FORMER CEO OF MEDICAL DEVICE COMPANY SENTENCED FOR SELLING UNAPPROVED DEVICE USED IN KNEE REPLACEMENT SURGERY

FROM:  U.S. JUSTICE DEPARTMENT 

Friday, June 26, 2015

Former OtisMed CEO Sentenced for Selling Unapproved Surgical Devices
Corporation Previously Paid More Than $80 million to Resolve Criminal and Civil Investigations

The former president and CEO of OtisMed Corporation was sentenced today to serve two years in prison for intentionally distributing a medical device used in knee replacement surgery after its application for marketing clearance had been rejected by the Food and Drug Administration (FDA), the Department of Justice announced.

Charlie Chi, 46, of San Francisco, pleaded guilty in December 2014 to three counts of distributing adulterated medical devices in interstate commerce in violation of the federal Food, Drug, and Cosmetic Act (FDCA) after having been told by the FDA, legal counsel and his own board of directors not to do so.  U.S. District Judge Claire C. Cecchi in Newark, New Jersey, delivered Chi’s 24-month sentence today and also ordered him to serve one year of supervised release and to pay a $75,000 fine.  In September 2014, Judge Cecchi sentenced OtisMed Corporation, now a subsidiary of Stryker Corporation, to a criminal fine of $34.4 million and ordered the company to pay $5.16 million in criminal forfeiture.  Stryker acquired the company after the criminal conduct for which he was sentenced today.  In a related civil settlement, OtisMed agreed to pay approximately $41.2 million, including interest, to resolve its civil liability for submitting false claims to the Medicare, TRICARE, Federal Employees Health Benefits and Medicaid programs.

“Today’s sentencing of OtisMed’s CEO ought to send a clear message to others in positions of authority within the medical device and pharmaceutical industries: the Department of Justice will vigorously prosecute not only corporations, but also the individuals at their helm who are responsible for endangering public health and safety in pursuit of profit,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division.

“The defendant betrayed the trust of patients whose doctors were using his unapproved surgical device for a serious medical procedure,” said U.S. Attorney Paul J. Fishman of the U.S. Attorney’s Office of the District of New Jersey.  “With everything else people have to deal with when they are facing surgery, they shouldn’t have to worry whether their doctor is using equipment that has been approved for use. The punishment meted out to Chi and his company is appropriate.”

According to documents filed in this case and statements made in court:

In August 2005, Chi was among the founders of OtisMed and conceived of the OtisKnee orthopedic cutting guide, its primary product.  Chi acted as OtisMed’s president, CEO and chairman of its board of directors until OtisMed was acquired by Stryker in November 2009.  The OtisKnee was used by surgeons during total knee arthroplasty (TKA), commonly known as knee replacement surgery.  The surgical procedure requires a surgeon to remove the ends of the leg bones and to reshape the remaining bone to accommodate the implantation of an artificial knee prosthesis.  The cuts to the bone must be made at precise angles because they are critical to the clinical result; failure to achieve the correct angle in TKA procedures can result in failure of the bones and/or the implanted prosthetic joint.

OtisMed marketed the OtisKnee cutting guide as a tool to assist surgeons in making bone cuts specific to individual patients’ anatomy based on MRIs performed prior to surgery.  None of OtisMed’s claims regarding the OtisKnee device were evaluated by the FDA before the company used them in advertisements and promotional material.

Between May 2006 and September 2009, OtisMed sold more than 18,000 OtisKnee devices, generating revenue of approximately $27.1 million.

On Oct. 2, 2008, OtisMed submitted a pre-market notification to the FDA seeking clearance to market the OtisKnee.  The company had not previously sought the FDA’s clearance or approval and had been falsely representing to physicians and other potential purchasers that the product was exempt from such pre-market requirements.

On Sept. 2, 2009, the FDA sent OtisMed a notice that its submission had been denied, noting that the company had failed to demonstrate that the OtisKnee was as safe and effective as other legally marketed devices.  The letter warned OtisMed that distribution of the OtisKnee prior to approval would be an FDCA violation, and indicated the FDA viewed the product as part of a “significant risk device system,” which is defined as presenting a potential for serious risk to the health, safety or welfare of a subject.  Chi and others at OtisMed received advice from legal and regulatory counsel confirming it would be unlawful for OtisMed to continue distributing the OtisKnee.

Though the board of directors unanimously decided to stop further shipments of the devices, Chi was concerned that inconveniencing surgeons planning to use the OtisKnee in scheduled surgeries would exacerbate the negative impact of the FDA letter on the reputation of OtisMed and the device.  Chi directed OtisMed employees to organize a mass shipment of all OtisKnee devices that had been manufactured but had not yet been shipped and suggested ways for the employees to hide the shipments from FDA regulators.

At Chi’s direction, OtisMed shipped approximately 218 OtisKnee guides from California to surgeons throughout the United States, including 16 to surgeons in New Jersey, a week after the FDA expressly denied OtisMed’s request for clearance.

“With more than 600,000 knee replacements performed each year, patients rely on FDA to help ensure that the devices are safe and work as intended,” said Director George M. Karavetsos of the FDA’s Office of Criminal Investigations.  “When manufacturers ignore FDA requirements, they risk endangering patients’ health and quality of life.  We will continue to protect the public health by bringing to justice those who disregard FDA regulations.”

Chi’s sentence marks the culmination of a long-term investigation conducted jointly by the FDA’s Office of Criminal Investigations, under the direction of Special Agent in Charge Antoinette V. Henry, and the Department of Health and Human Services’ Office of Inspector General (HHS-OIG), under the direction of Special Agent in Charge Scott J. Lampert.  Counsel to the HHS-OIG and FDA’s Office of Chief Counsel to the FDA also assisted.  The National Association of Medicaid Fraud Control Units, along with the Medicaid Fraud Control Unit of the Massachusetts Attorney General’s Office, assisted in coordinating the settlements with the various states.

The government is represented by Chief Jacob T. Elberg of the U.S. Attorney’s Office of the District of New Jersey Health Care and Government Fraud Unit and Trial Attorney Ross S. Goldstein of the Civil Division’s Consumer Protection Branch.

U.S. Attorney Fishman reorganized the health care fraud practice at the New Jersey U.S. Attorney’s Office shortly after taking office, including creating a stand-alone Health Care and Government Fraud Unit to handle both criminal and civil investigations and prosecutions of health care fraud offenses.  Since 2010, the office has recovered more than $635 million in health care fraud and government fraud settlements, judgments, fines, restitution and forfeiture under the False Claims Act, the Food, Drug and Cosmetic Act and other statutes.

PHARMA COMPANY PLEADS GUILTY TO DEALING DRUGS IN THE "GREY MARKET"

FROM: U.S. DEPARTMENT OF JUSTICE
Friday, August 10, 2012
South Carolina Pharmaceutical Distribution Company Pleads Guilty in Multi-Million Dollar Scheme to Purchase and Sell Drugs in the Grey Market

The Department of Justice announced the guilty plea and sentencing of Easley, S.C.-based Altec Medical for engaging in a multi-million dollar prescription drug scheme. Altec Medical pleaded guilty in U.S. District Court in Miami to one count of conspiring to defraud the U.S. Food and Drug Administration (FDA) and to commit federal offenses in connection with a drug-diversion scheme that lasted from 2007 to 2009.
　
In the sentencing, U.S. District Judge Robert N. Scola, Jr. ordered Altec to pay a $2 million fine and to forfeit $1 million. The judge also ordered the company to be on probation for one year.
　
In a criminal information filed with the court, the government charged that Altec paid its supplier and co-conspirator William D. Rodriguez, approximately $55 million for prescription drugs that it knew had been diverted from lawful channels of drug wholesale distribution. "Drug Diversion" refers to various ways in which prescription drugs are removed from lawful channels of distribution and then reintroduced into the marketplace for sale to consumers. In drug diversion schemes, prescription drugs at issue are often stolen from warehouses or cargo trucks; torn from boxes of free samples, repackaged and resold; or bought from individual patients looking to make extra money.
　
"Drug diversion undermines the safety and effectiveness of our prescription drug system," said Stuart F. Delery, Acting Assistant Attorney General for the Justice Department’s Civil Division. "When individuals divert drugs from lawful channels, we cannot be sure that the drugs are properly handled and stored. As a result, diverted drugs could be expired, become contaminated, or have their mechanisms of action altered. Diversion is a serious crime that puts consumers at risk; we will continue to prosecute those who engage in it aggressively."
　
The Justice Department advises consumers who have concerns about a drug to check the lot numbers on the manufacturer’s web site to see if there are any warnings about it.
　
According to a plea agreement that was filed with the court, Altec became aware that Rodriguez had bought these drugs from individuals who had acquired them illegally and who were not properly licensed to sell prescription drugs on a wholesale basis. The government further charged that Altec and Rodriguez orchestrated the reentry of these drugs into the lawful channels of distribution. According to the government, Rodriguez first sent the diverted drugs to companies he controlled in South Carolina. His companies, in turn, resold the drugs to Altec, which, in turn, resold the drugs to various purchasers throughout the United States, including drug distributors with valid drug distribution licenses. This process caused reentry of the diverted drugs into the ordinary, lawful channels of distribution. Eventually, the diverted drugs were bought by retail pharmacies, which dispensed the drugs by filling prescriptions for individual consumers.
　
Finally, the government charged that Altec and Rodriguez attempted to conceal their scheme by falsifying a variety of business records. In particular, Altec and Rodriguez falsified documents known as "drug pedigrees." Drug pedigrees are statements required by the FDA of all those who sell wholesale quantities of prescription drugs. The drug pedigrees are supposed to accurately identify all prior sales and transactions so that it is clear that the drugs have been acquired lawfully, and properly stored and held along the way. Despite knowing that the law required accurate pedigrees, Altec admitted that it created pedigrees that falsified prior transactions to make it appear as though the drugs had originally been acquired lawfully.
　
Use of diverted drugs can cause unpredictable adverse side effects and may fail to treat the condition for which a consumer is taking the drugs. According to the government, neither purchasers who bought from Altec nor consumers who later bought the drugs at retail pharmacies would have purchased the drugs had they known that the drugs had been diverted.
　
In June 2012, in U.S. District Court in Miami, Rodriguez pleaded guilty to conspiracy and money laundering in a separate case charging him with, among other things, his role in this drug diversion scheme. He has not yet been sentenced.
　
The case was prosecuted by Assistant U.S. Attorney Jon M. Juenger, of the U.S. Attorney’s Office for the Southern District of Florida, and David A. Frank, of the Justice Department’s Consumer Protection Branch. Additional assistance was provided by Joshua Eizen, of the FDA’s Office of Chief Counsel for Enforcement. The case was investigated by the FDA’s Office of Criminal Investigations.

U.S. DEPARTMENT OF JUSTICE WARNS ABOUT DIETARY SUPPLEMENTS

FROM:  U.S. DEPARTMENT OF JUSTICE
Keeping Tabs On Supplements
June 20th, 2012 Posted by Tracy Russo
The following post appears courtesy of the Consumer Protection Branch of the Civil Division
The dietary supplement industry has grown exponentially in recent decades, expanding from a niche health market into a major industry offering purported solutions for all types of ailments.

In 1994, Congress struck a balance between the dietary supplement industry and the public interest by enacting a law that generally treated dietary supplements as food rather than medicine. That means, for example, dietary supplements are generally not required to go through pre-market approval like pharmaceuticals.  

In 2007, the Food and Drug Administration (FDA) recognized that stronger regulations for the manufacturing of dietary supplements were needed.  Important new requirements have been introduced, in an effort to ensure that dietary supplements contain what they claim to contain.

In the last few years, the Consumer Protection Branch of the Civil Division, the FDA, and the Federal Trade Commission have collaborated in a number of actions designed to protect consumers.   When its inspections reveal serious deficiencies in a dietary supplement firm’s labeling, manufacturing, or advertising, the FDA typically sends the firm a warning letter giving the firm a certain amount of time to rectify the violations, and may work with the firm to recall products with potential risks.  You can find out about these actions and protect yourself by signing up for FDA recall alerts and by checking the FDA and FTC websites for warning letters issued to firms whose dietary supplements you may have purchased.

If the firm does not remedy the violations, the matter may be referred to the Justice Department for civil or criminal prosecution.  In one recent case, the Consumer Protection Branch filed a civil suit against a Paterson, NJ-based supplement maker that had a serious rodent infestation, manufacturing problems that resulted in allergen cross-contamination, and various labeling errors.  One of the firm’s products—which had been labeled to be dairy-free but in fact contained milk—even caused a life-threatening anaphylactic reaction in a consumer with a severe milk allergy.

Flouting a court-ordered shut down, the manufacturers simply opened up shop in a new location.  Ultimately, the Justice Department secured a criminal conviction and the firm was ordered to pay $1 million in fines.  Perhaps more significantly, the three principals of the firm were given lengthy prison terms: 40 months for the president and 34 months for the production and quality assurance managers.

Violations in the dietary supplement industry will not be tolerated.  Consumers turn to these products for their health and sense of well-being.  Consumers rely on the labels of dietary supplements to tell them about the effectiveness of the supplements and the allergens in the product.  Consumers should be able to trust that the companies that produce dietary supplements make sure their products are free from harmful impurities and manufactured under sanitary conditions.