The Securities and Exchange Commission’s Focus on Foreign Corrupt Practices Act Violations in the Health Industry

On December 2, 2020, Charles Cain, the Chief of the Securities and Exchange Commission’s (“SEC”) Foreign Corrupt Practices Act (“FCPA”) Unit, said the healthcare industry will face a “perfect storm” of FCPA risks until it corrects its marketing practices. Cain specifically identified this past summer’s Novartis settlements as illustrating the combination of factors present in the pharmaceutical and healthcare industries that make them perfect targets for federal investigations.

“You have the pay-to-play, pay-to-prescribe and things like that, where the industry has gotten itself into trouble through that kind of misconduct,” Cain said of the healthcare and pharmaceutical sectors. “It has the perfect storm from governmental touch-points,” he said, pointing to manufacturing regulations, approval applications, and in some cases sales to government-run health agencies.

Underlying Cain’s comments is a simple lesson: whether here or abroad, using payments for services that were never rendered as a means to reward prescription-writing is prohibited. And while Cain’s December 2, 2020 comments emphasize a theory of prosecution that may have started with the Novartis settlements, healthcare industry participants can expect that theory’s application to keep growing as healthcare markets expand internationally.

The Novartis Settlements

As we have discussed previously,¹ several key lessons emerge from the June and July settlements between the SEC, the Department of Justice (“DOJ”), and Novartis Pharmaceuticals Corporations (“Novartis”). On July 1, 2020, DOJ announced a settlement with Novartis paying $678 million to resolve a False Claims Act (“FCA”) suit in which the DOJ alleged that speaker programs and other promotional events were just facades to pay bribes to doctors.  Additionally, on June 25, 2020, DOJ announced Novartis will pay $234 million to DOJ and $113 million to the SEC to settle FCPA probes relating to similar conduct in Greece and other countries. In both the FCA case and the FCPA case, the DOJ alleged that to increase sales of its drugs, Novartis paid physicians to speak at fictitious educational programs or funded travel to international meetings with no legitimate basis for doing so.

As alleged, such conduct is a violation of US statutes and will certainly attract the attention of whistleblowers, the relators bar and US enforcement officials (the qui tam relator in the FCA case was a former Novartis sales representative). While physicians can be paid (at fair market value) to deliver substantive educational programs, these settlements demonstrate DOJ will devote significant resources under the Medicare/Medicaid anti-kickback law, the FCA, and the FCPA (among others), to stamp out corrupt remuneration.

Using the FCPA to Prosecute Healthcare Fraud

The FCPA contains both anti-bribery provisions and accounting requirements. The anti-bribery provisions make it illegal to: 1) make a payment of, offer or promise to pay, or authorize a payment of money or anything of value, directly or indirectly; 2) to any foreign official, politician, party official, or candidate for office; 3) with a corrupt intent; 4) for the purpose of influencing one of these person’s official acts or decisions in violation of his or her lawful duty; 5) in order to assist in obtaining or retaining business, or to gain a competitive advantage. The accounting requirements (also sometimes referred to as the “books and records provisions”) seek to ensure companies and individuals do not try to disguise corrupt payments as legitimate expenses.

In 2017, then-acting chief of DOJ’s Fraud Section, Sandra Moser, pointed out the healthcare industry’s particular vulnerability to FCPA risk when operating internationally. She specifically observed:

“Investigations have revealed that healthcare companies operating overseas frequently interact with state-employed doctors and foreign public officials who work for government-owned hospitals and medical institutions. In addition, publicly funded and administered foreign health care programs are invariably run by government officials, which means that, to do business in these countries, a company must deal with government officials. As a result, we have seen a number of significant FCPA cases involving the payment of bribes and kickbacks by healthcare companies to foreign officials to obtain a wide variety of improper business advantages.”²

Since Moser’s remarks, DOJ enforcement activity has highlighted three primary international healthcare arenas where FCPA violations are most likely to occur: pharmaceuticals, durable medical equipment (“DME”) sales, and healthcare infrastructure deals (e.g., building hospitals and clinics). Whereas pharmaceutical and DME sales activity will generally fall within the Novartis rubric—bribing state-employed doctors and others to promote and boost sales—infrastructure deals typically involve multiple layers of government permits and approvals before a healthcare facility can become operational. Each layer presents risk of FCPA exposure, as government officials are intimately involved in infrastructure projects and they present tempting targets for illicit payments.  

Avoiding FCPA Liability for Healthcare Actors Operating in the International Sphere

In addition to exploring international markets for financial returns on investment, companies looking to expand globally often do so, at least in part, out of altruistic motives, particularly in countries lacking adequate healthcare infrastructure or service capacity. These cross-border transactions in the healthcare sector should be encouraged, and Hunton Andrews Kurth LLP is here to assist clients seeking to expand their healthcare investments internationally.  Because healthcare companies may be new to FCPA compliance, all such business looking to expand overseas must carefully review and understand the FCPA’s requirements and prohibitions. As many other international players have learned, FCPA compliance is often counter-intuitive and viewed as handicapping US entities. Companies must also take a close look at their compliance programs to ensure those programs are adequately staffed and resourced to handle the new and/or increased risk posed by international expansion.

For example, businesses operating internationally should ensure that their compliance programs contain the following elements, at a minimum:

• A “Code of Conduct” or related business ethics policy prohibiting any corrupt payments to officials and agents of foreign governments;
• Sufficiently detailed policies and procedures tailored to address the specific risks business will face (based on elements such as geographic location, nature of the business, and any business-specific “touchpoints” where employees may interact with government officials or state employees), with sufficient resources dedicated to actualizing and enforcing those policies and procedures;
• Regular training for employees on the business’s compliance policies and procedures, and each employee’s obligations to contribute to a culture of compliance;
• Ongoing monitoring to detect, investigate, prevent, and—if necessary—remedy (including self-disclosure of) suspected violations of the FCPA and ensure effectiveness of the program

The details of every compliance program will vary from business to business, and Hunton Andrews Kurth LLP is available to assist any company looking to evaluate, build or bolster its FCPA compliance program, or to assist with investigating suspected violations of any such program.

As the healthcare industry becomes ever more global, businesses operating across borders must have a program in place to ensure they comply with all applicable regulations and requirements to avoid potentially catastrophic FCPA or FCA liability in the future.

¹ Three Key Things in Healthcare published on August 4, August 11, and August 18, 2020.

² See Sandra Moser’s Remarks at the ACI’s 8th Global Forum on Anti-Corruption in High Risk Markets, Global Investigations Review (Aug. 14, 2017), .