2017 Mid-Year FDA and Health Care Compliance and Enforcement Update – Drugs and Devices

August 25, 2017

At the midpoint of 2017, much has changed, and yet much has stayed the same for U.S. manufacturers of pharmaceuticals and medical devices.  Although the new administration arrived in January, Dr. Scott Gottlieb, the new U.S. Food and Drug Administration ("FDA") Commissioner, was not confirmed until May.  Not surprisingly, then, much of the regulatory activity for the year is still on the horizon.

In the meantime, various federal and state government enforcement agencies continue to keep drug and device manufacturers in their sights.  As in recent years, the first half of 2017 saw a steady cadence of enforcement actions against drug and device companies under the standard set of enforcement statutes: the False Claims Act ("FCA"), Anti-Kickback Statute ("AKS"), Federal Food, Drug, and Cosmetic Act ("FDCA"), and Foreign Corrupt Practices Act ("FCPA").  This included, most notably, the largest-ever FCA recovery in a kickback case involving a device company, a $350 million settlement that served as a continuing reminder of the high stakes for companies facing investigations under these statutes.  Other notable enforcement developments included increasing scrutiny of companies that manufacture and market opioids.  In the courts, FCA jurisprudence continued to evolve in the wake of the Supreme Court’s decision in Universal Health Services v. United States ex rel. Escobar in June of 2016.

On the regulatory and legislative fronts, the headline has been the lack of any real headlines.  With the exception of a few pieces of guidance from FDA hurried out during the last days of the Obama Administration—including several notable guidance documents related to promotional issues—the regulatory landscape has, perhaps unsurprisingly, remained largely unchanged since President Trump’s inauguration in January.  On the Hill, several key pieces of potential legislation percolated in Congress, which battled over the state of the Affordable Care Act and possible replacements, passed the FDA Reauthorization Act in July and continued to debate drug pricing and promotional issues.

Below, we discuss the most notable enforcement and regulatory developments from the first half of 2017 affecting drug and device manufacturers.  As in past updates, we begin with an overview of government enforcement efforts against drug and device companies under the FCA, the FDCA, and other laws.  We then address evolving regulatory guidance and enforcement actions on topics of note to drug and device companies: promotional activities, manufacturing practices, medical device regulation, and the AKS.

I.     Department of Justice Enforcement in the Pharmaceutical and Medical Device Industries

The first half of 2017 saw yet another string of headline-worthy developments in the enforcement arena.

     A.     False Claims Act

We begin this update, as always, with an overview of FCA recoveries from the pharmaceutical, medical device, and durable medical equipment ("DME") sectors in the first half of 2017.  The U.S. Department of Justice ("DOJ") pulled in more than $419 million from settlements with seven companies.  That number was driven by two settlements involving allegations that were predicated on purported AKS violations, including Shire Pharmaceuticals LLC’s record-setting $350 million resolution.  Filling out the government’s civil recoveries in the first six months of the year were $54 million from cases involving alleged violations of government health program or contractual requirements, and a $2 million settlement involving alleged violations of the FDCA.  Notably, none of the settlements announced by DOJ thus far in 2017 have focused primarily on alleged off-label promotion.

1.     Settlements in AKS-Related FCA Matters

The lion’s share of government recoveries in FCA matters from the first half of 2017 resulted from the settlement among DOJ, Shire Pharmaceuticals LLC, and other Shire subsidiaries on January 11, 2017.[1]  Shire, a global pharmaceutical and medical device company, agreed to pay $350 million to resolve allegations that it offered kickbacks to induce clinics and physicians to use its bioengineered human skin substitute, an FDA-approved medical device.  Sales personnel allegedly offered expensive dinners and entertainment, medical equipment and supplies, sham speaking engagements and case studies, and rebates to encourage the use of the device.  The settlement also resolved allegations that Shire marketed the product for uses not approved by FDA, made false statements to inflate the price of the device, and caused improper coding of claims for reimbursement.  According to DOJ, the settlement with Shire is the largest-ever FCA recovery in a kickback case involving a medical device.[2]

2.     Government Program and Contractual Requirements

Most of the balance of settlement recoveries so far in 2017 has come from alleged violations of government health program requirements.  In April, DOJ announced that Sanofi-Pasteur agreed to pay $19.8 million to resolve allegations that it miscalculated the prices it reported to the U.S. Department of Veterans Affairs ("VA") and thereby overcharged the VA for vaccine products.[3]  Under the Veterans Health Care Act, pharmaceutical manufacturers must list their covered drugs on the Federal Supply Schedule and charge no more than a fixed ceiling price, which is determined as a percentage of the drug’s average manufacturer price.[4] 

In April and June 2017, several durable medical equipment suppliers also resolved claims of alleged violations of government health program rules related to product utilization.  Two companies, Lincare and Pacific Pulmonary Services, paid $20 million and $11.4 million, respectively, to resolve allegations that they submitted claims for oxygen equipment and other services that were not supported by medical necessity.[5]  Another company, Innovative Therapies, paid $2.7 million to resolve allegations that its negative pressure wound treatment devices were billed to government programs as DME, but did not meet program requirements to qualify as DME for billing purposes.[6]

3.     Manufacturing Requirements

In January 2017, Baxter Healthcare Corporation agreed to pay more than $18 million to resolve claims related to its alleged failure to abide by current Good Manufacturing Practices ("cGMPs") in producing drug products it sold to the VA.[7]  Baxter agreed to pay approximately $2.158 million to settle the civil FCA claims, which stood on the theory that Baxter submitted "false claims" to the VA as a result of the company’s purported violation of contractual requirements mandating compliance with the FDCA.  As outlined in more detail in the FDCA section below, the company allegedly failed to follow cGMPs by manufacturing its large-volume sterile intravenous solutions in a "clean room" that was ventilated by moldy air filters.[8]  Notably, the Statement of Facts included in Baxter’s deferred prosecution agreement acknowledges that there was no indication that any product was affected by the alleged cGMP violations.[9]  That is significant; historically, where DOJ has pursued FCA enforcement actions involving manufacturing issues, it has focused on whether the issues impacted product quality such that DOJ could assert FCA liability under a "worthless products" theory.

4.     Developments in the Implied Certification Theory

The first half of the year also saw continued developments in the application of the Supreme Court’s 2016 Escobar decision, in which the Court recognized the viability of the "implied false certification theory" of FCA liability.[10]  Under the implied certification theory, FCA liability can be predicated on violations of material statutory, regulatory, or contractual requirements.[11]  In the first half of 2017, we continued to see the courts diverge in their interpretations of key aspects of Escobar, including what specific representations (if any) are needed to support an FCA claim, how a company’s track record of interacting with the government or regulatory agencies may or may not impact the courts’ materiality analyses, and whether fraud-on-the-FDA claims under the FCA are viable after Escobar.

a.     Framework for Assessing "Implied Certification" Claims

As outlined in more detail in our 2016 Year-End Update, the Supreme Court explained in Escobar that "the implied certification theory can be a basis for [FCA] liability, at least where two conditions" are met, including (1) "the claim does not merely request payment, but also makes specific representations about the goods or services provided," and (2) "the defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths."[12]

Since Escobar, courts have taken differing approaches regarding whether an FCA plaintiff must satisfy both of Escobar‘s "two conditions" to state a viable implied certification claim.  The question of whether there must be a "specific representation" made in the claim submission process is particularly significant for drug and device companies.  Indeed, these companies typically do not submit claims for reimbursement themselves, and prescribing physicians’ and pharmacists’ claims typically are true statements about patients’ diagnoses and the drugs being prescribed and dispensed to the patients. 

In United States v. Sanford-Brown Ltd., which we discussed in our 2016 Year-End Update, the Seventh Circuit suggested that it would enforce a strict reading of Escobar‘s two conditions.  Explaining that "bare speculation that [a defendant] made misleading representations is insufficient," the Sanford-Brown court affirmed summary judgment in favor of the defendant where the relator offered no evidence that the defendant made "any representations at all."[13]  The Ninth Circuit also has adopted a strict interpretation of the Escobar conditions, stating in United States ex rel. Campie v. Gilead Sciences, Inc., that a defendant "must not merely request payment, but also make specific representations about the goods or services provided" to succeed on an implied certification theory.[14]  District courts in other circuits have followed this line of reasoning.  For example, the Eastern District of Pennsylvania held in March that the "Escobar standard," which requires proof of specific representations made to the government payer, is "the only [standard] available for proving FCA liability" under the implied certification theory.  Accordingly, the court dismissed the plaintiffs’ FCA claims, which were based on alleged violations of the Poison Prevention Packaging Act.[15]  But some other courts, such as the Fourth Circuit, have recently said that Escobar does not necessarily require "specific representations" for implied certification liability.[16]

Even among the courts that require FCA plaintiffs to satisfy both of Escobar‘s conditions, some have not made the "specific representations" condition a very high bar to cross.  In Campie, for example, the relators alleged that the defendant, a biotechnology company, caused the submission of claims for reimbursement for drugs manufactured in a manner inconsistent with representations that the company made to FDA in securing approval.  The Ninth Circuit indicated that the drugs’ proprietary names alone could constitute a false representation, because the names "necessarily refer to specific drugs under the FDA’s regulatory regime" and thus themselves represent FDA approval.[17]  Given that the defendant allegedly "requested payment for drugs that fell outside of that approval," the court reasoned that relators adequately alleged that the defendant "omitted critical information regarding compliance with FDA standards."[18]  If other courts follow Campie‘s lead and loosen the "specific representations" standard, Escobar may provide far less protection to future FCA defendants than some anticipated.

b.     Government Knowledge and Materiality

The Supreme Court emphasized in Escobar that the FCA’s materiality element, which requires an FCA plaintiff to show that the alleged violation of a legal requirement was material to the government’s decision to pay the claims in question, is "demanding" and "rigorous."   Accordingly, the Court clarified that the government’s mere option to refuse payment is not sufficient to establish materiality.[19]  The Court explained further that the government’s refusal to pay claims based on the alleged noncompliance may serve as evidence of materiality and that the government’s payment of claims "in full despite its actual knowledge that certain requirements were violated" is "very strong evidence" that the requirements are not material.[20]  In light of this guidance, several courts have recently grappled with what credence (if any) to attribute to the inaction of government officials with responsibility for payment and of agencies investigating the alleged compliance issues.

In United States ex rel. Petratos v. Genentech Inc., the Third Circuit affirmed the district court’s decision to dismiss claims that the defendant pharmaceutical company had "suppressed data that caused doctors to certify incorrectly that [a drug] was ‘reasonable and necessary’ for certain at-risk Medicare patients."[21]  The relator alleged that the defendant was liable under the FCA because disclosures of certain data showing more common and severe side effects of its cancer drug "would have required the company to file adverse-event reports with FDA, and could have resulted in changes" to the drug’s FDA-approved labeling.[22]  The relator also alleged that, had the defendant disclosed the side-effect information, physicians would have prescribed different doses of the drug or decided not to prescribe it at all.[23]

In affirming, the Third Circuit held that the alleged suppression of data was not material to payment under Escobar, noting that the relator’s claims must fail, in large part, because he "not only fail[ed] to plead that CMS ‘consistently refuses to pay’ claims like those alleged . . . but essentially concede[d] that CMS would consistently reimburse these claims with full knowledge of the purported noncompliance."[24]  As to the government’s knowledge of alleged wrongdoing, the court observed that neither FDA nor DOJ took any adverse action against the defendant after the relator disclosed the allegations, FDA added more approved indications for the drug, and DOJ declined to intervene in the qui tam suit.[25]  The court concluded that because the relator "concede[d] that the expert agencies and government regulators have deemed these violations insubstantial (or at least would do so if made aware) . . . it [is not] appropriate for a private citizen to enforce these regulations through the [FCA]."[26]

c.     The Ninth Circuit Recognizes "Fraud on the FDA" Theory under Escobar

In our 2016 Year-End Update, we addressed the First Circuit’s decision in United States ex rel. D’Agostino v. ev3, Inc., which rejected the relator’s theory that an alleged fraud perpetuated on FDA could serve as a basis for FCA liability.[27]  Cautioning against "turn[ing] the FCA into a tool with which a jury . . . could retroactively eliminate the value of FDA approval . . . when the FDA itself sees no reason to do so,"[28] the First Circuit reasoned that allegations that the "fraudulent representations ‘could have’ influenced the FDA to approve [the drug]" fell short of pleading the necessary "causal link" between representations made to FDA and payments made from CMS.[29]  The court also emphasized that FDA did not withdraw its approval of the device or take any other action despite being aware of the alleged fraudulent statements.[30] 

More recently, however, the Ninth Circuit reached a different result from the First Circuit’s.  As noted above, in Campie, the relators alleged that the defendant biotechnology company fraudulently obtained approval for certain of its drugs by making false statements to FDA about the manufacturing source of the drugs’ active ingredient and negative results of internal quality testing of the products.[31]  According to the relators, FDA would not have approved the drugs if it had been aware of the alleged quality issues at the manufacturing site; the relators also alleged that the defendant took various steps to fraudulently conceal that it was obtaining the active ingredient from an unapproved manufacturing site before FDA’s approval.[32]  The government declined to intervene, and the district court granted the defendant’s pre-Escobar motion to dismiss, concluding that the relators did not plead that the FDA regulations allegedly violated by the defendant were a material condition of payment and thus failed to state a claim for relief under an implied certification theory.[33]

The Ninth Circuit reversed.  After deciding that the defendant’s proprietary drug names themselves could constitute actionable "specific representations," the court rejected the distinction, advanced by the defendant and adopted by the district court, that any misrepresentations were made to FDA, not the government agency that paid for the drugs.[34]  The Campie court—quite incredibly—observed that the purported fraud was "committed against the Department of Health and Human Services," which oversees FDA, and concluded that a fraud on one component agency amounts to a fraud on a separate component agency, as long as they are "overseen" by the same cabinet secretary.[35]  In any event, the court continued, "[i]t is not the distinction between the agencies that matters, but rather the connection between the regulatory omissions and the claim for payment."[36]  According to the Campie court, the crux of the inquiry is whether the false statement is "integral to [the] causal chain leading to payment[.]"[37]

Turning to materiality, the court concluded that the relators adequately pleaded that element because "FDA approval is ‘the sine qua non‘ of federal funding here."[38]  The court then rejected the defendant’s argument that FDA’s choice not to withdraw approval, even after it became aware of the unsanctioned manufacturing site and the alleged quality issues, showed that the alleged conduct was not material.[39]  The court noted that "there are many reasons the FDA may choose not to withdraw a drug approval," and stated that FDA’s continued approval of the drugs was unremarkable because the company had stopped using the manufacturing site in question.[40]

The Campie court’s analysis of materiality appears, at best, incomplete.  The court emphasized that FDA approval was material to payment, but it never analyzed how the alleged statements or regulatory violations were material to the FDA approval or whether relators pleaded those seemingly required facts.  Nevertheless, the court concluded that the "issues raised by the parties here are matters of proof, not legal grounds to dismiss relators’ complaint."[41]  In doing so, the Campie court appears not to have given much regard to Escobar’s admonition that questions about materiality in the implied certification context are "[not] too fact intensive for courts to dismiss [FCA] cases on a motion to dismiss . . . ."[42]

5.     Rule 9(b) Particularity

Federal Rule of Civil Procedure 9(b), which requires allegations of fraud to be pleaded with particularity, applies to FCA cases.  But federal circuit and district courts have diverged widely over the years as to how much detail FCA plaintiffs—and especially relators in cases after the government has declined to intervene—must plead about actual false claims to survive a Rule 9(b) challenge on a motion to dismiss. 

That is a particularly salient issue in claims against pharmaceutical and medical device companies.  Because those companies typically do not submit false claims themselves, FCA plaintiffs must plead some level of factual information about the claims for reimbursement submitted by the physicians who prescribe or use the defendants’ drugs or devices, or by retail pharmacies that fill subscriptions. 

In United States ex rel. Booker v. Pfizer,[43] the First Circuit added another entry to the growing body of case law on this question and reaffirmed a prior ruling that pleading aggregate government expenditure data for the drugs at issue does not, without more, pass muster under Rule 9(b).[44]

In Booker, the relators brought FCA claims against the defendant pharmaceutical company alleging that the defendant continued to induce third parties to submit false claims for off-label pediatric use of its psychotropic drug despite settling prior claims with the government based on those off-label uses (and that the defendant failed to report those purported violations as required by its prior corporate integrity agreement).[45]  After allowing limited discovery on some of the claims, the district court granted summary judgment in favor of the defendant on the relators’ off-label and kickback claims.[46] 

The First Circuit affirmed the dismissal of relators’ reverse FCA claim, which was based on the defendant’s alleged failure to comply with the corporate integrity agreement’s reporting requirements, on the ground that the relators did not assert that the defendant acted unreasonably in determining that the complaint was not a "Reportable Event" for purposes of the agreement.[47]  The court then affirmed the grant of summary judgment on the off-label FCA claims, as the only evidence proffered by the relators "[a]fter six years of litigation" was aggregate Medicaid reimbursement data for the alleged off-label use.[48]  Applying Rule 9(b)’s particularity requirements, the court echoed prior precedent, holding that "where relators offer only ‘aggregate expenditure data by the government for’ the drug at issue, ‘with[out] identify[ing] specific entities who submitted claims[,] much less times, amounts, and circumstances,’ their claims ‘fall short.’"[49]  The court further clarified that the First Circuit had not held that "aggregate data together with strong circumstantial evidence" could be used "to demonstrate the existence of false claims in an FCA case."[50]  Because the relators’ data was "woefully inadequate to support their FCA claim[,]" the court affirmed the district court’s grant of summary judgment for the defendant on the claims.[51] 

It is somewhat unusual that the First Circuit would apply Rule 9(b), a pleading requirement, at the summary judgment stage, but the takeaway from Booker is clear that FCA plaintiffs alleging off-label theories in the First Circuit risk early dismissal if their claims are based solely on aggregate reimbursement data without at least some detail regarding individual claims.

6.     Public Disclosure

The first half of 2017 saw two decisions applying the FCA’s public disclosure bar, 31 U.S.C. § 3130(e)(4), that may prove useful to drug and device companies.  Both addressed the level of specificity with which previous public disclosures must discuss the allegations at issue for the bar to apply.

In the first decision, the Eighth Circuit affirmed the dismissal of the relator’s claims in United States ex rel. Lager v. CSL Behring, L.L.C., because various public sources disclosed "enough information" to identify the defendant and its products.[52]  There, the relator alleged that the defendant manufacturer conspired with specialty pharmacies to submit false claims to the United States for reimbursement for prescription drugs.  In particular, the relator asserted that CSL falsely reported inflated wholesale prices of two durable medical equipment infusion drugs, allowing the pharmacies to charge Medicare higher prices for the drugs and resulting in $280 million in Medicare overpayments. 

Rejecting the relator’s argument that he added value by identifying the specific defendant in question in this case, the court held that a public disclosure must either "explicitly identify" the defendant or "provide enough information about the participants in the scheme such that the defendant is identifiable."[53]  The court agreed that, collectively, the various sources outlining issues with the average wholesale price ("AWP"), including CMS data showing the defendant’s prices and a government report identifying the same class of products, "provide[d] enough information" to "directly identify" the defendant and its products.[54]  Because the same sources disclosed the concept of fraudulently marketing the "spread" between the actual costs and the AWP at which Medicare reimburses the products, the "elements critical to [relator’s] complaint theory were already in the public domain before [he] brought suit"; as such, the FCA’s statutory bar applied to relator’s suit.[55]

In the second decision, the Ninth Circuit joined a number of other courts that have concluded that the FCA’s enumerated sources of public disclosures encompass pleadings and other public filings in civil litigation.  In Amphastar Pharmaceuticals Inc. v. Aventis Pharma SA, the court held that the public disclosure bar can apply if the relator developed the bases for the allegations and transactions in question during discovery in a prior suit.[56]  There, the relator, a generic pharmaceutical manufacturer, alleged that the defendant innovator manufacturer violated the FCA by submitting false information to the U.S. Patent and Trademark Office in obtaining a patent for one of its drugs; the relator further contended that this purportedly false submission facilitated the defendant’s monopoly for the drug and led to overcharging of the government.[57]  In an earlier patent infringement suit brought by the defendant, the relator asserted similar claims of inequitable conduct as an affirmative defense and counterclaim.[58] 

Observing that "pleadings or other public filings" can provide the basis for public disclosures that trigger the statutory bar,[59] the Ninth Circuit held that the relator’s amended answer and counterclaim for inequitable conduct in the prior suit "made nearly identical allegations to those made" in the FCA case.[60]  The court rejected the argument that the relator had not previously raised FCA claims, explaining that an allegation "need not include an express reference to the [FCA,]" nor must it contain "every specific detail" for the bar to apply.[61]  Notably, although the relator had not previously alleged that the government was buying the drug in question while the defendant asserted its patent, the court reasoned that it was "an obvious inference based on the publicly disclosed allegations."[62]  And because the underlying information was developed during earlier litigation, the court also found that the relator lacked the "direct and independent knowledge" necessary to qualify as an original source under the public disclosure bar as it existed prior to the 2010 amendments in the Patient Protection and Affordable Care Act.[63]

     B.     Developments in Enforcement Actions Against Opioid Manufacturers

In its first six months, the Trump Administration has stated that it will focus on responding to public health crises involving opioid abuse around the country and that its enforcement agencies will scrutinize companies that manufacture and market opioid drugs.

In a first-of-its-kind settlement announced on July 11, 2017, Mallinckrodt, one of the largest manufacturers of generic oxycodone, agreed to pay $35 million to settle allegations that it violated certain civil penalty provisions of the Controlled Substances Act.[64]  The government alleged that Mallinckrodt failed to meet its obligations to detect and notify the Drug Enforcement Agency ("DEA") of suspicious orders of oxycodone, which is a controlled substance and is subject to certain order monitoring requirements.  From 2008 to 2011, Mallinckrodt purportedly supplied distributors with "excessive" quantities of oxycodone without notifying the DEA of the allegedly suspicious orders.  The settlement also resolved recordkeeping allegations related to purported issues with the batch records at one of the company’s manufacturing plants.  According to DOJ, the Mallinckrodt settlement is the first of its size to resolve claims premised on violations of suspicious order monitoring and reporting requirements with a drug maker.[65]

Of particular note, the settlement includes a parallel agreement with the DEA under which the company must conduct certain data analyses to identify suspicious orders in the future.  The settlement requires Mallinckrodt to use downstream customer purchase information (provided by the company’s distributors to inform the amount of discounts, or "chargebacks," that Mallinckrodt may offer based on sales to certain downstream customers) to monitor and then report suspicious sales of oxycodone by distributors to pharmacy and pain clinic customers.[66] 

     C.     Notable Developments in FDCA Enforcement

As noted above, Baxter Healthcare Corporation agreed to pay more than $18 million to resolve allegations that it failed to comply with cGMPs when manufacturing sterile intravenous ("IV") solutions.  Of that settlement sum, Baxter will pay $16 million in connection with its criminal deferred prosecution agreement and related penalties and forfeiture.[67] 

According to the criminal information, the drugs were adulterated as a result of the presence of mold on some of the high-efficiency particulate absorption filters installed in the clean rooms in which the IV solutions were manufactured.  A Baxter employee allegedly reported the presence of mold on the filters to the management of the manufacturing plant, but, according to the government, Baxter did not remove the moldy filters until after an unannounced FDA inspection identified the issue.  Although there was no evidence that mold had any impact on the IV solutions, Baxter admitted to distribution of adulterated drugs in violation of the FDCA in its deferred prosecution agreement and agreed to implement enhanced compliance provisions, including periodic certifications to the government.[68]

On April 18, 2017, DOJ announced that SCM True Air Technologies, Inc. and the company’s former president pleaded guilty to a criminal information involving one count of operating an establishment that manufactured medical devices without proper registration.[69]  According to the government, between 2010 and 2012, the president delivered to the VA misbranded bariatric hospital beds (Class II medical devices) manufactured in Ohio and Kentucky establishments that were not registered properly with FDA, even though the president and SCM had been advised that such registration was required.  The former president also pleaded guilty to one count of obstruction of an FDA investigation and one count of introducing misbranded medical devices into commerce.[70]

Turning to case law developments, the Supreme Court refused to hear a case challenging the contours of the Park doctrine.  The Park doctrine (also known as the "responsible corporate officer" doctrine) derives from United States v. Park,[71] in which the Supreme Court held corporate officers could be criminally liable under the FDCA for failing to prevent or correct an FDCA violation without the usual criminal state of mind.[72] 

As we reported in our 2016 Year-End FDA Update, a divided panel of the Eighth Circuit in United States v. DeCoster upheld the misdemeanor convictions of two owners and operators of an egg-production company for introducing eggs into interstate commerce that had been adulterated with salmonella enteritidis.[73]  The panel refused to undercut the Park doctrine (and distinguished officer liability from vicarious liability).  Instead, the panel focused on the fact that the defendants knew or should have known of the risks posed by unsanitary conditions at their egg barns, and held that the "elimination of a mens rea requirement does not violate the Due Process Clause for a public welfare offense where the penalty is ‘relatively small[.]’"[74]   

In petitioning for certiorari, the defendants argued that their convictions were based on vicarious liability and thus violated due process because the defendants did not have knowledge that the distribution company sold adulterated eggs.[75]  But the Supreme Court ultimately denied the defendants’ petition (without any written order),[76] leaving the Park doctrine undisturbed.

     D.     FCPA Investigations

Two FCPA settlements from early in the year illustrate the potential consequences companies may face after failing to correct (from the government’s perspective) issues identified in previous investigations.

In the first, Zimmer Biomet Holdings ("Biomet") entered a joint FCPA resolution with DOJ and the Securities and Exchange Commission ("SEC") in January 2017, stemming from Biomet’s alleged failure to sever ties with an unauthorized third-party distributor in Brazil and its purportedly improper payments to customs officials in Mexico.[77]  To settle the allegations, Biomet agreed to pay more than $30 million and retain a compliance monitor for three years. 

By way of background, Biomet previously settled FCPA charges in 2012 involving allegedly improper payments to doctors employed by public institutions in Argentina, Brazil, and China by entering into a deferred prosecution agreement signed prior to Zimmer’s acquisition of Biomet.  As part of that settlement, Biomet agreed to a three-year independent compliance monitor; the company had to extend that monitorship for one year in light of the new allegations in Brazil and Mexico, which arose in the midst of its previously established compliance program.[78]

According to the 2017 charging documents, Biomet continued its relationship with one of the distributors in Brazil that allegedly made some of the corrupt payments underlying the 2012 settlement, despite representations to the contrary made even after an internal audit allegedly identified a related company through which Biomet interacted with the distributor.[79]  The government took issue with Biomet’s books and records, claiming that they inaccurately recorded transactions with the pass-through company instead of the unauthorized distributor that actually performed the work.[80]  As to Mexico, the government alleged that a subsidiary used improper payments to customs officials through customs brokers and sub-agents to move unlicensed dental implants across the border.[81]

In its resolution with the SEC, Biomet consented to an administrative cease-and-desist order alleging FCPA bribery and accounting violations.[82]  And to resolve the DOJ investigation, Biomet entered into a deferred prosecution agreement charging willful failure to implement internal controls, and a subsidiary pleaded guilty to a single count of causing the parent company’s books and records to be inaccurate.[83]  With the implementation of Biomet’s new settlement terms, by the end of its obligations the company will have operated under the supervision of a monitor for a total of eight years.

On January 18, 2017, the SEC announced a settled cease-and-desist action against Texas-based medical device company Orthofix International; the action involved alleged FCPA accounting violations related to purportedly improper payments to doctors at state-run hospitals in Brazil.[84]  From 2011 to 2013, the company’s Brazilian subsidiary allegedly used inaccurately recorded discounts and improper payments through third-party commercial representatives and distributors to persuade doctors to use the company’s products.[85]  The SEC contended that Orthofix lacked policies or mechanisms to centrally approve and monitor discounts and commissions provided by the subsidiary.[86]  In the action, the SEC specifically referenced Orthofix’s previous FCPA resolution in 2012, which focused on allegedly improper payments by its subsidiary in Mexico.[87]  Like the Biomet case discussed above, Orthofix disclosed the facts leading to this second FCPA settlement as part of the company’s reporting obligations from its settlement in 2012.[88]

To settle the SEC’s FCPA allegations, Orthofix consented to an administrative cease-and-desist order and agreed to pay more than $6 million, including nearly $3.2 million in disgorgement and prejudgment interest and a $2.9 million civil penalty.[89]  Orthofix also agreed to retain an independent compliance consultant for one year[90] and, notably, was required to admit the facts forming the basis for the settlement.[91]  In a coordinated non-FCPA resolution, Orthofix and four former executives settled with the SEC revenue recognition charges relating to distributor sales.[92]

Additional discussion of these and other FCPA developments can be found in Gibson Dunn’s 2017 Mid-Year FCPA Update.

II.     Promotional Issues

After a flurry of last-minute activity by the Obama Administration in January, the first half of the year saw relatively little regulatory activity regarding the promotion of drugs and devices.  That is unsurprising, given that Commissioner Gottlieb did not take the helm until May.[93] 

Before taking his new post, Commissioner Gottlieb publicly proposed changing FDA’s culture.  For example, he decried "increasing regulatory obstacles," observed that the "practice of medicine is supposed to be regulated by state governments," and noted that physicians "are not always required to strictly follow labels or FDA directives."[94]  These remarks may signal that a shift away from strict regulation of promotional information, which many observers feel has been warranted for a long time, is near.

Below, we address the limited regulatory and legislative  developments from the first six months of 2017, as well as recent developments in FDA enforcement involving promotional issues.

     A.     FDA Enforcement Activity – Advertising and Promotion

In our 2016 Year-End Update, we reported a flurry of year-end FDA enforcement activity related to advertising and promotion by the outgoing administration.  But so far this year, the agency’s enforcement activity has nearly ground to a halt.  FDA’s Office of Prescription Drug Promotion ("OPDP") has issued only one warning letter so far.[95]   It remains to be seen whether this is the new normal (in light of growing First Amendment concerns about enforcement in this arena), a sign of shifting agency priorities under its new leadership, or simply an anomaly.

OPDP’s sole warning letter this year concerns misleading risk information in electronic advertising—an area that has been a focus of FDA enforcement efforts in the past.  As in previous OPDP letters, FDA took issue with the presentation of risk information in the advertisement as well as the substance of that information.

In a May 18, 2017 untitled letter, OPDP asserted that Orexigen Therapeutics, Inc.’s television advertisement promoting a chronic weight management drug made false or misleading representations about the associated risks of the drug.[96]  According to OPDP, the advertisement contained numerous effectiveness claims, but omitted relevant risk information.  Further, OPDP contended that the advertisement misled consumers because it presented certain risk information in the visual portion of the advertisement while simultaneously communicating unrelated risk information in the audio portion.[97]

     B.     FDA’s Promotional Guidance

FDA has issued two draft guidance documents relating to promotional practices this year, both as part of the Obama Administration’s last-minute efforts to shape FDA promotional policies.

In January, FDA issued a draft "Questions and Answers" guidance entitled "Medical Product Communications That Are Consistent With the FDA-Required Labeling."[98]  The draft guidance document is intended to illuminate "how FDA evaluates firms’ medical product communications, including promotional materials, that present information that is not contained in the FDA-required labeling for the product but that may be consistent with the FDA-required labeling for the product."  FDA issued this draft guidance in response to manufacturers’ expressed interest in communicating "the approved/cleared uses of their products that are not contained in their products’ FDA-required labeling."[99]

According to the draft guidance, a manufacturer would not be subject to FDA enforcement action if its promotional communication is consistent with the FDA-required labeling, and is otherwise truthful and non-misleading—even if such information is not clearly contained in the labeling.  In determining whether promotional communication is "consistent" with the labeling, FDA would evaluate three factors:

  • First, FDA would consider whether any representations regarding the product in the communication conflict with particular conditions of use in the FDA-required labeling.  If there is a conflict, FDA would treat the communication as inconsistent under the draft guidance.
  • Second, FDA would look to whether the representations negatively alter the benefit-risk profile of a product in a way that may result in increased harm to health.  If so, the communication would be deemed inconsistent with FDA-required labeling.
  • Third, the agency would consider whether the product can be used safely and effectively under the conditions represented in the communication.  If so, the communication would be deemed consistent with FDA-required labeling.[100]

Also in January, FDA issued a draft guidance document regarding communication of health care economic information ("HCEI") to payors about both approved and investigational drugs and devices.[101]  This draft guidance emphasized FDA’s belief that "information provided by firms to payors about their drugs [should] be truthful and non-misleading."[102]

  • In regard to approved drugs, FDA first clarified that HCEI can be communicated to "a payor, formulary committee, or other similar entity with knowledge and expertise in the area of health care economic analysis, carrying out its responsibilities for the selection of drugs for coverage or reimbursement."  FDA then clarified that HCEI would be considered truthful and non-misleading if it relates to an approved indication.  According to FDA, illustrative examples of HCEI that is related to an approved indication include:  duration of treatment in clinical trials, use in additional practice settings, variations in dosing regimens, alternative patient subgroups, and clinical outcome assessments.[103]
  • In regard to investigational drugs and devices, the draft guidance would permit manufacturers to provide certain information prior to FDA approval, so long as it is done in an "unbiased, factual, accurate, and non-misleading" manner.  Approved topics include, for example, indications for which approval is sought, clinical results, pricing, and related product information.[104]

Halfway through 2017, the drug and device industry is still awaiting the long-ago promised guidance from FDA regarding its comprehensive review of policies relating to promotion of drugs and devices for off-label uses.  Although we continue to await that final guidance, we can report on a few notable regulatory developments in this area from the first half of 2017.

As we noted in our 2016 Year-End Update, FDA held a public meeting last November to solicit commentary on the issue of off-label promotion.  Following up on the meeting, FDA issued a January 2017 memorandum in which it identified 12 alternative approaches to off-label promotion under the First Amendment.[105]  FDA rejected every potential approach as inadequate in its memorandum.  But, the agency nevertheless extended the commentary period on its review (which had closed on January 9, 2017) to solicit further input on the First Amendment implications because some commenters had "expressed the view that FDA had not sufficiently discussed the First Amendment in the notification of public hearing."  The extended review period, which closed in April, resulted in nearly 100 additional comments.[106]

On January 9, 2017, FDA issued a final rule that partially amended the agency’s definition of "intended use" for drugs and devices.[107]  Departing from the prior definition of "intended use," which focused on whether a manufacturer had "knowledge of facts that would give him notice" that a drug or device would be used for off-label purposes, the new rule adopts a "totality of the evidence" standard.  The rule provides that "where the totality of evidence is sufficient to establish a new intended use for a medical product, relevant provisions of the [FDCA] and its implementing regulations will be triggered."

On March 20, 2017 (after the change in administrations), FDA delayed the rule’s effective date until March 19, 2018 to allow for additional public comment.[108]  Opponents of the rule have criticized its definition of intended use as overbroad, and various industry organizations submitted a petition requesting that FDA reconsider and permanently stay the rule on that basis.[109]

     C.     Notable Litigation Relating to Promotional Issues

Although the first half of 2017 produced little relevant jurisprudence, one opinion provides an important reminder about the practical limits to the First Amendment’s protection of promotional speech.

In United States ex rel. Gohil v. Aventis, Inc., the Eastern District of Pennsylvania declined to dismiss, on First Amendment grounds, allegations that the defendant "misrepresent[ed] the safety and effectiveness of the off-label use" of an FDA-approved drug for the treatment of cancer, reasoning that "[t]hat sort of speech is not necessarily protected by the First Amendment."[110]  The court recognized that "[l]iability for truthful, non-misleading speech related to off-label marketing may be protected by the First Amendment."[111]  But because the issue arose at the pleadings stage, the court declined to resolve the factual issue of whether "the off-label promotion [was] actually false and/or misleading."[112]  Although the Gohil court allowed the case to proceed, it is noteworthy that the court recognized the viability of a potential First Amendment defense in an FCA case based on off-label theories.

     D.     Legislative Developments

Reflecting the momentum for broader recognition of more permissive promotion communications about FDA-approved drugs and devices, the first half of 2017 featured notable legislative activity relating to off-label promotion at both the state and federal levels.

At the state level, one state took matters into its own hands in the absence of FDA policy reform regarding the exchange of truthful off-label information between industry participants and physicians.  On March 21, 2017, Arizona became the first state to enact a law permitting drug and device manufacturers to communicate with health care providers about off-label treatments by eliminating state penalties for such conduct.[113]  Arizona’s "Free Speech in Medicine Act" allows manufacturers to "engage in truthful promotion of an off-label use of a drug, biological product or device" with licensed health care professionals, but not directly to the public.  Of course, because FDA retains the authority to police off-label promotion at the federal level, Arizona’s effort to relax restrictions is largely a symbolic gesture.  Nevertheless, the bill received widespread media attention and may help to encourage similar activity by other states and may even influence FDA’s policy development.

Congress also shuffled forward this year, with House lawmakers introducing a pair of draft bills that would loosen restrictions on off-label drug and device communications.

The first bill, entitled the Pharmaceutical Information Exchange Act, is aimed at loosening restrictions on what information manufacturers are permitted to communicate prior to FDA approval of a product.[114]  Introduced by Rep. Brett Guthrie (R-KY), the bill would amend the FDCA to permit the provision of "health care economic information or scientific information . . . to a payor, formulary committee, or other similar entity . . . if it is based on competent and reliable scientific evidence and relates to an investigational new drug or an investigational use of an approved drug."

The second bill, entitled the Medical Product Communications Act of 2017, would enable manufacturers to proactively discuss certain off-label information with health care providers.[115]  The bill, introduced by Rep. Morgan Griffith (R-VA), provides that "the scientific exchange of information about a drug, biological product, or device . . . shall not constitute labeling, advertising, or evidence of a new intended use."  Thus, the bill would permit drug manufacturers to communicate information related to unapproved uses with health care professionals, provided that the communication is supported by appropriate data and the manufacturer makes no claim that the unapproved product or use has been demonstrated to be safe or effective.

Although some lawmakers and industry groups expressed support for the draft bills during recent committee hearings—praising the proposed clarification of off-label communications and provision of more information to payers and health-care decision makers aimed at improving patient access to new treatments—other lawmakers and consumer groups expressed concern that the bills could undermine existing regulatory processes intended to protect patient health and safety.[116]  To date, neither bill has been advanced out of committee in the House. 

III.     Developments in cGMP Regulations and Other Manufacturing Issues

The biggest headline in the cGMP and manufacturing arena during the first six months of 2017 was the criminal conviction and sentencing of Barry Cadden, who was responsible for a deadly meningitis outbreak that arguably is the largest public health crisis caused by the defective manufacturing of a pharmaceutical product.  The first half of the year saw robust enforcement efforts on the part of DOJ and FDA.  For its part, FDA continues to crack down on manufacturing issues with warning letters and is on pace to exceed last year’s total number of warning letters by year’s end.  These developments, as well as recently issued final and draft guidance documents, are discussed below.

     A.     Notable cGMP Compliance and Enforcement Activity

1.     Owner of New England Compounding Center Is Convicted and Sentenced

In late 2014, an indictment was unsealed charging Barry Cadden, owner and head pharmacist of New England Compounding Center ("NECC"), with a host of crimes in connection with a nationwide meningitis outbreak.  According to DOJ, Cadden authorized the shipment of contaminated methylprednisolone acetate ("MPA") to NECC customers nationwide and, as a result, 753 patients in twenty states were diagnosed with a fungal infection after receiving injections of MPA.  The outbreak led to the deaths of 64 patients in nine states.  Cadden allegedly authorized the shipment of drugs without waiting for the return of sterility tests, failed to notify customers of nonsterile results, and compounded drugs with expired ingredients.  According to DOJ, this series of cGMP failures led to an outbreak that was the "largest public health crisis ever caused by a pharmaceutical product," with hundreds suffering from debilitating and life-changing injuries and a tragic number of wholly preventable fatalities. 

In May 2017, after a nine-week trial, a federal jury convicted Cadden of racketeering, racketeering conspiracy, mail fraud, and introduction of misbranded drugs into interstate commerce with the intent to defraud and mislead.  The jury acquitted Cadden of murder charges.  In late June 2017, Cadden was sentenced to nine years in prison, three years of supervised release, and forfeiture and restitution in amounts to be determined.[117]

In the wake of sentencing, FDA Commissioner Gottlieb commented, "[p]atients should not have to worry about the safety and sterility of the drugs they are prescribed. . . . [W]e will continue to hold accountable those who violate the law and put patients at risk."  According to Commissioner Gottlieb, this outcome serves as a cautionary tale against corner cutting and putting "profits over patients."[118]

2.     Consent Decrees Involving Two Drug Makers

During the last six months, DOJ announced two notable consent decrees of permanent injunction entered by federal district courts against drug manufacturers to stop the distribution of unapproved, misbranded, and adulterated drugs.  On March 15, 2017, the U.S. District Court for the District of Colorado enjoined EonNutra LLC, two related companies (CDSM LLC and HABW LLC), and their owner from selling or distributing adulterated and misbranded dietary supplements and unapproved and misbranded drugs.[119]  The cGMP-based claims underlying the injunction alleged that the defendants’ products were not manufactured in compliance with federal regulations; a 2016 FDA inspection cited the defendants’ failure to establish specifications for the identity, purity, strength, and composition of their products or prepare and follow manufacturing plans.

More recently, on June 15, 2017, the U.S. District Court for the Southern District of Florida entered a consent decree including a permanent injunction against Florida-based Stratus Pharmaceuticals Inc. and New Jersey-based Sonar Products Inc., as well as two of their officers, Alberto Hoyo and Juan Carlos Billoch.[120]  FDA accused Stratus and Sonar of regularly shipping unapproved dermatological products, such as washes, creams, and ointments promoted to treat skin conditions like acne and rosacea.  Sonar made the drugs for Stratus, which distributed prescription and nonprescription drugs and also owned 80% of Sonar.  The agency asserted that the companies had been violating cGMP requirements since 2014.  The consent decree requires Sonar to stop all operations until it hires a cGMP expert and receives written permission from FDA to resume operations.  Stratus is barred from distributing unapproved drugs until it gets clearance from FDA on those products.

3.     cGMP-Based Warning Letters

FDA’s Office of Manufacturing Quality in the Center for Drug Evaluation and Research ("CDER") issued 26 warning letters in the first half of 2017, putting it on pace to exceed the 44 warning letters issued in 2016.[121] 

As in 2016, FDA continued to focus on issues identified during foreign inspections, with warning letters issued to companies in China and India, as well as Japan, Singapore, Italy and the United Kingdom.  Also consistent with FDA’s activity in 2016, the warning letters thus far this year underscore FDA’s focus on data integrity.  Data integrity citations and recommendations for "Data Integrity Remediation" cropped up in 11 of the 26 warning letters issued by CDER in 2017.  CDER often found these violations in manufacturing facilities in China and India.  

A few of the most notable warning letters from the first half of the year are summarized below:

  • Jinan Jinda Pharmaceutical Chemistry Co.[122]  In February 2017, a Chinese manufacturer received a warning letter that cited, among other things, the lack of controls in place to prevent staff from altering or deleting electronic data.  FDA noted that "[a]nalysts manipulated and deleted audit trails" and that full administrative rights were given to the quality control manager and deputy manager, allowing them to manipulate data and turn off audit trails.  FDA also cited the company for failures of its quality unit to meet specifications for quality and purity and failure to adequately investigate out-of-specification results.
  • Badrivishal Chemicals & Pharmaceuticals.[123]  In March 2017, FDA cited Badrivishal in India for multiple violations including quality and data integrity deficiencies.  In detailing the many asserted violations, FDA noted that original laboratory and production records were found in trash bags behind the facility, data on the discarded documents did not match official records, and the quality unit did not investigate the discrepancies.  Investigators discovered later that the trash bags had been removed, preventing further examination of the documents.  FDA recommended that the company hire a cGMP consultant to correct deviations.
  • USV Private Limited.[124]  After a 2016 inspection of the company’s facility in India, FDA issued a March 2017 warning letter to USV listing cGMP violations.  The alleged violations included data integrity deficiencies, e.g., computer systems that were not appropriately controlled, data in laboratory records that were not complete, a computer system that allowed for deletion of files, the failure to maintain a backup file, and unrestricted access to microbial identification instrument and external hard drives.  To address these issues, FDA recommended a comprehensive data integrity remediation.  In the warning letter, FDA also asserted that USV failed to establish proper laboratory controls and procedures to prevent microbiological contamination on sterile products and to correctly and routinely perform environmental monitoring tests.  Notably, FDA pointed out that it found similar violations at another of the company’s facilities in 2014, which also resulted in a warning letter.  FDA admonished USV that "[t]hese repeated problems at multiple sites demonstrate that your company’s oversight and control over the manufacture of drugs is inadequate" and called for an immediate and comprehensive assessment of the company’s global manufacturing operations.

     B.     cGMP Rulemaking and Guidance Activity

Since January, FDA has issued four draft and final guidance documents related to cGMP compliance.  Like the guidance activity relating to promotional issues discussed above, FDA released three of the guidance documents in a last-minute effort to advance guidelines that had long been in the works before the change in administration.

  • Combination Products.  In January 2017, FDA published final guidance entitled Current Good Manufacturing Practice Requirements for Combination Products, which describes and explains the final rule on cGMP requirements for combination products that FDA issued on January 22, 2013, as codified in 21 CFR part 4.[125]  The guidance defines what a combination product is, provides an overview of the final rule, and discusses the purpose and content of specific cGMP requirements addressed in the final rule.  In separate sections, the guidance also addresses certain general considerations for cGMP compliance for combination products and presents hypothetical scenarios to illustrate how to comply with requirements for particular types of combination products—specifically, a prefilled syringe, drug-eluting stent, and drug-coated mesh.
  • Repackaging.  In January 2017, FDA also issued final guidance on the topic of Repackaging of Certain Human Drug Products by Pharmacies and Outsourcing Facilities.[126]  Repackaged drugs, which are prepared to meet the specific needs of particular patients, are generally subject to the adulteration, misbranding, and approval provisions of the FDCA.  The agency stated in the guidance, however, that it does not intend to enforce those provisions against state-licensed pharmacies, federal facilities or outsourcing facilities so long as they meet the criteria outlined in the guidance (e.g., that a licensed pharmacist repackage or directly supervise the repackaging of the drug product).
  • Mixing, Diluting or Repackaging.  FDA issued draft guidance in January 2017 called Mixing, Diluting, or Repackaging Biological Products Outside the Scope of an Approved Biologics License Application.  The draft guidance details the conditions under which state-licensed pharmacies, federal facilities or outsourcing facilities can mix, dilute, and repackage biologics.[127]  According to FDA, "diluting or mixing a biological product with other components, or repackaging a biological product by removing it from its approved container-closure system and transferring it to another container-closure system, is, in the absence of manufacturing controls, highly likely to affect the safety and/or effectiveness of the biological product."[128]  FDA recognized, however, that in certain circumstances, it is appropriate to mix, dilute, or repackage a biological product to meet the needs of a specific patient (e.g., in the pediatric care context).  Although any biological product that is mixed, diluted, or repackaged such that it falls outside the scope of an approved BLA as an "unlicensed biological product," this draft guidance details the appropriate conditions under which these steps can be taken without risk of FDA action.  Notably, this document appears to provide more flexibility for outsourcing facilities to repackage biologics than the 2015 draft guidance.[129]
  • Medical Gases.  Finally, FDA issued draft guidance in June 2017 addressing Current Good Manufacturing Practice for Medical Gases.  This draft guidance superseded the far lengthier May 2003 draft guidance regarding the same topic.[130]  In its most recent version, FDA explained that in an effort to reduce the regulatory compliance burden on the industry, it tailored the draft guidance to provide "clear, up-to-date, detailed recommendations regarding CGMP issues that have been the subject of industry questions."[131]  Among other issues, the draft guidance addresses requirements with respect to organization and personnel; facility and equipment; production and process controls; packaging and labeling, distribution, and laboratory controls; and records and reports.

IV.     Medical Devices

The first half of 2017 saw some late Obama Administration guidance with respect to medical devices followed by relative silence as FDA’s leadership turned over with the new administration.  We summarize below recent regulatory and enforcement developments relating to medical device manufacturers.

     A.     FDA Guidance

Since the Trump Administration took the reins, there has been little new guidance from FDA directed at medical devices.  In the waning days of the Obama Administration, however, CDRH released significant guidance regarding investigational device exemptions ("IDE").

On January 13, 2017, CDRH released guidance intended to clarify the "principal factors that FDA considers when assessing the benefits and risks of IDE applications for human clinical studies."[132]  The guidance sets forth a flexible review process that takes into account the "total product lifecycle" and the inherent "uncertainty (i.e., lower level of evidence)" available at the early stages of device development and investigational clinical study.  By recognizing the inherent uncertainty in early-stage device development, the guidance gives IDE sponsors and investigators leeway to pursue investigational devices without perfect knowledge of the ultimate benefit-risk balance.  The guidance also "characterize[s] benefits in the context of investigational research" to include both "direct benefits to the subject" and "benefits to others (to the extent there are indirect benefits to subjects such as knowledge to be gained from the study or information that may contribute to developing a treatment)."

     B.     Update on Regulation of Laboratory Developed Tests

We have previously reported on FDA’s controversial efforts to regulate Laboratory Developed Tests ("LDTs")—diagnostic tests designed, manufactured, and performed in clinical laboratories—including FDA’s indication that it would finalize its 2014 draft guidance regarding regulation of LDTs as medical devices.[133]  The change of administrations, paired with intense feedback from industry stakeholders, delayed efforts to finalize that guidance.  Indeed, FDA announced at the end of 2016 that it would not issue final guidance  on the oversight of LDTs.

In January 2017, FDA went back to the drawing board and released a "Discussion Paper on Laboratory Developed Tests" that sets out a "possible approach to LDT oversight" based on the "extensive, and often conflicting, feedback [FDA] received from a broad range of stakeholders" on the aborted draft guidance.[134]  According to FDA, the approach outlined in the paper seeks to strike a balance between encouraging innovation, on the one hand, and ensuring that patients and health care providers have access to "accurate, reliable, and clinically valid tests," on the other.  To this end, the paper floats the possibility of requiring approval for "new and significantly modified high and moderate risk LDTs," while exempting "previously marketed LDTs" from "most or all FDA regulatory requirements" unless "necessary to protect the public health."[135]  Although the paper is non-binding and "does not represent the formal position of FDA," it previews an approach that could be more palatable to many stakeholders in continuing development of LDTs.[136]  There is no timeline for implementing or finalizing this framework, but FDA said it will continue to "work with all stakeholders in future conversations around the right path forward on LDT oversight."[137]

     C.     Enforcement Letters

FDA issued 11 device-related warning letters during the first six months of 2017, with only one of those coming from CDRH.[138]  Of those letters, all but one were related to manufacturing and Quality System Regulation issues.  Two letters warrant mention here.

In January, Rapid Release Technologies received a warning letter concerning its "RPT PRO2" vibration pain therapy device; the Letter alleged that the company did not have an approved application for premarket approval or an approved application for an IDE.[139]

In April, CDRH issued a warning letter to Abbott (St. Jude Medical Inc.) in connection with alleged battery defects in its defibrillators and alleged cybersecurity vulnerabilities in its home monitoring devices.[140]  CDRH’s focus on cybersecurity represents FDA’s first enforcement foray on that topic. 

V.     Anti-Kickback Statute

     A.     AKS-Related Case Law Developments

Federal courts issued several notable decisions interpreting the AKS in the first half of 2017, including some that further expand the conduct reached by the AKS.  Continuing a trend we have noted in past updates, these courts broadly interpreted key language in the statute’s prohibition on drug and device manufacturers providing or receiving "remuneration" to induce, "arrange for," or reward referrals or business involving goods or services for which payment "may be made" by a federal health care program.

Two notable opinions involved issues tied to the promotion of prescription drugs.  First, in United States ex rel. Brown v. Pfizer, Inc.,[141] the Eastern District of Pennsylvania declined to dismiss a case involving alleged speaker fees and other payments the defendant made to physicians to encourage prescriptions of an anti-infection drug.[142]  Although the defendant argued that imposing AKS liability on such allegations "would effectively criminalize the promotion of prescription drugs," the court disagreed.  The court recognized that the personal services and management contracts "safe harbor" to the AKS permits paid contractual  arrangements between pharmaceutical companies and physicians provided that they meet certain requirements (e.g., that the payments were set at "fair market value").  But the court concluded that relators had sufficiently alleged that the defendant’s payments were not made at fair market value, and, as a result, the defendant could not—at least at the pleadings stage—establish that it met the personal services and management contracts safe harbor.[143]

In a second case, United States ex rel. Wood v. Allergan Inc.,[144] the Southern District of New York considered whether prescription drug sampling—a practice expressly permitted by the Prescription Drug Marketing Act ("PDMA")—could constitute "remuneration" under the AKS.  Specifically, the court declined to dismiss an FCA claim predicated on the defendant’s alleged payment of kickbacks to physicians in the form of prescription drug samples to encourage drug prescriptions.  The defendant argued that the PDMA permits pharmaceutical companies to provide drug samples to encourage physicians to prescribe the drugs and that HHS OIG guidance expressly acknowledges that prescription drug samples have no value to physicians unless resold or billed to government health care programs.  The court sidestepped the apparent conflict between the AKS and PDMA, however, and instead relied on the relator’s allegations that absent the provision of free samples, physicians may have had to purchase some amount of those drugs to use in their practices, rather than having prescriptions filled at retail pharmacies.  As a result, the court concluded that the samples could be "remuneration" insofar as they had value to physicians by allegedly "subsidiz[ing] . . . [their] costs."[145]

Another federal court also adopted an expansive interpretation of the AKS in analyzing what it means to "arrange for" the provision of federally reimbursable goods or services, which the AKS penalizes if done in exchange for remuneration.[146]  In MedPricer.com, Inc. v. Becton, Dixon & Co.,[147] the court declared unenforceable a contract between a device manufacturer and the operator of an auction website under which the website operator would post device listings because performing the contract would violate the AKS’s "arrange for" provision.[148]  The court held that the website operator "arranged" for sales of devices within the meaning of the AKS despite the fact that the operator neither participated as a buyer or a seller, nor "cho[se] which particular suppliers participate[d] in the sales [or] which products [were] sold."[149]  In reaching this conclusion, the court relied largely on the website operator’s description of its business model as "facilitat[ing] sales" of medical devices.[150] 

Notably, the MedPricer.com opinion has potentially broader applicability in that the court determined that AKS liability "requires only a minimal showing" that the goods or services in question are provided to a government program beneficiary and "may be" federally reimbursable—rejecting the argument that AKS liability only attaches when the goods or services are, in fact, actually reimbursed by the federal government.[151]  In reaching the latter conclusion, the court relied on the HHS OIG’s view in past advisory opinions that whether a product or service is in fact reimbursed by federal health care programs bears only on HHS OIG enforcement decisions, not on the scope of conduct covered by the AKS.[152]

     B.     HHS OIG Final Rule Regarding AKS Statute of Limitations

In January 2017, HHS OIG finalized a rule that imposes a 10-year limitations period on HHS OIG exclusion actions brought on the basis of violations of the AKS.[153]  HHS OIG had originally proposed to amend the relevant regulation to clarify that there was no limitations period.[154]  However, in response to numerous comments objecting to the proposal, HHS OIG decided to adopt a 10-year limitations period.[155]  In doing so, HHS OIG expressed concern that "any limitations period on . . . exclusions may force OIG to either initiate administrative proceedings while [a given FCA] matter is proceeding or lose the ability to protect the programs and beneficiaries through an exclusion.  Litigating FCA and exclusion actions on parallel tracks wastes Government (both administrative and judicial) and private resources."[156]  Nonetheless, HHS OIG concluded that "such situations will be less frequent with a 10-year period than with a shorter period," and that a 10-year period balances the goal of avoiding government waste against the goals of "provid[ing] certainty" and avoiding the "administrative burden" of indefinite document retention that regulated parties could incur were HHS OIG to explicitly adopt an indefinite limitations period.[157] 

HHS OIG’s response to the comments it received also noted the alignment between a 10-year limitations period and the FCA’s 10-year statute of repose,[158] and stated that, while recent conduct is more relevant to exclusion decisions, HHS OIG’s experience has shown that "exclusion can be necessary to protect the Federal health care programs even when the conduct is up to 10 years old."[159]

     C.     Notable HHS OIG Guidance

Among a number of advisory opinions issued by HHS OIG so far in 2017, one opinion had particular relevance for drug and device companies in the context of clinical studies and patient assistance programs.

In an advisory opinion issued on June 29, 2017, HHS OIG considered a proposal to "reduce or waive, on a non-routine, unadvertised basis, cost-sharing amounts owed by financially needy Medicare beneficiaries for items and services furnished in connection with a clinical research study."[160]  The study involved a biomedical system indicated for treating ulcers and other chronic wounds.[161]  In the proposal advanced by the parties seeking the advisory opinion, a particular hospital participating in the study would "reduce or waive applicable cost-sharing amounts owed by financially needy beneficiaries for all Study-related items and services."[162]  The manufacturer of the system under study would not cover any of these reductions or waivers.  The hospital would only inform a given patient of the possibility of reduction or waiver if that patient, upon receiving notice that he or she "may owe cost-sharing amounts in connection with the Study," informed the hospital that he or she could not afford these payments.[163]  The hospital would then evaluate the patient’s financial need according to a set of uniform criteria.  Neither the hospital nor the manufacturer would advertise the possibility of waiver or reduction of patients’ cost-sharing obligations.[164]

Analyzing the proposal under the Beneficiary Inducement CMP,[165] HHS OIG found that the proposal fits within an exception from the definition of remuneration for any waiver of coinsurance or deductible amounts that "is not offered as part of any advertisement or solicitation"; that is not "routinely" provided; and that is only granted either after a "good faith" determination of financial need, or after "reasonable collection efforts" have failed.[166]  Given the non-advertised and "case-by-case" nature of the proposed reductions and waivers in this particular case, along with the "objective criteria" used to determine financial need, HHS OIG found that the proposal fit within this exception.[167]  For the same reasons, HHS OIG determined that it would not seek administrative sanctions under the AKS, provided that "the requisite intent to induce or reward referrals of Federal health care program business" remained absent.[168]

VI.     Conclusion

As these issues, and others, in the drug device industries continue to develop, we will track them and report back in our 2017 Year-End Update.

[1]      Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Shire PLC Subsidiaries to Pay $350 Million to Settle False Claims Act Allegations (Jan. 11, 2017), https://www.justice.gov/opa/pr/

[2]      Id.

[3]      Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Sanofi Pasteur Agrees to Pay $19.8 Million to Resolve Drug Overcharges to the Department of Veterans Affairs (Apr. 3, 2017), https://www.justice.gov/

[4]      See 38 U.S.C. § 8126.

[5]      Nate Raymond, Linde’s Lincare settles U.S. whistleblower case for $20 million, Reuters, June 27, 2017, http://www.reuters.com/article/us-linde-lawsuit-idUSKBN19I2GX; Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Oxygen Equipment Provider Pays $11.4 Million to Resolve False Claims Act Allegations (Apr. 25, 2017),

[6]      Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Durable Medical Equipment Manufacturer Agrees To Pay $2.715 Million To Resolve False Claims Allegations (June 29, 2017), https://www.justice.gov/usao-mdtn/pr/

[7]      Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Baxter Healthcare Corporation to Pay More Than $18 Million to Resolve Criminal and Civil Liability Relating to Sterile Products (Jan. 12, 2017),

[8]      Id.

[9]      See Statement of Facts ¶¶ 37–40, United States v. Baxter Healthcare Corp., No. 1:17-mj-00010-DLH (W.D.N.C. Jan. 12, 2017), ECF No. 1-1.

[10]     See generally Universal Health Servs., Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016).

[11]     See id. at 1995.

[12]     Id. at 2001 (emphasis added).

[13]     840 F.3d 445, 447 (7th Cir. 2016).

[14]     862 F.3d 890, 902 (9th Cir. 2017).

[15]     United States ex rel. Schiemelpfenig v. Dr. Reddy’s Labs. Ltd., No. 11-4607, 2017 WL 1133956, at *6 (E.D. Pa. Mar. 27, 2017) (interpreting language from the Third Circuit’s decision in United States ex rel. Whatley v. Eastwick College, 657 F. App’x 89 (3d Cir. 2016))

[16]     See United States ex rel. Badr v. Triple Canopy, Inc., 857 F.3d 174, 178 (4th Cir. 2017); see also United States ex rel. Landis v. Tailwind Sports Corp., 2017 WL 573470, at *11 (D.D.C. Feb. 13, 2017).

[17]     Campie, 862 F.3d at 902–03.

[18]     Id. at 903.

[19]     136 S. Ct. at 2002–04.

[20]     Id. at 2003.

[21]     855 F.3d 481, 485 (3d Cir. 2017).

[22]     Id.

[23]     Id. at 486.

[24]     Id. at 490 (quoting Escobar, 136 S. Ct. at 2003).

[25]     Petratos, 855 F.3d at 490.

[26]     Id.

[27]     845 F.3d 1 (1st Cir. 2016).

[28]     Id. at 8.

[29]     Id. at 7.

[30]     Id. at 8.

[31]     862 F.3d at 895–96.

[32]     Id. at 896–97.

[33]     See id. at 898; see also United States ex rel. Campie v. Gilead Sci., Inc., No. C-11-0941 EMC, 2015 WL 3659765, at *6–8 (N.D. Cal. June 12, 2015).

[34]     862 F.3d at 902–03.

[35]     Id. at 903.

[36]     Id.

[37]     Id. (citation and internal quotation marks omitted).

[38]     Id. at 905 (citation omitted).

[39]     Id. at 906.

[40]     Id.

[41]     Id. at 907.

[42]     136 S. Ct. at 2004 n.6.

[43]     847 F.3d 52 (1st Cir. 2017).

[44]     See id. at 58 (upholding United States ex rel. Ge v. Takeda Pharm. Co. Ltd., 737 F.3d 116, 121, 124 (1st Cir. 2013)).

[45]     847 F.3d at 54–55.

[46]     See id. at 55.

[47]     Id. at 57.

[48]     Id. at 58.

[49]     Id. (quoting United States ex rel. Ge v. Takeda Pharm. Co., 737 F.3d 116, 121, 124 (1st Cir. 2013) (alterations in original)).

[50]     847 F.3d at 58.

[51]     Id. at 58–59.

[52]     855 F.3d 935, 945–46 (8th Cir. 2017) (citation and internal quotation marks omitted).

[53]     Id. at 944 (citation and internal quotation marks omitted).

[54]     Id. at 945–46 (citation and internal quotation marks omitted).

[55]     Id. at 948–49.

[56]     856 F.3d 696 (9th Cir. 2017).  Gibson, Dunn & Crutcher LLP represented the defendants-appellants in the district court and in their successful appeal of this matter in the Ninth Circuit.

[57]     Id. at 702.

[58]     Id. at 701.

[59]     Id. at 703.

[60]     Id. at 704.

[61]     Id. (citation and internal quotation marks omitted).

[62]     Id.

[63]     Id. at 706–08.

[64]     Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Mallinckrodt Agrees to Pay Record $35 Million Settlement for Failure to Report Suspicious Orders of Pharmaceutical Drugs and for Recordkeeping Violations (July 11, 2017), https://www.justice.gov/opa/pr/mallinckrodt-agrees-pay-record-35-million-settlement-failure-report-suspicious-orders.

[65]     Id.

[66]     Id.

[67]     See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Baxter Healthcare Corporation to Pay More Than $18 Million to Resolve Criminal and Civil Liability Relating to Sterile Products (Jan. 12, 2017),

[68]     See id.

[69]     Press Release, U.S. Dep’t of Justice, U.S. Attorney’s Office, W.D. of Ky., SCM True Air Technologies, Of Ohio And Kentucky, And Its Former Company President – Guilty Of Delivering Misbranded Medical Devices From Unregistered Facilities To A Georgia V.A. Medical Center And Obstructing An FDA Investigation Into Their Conduct (Apr. 18, 2017),

[70]     Id.

[71]     421 U.S. 658 (1975).

[72]     Id. at 670–76.

[73]     United States v. DeCoster, 828 F.3d 626, 629–33 (8th Cir. 2016).

[74]     Id. at 633.

[75]     See Petition for Writ of Certiorari at 2–4, DeCoster v. United States (No. 16-877).

[76]     137 S. Ct. 2160 (2017).

[77]     Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Zimmer Biomet Holdings Inc. Agrees to Pay $17.4 Million to Resolve Foreign Corrupt Practices Act Charges (Jan. 12, 2017), https://www.justice.gov/opa/pr/

[78]     See id.

[79]     See Superseding Information ¶¶ 20, 22–44, United States v. Zimmer Biomet Holdings, Inc., No. 12-CR-00080 RBW (D.D.C. Jan. 12, 2017).

[80]     See id. at ¶¶ 72–75.

[81]     See id. at ¶ 45.

[82]     Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Zimmer Biomet Holdings Inc. Agrees to Pay $17.4 Million to Resolve Foreign Corrupt Practices Act Charges (Jan. 12, 2017), https://www.justice.gov/opa/
; Press Release, U.S. Sec. & Exch. Comm’n, Biomet Charged With Repeating FCPA Violations (Jan. 12, 2017), https://www.sec.gov/news/pressrelease/2017-8.html.

[83]     Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Zimmer Biomet Holdings Inc. Agrees to Pay $17.4 Million to Resolve Foreign Corrupt Practices Act Charges (Jan. 12, 2017), https://www.justice.gov/opa/pr/zimmer-biomet-holdings-inc-agrees-pay-174-million-resolve-foreign-corrupt-practices-act.

[84]     Press Release, U.S. Sec. & Exch. Comm’n, Medical Device Company Charged With Accounting Failures and FCPA Violations (Jan. 18, 2017), https://www.sec.gov/news/pressrelease/2017-18.html.

[85]     Id.

[86]     See Order Instituting Cease-and-Desist Proceedings 2, In the Matter of Orthofix Int’l N.V., Admin. Proc. File No. 3-17800 (Jan. 18, 2017), https://www.sec.gov/litigation/admin/2017/34-79828.pdf.

[87]     See id. at 2, 3.18, 2017), https://www.sec.gov/litigation/admin/2017/34-79828.pdf.

[88]     See id. at 6.

[89]     See Press Release, U.S. Sec. & Exch. Comm’n, Medical Device Company Charged With Accounting Failures and FCPA Violations (Jan. 18, 2017), https://www.sec.gov/news/pressrelease/2017-18.html.

[90]     See Order Instituting Cease-and-Desist Proceedings 9, In the Matter of Orthofix Int’l N.V., Admin. Proc. File No. 3-17800 (Jan. 18, 2017), https://www.sec.gov/litigation/admin/2017/34-79828.pdf.

[91]     See id. at 1.

[92]     See Press Release, U.S. Sec. & Exch. Comm’n, Medical Device Company Charged With Accounting Failures and FCPA Violations (Jan. 18, 2017), https://www.sec.gov/news/pressrelease/2017-18.html.

[93]     Meet Scott Gottlieb, M.D., Commissioner of Food and Drugs, U.S. Food & Drug Admin., https://www.fda.gov/AboutFDA/CentersOffices/ucm557569.htm (last updated May 18, 2017).

[94]     Scott Gottlieb, Changing the FDA’s Culture, Nat’l Affairs (2012),

[95]     Warning Letters 2017: Office of Prescription Drug Promotion, U.S. Food & Drug Admin., https://www.fda.gov/Drugs/GuidanceComplianceRegulatoryInformation/default.htm (follow "Enforcement Activities by FDA" hyperlink; then follow "Warning Letters and Notice of Violation Letters to Pharmaceutical Companies" hyperlink; then follow "Warning Letters 2017" hyperlink) (last updated Aug. 3, 2017).

[96]     Untitled Letter from Meena Ramachandra, Regulatory Review Officer, Office of Prescription Drug Promotion, U.S. Food & Drug Admin. to Stacy Hennings, Senior Director, Regulatory Affairs Advertising & Promotions, Orexigen Therapeutics, Inc. (May 18, 2017), https://www.fda.gov/Drugs/GuidanceComplianceRegulatoryInformation/default.htm (follow "Enforcement Activities by FDA" hyperlink; then follow "Warning Letters and Notice of Violation Letters to Pharmaceutical Companies" hyperlink; then follow "Warning Letters 2017" hyperlink; then follow "Untitled Letter" hyperlink under "Office of Prescription Drug Promotion").

[97]     Id.

[98]     U.S. Food & Drug Admin., Draft Guidance for Industry: Medical Product Communications That Are Consistent With the FDA-Required Labeling—Questions and Answers (Jan. 2017), https://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/UCM537130.pdf.

[99]     Id. at 1–2.

[100]   Id. at 3–5.

[101]   U.S. Food & Drug Admin., Draft Guidance for Industry and Review Staff:  Drug and Device Manufacturer Communications With Payors, Formulary Committees, and Similar Entities—Questions and Answers (Jan. 2017), https://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/UCM537347.pdf.

[102]   Id. at 3.

[103]   Id. at 4–8.

[104]   Id. at 16.

[105]   U.S. Food & Drug Admin., Public Health Interests and First Amendment Considerations Related to Manufacturer Communications Regarding Unapproved Uses of Approved or Cleared Medical Products 1, 26–34 (Jan. 2017), https://www.federalregister.gov/documents/2017/01/19/2017-01013/manufacturer-communications-regarding-unapproved-uses-of-approved-or-cleared-medical-products.

[106]   U.S. Food & Drug Admin., Manufacturer Communications Regarding Unapproved Uses of Approved or Cleared Medical Products; Availability of Memorandum; Reopening of the Comment Period, 82 Fed. Reg. 6367, 6368 (Jan. 19, 2017).

[107]   U.S. Food & Drug Admin., Clarification of When Products Made or Derived From Tobacco Are Regulated as Drugs, Devices, or Combination Products; Amendments to Regulations Regarding "Intended Uses," 82 Fed. Reg. 2193 (Jan. 9, 2017).

[108]   U.S. Food & Drug Admin., Clarification of When Products Made or Derived From Tobacco Are Regulated as Drugs, Devices, or Combination Products; Amendments to Regulations Regarding "Intended Uses"; Further Delayed Effective Date; Request for Comments, 82 Fed. Reg. 14319 (Mar. 20, 2017), https://www.federalregister.gov/documents/2017/03/20/2017-05526/

[109]   Id.

[110]   United States ex rel. Gohil v. Aventis, Inc., No. 02-2964, 2017 WL 85375, at *1, 8 (E.D. Pa. Jan. 10, 2017).

[111]   Id. at *8 (citation omitted).

[112]   Id.

[113]   Free Speech in Medicine Act, HB 2382 (2017), http://www.azleg.gov/legtext/53leg/1r/bills/hb2382p.pdf.

[114]   Pharmaceutical Information Exchange Act, H.R. 2026, 115th Cong. (2017),

[115]   Medical Product Communications Act of 2017, H.R. 1703, 115th Cong. (2017),

[116]   Jeff Overley, Off-Label Drug Bills Get Little Traction On Capitol Hill, Law360,

[117]   Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Owner of New England Compounding Center Sentenced for Racketeering Leading to Nationwide Fungal Meningitis Outbreak (June. 26, 2017), https://www.justice.gov/opa/pr/
; see also Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Owner of New England Compounding Center Convicted of Racketeering Leading to Nationwide Fungal Meningitis Outbreak (Mar. 22, 2017), https://www.justice.gov/opa/pr/

[118]   Id.

[119]   Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, District Court Enters Permanent Injunction Against Colorado Companies to Stop Distribution of Adulterated And Misbranded Dietary Supplements and Unapproved and Misbranded Drugs (Mar. 15, 2017), https://www.justice.gov/opa/pr/district-court-enters-permanent-injunction-against-colorado-companies-stop-distribution.

[120]   Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, District Court Enters Permanent Injunction Against Florida and New Jersey Companies and Senior Managers to Stop the Distribution of Unapproved, Misbranded, and Adulterated Drugs (June 15, 2017), https://www.justice.gov/opa/pr/district-court-enters-permanent-injunction-against-florida-and-new-jersey-companies-and.

[121]   See U.S. Food & Drug Admin., Warning Letters 2017 (Aug. 8, 2017), https://www.fda.gov/Drugs/GuidanceComplianceRegulatoryInformation/default.htm (follow "Enforcement Activities by FDA" hyperlink; then follow "Warning Letters and Notice of Violation Letters to Pharmaceutical Companies" hyperlink; then follow "Warning Letters 2017" hyperlink).

[122]   Warning Letter from Thomas J. Cosgrove, Dir., Office of Mfg. Quality, U.S. Food & Drug Admin. to Mr. Yu Shui Cheng, General Manager, Jinan Jinda Pharmaceutical Chemistry Co., Ltd (Feb. 24, 2017), https://www.fda.gov/ICECI/EnforcementActions/WarningLetters/2017/ucm546319.htm.

[123]   Warning Letter from Thomas J. Cosgrove, Dir., Office of Mfg. Quality, U.S. Food & Drug Admin. to Mr. Deepak Rawat, CEO, Badrivishal Chemicals & Pharmaceuticals (Mar. 2, 2017), https://www.fda.gov/ICECI/EnforcementActions/WarningLetters/2017/ucm545454.htm.

[124]   Warning Letter from Thomas J. Cosgrove, Dir., Office of Mfg. Quality, U.S. Food & Drug Admin. to Mr. Prashant K. Tewari, Managing Dir., USV Private Limited (Mar. 10, 2017), https://www.fda.gov/ICECI/EnforcementActions/

[125]   U.S. Food & Drug Admin., Guidance for Industry and FDA Staff: Current Good Manufacturing Practice Requirements for Combination Products (Jan. 10, 2017), https://www.fda.gov/downloads/

[126]   U.S. Food & Drug Admin., Guidance for Industry: Repackaging of Certain Human Drug Products by Pharmacies and Outsourcing Facilities (Jan. 12, 2017), https://www.fda.gov/downloads/Drugs/

[127]   U.S. Food & Drug Admin., Draft Guidance for Industry: Mixing, Diluting, or Repackaging Biological Products Outside the Scope of an Approved Biologics License Application (Jan. 12, 2017), https://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/UCM434176.pdf.

[128]   Id. at 3.

[129]   U.S. Food & Drug Admin., Draft Guidance for Industry: Mixing, Diluting, or Repackaging Biological Products Outside the Scope of an Approved Biologics License Application (Feb. 2015), https://www.regulations.gov/document?D=FDA-2014-D-1525-0356.

[130]   U.S. Food & Drug Admin., Draft Guidance for Industry: Current Good Manufacturing Practice for Medical Gases (June 28, 2017), https://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/UCM070270.pdf.   

[131]   Id. at 2.

[132]   U.S. Food & Drug Admin., Factors to Consider When Making Benefit-Risk Determinations for Medical Device Investigational Device Exemptions 5–6 (Jan. 13, 2017), https://www.fda.gov/downloads/MedicalDevices/‌DeviceRegulationandGuidance/GuidanceDocuments/UCM451440.pdf.

[133]   See U.S. Food & Drug Admin., Draft Guidance for Industry, Food and Drug Administration Staff, and Clinical Laboratories: FDA Notification and Medical Device Reporting for Laboratory Developed Tests (LDTs) (Oct. 3, 2014), http://www.fda.gov/downloads/%20MedicalDevices/‌
; U.S. Food & Drug Admin., Draft Guidance for Industry, Food and Drug Administration Staff, and Clinical Laboratories: Framework for Regulatory Oversight of Laboratory Developed Tests (LDTs) (Oct. 3, 2014), https://www.fda.gov/downloads/medicaldevices/deviceregulationandguidance/guidancedocuments/ucm416685.pdf.

[134]   U.S. Food & Drug Admin., Discussion Paper on Laboratory Developed Tests (LDTs) (Jan. 13, 2017), https://www.fda.gov/downloads/medicaldevices/productsandmedicalprocedures/

[135]   Id. at 4.

[136]   Id. at 1.

[137]   Id. at 10.

[138]   Warning Letters 2017, U.S. Food & Drug Admin., https://www.fda.gov/ICECI/EnforcementActions/WarningLetters/2017/default.htm (last updated Aug. 24, 2017).

[139]   Warning Letter from Steven E. Porter, L.A. District Dir., U.S. Food & Drug Admin. to Dr. Stanley R. Stanbridge, Vice President of R&D, Rapid Release Technologies (Jan. 17, 2017),

[140]   Warning Letter from Sean M. Boyd, Deputy Dir. for Regulatory Affairs, Office of Compliance, Ctr. for Devices & Radiological Health, U.S. Food & Drug Admin. to Mike Rousseau, President, Abbott (Apr. 12, 2017), https://www.fda.gov/ICECI/EnforcementActions/WarningLetters/2017/ucm552687.htm.

[141]   No. 05-6795, 2017 WL 1344365, at *1 (E.D. Pa. Apr. 12, 2017).

[142]   Id. at *6.

[143]   Id. at *8.

[144]   No. 10-CV-5645, 2017 WL 1233991, at *1 (S.D.N.Y. Mar. 31, 2017).

[145]   Id. at *21.

[146]   The AKS prohibits remuneration solicited or received "in return for purchasing, leasing, ordering, or arranging for . . . any good, facility, service, or item for which payment may be made in whole or in part under a Federal health care program."  42 U.S.C. § 1320a-7b(b)(1)(B) (emphasis added).  A similar prohibition exists for remuneration offered or given as an inducement for the recipient to "arrange for" a covered item or service.  See 42 U.S.C. § 1320a-7b(b)(2)(B).

[147]   No. 3:13-cv-1545 (MPS), 2017 WL 888479 (D. Conn. Mar. 6, 2017).

[148]   Id. at *1.

[149]   Id. at *5.

[150]   Id. The court also found that the AKS’s scienter requirement does not need to be fulfilled in order for a contract to be illegal under the AKS and thus unenforceable.  See id. at *9.

[151]   See id. at *8.

[152]   See id..

[153]   See U.S. Dep’t of Health & Human Servs., Office of Inspector Gen., Health Care Programs: Fraud and Abuse; Revisions to the Office of Inspector General’s Exclusion Authorities, 82 Fed. Reg. 4100, 4114 (Jan. 12, 2017),

[154]   See id. at 4101.

[155]   See id. at 4101–02.

[156]   Id. at 4102.

[157]   See id. at 4101–02.

[158]   See id. at 4102; 31 U.S.C. § 3731(b)(2).

[159]   82 Fed. Reg. at 4102.  The final rule applies both to exclusions for conduct that violates the AKS, as well as exclusions for conduct that violates the CMP statute. See id. at 4114; 42 C.F.R. §§ 1001.901(c), 1001.951(c).

[160]   U.S. Dep’t of Health & Human Servs., Office of Inspector Gen., OIG Advisory Op. 17-02 at 1 (June 29, 2017), https://oig.hhs.gov/fraud/docs/advisoryopinions/2017/AdvOpn17-02.pdf.

[161]   Id. at 3.

[162]   Id.

[163]   Id. at 3–4.

[164]   Id. at 4, 7.

[165]   42 U.S.C. § 1320a-7a(a)(5).

[166]   See 42 U.S.C. § 1320a-7a(i)(6)(A).  As HHS OIG noted in the advisory opinion, the same exception to the definition of "remuneration" is found in the CMP statute’s implementing regulations.  See OIG Advisory Op. 17-02 at 6 n.6; 42 C.F.R. § 1003.110.

[167]   See OIG Advisory Op. 17-02 at 6–7.

[168]   See id. at 7.


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