Earlier this year, the Department of Justice (“DOJ”) announced that it will be taking “an especially hard look” at violations of current good manufacturing practices (“cGMPs”) that create an unacceptable risk of harm to consumers and patients.¹ This was a clear pronouncement of the 2013 enforcement priorities of the Consumer Protection Branch of the DOJ’s Civil Division, and signals a developing enforcement trend in the pharmaceutical and medical device industries. Where cGMP compliance was once left almost wholly to the U.S. Food and Drug Administration (“FDA”) to enforce under the Federal Food, Drug, and Cosmetic Act (“FDCA” ), the DOJ plans to actively step up enforcement for cGMP violations under authority of the False Claims Act (“FCA”).²

cGMP Enforcement Under the FDCA
With limited exceptions, enforcement against cGMP violations has always occurred under the FDCA and FDA’s implementing regulations. Specifically, the FDCA prohibits adulterated drugs and devices in interstate commerce.³ A drug is “adulterated,” in part, “if the methods used in, or the facilities or controls used for, its manufacture, processing, packing or holding do not conform to or are not operated or administered in conformity with [cGMP] to assure that such drug meets the [statutory] requirements as to safety and has the identity and strength, and meets the quality and purity characteristics, which it purports or is represented to possess.”⁴

Similarly, a device is “adulterated” if “the methods used in, or the facilities or controls used for, its manufacture, packing, storage, or installation are not in conformity with applicable [laws],” including the Quality System Regulation (“QSR”).⁵

FDA regulations establish minimum cGMP/QSR requirements for many FDA-regulated products, including drugs and devices.⁶ These requirements are not prescribed in detail, but were established “to be flexible to allow each manufacturer to decide individually how best to implement the necessary controls by using scientifically sound design, processing methods, and testing procedures.”⁷ This flexibility allows companies to achieve higher quality through continual improvement, utilizing newer technology and innovation. Failure to comply with these basic standards renders a product adulterated under the FDCA and subject to FDA enforcement action, which may range from a Warning Letter to product seizures, injunctions against manufacturing and distribution, import holds, civil monetary penalties, and criminal liability.

cGMP Enforcement Under the FCA
The FCA is the DOJ’s principal authority for fighting fraud against the government. In general terms, the FCA creates liability for different types of conduct — including for any person who knowingly submits or causes the submission of a false claim to the government, or knowingly makes a false record or statement to get a false claim paid by the government. Anyone who is liable under the FCA must pay a civil penalty in the range of $5,000 to $10,000 (as adjusted for inflation) for each false claim, plus three times the amount of the government’s damages.⁸ For example, if a drug manufacturer causes the submission of false claims amounting to $15 million to the Medicaid program, potential liability for damages could total up to $45 million plus $10,000 for each patient claim submitted for reimbursement.

Unlike the FDCA, which is a strict liability statute, the FCA only imposes liability if a person submitted, or caused the submission of, the false claim (or made a false statement or record) with knowledge of the falsity. Such “knowledge” is satisfied by actual knowledge, or deliberate ignorance or reckless disregard of the truth or falsity of the information. Also unlike the FDCA, the FCA allows private persons (known as “relators”) to file suit for violations of the statute on behalf of the government. In these “qui tam” actions, the government must investigate the complaint and notify the court whether it will intervene to take over the action. With certain exceptions, when the DOJ intervenes, the relator is entitled to receive 15-25 percent of any amount recovered; such amount increases to 25-30 percent in cases where the DOJ declines to intervene and the relator proceeds with the case without assistance from the government.

Historically, FCA actions targeting pharmaceutical and medical device companies were based on pricing, kickbacks, and misbranding. In recent years, the bulk of these actions have focused primarily on off-label promotion and have resulted in record settlements. It is not clear what specifically prompted the DOJ’s decision to focus on cGMP compliance for 2013; however, this is not the first time the FCA has been used as an enforcement tool for such violations.

In 2010, the DOJ settled a FCA case against GlaxoSmith-Kline (“GSK”) based on multiple cGMP violations that occurred at a GSK subsidiary’s plant.⁹ The total settlement of $750 million included a criminal fine of $150 million for cGMP violations under the FDCA, and $600 million to resolve FCA allegations. With regard to the FCA charges, the government asserted that GSK sold certain batches or lots of drugs whose strength, purity, or quality differed materially from the strength, purity, or quality specified in the drugs’ FDA applications for approval, and GSK knowingly caused false and/or fraudulent claims for such products to be submitted to federal healthcare programs, including Medicaid. The basis of FCA liability is that the U.S. paid, through federal healthcare programs, for substandard drugs due to cGMP violations, which was covered up by the false claims. Since then, only one other FCA case based on cGMP violations has been reported. In that case, the DOJ declined to intervene and it was later dismissed.¹⁰ Because qui tam actions remain under seal pending the DOJ’s investigation and decision to intervene, it is likely that FCA cases premised upon cGMP violations are pending but not yet public. Thus, the DOJ’s prioritization of cGMP violations may reflect what is already underway.

Ensuring cGMP/QSR Compliance
To avoid liability under the FDCA or FCA for cGMP/QSR violations, it is important to take certain steps to help ensure effective compliance. This includes appropriate policies and procedures, employee training, internal audits and mock inspections to identify any potential issues, as well as ensuring that suppliers and manufacturers maintain cGMP/QSR compliance, among other things.
In addition to focusing on plants, production lines, manuals and policies, the DOJ expressly urges manufacturers to also focus on people. Specifically, in its investigations, the agency is “looking at people to determine responsibility” because “it is the failures of people . . . which result in noncompliance.”¹¹ Accordingly, the DOJ asks the following questions to guide your focus:

1. Do you have the right people — people with the “right training and expertise to recognize problems” in manufacturing?
2. Do your people have the right incentives to see, report, and fix problems?
3. Are your people satisfied and engaged?
4. Are your people and policies in harmony — that is, do the policies acknowledge how real people work and what they are capable of?
5. Do you have personal visibility into what each of your people is actually doing?

The high prioritization of cGMP violations this year most likely means that the DOJ will focus its resources on cases involving significant cGMP violations. Anything less will be difficult to challenge under the FCA by virtue of the inherent flexibility — or lack of clarity — in FDA’s cGMP/QSR regulations. Further, most FDA factory inspections result in findings of deficiencies in a manufacturer’s process. Many violations, on their own, would not be the basis of a FCA suit because they are not sufficiently material to the government’s decision to pay for the drugs or devices. Thus, the likelihood of the DOJ pursuing an FCA suit for cGMP violations will be determined by whether the violations result in products that are actually, and not theoretically, unsafe or less effective, and create “an unacceptably high risk of harm” to consumers and patients. 

References

1. Justice News, Deputy Assistant General Maame Ewusi-Mensah Frimpong Speaks at the 2013 CBI Pharmaceutical Compliance Congress (Jan. 29, 2013), available at http://www.justice.gov/iso/opa/civil/speeches/2013/civ-speech-130129.html.
2. 31 U.S.C. §§ 3729 et seq.
3. 21 U.S.C. §§ 331 and 351.
4. 21 U.S.C. § 331(a)(2)(B).
5. 21 U.S.C. § 351(h).
6. See, e.g., 21 C.F.R. Parts 210-211 (drugs); Parts 600-680 (biologics); Part 820 (devices).
7. FDA, Facts About Current Good Manufacturing Practices (last updated June 25, 2009), available at http://www.fda.gov/Drugs/DevelopmentApprovalProcess/Manufacturing/ucm169105.htm.
8. 31 U.S.C. § 3729(a)(1).
9. Justice News, GlaxoSmithKline to Plead Guilty & Pay $750 Million to Resolve Criminal and Civil Liability Regarding Manufacturing Deficiencies at Puerto Rico Plant (Oct. 26, 2010), available at http://www.justice.gov/opa/pr/2010/October/10-civ-1205.html.
10. United States ex rel. Rostholder v. Omnicare Inc., D. Md., No. 1:07-cv-01283-CCB; 2012 WL 3399789 (Aug, 14, 2012).
11. Justice News, supra, note 1.

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Heather Bañuelos is counsel in the Washington, D.C. office of Hunton & Williams LLP (www.hunton.com) and a member of the firm’s Food and Drug practice group. She can be reached by email at hbanuelos@hunton.com.