DOJ Backs Up Yates Memo with Indictment of Former Warner Chilcott Executive

HIGHLIGHTS:

• A grand jury in the U.S. District Court for the District of Massachusetts has returned an indictment against W. Carl Reichel, a former president of Warner Chilcott PLC's pharmaceuticals division, for his alleged participation in a criminal conspiracy to pay kickbacks to physicians in exchange for prescribing Warner Chilcott drugs.
• Additionally, in a global settlement agreement that resolved Warner Chilcott's criminal and civil liability for the illegal marketing of seven brand-name drugs between 2009 and 2013, the company agreed to pay $125 million and is permanently excluded from participating in federal healthcare programs, including Medicaid and Medicare.
• The individual prosecution of Reichel is unusual and may signal a new trend in the Department of Justice's (DOJ) enforcement strategy following the Yates memo in September.

A grand jury in the U.S. District Court for the District of Massachusetts returned an indictment against W. Carl Reichel, a former president of Warner Chilcott PLC's pharmaceuticals division, on Oct. 28, 2015. A day later, he was arrested in Boston for his alleged participation in a criminal conspiracy to pay kickbacks to physicians in exchange for prescribing Warner Chilcott drugs. He pleaded not guilty and was released on personal recognizance.

Reichel's arrest was announced in conjunction with Warner Chilcott's global settlement agreement with the government. Resolving both criminal and civil liability for the company's illegal marketing of seven brand-name drugs between 2009 and 2013, the company agreed to pay $125 million. Of that amount, $22.94 million represents a criminal fine. Moreover, Warner Chilcott is permanently excluded from participating in federal healthcare programs, including Medicaid and Medicare. The drugs at issue are Actonel, Asacol, Atelvia, Doryx, Enablex, Estrace and Loestrin.

While announcements of multimillion-dollar settlements with pharmaceutical manufacturers are hardly noteworthy, the individual prosecution of Reichel is unusual and may signal a new trend in the Department of Justice's (DOJ) enforcement strategy following its Yates memo in September. The widely publicized and discussed policy pronouncement by Deputy Attorney General Sally Yates highlights the need to hold individuals accountable for corporate wrongdoing. With Reichel's arrest and the Warner Chilcott settlement, the DOJ reiterated its commitment to holding both "companies and responsible individuals accountable when they use improper incentives... to promote their products."

Reichel was not alone. Two former Warner Chilcott district sales managers pled guilty to conspiracy to commit healthcare fraud and violations of the Health Insurance Portability and Accountability Act (HIPAA). A third former district manager was charged criminally earlier in October, also for HIPAA violations in connection with allegedly inaccurate prior authorization forms. Lastly, Rita Luthra, a gynecologist in Springfield, Mass., is facing criminal charges for violating the Anti-Kickback Statute for accepting free meals and speaker fees from Warner Chilcott in return for prescribing the company's products. She is charged additionally with wrongfully disclosing individually identifiable health information and obstructing a criminal health care investigation.

Allegations Involving Warner Chilcott's Marketing Strategy

Reichel, along with a senior executive to whom he reported, allegedly developed Warner Chilcott's illegal marketing strategy. Reichel, in turn, was allegedly responsible for communicating the strategy to the sales force. Notably, all of the alleged kickbacks involve ubiquitous pharma marketing strategies. The thrust of the indictment appears to be that these programs were shams intended to disguise the payment of kickbacks in exchange for prescriptions of Warner Chilcott products.

• Medication education programs: The government alleges that Reichel directed his sales force to treat doctors to dinner at expensive restaurants to "build relationships." In contrast to educational programs of other pharmaceutical manufacturers that educate physicians on the benefits and risks of the company's drugs, Warner Chilcott's so-called "med eds" allegedly had no clinical component, per Reichel's instruction. Moreover, doctors were encouraged to bring their spouse, increasing the social aspect of the dinner. The government alleges that sales reps would pressure the doctor to commit to prescribing Warner Chilcott products during dinner. If the physician was not writing enough prescriptions, the sales rep would then follow up to hold the doctor accountable for his or her commitment. Furthermore, sales reps allegedly left credit cards at expensive restaurants for physicians to have dinner on their own, without the sales rep being present. The government alleges that sales reps also provided doctors with gift cards worth several hundred dollars to expensive restaurants.
• Speaker fees: The second prong of Reichel's sales strategy allegedly involved paying physicians to speak about the company's products. As with educational programming, pharmaceutical manufacturers often pay doctors to be speakers. Here, physicians were paid $600 to $1,200 to attend dinners, which the government alleges were nothing more than informal dinners without a clinical component. Reichel allegedly directed his sales force to use only those speakers that had "clinical experience" with the company's drugs, which was understood to mean that the doctors were actively prescribing Warner Chilcott products. According to the indictment, sales reps set market share thresholds for speakers. If a doctor was not performing, the sales rep would let the doctor know that he or she would no longer be paid as a speaker until prescriptions increased.
• Prior authorization: According to the DOJ, the final component of Reichel's strategy involved obtaining insurance coverage for Warner Chilcott's drugs by allegedly submitting inaccurate prior authorization forms to insurance companies. Sales reps bought food and drink for the doctor's office staff. In exchange, the government alleges, the staff submitted prior authorization forms to insurers, seeking coverage of Warner Chilcott's more expensive osteoporosis drugs. Generally, cost-effective competitor drugs were preferred on Medicare Part D formularies. As a result, patients were required to obtain authorization from the insurance company for coverage of Warner Chilcott's more expensive drugs. According to the indictment, these requests used "canned" statements designed to obtain insurance coverage, without accurately reflecting the patient's condition.

Generally, Warner Chilcott's educational programs and speaker's bureau are not atypical compared to other manufacturers. From the indictment, it appears that the government views Warner Chilcott's marketing efforts as sham arrangements designed to funnel kickback payments to doctors. The "med eds," rather than educating healthcare professionals, were allegedly just social dinners without any clinical component. Similarly, the government alleges that Warner Chilcott's "speakers" often did not speak, but simply attended dinners at expensive restaurants. And the aggressive sales jargon detailed in the indictment, considered innocuous in other contexts, quickly becomes problematic from the government's perspective in the healthcare realm.

Recognizing that corporations can only act through individuals and that large corporate settlements have become the cost of doing business rather than a strong deterrent, the Yates memo reiterates and reinvigorates the DOJ's longstanding policy on charging individuals involved in corporate wrongdoing.

Holland & Knight will continue to monitor the prosecution of Reichel and the DOJ's implementation of the Yates memo.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.