Rare Basis for False Claims Act Settlement

It has become almost commonplace to see a weekly announcement of a False Claims Act settlement by a major pharmaceutical or medical device manufacturer. Perhaps that is why last month’s settlement by Baxter Healthcare Corporation flew under the radar of the FCA bar.  Or perhaps it was because the civil settlement amount was small ($2.158 million) in comparison to the multi-million dollar figures paid by other healthcare companies.  Or maybe the civil settlement escaped notice because the criminal component was more interesting.  Although not the subject of this blog post, the criminal resolution involved a Deferred Prosecution Agreement (DPA), enhanced compliance measures, and a $16 million payment, despite no adverse events reported, no harm to patients, and no impact on the products by the alleged conduct.

But a close look at the False Claims Act settlement reveals something unusual. The covered conduct is not the off-label promotion or kickback activity we usually see in these resolutions.  Instead the Baxter case was based on an allegation that Baxter manufactured products in violation of current good manufacturing practices (cGMP), which violates the Federal Food, Drug, and Cosmetic Act (FDC Act).  Because Baxter sold these products to the Department of Veterans Affairs (VA) under contracts that required compliance with the FDC Act, the government alleged that Baxter submitted false claims to the government and violated the FCA.

The products at issue are large-volume sterile intravenous (IV) solutions. Baxter manufactured these IV solutions in clean rooms that were installed with high-efficiency particulate absorption (HEPA) filters. Baxter regularly scheduled inspection and testing of the HEPA filters, and was required by company procedure to replace any that failed testing.  It appears the entire case hinged on whether the company addressed an employee’s complaints about whether 5 of 120 of these filters needed replacement; the employee ultimately became the whistleblower and recovered over $400,000.  The company conducted testing throughout the time period on how much mold was present in the air and on surfaces in the clean room.  There were no “out of limits” results.  Nor did testing of the products themselves identify any “out of limits” mold in the IV solutions before sterilization; because the products all were sterilized before release, there was no mold contained in products distributed from the company.  Indeed the Statement of Facts attached to the DPA includes what likely was a highly negotiated final sentence: “There was no evidence of impact on the IV solutions manufactured at North Cove from the mold found on the HEPA filters above the Line 11 clean room.”

A basic cornerstone of FDA’s authority is to ensure that the drugs it regulates are manufactured in accordance with cGMP. Under the FDC Act, a drug is adulterated 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 current good manufacturing practice to assure that such drug meets the requirements of this chapter as to safety and has the identity and strength, and meets the quality and purity characteristics, which it purports or is represented to possess.”  21 U.S.C. 351(a)(1)(B).  The focus is not on an actual deviation from the product’s quality and purity, but simply that the methods used to make the product are not cGMP compliant.  Every year, FDA inspects hundreds of facilities and cites them for failing to follow cGMP in manufacturing FDA-regulated products.  FDA has the authority to issue Warning Letters, ban products from importation, or enjoin companies from making product until FDA is satisfied with the company’s cGMP compliance.

Thus it is disturbing to see another governmental agency reviewing and enforcing the same conduct. We can only recall two other FCA settlements that involved cGMP violations, and both involved product that was negatively impacted by the company’s failure to follow cGMP. The settlement by GlaxoSmithKline in 2010 involved product that had no active ingredient or no controlled release mechanism, higher or lower amounts of the active ingredient, non-sterile product, or product that contained microorganisms.  Similarly, the FCA settlement with Ranbaxy involved the manufacture of drugs “the strength of which materially differed from, or the purity or quality of which materially fell below, the strength, purity, or quality which they purported or were represented to possess.”  Yet in this most recent settlement with Baxter, there was “no evidence of impact” on the products and no harm to patients.

We hope FCA cases based on cGMP compliance remain a rarity. At any given time, a company can be cited for not satisfying the requirements of cGMP; by its very nature, “current” practices are constantly evolving.  This is FDA’s statutory purview under the FDC Act, not the FCA.