J&J FCA Fraud Settlement Loaded With Compliance Directives

Johnson & Johnson reached a $2.2 billion False Claims Act settlement with the government this month—among the largest healthcare fraud payouts in U.S. history. While the numbers are eye-popping, the strict compliance measures that the settlement imparts are nearly as onerous.

In a corporate integrity agreement reached with the Department of Health & Human Services Office of the Inspector General, J&J must implement a series of rigorous compliance directives that in many ways serve as a model for implementing an air-tight FCA compliance program. “This agreement is designed to increase accountability and transparency and prevent future fraud and abuse,” Attorney General Eric Holder said in a statement.

John Roth, director of the Food and Drug Administration's Office of Criminal Investigations, issued a warning to other drug companies. “The FDA will continue to devote resources to criminal investigations targeting pharmaceutical companies that disregard the drug approval process and recklessly promote drugs for uses that have not been proven to be safe and effective.”

The J&J case first came to light with a lawsuit filed in July 2005 by Joe Strom, a former employee of J&J subsidiary Scios, who accused the company of promoting the off-label use of its blockbuster drugs Risperdal, Invega, and Natrecor. The complaint also alleged that J&J paid kickbacks to physicians. In addition to the lawsuit filed in California by Strom, an unspecified number of other whistleblowers in Massachusetts and Pennsylvania filed similar claims against J&J.

As part of the settlement, J&J and its subsidiaries will pay a $2.2 billion fine, including $485 million in criminal fines and forfeiture. The company will also pay $1.72 billion in civil settlements to state and federal regulators.

The core of the settlement, however, is the extensive 66-page corporate integrity agreement that will allow OIG to monitor J&J's compliance program for the next five years. Inspector General Daniel Levinson said the agreement “increases individual accountability for board members, sales representatives, company executives, and management.”

Auditing and Monitoring Requirements

Prior to reaching its settlement, J&J subsidiaries audited their top-performing sales representatives who qualified for an award—such as a trip or monetary compensation—on an annual basis. The settlement agreement takes J&J's so-called “sales award audit” one step further by requiring J&J subsidiaries to audit “at least five percent of sales representatives who are eligible for a performance-based award.” All government-reimbursed products that are actively promoted must also be included in the sampling of this audit.

Such a provision underscores the level of attention OIG is giving to auditing and monitoring as vital components of a robust compliance program, says Thomas Beimers, former senior counsel for HHS-OIG and now counsel for the law firm Faegre Baker Daniels.

Other types of auditing and monitoring provisions that OIG has included in recent corporate integrity agreements, Beimers says, include:

Field audits of speaker programs in cases that have involved off-label promotion;

Ride-alongs with sales representatives;

Embedding compliance personnel in business operations; and

The assignment of an independent review organization to oversee the compliance function.

J&J's settlement agreement, for example, requires that the company retain “an independent individual or entity with expertise in compliance with federal healthcare program and FDA requirements.” This individual will be responsible for creating a work plan for the compliance program, as well as a written report on the results of an independent review and any recommendations for improvement.

According to Beimers, similar agreements have required several drug companies to install independent experts and many have found that the experience has been “generally positive,” says Beimers. At a minimum, it helps companies “take a careful look at the resources that have been allocated to compliance and potentially make some changes to operations that might be necessary as a result of the corporate integrity agreement,” he says.

Clawback Requirement

Referred to as the “executive financial recoupment program,” another provision of the corporate integrity agreement mandates that J&J establish a program that “puts at risk of forfeiture and recoupment an amount equivalent to up to three years of annual incentive compensation”—annual bonuses and equity awards—for an executive who has engaged in any “significant misconduct” relating to the sales or marketing of pharmaceutical products. The recoupment program applies to current and former executives of J&J and its subsidiaries.

“Clearly, the proliferation of settlements indicates that healthcare fraud remains an enforcement priority at the Department of Justice and the Department of Health and Human Services.”

—Thomas Beimers,

Counsel,

Faegre Baker Daniels

“You're seeing that more in these settlement agreements where the government is sending the message to senior executives and board members that they are responsible for the activities of their company,” says Kenya Woodruff, of counsel in the healthcare practice group of Haynes and Boone.

Putting a clawback provision in place together with the increasing inclusion of certification requirements “really obligates the executives to pay careful attention to the requirements of the corporate integrity agreement,” says Beimers. Under J&J's certification requirements, for example, the company's senior management and certain members of its board of directors must certify on an annual basis compliance with the corporate integrity agreement.

Training Requirements

J&J and its subsidiaries must provide at least one hour of training to each employee during each reporting period, which must cover at a minimum the requirements mandated by the agreement and the company's compliance program, including its code of conduct and policies and procedures.

In addition to general compliance training, J&J must provide at least three hours of compliance training to managers and supervisors of sales representatives per reporting period related to their specific job functions. Following this initial training, management must receive at least three hours of additional training each subsequent reporting period.

The company must also provide at least two hours of training to each member of its regulatory, compliance, and government affairs committee, addressing “the responsibilities of board members and corporate governance.”

Board training has become another big focus for OIG, because of the acknowledgement that “not all board members are really aware of the laws that govern a particular entity and a particular industry,” says Woodruff. The intent is to ensure board members have the necessary information they need to be a fiduciary to the company, she says.

Each employee must then certify in writing or electronic form the completion of such training, which must specify the type of training and the date received. J&J's chief compliance officer must retain these certifications and all course materials, which must be made available to OIG, upon request.

Reporting of Physician Payments

J&J's AGREEMENT

Below is an excerpt from J&J's corporate integrity agreement outlining elements of its compliance program.

J&J shall establish and maintain a compliance program that includes the following elements:

J&J Chief Compliance Officer. Prior to the Effective Date, J&J appointed a Covered Person to serve as its Chief Compliance Officer. J&J shall maintain a J&J CCO for the term of the CIA. The J&J CCO shall be responsible for developing and implementing policies, procedures, and practices designed to ensure compliance with the requirements set forth in this CIA and with Federal health care program and FDA requirements.

The J&J CCO shall be a member of senior management of J&J, shall make periodic (at least quarterly) reports directly to the Chief Executive Officer of J&J, shall make periodic (at least quarterly) reports regarding compliance matters directly to the Regulatory, Compliance, and Government Affairs Committee of the Board of Directors of J&J, and shall be authorized to report on such matters to the Regulatory, Compliance, and Government Affairs Committee of the Board of Directors at any time. The J&J CCO shall not be or be subordinate to the Chief Legal Officer or Chief Financial Officer. The J&J CCO shall be responsible for monitoring the day-to-day compliance activities engaged in by J&J as well as for any reporting obligations created under this CIA. Any noncompliance job responsibilities of the J&J CCO shall be limited and must not interfere with the J&J CCO's ability to perform the duties outlined in this CIA.

NALT Compliance Officer. Prior to the Effective Date, the J&J Pharmaceutical Affiliates, through their leadership board referred to as the J&J Pharmaceutical Group North American Leadership Team (NALT) appointed a Compliance Officer, and the NALT shall maintain a Compliance Officer during the term of the CIA. The NALT Compliance Officer shall be responsible for working with the J&J CCO to develop and implement policies, procedures, and practices designed to ensure compliance with the requirements set forth in this CIA and with Federal health care program and FDA requirements. The NALT Compliance Officer shall be a member of senior management of the NALT and shall ensure periodic (at least quarterly) reports are made regarding compliance matters directly to the NALT, and shall be authorized to report on such matters to the NALT at any time. The NALT Compliance Officer also shall work with the J&J CCO to ensure periodic (at least quarterly) reports are made regarding compliance matters directly to the Regulatory, Compliance, and Government Affairs Committee of the J&J Board of Directors. The NALT Compliance Officer shall not be or be subordinate to the Chief Legal Officer or Chief Financial Officer for J&J, the NALT, or any J&J Pharmaceutical Affiliate. The NALT Compliance Officer shall be responsible for monitoring the day-to-day compliance activities engaged in by the J&J Pharmaceutical Affiliates as well as for assisting in fulfilling any reporting obligations created under this CIA.

Source: J&J's Corporate Integrity Agreement.

Another trend the agreement emphasizes is a push by the government toward increased transparency. The agreement requires J&J and its subsidiaries to post in a “prominent position” on their respective Websites—through a link or other appropriate means—an “easily accessible and readily searchable” listing of all U.S.-based physicians and related entities who received direct or indirect payments from the company, as well as the aggregate value of those payments. J&J and its subsidiaries must also post quarterly and annual reports on the cumulative value of these physician and entity payments.

This provision is consistent with some of the provisions in the Affordable Care Act, which requires the reporting of physician payments though the Sunshine provision. “It really is in line with trends we have been seeing of demanding more transparency,” says Woodruff.

More Enforcement

J&J's agreement marks the third-largest U.S. settlement against a drugmaker for violations of the FCA. In July 2012, British drugmaker GlaxoSmithKline paid a record $3 billion in fines to settle criminal and civil violations for the off-label, unapproved marketing and promotion of several of its blockbuster drugs, including Paxil and Wellbutrin.

In 2009, Pfizer agreed to pay $2.3 billion to resolve criminal and civil liability arising from the illegal promotion of four of its pharmaceutical drugs. Like J&J and GSK, Pfizer also signed an integrity agreement directing it to continue its corporate compliance program for a period of five years.

Other pharmaceutical companies to reach corporate integrity agreements include Abbott Laboratories, Novartis, Elan, Cephalon, Eli Lilly, and AstraZeneca.

“Clearly, the proliferation of settlements indicates that healthcare fraud remains an enforcement priority at the Department of Justice and the Department of Health and Human Services,” says Beimers.

Beimers surmises, however, that many of these multi-billion settlements will start to taper off, because companies are less likely to engage in that sort of “broad, concerted, intentional” wrongdoing that we're seeing in the wake of recent settlements. Additionally, he says most large drug and medical device makers—particularly those that have been subject to these cases—already have implemented a lot of these enhanced measures.

Even smaller medical device and drug companies have been “really attuned” to these larger settlements, Woodruff says. As a result, they are “beginning to pay attention to the risks that are coming from their physician arrangements.”