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Watch Out for Supplements!


We’ve written before about the murky territory that exists between drug manufacturers and pharmacies.  It’s a great example of how distinctions that once made sense can fail to address changed circumstances or the cleverness of people who like to game the system.  Right now here in federal court in Boston, one of the principals of the infamous New England Compounding Center is on trial for second degree murder — that’s right, murder — for his role in the scandal that led to two dozen deaths.


Laws changed because of what that case revealed:  that industrial-sized drug repackagers and compounders were posing as pharmacies, subject only to state pharmacy regulations, even though they were not really pharmacies but drug manufacturers anxious to avoid federal oversight.  Today, the federal Drug Quality and Security Act and the Compounding Quality Act make such gamesmanship far more difficult, and allow for federal oversight over compounders and repackagers who are handling drugs on an industrial-scale basis.  One change:  the “cGMP” standards (short for “current good manufacturing practices”) will now apply.  One can no longer hide behind a pharmacy sign and play games with drug products before sending them on to unsuspecting consumers. No doubt lives will be saved as a result of these new laws.


Yet supplements are a similar accident waiting to happen.


Most people know and understand that the Food and Drug Administration (“FDA”) regulates the activities of drug manufacturers and food producers, ensuring that the drugs we take and the food we eat are safe.  On the drug side, this means that before a drug can be sold, the manufacturer must satisfy the FDA through a series of rigorous submissions showing that the drug is 1) safe and 2) effective.  Detailed labeling requirements allow consumers to have a fighting chance in the effort to understand what they are taking and what the risks are.


The regulation of food is handled somewhat differently, but also has human safety as its paramount object.  Two areas are well understood and well justified:  inspection and labeling.  The FDA has the authority to inspect plants that are engaged in large scale food production.  Slaughterhouses, for example, are subject to FDA inspection to ensure that meat is safe and that plant conditions are sufficiently sanitary to avoid contamination.  Recalls can result from the FDA’s inspection authority, with the aim of preventing human consumption of unsafe meat.  (History buffs may perhaps know that the genesis of the Food, Drug and Cosmetic Act, as it is now known, was the exposure of unsanitary and unsafe conditions in the Chicago meat-packing industry, made vivid in Upton Sinclair’s The Jungle.)


Labeling is another safeguard.  Now, given the astonishing amount of additives that go into processed foods, food producers are required to accurately label the ingredients in a processed food package.  This, too, gives consumers a fighting chance.  If you’re diligent, you can pause and think twice before buying that package whose key ingredient is Red Dye Number 7.


But one secret most consumers don’t understand — but should — is that the FDA’s jurisdiction does not extend to supplements.  At least not yet.  So consider this a public service announcement.  Those products on the shelves that make outrageous claims about enhancements to your body and to your health are mostly supplements and outside the rules that apply to food or drugs.  No one has had to prove to the FDA or anyone else that: 1) it is what it purports to be, 2) it’s safe, or 3) that it’s effective in the ways that it claims.  Buyer beware!


As we see so often in our whistleblower practice, when rules are unclear, temptation takes over.  Last week’s front page story in the Boston Globe provides a sobering glimpse into what’s out there.


Jared Wheat, the CEO of High-Tech Pharmaceuticals, is a twice-convicted drug dealer who thought up the idea for his “High-Tech” drug supplement business while serving time in prison for his conviction for selling ecstasy.  In 2003, according to the article, he was again convicted for running an illegal online “pharmacy.”  (Sound familiar?)  Nonetheless, his company currently grosses $100 million per year by selling dietary supplements with catchy names like Black Widow and Yellow Scorpion.  Due to Congressional inaction (and general coziness with industry), there is little that the FDA can do to police the supplement industry, unless provided specific information about safety risks, by people like whistleblowers.


When Harvard researcher Dr. Pieter Cohen began running tests on the products of High-Tech and other companies’ supplements, he found that the supplements contained unsafe levels of certain synthetic compounds and publicly urged FDA to inspect the facilities.  He was slapped with a libel suit brought by Wheat and was forced to justify all of his findings in an unpleasant libel trial.  Although Cohen won the suit, Wheat unabashedly says that he hopes the hundreds of thousands of dollars he spent on the libel suit will make researchers think twice before publishing their results.  The incoming President says he wants to “open up” libel laws to make this type of lawsuit easier.


We’re entering into a political phase where all manner of regulations will be questioned.  If people have their eyes open, though, they will urge restraint, because many of the existing regulations are clearly making us safer.  (Do we really want to go back to the days portrayed in The Jungle?)


Under a Trump Administration, we should certainly not expect any expansion of regulation into new areas like food supplements.  It will remain Caveat Emptor! for the indefinite future, with consumers at a real disadvantage.


Be careful out there!


This is What a Complex Health Care Fraud Settlement Looks Like a/k/a If Your Compliance Plan Fails, This Is What You Get

As we noted in our previous blog, this week’s lineup at the BU Law Health Care Fraud and Abuse seminar was the Chief of Compliance at a startup pharmaceutical company in Cambridge, Massachusetts.  Together with his colleagues, this industry veteran walked the law students through all the painstaking work that goes into trying to keep a company in a highly-regulated industry on the right side of the law.  Careful screening in hiring, thorough training, accountability mechanisms, compensation structures that reward ethical behavior, and commitment from the top leaders of the company are all part of the equation.  A personal visit from the company CEO impressed upon the group how personal and real this commitment is; in this company’s case, one gets the sense that doing the right thing by doctors and patients is more important than achieving short-term, artificial, sales results.  (An irony:  while the careful and steady approach will no doubt be rewarded in the long run, it may be a bit – ahem – unusual in the industry; Wall Street has reacted cautiously to the company’s stock.)


Right on cue, as if to prove the relevance of the discussion, just before the compliance session started, the U.S. Department of Justice announced its long-awaited settlement in the multi-faceted Johnson & Johnson investigation.  The government’s press release, which can be found here, shows that for some eight years the government has been looking into a range of different whistleblower allegations against the pharmaceutical giant, including 1) marketing the anti-psychotic drug Risperdal to unapproved patient populations including the elderly and demented patients of nursing homes, 2) paying of kickbacks to nursing home pharmacies to induce those pharmacies to promote Risperdal and other J&J drugs in those nursing homes, and 3) off-label promotion of heart failure drug Natrecor to patients with less severe heart failure than the approved population.   Three separate whistleblowers, or groups of whistleblowers, will split the combined relator’s share of $167.7 million.


While the feds were doing their work, Johnson & Johnson managed to test the waters (unsuccessfully) on some of the theories by going to trial in Texas state court on an individual state claim involving improper marketing of Risperdal.  Read about Texas case here.  But just as a jury in Texas rejected the company’s trial defense in the courtroom, so too the facts proved too much for the company to overcome in the larger investigation.  In today’s settlement, company subsidiaries will plead guilty to criminal misbranding of the drugs in question, and pay massive fines and civil damage awards in the global settlement of the civil and criminal charges.  And Johnson & Johnson itself will now be subject to a corporate integrity agreement, which places the company on a kind of probation in which it is contractually obligated to self-report to the government if it misbehaves again.  All of the relevant papers in the combined cases can be found here.  J & J’s stock barely moved on the news; the settlement numbers had already been baked into the company’s price, so Wall Street reacted with a yawn.


The settlement has all of the earmarks of a large complex health care fraud case.  First, the numbers are huge, as befits a company of J&J’s size.  The government has gotten wiser:  that its settlements have to be commensurate with the scale of ill-gotten gain, lest the wrongdoers treat the fines and sanctions as just a cost of doing business.  Some could argue that $2.2 billion is still not much to companies like J&J or Pfizer, but bravo to the government (and the whistleblowers and their lawyers) for seeing the case all the way through to serious settlement numbers.   Second, note how it is subsidiaries who will take the criminal plea, not the parent company, and will plead only to misdemeanors under the Food Drug & Cosmetic Act.  This represents the well-traveled compromise between the government’s interest in a criminal disposition, and the company’s need to avoid the exclusion and debarment remedy that would come with a felony conviction.  Third, the parent company, Johnson & Johnson, signed the settlement agreement and the corporate integrity agreement, but gets to manage the public relations story by saying, effectively, “our naughty offspring spilled some milk but have cleaned it up.”  Fourth, once again, there is no sign that responsible corporate officers will be prosecuted criminally or forced to disgorge their personal profits and bonuses from the company’s illegal conduct.  It’s fair to ask:  will the industry ever truly change its ways when only shareholders absorb the pain?


Some will say this isn’t enough of a deterrent to large-scale corporate mischief.  Others will say that the government has once again leveraged its prosecutorial discretion to force a company into terms it would never have accepted without the threat of debarment from federal programs that flows automatically from felony convictions.


Others, like the compliance folks we spoke to yesterday, are probably saying:  “Whatever we have to do to avoid a train wreck like that, we should do.”  Millions of dollars of legal fees, time and energy sucked into litigation, resources spent on responding to investigative demands rather than growing a company, individual employees huddling with lawyers to try to escape prosecution and prison time– it’s quite a brew.  To a small start up, such an event could kill the company.


So compliance matters.  It matters to companies trying to avoid train wrecks of litigation.  It matters to us taxpayers who get stuck with the bills resulting from marketing abuses.  And oh yes, let’s not forget about patients.  Corporate compliance matters perhaps most of all to the patients who trust the health care system to give them only the drugs that they need.

Pharmacies in Name Only

Experts in the False Claims Act and whistleblower laws have been following closely the evolving scandal arising out of the New England Compounding Center tragedy.  The death toll from the meningitis contaminated steroid injections from the center reached 29 this week, as accusations fly about how lethally contaminated drug products could have so easily entered the market and been administered to unsuspecting patients.



How, people are asking, could this happen in such a heavily regulated industry?



The media’s superficial answer is that the New England Compounding Center (“NECC”), and many facilities like it across the country, falls between the cracks of pharmacy practice, which is regulated under state law, and drug manufacturing and repackaging, which is regulated under federal law, under the Food Drug and Cosmetic Act.  By calling itself a pharmacy, and obtaining a state pharmacy license, NECC managed to avoid, the argument goes, the kind of strict oversight that the Food and Drug Administration would apply to a drug manufacturer or repackager.



Not so fast.



NECC, and entities like it all across the country, can’t get very far arguing that they really thought of themselves as mere pharmacies beyond the reach of federal law.  It turns out that there has been for some time now substantial and clear guidance on these issues not only from the FDA, but also from state pharmacy licensing officials.  The guidance says that if you don’t have individualized patient prescriptions from doctors, and if you’re compounding activities are not in response to specific patient prescriptions, but instead you are involved in industrial scale compounding or repackaging, you are not a pharmacy at all but rather a drug manufacturer and subject to all the current good manufacturing practice standards (“cGMP”) that federal law imposes.  Appropriately enough, merely calling yourself a pharmacy is not enough to make you one.



If you’re really a drug manufacturer, you have to comply with all the critical legal requirements that apply to these facilities, such as ensuring sterility, appropriate manufacturing protocols, and lot tracking and numbering, sampling and testing for contamination.



It turns out that NECC was well aware of these rules, having received an FDA warning at least once in the past.  And it seems that neither the Commonwealth of Massachusetts nor the feds will be fooled by this “I thought I was just a pharmacy” argument.  The Commonwealth’s Board of Registration in Pharmacy has already stated publicly that NECC violated the terms of its pharmacy license by failing to have individualized prescriptions on the premises.  The federal government is all over this, too, with the U.S. Attorney’s Office in Massachusetts coordinating with the FDA’s criminal investigators in conducting a search warrant of the NECC premises, indicating that they believe there is probable cause to believe that federal law has been violated.



The takeaway:  The FDA and federal law enforcement were already in this field to begin with, and there’s no question that they will continue to make their presence felt, as the problems of patchy state oversight of compounders becomes more widely publicized.  (See Markey letter.)  Drug manufacturers and repackagers seeking to avoid federal oversight merely by calling themselves “pharmacies” may have a little trouble sleeping in the weeks ahead.  The gig is up.  As the death toll mounts from the NECC scandal, the feds will surely put the spotlight on similar facilities across the country.



In future blogs, I’ll make some predictions of what sorts of indictments and False Claims Act actions we might be seeing in this arena.  But for the moment, just watch to see how many companies start pulling down those “Pharmacy” signs.