The Yates Memo Has Teeth: DOJ Indicts Senior Pharmacy Executive In Connection with Wide-Ranging FCA Settlement

Yesterday, the DOJ announced a settlement with the U.S. sales subsidiary of Warner Chilcott PLC. The company has agreed to plead guilty to criminal charges and to pay $125 million to resolve both criminal and civil liability. At the same time, the DOJ announced that it had indicted a former president of Warner Chilcott’s pharmaceutical division with conspiracy to violate the Anti-Kickback Statute. As the DOJ emphasized in its press release, the individual criminal charges in this matter represent an effort to hold “responsible individuals accountable” in enforcement actions. The DOJ’s pursuit of individual criminal liability in this case represents a high profile application of the DOJ’s intent to focus on the liability of individual corporate employees, recently set forth in the Yates memo (as further discussed here). The parallel civil settlement also provides insight into potential future enforcement activities around manufacturer support of prior authorization programs.

Corporate and Individual Criminal Charges

The criminal information charges Warner Chilcott with a violation of 18 U.S.C. § 1347, Health Care Fraud. The allegations relate to three primary categories of conduct: kickbacks, manipulation of health plan prior authorization processes, and making unsubstantiated comparative claims.

According to the information, Warner Chilcott operated a policy of lavish social events under the guise of medical education programs (“med eds”) for physicians. These programs contained little clinical product education; instead, sales reps were encouraged to use med eds as a tool for generating business by taking out high prescribing, or potentially high prescribing, physicians. Warner Chilcott also targeted high prescribers by offering them lucrative speaking engagements, which the company cut off if a physician failed to consistently prescribe a sufficiently high volume of Warner Chilcott products. These engagements were, like the med eds, described as devoid of significant medical education. Sales reps were encouraged to make clear to physicians that their continued access to the perks of dinner events and speaking engagements was contingent on their successful commitment to prescribe Warner Chilcott products. Certain managers tracked the “return on investment” from these programs. The DOJ’s press release states that one Massachusetts physician has been indicted for allegedly accepting free meals and speaker fees in return for prescribing Warner Chilcott products.

Several Warner Chilcott products faced generic competition and were subject to prior authorization (“PA”) requirements. The company executed a strategy to overcome these PAs by pressuring sales reps to engage in a variety of tactics, from assisting providers with filling out PAs (by supplying “canned” clinical justifications) to falsely filling out and personally submitting PAs to health plans. Sales reps were also encouraged to provide free meals and treats to nurses and medical assistants with responsibility for filling out PAs. In connection with these allegations, the DOJ also announced the indictment of three former district managers for HIPAA violations in connection with the alleged PA scheme.

Finally, the information alleges that Warner Chilcott CEO instructed the sales force to tell physicians that a particular Warner Chilcott product was superior to competitors based on its mechanism of action (“MOA”). The MOA sales tactic was generated from an earlier, ultimately inconclusive company-sponsored study, and there was otherwise no clinical evidence to support the claim.

The indictment of the former president of the pharmaceuticals division, Carl Reichel, highlights the executive’s role as to the kickback charges. Reichel allegedly engineered “a sales strategy of providing remuneration to HCPs, in the form of free dinners, ‘speaker’ payments, and food and drink for HCPs and their staff.” Pursuant to this strategy, Reichel supposedly encouraged the sales force to execute many of the key elements of the kickback scheme outlined in the corporate criminal information.

The company has agreed to pay almost $23 million in criminal penalties and forfeiture to resolve the charges. As set forth in the company’s plea agreement, Warner Chilcott is expressly obligated to provide “active assistance” in connection with any investigation into or criminal prosecution of a current or former employee.

Although pre-Yates memo plea agreements have included similar terms, the DOJ’s new focus on pursuing individuals may make it more likely that companies will face ongoing obligations under such plea agreement cooperation provisions. Companies will encounter additional, earlier challenges during the subpoena response phase of a qui tam suit as well. Many of the procedural requirements set forth in the Yates memo, such as the requirement for companies to turn over any evidence of individual misconduct during the course of the DOJ’s investigation in order to be eligible for cooperation credit during settlement negotiations, can have a profound impact on corporate subpoena response strategies.

Corporate Civil Resolution

Warner Chilcott also has agreed to pay just over $102 million to resolve a qui tam suit filed in the District of Massachusetts. The conduct covered by the resolution relates to both the kickback and the prior authorization allegations. The settlement agreement does not address the third category of conduct in the criminal information relating to unsubstantiated comparative claims. As we discussed recently here, such theories of FCA liability can struggle to advance where the prescriptions are written for on-label uses, even when in response to unsubstantiated product claims.

It has become an increasingly common industry practice to provide some level of prior authorization assistance to providers. The resolution to this case leaves open questions as to the government’s position on potential liability under the AKS and FCA for providing prior authorization assistance. The settlement agreement’s description of the Covered Conduct falls short of stating whether a manufacturer’s financial sponsorship of a prior authorization service can itself constitute a kickback. Instead, the covered conduct focuses on the falsity of the activities, both as to sales reps posing as physicians in order to gain access to a prior authorization software tool, and sales reps supplying office staff with inaccurate or misleading clinical justifications for PAs.

Copies of the criminal information and FCA settlement agreement can be found here and here.