False Press Release Leads To Exclusion From Federal Programs

by Sheppard Mullin Richter & Hampton LLP

Dr. Harkonen was the CEO of InterMune, Inc, a pharmaceutical company that developed, marketed and sold drugs for lung and liver diseases, including Actimmune. In 2002, the FDA had approved Actimmune to treat only two conditions: chronic granulomatous disease and severe malignant osteopetrosis. A year before the approval, an Austrian clinical trial concluded that Actimmune’s active ingredient was associated with improvement in patients with idiopathic pulmonary fibrosis (IPF), a rare and fatal disease of unknown origin. InterMune did its own clinical trial to confirm whether Actimmune was an effective treatment for IBF.

In 2002, InterMune received the results, which showed that the study had missed its primary endpoint (progression-free survival time), as well as ten secondary endpoints, including survival time. The median survival time for the approximately 200,000 people in the United States with IPF is two to three years after diagnosis.

Nevertheless, InterMune issued a press release with the heading “InterMune Announces Phase III Data Demonstrating Survival Benefit of Actimmune in IPF,” with the subtitle “Reduces Mortality by 70% in Patients with Mild to Moderate Disease.” Dr. Harkonen was quoted as stating: “Actimmune is the only available treatment demonstrated to have clinical benefit in IPF, with improved survival data in two controlled clinical trials. We believe these results will support use of Actimmune and lead to peak sales in the range of $400-$500 million per year, enabling us to achieve profitability in 2004. . .”

Dr. Harkonen was indicted in the Northern District of California in March 2008. He was charged and tried on two felony counts: wire fraud in the press release and misbranding. In September 2009, after a lengthy trial, the jury convicted him of wire fraud but acquitted him of misbranding. His criminal appeal has been argued but not yet decided.

Two years later, in 2011, Dr. Harkonen was notified by the IG of HHS that he was being excluded from Medicare, Medicaid and all other federal health care programs for the mandatory minimum period of five years, based on his wire fraud conviction. An ALJ heard the matter.

The exclusion statute, 42 U.S.C. 1128 (a) (3), requires exclusion after conviction of a fraud offense that was “in connection with the delivery of a health care item or service.” Dr. Harkonen argued that his offense (the misleading press release) had not occurred in connection with the delivery of a health care item or service. He argued that, to prove “delivery,” there must be evidence that some physician actually wrote a prescription for Actimmune as a result of the press release and that there was no such evidence. Further, a physician would examine the test results, rather than rely on the release.

The ALJ rejected those arguments and concluded that the press release provided the required “nexus or common sense connection between the offense and the delivery of a health care item or service.” Dr. Harkonen’s statements in the release “touting the virtues of Actimmune had a potential impact upon the delivery of health care in the community.” The ALJ found that those statements “establish[] that a purpose of the press release was to encourage victims of IPF and their physicians to use Actimmune for the treatment of IPF” and that it was “reasonable to infer that both physicians who could prescribe Actimmune and patients who suffer IPF and could ask for prescriptions were targets of the false press release.”

On November 9, 2012, the HHS Departmental Appeals Board (DAB) sustained the ALJ’s decision. In exploring the breadth of “in connection with the delivery,” the DAB cited past cases where embezzlement of drugs for the embezzler’s personal use and even embezzlement of an employer’s bank deposits satisfied this requirement. Each fraud or theft interrupted the delivery of items or services. An actual impact or effect is unnecessary.

He argued to the ALJ that a five-year exclusion by HHS amounted to a second punishment for the same conduct, thus violating the double jeopardy and cruel and unusual protections of the Fifth and Eighth Amendments. That argument has failed on every occasion because Section 1128 (a) exclusions are remedial in nature. The purposes “are to protect federal health care programs and their beneficiaries from individuals who have been shown to be untrustworthy and to deter health care fraud.”

The prosecutors urged ten years’ imprisonment and a $1 million fine. In their sentencing memorandum, they wrote: “The Defendant may be the first high-level executive of a drug company to be convicted of misrepresenting clinical trial results to promote a drug. The sentence that Defendant receives will be noted in the executive suites and board rooms of drug companies across the United States. A substantial sentence for the Defendant will deter current and future officers of drug companies.” Instead, Dr. Harkonen was sentenced by the trial court to three years of probation, with six months of home detention, 200 hours of community service and a $20,000 fine.

Whether or not Actimmune was a useful drug for IPF, the reminder in Dr. Harkonen’s tale is that press releases need scrutiny for more than avoiding claims of securities violations. In the business of health care, three words---“in connection with”---can end a career and destroy a business.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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