Home > Alerts > Recent Sentencings of Executives Serve as Reminder of Risks of Responsible Corporate Officer Prosecutions; Risks Grow for Medical Device Companies

Recent Sentencings of Executives Serve as Reminder of Risks of Responsible Corporate Officer Prosecutions; Risks Grow for Medical Device Companies

Posted: 11/20/2012
Services: White Collar and Government Enforcement

The recent sentencings of a number of executives held criminally liable under the “Responsible Corporate Officer” doctrine serve as an important reminder that the government increasingly will hold managers, officers, and in-house counsel at drug and medical device companies to a high standard with respect to overseeing the safe manufacture and delivery of drugs and medical devices to consumers.

On October 3, the U.S. District Court for the Northern District of Texas sentenced Gary D. Osborn and his compounding pharmacy company ApothéCure Inc. on two counts each of misbranding, to which both had pleaded guilty. Osborn was sentenced to one year of probation, including 90 days of home detention, and a $100,000 fine. The company was sentenced to five years of probation and a $100,000 fine.

Osborn was charged criminally on the basis of the Responsible Corporate Officer (“RCO”) doctrine, which is named after a 1975 U.S. Supreme Court decision that stands for the proposition that a “responsible corporate officer” may be found guilty of a misdemeanor crime under the federal Food, Drug, and Cosmetic Act (FDCA) — e.g., misbranding and adulteration — without any intentional wrongdoing. An executive can be convicted of a crime for conduct in which he was not directly involved and that he did not know was occurring.

Osborn’s probation sentence was relatively light, but the underlying facts are noteworthy. One of the drugs ApothéCure compounded is called colchicine, which can be injected intravenously for use in the treatment of back and neck pain related to gout. Compounding typically involves a pharmacist preparing a drug following the instructions of a licensed medical doctor. According to the government, three patients who received colchicine from ApothéCure in 2007 died as a result of a colchicine overdose. An FDA investigation subsequently revealed that other vials from the same lot used for these patients were super-potent (~640 percent of the declared potency on the label). Nonetheless, the defendants did not admit that their product caused the deaths.

Both Osborn and ApothéCure were charged with two counts of misdemeanor misbranding on the theory that the drug label did not include correct dosage information. Osborn admitted that as the owner, registered agent, president, sole director, and pharmacist-in-charge of ApothéCure, he was “the person responsible for the procedures and equipment” and “for ensuring pharmacists and pharmacy technicians were properly trained and supervised in the compounding of drugs.”

Neither the criminal information nor the agreed-upon facts presented to the court mention that Osborn was aware of any discrepancies with respect to the manufacture of the super-potent drug that allegedly killed the three patients. Nor is there mention that he was aware of specific issues related to inadequate procedures or deficient equipment in the intravenous lab (IV lab) generally. Osborn pleaded guilty to the two counts of misdemeanor misbranding.

We can expect that some type of RCO doctrine prosecution will result from investigations into the compounding pharmacy implicated in the recent national fungal meningitis outbreak.

Recent high-profile RCO prosecutions have involved pharmaceutical executives, and the ApothéCure case shows the risks to compounding pharmacies as well. Next in line for the government’s attention is medical device companies.

Late last year, a federal court in Pennsylvania handed down sentences ranging from five to nine months in prison to four former Synthes Inc. officers. All four executives pleaded guilty to one count of the strict liability misdemeanor offense of misbranding and adulteration related to Synthes’s off-label promotion of bone cement used in back surgery. The government alleged that from August 2003 through January 2004 Synthes engaged in a rogue clinical trial by training spine surgeons to use the bone cement to treat a type of spine fracture common in the elderly notwithstanding known patient risks and despite the fact that the FDA-approved label warned that the product was not intended for such surgeries. During the illegal “test market,” three elderly patients died on the operating table. Last month, the Secretary of Health and Human Services exercised her regulatory authority to exclude the officers from federal health care programs.

The Synthes prosecution may only be the beginning for the RCO-related enforcement actions in the medical device industry. At a recent national conference of the Advanced Medical Technology Association, one of the nation’s top health care fraud prosecutors said the government has begun to turn its attention from pharmaceutical companies to the medical device industry. Susan Winkler, former chief of the health care fraud unit in the U.S. Attorney’s Office for the District of Massachusetts said, “There’s no question there is a new focus” on medical device firms. She noted, “There was some real low-hanging fruit in the pharmaceutical industry.” Winkler’s office had worked on more than 13 cases in the past 12 years that had resulted in more than $200 million in settlements. Those cases focused primarily on Medicaid rebates, pricing scams, and off- label promotion, and Winkler admitted, “The medical device industry may be a bit harder [to investigate] in its initial phases.”

Fraud in medical research is one emerging theme, albeit a new area that the government will need time to learn. Prosecutors will examine whether research is reported fairly and accurately and whether negative results are being suppressed. The government will continue to go after physicians — typically the innovators of medical devices — involved in fraud, according to Winkler. Key considerations in any health care fraud case will remain the risk of patient harm and losses to taxpayers. Giving some guidance to avoid prosecution, Winkler stated that her office had declined prosecutions in cases where companies had made voluntary disclosures, fixed problems they had found, and pledged a “robust and effective corporate compliance program.”