Off-Label Marketing: Fines and Industry Exclusion

It is important to weigh enforcement risks with perspective.  The Justice Department’s biggest FCPA enforcement year was approximately $1.4 billion in 2010. 

The Justice Department doubled that amount in the off-label marketing prosecution of GlaxoSmithKline (GSK) which totaled $3 billion in one case, which consisted of a $1 billion criminal fine and $2 billion in civil penalties.  GSK paid these penalties for off-label promotion of Paxil, Wellbutrin, and six other drugs, and for failing to notify the FDA of safety information on Avandia, a diabetes drug.

The legal underpinnings of the off-label marketing prohibition are being challenged in the appellate courts and may end up in the Supreme Court.  Under the current law, pharmaceutical and medical device companies are prohibited from “marketing” products for “off-label” uses, meaning specific uses which were not authorized by the Food and Drug Administration (“FDA”).  

On the other hand, doctors are authorized to prescribe drugs and medical devices for unapproved uses, so long as such prescriptions are consistent with the standard of care.  It seems odd, but under the regulatory regime, companies which know the most about their products are prohibited from informing doctors and the public about any off-label use of their products.  Companies are challenging this regulatory regime by asserting that such restrictions violate the First Amendment protections on “commercial speech.”

GSK’s penalty was imposed because its marketing staff “illegally” paid doctors to increase off-label uses of its drugs by paying for speaking engagements, vacations (including hunting trips, spa vacations, and trips to Hawaii), and entertainment .  GSK also marketed Paxil for use by children, which was never approved by the FDA; and marketed Wellbutrin for sexual dysfunction and weight loss, two treatments for which it was never approved.  Finally, GSK failed to notify the FDA of  post-approval studies which demonstrated that taking Avandia may cause heart disease.

While the penalty appears to be large, GSK made a profit of approximately $28 billion on these three drugs during the period covered by the settlement.  Some of have questioned whether these settlements are merely a “cost of doing business>’ for pharma and medical device companies. 

In response, the Justice Department has begin to charge more individuals under the Responsible Corporate Officer doctrine under which senior managers can be held liable if they have responsibility over the persons involved in the misconduct, even if they had no specific knowledge of the activity.  In addition, the Health and Human Services has wielded its exclusion authority to exclude individual officers from participating in any health care activities which are funded by the government.  With these two prosecutorial weapons, the government has sought to send a message – fines cannot be viewed as a cost of doing business. 

The Court of Appeals for the District of Columbia Circuit recently upheld HHS’ exclusion authority in Friedman v. Sebelius, (link here).  HHS excluded three former executives of Purdue Frederick Company (“Purdue”) from participating in federal health care programs.  The three  Purdue Executives each pleaded guilty to a misdemeanor violation of the Food Drug and Cosmetics Act for failing to prevent Purdue’s alleged fraudulent marketing of OxyContin.  Each of the Purdue Executives was sentenced to do community service, fined $5000, placed on probation, and forced to disgorge compensation they had received at Purdue. The  D.C. Circuit affirmed HHS’s legal theories for excluding the Purdue executives, but remanded the case for factual findings justifying the 12-year period of exclusion imposed by HHS. 

Exclusion is a government remedy that can threaten the livelihood of officers in the health care industry.  The threat of exclusion creates a disincentive for healthcare executives to plead to misdemeanor offenses under the Responsible Corporate Officer doctrine.  Most defendants expect that such a guilty plea will result in no jail time, a small fine and a period of supervised release.  The threat of exclusion certainly changes the calculus on whether to go to trial or plead guilty.

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