[Ip-health] U.S. Inquiry of Drug Makers Is Widened...

Riaz Tayob riaz.tayob at gmail.com
Sat Aug 14 09:18:56 PDT 2010

"U.S. Inquiry of Drug Makers Is Widened
Published: August 13, 2010

At least a dozen major drug and device makers are under investigation by
federal prosecutors and securities regulators in a broadening bribery
inquiry into whether the companies made illegal payments to doctors and
health officials in foreign countries.

Lanny A. Breuer, an assistant attorney general, says there is a risk that
corrupt payments will affect the drug process overseas.

In previous investigations, federal officials have charged that some
companies made these kinds of payments to encourage doctors abroad to order
or prescribe their products. In the United States, companies routinely hire
doctors as consultants to market drugs and devices to their colleagues and
other health professionals at medical conventions and small gatherings. Such
consulting arrangements are legal in the United States as long as the
companies do not pay doctors directly to write prescriptions for their

But in much of the rest of the world, doctors are government employees. And
even consulting arrangements that would be considered routine in the United
States might violate the Foreign Corrupt Practices Act, particularly if the
payments are outsize or the arrangements are not disclosed to the

Of even greater concern to prosecutors in the United States are unusually
large payments made to foreign doctors who oversee the growing number of
clinical trials that drug and device makers conduct abroad, according to
Kirk Ogrosky, a former top federal prosecutor who now represents drug and
device makers at a Washington law firm.

More than 80 percent of the drugs approved for sale in 2008 involved trials
in foreign countries, and 78 percent of all people who participated in
clinical trials were enrolled at foreign sites, according to a recent
investigation by Daniel R. Levinson, the inspector general of the Department
of Health and Human Services. Medical ethicists have long worried that many
of these trials are conducted in countries that federal auditors rarely
visit and where research controls may be scant.

Now, prosecutors are investigating whether the payments made to doctors who
conducted these studies abroad were appropriate. If evidence shows that such
payments have influenced the results of some clinical trials, prosecutors
will be inspecting the trials closely, Mr. Ogrosky said. An article about
the inquiry appeared Friday in The Financial Times.

Last month, a federal drug official reported that he found repeated
instances in a landmark clinical trial of Avandia, a controversial diabetes
medicine, in which patients taking Avandia appeared to suffer serious heart
problems that were not counted in the study's crucial tally of adverse
events. Many of the study's trial sites were in foreign countries, and the
study is a main reason that Avandia remains on the market in the United
States. Government officials have not accused GlaxoSmithKline, the trial's
sponsor, of fraud.

"At the Justice Department, investigations that involve allegations of
patient harm rise straight to the top and will attract the immediate
attention of the F.B.I.," Mr. Ogrosky said.

The pharmaceutical industry may be more vulnerable to such investigations
because its representatives overseas work on a daily basis with officials or
doctors employed by state health systems.

Because pharmaceutical companies "are in the health care sector and because,
in so many foreign countries, heath sector employees could be considered
foreign officials, there is a heightened risk there," said Jay Darden, a
Washington lawyer and former federal prosecutor who specialized in health
care and foreign corrupt practice cases. But, he said, just because some
companies have publicly disclosed that they are under investigation does not
automatically mean they have violated the foreign bribery law.

Indeed, a number of drug makers and medical device companies have reported
in recent regulatory filings that they are under investigation for possible
violations of the Foreign Corrupt Practices Act.

In a regulatory filing earlier this month, for example, Merck said it was
cooperating with a federal investigation seeking information about the
company's activities in a number of countries.

Johnson & Johnson said in a regulatory filing that it had voluntary
disclosed to federal agencies that company subsidiaries abroad may have made
improper payments in connection with the sale of medical devices in two

Eli Lilly said it was cooperating with a federal investigation into the
activities of subsidiaries in Poland and other countries.

Meanwhile, the device maker Medtronic said it was cooperating with a federal
investigation into the company's activities in a number of countries,
including Greece, Poland, Germany, Turkey, Italy and Malaysia. The device
maker Zimmer also said it was the subject of federal investigations in
connection with the sale of its products in a number of foreign countries.

In a speech in November, an official at the Justice Department alerted drug
makers that the agency would be focusing on the drug industry.

"In some foreign countries and under certain circumstances, nearly every
aspect of the approval, manufacture, import, export, pricing, sale and
marketing of a drug product may involve a 'foreign official,' " as defined
by the Foreign Corrupt Practices Act, Lanny A. Breuer, the assistant
attorney general for the agency's criminal division, said in the speech.
"The depth of government involvement in foreign health systems, combined
with fierce industry competition and the closed nature of many public
formularies, creates, in our view, a significant risk that corrupt payments
will infect the process."

The federal inquiry is part of a broader reassessment of the financial
relationships between medical product companies and doctors, who even in the
United States serve a government procurement role when they order drugs or
devices for patients whose care is paid for by Medicare, Medicaid or another
government health program.

Federal law will soon require companies to publicly disclose consulting
payments made to doctors; some companies have already started making
information about such payments public. A number of medical schools and
professional medical societies have recently issued rules banning or
restricting some of these financial arrangements.

Nearly a dozen companies have already settled foreign bribery charges with
prosecutors in a string of cases that started in 2002 with a settlement by
Syncor. The company paid a relatively modest fine of $2.5 million to resolve
criminal and securities charges that the company used gifts, inflated
invoices and improper referral payments to encourage doctors in state-owned
hospitals abroad to order company products and send patients to
company-owned imaging centers.

Last year, Novo Nordisk, a Danish company, agreed to pay a $9 million fine
to settle charges that it had paid former government officials in Iraq to
obtain government contracts to provide insulin and other drugs. Novo paid
the former Iraqi government about $1.4 million by inflating the price of its
contracts by 10 percent before submitting them to the United Nations for
approval, according to a Justice Department press release.

Since the fines paid so far are relatively modest, the current federal
inquiries into possible foreign bribes may end up having a larger impact on
the marketing strategies of medical product makers than on their bottom

Even so, Mr. Darden, the former Justice Department official, said drug
company executives would do well to remind their foreign subsidiaries not to
bribe local officials or doctors.

"They should set a tone at the top that makes it clear to a company's
international sales force that these types of payments are unacceptable," he
A version of this article appeared in print on August 14, 2010, on page B1
of the New York edition.

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