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Assistant Attorney General Stuart F. Delery Delivers the Keynote Address at the CBI Pharmaceutical Compliance Congress


Washington, DC
United States

Thank you, Cindy [Cetani, Chief Compliance Officer of Novartis Pharmaceuticals Corporation]. And thank you to the Pharma Congress co-chairs and organizers for inviting me to be here this morning.

I am especially pleased to have the chance to speak to you at a gathering dedicated to compliance in the pharmaceutical industry. As head of the Civil Division at the Department of Justice, I oversee much of the federal government’s civil litigation in courts across the country. Attorneys in the Civil Division litigate cases involving national security and immigration policy. They defend federal statutes, regulations, and programs, ranging from the Affordable Care Act to actions taken in response to the financial crisis.

Yet among these significant matters, one of my top priorities is the work the Civil Division does to enforce the Food, Drug, and Cosmetic Act; the False Claims Act; and other laws protecting the safety and well-being of patients and the general public.

Why is health care enforcement so important? A major reason is the importance of the health care industry itself. From compliance officers to physicians, from corporate executives to nurses and researchers, you contribute to producing the drugs and medical devices on which we and our loved ones rely. Your efforts help to ensure that, when we are sick, the medicines we take will heal us effectively; that when we are in pain, we can obtain relief safely.

This Administration shares your commitment to improving the nation’s health care system. It has undertaken a comprehensive effort to ensure that more people have access to quality coverage, and that treatments are available at a lower cost to all of us – to patients, to health care providers, and to taxpayers. The innovative reforms and anti-fraud measures under the Affordable Care Act are a part of this effort.

So, too, is the Health Care Fraud Prevention and Enforcement Action Team, or HEAT, a cabinet-level initiative to increase coordination between the Civil Division and our partners at the Food and Drug Administration, the Centers for Medicare and Medicaid Services, and U.S. Attorneys’ offices around the country. This coordination has produced historic results. Since 2009, judgments and settlements under the FCA and FDCA have totaled over $20 billion.

But monetary results tell only part of the story.

Through our enforcement efforts, the government aims to promote an environment in which all of us can count on the soundness and efficiency of the health care system. If a pharmaceutical company pays kickbacks to physicians who prescribe its drugs, patients lose confidence that their doctors are making independent judgments about treatment options. If a Medicare provider bills for unnecessary services, taxpayers lose faith that our money is being well spent and health care becomes more expensive for everyone. If a manufacturer markets its products for uses that were never approved as safe and effective by the FDA, we worry that our loved ones might be receiving treatments that will harm them rather than help them, and that they may not elect the treatment with the best chance for a cure.

We are pursuing a broader range of health care fraud matters than ever before. We have cracked down on elder abuse in nursing homes, bringing criminal and civil cases against companies that harm seniors by providing grossly deficient care. We have pursued doctors who put patients at risk by performing unnecessary procedures to increase their bills, like a Florida dermatologist who performed thousands of unnecessary skin surgeries, participated in an illegal kickback scheme, and ultimately paid one of the largest False Claims Act settlements ever by an individual – $26.1 million. We have gone after the manufacturers of defective medicines or medical devices, as in our criminal and civil cases against a Boston Scientific subsidiary for knowingly selling defective cardiac defibrillators. We have sued companies that produce sterile products in non-sterile conditions, risking contamination and threatening patients with the possibility of dangerous infections. In short, we have demonstrated a commitment to targeting health care fraud and abuse wherever we find it.

By going after the practices that shake our trust in the marketplace and risk harm to us when we need medical care, we seek to make our health care system work better.

And in that respect, we all need to be allies and partners. When the focus is on financial recoveries, or on a specific investigation, it is easy to think of government and industry as adversaries. But when the goal is ensuring that Americans can trust the drugs they take and the medical advice they receive, it is clear that we are on the same side, attempting to stop unlawful practices that affect the safety and affordability of pharmaceuticals and medical devices.

And so I want to focus my remarks on three ways in which I believe the Civil Division’s anti-fraud enforcement interests align with your interests as corporate compliance officers, executives, and advisors.

First, we have a common interest in promoting an ethical corporate culture instead of maintaining a compliance program in name only.

No matter how well-designed a compliance program is, it cannot achieve its goals without achieving buy-in at all levels of the company. People must have the right incentives to see, report, and fix problems.

A common thread in many of our cases is that numerous individuals – ranging from executives to safety technicians – saw signs that misconduct was taking place and did not act. For example, in May 2013 the generic drug manufacturer Ranbaxy pleaded guilty to felony charges relating to producing and distributing adulterated drugs from two of its manufacturing facilities in India. Ranbaxy acknowledged that it had continued to distribute drugs that had failed critical tests, violated current Good Manufacturing Practices, and falsified records to cover up systematically incomplete testing, sometimes performing stability tests weeks or months after the dates reported to the FDA.

The conduct that gave rise to Ranbaxy’s guilty plea took place over a period of years, during which the company received early warnings that something was wrong. The company hired auditors and started to investigate evidence of abuses. But its actions never translated into real change. Four years after the first signs of trouble, those problems led the company to distribute an epilepsy drug that failed tests, had unknown impurities, and would not maintain its expected shelf life. The ultimate result was a $500 million resolution – the largest drug safety settlement ever with a generic drug manufacturer.

A scenario like this is, in many ways, a compliance officer’s worst nightmare. And it demonstrates how a company can have the tools it needs to avoid violations of law, and yet have such violations happen anyway. To be sure, Ranbaxy’s compliance operation could have done more than it did – its auditors, for instance, said that the company badly needed cGMP training; that training never happened. But policies alone are not enough.

That is why we have put a renewed emphasis on identifying non-monetary measures that will help us to prevent the recurrence of misconduct. That happened with Ranbaxy, where an earlier civil consent decree called, among other things, for the company to establish an Office of Data Reliability that would work with its manufacturing, testing, approval, and compliance operations to ensure that all future drug applications are audited for accuracy before submission. Indeed, just last week, the consent decree allowed FDA to move swiftly and respond forcefully when it learned of problems at yet another Ranbaxy facility.

Non-monetary measures were also a key feature of our $1.5 billion criminal and civil resolution in 2012 with Abbott Laboratories for conduct relating to its epilepsy drug Depakote. Working with the company and with our partners in Office of the Inspector General of the Department of Health and Human Services, we crafted a resolution designed to ensure high-level accountability for the company’s compliance efforts. It imposes a term of probation for five years which requires Abbott to report any probable violations of the FDCA, and requires that its CEO personally certify compliance with this reporting requirement. It contains a corporate integrity agreement with the HHS-OIG that requires, among other things, Abbott’s board of directors to review the efficacy of the company’s compliance effort. And it demands that Abbott institute policies to ensure that its scientific research and publications foster increased understanding of scientific, clinical, or healthcare issues.

As these settlements have made clear, we are not interested in merely collecting a large fine and moving on to the next case. We strive to give companies the incentives – and the tools – to craft better compliance practices in the future. And we want to work together with you, the people most responsible for compliance, to achieve real change.

The second common interest between the government and industry that I want to highlight is transparency about the conduct we investigate.

The impact of the cases we bring extends beyond the individuals and companies whose wrongdoing is at issue. Given the size, scope and reach of the pharmaceutical industry, we recognize that our efforts can have a profound impact, not only on the pharmaceutical industry, but also on the lives of countless Americans. Each victory we achieve in fighting a single instance of fraud helps to deter others from following the same path.

In order for this comprehensive approach to be successful, we must be clear about what misconduct gave rise to a criminal or civil resolution. As a result, we continue to emphasize the importance of explaining the conduct that has given rise to the settlements we negotiate.

That kind of transparency benefits the industry by clarifying the factual basis for the actions we take. And it benefits the American people by maximizing the impact of each dollar spent on health care fraud prevention and by prompting other companies to avoid the same risks to patient health and safety.

Being transparent about our enforcement efforts also means distinguishing conduct that is lawful and even beneficial from conduct that is illegal and harmful. For example, we recognize the value of giving doctors the freedom to decide, in consultation with their patients, what treatments to use. And we acknowledge the importance of an open dialogue in which pharmaceutical companies and physicians share truthful information about a product’s likely effects.

That said, where a company crosses the line and distributes its products intending them to be used in ways that are not approved as safe and effective by the FDA, we will act aggressively.

Many of you are familiar with November’s $2.2 billion settlement with Johnson & Johnson. In that case, the government alleged, among other things, that a J&J subsidiary, Janssen Pharmaceuticals, distributed the antipsychotic drug Risperdal to the nation’s most vulnerable patients – elderly nursing home residents, children, and individuals with mental disabilities – for uses that the FDA had never approved. Indeed, according to the government, Janssen distributed the drug to health care providers for elderly, non-schizophrenic dementia patients despite knowing that those uses were not approved and that the drug posed serious health risks to the elderly, including an increased risk of stroke.

Misbranding like this undermines the regulatory regime that we rely on to ensure that medicines and medical devices are safe. And it can have catastrophic consequences for patients. That is why the government will continue to bring these cases, and why we think it is so important that the public – and the industry in particular – understand the conduct at issue.

Finally, third, we have a common interest in ensuring that corporate compliance not only is the right thing to do but also is a winning business strategy.

That means pursuing companies that seek an unfair advantage by breaking the law. The World Health Organization, for example, estimates that more than half of the drugs sold online are counterfeit and contain useless or even harmful ingredients. And so the Civil Division has a team of attorneys who pursue counterfeit pharmaceutical fraud. These efforts are critical to protecting the millions of Americans who purchase their medications through online pharmacies. But they are also critical to protecting the legitimate businesses that suffer when fraudulent conduct distorts the marketplace. We want to ensure that companies that are committed to doing things right have the opportunity to compete on a level playing field.

Rewarding compliance also means acknowledging when companies and individuals do the right thing and voluntarily disclose wrongdoing. We recognize that most pharmaceutical companies are trying to play by the rules, that navigating the health care landscape is not always easy, and that many companies and individuals do their best to get it right.

We want to make clear that the decision to come forward is the right one. When a company or individual acts responsibly by timely and voluntarily disclosing unlawful conduct, we will give serious consideration to that disclosure in deciding whether or how to charge or resolve the matter. Likewise, we will credit actions taken once the government has started to investigate.

Of course, each case is unique, so there is no one formula for cooperation – just as there is no formula for the penalty for wrongdoing. But if we all aim to encourage a culture of compliance, to implement policies that can identify problems early, and to work together when fraud is found, your companies and your customers will be in the best possible position.

I want to close by emphasizing how seriously the Justice Department takes its responsibility to ensure that fraud does not pay – to ensure that all of you who encourage your organizations to act ethically are rewarded for doing so.

We reject the pernicious idea that a company can succeed by violating the law and treating health care fraud enforcement as a cost of doing business. We continue to insist on resolutions that eliminate any economic incentive to engage in and attempt to conceal unlawful conduct. We continue to seek criminal penalties, against both companies and individuals, under appropriate circumstances. We continue to demand accountability by vigilantly enforcing federal laws against those who seek an unfair advantage at the expense of patients and taxpayers.

A competitive health care marketplace, undistorted by fraud, is good for providers as well as patients. That is why I am so pleased to be here and so convinced that events such as this are vital. These gatherings enhance our respective practices and our understanding of our respective positions. They allow all of us to consider new ideas and varying perspectives. And they allow us to explore new ways to work together to enhance Americans’ trust in their health care systems.

I thank the organizers for the chance to address these issues with you, and I look forward to continuing to work with all of you in the future.

Thank you.

Consumer Protection
Updated October 22, 2014