Former Insys Founder and Executives Convicted in Pharma Company Bribery and Kickback Prosecution

On May 2, the United States Attorney’s Office for the District of Massachusetts announced that a federal jury in Boston convicted John Kapoor, the founder and former Executive Chairman of Insys Therapeutics, and four other former Insys executives on racketeering charges, “in connection with bribing medical practitioners to prescribe Subsys, a highly-addictive sublingual fentanyl spray intended for cancer patients experiencing breakthrough pain, and for defrauding Medicare and private insurance carriers.”

According to the United States Attorney’s Office, from May 2012 to December 2015, the five defendants conspired to bribe health-care practitioners in order to induce them to prescribe Subsys to patients,  often when that spray was medically unnecessary:

The defendants used pharmacy data to identify practitioners who either prescribed unusually high volumes of rapid-onset opioids, or had demonstrated a capacity to do so, and bribed and provided kickbacks to the practitioners to increase the number of new Subsys prescriptions, and to increase the dosage and number of units of Subsys. The defendants also measured the success of their criminal enterprise by comparing the net revenue earned from targeted practitioners with the total value of bribes and kickbacks paid. The defendants used this information to reduce or eliminate bribes paid to practitioners who failed to meet satisfactory prescribing requirements, which they determined to be the net revenue equal to at least twice the amount of bribes paid to the practitioner.

The United States Attorney’s Office also stated that Insys’s use of bribes and kickbacks included the use of so-called “speaker programs” that purportedly were “intended to increase brand awareness of Subsys through peer-to-peer educational lunches and dinners.”  Those programs, however, “were used as a vehicle to pay bribes and kickbacks to targeted practitioners in exchange for increased Subsys prescriptions and increased dosage,” and in most instances, those programs were shams.  In addition, the defendants “conspired to mislead and defraud health insurance providers who were reluctant to approve payment for the drug when it was prescribed for non-cancer patients.”

The charge of Racketeering Influenced and Corrupt Organizations (RICO) conspiracy, of which all five defendants were convicted, has a maximum sentence of 20 years’ imprisonment, three years of supervised release, and a fine of $250,000 or twice the amount of pecuniary gain or loss.  As of yesterday, no date had been set for sentencing of any of the defendants.

Note:  Even in the welter of ongoing opioid-related civil and criminal litigation across the country, this prosecution stands out as a significant victory for the Department of Justice and the U.S. Attorney’s Office in Boston.  While much more attention had been focused in recent weeks on last month’s Justice Department’s indictment of pharma company Indivior for alleged fraudulent marketing of its Suboxone film, the trial of the Insys executives was a major test of the Department’s credibility in aggressively pursuing individuals and companies as part of the Trump Administration’s commitment to combating the opioid crisis.  In fact, in its press release about the convictions, the U.S. Attorney’s Office touted the result as the “[f]irst successful prosecution of top pharmaceutical executives for crimes related to the prescribing of opioids.”

The trial, which lasted ten weeks, was notable in two other respects.  First, the prosecution’s case in chief included trial testimony by two other high-level Insys executives — Michael Babich, Insys’s former Chief Executive Officer and President, and Alec Burlakoff, Insys’s former Vice President of Sales – who had previously pleaded guilty in the case.  Burlakoff became a focal point in Kapoor’s defense, as his attorney, Beth Wilkinson, “sought to shift the blame onto” Burlakoff and “said Burlakoff was cutting side deals with doctors on his own and lied when he testified against Kapoor because he’s trying to save himself.”

Second, the jury deliberations lasted 15 days.  Although some defense attorneys may become more confident in the prospects of acquittal, or at least a hung jury, as deliberations lengthen, lengthy deliberations in a criminal case do not automatically translate to either conviction or acquittal.  As former United States Attorney Harry Litman remarked about the deliberations in the 2018 federal prosecution of Paul Manafort, “You could speculate that there’s some dynamic involving a holdout, but the better fit with the facts is that they’re just moving through methodically and this is how long it would take.”  Nonetheless, both the prosecution and the defense could be forgiven for having many anxious moments during the deliberations, including second-guessing themselves about particular testimony or documents in evidence.

Although it is too early to make firm predictions, these convictions are likely to have a substantial influence in the coming weeks on the thinking of other pharma companies that are currently under federal criminal investigation or indictment in opioid-related cases.  One news organization speculated that Kapoor and his co-defendants, as first-time offenders, would be sentenced to only a fraction of the 20 year maximum.  On the other hand, the duration and pervasiveness of the defendants’ scheme, as well as their senior positions at Insys and respective roles on carrying out the scheme, could militate against low sentences across the board.

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