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Executives of pharmaceutical, biotechnology, and medical device companies must know and abide by myriad statutes and regulations. Laws governing the pricing, marketing, and selling of health care products abound. Many carry stiff criminal penalties. And the federal government has aggressively investigated health care companies for alleged violations. Not infrequently, a corporate entity has chosen to plead guilty to criminal violations rather than to risk conviction and debarment, which would prevent it from doing business with government agencies and bar others from receiving government reimbursement for using the company’s products. But the individual executives have long taken some comfort in the fact that most criminal laws only punish those who act with criminal intent. Recent events in the government’s drive to police off-label marketing of drugs suggest that executives should not feel so comfortable anymore. WHAT WAS INTENDED? Most health care fraud statutes require, as an element of the offense, that the individual knew his conduct was illegal and voluntarily engaged in the activity notwithstanding that knowledge. Even statutes against conspiracy and aiding and abetting, while they broaden potential liability to those who did not commit the specific underlying act, require that the person knew that the act to which he was agreeing or otherwise fostering was criminal. Corporations can be found to have criminal intent under the collective knowledge doctrine, which says that companies can be held liable for the sum of information known to their employees. But individual employees have been able to defend themselves against health care fraud charges by arguing that they did not know their acts were illegal. For example, failure to prove the criminal intent requirement led to the 2004 acquittals of 11 managers and officers of TAP Pharmaceutical Products Inc. on charges of paying kickbacks to doctors and hospitals, even though the company had previously settled similar charges and paid civil and criminal penalties of $885 million. Similarly, this spring four former executives of Serono S.A. were acquitted on charges of paying bribes to doctors — again, even though the company had settled related charges by paying $704 million in civil and criminal penalties. Juries typically hesitate to convict employees who engage in illegal sales practices that are not obviously or intuitively wrong, such as offering educational grants or attendance at educational conferences to potential purchasers or prescribers of their products. Statements about a product’s efficacy that have not been approved by the Food and Drug Administration but that sales representatives nonetheless believe to be true are also difficult to portray as fraudulent. These days, anti-kickback investigations have been supplanted by off-label promotion cases as prosecutors’ health care crime of choice. Companies face closer scrutiny than ever for statements made by their representatives about off-label uses and dosages — i.e., uses and dosages that are legal but not specifically approved by the FDA. Because, in fact, nearly every pharmaceutical product is used off-label at some point, proving criminal intent in a company’s sales and marketing practices can be difficult. Recently, prosecutors have turned to a long existing but rarely used criminal statute that does not require criminal intent for conviction. THEY COULD HAVE KNOWN This past May, Purdue Pharma pleaded guilty under the Federal Food, Drug, and Cosmetic Act to felony violations of misbranding the painkiller OxyContin and agreed to pay a fine of $634 million. Three executives — its president, general counsel, and former chief medical officer — pleaded guilty to misdemeanor violations and agreed to pay criminal fines totaling $34.5 million among the three. Their pleas to the misdemeanor charges did not require the men to admit knowledge of or participation in the illegal promotional activity. Indeed, the three maintained that they were not aware of the wrongdoing by other company employees. The Federal Food, Drug, and Cosmetic Act prohibits causing the adulteration or misbranding of any drug or causing the introduction or delivery for introduction into interstate commerce of an adulterated or misbranded drug. Statements promoting a drug for any use other than that specifically approved by the FDA or statements relating to the drug’s effectiveness at dosages other than those approved by the FDA are considered to constitute both misbranding and adulteration. If a person makes such statements with “the intent to defraud,” i.e., with criminal intent, he is guilty of a felony under the statute. If the person does not act with criminal intent, but is nevertheless deemed responsible for the act, he is guilty of a misdemeanor. What that means is that under this statute, unlike other health care fraud laws, the government can convict a corporate executive of a crime without his having any knowledge of or involvement in the underlying criminal activity by another employee of the company. He need not specifically agree to it, condone it, take any action to make it happen, or even know about the activity to be found guilty. All that the government need prove is that the executive was in a position to stop the offense had he known it was happening. As a practical matter, this puts all executives in the sales and marketing departments, from district managers up to senior vice presidents, at risk of criminal prosecution and punishment for acts of off-label promotion by the company’s sales representatives. Similarly, it puts all senior executives at risk of prosecution for any act of off-label promotion, no matter how innocent, by any employee of the company. COURT APPROVED Constitutional challenges to the breadth of the Federal Food, Drug, and Cosmetic Act’s misdemeanor provision are not likely to be successful. The Supreme Court first upheld the constitutionality of the strict liability provision in United States v. Dotterweich (1943), a case involving a company that repackaged manufactured drugs. In filling a doctor’s orders, the company changed both an ingredient and the strength of an ingredient from those of the drug as officially listed on the U.S. Pharmacopeia and National Formulary. The Court upheld the conviction of an executive who was generally in charge of the company’s business but not personally involved in the order at issue, reasoning that he had a “responsible share” of blame for the conduct. At the time, the Court gave little guidance on how to determine when an individual has the requisite share in the conduct to be responsible. Subsequent decisions, however, indicate that any executive in the chain of command above the person who actually committed the prohibited conduct has a responsible share of the criminal culpability. In United States v. Park (1975), the Supreme Court affirmed the conviction of the CEO of Acme Markets Inc., a national retail food chain, for causing the adulteration of food being held for sale (i.e., there were rodents in some warehouses). The Court reasoned that the CEO, by virtue of his position, had the authority to prevent the act in the first place and the duty to seek it out and remedy it once it had occurred. Thus under Park, the vice president of sales will likely be held responsible for the acts of the sales force, while the vice president of manufacturing may be able to escape culpability by showing that his department is separate. A president, CEO, or general counsel presumably will be held responsible for all acts of all employees by virtue of his position of authority. Fortunately, for years, the government rarely used its broad power under the Federal Food, Drug, and Cosmetic Act’s misdemeanor provision and brought charges only when the executive arguably was on notice of the conduct causing the violation or was more directly responsible for the conduct’s occurrence. Now the misdemeanor pleas by the Purdue Pharma executives raise real concerns that the government will turn again to the provision to force criminal pleas from health care executives where the government cannot prove that they intended to violate any law. TEMPTED BY VICTORY Prosecutors will, no doubt, seek misdemeanor pleas to off-label promotion in order to avoid embarrassing losses at trial. Certainly the penalties even for misdemeanors constitute a respectable victory for the government. A misdemeanor conviction can result in a sentence of up to one year in prison and fines of $100,000, rising to $250,000 if death resulted, or twice the amount of the monetary gain or loss caused by the violation. As Medicare, Medicaid, and other federal health care programs will reimburse for many off-label uses of prescription drugs, the “loss” to the government can be significant, resulting in fines of millions of dollars. Add the possibility of these significant penalties to the often-difficult burden of proving the criminal intent necessary for felony convictions, the example of high-profile acquittals in the TAP and Serono cases, and the equally high-profile fines in the Purdue Pharma cases — and federal prosecutors are more and more likely to look to the misdemeanor provision to secure pleas from health care executives when marketing practices come under fire. Health care executives, beware.
Tracy A. Miner is a partner in the Boston office of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo. She represented individuals in the TAP and Serono cases referenced in the article. She now represents current and former pharmaceutical executives in off-label promotion investigations by the U.S. Attorney’s Offices in Boston and Philadelphia.

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