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Focus on Regulation

A New Landscape of DOJ Sanctions for Pharmaceutical and Medical Device Manufacturers

The U.S. Department of Justice (DOJ) announced another significant settlement with a pharmaceutical company earlier this week.  The settlement with GlaxoSmithKline PLC (GSK) includes: 

  • a criminal plea, through an Information charging the company with two counts of misdemeanor misbranding as well as a single count for failure to report information about the initiation or status of certain studies to the FDA;
  • a sizeable civil settlement agreement resolving a number of broader False Claims Act and price reporting allegations;
  • a comprehensive Corporate Integrity Agreement (CIA) with the Department of Health and Human Services, Office of Inspector General (OIG) requiring various compliance program measures and Board of Directors and high-level executives’ review of and certifications related to the compliance program; and
  • a price tag of $3 billion comprising of a criminal fine, forfeiture, and civil settlement amounts. 

The settlement is most notable, however, because it reaffirms what senior DOJ officials have been previewing in recent statements at various trade conferences:  settlements with pharmaceutical and medical device manufacturers will include novel and alternative sanctions that will give DOJ, in addition to OIG, a continued post-settlement presence and oversight into the way companies conduct their business.  These new sanctions and provisions also evidence the government’s continued emphasis on the need for management and executives’ involvement in ensuring compliance. 

In particular, the GSK settlement includes an Addendum to its criminal plea incorporating various compliance program requirements typically reserved for CIAs.  Wholly apart from its CIA obligations, and subject to separate stipulated monetary penalties for breach, GSK will be required to maintain certain compliance policies and procedures, such as: 

  • Requirements that GSK continue its Patient First program where sales representatives no longer receive compensation based on commissioned sales;
  • Requirements to ensure the full, fair and accurate reporting of all scientific data;
  • A prohibition on sales and marketing taking a role in independent CME programs;
  • Requiring confirmation that requests for off-label information were unsolicited;
  • A requirement that the company maintain policies and procedures that will govern its contracting with payers; and
  • A requirement that GSK send a letter to health care providers and payers detailing information about the settlement. 

Additionally, the Addendum requires GSK, for a period of five years, to send certain certifications and reports to the Health Care Fraud Unit Chief of the U.S. Attorney’s Office for the District of Massachusetts and the Director of the Consumer Protection Branch of DOJ, including:

  • An annual certification by the President of GSK’s North America Pharma division and the Board of Directors (or a designated committee thereof) that each has reviewed the effectiveness of GSK’s compliance program, including a description of the review conducted and the findings;
  • Copies of the company’s SEC Form 6-K filings; and
  • Quarterly reports of any Reportable Incidents, defined as any matter a reasonable person would consider a probable violation of the Food, Drug and Cosmetic Act misbranding provisions and/or a probable violation of the drug safety reporting requirements.  

GSK’s CIA similarly includes some novel provisions that appear to focus on further increasing personal responsibility for ensuring compliance by company managers and executives even beyond the requirement of annual certifications and board resolutions now common place in CIAs.  In addition to requiring the company to maintain its Patient First program, which removes individual sales targets as a consideration for incentive compensation for prescriber facing sales representatives, the CIA also requires the company to conduct 3 hours of specific training of managers to address managers’ responsibility to promote compliance and identify and mitigate compliance-related risks.  Significantly, the CIA also requires GSK to establish the so-called Executive Financial Recoupment Program that will allow the company to recoup from executives who are discovered to have been involved in any significant misconduct up to 3 years of annual performance pay (e.g. bonuses, long-term incentives).   The recoupment can also be triggered by significant misconduct of an executive’s subordinate employee that is not an isolated occurrence and if the executive knew or should have known that the misconduct was occurring.  The program also allows recoupment from executives who have separated from GSK for a period of 3 years from termination of employment.