Serono Guilty Plea: Fake Debarment Raises its Ugly Head
19 Corporate Crime Reporter 41(1), October 17, 2005

Fake debarment has raised its ugly head again.

Fake debarment is where the government needs to get a guilty plea.

But imposing a guilty plea on a major health care provider would exclude it from doing business with Medicare and Medicaid.

Which would be the corporate death penalty for any major health care provider.

So, just to keep up appearances all around, a deal is cut.

An inconsequential unit of the U.S. subsidiary of the giant foreign multinational pleads guilty to the crime.

And that’s the unit that is debarred from doing business with the U.S. government, even though it has no business with the U.S. government to begin with.

A huge fine is imposed – but usually no more than was stolen to begin with.

The False Claims Act attorneys get their cut.

The government can boast that it gained a guilty plea.

And the company can continue to sell its drugs to the federal government.

All parties refuse to criticize the agreement – because all parties benefit from the agreement.

Except the public interest – which benefits from real debarment – because it deters criminal wrongdoers from future wrongdoing and sends a strong general deterrence message to corporate criminals at large – don’t rip-off the government – or it’s the death penalty.

And so it came to pass today.

The Justice Department informs us that Serono Labs, a unit of the U.S. subsidiary of the Swiss corporation, Serono, S.A., agreed to plead guilty to the illegal marketing of its AIDS drug Serostim.

The corporate parents will pay a $136.9 criminal fine and an additional $567 million to settle civil liabilities – including liabilities under the False Claims Act.

Serostim is used to treat AIDS wasting, a condition involving profound involuntary weight loss in AIDS patients.

Serono Labs – the unit of the U.S. parent – will plead guilty to charges that the company conspired with medical device manufacturer RJL Sciences to market bioelectrial impedance analysis (BIA) computer software packages for use in calculating body cell mass and diagnosing AIDS wasting.

The device has not been approved by the Food and Drug Administration for these uses.

Serono Labs conspired with RJL to increase the market for the devices/software in order to increase the market for Serostim, federal officials alleged.

Serono Labs employees also directly administered BIA tests to patients to induce doctors to prescribe Serostim and to get Medicaid agencies and other payers to reimburse for the drug.

RJL and its president, Rudolph J. Liedtke, pled guilty to their roles in the conspiracy earlier this year and are awaiting sentencing.

Serono Labs also plead guilty to offering physicians an all expense-paid trip to a medical conference in Cannes, France in return for the doctors writing up to 30 new prescriptions of Serotism, which cost $21,000 per course of treatment, for a total value of $630,000 per doctor.

Serono Labs will be excluded from all federal health care programs for at least five years.

But Serono's U.S. subsidiary, Serono Holding and all U.S. affiliates will not be so excluded.

And the Swiss parent will not be adversely affected by the exclusion.

In a side non-prosecution agreement, cut with Serono outside counsel Henry DePippo, a partner at Nixon Peabody in Rochester, New York, the Justice Department promised not to criminally prosecute the U.S. parent or the Swiss multinational parent.

“There have been some pretty creative plea agreements to avoid debarment,” William Mateja told us last week before the news of the Serono settlement broke. Mateja was former point person for the Justice Department’s Corporate Fraud Task Force. He’s now a partner at Fish & Richardson in Dallas. “But it raises an important question – should we be engaging in those kind of arrangements? Obviously, Congress felt strongly that if a health care fraud provider had been convicted of certain misconduct, it should be debarred. Some deference should be given to Congress’ intent.”
(For a complete transcript of the question/answer format interview with Mateja, see 19 Corporate Crime Reporter (40)(10-16), October 17, 2005, print edition only.)

Patrick Burns of Taxpayers Against Fraud, applauded the settlement, despite the fact that it included what he called a “fake debarment.”

“The exclusion is clearly window dressing,” he said.

“It’s like shooting buckshot over their heads,” Burns said. “It’s the government saying – we just fired a shot over their head, with the full knowledge that the government could lower the barrel and end the business next time.”

Which they won’t, because the government doesn’t believe in the death penalty for health care fraud.

Serono general counsel Tom Gunning wouldn’t say whether or not Serono Labs had any employees – and if so, how many.

Gunning did say that Serono Labs currently has no business with the federal government.

The civil settlement resolves allegations that Serono knowingly submitted false and fraudulent claims for Serostim that were not eligible for reimbursement because they were for the unnecessary and/or off label use of Serostim and because the claims were for prescriptions induced by kickbacks.

The federal probe was launched in 2000 when a Serono Labs employee in Massachusetts filed a False Claims Act suit.

Four other employees filed similar suits in Maryland and Connecticut.

The individuals who filed the whistleblower suits will share in approximately $51.8 million.


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