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Judge mulls $296M plea deal for heart device maker

By Amy Forliti and Steve Karnowski
Associated Press Writers / April 5, 2010

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ST. PAUL, Minn.—Boston Scientific Corp.'s Guidant LLC division pleaded guilty Monday to two federal misdemeanor counts alleging it failed to properly disclose changes made to some implantable heart devices.

The deal calls for Guidant to pay more than $296 million, which federal prosecutors called the largest criminal penalty ever assessed against a medical device company. The agreement does not include probation or restitution to victims.

U.S. District Judge Donovan Frank said he will decide within three weeks whether to reject the plea deal, accept it as written, or accept it with modifications.

During Monday's hearing in St. Paul, Larry Knopf, vice president and secretary of Guidant, pleaded guilty on behalf of the company to two misdemeanor counts: submitting a false and misleading report to the Federal Drug Administration about one defibrillator model, and failing to notify regulators about a safety correction to another line of devices.

"Guidant's guilty plea today is about accountability," Assistant Attorney General Tony West, head of the Justice Department's Civil Division, said in a written statement. "This successful prosecution serves as an important wake-up call to all those who seek to withhold vital information about public health and safety."

Attorneys for numerous patients who have sued Guidant argued against the deal because it doesn't require the company to pay restitution to patients.

"All along Guidant was claiming they did nothing wrong," said Charles Zimmerman, an attorney for victims, said in court. "Yet all along the way, your honor, they knew they were lying."

The 20,146 devices at issue in the criminal case are Ventak Prizm 2 and Contak Renewal 1 and 2 defibrillators, which monitor for deadly irregular heartbeats and shock the heart back to a normal rhythm.

Guidant and prosecutors reached the plea deal in principal in November, the criminal charges were filed in February and the plea agreement was filed last month.

Prosecutors urged Frank to accept the deal despite victims' objections. In a court filing, prosecutors argued that the specific laws under which Guidant was charged don't call for restitution and the affected patients have other legal remedies for getting it.

The $296 million that Guidant agreed to pay includes $42 million in forfeiture funds, and the victims could petition the Justice Department for a share. Prosecutors also said most of the plaintiffs' civil claims have been settled already and they presumably are receiving compensation.

"The government is not unmindful of the suffering (of victims)," Ross Goldstein, an attorney with the Department of Justice, said in court. "The problem here is finding the right vehicle for that."

According to the plea agreement, Guidant discovered in 2002 that its Ventak Prizm 2 DR was prone to short circuiting, which could keep it from providing lifesaving jolts. Guidant fixed the flaw that November, but in August 2003 falsely told the Food and Drug Administration the change did not affect the safety or effectiveness of the device.

Under the statute, Guidant attorney Dan Scott said, it doesn't matter whether the company intended to mislead or the misstatement was just an error.

"Our intention is not a defense," he said.

The plea deal also says that in mid-2004, the company found a short circuiting problem with two Renewal models.

The device would beep when there was a problem, sending patients to visit a doctor who could examine it with a wireless communications link. But a warning screen for doctors did not state the extent of the problem, according to court documents.

In mid-2004, a patient died of cardiac arrest just a week after he was sent home by a doctor who followed prompts on the screen. In March 2005, Guidant sent out a product update to advise doctors that the yellow warning screen warned of a potentially serious problem.

Because the change was made to reduce a health risk, it should have been reported as a product correction, not a product update, the plea deal says. Guidant broke the law by not notifying the FDA about the change within 10 days.

Guidant issued safety advisories on the devices in June 2005.

Scott also argued against restitution for victims, saying no one was directly injured by Guidant's misstatement of the change to Prizm or by the mislabeling of the correction to the Renewal model.

Natick, Mass.-based Boston Scientific acquired Indianapolis-based Guidant for $27 billion in 2006.

The criminal case was filed in Minnesota because Guidant's heart rhythm management unit was based in the St. Paul suburb of Arden Hills.

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Karnowski contributed to this story from Minneapolis.