Deputy Assistant Attorney General Ethan Davis, who oversees the U.S. Department of Justice Consumer Protection Branch (where this author served for ten years), recently gave a speech at an FDAnews conference on off-label promotion. This speech not only addressed priorities relating to off-label promotion, but perhaps more significantly emphasized aggressive enforcement against companies with severe Good Manufacturing Practices (CGMP) issues that lead to the production and distribution of adulterated and/or misbranded drugs.
In the off-label areas, the DAAG’s speech did not actually plow new ground. The speech, given in the wake of FDA’s continued efforts to address regulatory uncertainty in this area, emphasized that DOJ would devote enforcement resources only in the circumstances of a company making false or misleading off-label statements to prescribers or patients. Frankly, this approach was always the case, beginning with the wave of off-label prosecutions of large companies like Pfizer and GlaxoSmithKline that began in the 2000s. Attaching priority to cases of outright falsehoods or misleading statements makes logical sense – a case based on “technical regulatory violations,” as the DAAG put it, besides creating “inefficiencies,” would not be compelling to a judge or jury. As it is, off-label cases involve significant nuance.
Beyond the off-label area, the speech signaled continued enhanced enforcement by the DOJ Consumer Protection Branch of serious current good manufacturing practices (CGMP) violations, including seeking criminal penalties against companies and indictments of individual executives in the worst cases. CGMPs apply to all pharmaceutical companies, and FDA monitors compliance through inspections of domestic and increasingly foreign producers and distributors. Products manufactured inconsistently with CGMPs are by definition adulterated and violate the Food, Drug and Cosmetic Act. The largely analogous Quality System regulations affect most medical device producers and distributors, and FDA enforces them similarly. Significant violations in these areas often risk patient harm, and FDA in such circumstances, following issuance of a form 483 at the conclusion of an inspection, may issue a warning letter and/or refer the case to DOJ’s Consumer Protection Branch for civil or criminal enforcement activity.
DOJ has enhanced its enforcement efforts in this area over time, and continued emphasis means that companies should take a closer look at their regulatory compliance efforts and the state of CGMP or Quality System adherence in their facilities. This is particularly true currently for compounding companies, which have the attention of Federal and state governments following the New England Compounding Center tragedy and other, smaller scale instances of patient harm. Responding to a DOJ enforcement action, whether civil or criminal is a risky and expensive proposition. The DAAG’s speech means the industry is forewarned.
The Law Office of Mark L. Josephs recently completed representing a party at trial in a shareholder dispute involving a company that distributed pharmaceuticals and medical devices. The heart of the litigation addressed fiduciary duty and employment retaliation claims, but, not surprisingly, GMP issues lurked. An important issue became the assessing the financial consequences of GMP violations purportedly committed by the former president of the company. The jury learned about GMPs and form 483s, but their eyes glazed over when one counsel ineffectively dove into the weeds of particular violations with an FDA expert. In such cases, a key skill is to bring technical GMP violations to life for fact-finders. This task involves stressing the ultimate purposes of the relevant provisions and describing violations in terms that are understandable and meaningful to judges or jurors without FDA expertise. The jury ultimately reached a verdict in favor of Mr. Josephs’ client and his co-plaintiffs, including on the GMP issues.
In a recent year, approximately 30 percent of FDA inspections led to issuance of 483s. FDA-regulated companies must be aware of and prepared for FDA inspectors to find violations, and must be ready to quickly devise plans to address the violations to the government’s satisfaction. This issue is not a concern only with government enforcement. Despite the Fourth Circuit’s recent holding that GMP issues do not alone establish False Claims Act (FCA) liability, U.S. ex rel. Rostholder v. Omnivore, 745 F.3d 694 (4th Cir. 2014), both whistleblower and government attorneys continue to find ways to bring FCA claims relating to GMP issues, such as alleging misrepresentations to FDA and distribution of products that do not conform with approved specifications.
The Law Office of Mark L. Josephs has the expertise and experience to address GMP issues, whether pursued by the government or whistleblowers. Mr. Josephs is one of the very few attorneys to take a pure GMP enforcement case to trial, and he also brought a ground-breaking prosecution of a large pharmaceutical company relating to GMP violations. He can effectively assist drug or medical device companies address GMP issues of varying degrees of severity and at any stage of the enforcement or litigation process.
The jury returned a verdict several days ago in the trial of Barry Cadden, the former head pharmacist and president of New England Compounding Center (NECC) in Framingham, Massachusetts. In 2012, contaminated steroids released from NECC caused 64 deaths and several hundred injuries, some severe and ongoing. The disease caused by the steroids, fungal meningitis, was so rare that the Centers of Disease Control required new testing procedures because the agency never previously had reason to test for such a rare disease.
In December 2014, the Department of Justice charged 14 defendants with a wide range of crimes relating to NECC. The indictment included Racketeering charges against six defendants, and these charges included among the predicate acts 24 counts of second degree murder. The murder charges applied only to Barry Cadden and Glenn Chin, a supervisory pharmacist at NECC. As far as this former health care fraud prosecutor is aware, this was the first time that Racketeering and murder charges resulted from a company’s release of contaminated drug products.
At the conclusion of a nine-week trial, the jury returned guilty verdicts against Cadden on the primary Racketeering charge, most of the mail fraud predicate acts that were part of the Racketeering charge, individual mail fraud counts, and certain of the misbranding charges under the Food, Drug and Cosmetic Act (FDCA). The jury returned not guilty verdicts on all of the murder charges, a charge of conspiracy to defraud the federal government, and adulteration charges and certain of the misbranding charges under the FDCA. Sentencing is scheduled for June 21.
After the indictment was returned, the local defense bar was critical of the prosecution, contending, among other things, that the case was overcharged. I agreed. The murder charges were virtually unprecedented in a case like this one, and Racketeering charges had rarely, if ever, been brought in a health care case similar to this one. Of course, unusual facts lead to unusual prosecutorial decisions, and the circumstances of the NECC matter were terribly tragic. A tainted drug product causing one death is very rare – one type of product causing 64 deaths thankfully is unprecedented in recent years.
Without the Racketeering and murder charges, the government could have focused more than they did on the FDCA charges, which are the ones most directly applicable to this situation. Convictions on those charges and mail fraud would have led to just as significant a sentence as Cadden is likely to receive in June.
Even in the tragically unusual circumstances of this case, in which contamination could be seen by the naked eye in test tubes containing the steroid product, proving the extreme wanton disregard for human life to sustain 2nd degree murder charges against the putative head of the company was always going to be extremely difficult. On the Racketeering charges, however, the jury having to convict on only two of the tens of predicate acts that were charged made a conviction perhaps inevitable, and the Racketeering statute provides broad forfeiture authority.
The First Circuit is sure to address this case, as I understand the defense believes there are strong appellate issues on, at the very least, the mail fraud convictions. Glenn Chin is scheduled to be tried next, and Judge Stearns has already begun determining ways to shorten that trial based on the Cadden trial. I suspect that a jury is likely to return similar verdicts as to Chin.
It will be interesting to see whether any health care fraud prosecutors will attempt to at least partially copy the charging pattern here in future cases. More likely, this is a case of unusually tragic circumstances leading to broad and aggressive charges unprecedented in health care fraud.
Last month, the Department of Health and Human Services Office of Inspector General (OIG) published a Final Rule that added certain safe harbors to Anti-Kickback regulations and modified other safe harbors already in existence. The Anti-Kickback statute, Section 1128B(b) of the Social Security Act, imposes criminal penalties against individuals and entities that knowingly and willfully pay or offer compensation in order to induce or reward the referral of health services reimbursable under Federal health care programs.
Congress and the agency have realized that certain types of financial arrangements that otherwise would create liability under the statute do not present the risk of fraud and abuse and, indeed, may increase efficiencies. Safe harbors were therefore added to the Anti-Kickback statute and regulations. As the scope of the myriad financial arrangements among health entities has only increased, the agency has tried to respond by clarifying and adding the types of activities that should not and will not expose the involved health care providers to liability. In this case, the added safe harbors address certain cost-sharing arrangements and discounted health services.
The still-evolving safe harbor program within the Anti-Kickback statutory and regulatory structure is an excellent example of a government agency attempting to adjust to current business conditions.
The Law Office of Mark L. Josephs LLC has the expertise to advise health care provider entities and individuals regarding whether their existing or proposed business relationships present Anti-Kickback risks. Key to the excellence of these services are the valuable contacts the Office has with OIG senior counsel, whom the Office can contact to assist in the evaluation of a particular client’s circumstances.
A recent criminal and civil settlement between the government and a medical device manufacturer and a recent step taken by the Food and Drug Administration (FDA) together demonstrate the attention medical device companies are increasingly receiving as that industry continues to grow.
Last month, Biocompatibles, Inc., a Pennsylvania-based medical device manufacturer, pleaded guilty to a misbranding violation of the Food, Drug, and Cosmetic Act relating to its marketing of its embolic device called LC Bead. FDA had approved LC Bead as an embolization device designed for placement in blood vessels to block or limit blood flow to tumors and other dangerous growths. The company assured FDA after approval for this sole use that it would not market the product as a drug-delivery device. Nevertheless, Biocompatibles’ distribution company aggressively marketed LC Bead as a drug-delivery device that could increase the level of chemotherapy delivered to liver tumors. Under the terms of the plea agreement, Biocompatibles will pay a criminal fine of $8.75 million and a criminal forfeiture of $2.25 million. The company will also pay $25 million to resolve a False Claims Act case relating to claims that Biocompatibles submitted to government healthcare programs for procedures in which LC Bead was used as a drug-delivery device.
This settlement follows similar cases earlier this year against both medical device companies and executives of such companies, including the recent Massachusetts trial in which the former executives of Acclarent, a medical device company, were acquitted of felony misbranding charges, but convicted of related misdemeanors, in connection with the alleged off-label marketing of a medical device designed to help open sinuses.
Perhaps more important, the FDA recently created a new website for receiving allegations about regulatory misconduct on the part of medical device companies. This website, created after reports that FDA had consistently accepted late adverse event reports from device companies, allows any individual or entity to submit a claim that a medical device manufacturing company or an individual is distributing devices in a manner that violates statutory and/or regulatory requirements. Among the types of violations that FDA listed as examples of reportable allegations are failing to submit required reports or perform mandatory investigations, off-label marketing, failing to list or register devices with the FDA, and importing devices that do not meet U.S. requirements. Establishment of this website potentially will subject device companies to increased allegations of illegal or improper activities, particularly from internal whistleblowers.
The United States medical device industry is large and continues to grow. It is also diffuse, in that small-and medium-sized companies proliferate. In 2015, there were over 7,000 medical device companies in the U.S. alone. Regulating and monitoring such a diffuse industry is challenging, but the events described above show that the attention devoted to device companies is increasing.
The Law Office of Mark L. Josephs possesses the expertise and capability to represent medical device manufacturers and distributors both in addressing government or whistleblower allegations after they occur and in providing compliance services to avoid such allegations in the first place.
Earlier this week, the HHS Office of Inspector General (OIG) issued its largest ever penalty, approximately $3 million, for violations of a Corporate Integrity Agreement (CIA). OIG typically requires a CIA as part of resolution of a False Claims Act case in order for the defendant company to avoid exclusion under government health care programs. In this case, Kindred Health Care, the largest provider of home health and hospice care services in the Nation, assumed a CIA when it acquired Gentiva Healthcare. Gentiva’s subsidiary had resolved a False Claims Act case based upon improper billing of Medicare for hospice-related care in 2012 for a payment of $25 million and agreement to a CIA.
Kindred performed required audits through internal auditors, and these audits found, in 2013 through 2015, that not only had Kindred failed to implement policies and procedures required by the CIA, but also that Kindred’s poor claims submission practices had caused overpayments by Medicare. As a result, OIG assessed a penalty of $3,073,961.98. Kindred subsequently closed 18 of its “underperforming” facilities.
Obviously, Kindred should have done a better job of staying on top of its compliance with the CIA, particularly given that its own auditors were raising red flags. The fact that Kindred had inherited the CIA through an acquisition likely complicated compliance efforts. Given the ongoing consolidation of the health care industry, such circumstances are becoming increasingly common, and OIG clearly is not going to give anyone a pass because a company may have become subject to a CIA through corporate transactions involving a prior False Claims Act defendant.
The frequency of health care-related False Claims Act cases have rendered CIAs a common part of the health care compliance landscape. Every entity subject to one of these Agreements must take seriously its compliance obligations throughout the life of the CIA. The Law Office of Mark L. Josephs has the expertise and capacity to assist in meeting these compliance obligations.