. The importance of this ruling is that no material is lost to radioactive decay and each dose can be shipped immediately to the customer.

FHI assisted Bio-Nucleonics with both of these efforts. We found it such a pleasure to work with clients who were as knowledgeable, dedicated, and thorough as the team at Bio-Nucleonics, and were glad that they liked working with us, too.

Let Fuerst Ittleman help guide your company to its next success. For more information, contact us today at 305.350.5690 or contact@fidjlaw.com