Criminal Trials of Former Health-Care Executives Set to Begin

The Justice Department signaled its increased scrutiny of individuals in a September 2015 memo that made a splash in the white-collar defense community. ENLARGE
The Justice Department signaled its increased scrutiny of individuals in a September 2015 memo that made a splash in the white-collar defense community. Photo: Andrew Harnik/Associated Press

Two criminal trials of former health-care executives set to begin in a Boston courthouse in the coming weeks illustrate what the federal government says is a new push to hold more individuals accountable for alleged corporate wrongdoing.

A former division president at drugmaker Allergan AGN 1.15 % PLC’s Warner Chilcott unit will stand trial on a charge of conspiring to pay kickbacks to doctors to prod them to prescribe the company’s medicines, including osteoporosis drug Atelvia.

And two former senior officers of Johnson & Johnson JNJ 0.53 % medical-device unit Acclarent are charged with marketing a sinus-opening device for a use not authorized by the Food and Drug Administration. All three executives deny wrongdoing.

Large health-care companies have paid the U.S. government billions of dollars—and in some cases pleaded guilty to criminal charges—to resolve civil and criminal probes of their marketing and pricing in recent years. But few executives have been on the hook, partly because it is tough for prosecutors to prove an individual had criminal intent in a corporate setting where decision-making is spread among many. Antifraud activists have pushed for more criminal prosecutions or civil lawsuits against executives, saying corporate fines haven’t sufficiently curbed misconduct.

The Justice Department signaled its increased scrutiny of individuals in a September 2015 memo from Deputy Attorney General Sally Quillian Yates that made a splash in the white-collar defense community. It laid out the various steps Justice Department attorneys should take in their investigations to focus more on individuals, in an effort to deter future illegal activity and ensure “that the proper parties are held responsible for their actions,” she wrote.

Among the Justice Department’s new tacks: requiring companies under investigation to turn over all relevant information about employees responsible for alleged misconduct, if the companies want credit for cooperating that can knock down fines from settlements of corporate probes. And some of the government’s recent corporate settlements of fraud allegations—including one in April by Pfizer Inc. PFE 1.08 % ’s Wyeth unit—have provisions that explicitly don’t release individual executives from future prosecution or civil proceedings. A Pfizer spokeswoman declined to comment.

Spokeswomen at the U.S. attorney’s office in Boston and the Justice Department declined to comment on the cases or on the agency’s efforts to target individuals.

The Justice Department effort isn’t confined to health care, but health-care fraud is one of the department’s biggest areas of focus. In the fiscal year ended Sept. 30, 2015, the Justice Department recovered about $ 1.9 billion in settlements and judgments related to health-care fraud allegations, more than half of its total recoveries from fraud and false—claims cases.

The increased focus on individuals has reverberated among executives, white-collar defense attorneys say.

“When you inject into the picture a greater likelihood or probability of individuals going to prison for responsibility for that conduct, that obviously gets people’s attention,” says George Terwilliger III, co-head of the white-collar defense practice at McGuireWoods LLP.

Some question whether the new effort will result in a significant increase in executive indictments, noting the Justice Department has made similar pronouncements in the past.

Not every indictment leads to a conviction; in February, a federal jury in San Antonio acquitted Vascular Solutions Inc. VASC 1.81 % and its CEO Howard Root of charges of selling a misbranded medical device.

Kirk Ogrosky, a partner at Arnold & Porter LLP, says the Justice Department has brought criminal cases against executives in the past when it felt it had a case. “I just don’t see that much of a change,” he said. It could, however, lead to more civil lawsuits accusing individual executives of health-care fraud, he said.

In October, a grand jury indicted W. Carl Reichel, former president of Warner Chilcott’s pharmaceutical unit, on a charge of conspiring to pay kickbacks to health-care providers between 2009 and 2011. His trial is set to begin Monday. Federal law bars payments that are intended to cause orders for products that are paid for by a federal health program, which prosecutors say applies to Warner Chilcott’s drugs.

Prosecutors said in court documents that Mr. Reichel, of Chester, N.J., instructed the company’s U.S. sales force to induce doctors to prescribe Warner Chilcott drugs by taking them to expensive dinners and paying them fees, ostensibly to give medical-education speeches to other doctors. Prosecutors said these speeches were more like social events, with very little talk of medicine. In addition, prosecutors say Mr. Reichel instructed the sales force to bring food and drink to reward physician office staffers for submitting requests to insurance companies to pay for prescriptions of Warner Chilcott drugs.

Mr. Reichel pleaded not guilty. In a court document, his attorneys said there is no evidence that he intended to violate the anti-kickback law or that he had any knowledge of doing anything illegal. His attorney, Joseph Savage, declined to comment.

Warner Chilcott in October agreed to plead guilty to a criminal charge of health-care fraud, and to pay $ 125 million to resolve a Justice Department investigation of its payments to physicians and other practices. Allergan AGN 1.15 % PLC, formerly known as Actavis, acquired Warner Chilcott in 2013; an Allergan spokesman declined to comment on Mr. Reichel’s case.

The second trial, set to begin June 7, is of former Acclarent CEO William Facteau and former vice president of sales, Patrick Fabian. In April 2015, a federal grand jury indicted them on charges including conspiring to market a medical device for a use not approved by the FDA, and conspiring to commit securities fraud by not disclosing the alleged conduct to Johnson & Johnson when it acquired Acclarent in 2010 for $ 785 million.

Messrs. Facteau and Fabian pleaded not guilty. Their attorneys declined to comment. In a January video interview with Healthegy, which operates a health-care news website and runs conferences, Mr. Facteau said he was looking forward to his day in court, and that “we see it differently” than what prosecutors alleged.

A J&J spokesman declined to comment.

Write to Peter Loftus at [email protected] US Business

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