Representing Drug Companies in High-Profile Opioid Cases: Lessons from the Insys Therapeutics and Rochester Drug Co-Operative Cases

September 2019

Program presented at the ABA Business Law Section's Annual Meeting, September 12, 2019, Washington, D.C.

Over the past two decades, over 200,000 people have overdosed and died from abusing highly addictive prescription opioids, in what has come to be known as the “Opioid Crisis.” Recently, the U.S. Department of Justice (“DOJ”) has begun taking legal action to fight the Opioid Crisis through the filing of criminal charges against pharmaceutical companies and drug distributors, as well as their executives, in an effort to hold these companies and individuals accountable for their role in the crisis. The DOJ’s recent efforts have included bringing criminal charges against Insys Therapeutics, Inc., Rochester Drug-Cooperative, Inc, and Miami-Luken Inc., and their executives. Among the laws cited by the DOJ as having been violated by these companies are the Controlled Substances Act [21 U.S.C. §§ 801-971], the Anti-Kickback Law [15 U.S.C. § 1320a-7b(b)], and the False Claims Act [31 U.S.C. §§ 3729-3733]. 

The Insys Therapeutics Case

Insys was a pharmaceutical company which developed and manufactured an opioid drug called Subsys, a form of fentanyl, a highly addictive and potentially lethal drug. In 2012, the Food & Drug Administration (“FDA”) approved Subsys for the management of pain in adult cancer patients who were already taking opioids to treat cancer pain, but who found the opioids they were taking to be insufficient to treat their intense pain. 

Following FDA approval, however, Insys engaged in illegal marketing practices to encourage prescriptions of Subsys to be issued even when unnecessary or in violation of the restrictions placed on the drug’s use by the FDA. To do so, Insys operated a “speakers program” through which Insys paid medical practitioners to give speeches about Subsys. In reality, however, this program was simply a pretext for paying bribes to the practitioners to induce them to prescribe Subsys to their patients, even when the prescriptions were unnecessary. Indeed, most of the physicians and practitioners who participated in the speakers program were in specialties other than oncology. Insys also engaged in insurance fraud through the operation of the Insys Reimbursement Center (“IRC”). Because many insurers would not provide reimbursement for Subsys unless the beneficiary had received prior authorization for his or her Subsys prescription, the IRC sought to “facilitate” the process by lying or making deliberately misleading statements to Medicare Part D Sponsors and/or Pharmacy Benefits Managers in order to obtain federal reimbursement for Subsys prescriptions that otherwise would not have been approved.

On December 8, 2016, the U.S. Attorney’s Office for the District of Massachusetts brought criminal charges against six former Insys executives and managers. The charges against these executives included conspiracy to commit racketeering, conspiracy to commit wire and mail fraud, and conspiracy to violate the Anti-Kickback Law. On May 2, 2019, a federal jury found Insys’ founder and four former executives guilty of racketeering charges. These executives could face up to 20 years in prison for these convictions.

On June 5, 2019, Insys agreed to a $225 million resolution of the criminal and civil actions against the company. This agreement included a deferred prosecution agreement with the DOJ, a $195 million settlement of civil allegations that the company had violated the False Claims Act, and a 5-year Corporate Integrity Agreement (“CIA”) and Conditional Exclusion Release with the U.S. Department of Health and Human Services. As part of the CIA, Insys was required to establish a compliance program, appoint a compliance officer, and create a compliance committee. Only 5 days after agreeing to this settlement, however, Insys filed for Chapter 11 bankruptcy.

The Rochester Drug Co-Operative Case

Rochester Drug Co-Operative is one of the 10 largest pharmaceutical distributors in the United States, with more than 1,300 pharmacy customers and $1 billion in annual revenue. For at least 5 years, RDC distributed dangerous, highly addictive opioids to pharmacy customers, even though it knew that many of these opioids were ultimately being sold and used illicitly. At the direction of senior management, RDC supplied large quantities of oxycodone, fentanyl, and other opioids to pharmacy customers which its own compliance personnel had determined were dispensing the drugs to individuals who had no legitimate medical need for them. In doing so, RDC executives, including former CEO Laurence Doud III and former Chief Compliance Officer William Pietruszewski, made a deliberate decision to ignore red flags raised by RDC’s compliance department.

On April 23, 2019, the Manhattan U.S. Attorney’s Office and the Drug Enforcement Administration (“DEA”) announced criminal charges against RDC, Doud, and Pietruszewski, for unlawfully distributing oxycodone and fentanyl, conspiring to defraud the DEA, and failing to comply with its legal obligation to report thousands of suspicious orders of controlled substances to the DEA. Doud could face up to life in prison for the conspiracy to distribute charges. RDC subsequently entered into a consent decree pursuant to which RDC agreed to accept responsibility for its conduct and pay a $20 million penalty. RDC also agreed to reform and enhance its Controlled Substances Act compliance program and submit to supervision by an Independent Monitor.

Key Takeaways

As evidenced by these recent criminal cases, as well as various civil cases, the Government is actively investigating and prosecuting pharmaceutical and drug distribution companies and their executives for their roles in the Opioid Crisis. Thus, these companies should act now to ensure that they are in compliance with all federal laws and regulations concerning the production, marketing, and distribution of opioid painkillers. This includes ensuring an appropriate “culture of compliance” and “tone at the top” of the organizations. Above all, executives and board members of these companies must take the Opioid Crisis and their responsibilities to the public very seriously.

ABA Program

David moderated the panel on opioids at the ABA Business Law Section's Annual Meeting, and the panelists were Laura Angelini, a partner at Hinckley Allen in Boston, Eric Hines, a partner in StoneTurn in Boston and James Koukios, a partner at Morrison & Foerster in Washington, D.C.

For more information on this issue and related matters, please contact:

David M. Rosenfield at [email protected] or (212) 592-1513.

© 2019 Herrick, Feinstein LLP. This alert is provided to inform clients and other parties about news and legal developments that may affect or interest them. The information is not intended as legal advice or legal opinion, and should not be construed as such.