A unit of Bausch & Lomb plead guilty last week to a felony and was excluded from Medicare and Medicaid.

Bausch & Lomb unit ISTA Pharmaceuticals pled guilty last week to a felony charge of misbranding of its eye drug Xibrom.

As a result, ISTA — in one of those dreaded “collateral consequences” you hear Justice Department officials talking about all the time — was excluded from the Medicare and Medicaid program.

The company was represented by Paul Kalb of Sidley & Austin, Kristin Graham Koehler of Sidley & Austin and Alice Fisher of Latham & Watkins.

The whistleblower in the False Claims Act case was represented by Daniel Oliverio of Hodgson Russ.

Exclusion is considered the death penalty for pharmaceutical companies, because they rely on federal payments to stay alive.

But in this case, it didn’t matter to Bausch & Lomb.

In June 2012, Bausch & Lomb acquired ISTA.

ISTA is going to transfer its drugs and other assets over to Bausch & Lomb.

And voila.

No exclusion of Bausch & Lomb.

And no charge against Bausch & Lomb.

“We agreed to enter into this divestiture agreement based on the facts of this case, including that Bausch & Lomb did not have a corporate relationship with ISTA during the improper conduct,” said Daniel R. Levinson, Inspector General of the U.S. Department of Health and Human Services.

“In addition, Bausch & Lomb acquired ISTA more than a year after the improper conduct ended, and Bausch & Lomb did not hire any of ISTA’s executives or senior management.”

In paragraph 26 of the ISTA plea agreement, the government agrees not to prosecute Bausch & Lomb.

But there is no non prosecution agreement.

Why not?

We ran this by Brandon Garrett, a professor of law at the University of Virginia Law School.

Garrett is in the process of writing a book titled Too Big to Jail: How Prosecutors Take on Corporations (Harvard University Press.)

Garrett says that the fact that the Bausch & Lomb acquired ISTA after the improper conduct ended “might be a good reason to grant leniency.”

“But there is no non-prosecution agreement with the parent,” Garrett told Corporate Crime Reporter. “That alone is troubling. If the parent is to be given leniency, then the reasons should be explained in a prosecution agreement. The non-prosecution of a major corporation should not be buried in a few lines deep in a plea agreement with a subsidiary.”

“There is the broader concern, though, that in so many of these pharmaceutical cases, subsidiaries have been prosecuted and not the parent,” Garrett said. “We should hold the big fish accountable. The agreements with the subsidiaries typically make clear that it is the parent that is chiefly responsible for improving compliance, and it is the parent that may in effect be paying the fines. We would be very upset if in a drug possession case the street dealer was allowed to take the fall for the kingpin. There is the concern that debarring major pharmaceutical companies from Medicaid would harm patients – but misdemeanor FDCA violations, for example, do not require debarment.”

“In the case involving the second largest corporate criminal fine ever, and the largest pharmaceutical criminal fine, the Pfizer case, a subsidiary Pharmacia & Upjohn Co. Inc. pled guilty, and not the parent.  Similarly, Schering Plough’s subsidiary, Schering Sales Corporation, was convicted when it pled guilty to a one count criminal conspiracy to make false statements and was excluded permanently from participation in all health care programs. In a case involving Guidant Corporation, later bought out by Boston Scientific, victims protested and ultimately the judge insisted that the parent company be place under probationary supervision.”

In Exhibit C of the plea agreement with ISTA, Bausch & Lomb agrees to maintain its compliance and ethics program.

But it also agrees that Bausch & Lomb’s president of Global Pharmaceuticals will conduct an annual review of the effectiveness of the program as it relates to the marketing, promotion, and sale of prescription pharmaceutical products, and certify that to the best of his or her knowledge, the program was effective in preventing violations of Federal health care program requirements and the Food Drug and Cosmetics Act regarding sales, marketing, and promotion of Bausch & Lomb’s prescription pharmaceutical products.

Also in Exhibit C, Bausch & Lomb agrees that its board of directors must certify the effectiveness of the compliance and ethics program annually.

What was the wrongdoing that led to the criminal case?

It is illegal for a drug company to introduce into interstate commerce any drug that the company intends will be used for uses not approved by the Food and Drug Administration (FDA).

Xibrom is an ophthalmic, nonsteroidal, anti-inflammatory drug that was approved by FDA to treat pain and inflammation following cataract surgery.

Federal officials alleged that ISTA promoted Xibrom for unapproved new uses, including the use of Xibrom following Lasik and glaucoma surgeries, and for the treatment and prevention of cystoid macular edema.

ISTA pled guilty to a felony based on evidence that some ISTA employees were told by management not to memorialize in writing certain interactions with physicians regarding unapproved new uses, and not to leave certain printed materials in physicians’ offices relating to unapproved new uses.

These instructions were given in order to avoid having their conduct relating to unapproved new uses being detected by others.

ISTA agreed that this conduct represented an intent to defraud under the law.

ISTA also pled guilty to a conspiracy to knowingly and willfully offering or paying remuneration to physicians in order to induce those physicians to prescribe Xibrom, in violation of the federal Anti-Kickback Statute.

Under the law, it is illegal to offer or pay remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to physicians to induce them to refer individuals to pharmacies for the dispensing of drugs, for which payments are made in whole or in part under a Federal health care program.

Federal officials alleged that certain ISTA employees, with the knowledge and at the direction of ISTA, offered and provided physicians with free Vitrase, another ISTA product, with the intent to induce such physicians to refer individuals to pharmacies for the dispensing of the drug Xibrom.

ISTA provided other illegal remuneration, including a monetary payment to sponsor an event of a non-profit group associated with a particular physician, a golf outing, a wine-tasting event, paid consulting or speaker arrangements, and honoraria for participation in advisory meetings which were intended to be marketing opportunities, with the intent to induce physicians to refer individuals to pharmacies for the dispensing of the drug Xibrom.

Under the terms of the plea agreement, ISTA will pay a total of $18.5 million, including a criminal fine of $16,125,000 for the conspiracy to introduce misbranded Xibrom into interstate commerce, $500,000 for the conspiracy to violate the Anti-Kickback Statute, and $1,850,000 in asset forfeiture associated with the misbranding charge.

ISTA also entered into a civil settlement agreement under which it agreed to pay $15 million to the federal government and states to resolve claims arising from its marketing of Xibrom, which caused false claims to be submitted to government health care programs.

The civil settlement resolves two lawsuits filed under the whistleblower provisions of the False Claims Act by Keith Schenker, who will receive $2.5 million from the federal share of the civil recovery.