Fraud Issues in Sales and Marketing of Medical Devices May 24, 2007

1. Fraud Issues in Sales and Marketing of Medical Devices May 24, 2007 Virginia A. Gibson Assistant U.S. Attorney US Attorney’s Office 215-861-8355 Virginia.Gibson@usdoj.gov

2. DISCLAIMER • Not Department of Justice policy • In cases where there has not been a trial or guilty plea, Government has duty to present evidence and carries burden of proof at trial, if defendants elect a trial • Allegations of indictment or complaint are not evidence

3. Hot Issues: Devices and Quality of Care Kickbacks Off Label

4. Safe Medical Device Act Reporting Requirements for Facilities • 21 U.S.C. 360i(b)(1)(a) • “Whenever a device user facility receives or otherwise becomes aware of information that reasonably suggests that a device has or may have caused or contributed to the death of a patient of the facility, the facility shall, as soon as practicable, but not later than 10 working days after becoming aware of the information, report the information to the secretary and . . . to the manufacturer.”

5. SAFE DEVICE REGULATIONS • 21 C.F.R. Section 803.10(a)(1) (individual adverse events) • 21 C.F.R. 803.10(a)(2) (annual reports) • “Device user facility” means a hospital, ambulatory surgical facility, nursing home, or outpatient treatment or diagnostic facility that is not a physician’s office.

6. SAFE DEVICE ISSUES • Relationship of payments to physicians and facilities • Sale of medical devices to surgeons for resale to hospitals • How do you find out about adverse events MEDWATCH@LIST.NIH.GOV

7. Quality of Care/Medical Errors • WHO IS RESPONSIBLE FOR PHYSICIANS WHO ARE NOT CAPABLE OF USING PRODUCTS SAFELY? • IS A WEEKEND OF TRAINING ENOUGH? • WHAT IS THAT REP DOING IN THE OR? • PATIENT DISCLOSURE/CONSENT • Mikes v. Straus, 274 F.3d 687 (2d Cir. 2001)

8. CRIME-FRAUD ISSUE IN MEDICAL DEVICE ENFORCEMENT • “TO THE EXTENT THAT xyz, ATTORNEY, AND Firm argue that they were shipping a product that was failing at a rate higher than label specifications suggest, and that they knew field failures were likely to occur at such a rate, the crime fraud exception makes any claim to work product immunity (fail) . . . In Re: Grand Jury Subpoena, 3/16/04 D. Mass., 2004 WL 515651

9. Quality of Care: the case of Endovascular Technologies • Guidant’s problem-One major product, significant failure to report malfunctions • Sales force knowledge of malfunctions, participation in the fix

10. Endovascular Technologies Timeline • 1997-Guidant acquired Endovascular • 1998-FDA approved-Ancure Endograft system • 1998-2001 Adverse Events Not reported • August, 2000-FDA inspection- documents withheld

11. Endovascular Technologies Timeline • August 2000-call to FDA from whistleblower • October 2000-seven employees complain to compliance officer and FDA • October 2000-company retains auditors • December, 2000-auditors find Endovascular “significantly out of compliance” with FDA reporting requirements

12. Endovascular Technologies Timeline • March 2001-company notifies FDA of “preliminary audit” showing problems, pulls device from market • March-June 2001-company files 2628 additional reports of device malfunction out of 7632 units sold • June 2003 guilty plea

13. Endovascular Technologies Timeline • 2003- • Guilty plea to 10 felonies • $92.4 million payment • September unsealing of qui tam • Securities litigation

14. THE CAROTID STENT-CMS • CMS Standards for coverage of devices • Imaging equipment • -device inventory • Staffing • -infrastructure • -advanced physiologic monitoring in interventional suites • Standards for monitoring • Data collection and analysis

15. FDA TRAINING REQUIREMENT • GUIDANT LEVEL III (as primary operators) • 25 Carotid angiograms • Work at Guidant regional training facility • At each level –requires signature of doctor and department head

16. HOT ISSUES: Kickbacks • USA ex rel Schmidt v. Zimmer, 2005 WL 1806502 (E.D.Pa.), on remand, 386 F.3d 235 (3d Cir. 2004) (GPOs and undisclosed incentive payments) • USA ex rel. Poteet v. Medtronic (Sham payments to Doctors settled for $40 million) -- USA v. Healthsouth (suppliers billed for same orthotics hospital billed)(settled for $4 million)

17. THE ZIMMER/PREMIER CASE • USA ex rel. Schmidt v. Zimmer 386 F. 2d 235(3d Cir. 2004) • “Conversion incentive” to Premier participants including price reduction, plus 2% bonus on implant purchases if market share and volume purchase • Payments to physicians and orthopedic departments from Premier payments if they helped meet goals • HCFA 2552 certification by hospital was false- • Did not disclose Zimmer/Premier rewards • Certified compliance with all laws(includes Stark and AKA)

18. ZIMMER/PREMIER • Premier had clause in contract requiring that “members disclose” discounts or reductions on cost reports-”It thus appears that Zimmer was at least aware of the possibility that Mercy might file a false claim for more than it paid Zimmer. . .” • Schmidt alleges that “false certifications of compliance were necessary consequences of Zimmer’s marketing scheme.”(at 245)

19. The Zimmer/Premier case • USA ex rel. Schmidt v. Zimmer 386 F. 2d 235(3d Cir. 2004) • “Conversion incentive” to Premier participants including price reduction, plus 2% bonus on implant purchases if market share and volume purchase

20. ZIMMER/GPO - Discovery • Discovery underway • Zimmer must produce the matrices/commitment forms for 333 members of the GPO who filled out such forms in 1999-2000 • Zimmer must produce credit memos and other documents for 7 GPO members who received “standardization incentive” • Follow-up discovery against individual GPO members • Discovery likely to continue into 2008

21. The Poteet Qui Tam • Brought by Ms. Poteet, senior manager of travel services • Allegation: company gave spine surgeons “excessive remuneration, unlawful perquisites, and bribes in other forms” for purchasing devices • Allegation: $400,000 to Wisconsin physician for 8 days work • Internal company documents filed as part of suit-”at least $50 million to doctors over some four years.” (New York Times 1/24/06)

22. Public Contracts AntiKickback Act • 41 U.S.C. 52 prohibits the payment, offer of payment, solicitation and receipt of kickbacks to secure favorable treatment from a prime contractor with the United States • FEHB and DOD contract for device purchases

23. Kickback Issues • Increasing focus of kickback litigation on middlemen/agents, plus referral sources, U.S. v. Merck-Medco, 336 F. Supp. 2d 430 (E.D. Pa. 2004) • Conflicts of interest? • Standards of disclosure? • Legal consequences of failure to disclose?

24. GROUP PURCHASING ORGANIZATIONS • “purchasing agent” • “buying cooperative” • “hospital alliance” offering variety of services in addition to group purchasing

25. GPO LEGAL APPROACHES • IG SAFE HARBOR(BY REGULATION) • authorized to act as purchasing agent • Written agreement between vendor and purchasing agent that vendor will pay 3% or less • If 3% or greater, specific disclosure of amounts to be paid • Annual disclosure of fees received from each vendor

26. GPO ENFORCEMENT ISSUES • Inflation of costs to cover % commission, fees, stock • Barrier to access for new vendors, better products, small companies • Kickback opportunities for executives • Limited clinician role in buying decision • Potential misuse of non-profit form

27. Provider Cost Reports and GPOs • Provider required to offset purchase discounts, allowances, rebates against expenses on their Medicare Cost Report, 42 C.F.R. 413l98 • Provider Reimbursement Manual, ch. 8 • Effect of Failure to report? • Loss of Safe Harbor • Few cases: higher reimbursement

28. Advamed Code - effective January 2004 • Member sponsored product training and education • Supporting third party educational conferences • Sales and promotional meetings • Arrangements with consultants • Gifts

29. Advamed Code (continued) • Provisions of Reimbursement and other economic information • Grants and other charitable donations

30. Hot Issues: • Device Alteration and Off-Label Marketing

31. FIRST AMENDMENT – United States v. Caputo (N.D. Ill.) • “This Court believes that permitting defendants to engage in all forms of truthful, non-misleading promotion of off-label uses would severely frustrate the FDA’s ability to evaluate” off-label uses. • Indictment for conspiracy to introduce “misbranded” device into commerce through use of off-label information allowed to stand

32. Caputo – Good Faith Defenses • It is not a defense that to the failure to file a pre-market notification that one believes in good faith that the modified sterilizer was as safe and effective as the FDA cleared sterilizer. • Defendants subjective belief that subsection 807.81(a)(3) permitted them to market the modified sterilizer . . . Does not constitute a valid good faith defense. 2004 WL 524684

33. Caputo and Riley Verdict • President and Compliance Officer have appealed their conviction for a conspiracy to defraud the United States by promoting off-label sales of the sterilizer. Now pending in Court of Appeals for Seventh Circuit

34. ACCREDITING COUNCIL FOR CONTINUING MEDICAL EDUCATION • 2004 UPDATED ACCME STANDARDS FOR COMMERCIAL SUPPORT-model for interaction • ADOPTED 9/28/04 • EFFECTIVE FOR NEW CME ACTIVITIES AFTER MAY 2005 • EFFECTIVE FOR ALL CME ACTIVITIES AFTER NOVEMBER 2006 • www.accme.org

35. FOCUS OF ACCME GUIDELINES • DISTINGUISH INDEPENDENT CONTINUING MEDICAL EDUCATION FROM SPONSORED PRODUCT PROMOTION • ASSURE PRESENTATIONS GIVE A BALANCED VIEW OF THERAPEUTIC OPTIONS, REPRESENTING THE PRESENTERS’ PROFESSIONAL OPINIONS AND WORK • ASSURE SOURCE OF FUNDING FOR PROGRAM AND PRESENTATIONS ARE DISCLOSED

36. PARALLELS TO DRUG PROSECUTIONS • US ex rel. Franklin v. Parke-Davis, 147 F. Supp. 2d 39 (D. Mass 2001) • Settlement announced June, 2004 • Off label marketing, false information about uses, side-effects • United States v. Serono (D. Mass.) • U.S. v. Schering Plough (D. Mass. 2006)(False statements to FDA)

37. CONCLUSION • New involvement of manufacturers in safety and outcomes • Growth in qui tams focused on marketing and payments to physicians • Industry codes and standards • Excellent beginning to address a complex issue • Failure to follow places companies and their companies at risk