Compliance Officers Make Good “Whistleblowers” – U.S. Prosecutor Sheehan

Corporate compliance officers will make up the next wave of "whistleblowers" in health care fraud cases, Philadelphia Associate U.S. Attorney James Sheehan said at the Food & Drug Law Institute Enforcement & Litigation Conference in Washington, D.C. Sept. 22.

"Compliance officers - this is my new area of whistleblowers," Sheehan said. "Good compliance officers in-house are an invaluable resource in dealing" with federal prosecutors.

Compliance program officers "tend to be fairly idealistic people," and can become frustrated when they lack visibility within a company and do not have backing from top management, Sheehan said.

Sheehan reiterated his view that rapid turnover in compliance officers is an indication that a company is suffering from regulatory problems.

"If I go to an organization and they've had three compliance officers in two years, you know what that tells me? Senior management isn't backing them up, because people don't leave jobs in six months unless there's something really bad in terms of the fit between the person and the organization."

Sheehan has previously commented on how repeated vacancies in the corporate compliance department can raise questions with prosecutors.

During an April 2001 speech to the Health Care Compliance Association, Sheehan said when compliance officers "elect to leave...they don't say, you know, 'investigate here.' But the implication of rapid turnover in compliance officers is one we pay attention to" (¹ (Also see "Rx Fraud Cases: IG Integrity Agreements May Be As Costly As Settlements" - Pink Sheet, 30 Apr, 2001.), p. 30).

Sheehan's remarks at the FDLI meeting seem to suggest that compliance officers are now saying "investigate here."

"If you look at compliance officers, my forecast is we're going to see them more as whistleblowers," the prosecutor said. "I'm worried about that because I really want these programs to succeed."

"I'm worried if everybody's thinking in the back of their mind the compliance officer will be a whistleblower, you won't get the information that you need to make the compliance program work."

Compliance officers would join a growing list of categories of ex-employees who are using the False Claims Act's qui tam provisions to sue the drug industry.

Medco is facing whistleblower cases initiated by two pharmacists who formerly worked at the pharmacy benefit manager's mail order facility (² (Also see "Medco “Whistleblowers” Include Ex-Employees, False Claims Professional" - Pink Sheet, 30 Jun, 2003.), p. 32).

Sheehan has announced his intention to intervene in the whistleblower cases against Medco by Sept. 30.

A former TAP sales exec was the whistleblower in investigations of marketing practices related to TAP's Lupron and AstraZeneca's Zoladex ; both cases resulted in settlements (³ , p. 31).

In April, Bayer pleaded guilty to a criminal violation of the FD&C Act in settling a federal investigation into Medicaid "best price" reporting that was initiated by a former senior marketing exec (⁴ , p. 3).

Sheehan lauded improvements in industry's compliance efforts.

"We think compliance programs in this industry are far past what they were even two or three years ago," Sheehan said, calling the Pharmaceutical Research & Manufacturers of America's voluntary guidelines on interactions with health care professionals a "major step forward" (⁵ (Also see "PhRMA Marketing Code Prohibits Personal Gifts To Physician" - Pink Sheet, 22 Apr, 2002.), p. 3).

The HHS Inspector General released a voluntary compliance guidance for drug manufacturers in April (⁶ (Also see "Drug Manufacturer Education Grants To Purchasers May Be Kickback, IG Says" - Pink Sheet, 5 May, 2003.), p. 3).

Nevertheless, the prosecutor added a cautionary note about weaknesses in compliance programs.

Even though "there's been a tremendous change in this industry," as with any cultural change "there are going to be leaders and there are going to be laggards, and the laggards are going to be the regional and district managers who grew up in a system where you have to pay to play, and they're going to resist the efforts you're making," he said.

"You have to be aware that the new cases we're going to get are not cases like TAP, where the entire company had an approach," Sheehan said. "What I bet you're going to find is district and regional managers leading their troops down a path which is not sanctioned or sometimes even known by the mother ship."

"Headquarters doesn't know what the region is doing. They're using marketing materials that aren't approved. They're using payment techniques that aren't approved. They're going to look for ways to beat your system so they can do what they need or want to do and not have you find out about it. So you've got to have some internal policing activity within the organization."

Compliance program transparency is a key factor in a prosecutor's decision whether or not to bring legal action against a firm, he said. Consequently, "it's a major mistake" for a company's general counsel to serve as its compliance officer.

"One of the things that makes a compliance program persuasive to us is this transparency. That is, not that you're going to tell your competitors and the world what happens, but that you can come in and say here's how we in this organization show we're committed to these values," Sheehan said.

"And if it's hidden behind the veil of secrecy in the general counsel's office" afforded by the attorney/ client privilege, "it looks to me like it's part of the defense strategy and not part of the compliance effort."

Sheehan also advised companies to carefully consider compliance ramifications when contracting with outside vendors, who may be more willing to engage in questionable or prohibited marketing and sales practices than in-house reps.

"All these things you tell reps they can't do - know what they do? What some marketing and sales departments do?....If you don't like what the legal department or the compliance people are saying about your marketing practices, you push it out to outside vendors."

"Some of my favorite subpoenas in my career are to the outside vendors - not as large an organization, not as sophisticated in compliance issues. They think it's not their problem, it's your problem, and they want to please the clients."

"That's a gold mine for us....the vendor records and emails and telephone," Sheehan said. "It's tough enough to control your own people. So...when you have vendor contracts by the marketing department, you want to make sure that someone has thought through the compliance issues on that end and imposed an obligation on the vendor - communicated your policy and imposed an obligation on them."

Criminal provisions in the Sarbanes-Oxley Act governing protection for whistleblowers are likely to put companies in a difficult situation when the whistleblower is a current employee, attorney Steven Kowal (Bell, Boyd & Lloyd) said at the FDLI meeting.

Sarbanes-Oxley, which requires CEOs and CFOs to certify corporate financial statements filed with the Securities & Exchange Commission, also provides for a 10-year maximum prison term for any activity that interferes with lawful employment of an individual, if motivated by intent to retaliate.

Calling it an "ambiguous statute," Kowal said, "when you have a known whistleblower, you're going to be in a very delicate situation because nearly any activity that can be argued to disadvantage that person within the company is something that can fall within the statute if the government can also include with it evidence that there was an intent to retaliate."

The certification provisions of the Sarbanes-Oxley Act also could serve as an avenue for criminal prosecutions in cases involving GMP deficiencies, Kowal said.

"I think we have a situation where because of the certification requirements of the Sarbanes-Oxley Act, executives, particularly the ones who have to make the certification by law, might be charged with a knowing, false certification or inaccurate statement if they have knowledge of a significant violation that may erode their ability to sell a product that is important to their profitability," Kowal said.

"This can be particularly important if it allows the government to substantially increase the penalties that would be imposed under a criminal violation as opposed to that which would occur under" the FD&C Act, he said.

Federal prosecutors have previously expressed interest in pursuing drug companies for securities law violations and have met with SEC staff to discuss corporate financial statements (⁷ (Also see "Philadelphia Rx Fraud Investigations Have New Chief; Are SEC Cases Next?" - Pink Sheet, 23 Sep, 2002.), p. 23).