Former Drug Company CEO Pleads Guilty and Will Cooperate in Upcoming Kickback Scam Prosecution

January 14, 2019

In a turn of events that’s surprising to some but was expected to happen by those well versed in television crime dramas and real life federal prosecutions, former CEO Michael Babich pleaded guilty last week to charges related to the plethora of kickback allegations surrounding Insys Therapeutics, Inc., and its fentanyl drug, Subsys.

Babich, who faces up to 25 years behind bars, pleaded guilty to conspiracy and mail fraud. He’s cooperating with prosecutors and is expected to testify for the government in the upcoming criminal trial of five of his former fellow executives, among whom is the company’s founder and former chairman, John Kapoor. How fully Babich cooperates is likely to be taken into account when he faces sentencing.

I’ve covered the tale of Insys/Subsys kickbacks in multiple installments beginning in early 2017. Here’s a recap:

Couch and Ruan

In February 2017, I wrote in my post Pain Medicine Doctors Alleged to Have Received $115,000 in Kickbacks … Plus $40 Million in Illicit Profit, about the cautionary tale of two Mobile, Alabama pain medicine doctors, Drs. John Couch and Xiulu Ruan, both then in the midst of their federal court trial for, as was then alleged, receiving $115,000 in kickbacks from Insys in connection with Subsys.

Among the allegations:

• That Couch and Ruan prescribed, and also sold through their owned pharmacy, large quantities of Subsys, based on misleading diagnoses, defrauding payors.
• That their profit of $40,000,000 from dispensing Subsys and other controlled substances was an illicit profit from a “pill mill.”
• That they received “speaking fees” from Insys based on the number of Subsys prescriptions they wrote.

Subsequently, Couch and Ruan’s trial moved forward to guilty verdicts and then to sentencing: Crouch was sentenced to prison for 240 months and Ruan received an even stiffer sentence, 252 months behind bars.

Neither of the Mobile, Alabama physicians currently reside in the state: Dr. Couch passes (or, does) time at the Federal Correction Institute in Forrest City, Arkansas, while Dr. Ruan enjoys the view from behind bars at the Federal Correction Institute in Oakdale, Louisiana.

In addition to their lengthy prison sentences, the duo was ordered to make restitution of $6,282,023.00 to Medicare, $3,649,092.97 to Blue Cross/Blue Shield of Alabama, $2,285,170.70 to Tricare, and $1,695,929.00 to United Heath Group.

Fanto, Seth, and Gingerich

In my post dated September 5, 2017, Drugs, Sentencing, and Lock (and Roll on to Another Kickback Prosecution), I wrote about criminal charges brought by the State of Arizona against three pain medicine physicians, Steve Fanto, M.D., Nikesh Seth, M.D., and Sheldon Gingerich, M.D.

The allegations: That the physicians collected sham educational “speaker fees” in exchange for writing prescriptions for Subsys.

The criminal complaint claims that from March 2012 to April 2017, more than $33 million, or 64 percent of Subsys sales in Arizona, came from prescriptions written by Fanto, Seth, and Gingerich.

In additional echoes of the Couch and Ruan prosecution, it was alleged that Drs. Fanto, Nikesh, and Gingerich gave insurers false and misleading information, including that patients had cancer when they did not, to obtain prior authorization for Subsys prescriptions.

Rosenberg Pleads Guilty

In my October 2017 post, Another Physician Guilty of Receiving Insys/Subsys Kickbacks, I wrote about Jerrold Rosenberg, M.D., a Providence, Rhode Island physiatrist, who pleaded guilty to federal charges that he committed healthcare fraud and conspired to receive kickbacks in the form of “speakers fees” from Insys in order to induce him to prescribe Subsys.

In their case against Dr. Rosenberg, the United States Attorney General’s office alleged that between 2012 and 2015, he entered into an illegal scheme to take kickbacks from Insys. Specificially the payments were disguised as speaker’s fees from Insys. The “fees” were then a major factor in Rosenberg’s decision to prescribe Subsys to patients.

In an echo of the charges brought against Drs. Couch and Ruan, it was also alleged that Dr. Rosenberg upped his prescriptions of Subsys by fraudulently representing to insurers that his patients suffered from cancer pain when they did not.

Dr. Rosenberg was sentenced to 51 months in prison. He also agreed to pay $754,736 in restitution to healthcare benefit programs.

The Federal Anti-Kickback Statute and Other Prohibitions

In general terms, the federal Anti-Kickback Statute (“AKS”) prohibits the offer, demand, payment, and acceptance of remuneration—that is, of anything of value—for referrals

The federal government, and many courts, interpret the AKS to apply even when an arrangement may have many legitimate purposes; the fact that one of the purposes is to obtain money for the referral of services or to induce further referrals is sufficient to trigger a violation of the law.

State laws differ in their treatment, scope and interpretation, but generally contain similar provisions barring remuneration for referrals, sometimes expressed as anti-kickback or fee-splitting prohibitions.

In addition, federal laws such as wire fraud statues and the Travel Act turn what are “simple” violations (a huge simplification!) of state laws into federal criminal offenses. The federal Controlled Substances Act permits prescribing and dispensing only for legitimate purposes, not in respect of “pill mill” and other massive prescribing activities. Additionally, the federal statute of healthcare fraud makes it a crime to defraud a healthcare benefits program, including a commercial insurer.

The Takeaways for You:

1. Money: The are many legitimate ways for physicians to increase their practice income. They include, depending on state law, investments in pharmacies and the direct dispensing of pharmaceuticals.

2. Structure: But any deal must be structured in compliance with the federal Anti-Kickback Statute, the Controlled Substances Act, Stark, and numerous other federal laws, as well as with various state law counterparts and other restrictions. Your investment in structuring things correctly is an investment in yourself and your jail-free future.

3. Compliance Auditing: No matter how well structured, it’s essential that you engage in periodic compliance audits coordinated through legal counsel. Laws change and actual behavior impacts all of the structure and planning. Even the best planning can be made worthless if illegal conduct takes place within the context of what was planned to be a proper structure.

4. Investigations: If you learn that you (or any person or entity connected to the operation) are under investigation, immediately engage a team of experienced healthcare attorneys and criminal defense counsel. Many potential prosecutions are resolved at this stage.

5. Indictment and trial: Again, immediately engage a defense team of healthcare and criminal defense counsel.

Comment or contact me if you’d like to discuss this post.

Mark F. Weiss

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