Drug Debarment Actions: Beware

FDA recently released a report summarizing its enforcement activities for FY 2016 (October 1, 2015 to September 30, 2016). It shows, among other things, that the number of warning letters from the Center for Drug Evaluation and Research doubled (76 in FY 2015 to 151 in FY 2016), in contrast to the halving of the letters sent by the Center for Devices and Radiological Health (168 in FY 2015 versus 85 in FY 2016). This blog post, however, is focused on a lesser used, but arguably more powerful, enforcement tool: debarment. The FDA report claims that in FY 2016 there was only 1 drug product debarment. Perhaps this low number motivated FDA to kickstart debarment actions because we are only a few months into FY 2017, and there already have been at least three debarment notices posted in the Federal Register.

What is debarment? Debarment is an enforcement proceeding that bars an individual from working “in any capacity” in the drug industry. Courts have interpreted debarment to be a complete bar, such that “[a]ll direct employment by a drug company, whether in the board room or the cafeteria or somewhere in between” is forbidden. See, e.g., DiCola v. FDA, 77 F.3d 504, 509 (D.C. Cir. 1996). FDA is required by statute to debar an individual who has been convicted of a felony relating to the development or approval of any drug product, or other conduct otherwise relating to the regulation of any drug product under the FDC Act. 21 USC § 335a(a)(2). There are other bases for debarment not discussed in this post.

Debarment frequently is confused with exclusion, which has a similar concept but is imposed by the HHS Office of Inspector General (OIG) under authority of the Social Security Act. OIG has the authority to exclude individuals from participating in federal health care programs, such as Medicare, Medicaid, and Tricare. No payment can be made for items or services furnished by an excluded individual or entity, which effectively can put that person out of business in the healthcare industry. Exclusion can be triggered for a number of reasons enumerated by statute, some of which require mandatory exclusion and some over which OIG has discretion, and most of which require a showing of fraud. Just last year, however, a court upheld the exclusion of a pharmaceutical executive convicted of a misdemeanor FDC Act violation, even though the elements of the violation did not include evidence of an intent to defraud or mislead. See Bohner v. Burwell, No. 2:15-cv-04088-CDJ, 2016 U.S. Dist. LEXIS 167590 (Dec. 2, 2016).

But back to debarment and FDA’s use of it. The most recent debarment proceedings are summarized below:

• 18, 2016: FDA permanently debarred Wesley A. McQuerry related to his role as a clinical trial study coordinator. Mr. McQuerry was responsible for administering the clinical trial and ensuring that trial participants received appropriate remuneration. He was convicted of a felony in February 2015 for knowingly and willfully falsifying data for at least four patients, and he used his own blood, stool, and EKG results, in the stead of fictional patients. His conduct resulted in a loss of over $200,000 to a pharmaceutical company. In October 2015, FDA sent a notice proposing to permanent debar Mr. McQuerry, he waived his right to a hearing by failing to respond, and he was permanently debarred effective March 18, 2016.

• 14, 2016: FDA permanently debarred Edward Manookian based on his felony conviction for conspiracy to defraud the United States by selling an unapproved drug product. Mr. Manookian was the president of a company that marketed Melanotan II (MII), a peptide used as an injectable tanning product. Despite repeated warnings from FDA to cease sales because MII was unapproved, Mr. Manookian persisted, and thus was convicted in August 2015. He received notice of the debarment action in August 2016, waived his opportunity for a hearing, and was debarred as of November 14, 2016.

• 15, 2016: FDA permanently debarred Louis Daniel Smith for his conduct related to the sale of a health-related product billed as a Miracle Mineral Solution (MMS), which was composed of sodium chlorite, an industrial chemical used as a pesticide and not intended to be used for human consumption. Mr. Smith obtained chemicals to manufacture MMS and sold MMS as a drug product. He was convicted in 2015 for one count of conspiracy, three felony counts of introducing misbranded drugs into interstate commerce, and one count of smuggling. In August 2016, FDA sent a notice proposing to permanently debar Mr. Smith, and he also waived his right to request a hearing.

• 15, 2016: On the same day as the notice of Mr. Smith’s debarment, FDA also published notice of the debarment of Paul S. Singh. Dr. Singh was convicted in July 2015 for providing patients with an unapproved birth control method, a copper intrauterine device (IUD), even though Dr. Singh knew of the risk and failed to inform patients of the unapproved nature of the IUD. Dr. Singh received over $83,000 in reimbursement from health care benefit programs by misrepresenting the type of IUD he had inserted. He was convicted on a single count of felony mail fraud. After notice in August 2016 of the debarment proceeding, Dr. Singh failed to request a hearing and thus was debarred effective November 15, 2016.

Notably all four individuals were debarred after constructive or actual waiver of hearings, and after felony convictions. It is hard to make heads or tails of FDA’s historic reliance on debarment as an enforcement tool.

The uptick at the start of FY 2017 serves as a reminder to industry of the collateral consequences of a conviction involving drug regulation. The facts underlying these debarment decisions also may support exclusion by HHS-OIG, as was the case for Mr. Bohner, cited above. Counsel for defendants in criminal cases should be cognizant of these implications in negotiating any resolution with the government.