Three Felonies a Day

by Harvey Silverglate

  It was therefore only a slight surprise when, in July 2004, ten former employees of TAP Pharmaceuticals decided to go to trial on the charges to which the corporation three years earlier decided to plead guilty and pay a then-record $885 million fine and settlement. The real surprise came when federal prosecutors lost on their claim that the company’s discounting sales and promotional practices constituted illegal kickbacks and bribes to induce physicians and hospitals to use TAP products.

  When the employees first announced their intention to fight, it was widely seen in the legal community as a quixotic, doomed effort. The company, after all, had not only pled guilty and agreed to pay $885 million, it had also agreed to cooperate with prosecutors. TAP, to curry favor with the prosecutors, even waived the attorney-client privilege and allowed prosecutors to rummage through its files, which included memos of discussions and interviews between the corporation’s lawyers and the individual defendants during an internal corporate investigation begun after the feds announced their criminal investigation.

  The government’s two star witnesses were an unnamed former TAP employee and one Joseph Gerstein, medical director of the Tufts Associated Health Maintenance Organization, which purchased TAP drugs. The former TAP employee had received a whistleblower bonanza of $77 million and, from TAP’s civil settlement, split $17 million with the HMO. The former TAP employee was particularly enterprising. He banked $47.5 million more for whistleblowing in a related federal prosecution of drug manufacturer AstraZeneca in 2003. Critics and cynics might think that the government had effectively bought its testimony from both the whistleblowers and the corporation.

  So what practices did the feds view as felonious? The indictment charged, among other things, that TAP salesmen sought to induce prescribing physicians to order free samples of the prostate cancer drug Lupron® instead of its “essentially identical,” cheaper competitor, Zoladex®, by giving doctors free samples of the drug. The salesmen allegedly did so in the “expectation…that doctors receiving the free drug would prescribe that free drug, and would thereafter bill it to their patients and their insurers, including the Medicare program, and thus receive money from Medicare and others for the prescription of that free product.” It is in fact a common practice to provide free samples to physicians. Samples are provided on the assumption doctors will become familiar with the drug’s efficacy in their own medical practices. Later, once convinced of the drug’s efficacy, many physicians give the samples to their indigent patients. These practices, it should be stressed, are commonly found in the pharmaceutical industry and medical profession.

  The indictment claimed that, since physicians could use other means to obtain medication for their indigent patients, the free samples provided by the TAP salesmen were really a disguised bribe. Worse, some physicians gave the samples to their patients but billed Medicare for them anyway, a practice that the indictment claimed the salesmen must have suspected but to which they were “willfully blind.” What’s more, these sales inducements, aimed at causing physicians to prescribe the more expensive TAP product, were a form of fraud. Prosecutors rounded out the indictment by labeling as “fraud” still other sales-incentive practices common in the industry.

  One of the more bizarre charges concerned financial grants given by the drug company and the salesmen, so-called “educational grants.” Such grants could be used for a variety of purposes ostensibly related to medical education, such as “to pay for attendance at seminars and conferences of professional organizations, to purchase medical equipment, to pay for education for the physician’s office staff,” as well as for less clear-cut development activities, such as “to support marketing efforts, to finance parties, to pay for bar tabs at country club functions, to pay for golf outings.” Such social events are an integral part of what the industry calls “professional development,” but the indictment made it sound like the social aspects of these conferences were wholly separate from their educational functions and hence were clearly fraudulent bribes unrelated to medical practice.21

  The indictment further alleged that the TAP salesmen, to hide the fact that they were providing “things of value” to hospital and HMO employees to influence their decisions about which drugs to buy, would also offer educational grants to the employer, with the expectation that it would directly benefit specific employees.

  Normally, when a sales rep gives a real bribe to a corporate purchasing chief to induce the purchaser to buy that sales rep’s products (a classic “kickback” arrangement), the bribe is kept secret from the employer. The employer is, after all, the victim when his purchasing agent is bribed to buy particular products over other cheaper or superior products. But in the TAP case, the salesmen not only informed the corporate customers that they were providing educational grants for the benefit of certain purchasing agents, but went so far as to give the grants directly to the employing organization rather than to the purchasing agents. The government viewed such openness as further proof of how sneaky the TAP salesmen were!22

  The government’s case against one of the defendants seemed so lacking that the trial judge acquitted her before her case got to the jury.23 As for the other nine, the jurors gave the 66-page, 156-paragraph indictment due scrutiny, deliberating for 23 hours after a three-month trial.

  Its verdict couldn’t have been clearer: acquittals on all counts.24 The jury, in its wisdom, cleaned up the mess made by prosecutors, regulators, and the judges who allow such cases to proceed to trial.

  In a case remarkably similar to that of the TAP salesmen (and less than a year after their acquittals), Loucks’s fraud unit in April 2005 criminally charged the Swiss drug maker Serono SA and later indicted four of its former company executives. The indictment alleged bribery and conspiracy, among other crimes, charging that the defendants offered doctors free trips to a medical conference in France to promote the prescription of Serono’s drug Serostim®.

  The Serono case added one element absent from the TAP case, namely that the company and its sales reps not only offered inducements to prescribe Serostim®, but also that they sought to promote off-label uses of the drug. According to the off-label use charge, Serostim®, described as “a very expensive drug,” had been approved by the FDA to treat “AIDS wasting, also known as cachexia, a condition involving profound involuntary weight loss in AIDS patients, with a preferential loss of lean body mass over fat mass.” Meanwhile, with the invention of so-called AIDS cocktails, the incidence of AIDS wasting had decreased markedly. As a result, charged the Boston Health Care Fraud Unit, Serono “launched a campaign to ‘redefine AIDS wasting’ in order to create a market for Serostim® by expanding the disease state for which Serostim® could be prescribed as a treatment.”25

  To promote this off-label use of Serostim®, the company’s sales reps allegedly distributed literature indicating that “wasting was being ‘masked’ by weight gain” occasioned by the use of AIDS cocktails, and that the “wasting” phenomenon, the loss of lean body mass, was still occurring, unnoticed. Even though Serostim® had been approved by the FDA for the AIDS wasting syndrome, prosecutors deemed the promotion of the product for that very condition an “off-label” use because physicians were being told that there still was a need to prescribe the drug.

  In other words, the government sought to creatively redefine the manufacturer’s labeling obligation, and to do so not by changing the regulation in order to give advance notice of the enhanced obligation when medical progress presented new circumstances, but rather by prosecuting the company and individuals who would have had no way of knowing the risk they were taking by following the literal wording of the regulation. Ordinarily, a controversial technical point of science such as this would, or should, be resolved by administrative and civil rulemaking based upon the best scientific evidence available. Alternatively, it could be determined by civil proceedings for violations before the rules have become clear, with fines resulting in the event of an outcome adverse to the company. If the company or
its employees then continue to make claims not supported by the scientific evidence, indictment would be appropriate. In that case, any violation would be a clear and intentional one committed by defendants who had been put on notice of their new, enhanced legal obligation. But in the Serono case, the government proceeded by indictment in a novel area of law and on a contested issue of science.

  It would be relatively simple, not to mention eminently more fair, for the federal pharmaceutical bureaucrats at the FDA to issue regulations giving the industry desperately needed guidance as to where the lines are drawn. During the process of promulgating new regulations, the government would learn the views of the companies about the realities of the marketplace, and could hear the scientists as well. The regulators could make clear the public health and federal treasury implications of the practices being examined. The companies would then have a set of regulations to follow, hopefully written in clear English, after which transgressions could truly be said to be intentional violations of known legal duties. If a prosecution can be regarded as “novel” or “creative,” one must question whether it should have been brought on the criminal rather than the civil side of the court.26

  Serono followed the game plan established by TAP Pharmaceutical. Serono did its mea culpa and agreed to pay a $740 million fine to settle the charge that it paid kickbacks to physicians to induce them to prescribe Serostim®, and that it promoted the off-label use of its product. This left two former vice presidents and two regional sales directors to face an April 2005 indictment. The alleged bribe was an all-expensespaid trip to attend a medical conference in Cannes, characterized by the prosecutors as a payoff rather than a legitimate medical educational program, presumably because of its posh location. (One wonders about the future implications for government-attended conferences in renowned ski resorts and the like. Assistant U.S. Attorney Loucks, for example, was a featured speaker at Ski Aspen, a continuing education retreat for lawyers, organized by the North Carolina Bar Association in January 2007.)27 As in TAP, the Serono case was launched at the behest of whistleblowers. Five Serono employees filed suit, for which they collectively reaped a lucrative pot totaling at least $51 million.28 As in TAP, the corporation quickly folded, in large measure to protect itself from a “debarment” order. And as in TAP, the individual defendants were all acquitted by a jury. Unlike the TAP case, however, where the jury deliberated for 23 hours, the Serono jury dispatched the prosecutors’ theory in fewer than three.29

  The Department of Justice’s nonchalant attitude toward “creative” prosecutions based on extensions and interpretations of vague statutes and regulations is nowhere better illustrated than in the prosecution of Dr. Peter Gleason, the Maryland psychiatrist (see Chapter Two) facing charges for promoting a pharmaceutical for a non-approved, so-called “off-label” purpose.30

  Since the FDA regulations ostensibly do not prohibit a physician from prescribing off-label uses for a regulated drug (only the manufacturer is prohibited), how can a physician be indicted for doing so? The DOJ charged the pharmaceutical manufacturer, Jazz Pharmaceuticals,31 with joining with Dr. Gleason and encouraging him to tout its product for off-label uses. Since Dr. Gleason joined in a “criminal conspiracy” (an unlawful agreement) with a manufacturer that itself is not allowed to promote off-label uses, he became, in the eyes of the prosecutors, a conspirator in a jointly committed crime. He was tainted, essentially, by the company’s unlawful purpose.

  Daniel E. Troy, a prominent lawyer and the former chief counsel of the FDA, was quoted as warning that “this is a very, very scary development.”32 Dr. Steven Nissen, the interim chairman of cardiovascular medicine at the famed Cleveland Clinic, predicted that the case could “have a chilling effect on physicians, because when we give lectures, we assume that giving an opinion about the use of a drug is not going to get us into legal difficulty.” One reason that physicians, even those connected to prominent medical establishments, were shocked at the Gleason prosecution, was because physicians rely on their and their colleagues’ judgments and experiences as to the uses, including off-label uses, of pharmaceuticals all the time. Virtually any physician would admit, perhaps even boast, that he relies to a great extent on his own judgment and experience, as well as that of others expressed in medical journals, in deciding what to prescribe for various conditions. The manufacturer’s FDA-approved label is just one source of guidance; experience is another.

  The purpose of the indictment, Dr. Gleason thought, was to pressure the doctor to cooperate against the manufacturer; his “account is at least partly supported by a letter” in which the assistant United States attorney reported on efforts to obtain the physician’s cooperation, reported The New York Times’s Alex Berenson.33

  As it turned out, Jazz hitched itself to the prosecution team and only then notified Dr. Gleason that he would be facing the charges without the company’s assistance. Even though the statute on its face applied only to the company, it would be the physician, alone, who would suffer prosecution and conviction for activity quite common and widely deemed benign within the profession. “They’re just cutting me loose,” the doctor lamented. In the Department of Justice’s world of “eat or be eaten,” whoever makes it to the prosecutor’s door first generally gets the deal. There and only there is the “truth” written, or perhaps composed.

  CHAPTER FOUR

  Following (or Harassing?) the Money

  I think often of the prosecution of Michael Milken, the financial genius and guiding star of the brokerage firm of Drexel, Burnham & Lambert. Milken and his firm flowered in the 1970s and ’80s when Milken created a whole new capital market capable of financing daring new ventures that threatened to upset many an old order. But the firm and its visionary leader suddenly crashed and burned at the climax of the Department of Justice’s assault on the “decade of greed” in the late-1980s and early-’90s.

  The case has gnawed at me, and not because I instinctively have more sympathy for my billionaire clients than for the penniless political radicals I’ve represented pro bono. Rather, the techniques used to force Milken to plead guilty to non-crimes were so raw and dangerous that it became obvious to me, shortly after I joined his defense team following Milken’s unexpectedly harsh sentencing, that the same techniques would soon be applied to a much wider sphere of civil society which cannot afford to fight. The pain unjustly suffered by Milken and his family was real and palpable, and it became clear that if they can do this to him, they can—and will—do it to anyone.

  Had Milken not been famous and wealthy, critics might have taken a closer and more dispassionate look at the fabricated case against him and the methods used to force him to plead guilty. As is so often the case with federal criminal prosecutions, the fabrication consisted, in part, of dubious testimony given by rewarded witnesses, and felony charges for conduct (admitted to by Milken) that, to informed and objective observers, did not appear to constitute crimes.

  Michael Milken’s pioneering development of higher-risk, higher-yield corporate bonds (dubbed “junk bonds” by his detractors) gave birth to some of the most important start-up (and, in a real sense, upstart) companies of the decade. Among these were such now well-known challengers to America’s corporate status quo as McCaw Cellular, Barnes & Noble, MCI, and Ted Turner’s Cable News Network (CNN). Any ambitious entrepreneur with more ideas than cash could urge Milken to convince his wide network of wealthy risk-takers to invest in an innovative enterprise in exchange for a higher-than-normal interest rate on the company’s bonds, often combined with some stock option component (dubbed an “equity kicker”) to make the investment more attractive should the company succeed. A number of his clients were money managers with great sums at their disposal, and they found that investing in Milken deals provided unusually hefty profits in return for risks that were only slightly more daring than more traditional investment vehicles. Milken’s secret, if it was a secret at all, was that ventures deemed too risky by traditional banks and investment houses we
re in fact not all that perilous and offered the chance of substantially above-average returns, particularly as they revolutionized certain industries. He filled a gap and made him and his firm very rich. This did not go unnoticed by the envious nor the ambitious. All this restructuring infuriated elements of the corporate and investment-banking establishments, and it made Milken a target of opportunity for federal prosecutors.

  Milken’s problem was not simply that, in the go-go days of the ’80s, prosecutors were overly sensitive to cries of “foul” by a business establishment unaccustomed to such ungentlemanly competition, or that the news media were particularly hungry for a good big-business scandal. Milken’s biggest problem was that some of his most ingenious but entirely lawful maneuvers were viewed, by those who initially did not understand them, as felonious, precisely because they were novel—and often extremely profitable.

  Drexel and Milken had been under investigation since the mid-1980s, and Milken received a “target” letter from the DOJ in September 1988 informing him that he was likely to be indicted. When the firm was indicted and then pled guilty in December 1988, it was obvious that the shoe would drop on Milken, since the firm agreed, as part of its plea bargain, to “cooperate” in the government’s investigation of the firm’s erstwhile wunderkind. When Milken was finally indicted in March 1989, the DOJ told the nation, on the second page of its massive 110-page indictment, that the financier had earned $45,715,000 in 1983, escalating each year until his “direct compensation” from Drexel reached $550,054,000 in 1987. Many reporters, it seemed, barely had to read beyond this page to conclude that Milken must be guilty.