Looking at the Horizon: Current & Future Regulatory Issues for the Medical Device, Drug and Food Industries Increased Aggressive Enforcement: Current Enforcement Trends and Effective Defense Response Steven M. Kowal Partner Chicago, IL 1
Increased Enforcement Threat High profile public concerns Melamine contamination Peanut processing Pharmaceutical post - marketing problems Congressional pressure Increased enforcement budget 2 Statutory Basis for Criminal Liability Food, Drug, and Cosmetic Act Healthcare fraud statutes General criminal statutes 3 2
FD&C Act - Misdemeanor Both misdemeanor and felony provisions Commission of any prohibited act in Section 301 can result in criminal liability Misdemeanor violation does not require personal knowledge or participation Responsible relation to violation is enough Strict liability crime 4 FD&C Act - Felony Prohibited act becomes a felony in two ways Second strict liability violation Commission of prohibited act with intent to defraud or mislead Intent will be inferred from circumstances 5 3
Healthcare Statutes HIPAA included specific healthcare fraud and false statement provisions Federal False Claims Act prohibits knowing submission of false o r fictitious claims Anti - kickback statute prohibits solicitation of payments for Medicare or Medicaid related business 6 General Criminal Statutes Mail and wire fraud False statements Conspiracy Obstruction of justice 7 4
Penalties Incarceration Misdemeanors one year per count Regulatory felonies three years per count General criminal statutes five years to twenty years per count Government seeks to prosecute individuals for deterrent effect United States v. Abtox , Inc., et al. Ross Caputo, President ten years of incarceration James Reilly, CFO six years of incarceration 8 Penalties Fines Misdemeanors Individual - $100,000 per count Company - $200,000 per count Felony Individual - $250,000 per count Company - $500,000 per count Alternative calculation Twice gain or loss caused by the illegal conduct 9 5
Current Government Focus Food sanitation Post - marketing surveillance Clinical investigations Adverse event reporting Foreign inspections 10 Off - Label Promotion IG reports 300 investigations for 2009 Focus on pharmaceutical and medical device industries 11 6
Pharmaceutical manufacturer Eli Lilly Promotion of Zyprexa Approval for schizophrenia, treatment of acute bi - polar disorder and maintenance treatment of bi - polar disorder Marketed for pediatric use, at high dosage levels and in the eld erly for treatment of dementia 12 Eli Lilly Lilly pled guilty to one misdemeanor count of misbranding Total financial penalty of $1.415 billion $515 million criminal fine $100 million forfeiture $800 million FCA settlement $438 million for federal government $361 million to various states $78.8 million to qui tam relators Prior settlement of $62 million to 32 states under consumer protection theories Suits by 12 states remain pending 13 7
Pharmaceutical manufacturer Cephalon Promotion of Actiq , Provigil and Gabitrol Approved to treat cancer pain, narcolepsy and epilepsy Promoted for non - cancer patients, general tiredness and to remedy anxiety 14 Cephalon Cephalon pled guilty to one misdemeanor count of misbranding Total financial penalty of $425 million $40 million criminal fine $10 million forfeiture $375 million FCA settlement Five year corporate integrity agreement $46.5 million to qui tam relators 15 8
Medical device manufacturers Zimmer, DePuy , Smith & Nephew, and Biomet Deferred prosecution agreements Total of $311 million payment Surgeons were paid financial inducements to use companies products exclusively Corporate monitoring agreement for 18 months. 16 Problematic promotional practices Use of anecdotal testimonials Use of invitro or animal data to suggest clinical significance Direct or implied comparisons to dissimilar products Inaccurate characterizations of drug actions, indications or adv erse events Inadequate qualifications and/or limitations regarding safety or effectiveness Vague or open - ended claims or suggestions of superiority 17 9
Focus of medical device CIAs Restriction on payments to surgeon consultants Publication of all payments to consultants Limitations on training venues Avoidance of unrealistic sales targets 18 HHS future focus medium sized firms Smaller compliance staffs and budgets Entrepreneurial culture Greater financial pressures 19 10
Government Investigations Defense Response Ambush interviews Search warrants 20 Ambush interviews Interviews are pursued aggressively Can occur anywhere and at any time Uncertainty concerning legal rights and obligations Confer substantial psychological advantages on the government Unable to contact a lawyer No opportunity to review information Agents treat uncooperative response as evidence of guilt Atmosphere of intimidation 21 11
Ambush interviews Interview is voluntary Ability to choose includes the power to refuse Participation cannot be compelled A subpoena cannot be used to secure an interview Little incentive to consent No reason to sign or affirm statements There is no such thing as off the record The statements will be used against the individual and the compa ny Former employees are not insulated from contact or prosecution 22 Search warrants Warrant requires approval of a judicial officer Executed by a team of government agents who take control of the facility Warrants are used to: Avoid destruction of evidence Shock and intimidate Identify and interview employees 23 12
Search warrants In responding to the execution of a warrant: Do not impede the agents Designate a senior executive to deal with the agents Ask to review a copy of the warrant Answer only questions that relate to the location of documents If the search exceeds the scope of the warrant, complain to the agent in charge Protest the seizure of privileged materials 24 Any questions or comments? Steven Kowal , Partner (Chicago) (312) 807 - 4430 (ph) (312) 827 - 8009 (fax) steven.kowal@klgates.com 25 13
Short Break Next Presentation: A View from Washington: USDA & FDA Food Regulatory Issues A View from Washington: USDA & FDA Food Regulatory Issues Tony Pavel Senior Associate Washington, DC 14
USDA FSIS USDA has released limited info regarding FY 2010 budget $134 Billion USDA (8% increase) $1.02 Billion to FSIS (5% increase) $47 Million for agency employees, upgrade information tech, additional FSA s Regulatory Agenda relatively short Semiannual Agenda only had one item for FSIS Performance Standards for processed meat and reduction of Lm 28 FSIS - NATURAL STATUS No coherent natural policy in effect Official guidance always just around the corner Natural comment record no consensus Ingredients vs. incidental additives Ingredients vs. processes Increased (uneven) focus on ingredient manufacturing Processing aids Related claims Prospects for Natural Rulemaking Long promised, low priority Regulatory agenda states ANPRM 28 days ago 29 15
Allergens - FSIS No proposed rule on horizon Top cause for recalls Largely following FDA s lead Notice 45 - 05, July 2005 Notice 72 - 05, November 2005 Compliance Assistance Voluntary Labeling Statements Policy No Temporary Label Approval Frequent issue on Noncompliance Reports 30 Allergens School Lunch Only USDA Guidance Accommodating Children with Special Dietary Needs Schools must make substitutions in foods in the reimbursable meal for students who are disabled and whose disability restricts their diet. However CDC preparing two Guidance Documents USDA and FDA have reviewed and consulted Not publicly available yet Allergens have the ear of a number of people on the Hill 31 16
Other Labeling Issues Data Collection Improvements Expansion of Generics? Nutrition Labeling for Single Ingredient Future of Prior Approval 32 FSIS Agenda (Tentative) Pathogens: Salmonella relative lack of progress, NRTE Product E.Coli N60 labeling, allocation of responsibility Listeria Risk assessment Campylobacter Performance standards 33 17
FSIS Agenda (Tentative) Increased reliance upon FSAs Increased use of interpretative documents the death of rulemaking Increased retail focus Enhanced data collection Catfish? 16.5 Million, 95 employees and 1 jail term 34 Organics Standards for the Organic Certification of Wild Captured Aquatic Animals Pet Food Standards NOSB received final recommendations from Working Group re Clarification of Definition of Synthetic Substance 35 18
FSIS/FDA Cross - Over Issues Single food agency Mandatory recall User fees Revival of performance standards HACCP, SSOPs & GMPs Distiller s Grains and Animal Feeds and CVM GRAS Notification Pilot Program 36 FDA Functional Foods & Select Ingredient Issues Functional foods continue to gain importance in the marketplace Years of relatively lax enforcement Several high profile Warning Letters Cheerios Warning Letter, May 5, 2009 FDA published a Q&A page on its website (May 14) to address public questions arguably raised by media reporting of the WL FDA sending a message 37 19
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