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Court Rejects “Tacit Understanding” Theory to Set Aside Part of Guilty Verdict in Executives’ Opioid Trial

Executives convicted of an illegal scheme involving opioid marketing received a partial victory when the trial court vacated part of the jury’s guilty verdict. On November 26, 2019, the court issued its ruling, setting aside some of the convictions of several former Insys Therapeutics, Inc. executives who were convicted of conspiring to violate the Racketeer Influenced and Corrupt Organizations Act (“RICO”) by devising an illegal marketing scheme for the company’s fentanyl-based opioid product, Subsys.

In making its ruling, the court rejected the government’s theory that intent to commit a violation of the Controlled Substances Act (“CSA”) could be established by an alleged “tacit understanding” that healthcare providers would illegally distribute Subsys in exchange for bribes orchestrated by the defendants. This case should serve as a warning to prosecutors against pursuing overzealous theories in future opioid-related prosecutions.

The Marketing Scheme

The company allegedly relied on in-house sales representatives to market Subsys, which the Food and Drug Administration had approved for managing breakthrough pain in cancer patients.1 The evidence at trial showed that the company implemented a bonus structure that tied the sales representatives’ compensation to the net revenue earned on Subsys prescriptions, which incentivized sales representatives to push physicians to write prescriptions for higher (and therefore more expensive) dosages of the opioid.2

Several months after the company began selling Subsys, Insys launched a “peer-to-peer” speaker program purportedly designed to educate potential prescribers about Subsys.3 As part of the program, physicians who prescribed Subsys were invited to deliver speeches about the product.4 Insys paid the speakers between $1,000 and $3,000, depending on the geographic scope of the event.5 According to the evidence at trial, speaking events held as part of the program were poorly attended and in some cases were only attended by an Insys sales representative, the speaker, and a friend or colleague of the speaker.6 Testimony indicates that Insys’s sales representatives sometimes falsified sign-in logs from the speaking events in an attempt to legitimize them.7

The company used a document to evaluate the “return on investment” for each speaker.8 The document tracked the net revenue that Insys derived from the speaker’s Subsys prescriptions against what the company paid that individual for speaking.9 Insys’s sales representatives prioritized speaking engagements for so-called “whales,” or physicians who wrote a relatively high number of Subsys prescriptions, and phased out physicians who prescribed relatively little Subsys.10 Testimony at trial referred to physicians who participated in Insys’s speaker program as being “up for the deal,” which allegedly was that the company would engage the physicians for more speaking events, and therefore pay them more money, in exchange for the physicians writing more Subsys prescriptions and prescribing higher dosages of the medication.11

The Insurance Scheme

Insurers would not pay for Subsys without pre-authorizing prescriptions.12 Initially, the company relied on a third party to obtain preauthorization from insurers for Subsys prescriptions, but the third party was only successful in getting pre-authorization about one third of the time.13 To improve its pre-authorization rate, Insys began handling pre-authorization requests in-house.14 According to the court, the company’s in-house pre-authorization program relied heavily on sales representatives.15

Insys devised strategies to deceive insurers and obtain higher pre-approval rates for Subsys, according to the court.16 The evidence at trial indicated that Insys employees made repeated misrepresentations and false statements to insurers to obtain pre-authorization for Subsys prescriptions.17 The employees responsible for obtaining pre-authorizations received bonuses for meeting weekly pre-authorization targets.18

The Verdict

Based on their role in these schemes, a jury convicted five former Insys executives – Michael Gurry, Richard Simon, Sunrise Lee, Joseph Rowan, and John Kapoor19 – of conspiracy to violate RICO.

To be guilty of a RICO violation, a defendant must commit a “predicate act,” which can be one of a number of criminal offenses.20 The jury found that four of the five defendants (Simon, Lee, Rowan, and Kapoor) committed the following predicate acts: illegal distribution of a controlled substance under the CSA, honest services mail fraud, honest services wire fraud, mail fraud, and wire fraud.21 The fifth defendant (Gurry) was found guilty only as to the wire fraud and mail fraud predicate acts.22

Motions for Acquittal

Following the jury’s verdict, Simon, Lee, Rowan, and Kapoor renewed their outstanding motions for acquittal that they had initially filed during the trial. In general, they argued that the evidence failed to establish violations of the predicate acts on which their RICO convictions were based.

As to the CSA and honest services fraud predicates, the court granted the defendants’ motions and vacated the jury’s verdict.

To convict on the CSA predicate, the court explained that the government needed to prove that the defendants conspired for a physician to write Subsys prescriptions in violation of the CSA, which prohibits physicians from prescribing controlled substances “for other than a legitimate medical purpose in the usual course of professional practice.”23 The court reasoned that although the evidence showed the defendants intended to cause healthcare providers to write more Subsys prescriptions and to prescribe the medication at higher dosages, there was not sufficient evidence that the defendants intended the healthcare providers to abdicate their clinical responsibilities while prescribing Subsys.24

According to the court, the inferential leap needed to infer that the defendants intended for physicians to act illegally left enough reasonable doubt that the defendants could not be convicted on the CSA predicate.25 The court said the defendants’ apparent indifference as to whether patients needed Subsys did not prove their intent for physicians to prescribe Subsys illegally.26 The fact that physicians did ultimately write unnecessary Subsys prescriptions was also not enough to establish intent on the part of the pharmaceutical executives.27

The court then rejected the government’s theory that the defendants conspired with each other and healthcare providers to violate the CSA by having a “tacit understanding” that the providers would illegally prescribe Subsys in return for bribes paid through Insys’s speaker program.28 The government asserted that the structure of the speaker program necessarily implied that the defendants intended for physicians to write illegal Subsys prescriptions.29 However, the court found the inference that the defendants intended for the physicians to prescribe Subsys illegally to be equally as reasonable as the inference that the defendants did not have such an intent.30 According to the court, it would be reasonable for the jury to infer that Insys bribed physicians to prescribe Subsys, but only where medically appropriate and at a medically appropriate dosage.31 Therefore, the jury had to have entertained reasonable doubt as to the government’s theory, and the verdict required reversal.32

The court also vacated the jury’s verdict as to the honest services fraud predicate acts because the evidence did not show beyond a reasonable doubt that the defendants intended that physicians prescribe Subsys “outside the usual course of professional practice and not for a legitimate medical purpose,” in violation of the physicians’ fiduciary duty to their patients.33 The court’s reasoning paralleled its analysis of the CSA predicate.

Although the court struck down the jury’s verdict as to these RICO predicates, it upheld the verdict as to the mail fraud and wire fraud predicates, rejecting the defendants’ legal argument that they could not form a criminal conspiracy to commit wire fraud as agents of the same company and their factual argument as to mail fraud.34 The court also rejected the defendants’ individual factual arguments as to mail and wire fraud.

Takeaway

The rejection of the government’s “tacit understanding” theory illuminates the limits on the government’s ability to rely on inferences and innuendo to establish a conspirator’s intent. According to this court, the mere fact a pharmaceutical executive orchestrated an aggressive – or even fraudulent – marketing scheme to sell a medication does not establish beyond a reasonable doubt that the executive intended that a physician prescribe a medically unnecessary controlled substance. As the escalating fight against the opioid epidemic continues, this decision could rein in over-zealous prosecutors.

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1 United States v. Gurry, No. 16-cr-10343-ADB, slip op. at 2, 5 (D. Mass Nov. 16, 2019).

Id. at 5.

Id. at 6.

Id. at 6–7.

Id. at 8.

Id. at 9.

7 Id. at 9.

8 Id. at 7.

Id. at 7.

10 Id. at 7–8.

11 Id. at 7–8.

12 Id. at 9.

13 Id. at 9–10.

14 Id. at 10.

15 Id. at 11.

16 Id. at 11–12.

17 Id. at 12.

18 Id. at 13.

19 The defendants each held various positions at Insys.  Gurry’s positions included Vice President of Managed Markets; Simon’s positions included Regional Sales Manager for the Central Region and National Director of Sales; Lee’s positions included Regional Sales Manager for the Mid-Atlantic Region, Regional Director for the Central Region, and Regional Director for the West Region; Rowan’s positions included Regional Sales Manager for the Southeast Region and Regional Director for the East Region; and Kapoor’s positions included Executive Chairman of the Board of Directors and Chief Executive Officer.

20 See, e.g., Beck v. Prupis, 529 U.S. 494, 497 n.2 (2000).

21 Gurry, slip op. at 1.

22 Id. at 1.

23 Id. at 14 (quotations and citations omitted).

24 Id. at 18.

25 Id. at 18.

26 Id. at 18.

27 Id. at 18–19.

28 Id. at 19.

29 Id. at 19.

30 Id. at 19.

31 Id. at 19.

32 Id. at 19.

33 Id. at 22–23.

34 Id. at 26–28, 31.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.