Former sales rep for painkiller company pleads guilty

A former sales manager for Insys Pharmaceuticals, which manufactures a highly addictive painkiller and is under investigation in multiple U.S. states, has pleaded guilty to charges of fraud.

Former Insys sales manager Natalie Reed Perhacs recently pleaded guilty to conspiracy to commit health care fraud including engaging in kickback schemes in the United States District Court for the Southern District of Alabama (Southern Division).

Insys was the subject of a CNBC investigation in November which revealed that two physicians in Mobile, Alabama, Dr. Xiulu Ruan and Dr. John Couch, partners at a practice, received over $210,000 from Insys Therapuetics in 2013 and 2014 for things like speaking fees, travel and meals.

The company's main revenue generating drug is a highly addictive opiate 100 times more powerful than morphine, called Subsys Fentanyl.

In May 2015, Drs. Ruan and Couch were arrested on drug and fraud charges and both pleaded not guilty.

The agreement with the Insys sales rep, filed on Feb. 17 and obtained by CNBC, states that Perhacs was hired by Insys as a kickback to Dr. Ruan, who became fond of her and "went out of his way" to try to get her hired as a sales representative with a pharmaceutical company.

In an e-mail sent on November 7, 2012, Dr. Ruan asked Perhacs,"Well, I want to ask you a personal question and hopefully you would not be offended. Are you involved with someone now? . . . You don't have to answer any of these if you do not feel comfortable."

The plea agreement states that Perhacs was not hired because of her knowledge or experience working with controlled substances like Subsys; but rather, she was hired to "induce, and in exchange for, Dr. Ruan continuing to prescribe Subsys."

"Perhacs had a strong financial incentive to do so, and to turn a blind eye to illegal kickbacks being paid by Company A [Insys] to Dr. Ruan and Dr. Couch. Despite earning a base salary of only $40,000.00 per year, commissions from off-label prescriptions written by Dr. Ruan and Dr. Couch resulted in Perhacs making over $700,000.00 between April 2013 and the doctors' arrests on May 20,2015."

Not only did Drs. Ruan and Couch co-own and co-direct a pain management clinic (Physician's Pain Specialists of Alabama) with two locations in Alabama, but they also owned a pharmacy next to one of the clinics called C&R.

The plea agreement states that nearly all of these prescriptions were written off-label to non-cancer patients and that all of these prescriptions were filled at C&R Pharmacy, which then billed federally-funded and private health insurance providers a total of $572,626.62.

That's important because the drug in question, Subsys Fentanyl, is only approved by the FDA for breakthrough cancer pain.

Though it is not illegal for doctors to prescribe off label, it is illegal for the company to market a drug outside of FDA approved use.

The deal is not the first plea agreement involving allegations that the company used doctors and illegal business practices to try to grow profits. A nurse practitioner in Connecticut pleaded guilty to accepting kickbacks from Insys last year.

A class-action lawsuit filed against the company on Feb. 18 alleges that the company "was engaged in the illegal and improper off-labeling marketing of Subsys" and that certain employees, including former CEO, Michael Babich, "were complicit in an illegal kickback scheme operated for the purpose of increasing prescriptions of Subsys."

Babich was replaced as CEO of Insys two days after the CNBC report aired in November 2015.

Dr. Ruan's lawyer, Dennis Knizley, told CNBC that Ruan is no longer working at the clinic. Knizley said while Ruan still has his medical license he is not actively practicing medicine at this time, the biggest reason being the investigation and prosecution, which have "crippled him" in the public and financially. "They [the government] have seized without a hearing millions of assets of his," the lawyer said.

The lawyer denied that Perhac's employment was a kickback and said Dr. Ruan's relationship with the company were services for a physician who had eight board certifications and was highly qualified. He noted that speaking engagements for Dr. Ruan were in place before Perhacs had the job.

Knizley said that Perhac's salary and other payments to her were decisions made by Insys. "That's up to them," he said.

Ruan's lawyer also denied there was a romantic relationship between Dr. Ruan and Perhacs. "Did he recommend her for a job with Insys? Yes he did. She was accomplished sales person, a bright young lady," Knizley said.

Jury selection in the case of Drs. Ruan and Couch is scheduled for July.

Calls and emails to Dr. John Couch were not returned.

An Insys Therapeutics spokesperson provided a statement to CNBC saying that the company is still reviewing these developments, but it provides personnel with specific training on company policies and procedures designed to comply with applicable laws and regulations. In addition, Insys has a compliance program with protocols and monitoring specifically designed to ensure its sales and marketing practices comply with these laws and regulations. "Providing items of value to health care providers in order to induce prescriptions is a violation of the company's compliance policies," the company statement said.

Insys shares are down 40 percent year-to-date.

The Insys-related legal issues come amid a backdrop of a nationwide epidemic of opioid addiction that has attracted the attention of President Obama, who has asked for more than $1 billion to fight addiction, candidates for the presidency, and major corporations confronting the opioid abuse in the workplace.