Last week, three former executives of a medical device company were sentenced to federal prison terms for their roles in managing a company that marketed a device for an unauthorized use and conducted unauthorized clinical trials that were associated with the deaths of three participants. The government proved no intent to commit any crime against these executives, nor did the executives admit any such intent. In fact, they denied having any knowledge or belief that the conduct they oversaw was a violation of law. They pleaded guilty merely as responsible corporate officers who happened to be at the helm of a medical device company when the company violated the Federal Food, Drug, and Cosmetic Act (FDCA). High officials of the U.S. Department of Justice (DOJ) and the U.S. Food and Drug Administration (FDA) for the past few years have stated publically, and rather consistently, that they were looking to convict officers – not just companies – of criminal violations. Last week in Philadelphia, Pennsylvania, they ratcheted up this endeavor and were successful in seeking prison terms following responsible corporate officer pleas. The case is United States v. Norian Corp, et al., Case No. 2:09 CR 00403.
Sentences for the Former Synthes Officers
Synthes, Inc., is a medical device company based in Switzerland with a subsidiary, Synthes USA, located in Pennsylvania. Synthes focuses on bone-related medical devices used to treat skeletal injuries. At the sentencing hearing on November 21, 2011, Michael Huggins, the former president of Synthes USA, was sentenced to nine months, as was Thomas Higgins, the former leader of Synthes’ spine division. John Walsh, the former head of regulatory affairs, received a five month prison sentence. Richard Bohner, the former vice president for operations, still remains to be sentenced. Each defendant was also ordered to pay $100,000 in fines and will face a period of supervised release after leaving prison. Mr. Huggins was ordered immediately incarcerated at the conclusion of the sentencing hearing to begin serving his sentence, with Mr. Higgins and Mr. Walsh given later reporting dates based on personal circumstances.
The Synthes matter is the second case this year in which corporate officers have pleaded guilty and received prison sentences, in addition to fines, under the responsible corporate officer doctrine. The federal government hopes that pushing for such prison sentences will serve as a deterrent to executives in the healthcare industry as the DOJ and FDA step up their enforcement efforts.
In the Synthes matter, each defendant pleaded guilty in 2009 to a single strict liability misdemeanor count based on the company’s shipment of misbranded and adulterated bone cement in interstate commerce in violation of 21 U.S.C. §§ 351(f)(1)(B), 352(f), and 331(a)(1). The charges date back to what the government characterized as “clinical investigations” conducted by the company from May 2002 until the fall of 2004. The defendants asserted that their belief at the time was that these trails were “market research” for which FDA oversight was not necessary.
The government alleged that:
- During the trials, the company ran unauthorized clinical experiments of certain bone cements used in surgeries to treat vertebral compression fractures (VCF) of the spine, a common condition in elderly patients.
- The surgeries were performed despite a warning in the FDA-cleared label for the bone cement relating to this use.
- Synthes marketed bone cement for treatment of VCF without conducting appropriate testing that needed FDA approval.
- Despite three deaths during the clinical trials, Synthes did not recall the product from the market. The company’s officers made false statements to the FDA to cover up the deaths during the clinical trials.
During the sentencing hearing the defense argued that prison terms would be excessive given the defendants’ background and culpability beyond their status as responsible corporate officers. Federal Judge Legrome Davis disagreed, telling the defendants that they were being punished for the decisions they made and in which they participated. Judge Davis commented at one point during the sentencing hearings that “this is shameful behavior” and “there is no credit here that belongs to anyone.”1
Judge Davis’ comments seem to evidence a belief by the court that the executives had a level of knowledge and participation in Synthes’ actions beyond what was necessary to support the strict liability charge. In its sentencing memorandum to the court regarding Thomas Higgins, the government states that
“[t]his is not a case of an executive who failed to prevent crimes being committed on his watch only because he was so consumed by other responsibilities. Not only was this defendant aware of the rogue clinical trials conducted by his division, but he authorized them, participated in them and was the most closely involved of the four defendants in their day-to-day workings.”
United States’ Sentencing Memorandum in United States v. Thomas B. Higgins, at 2.2
The government argued facts at these sentencings that go far beyond those that normally support strict liability crimes. The judge’s statements, both verbally and with his sentences, demonstrate that he was persuaded by the government’s arguments that the facts of this case were egregious enough to warrant prison sentences, despite the lack of a substantive charge implicating the defendants’ awareness and involvement in the promotion, marketing, and testing of Synthes’ bone cement.
Prosecutions Related to the Responsible Corporate Officer Doctrine
Under United States v. Park, 421 U.S. 658 (1975), a corporate official may be convicted of a misdemeanor violation of the FDCA, without personally engaging in wrongdoing, or even knowing about another person’s violation of the statute, provided that the official had the responsibility or authority to prevent or correct the FDCA violation. Relying on this expansive theory of liability, the federal government pursues prosecutions against corporate officers who it believes were in positions to correct or prevent violations. The penalties facing officers can be unexpectedly varied and harsh, including significant fines, debarment preventing executives from providing services to a regulated company, individual and corporate exclusion from participation in federal healthcare programs, as well as probation and prison time.
The prison sentences in the Synthes case demonstrate the government’s increasing use of the Park doctrine to target healthcare executives. In 2007, three senior officials of Purdue Pharma pleaded guilty to misdemeanor counts of misbranding OxyContin as less addictive and less subject to abuse than other pain medications. Each official was sentenced to probation and ordered to disgorge a significant amount of his income. Subsequently the Department of Health and Human Services Office of the Inspector General (HHS-OIG) excluded the officers from participating in federal health programs for 15 years, a time period that was reduced to 12 years by the Appeals Board.3
Earlier this year, Marc Hermelin, the former CEO of KV Pharmaceutical, pleaded guilty to two charges of misdemeanor misbranding of prescription drugs and received a sentence of 30 days in prison and a fine of $1 million dollars. Mr. Hermelin admitted in his plea agreement that the company shipped oversized morphine tablets to retailers, thereby causing the labels to be false and misleading. Another healthcare executive, Howard Solomon of Forest Laboratories, Inc., received some respite a few months ago when HHS-OIG informed Mr. Solomon that it would not pursue his exclusion from participation in federal healthcare programs. HHS-OIG had initially notified Mr. Solomon of its intent to pursue exclusion in April of this year, after his company, Forest Labs, pleaded guilty to illegal marketing of certain pharmaceuticals. In August 2011, HHS-OIG issued a second letter stating the case against Mr. Solomon was closed without further action.
What’s Next for the Park Doctrine
All of these cases underscore the recent remarks made by Assistant Attorney General Tony West when he reinforced the government’s commitment to holding corporate officers responsible through the use of prosecutions under the Park doctrine.4 Mr. West stated that, “[w]e will always seek to disprove the ill-advised notion that health care fraud enforcement is simply the cost of doing business by insisting on judgments, convictions, settlements, penalties and fines that eliminate any benefit that may be obtained from engaging in unlawful conduct in the first place.” The cases discussed above display an acceleration of penalties facing corporate officers prosecuted pursuant to various federal laws, including the responsible corporate officer, or Park doctrine. The prosecution aggressively pushed for prison sentences in the Synthes case in light of concerns such as those expressed by Mr. West that fines alone are not a sufficient deterrent to the conduct prohibited by the FDCA. In addition to fines and prison, corporate officers should be mindful of the exclusionary remedies available to the government that could cause additional hardship to individuals pleading guilty under the responsible corporate officer doctrine. One lesson accumulated from these cases is that a “Park plea” is not necessarily an easy way out from government scrutiny. A corporate officer who pleads guilty under this doctrine may face aggressive and novel maneuvering by the Department of Justice attempting to impose collateral consequences sufficient to send a message to the entire industry. Careful thought needs to be given to the advisability of such a plea.
While the sentences handed down in the Synthes case are likely to trigger alarms around the industry, it is also important for companies to keep in mind that oftentimes cases brought based on alleged violations of the FDCA present issues of untested law for which the consequences of conviction can be quite significant for the corporation as well as the individuals. Preventive efforts, such as the implementation of an effective compliance program that pays particular attention to safeguarding not just the public treasury, but also patient welfare, will go a long way in mitigating the risks of exposure for healthcare industry executives.