Newsletter For Leaders In The Medical Device Industry - July 2008

MORE ON THE FOREIGN CORRUPT PRACTICES ACT AND THE MEDICAL

DEVICE INDUSTRY

Sharie A. Brown

In the April 2007 edition of Foley's

Legal News: Medical Devices, we informed you that

Johnson & Johnson (J&J), a medical device company,

voluntarily disclosed to the United States Department of

Justice (DOJ) and the U.S. Securities and Exchange Commission

(SEC) that subsidiaries outside of the United States may have

made improper payments in connection with the sale of medical

devices in two small-market countries. Since February 12, 2007,

when J&J disclosed the information, the medical device

industry has received increasing enforcement scrutiny.

In a press release issued this month, the DOJ accused

Plymouth, Minnesota based AGA Medical Corporation (AGA), a

manufacturer of products designed for the minimally invasive

treatment of congenital heart defects, of conspiracy and

violating the Foreign Corrupt Practices Act (FCPA). The DOJ

release stated that its criminal information (filed on June 3,

2008) alleged that AGA, some of its employees, and a

high-ranking officer sought patents on several AGA products

from the State Intellectual Property Office of the People's

Republic of China (SIPO) from 2000 through 2002. According to

the DOJ release, in order to have certain patents approved, AGA

allegedly agreed to make improper payments through its local

Chinese distributor to Chinese officials who were employees of

SIPO. In addition, AGA allegedly made payments through a local

distributor to government physicians from 1997 to 2005 to

induce those physicians to cause their government hospital

employers to purchase AGA products for the government

hospitals. The DOJ release stated that AGA paid a $2 million

penalty and entered a deferred prosecution agreement with the

DOJ as a result of these allegations.

In September 2007, Dr. Gioacchino DeChirico, the President

and COO of Immucor, Inc, (A U.S. public medical equipment

company), settled a civil action with the SEC for violating and

aiding and abetting a violation of the FCPA. The SEC alleged

that Dr. DeChirico paid 13,500 Euros to the director of a

public hospital in Milan, Italy, in April 2004, in exchange for

favorable consideration by the hospital relating to a contract

for providing goods and services to the hospital. Dr. DeChirico

allegedly approved an invoice that falsely described the

payment as a consulting fee for services rendered even though

Dr. DeChirico knew that the hospital director had never

provided any services. Dr. DeChirico subsequently agreed to the

entry of a final judgment ordering him to pay a civil penalty

of $30,000, and he and Immucor separately agreed to an SEC

cease-and-desist order related to the same improper payment

activity.

In October 2007, Zimmer Holdings, Inc, a medical equipment

and supplies company in Warsaw, Indiana, disclosed in its Form

8-k for the period ending October 11, 2007, that the company

had received a letter from the SEC advising that the SEC was

conducting an informal investigation regarding potential

violations of the FCPA in the sale of medical devices in

several foreign countries by companies in the medical devices

industry.

Biomet, Inc., issued a press statement in October 2007 on

its company Web site disclosing that the company had received a

letter from the SEC informing the company that the SEC was

conducing an informal investigation of possible violations of

the FCPA in the sale of medical devices in a number of foreign

companies. Similarly, in October 2007, Stryker Corporation (a

public medical device medical technology company) disclosed

that the SEC had made an informal inquiry of the company

regarding possible violation of the FCPA in connection with the

sale of medical devices in certain foreign countries.

In light of the increased FCPA investigative and enforcement

focus on medical device and equipment companies, medical device

companies should adhere to the warnings and begin to:

Develop written policies and procedures for detection and

prevention of corrupt payments or activities

Conduct a review of operations to determine what groups

within the company have regular dealings with "foreign

government officials" within the meaning of the FCPA,

and develop more robust anticorruption procedures for those

groups

Train and counsel employees, agents, vendors, and

suppliers on ethics and anticorruption policies and

procedures

Conduct anticorruption due diligence on third parties

prior to hiring

Discipline employees and third parties that fail to

follow policies

Assure that internal controls are adequate, and that

books and records are accurate

Conduct periodic compliance reviews and audits to

determine if procedures are followed and if there is any

misconduct

Include anticorruption contract provisions in all

third-party agreements, including audit rights

MEDICARE PART D DATA AVAILABLE TO EXTERNAL RESEARCHERS (AND

OTHERS) UNDER CMS FINAL RULE

Judith Waltz

In many cases, devices work better, or best, when combined

with a prescription drug regimen. Medicare-covered

beneficiaries constitute a large user population (and target

market) for both devices and prescription drugs, with the

numbers continuing to rise with the aging population.

Information about how particular prescription drugs are being

used for this target population can assist in device product

design and optimization. Under the auspices of a new

regulation, the Medicare program will begin to share its

prescription drug data, which should be of critical value to

the device maker community and research enterprise.

In a Final Rule published on May 28, 2008, and effective on

June 27, 2008, the Centers for Medicare and Medicaid Services

(CMS) amended the Medicare Part D regulation at 42 C.F.R.§

423.505 to set forth the...