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On July 1, 2003, medical device maker Guidant Corp. pledged its commitment to comply with a tough corporate integrity agreement after it admitted to 10 felonies and paid a record $92 million for covering up thousands of cases in which its aortic stent malfunctioned. Corporate integrity agreements, negotiated with the U.S. Department of Health and Human Services’ office of inspector general, have become a common form of corporate probation after companies get in trouble. The agreements typically include five years of monitoring, employee training and audits to ensure no backsliding by the company, hospital or individual doctors. Less than two years after the five-year agreement was put in place, Guidant was again in the news, accused of failing to report to doctors in 2002 that another product, a popular implantable defibrillator, had an electrical flaw that could cause short circuits. Although the company fixed the flaw in 2002, it allegedly did not tell patients who still had the potentially faulty defibrillator implanted, according to a New York Times account. The latest news brings into focus the widespread use of corporate integrity agreements by federal regulators. The case may open a wedge for plaintiffs’ attorneys to seek punitive damages if a company becomes a repeat offender in violation of its integrity agreement, according to Wendy Fleishman, a partner in San Francisco-based Lieff Cabraser Heimann & Bernstein’s New York office. She has filed a federal class action against Guidant in Indianapolis, Brennan v. Guidant Corp., No. 05-CV-0827. Steve Tragash, spokesman for Indianapolis-based Guidant Corp., declined to comment on any aspect of the company’s situation, saying only, “We continue to work closely with the FDA [Food and Drug Administration] on this matter.” Compliance order issue? Fleishman said Guidant has failed to adhere to what amounts to a compliance order, asking, “Does that rise to a level of punitive damages?” It raises the question: Can the agreement be used in the civil action? Punitive damages are allowed for willful and wanton misconduct, but private litigators cannot assert a claim that belongs to the FDA, according to Fleishman. The agreement “absolutely has to be used” in civil litigation, said Fleishman, although she acknowledged she has never seen it done before. The question will almost certainly be fought out in the Indianapolis case, she said. Typically, the integrity agreements are broader than the original conduct that was the focus of the settlement, said Mary Riordan, an attorney with the inspector general’s office. She also oversees the Guidant agreement. “Right now the whole matter is under review by the [FDA],” she said. “There is not a settlement or a finding of liability [with regard to the defibrillator]. These corporate integrity agreements come into play if we find a violation of law. We are not there yet.” Breaches of the agreement can result in fines. Companies can cure the breach or challenge the allegation. Disputed violations go to administrative law judges and can be appealed, she said, but added, “I don’t know of any that have gone to an ALJ.” Similar to probation Since the mid-1990s, corporate integrity agreements have become a common requirement by the Health and Human Services’ office of inspector general as a means of settling allegations of corporate misconduct. The office currently lists more than 430 such agreements with hospitals, doctors, nursing homes, corporations and health care providers nationally. The agreements “are like probation for a common criminal,” said Jim Czaban, head of Heller Ehrman White & McAuliffe’s FDA group practice in the firm’s Washington office. “If a company violates probation, the government can haul you back to jail,” Czaban said. In the case of these agreements, the equivalent of jail is the potential exclusion from federal health care programs such as Medicare, Medicaid or the Veterans Administration, or potential hefty fines of $1,000 to $2,500 a day for violations of the agreement. Russell Hayman, a partner in McDermott, Will & Emery’s Los Angeles office who is a former prosecutor and who specializes in health care fraud defense, said the office of inspector general has gone after monetary penalties, but “in more cases they forgo penalties and try to show leniency and balance. “But if the violation is purposeful or willful, God help you,” Hayman said.

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