Life Science Compliance Update

July 27, 2016

Acclarent Executive Convicted of Misdemeanors and Acquitted of Felonies

The former Chief Executive Officer and Vice President of Sales of Acclarent, Inc., a medical device company and division of Johnson & Johnson, were recently convicted of ten misdemeanor counts of fraud. However, the two execs each were acquitted on fourteen felony counts of fraud. The indictments can be found here, and they outline the charges against the executives,

William Facteau and Patrick Fabian were convicted of ten counts of introducing adulterated and misbranded medical devices into interstate commerce following a six-week jury trial. The jury concluded that the executives caused the unlawful distribution of a medical device (Relieva Stratus Microflow Spacer ("Stratus")) for uses that were not clearly approved by the United States Food and Drug Administration ("FDA"). Acclarent had sought approval from the FDA for the product to be used to deliver steroids, but the FDA denied the request. In spite of the fact that both Facteau and Fabian told the FDA that the Stratus was a medical device intended to maintain an opening in a patient's sinus, the company launched the product with the intent of it being used as a steroid delivery device.

The evidence presented at trial demonstrated that the executives sought to quickly develop and market products to create a revenue stream that would make Acclarent an attractive business for an initial public offering ("IPO") or acquisition, according to the United States Attorney's Office.

The charge of violating the Food, Drug and Cosmetics Act allows for a sentence of no greater than one year in prison for each count, one year of supervised release and fine of $100,000 or twice the gross gain or loss. Actual sentences for federal crimes tend to be less than the maximum penalties.

Facteau and Fabian plan to ask the court to set aside the convictions on the misdemeanor counts. Frank Libby, principal with LibbyHoopes PC and representative of Patrick Fabian, noted that, "The government was casting it as a felony, with fraud, lying and cheating and deceiving the FDA and others and the jury simply wasn't busing it and rejected it across the board." Libby believes that the misdemeanor counts are a "common concern of everyone in the medical device industry," because they do not require a showing of criminal intent for conviction.

Reid Weingarten, another attorney, made a similar statement, discussing his gratefulness that the jury exonerated Mr. Facteau of all charges that require criminal intent and concluded that the case did not involve false or misleading statements, noting that "It is difficult to understand how someone in America could be convicted of even misdemeanor crimes without a finding of intentional wrongdoing."

Similar to Reichel…

This is the second recent case in which healthcare executives escaped potentially serious consequences for alleged corporate misconduct. Earlier this year, a federal jury in Boston found W. Carl Reichel of Warner Chilcott not guilty of conspiring with members of Warner Chilcott's sales force to pay kickbacks to physicians in exchange for writing prescriptions. It is likely that an important argument advanced by attorneys for Facteau and Fabian revolved around the jury instructions given in the Reichel case: "A defendant cannot be convicted of the Anti-Kickback statute merely because he sought to cultivate a business relationship or create a reservoir of goodwill that might ultimately affect 1 or more unspecified purchase or order decisions. If the remuneration is only for a purpose other than seeking to effect a quid pro quo transaction of payments of remuneration for order or purchase of drugs, it is not within the scope of the Anti-Kickback Statute."

Settlement Allegations

Acclarent has agreed to pay $18 million to resolve allegations over false claims submitted to Medicare and other federal health care programs, connected to Stratus.

It’s A Brave New World or Is It? - CIAs and Their Ability to Create Change

Change-same

Corporate Integrity Agreement (CIAs) are a tool commonly employed by the HHS OIG to resolve healthcare fraud issues. This article explores the issue of whether CIAs really strengthen company compliance programs. This author is not so sure

Corporate Integrity Agreements (CIAs) are arguably the preferred tool used by the federal and state governments since 2001 to resolve healthcare fraud issues. According to the Office of the Inspector General (OIG), CIAs strengthen compliance programs and promote compliance so that future issues can be prevented or identified, reported and corrected. But do they? How can a company have integrity without a strong ethics backbone?

Read Full Article in the July 2016 Issue of Life Science Compliance Update 

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July 26, 2016

FDA: Draft Guidance - Procedures for Evaluating Appearance Issues and Granting Authorizations for Participation in FDA Advisory Committees

FDA released draft guidance to deal with what it describes as "appearance issues" that make advisory committee members appear to lack impartiality. This applies even to those who do not have financial interests and relationships that are conflicts of interests. If an appearance issue exists, FDA will weigh the member's participation against the concern that a reasonable person may question the integrity of the FDA's decision. This is a troubling development for the constitutional freedom of association, especially if professionals are going to be forced to recuse themselves for merely the appearance of a conflict.

The guidance comes after Public Citizen filed a Freedom of Information Act lawsuit against FDA in a bid to get unredacted copies of advisory committee members' curriculum vitae -- which describe their education, qualifications and previous experience -- posted on the agency's website.

Michael Ortwerth, FDA's director of the Advisory Committee Oversight and Management Staff, said in an FDA Voice blog post that a lack of understanding about the agency's selection and evaluation process has resulted in public confusion and misunderstanding. He explains the guidance contains: "the circumstances that FDA considers when determining whether an appearance issue may exist. We evaluate the circumstances and assess whether the interests, relationships, or circumstances would cause a reasonable person with knowledge of the relevant facts to question the advisory committee member's impartiality in the matter before the committee."

As an example: "if an advisory committee member serves on the board of directors of a nonprofit organization and that organization receives donations from the sponsor that is presenting before the committee, we review the details of the donation to determine whether the member should be cleared for service on the advisory committee."

He notes this is not finalized, however: "The draft guidance is being issued for public comment before we issue a final guidance. Under Federal law, FDA is not permitted to disclose confidential information provided by advisory committee members related to appearance issues. But we are specifically requesting comments on whether the agency should request that advisory committee members voluntarily disclose if they have been granted an appearance authorization."

Background

Members of FDA's advisory committees are subject to Government-wide standards of ethical conduct regulations in addition to Federal conflict of interest laws. Even where a member has no financial interests that would require her to refrain from participating in an advisory committee meeting ("recuse" herself) under Federal conflict of interest laws, the member may be disqualified from participation under the Government-wide Federal regulation at 5 CFR § 2635.502 ("section 502") if she has interests or relationships that may create the appearance that she lacks impartiality on the issue before the advisory committee.

Section 502 gives FDA and other agencies significant flexibility and discretion in deciding whether a member with an appearance issue should participate in a particular matter. Under section 502, when a member has an appearance issue, FDA may authorize the member to participate in the advisory committee meeting based on a determination, made in light of all relevant circumstances, that the interest of the Government in the member's participation outweighs the concern that a reasonable person may question the integrity of the agency's programs and operations. If FDA does not issue an authorization, the individual may not participate in the meeting or the portion of the meeting involving the particular matter relevant to the appearance issue.

In determining whether to grant an authorization under section 502 to a member with an appearance issue, FDA balances the agency's interest in access to the advice of qualified experts to make important public health decisions with the need to avoid serious questions about the member's impartiality. Section 502 places the initial burden of identifying potential appearance issues on the member. It also gives the member the initial responsibility to recuse herself where she determines that the circumstances would cause a reasonable person with knowledge of the relevant facts to question her impartiality in the matter, unless she informs FDA of the issue and receives authorization from FDA to participate. FDA has the discretion to make independent determinations about whether a member has an appearance issue and to decide whether to grant her an authorization to participate once an appearance issue is identified.

Screening to Identify Possible Appearance Issue

In preparation for an advisory committee meeting involving a particular matter, members report to FDA any interests related to the subject matter of the meeting. These interests are reported on the Confidential Financial Disclosure Report. Although the Confidential Financial Disclosure Report Form primarily focuses on current financial interests, it also asks for information about past financial interests that directly relate to the products or issues to be considered at the meeting, and any other interests or relationships that might give rise to an appearance issue.

A member may seek assistance from FDA in completing this form. In completing this form, a member is required to report anything that would create an appearance issue not otherwise disclosed on the Form. The member may make a threshold judgment as to whether the information would cause a reasonable person to question her participation, and so inform the agency. FDA reviews the completed Confidential Financial Disclosure Report for each member in advance of every committee meeting to determine whether an appearance issue exists. As part of this review, FDA may ask for clarification about reported interests or about interests not reported but of which FDA may otherwise be aware.

What Circumstances May Create Appearance Issue?

Section 502 specifically lists certain interests and relationships that could create an appearance issue. It also includes a "catch-all" provision, which covers any other circumstances that may cause a reasonable person to question the member's impartiality. Once these circumstances raise a concern regarding the impartiality of the member, FDA considers the totality of the circumstances when determining to grant an authorization.

  • "Direct and Predictable Effect" on the Current Financial Interest of a Member of the Advisory Committee Member's Household

Under section 502, the following scenario would raise a potential appearance issue: where the particular matter coming before the advisory committee is likely to have a "direct and predictable effect" on the current financial interest of a member of the advisory committee member's household.

  • A Person or Entity with Whom the Member has a "Covered Relationship" is or Represents a "Party to the Matter"

Under section 502, the following scenario would also raise a potential appearance issue: where a person (or entity) with whom the advisory committee member has a "covered relationship" is or represents a "party to the matter" coming before the advisory committee. Both "covered relationship" and "party to the matter" are described in the guidance document.

  • Other Circumstances that May Raise a Question about the Member's Impartiality

Examples include broadly stated, "matters of general applicability". "Particular matters of general applicability" involve potential changes to regulations or agency guidance, or other broad topics such as policy-making and decisions that affect an entire class of products, such as reviewing labeling changes for an entire class of products. Particular matters of general applicability tend to raise fewer appearance issues than particular matters involving specific parties. However, the agency may require members to recuse from particular matters that do not involve specific parties, based on the concern that the member's impartiality reasonably may be questioned under the circumstances.

Other listed examples include relationships that are not technically "covered relationships" such as social relationships. Past financial interests ending more than one year before the meeting that suggest a close relationship with the sponsor or involvement with the product(s) before the committee was also a part of the "catch-all" provision.

Example from FDA Guidance

Scenario: The advisory committee is reviewing the safety and efficacy of a product. The meeting is a particular matter involving specific parties with one party to the matter ("the sponsor").

Example: The member's primary employment is as a dean of the medical school at a large university. The member reported that her employer has a multi-year grant from the product sponsor (i.e., the sponsor of the product that will be reviewed and evaluated at the advisory committee meeting) and the grant is not related to the product before the committee. This is an interest or relationship that could cause a reasonable person to question the member's impartiality.

Factors FDA Would Consider in Determining Whether or Not to Grant a Section 502 Authorization For the Member to Participate in the Meeting:

  • Whether the member receives any personal funding or remuneration from the grant (if not, this would weigh in favor of a section 502 authorization);
  • Size and diversity of the range of products made or under development by the sponsor providing the grant funding to the employer (the larger and more diverse the range of products the more this would weigh in favor of a section 502 authorization);
  • Whether the member's employer relies solely, or principally, on this grant from the sponsor (if not, this would weigh in favor of a section 502 authorization);
  • Whether the matter before the committee is considered sensitive or controversial (matters that are typical and routine without controversy would weigh in favor of a section 502 authorization);
  • Whether the member has expertise that is important to the committee's work and others with comparable expertise have conflicts or appearance issues more extensive than the member's (if so, this would weigh in favor of a section 502 authorization);
  • If there is a need for multiple experts in a field (if so, this would weigh in favor of a section 502 authorization).

Commentary

It comes to a point, that this is becoming ridiculous. The examples FDA uses would disqualify any physician whose institution is working on a research grant for the sponsor for a different product. Good luck in finding medical school faculty. The scenarios of "appearance" could go on forever, if the FDA wants to spend their time on fruitless exercises, then this is the guidance for you. Would not their time be better evaluating products then hunting through CV's for hidden conflicts.

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