Quest Subsidiary, Nichols Institute Diagnostics, Pleads Guilty to Felony Misbranding

Quest Diagnostics Incorporated (“Quest”) and its subsidiary, Nichols Institute Diagnostics (“NID”), have entered into a global settlement with the United States to resolve criminal and civil claims concerning various types of diagnostic test kits that NID manufactured, marketed and sold to laboratories throughout the country until 2006. The payment of $302 million will resolve these allegations and represents one of the largest recoveries ever in a case involving a medical device.

As part of the criminal resolution, NID pled guilty this morning before United States District Judge Sterling Johnson, Jr., at the U.S. Courthouse in Brooklyn, to a felony misbranding charge in violation of the Food, Drug, and Cosmetic Act, 21 U.S.C. §§ 301 et seq. The charge relates to NID’s Nichols Advantage Chemiluminescence Intact Parathyroid Hormone Immunoassay (the “Advantage Intact PTH Assay”), a test that was used by laboratories throughout the country to measure parathyroid hormone (“PTH”) levels in patients. As part of the plea, NID will pay a criminal fine of $40 million. Quest has also entered into a non-prosecution agreement with the United States under which it will be obligated to continue to cooperate with the government.

Quest and NID have also entered into a civil settlement agreement with the United States pursuant to which Quest will pay $262 million plus interest to resolve federal False Claims Act allegations relating to the Advantage Intact PTH assay and four other assays manufactured by NID that allegedly provided inaccurate and unreliable results. Quest has agreed to pay various state Medicaid programs approximately $6.2 million to resolve similar civil claims. Quest has also entered into a Corporate Integrity Agreement with the Office of Inspector General of the U.S. Department of Health and Human Services.

The United States commenced its civil and criminal investigation after the filing of a qui tam complaint in the Eastern District of New York. To encourage individuals to come forward and identify companies and individuals that defraud the government, federal law permits whistleblowers to share in the recovery for such fraud. In this case the whistleblower alleged that the Advantage Intact PTH Assay and another widely used PTH assay manufactured by NID, the Bio-Intact PTH Assay, provided elevated results. The PTH tests at issue in this case were widely used by medical practitioners to determine if patients suffering from conditions such as End Stage Renal Disease were also suffering from hyperparathyroidism, a condition which involves the overactivity of the parathyroid glands and the release of excessive amounts of PTH. Common treatments for hyperparathyroidism include calcium and Vitamin D supplementation, and, under certain circumstances, the surgical removal of the parathyroid glands. The whistleblower in this case will share in the proceeds of the False Claims Act recovery and will receive approximately $45 million.

The criminal resolution focuses solely on the Advantage Intact PTH Assay. As alleged in the information that was filed in the criminal case, there were periods of time in which the Advantage Intact PTH Assay provided elevated results. More specifically, in 1987, NID developed and launched the NID Intact PTH Immunoradiometric Assay (the “IRMA Assay”), which was one of the first commercially available diagnostic tests for measuring levels of PTH in the human body. The IRMA Assay gained widespread acceptance in the medical community for providing accurate measurements of levels of PTH. Subsequently, in or about 1996, NID developed and launched the Advantage Intact PTH Assay. The marketing materials that NID distributed regarding the Advantage Intact PTH Assay described that product as having “excellent correlation” to the IRMA Assay. Additionally, the directional insert for the Intact PTH Assay, in a section entitled “Accuracy,” described a study in which the IRMA Assay and the Advantage Intact PTH Assay produced nearly identical results when used to test PTH levels in samples of human blood. Contrary to the claims in NID’s directional inserts and marketing materials, however, in about May 2000, and at various times thereafter, NID was aware that the Advantage Intact PTH Assay was not consistently providing results that were equivalent to those of the IRMA Assay.

Additionally, during some of the periods of time after May 2000, NID was also aware that the Advantage Intact PTH Assay provided elevated PTH results. Nonetheless, NID continued to indicate, in its directional inserts and marketing materials, that the Advantage Intact PTH Assay and the IRMA Assay provided nearly identical results. As part of the guilty plea allocution, NID admitted that in or about May 2000 and at various times thereafter, NID knowingly, intentionally and with intent to mislead, introduced into interstate commerce, and caused the introduction into interstate commerce of a device, the Advantage Intact PTH Assay, that was misbranded within the meaning of 21 U.S.C. § 352(a).

The civil settlement resolves allegations that NID manufactured, marketed and sold the Intact PTH and Bio-Intact PTH test kits, despite knowing that between May 1, 2000 and April 30, 2006, some of these kits produced results that were materially inaccurate and unreliable, thereby causing: (a) some clinical laboratories that purchased and used the Intact PTH and Bio-Intact PTH test kits to submit false claims for reimbursement to federal health programs; and (b) some medical providers to submit false claims for reimbursement to federal health programs for unnecessarily prescribed treatments.

The civil settlement also resolves allegations that NID manufactured, marketed and sold the following test kits, some of which produced results that were materially inaccurate and unreliable, thereby causing some clinical laboratories that purchased and used these test kits to submit false claims for reimbursement to federal health programs: (a) the ACTH test kit, which was used by laboratories to measure adrenocorticotropic hormone levels in blood samples (between May 1, 2000 and May 31, 2005); (b) the 25-OH-D test kit, which was used by laboratories to measure hydroxyvitamin D levels in blood samples (between April 1, 2002 and April 30, 2006); and (c) the DHEA-S test kit, which was used by laboratories to measure dehydroepiandrosterone sulfate levels in blood samples (between September 1, 2002 and November 30, 2005). With the exception of the admissions made in connection with NID’s criminal plea, Quest denies the allegations made in the civil settlement agreement.

“The American public has the right to expect medical device manufacturers to make accurate claims in their labeling, especially when the failure to meet those claims could indicate that the performance of the device is suspect,” stated United States Attorney Benton J. Campbell. “In order to safeguard public health, and when appropriate, to recover taxpayer dollars, the government will vigorously investigate allegations that a manufacturer knowingly sold medical devices, such as test kits, that were materially unreliable or provided significantly inaccurate results.” Mr. Campbell expressed his grateful appreciation to the Department of Health and Human Services Office of Inspector General, the Federal Bureau of Investigation, the Postal Inspection Service, and the Food and Drug Administration-Office of Criminal Investigations, all of which participated in the government’s investigation.

“This settlement provides further evidence that the Department will vigorously prosecute cases involving violations of the Food, Drug, and Cosmetic Act, and will pursue recovery of taxpayer dollars resulting from fraudulent marketing campaigns by medical device manufacturers,” said Michael F. Hertz, Acting Assistant Attorney General for the Civil Division. “Pursuing this case was particularly important in light of the potential for adverse health consequences to beneficiaries of federal healthcare programs.”

“This global settlement to resolve the criminal and civil cases is an outstanding demonstration of multi-agency cooperative efforts to not only investigate corporations which engage in healthcare fraud, but to also protect the public and the integrity of health care programs,” stated Joseph M. Demarest, Jr., FBI Assistant Director, New York Field Office.

“As part of an innovative five-year Corporate Integrity Agreement, Quest will be required to retain two outside, independent review entities,” said Daniel R. Levinson, Inspector General of the U.S. Department of Health and Human Services. “The agreement requires Quest’s Board to retain an expert to review how well compliance concerns are communicated to senior management and the Board, and the company to retain a separate independent review organization whose review will include Quest’s adherence with FDA Quality System Regulation and labeling requirements.”

“Although millions of dollars of taxpayers’ money was wasted, this case is ultimately about the health and safety of the American public. That is why I am so pleased with the outcome of this joint investigation and how it exemplifies the commitment and determination of different law enforcement agencies to correct such an egregious wrongdoing,” stated Ronald J. Verrochio, Postal Inspector-in-Charge.

The government’s investigation and settlement negotiations were conducted by Assistant United States Attorneys Paul Kaufman, Robert M. Radick, Kelly Horan Florio, and former Assistant United States Attorney Geoffrey Kaiser, and audit support was provided by Affirmative Civil Enforcement Auditor Emily Rosenthal. Also representing the United States in settlement negotiations were Chief Assistant United States Attorney Paul Schoeman, and Pat Davis and John Henebery of the Department of Justice’s Civil Frauds Branch. The corporate integrity agreement was negotiated by Laura Ellis and Lee Penninger of the Office of Inspector General of the U.S. Department of Health and Human Services. The state agreement was negotiated by Ellyn Sternfield of the Oregon Attorney General’s Office and Margot Schoenborn of the New York Attorney General’s Office on behalf of the National Association of Medicaid Fraud Control Units.