The Federal Food, Drug, and Cosmetic Act of 1938 (“FDCA”) is one of the most far-reaching federal statutes in the United States. Among other things, the FDCA gives the U.S. Food and Drug Administration (”FDA”) the authority to oversee the safety of food, drugs, medical devices, and cosmetics on the market in the United States. When people think about the FDA, they often think about food purity standards, safety standards for drugs and medical devices, or standards for the contents of cosmetic products. However, one of the most significant tools the U.S. Government has to ensure the safety and efficacy of drugs and medical devices is the ability to bring enforcement actions against companies for misbranding their products. Misbranding is an offense all on its own, but it can also be paired with offenses under the False Claims Act to create multi-million-dollar penalties against corporations. This is especially concerning to corporate compliance professionals because the “label” of a drug or medical device is not limited to the label on the box for the product. Instead, any statements put out by the company can be considered part of the product’s label, and compliance programs go to great lengths to review and approve all written materials, especially marketing materials, that are put out by the company.
On July 8, the Department of Justice announced that it had reached an agreement with Avanos Medical Inc., a major medical device corporation, to pay more than $22 million to resolve a criminal charge of fraudulent misbranding of its MicroCool surgical gowns. Avanos was alleged to have falsely labeled the gowns concerning their level of protection from fluid and virus penetration. Avanos and the government agreed to a deferred prosecution agreement requiring Avanos to pay $22,228,000, including a victim compensation payment, a criminal monetary penalty, and a disgorgement payment. The deferred prosecution agreement also resolves allegations that the company obstructed a 2016 for-cause inspection conducted by the FDA.
The FDA recognizes a system of classification for the protection provided by surgical gowns. Under the standard, the highest protection level for surgical gowns — AAMI Level 4 — is reserved for gowns intended to be used in surgeries and other high-risk medical procedures on patients suspected of having infectious diseases. Under the deferred prosecution agreement, Avanos admitted that it had sold hundreds of thousands of surgical gowns labeled as AAMI Level 4 that did not meet the criteria to achieve that standard of protection. Avanos also admitted that it made misrepresentations to customers that it met industry standards. Avanos is alleged to have sold approximately $8,939,000 worth of misbranded gowns. Along with the monetary payments, Avanos has agreed to continued cooperation with DOJ by reporting any evidence of alleged violations of the FDCA or fraud laws committed by its employees. Avanos also agreed to strengthen its compliance program and submit yearly reports to the government concerning improvements to its compliance program.
The attorneys at Chilivis Grubman represent clients of all types and sizes in connection with white collar criminal investigations. If you need assistance with such a matter, please contact us today.