The company picked up the tab and even gave the doctor $500 for his trouble.
Five years later, federal prosecutors are pointing to that trip and many others as examples of the kickbacks ISTA used to illegally boost drug sales.
The eye-care drugmaker admitted its guilt in a Buffalo courtroom Friday and agreed to pay $33 million to settle a criminal prosecution brought by the government and two civil cases brought by former sales representatives who blew the whistle on the company.
“This wasn’t a rogue employee,” said Daniel C. Oliverio, a lawyer for one of the whistle-blowers. “This was company practice. This went to the highest levels of the company.”
The case, which dates back to 2007 and was under court-ordered seal in U.S. District Court until Friday, was based on allegations that ISTA improperly marketed one of its drugs, Xibrom, for medical uses not approved by the Food and Drug Administration.
The FDA has approved Xibrom for use as an anti-inflammatory treatment for patients recovering from cataract surgery but the company, eager to increase sales of the drug, embarked on an illegal strategy of trying to convince doctors to use it for other non-authorized uses.
“ISTA Pharmaceuticals offered illegal kickbacks, illegal inducements to doctors,” said Assistant U.S. Attorney MaryEllen Kresse.
As part of a plea deal approved by U.S. District Judge Richard J. Arcara, ISTA admitted taking part in the scheme, which began in 2005 and continued until 2010.
“Conduct was occurring that should not have been occurring,” Kristen G. Koehler, a lawyer for the company, told Arcara.
ISTA, which is based in California, admitted using kickbacks to doctors and an illegal marketing campaign as part of an elaborate scheme to increase its sales of Xibrom.
The scheme, outlined in detail in newly released court papers, ranged from company-provided instruction sheets for doctors to continuing medical education programs to promote the drug.
In many cases, ISTA employees were told not to leave printed materials behind in doctors’ offices or to keep records of their meetings with doctors in order to avoid detection by others.
The company went so far as to offer speaking engagements and consulting appearances to doctors in hopes that they might use Xibrom for non-authorized treatments.
Doctors can legally prescribe drugs for non-FDA approved treatments, but drugmakers are prohibited from promoting their products for those uses.
“Essentially they entered into consulting arrangements to induce physicians to prescribe their drug,” said Jeffrey I. Steger, a lawyer in the Consumer Protection Branch of the U.S. Department of Justice.
When Arcara asked if money was the doctors’ motivation, Steger said yes.
“Thousands of dollars,” he told the judge.
The scheme collapsed when two former employees filed lawsuits exposing the company’s illegal activities. One of them, Keith Schenker, left the company after just six or seven months on the job.
He now stands to make about $2.5 million as part of his share in the $15 million civil portion of the settlement.
“There came a point when he realized what he was doing was a violation of the law,” Oliverio said of his out-of-town client. “He basically decided, ‘I can’t do this anymore.’ ”
Assistant U.S. Attorney Kathleen A. Lynch said the civil settlement also resolves the government’s contention that ISTA’s conduct caused false claims to be submitted to government health care programs such as Medicaid.
Once the whistle-blower suits were filed, the government’s criminal investigation soon followed and ultimately led to Friday’s criminal plea. The company pleaded guilty to conspiracy to introduce a misbranded drug in interstate commerce with intent to defraud and mislead, and conspiracy to violate the anti-kickback statute.
The California company also agreed to pay $18.5 million in fines and forfeitures to the government.
Arcara, who seemed genuinely shocked by the revelations of kickbacks to doctors, asked at one point if there were health or safety consequences associated with ISTA’s scheme.
Koehler said the government is not alleging that in its court papers, but Oliverio said the potential for side effects still exists even if there are no documented cases of people becoming ill.
Arcara also wanted to know if the $33 million settlement was large enough to serve as a deterrent for a company that generated $160 million in sales in 2011.
“This will have national consequences in the pharmaceutical industry,” Kresse assured him.
ISTA is owned by Bausch & Lomb, the Rochester-based eye care company, but the illegal conduct occurred well before Bausch & Lomb bought the company last year.