Ethical issues and practical challenges raised by internal investigations in the life sciences industry.

• Author: Gitterman, Abraham

OVER THE LAST four years, the Health Care Fraud Prevention and Enforcement Action Team (HEAT), a joint effort between the Department of Health and Human Services (HHS) and the U.S. Department of Justice, has recovered over $13.9 billion in healthcare fraud settlements, many involving pharmaceutical companies charged with the "off-label promotion" (1) of drugs to healthcare providers. (2) As an effort to change corporate culture, each of these settlements has included a corporate integrity agreement (CIA) with the Office of Inspector General (OIG) for HHS. Yet the deterrent effect of CIA's and deferred prosecution agreements (DPAs) is uncertain, (3) and even OIG has acknowledged that billion dollar settlements are not sufficient to change corporate culture in pharmaceutical companies. (4) Some companies may even view paying these fines as merely the "cost of doing business," and several companies (5) that have previously settled with the government for significant amounts "have come under repeated scrutiny for unlawful promotion violations." (6)

One reason for the lack of deterrence is that companies may believe they are "too big" to be excluded (7) by OIG because of the risk it would pose to the welfare of government healthcare beneficiaries. While some alternatives have been offered, (8) OIG has responded by indicating its intent to exclude executives in the life sciences industry from federal healthcare programs "under a broader range of circumstances," (9) including the responsible corporate officer (RCO) doctrine. (10) In fact, OIG has recently excluded several life science executives (11) and the Department of Justice (DOJ) and the Food and Drug Administration (FDA) have collectively expressed their intent to pursue future cases against executives as well as mid-level managers and officers. (12)

The mounting number of government inquiries into corporate practices, coupled with the increased focus agencies are placing on charging corporate executives and managers, has caused growing uncertainty for in-house and outside counsel with respect to ethical issues relating to internal investigations, representation of the corporation (including counsel's relationship with the corporation's constituents), conflicts of interest, and the attorney-client privilege. Among these, internal investigations for life science companies present unique challenges. The nature and complexity of interactions life science companies have with private and government entities and individuals, and the tremendous frequency with which these interactions occur, create countless opportunities for fraudulent conduct to occur that may implicate the company and its executives. Such interactions may take place in numerous countries, which may implicate the Foreign Corrupt Practices Act (FCPA) or other foreign bribery or kickback laws. Internal investigations may reveal legal obligations and liabilities outside of traditional healthcare fraud concerns, such as shareholder, product liability and consumer protection litigation, and parallel but separate actions by State prosecutors and agencies.

This article analyzes the special factors and circumstances FDA and healthcare attorneys must consider when conducting an internal investigation. This article first provides an overview of internal investigations, including Upjohn warnings, in the life sciences industry. This article then provides a detailed overview of the principles the Department of Justice considers when charging corporations and the various factors and circumstances the agency may consider when resolving investigations. This article also offers practical advice for counsel to consider in carrying out internal investigations and concludes with observations and predictions for future trends in the life sciences industry.

1. Internal Investigations

   An internal investigation is an inquiry performed by a company or its agent after the company is made aware of a serious and reasonably plausible allegation of corporate misconduct. If allegations of corporate misconduct are credible and sufficiently serious, of otherwise trigger a mandatory duty to investigate, an internal investigation is necessary. While there are several triggers that may lead to an internal investigation, the most common in the life sciences industry is the internal discovery of a possible violation by an employee, also known as a "whistleblower" or qui tam action. (13) A government subpoena or the initiation of an investigation by FDA, CMS, HHS, OIG, the Department of Veterans Affairs (VA), the FBI, of a self-regulatory organization also triggers an internal investigation. Companies also conduct internal investigations in response to allegations raised in product liability or tort litigation, and in the performance of due diligence in connection with mergers and acquisitions. (14) Claims made by third parties, media reports of industry-wide problems, and discoveries by internal or external auditors (15) or compliance officers can also trigger an internal investigation.

   "Regardless of the origin of the investigation, or the depth of the organization's potential involvement in the matter, the first priority should always be to get the facts." (16) Since the government typically proceeds "with limited information while it collects additional information," companies that fully understand the facts can "develop a relationship with the investigating agency" and "can influence the way the government perceives the case by guiding investigators through documents and witnesses." (17) A complete understanding of the facts by counsel and compliance officers also enhances personal credibility, which may give an organization the "benefit of the doubt" rather than "added scrutiny." (18)

   To begin fact collection, companies often either ask in-house counsel or retain outside counsel to conduct the investigation. Outside counsel is typically preferred in the life sciences industry because they "may be more objective in assessing practices" because they "are less familiar with the company's activities and personnel." (19) Moreover, the government may view in-house counsel "as lacking independence due to their status within the management structure," and "it may be more difficult for in-house counsel to establish and maintain privilege because they are frequency called upon to provide business advice." (20) Employee and third party interviews are critical to obtaining the underlying facts about the misconduct.

   Middle- and low-level-employees "frequently ... possess the [relevant] information needed by the corporation's lawyers" and can "embroil the corporation in serious legal difficulties." (21) Due to the repeated nature of many off-label cases, several common areas of investigation have emerged including, but not limited to: (a) off-label promotion or misbranding; (b) false statements or omissions to FDA, such as inaccurate or incomplete clinical data for a product application; (22) (c) financial conflicts of interest among investigators or journal authors; (d) ghostwriting; (e) using journal articles that were insufficient to support the safety and efficacy of off-label uses and improperly obtaining listings in medical compendia in an effort to establish that the off-label uses were medically accepted, and thereby eligible for coverage by federal health care programs; (23) (f) providing kickbacks in various forms to healthcare professionals or institutions; (g) providing sham educational grants to continuing education providers; (h) misreporting the "best price" that pharmaceutical companies report to Medicare; (i) overcharging for "340B" Program Drugs; and (j) FCPA violations. Other new areas of investigation and enforcement that are likely to grow include violations of current good manufacturing practices (cGMP) regulations, (24) medical devices involving defects or failures to make required reporting, (25) and "corrupt payments that may have influenced the reliability of data in clinical trials performed outside the US." (26) Interviewing employees regarding these types of misconduct requires a case-by-case approach for counsel to determine the appropriate nature, level, and order of questioning.

   Regardless of what approach counsel chooses, lawyers have an ethical duty to clarify to employees that communications made during an interview are governed by an attorney-client privilege that belongs to the corporation, not individual employees. Lawyers must ensure that an employee is not under the impression that counsel is representing the employee individually. Otherwise, the lawyer may establish an attorney-client relationship with the employee and may be disqualified from representing the corporation under the conflict of interest rules. (27) In making this determination, courts often look to whether the employee received an "Upjohn warning," which takes its name from Upjohn v. United States, (28) where the U.S. Supreme Court ruled that the corporate attorney-client privilege applied to certain corporate employees beyond the corporate "control group." (29)

   In Upjohn, the pharmaceutical company began an internal investigation to determine the nature of certain questionable payments made to foreign government officials in order to secure government business. Through interviews and surveys, employees provided information to Upjohn's in-house and outside counsel, "at the direction of corporate superiors, in order to secure legal advice ... concerning compliance with securities and tax laws, foreign laws, currency regulations, duties to shareholders, and potential litigation in each of these areas." (30) Despite the government's attempt to obtain this information, the Court held that the responses to the survey and notes reflecting responses to interview questions were privileged.

   Although some have suggested that Upjohn rejected the control group test and the Supreme Court adopted a "subject matter test," the Court...