The thing that medical device companies want most to do — sell their wares to doctors and hospitals — is also the thing that can land them in the most trouble.
The Justice Department is ramping up scrutiny of device companies just as the Food and Drug Administration is tinkering with its rules on marketing. The crackdown and the shifting rules have executives sharpening their awareness of what sales reps are telling potential buyers.
Vascular Solutions Inc. of Maple Grove and its CEO were charged last November with felony conspiracy and misdemeanor sales violations following a whistleblower lawsuit alleging an orchestrated campaign to circumvent FDA marketing rules.
"What the government is trying to do is get your attention," Minneapolis defense attorney John Lundquist told a roomful of medical device executives at a legal-compliance forum last week in Brooklyn Center. "The Justice Department is making it known that they are going to prosecute individuals whenever they can, and it is probably folks like you in this room."
Lundquist is representing Vascular Solutions CEO Howard Root, who has said the allegations against him are false and will not hold up under scrutiny. The company, which has its own lawyers, has said the allegations are false and prosecutors engaged in abusive conduct in bringing the case.
Root remains on the job and the company's shares are trading nearly $3 higher than just before the November indictment. Root received a 3 percent increase in total compensation for the year ended Dec. 31.
But the fight is taking its toll.
Mark DuVal, a Minneapolis lawyer who counsels device and biotech companies, said it's going to cost Root and Vascular Solutions about $20 million to go all the way to trial to defend against the charges, which DuVal encouraged him to do because he believes the allegations are not well-founded.
Such legal bills, combined with the potential to be disbarred from doing business with Medicare if convicted, are potent tools for the Justice Department.
"They definitely have gotten the industry's attention," DuVal said. "I am getting calls from medical device companies across the country."
DuVal said that in today's climate, companies that sell products regulated by the FDA should at least try to understand whether the agency would object to their sales tactics before deciding how aggressively to promote a device. But that's not easy, especially now that the agency is tweaking key legal ideas like the "intended use" of a device and what to do with truthful information about nonapproved uses.
Although aggressive sales tactics might be legally defensible and generate more revenue, they may also cause legal headaches that could scare away future investors — a key consideration for smaller companies.
"It's more efficient to think about the rules of the game at the beginning, rather than down the road," said Jeanne Hickey, compliance officer at Danish medical supplier Coloplast, which maintains U.S. headquarters in Minneapolis. She spoke to the same Brooklyn Center audience as Lundquist, though not directly addressing the Vascular Solutions allegations.
The Food, Drug and Cosmetic Act makes it a crime to sell mislabeled or adulterated medical products, and the FDA says that promoting specific uses of product other than what it has approved can automatically render a device mislabeled or adulterated. The Justice Department has secured billions in legal settlements from health care companies — mainly drugmakers — for allegedly promoting uses of products not approved by the FDA.
At Vascular Solutions, prosecutors say Root concocted a scheme for how sales reps could promote sales of a varicose-vein device called the Vari-Lase Short Kit to treat deeper blood vessels than the superficial veins approved by the FDA. The company says in legal filings that it's not clear the deeper-vein use wasn't approved, and anyway, its reps had a First Amendment right to speak truthfully about any off-label use.
The Justice Department's decision to pursue criminal charges against the company and Root followed a civil whistleblower lawsuit filed by a former company employee that laid out the allegations that eventually formed the basis of the criminal indictment. The civil case was settled last July for $520,000 with no admission of wrongdoing.
Such "parallel" investigations are expected to become more common.
Leslie Caldwell, the assistant attorney general for the Justice Department's criminal division, told an audience at a Washington legal conference last September that the department had recently changed its policies so that all civil whistleblower "qui tam" lawsuits are automatically shared with criminal prosecutors.
"Experienced prosecutors in the fraud section are immediately reviewing the qui tam cases when we receive them to determine whether to open a parallel criminal investigation," she told a crowd filled with health care whistleblower attorneys. "We encourage you to reach out to criminal authorities in appropriate cases. … The sooner we on the criminal side learn about potential criminal conduct, the sooner we can investigate."