April 27 (Bloomberg) -- A judge rejected a Boston Scientific Corp. unit’s guilty plea to charges it hid defects in heart defibrillators, after some doctors and patients who received the devices complained about the deal.
U.S. District Judge Donovan Frank in St. Paul, Minnesota, today rebuffed the Guidant subsidiary’s plea agreement with prosecutors and suggested the company should be placed on probation for failing to disclose defects with its heart devices to regulators. Boston Scientific had agreed to plead guilty to two misdemeanors and pay $296 million to settle a U.S. Justice Department probe.
“At a minimum, the public’s interest in accountability would be served by Guidant and Boston Scientific being placed on probation,” Frank said in his 37-page ruling today.
Prosecutors said in court papers that Guidant officials learned as early as 2002 some of the implantable defibrillators had a tendency to short-circuit and caused users’ deaths. The company didn’t disclose the defects to the U.S. Food and Drug Administration for more than three years, the government said.
Boston Scientific officials are willing “to discuss modification” of Guidant’s plea bargain, according to an statement from Paul Donovan, a company spokesman.
Executives will work with prosecutors “to develop a modified plea agreement that is acceptable to the court, the DOJ and the company,” Boston Scientific said.
‘Interests of Justice’
Boston Scientific halted all sales of heart-rhythm devices in March because of an erroneous filing with regulators. The FDA cleared the company to sell defibrillators again on April 15. The company’s devices are implanted in patients’ bodies to shock hearts back into normal rhythm.
Heart devices brought in $1.79 billion last year, or 22 percent of Natick, Massachusetts-based Boston Scientific’s revenue, according to data compiled by Bloomberg.
Portions of the plea agreement were “not in the best interests of justice and do not serve the public’s interests because they do not adequately address Guidant’s history and the criminal conduct at issue,” Frank said in the ruling.
The government’s agreement to allow Guidant to plead guilty without accepting probation, paying restitution or facing a pre-sentencing investigation was troubling, Frank said.
Lawyers for defibrillator users said they were pleased Frank suggested the company face a probationary sentence.
“He clearly saw this company was a repeat offender and the plea was inadequate in terms of the victims and for society as a whole,” said Hunter Shkolnik, a New York-based attorney for defibrillator patients.
$240 Million Settlement
Boston Scientific, the world’s second-largest heart-device maker behind Minneapolis-based Medtronic Inc., agreed in 2007 to pay $240 million to settle more than 8,000 lawsuits claiming Guidant hid defibrillator defects.
Shkolnik and other plaintiffs’ lawyers asked Frank to force the company to pay more money to patients to resolve the government’s criminal case. Some defibrillator patients objected to the plea in its entirety.
Two Minnesota doctors whose patient died as a result of a short-circuit in one of the devices wrote Frank that the deal did little to ensure the “the safety of future generations of patients who receive medical devices.”
“To allow a repeat offender to escape with a fine (that is entirely borne by the shareholders of Boston Scientific) does not hold the guilty parties fully accountable and inevitably undermines patient safety,” Robert G. Hauser and Barry J. Maron wrote in an April 12 letter.
The judge refused to order Guidant to pay restitution, saying the patients didn’t qualify as victims under criminal law. “The court concludes that it has a right to order restitution, but that there are no victims directly and proximately harmed by Guidant’s criminal conduct,” Frank said.
Still, the judge said Guidant could be ordered to perform community service as part of a probationary sentence to address harm the company caused. Guidant also could be required to appoint a compliance officer to monitor operations, he said.
Guidant issued a June 2005 recall that was eventually expanded to 109,000 defibrillators. Lawyers for patients contend the company knew as early as June 2002 that the devices were flawed and hid the defects to protect sales.
Prosecutors began probing Guidant’s handling of the defibrillators in October 2005. The investigation centered on the company’s Ventak Prizm, Ventak Prizm 2, Contak Renewal and Contak Renewal 2 defibrillators.
Investigators focused on so-called “product advisories” sent to regulators before Guidant’s acquisition by Boston Scientific in April 2006.
Prosecutors found Guidant executives learned as early as February 2002 that the Prizm 2 devices had short-circuit problems and made design changes to address the defect, court papers show.
In an August 2003 report to the FDA, Guidant officials “falsely described the change as a minor alteration to the device which did not affect the safety and effectiveness of the device,” according to the filing.
Company officials began receiving reports about Guidant’s Renewal defibrillators short-circuiting in late 2003, prosecutors found. By March 2005, the company collected a number of reports on the defect, including the death of a Spanish patient bearing one of the implanted devices, the government contends.
That month, Guidant officials sent a “Product Update” letter to all doctors treating defibrillator patients alerting them to problems with the devices.
“Guidant was aware of 12 Renewal short-circuiting failures, including the death in Spain, but the Product Update mentioned none of them,” prosecutors said in the filings.
Boston Scientific rose 4 cents to $7.10 at 4 p.m. in New York Stock Exchange composite trading. The shares have declined 21 percent this year.
The case is U.S. v. Guidant LLC, 10-mj67-DWF, U.S. District Court, District of Minnesota (St. Paul).
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