Ethical Issues and Practical Challenges Raised by Internal Investigations in the Life Sciences Industry

By Gitterman, Abraham | Defense Counsel Journal, October 2013 | Go to article overview

Ethical Issues and Practical Challenges Raised by Internal Investigations in the Life Sciences Industry


Gitterman, Abraham, Defense Counsel Journal


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.

I. 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. …

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