Feds' move to oust drug company chief

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For the past 34 years, has presided over Forest Laboratories Inc., a midsize pharmaceutical company that runs its national sales operations from Earth City.

, 83, took home $8.3 million last year as the company's chairman, president and chief executive officer. But his company's marketing arm also fell into trouble, pleading guilty to federal charges that its sales force illegally marketed the antidepressants Celexa and Lexapro to children and adolescents, even though these drugs had not been approved for minors.

Now, the federal Department of Health and Human Services is attempting to oust from his job. According to the company, the agency's Office of Inspector General advised , a Yale Law School alum, last week that it planned to exclude him from doing any business with federal Medicare and Medicaid programs.

The move — similar to the government's exclusion of KV Pharmaceutical's former chairman, Marc Hermelin — is part of a new effort by regulators to use this enforcement tactic to root out "untrustworthy individuals" who knew or should have known that health care fraud was being committed on their watch.

But some experts, who point out that was never charged with a crime, question whether regulators have overreached, bypassing the court system in favor of banishing drug company executives without having to prove a case against them.

, chief counsel of the HHS inspector general, testified before Congress last month that the agency's exclusion authority was "one of the most powerful tools in our arsenal."

"We intend to use this essential fraud-fighting tool in a broader range of circumstances," he said, "to hold responsible individuals accountable for corporate misconduct."

In a statement posted on its website, Forest Laboratories, based in New York, said would fight any exclusion order and immediately begin litigation if the government moved forward. If he's excluded, 's company would be in effect barred from Medicare and Medicaid — a staple in the pharmaceutical business — unless he steps down from office.

Prosecutors have long been criticized for seldom filing charges against individuals associated with drug companies that are convicted of criminal conduct. Huge fines in recent years against Pfizer Inc. and Eli Lilly & Co., for example, did not stop their chief executives from continuing in their jobs.

In September, Forest Laboratories' wholly owned marketing subsidiary — Forest Pharmaceuticals Inc., based in Earth City — pleaded guilty to criminal charges involving its marketing and manufacturing practices, and agreed to pay $313 million to settle criminal and civil allegations that, among other things, it paid illegal kickbacks to pediatricians who prescribed antidepressants to children. No individuals were charged in the case.

White, a spokesman for the agency's Office of Inspector General, would not confirm that the government was now seeking to exclude . But he identified four drug company executives who had been barred under the Social Security Act in recent years.

, who joined the company in 1977, would become the second drug company executive barred from doing business with federal health care programs under a specific provision of the law that authorizes the exclusion of individuals who have not been convicted of a crime.

In October, the agency's Office of Inspector General posted "guidance" saying that, when there is evidence that an owner/operator or company officer "knew or should have known" of his organization's criminal conduct, the agency "will operate with a presumption in favor of exclusion."

Hermelin, an owner/operator of KV Pharmaceutical, was excluded in November from federal health care programs for 20 years — and stepped down from the company's board of directors. He pleaded guilty last month to two criminal misdemeanors connected with his firm's shipment of oversized morphine tablets, and was sentenced to 30 days in the County Jail.

In addition, three executives of the Connecticut-based pharmaceutical company Pardue Frederick were excluded for 15 years from federal health programs under a different provision of the law, after their guilty pleas in 2007 in connection with the misbranding of the painkiller OxyContin.

Under the law, has 30 days from the date of the government's notification to provide reasons why he should not be excluded. At that point, if the agency decides to move ahead, he can appeal that decision to an administrative law judge.

The agency has used this authority in more than 30 cases since 1996, said, typically against employees of pharmacies and billing services, rather than executives of large organizations such as pharmaceutical companies and medical device manufacturers.

"We are concerned that the providers that engage in health care fraud may consider civil penalties and criminal fines a cost of doing business," said. "By excluding the individuals who are responsible for the fraud, either directly or because of their positions or responsibility in the company that engaged in fraud, we can influence corporate behavior without putting patient access to care at risk."

Nickerson, a professor of organization and strategy at Washington University's Olin Business School, said the agency's "underlying model" for exclusion appeared to be an example of over-regulation.

"It's predicated on the assumption that if a company has done something wrong, it must mean the senior executives have done something wrong," he said. "You are branded as being unethical if a subordinate makes a decision that turns out to be a bad one."

Nickerson said that to encourage innovation, company executives needed to delegate certain responsibilities to employees lower down in the organization. "The dilemma is, how do you engage in global competition and decentralize, while at the same time be held accountable as an individual leader?"

Maris, an investment analyst at Credit Agricole Securities USA in New York, said regulators were simply doing their job. "When it comes to drug safety, government is in a unique position and has a unique responsibility to protect the public," he said. "When a drug is approved, a company has to promote and sell it responsibly."

Maris said the larger question was whether regulators had any proof of 's complicity in criminal conduct.

"Does HHS believe that knew of improper marketing going on Forest Laboratories? If so, what sort of evidence do they have?" he asked. "We do know that the HHS doesn't do this casually. We know this has only happened a couple of times before and they were really serious cases of previous CEOs who were in trouble."

According to Forest Laboratories' statement, regulators have not accused of any wrongdoing. Its press release does not indicate whether or not he was aware that Forest's drugs were being illegally marketed.

The government's civil complaint alleged that Forest Laboratories' senior executives concealed a negative clinical study about Celexa, duped physicians about the drug's clinical trials and encouraged sales reps to pay illegal kickbacks to pediatricians. , however, was not named individually.

Forest's general counsel, Herschel Weinstein, challenged the government's fairness in a written statement, saying executives of other convicted drug companies had not been targeted. "Numerous other major pharmaceutical companies have plead guilty to much more egregious offenses," he said.

Investment analyst Maris said he was not persuaded by the company's rebuttal. "The fact that others have done worse things doesn't take away an executive's culpability," he said. "To say to the judge that other people were speeding or going faster isn't going to get you anywhere."

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Posted in Local on Friday, April 22, 2011 12:30 am Updated: 12:24 am. | Tags: Forest Laboratories, Forest Pharmaceuticals, , Health And Human Services, Health Care, Jim Doyle,