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Medical Device Prosecutions and Enforcement Trends in the Health Care Industry. Michael K. Loucks First Assistant U.S. Attorney United States Attorney’s Office District of Massachusetts.

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medical device prosecutions and enforcement trends in the health care industry

Medical Device Prosecutions and Enforcement Trends in the Health Care Industry

Michael K. Loucks

First Assistant U.S. Attorney

United States Attorney’s Office

District of Massachusetts

The views expressed here are the personal opinions of the author and do not represent official positions of the Department of Justice.

January 2009

relevant laws
Relevant Laws
  • Anti-kickback statute
  • False claims cases, criminal and civil
    • Medicaid Pricing Crimes
    • Medicare Billing Fraud
  • Food, Drug and Cosmetic Act crimes
    • Manufacturing process crimes
    • Off-label promotion crimes
  • Conspiring to defraud an agency by interfering with its lawful functions through trickery, fraud and deceit
resolutions 1 000 000 361
Resolutions > $1,000,000 (361)

Source: Loucks and Lam, Prosecuting and Defending Health Care Fraud Cases, 2008 Cumulative Supplement, Chapter 11 (

changing enforcement landscape
Changing Enforcement Landscape
  • In inflation adjusted $$, USAO funding:
    • FY 1998: $23,856,000
    • FY 2003: $26,930,000
    • FY 2007: $23,651,800
      • Source: HCFAC reports, 1998-2007
  • Between FY 2003 and FY 2007, AUSA time devoted to health care fraud cases dropped from 180 AUSAs to 161 AUSAs. For 93 USAOs, there are only 100 allocated HCF AUSA positions.
      • Source: Department of Justice Inspector General Report, November 13, 2008.
usao focus
USAO Focus
  • 59 USAOs receive funding allocated for Health Care Fraud Prosecutors; 34 offices receive no funding specially dedicated for health care fraud prosecutors.
  • In FY 2003, 15 of the 59 offices receiving funding used some or all of those resources to handle other types of work. By FY 2007, this number had grown to 20 offices.
  • 23 USAOs increased time spent on HCF prosecutions between 2003 and 2007.
      • Source: Department of Justice Inspector General Report, November 13, 2008.
changing landscape
Changing Landscape
  • My predictions, next five years:
    • Renewed USAO focus
      • Increase in resources
    • Emphasis on transparency:
      • Relationships with physicians/gatekeepers
      • Results of testing/studies/trials
    • Pressures on state Medicaid budgets and federal Medicare budgets:
      • Resistance to upward price pressures
      • Increased emphasis on audit and enforcement operations to track/control the outgoing funds
the anti kickback statute
The Anti-Kickback Statute
  • A payer can be guilty of an “illegal remuneration” if he:
    • (1) knowingly and willfully
    • (2) offers or pays
    • (3) any remuneration, including any kickback, bribe or rebate,
    • (4) directly or indirectly, overtly or covertly, in cash or in kind
    • (5) to any person to induce that person

Statute citation: 42 U.S.C. section 1320a-7b

kickback crime continued
Kickback crime continued
  • to do either of the following two things:
    • (1) to refer an individual … for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under a Federal health care program; or
    • (2) to purchase, lease, order, or arrange for or recommend purchasing, leasing or ordering any good facility, service or item for which payment may be made in whole or in part under a Federal health care program.
  • An offer to pay is a crime.
  • Provider need never in fact get the money.
  • Cost to system or loss caused by kickback is not relevant.
  • Provider who solicits payment for a referral commits the crime even if the demand is rejected
analyzing a kickback
Analyzing a kickback
  • Did something of value get offered, requested, exchange hands?
  • If so, was the conduct willful?
    • Did the provider’s treatment pattern change?
    • Were patients switched because of the kickback?
    • If yes, were they consulted, told about the inducement?
    • Did the parties know about the anti-kickback statute?
  • If so, is there a safe harbor?
  • If so, was some or all of the expected/desired business paid for by a federal health care program?
the any purpose test
The any purpose test
  • Kickback payments are often disguised as something else:
    • As payments for services rendered
      • So-called Consultant fees
      • Travel reimbursement
      • Speech
      • Medical Education
    • As payments for another product (or as reductions in price on another product)
  • Legal test: if one purpose of the payment is to induce referrals, the statute is violated
expressions of intent
Expressions of Intent
  • “The Lahues told University that if the hospital wasn’t interested in increasing the salary, they … would no longer be putting patients in our institution.”
  • “Dr. Lahue told Mr. McGrath that BVMG feels they have value in the 2,000 nursing home beds they control. They wish to work out any arrangement with Health Midwest that pays them for this value.”
  • United States v. Anderson, 85 F.Supp.2d 1047, 1054, 1059 (D.Kan. 1999), rev’d in part in United States v. McClatchey, 217 F.3d 823 (10th Cir. 2000).
off label promotion
Off Label Promotion
  • Physician prescription or use of a product off-label is lawful.
  • Drug/Device company must obtain FDA approval to sell drug/device (approval depends on classification):
    • Must demonstrate drug/device is safe and effective for intended use
    • Drug/device must contain labeling reflecting, among other things, approved indications and conditions of use
intended use 21 cfr 201 128
Intended Use: 21 CFR 201.128
  • The intent is determined by such persons' expressions or may be shown by the circumstances surrounding the distribution of the article. This objective intent may, for example, be shown by labeling claims, advertising matter, or oral or written statements by such persons or their representatives. It may be shown by the circumstances that the article is, with the knowledge of such persons or their representatives, offered and used for a purpose for which it is neither labeled nor advertised.
intended use
Intended Use
  • But if a manufacturer knows, or has knowledge of facts that would give him notice that a device introduced into interstate commerce by him is to be used for conditions, purposes, or uses other than the ones for which he offers it, he is required to provide adequate labeling for such a device which accords with such other uses to which the article is to be put.
post approval
Post Approval
  • Claims in promotional “labeling” or advertising must be consistent with approved labeling. 21 C.F.R. 202.1(e)(4).
  • Issues arise regarding:
    • dissemination of reprints of articles
    • Continuing medical education programs
    • Sales and marketing brochures, statements
relevant factors
Relevant Factors
  • What is the total marketplace for the approved uses?
  • Does marketing target doctors who do nottreat persons with the intended medical issues?
    • Is there a sales budget for non-approved uses?
    • Are employees paid bonuses for sales for non-approved uses?
  • Did company seek FDA approval for other uses and not get it?
relevant factors21
Relevant Factors
  • Did the company choose not to seek FDA approval? Why not?
  • If company is using literature to support unapproved uses, does it claim the product is safe and effective for those uses?
  • Does it employ consultants to push off label?
  • Does it incent customers to use off label?
free speech v off label promotion
Free Speech v. Off-Label Promotion
  • No free speech right to promote a device for an off-label use
    • There is a tension between the “exchange of reliable scientific data and information within the health care community and the statutory requirements that prohibit companies from promoting products for unapproved uses.”
      • Virginia Bd. Of Pharmacy v. Virginia Citizens Consumer Counil, inc., 425 U.S. 748, 765 (1976).
off label promotion23
Off-Label Promotion
  • Government has a substantial interest in the regulation of medical devices and in “subjecting off-label uses to the FDA’s evaluation process.”
  • “[P]ermitting defendants to engage in all forms of truthful, non-misleading promotion of off-label uses would severly frustrate the FDA’s ability to evaluate the effectiveness of off-label uses.”
    • United States v. Caputo, 288 F. Supp. 2d 912 (N.D.Ill. 2003).
doing it right
Doing it Right
  • Pressures from:
    • Competitors on pricing, quality
    • Customers on service, delivery, pricing
    • QC on following the processes
    • Regulatory affairs on following the rules
    • Government programs reducing reimbursement rates
  • What happens:
    • Cutting of corners
    • Sloppiness, rushing can become criminal
  • Growing culture of acceptance
united states v caputo 517 f 3d 935 7 th cir 2008
United States v. Caputo 517 F.3d 935 (7th Cir. 2008)
  • Co. sought approval for small autoclave device
    • Submitted only “tests that favored the device’s effectiveness”
    • FDA approved only for use with solid stainless steel instruments: those with plastic, solder, brass “outside the scope of the FDA’s approval”
    • Because of price -- > $100,000 – and restriction – only solid stainless steel instruments – device had “no prospect in the market.”
    • Defendant’s solution: “immediately began promoting” larger machine for all instruments
caputo continued
Caputo continued
  • “[L]ong before receiving the FDA’s approval” to sell the small machine, “it knew that the small device would never be marketed” and that it would promote the large machine “for use with many kinds of instruments.”
  • “Problems ensued” when customers used the machine to sterilize brass instruments, leaving “a blue green residue” that was “harmful to patients’ eyes”.
caputo continued27
Caputo continued
  • After the FDA sent a warning letter and rejected a request for expedited approval, again warning against marketing without approval, “AbTox went on promoting the large [machine] as before.”
  • “FDA inspected AbTox’s facilities and discovered it was still selling [large machine]. The inspectors told Abtox to desist; it didn’t.”
caputo continued28
Caputo continued
  • “Promoting the large Plazlyte as suitable for use with all medical instruments is a major change in intended use, compared with using it for solid stainless steel instruments alone.”
  • “So, the large Plazlyte, with its expanded “intended use” was not covered by the FDA’s approval of the small Plazlyte and could not lawfully be sold at all.”
caputo continued29
Caputo continued
  • “Until [told to stop], Caputo and Riley were at liberty to chart their own course, as their legal advisers counseled them. When they did this, however, they took a risk and could not then say “we didn’t know” or “the regulation left us scratching our heads.”
  • “Note that [they] have not made an advice of counsel defense, though no one gets into a multi-million-dollar medical-device business without legal counsel. Perhaps they lied to their lawyers … or perhaps they decided to avoid asking for advice … for fear of what the answer would be; finally they may have asked and received a reply they did not follow.
caputo concluded
Caputo concluded
  • “Defendants did however argue that they acted in “good faith.” … This was at heart a fraud prosecution … and there is no “good faith defense” to fraud. A person who tells a material lie to a federal agency can’t say “yes, but I thought it would all work out to the good” or some such thing. Intentional deceit on a material issue is a crime, whether or not the defendant thought that he had a good excuse for trying to deceive the federal agency or the potential customers.”
united states v canova
United States v. Canova
  • Transtelephonic cardiac pacemaker testing
    • 30-30-30 second intervals: testing of the pacemaker in three thirty second intervals
    • Medicare paid on a per test basis
    • Time requirements prevented “acceleration” of testing
  • Vice President, Operations: increased employee quotas from 32 to 40 per day

412 F.3d 331 (2d cir. 2005).

employee testimony
Employee Testimony
  • Former plant manager: “If we were far behind on target, John would be pretty animated … what we were going to do to get close to being on target”
  • Technicians: to meet quota, the last 30 second interval had to be cut to 10-15 seconds
  • From predecessor, when told employees were out of compliance: “everyone had to be in compliance [but] nothing [i.e., quotas] could suffer.”
employee testimony33
Employee Testimony
  • Another manager: [I told Canova] that “technicians were not performing the entire 30-30-30 testing all the time.”
  • Another manager: [I told him] “We’re not doing it period … no one’s doing it.”
  • After seeking an “interpretation” from a Medicare carrier employee that the last 30 seconds didn’t mean 30 seconds, Canova and another employee decided on their own “there was in fact a loophole” that did not require a thirty second tape.
    • Bogus rationale: we’re not doing what we should be; aha, here’s a “justification” to permit us to “cheat”
c r bard inc
C.R. Bard, Inc.
  • Several different Class III devices
  • One device, Probe, suffered a failure as a result of a use that was off-label : 2 cm tip broke off.
  • Another device, miniprofile, had deflation issues.
  • Company made changes in devices after approval, without seeking new approvals from the FDA, without telling FDA
  • Company, executives charged October 1993; co. pled guilty and was sentenced, April 1994. Three executives convicted in jury trial 1995; pled guilty 2001 after court of appeals ordered a new trial.
bard probe
Bard Probe
  • Restriction in labeling: affected use
  • Bard was marketplace leader (55% + )
  • Following the rules = loss of sales
  • Marketing pamphlets, handouts, sales rep statements: all pushed off-label use
  • Sales force, while aware of the label, not told the reason for restriction
  • Doctors followed promotion, used device off-label
  • The labeling provided to the FDA stated "Warning: Do Not Turn the Probe II device more than one rotation (360 degrees) in the same direction.”
  • “In fact, physicians were routinely being told by USCI personnel in the human clinicals that the device could be rotated 15 times.”
  • “First Objective: to verify that the Probe B design may be freely rotated and/or define when rotation compromises performance.”
  • “Dr. King was anxious to use the redesigned probe in this case and checked with me several times to be sure... we could turn it ten revolutions in one direction.”
bard management memo
Bard: Management Memo
  • “ISSUE: We have recently had several Probe failures involving the loss of the spring tip (New Probe) and/or loss of the entire neck extension (2 Regular probes).
  • Physicians have been told "You can twist this thing 15 times and nothing will happen.“
  • We need to consider the risks, engineering evaluations, market release and training issues before this product hits the market.”
  • “The issue that we have been struggling with is how to remain committed to that precept [quality product] when we face the daily struggle of meeting sales objectives in a highly competitive environment. I agree that we have slipped. I concur that several of the decisions including the Mini, 3 Lumen and Probe were weighted too heavily with commercial interest.”
  • Memo by President of the catheter division to his boss
  • The USCI culture was "not keeping corporate in New Jersey totally informed about what was going on.“
  • "Cutting corners became a way of life. That became a way of life. Or, we'll do the testing on human beings. None of us in this room would want to be the person tested on. We cut corners which were bad. We knew things were happening and we didn't tell corporate."
  • [W]e never give our people enough time to accomplish their jobs but rather rush the program to the next step before it is ready. .. We feel enormous pressure from upper management and marketing to continue despite the unsolved technical issue. .. We chose not to address these design flaws but rather to begin production and fix these things on the way. We now find ourselves in the most uncomfortable position of trying to decide what to sell without adequate tests in place to identify the quality of our results. ... Test protocol: how was this missed? Were we so with the program that we failed to anticipate that something could go wrong? Does asking tough questions or making waves put one in the political shithouse?