How a Medtech CEO Beat Felony Charges

Vascular Solutions CEO Howard Root says he did everything he was supposed to when it came to compliance. But he nevertheless went through a five-year ordeal with federal prosecutors in which he faced prison time and countless employees and customers were interrogated over felony charges related to alleged off-label promotion of a laser ablation device for treating varicose veins.

Chris Newmarker

Are there any medical device industry executives truly immune from prosecution in the United States?

That was the disturbing question raised Thursday as Vascular CEO Howard Root related the story of the five years in which federal prosecutors sought to put him in prison over the alleged off-label promotion of a varicose vein treatment device.

Root was speaking to a group of about 50 medical device industry insiders and lawyers, gathered at the Medical Alley Association, just outside Minneapolis. They had spent the entire morning getting advice from industry lawyers about how to be more compliant with FDA marketing requirements, in light of the U.S. Justice Department's "Yates Memorandum" of September 2015 that calls for holding more individuals criminally accountable for corporate wrongdoing.

"I honestly sat there and thought, 'Great idea. Great idea. Great idea,' on the last panel, and I thought that a year ago. But today I say, 'Doesn't matter. Doesn't matter. Doesn't matter.' ... If they want to get you, they will get you," said Root, who started out himself as a lawyer.

From Root's perspective, that is exactly what happened to him and his company. It started on the day in June 2011 when Root was getting ready to fly out of Minneapolis' airport to meet with New York investors, only to get a call from his corporate counsel that there was a U.S. Justice Department subpoena over "federal health care offenses."

Instead of spending time at his Lake Minnetonka house over Fourth of July weekend, Root was in his office pouring over documents, trying to figure out what the federal prosecutors in San Antonio, TX, thought his company had done wrong. His eventual conclusion was that it was over what Root describes as a "serious insignificant matter."

It was insignificant, according to Root, because it involved marketing for a varicose veins laser treatment device that had only brought in $534,000 in sales between 2007 and 2011--0.1% of Vascular Solutions' total sales during that period.

The accusation, stemming from an initial whistleblower lawsuit filed by a sales rep who had quit, was that Root and his company had orchestrated a scheme to sell the "short kit" version of its Vari-Lase device to treat perforator varicose veins rather than saphenous varicose veins--a use that was supposedly off-label from what was indicated with FDA.

The FDA indication, however, was actually general enough to cover all varicose veins. Even so, the company had sought to follow FDA guidelines (which are not requirements), and told its salespeople not to market the short kit for use on perforator varicose veins.

"If the speed limit is 70, my deal is go 55. I told the sales force, 'Don't go out and promote it for perforators, even though the general indication already covered it,'" Root said.

Root, in fact, had sought to set a tone at the top that compliance was important, with three 2008 emails to employees warning against promoting off-label use for any Vascular Solution products.

Once Root knew that federal prosecutors were investigating the marketing of the Vari-Lase, he double-checked whether anyone had ever been harmed by the device.

"The No. 1 thing I had to confirm was, 'No patient harm.' If you have one patient who lost a leg because of this product, you are screwed. I don't care what the law is," Root said.

Fortunately, no one had been harmed by the product. So the next step was to line up white-collar lawyers and investigate the company's sales reps. It turned out that one of the sales reps had created sales docs for the Vari-Lase and then destroyed them on his computer. The employee was terminated. The evidence was turned over to the Justice Department.

"We were off to the races," Root said.

It was the start of a five-year case in which the company would turn over millions of documents, 30 employees and 50 customers would be interviewed, and Root himself would be charged with a felony conspiracy charge.

Root polled the Thursday audience over which constituency was most important for him to manage during the crisis: board members, employees, or shareholders. Most in the audience said employees. In fact, it was shareholders, according to Root.

"Employees look at the stock price every day. The share price affects what the board is going to do," Root said.

Root sought to meet with prosecutors in August 2012 to explain what had happened with the Vari-Lase marketing, but instead they began interrogating employees.

In July 2014, Vascular Solutions agreed to pay $520,000 to resolve allegations that it caused false claims to be submitted to federal health programs by marketing the Vari-Lase devices for treating perforator veins, though the company did not admit any fault or liability. Four months later, a federal grand jury indicted Root.

It cost Vascular Solutions $25 million to defend itself against the criminal prosecution. The company had to bring on a total 14 law firms to separately represent the company, Root, current employees, former employees--not to mention getting local legal representation in San Antonio.

When the case finally went to trial in February, the defense lawyers ended up deciding that it was not even necessary to call their own witnesses. Their cross-examination of the prosecution's witnesses had sufficiently proven what Root and Vascular Solutions had been saying all along: there was no illegal off-label promotion going on in the first place.

A transcript from the trial shows a juror saying, "Wow," after the defense said it wasn't calling any witnesses.

The jury acquitted.

Root also shared an email sent from a juror after the acquittal in which she said she considered the federal government's actions against his company criminal. "We beat it by only using the witnesses they chose to call. And not only did we beat it, but one of the jurors wanted to convict the prosecutors," Root said.

Now that he has been acquitted, Root is spreading the word that he thinks federal prosecutors are behaving outrageously when it comes to prosecuting medical device companies. He's co-writing a book that he plans to release in December, called "Heart Attack: The Government's Failed Assault on Vascular Solutions."

Root complains that the Department of Justice rewards its employees for convictions, not exhonerations, and that they wanted to make an example out of a "little Minnesota company" whose CEO dared to say "no" when they were demanding an initial settlement.

Root is 55 and once pictured himself staying in the medical device business into his late 70s. He says that's not going to happen now.

"If it could happen to me, it could happen to anybody. ... Do you want to continue to be in the line of fire with medical devices?"

Chris Newmarker is senior editor of Qmed and MPMN. Follow him on Twitter at @newmarker.

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