David Yates May 3, 2016, 8:00am


SAN ANTONIO - In an era where government dominates medicine, a life sciences company from Minnesota endangered future federal dealings in order to prove its innocence – an “extraordinary” move for a publically traded business pursued by the Department of Justice, according to one attorney.

Richter
Richter

At first, the DOJ’s Civil Division accused Vascular Solutions of marketing its Vari-Lase Short Kit to treat veins deep in the leg when the FDA had only approved the device for treatment of veins closer to the skin’s surface.

The company maintained the plain language of the FDA approval gave authorization to treat a general category of varicose veins, as all varicose veins include perforator varicose veins.

In the summer of 2014, Vascular Solutions, with no admission of liability, agreed to a $520,000 settlement, most likely hoping that would be the end of the matter, says attorney John Richter, who headed a team of former DOJ prosecutors in the company’s criminal defense.

It wasn’t.

The DOJ’s Criminal Division grabbed the reins and a few months later a San Antonio grand jury indicted Vascular Solutions for promoting off-label uses of the kit, accusing the company of misbranding.

Instead of negotiating a second settlement, Vascular Solution’s CEO, Howard Root, maintained there were no falsehoods in its marketing and took the case to trial.

The company, which spent $25 million on its defense, was vindicated in late February when a jury returned not-guilty verdicts on all counts.

Richter, a former U.S. attorney, says this is the only case he knows of where a publically traded medical device company ran the risk of getting indicted, let alone going to trial.

“Big picture, that’s what makes this case extraordinary,” said Richter. “Publically traded companies, particularly those in health care, face mandatory exclusion from participation in federal health care programs if convicted of a fraud related offense.”

Meaning, no doctor or hospital that accepts Medicare or Medicaid could have done business Vascular Solutions had the company been convicted.

In the last seven years or so, there have been “some extraordinarily large settlements” by pharmaceutical and medical device companies, some ranging in the billions, in cases where the government pursed the same off-label theories used in the Vascular Solutions case, says Richter.

“It’s common these days for the Department of Justice to pursue both civil and criminal investigations congruently, particularly in the health care and life sciences (sectors),” said Richter.

“The government has tremendous leverage … the risk of exclusion for most companies is just too high to bear.”

From a corporate governance and shareholder perspective, Richter says being under investigation, even if innocent, is a tremendous drag on the value and productivity of a publicly traded company, causing harm to reputation as a consequence.

“I don’t like to use the word shakedown … but anytime one side has tremendous leverage and the matter is not subject to review by a court, as most of these settlements are not, there is the potential that there may be some results that do not completely reflect the actual merits,” Richter added.

Prior to the trial, Vascular Solutions sought to dismiss the indictment, asserting the government endeavored to distort the evidence, court records show.

According to affidavits and the motion, the government:

- Characterized a group of witnesses’ testimony as the “same line of sh**” given by others who refused to admit “the obvious truth,” and warned that witnesses must “fix” their testimony or face criminal prosecution;

- Told one witness that if he wants to “be safe from prosecution,” his testimony needs to be “consistent with” the testimony of others;

- The government told another witness that her testimony was “pissing them off,” and that the government could seek to have her fired;

- The government warned another witness that if she did not “fix” her testimony to be consistent with the others, she would face criminal charges, loss of employment, and referral for exclusion from participation in federal health care programs, effectively ending her career; and

- Warned another witness that he was a “coat of paint away from perjury,” explained that the “poor f***er just on principle may be indicted,” and demanded that the witness return “on bended knee” to admit that he misled the government.

Although Judge Royce Lamberth denied the motion, in a controversial act he instructed the jury that it’s “not a crime for a device company or its representative to give doctors wholly truthful and non-misleading information about the unapproved use of a device.”

“Our position is this case should have never been brought,” Richter said. “First and foremost, our clients were innocent. There were no untruthful misleading statements. There was no harm to any patient.”

An April 25 call transcript concerning Vascular Solutions first quarter earnings surmises Root’s feelings on the matter:

“As everyone associated with Vascular Solutions already knows, the most dramatic development in the first quarter was our victory against the malicious and misguided criminal prosecution of the company and me over false allegations of off-label promotion of our Vari-Lase Short Kit products.”

And in the scheme of things, Richter believes the kit was a very small product.

From 2007 to 2014, Vascular Solutions had annual revenues of more than $100 million dollars. The total amount of sales for the kit exceeded a little more than $500,000 over that seven-year period.

“This was a company that with no prior negative enforcement history when it came to promotion,” Richter said. “We as former federal prosecutors did not believe the manner in which this case was investigated was consistent with the norms we believe are suppose to be used by the DOJ.”

Even though victorious, Vascular Solutions has “limited recourse” when it comes to recouping the millions spent fending off the DOJ’s charges.

“It’s one of the shortcomings in our system that on one hand you have a government with tremendous leverage and discretion to investigate and little recourse for accountability if the government chooses unwisely,” Richter said.

“At the end of the day, prosecutors always hold tremendous power.”

In the call transcript, Roots says: “Now even though we cannot recover our legal expenses, we are pursuing administrative remedies within the Department of Justice and the Office of Inspector General in an attempt to prevent what happened to us from happening to others at the hands of these prosecutors.”

The lead DOJ prosecutors in the case, Timothy Finley of the Consumer Protection Branch and Walter Paulissen, an Assistant U.S. Attorney for the Western District of Texas, refused to be interviewed.

The DOJ also refused to give an accounting of Finley’s past cases.

More News