U.S. Attorneys Send Strong Message that a Company’s Response to a Compliance Issue is Key Element of an Effective Compliance Program

February 5, 2014

A common theme among the government enforcers speaking at last week’s Pharmaceutical Compliance Congress (PCC) was the importance of putting in place an effective corporate compliance program to prevent healthcare fraud. Recognizing that even an effective program cannot necessarily prevent all wrongdoing, the enforcers also stressed that what a company does after it discovers an issue can have a significant impact on the government’s enforcement posture.

Zane Memeger, U.S. Attorney for the Eastern District of Pennsylvania, spoke as part of the PCC’s annual Enforcement Panel. Mr. Memeger addressed the effectiveness of corporate compliance programs, noting that the government is seeing repeat offenders as it continues its investigations of healthcare fraud. He posed a number of questions that companies should ask about their programs, including:

· Does your company have a Compliance Officer with the authority and resources to
investigate issues that arise in the company?
· Does your company have a track record of compliance?
· Does your company train on the rules and changes to the rules?
· Does your company encourage reporting of issues?
· What steps are taken after a report is made?
· Does your company discipline individuals who violate the rules?
· Does your company take steps to evaluate the effectiveness of its compliance program?

Mr. Memeger discussed his office’s 2012 settlement with Temple University as an example of a case where a compliance program worked in uncovering fraudulent billing activity that Temple then voluntarily disclosed to the government. In that case, Temple physicians billed for services provided by residents when the attending physicians were not present in the room at the time the procedures were performed and, in some instances, were not even present in the hospital.

Mr. Memeger stressed that the effectiveness of the Temple compliance program in uncovering and addressing the fraudulent billing activity resulted in the Office of Inspector General (OIG) not seeking a Corporate Integrity Agreement (CIA) against Temple, even as one of the physicians involved in the fraudulent billing activity was convicted on numerous counts of healthcare fraud and making false statements to the government. In the press release announcing the monetary settlement with Temple and the convicted physician, the government stated:

In light of Temple’s voluntary disclosure and self-audit, and upon the evaluation of Temple’s compliance structure by the Office of Inspector General of the Department of Health and Human Services, Temple will continue to implement its corporate compliance program without the need for a Corporate Integrity Agreement overseen by the Office of Inspector General.

Another U.S. Attorney on the PCC’s Enforcement Panel, Sanford Coats from the Western District of Oklahoma, noted Pfizer, Inc.’s cooperation in the investigation of Wyeth Pharmaceuticals’ off-label promotion of Rapamune following Pfizer’s acquisition of Wyeth. Mr. Coats explained that early in the investigation Pfizer engaged his office in “meaningful dialogue” about how to resolve the matter.

Wyeth settled the case by agreeing to pay over $490 million and pleading guilty to misbranding under the Federal Food, Drug and Cosmetic Act (FDCA). Despite the monetary penalty and criminal plea, the OIG did not require Wyeth to enter into a CIA. Nor did the OIG extend the term of the Pfizer CIA, which the company entered into in 2009. Rather, the government simply stated in its press release announcing the settlement that the Pfizer “CIA covers Wyeth employees who now perform sales and marketing functions at Pfizer.”

Paul Fishman, U.S. Attorney for the District of New Jersey, reiterated this theme on the impact of a company’s cooperation in an investigation. He said there are two questions to ask that go a long way in determining the ultimate outcome of an enforcement action:

1. What steps did the company take to prevent a crime from happening?
2. How did the company respond after it discovered that those steps had failed?

Mr. Fishman discussed Maxim Healthcare Services Inc. as a company that scored low on question one but very high on question two. The government charged Maxim with submitting more than $61 million in fraudulent billings to federal healthcare programs and the company entered into a two-year deferred prosecution agreement (DPA).

According to Mr. Fishman, a DPA was the “right answer” for Maxim given its response to what happened. The government detailed Maxim’s response in its press release:

The government’s willingness to enter into a DPA with Maxim is due, in significant part, to the company’s cooperation and the reforms and remedial actions the company has taken – beginning particularly in May 2009 – including significant personnel changes: terminating senior executives and other employees the company identified as responsible for the misconduct; establishing and filling of positions of chief executive officer, chief compliance officer, chief operations officer/chief clinical officer, chief quality officer/chief medical officer, chief culture officer, chief financial and strategy officer, and vice president of human resources; and hiring a new general counsel.

The company has identified and disclosed to law enforcement the misconduct of former Maxim employees, including providing information which has been critical in obtaining the convictions of some of the individuals who have pleaded guilty to date. The company has also significantly increased the resources allocated to its compliance program.

Mr. Fishman stated that the government was willing to give Maxim time and space to correct its issues. He further pointed out that Maxim met the terms of the DPA and the government subsequently dismissed its complaint against the company.

In contrast, Mr. Fishman discussed the 2013 settlement with Par Pharmaceutical Companies Inc., which pleaded guilty to misbranding in violation of the FDCA and agreed to pay $45 million to resolve this criminal charge and allegations that it violated the False Claims Act. In addition to the criminal plea agreement, the OIG required Par to enter into a five-year CIA. Among its other more typical provisions, the CIA prohibits Par from compensating sales representatives and their managers based upon the volume of sales of the drug at issue. Par also must put in place an Executive Financial Recoupment Program to permit the company to claw back annual bonuses in the event of future significant misconduct.

Mr. Fishman encouraged the PCC audience to draw their own conclusions about how Par responded to the activity challenged by the government.

The obvious conclusion from the various statements of the enforcers speaking at the PCC is that companies must have an effective corporate compliance program in place that includes responding appropriately if something goes wrong despite the presence of such a program.

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