Kusserow on Compliance: DOJ moves against spine device manufacturer for paying kickbacks

The Department of Justice (DOJ) has intervened in a qui tam whistleblower case filed against SpineFrontier, Inc. and related entities and executives for alleging paying kickbacks to spine surgeons to induce use of their surgical devices. According to the complaint, spine surgeons were given over $8 million in sham “consulting” payments ostensibly for product evaluations, when in fact the payments were for use of SpineFrontier devices.

The defendants allegedly created Impartial Medical Experts LLC IME—a purported consulting company—as an entity intermediary to funnel kickbacks to spine surgeons. IME was designed to shield the defendants and spine surgeons from government scrutiny by creating a false impression that surgeons were consulting through an independent third-party entity. The Defendants generally paid “consulting” spine surgeons $500 for a cervical procedure, and $1,000 for a lumbar procedure—but only if the surgeon used SpineFrontier devices. The United States alleges that consulting spine surgeons often performed little or no work beyond implanting the devices—for which they were separately paid by insurers—and that the Defendants did not systematically collect or use feedback from consultants and paid them even when they had provided no feedback at all.

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

Connect with Richard Kusserow on LinkedIn.

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Copyright © 2020 Strategic Management Services, LLC. Published with permission.

FDA moving to expand access to experimental drugs

The FDA is taking steps to expand patients’ access to drugs that have not yet been approved for marketing, encouraging manufacturers to exclude fewer people from clinical trials and to publicize their policies about accessing drugs outside of clinical trials, according to a report from Government Accountability Office (GAO Report, GAO-19-630, September 9, 2019).

Clinical trials

Clinical trials often exclude patients by geography, age, or medical condition, and many stakeholders believe that the eligibility criteria are too narrow and exclude patients who are likely to be treated once a drug is approved, according to the GAO. Two recent laws have encouraged expanded access to pre-approved, or “investigational” drugs, the Federal Right to Try Act of 2018, which allows terminally ill patients and their doctors to request access to drugs without an FDA review process, and the FDA Reauthorization Act of 2017, which required the FDA to discuss and report on clinical trial inclusion and exclusion, and requires the GAO to report FDA’s actions to expand access to investigational drugs.

FDA efforts

The FDA has made efforts to make sure that historically excluded classes of people, like children, pregnant women, or patients with liver disease, can gain access to “investigational” drugs that have not been approved for marketing. The agency has met with stakeholders, reported on its meetings, and issued guidance on cancer drugs and on clinical trials more generally.

FDA issued four new draft guidance documents and one finalized guidance document in March 2019, aimed at expanding eligibility for cancer drug trials. Collectively, the guidance recommends that manufacturers attempt to include certain patient populations that have typically been excluded from participation, including children and adolescents; patients with HIV, hepatitis B or hepatitis C virus; patients with brain cancer; and patients with kidney, heart, or liver diseases. Rather than excluding these patients outright, FDA’s new guidance recommends ways to safely include them in trials, such as allowing testing on HIV-positive patients if they have not had an AIDS-defining infection within the past 12 months.

The FDA has more recently issued draft guidance that goes beyond cancer trials, recommending in June that manufacturers examine whether exclusion criteria are necessary to ensure safety or to achieve the study’s objectives, and avoid any unnecessary restrictions to a study’s population.

Despite the FDA’s efforts, drug manufacturers have not generally moved to expand eligibility for clinical trials. Only two out of ten surveyed by the GAO indicated that they had broadened their clinical trial eligibility criteria or intended to do so, while other drug manufacturers said that they had tried other ways to expand access to trials, such as reimbursing travel and hotel costs, or taking advantage of decentralized trials that took place in retail health clinics and patients’ homes, according to the report.

Beyond clinical trials, patients can also request access to investigative drugs through the FDA’s expanded access program or the federal Right to Try Act, and the FDA is taking steps to raise awareness about those programs. While the FDA has tried to use both programs to increase access to investigative drugs, it can only go so far, since neither program compels drug makers to provide access outside of a clinical trial.

The GAO received mixed feedback on the FDA’s program. Some physician and patient advocacy groups criticized it as too complex and burdensome, while others pointed out that the FDA approves most requests—99 percent in 2017—and that manufacturer’s approval is a bigger factor in preventing patient access.

The FDA has tried to simplify and improve the expanded access process, simplifying forms and enlisting an outside partner to help physicians and patients find drug manufacturers’ expanded access policies, according to the report. The FDA has also started a pilot program to assist oncologists with requests for investigative drugs, and created a streamlined process for institutional review board approval, both of which have been well-received by stakeholders.

The newer Right to Try Act also received mixed reviews in the GAO’s study, with some physicians and medical ethicists questioning whether the program, which eliminates FDA review, could compromise patient safety without solving the more common obstacle to improving access, which is manufacturers’ cooperation.

Drug manufacturers remain skittish about the FDA’s handling of adverse events that occur under the FDA’s expanded access program, despite recent guidance saying that such events have not prevented FDA from approving any drug. Two out of ten drug manufacturers said that recent the FDA guidance did not quell their concerns, and four in ten said that manufacturers’ concerns about the issue “may never be fully resolved.” FDA officials, for their part, told the GAO that data from the expanded access program has been commonly used to support drug approvals, and only very rarely has led to a clinical hold.

The GAO also tracked drug makers’ efforts to communicate with patients about access to investigative drugs, finding that 23 of 29 manufacturers surveyed communicated their position to potential patients. Nineteen said they would consider requests for investigational drugs outside of clinical trials, while four said they would not consider requests, with two citing safety concerns. Most of the manufacturers willing to accept requests included an estimated time frame for responses, and five mentioned specific drugs for which they would consider requests.

Court imposes 10-month deadline for pre-market tobacco applications

A federal district court in Maryland has set a deadline of 10 months for tobacco product manufacturers to submit pre-market applications and a one year deadline for FDA approval. The court previously concluded that the FDA violated the Administrative Procedure Act (APA) when it released guidance in 2017 extending the compliance deadline for the “Deeming Rule” which brought new tobacco products under the purview of the Family Smoking Prevention and Tobacco Control Act. Rather than remanding the issue to the FDA to determine a timeline for compliance or accepting the plaintiffs’ request of a four-month deadline for applications, the court accepted the FDA’s recommendation of a 10-month deadline. The court found that it has the authority to impose such a deadline under the extraordinary circumstances of the case, in which prompt action is necessary to combat the public health crisis caused by the rise in youth e-cigarette use (American Academy of Pediatrics v. FDA, July 12, 2019, Grimm, P.).

FDA tobacco rule compliance extensions

On May 10, 2016, the FDA issued the “Deeming Rule,” bringing approximately 25,000 new tobacco products, including various cigars, e-cigarettes, pipe tobacco products, and hookah within the purview of the Family Smoking Prevention and Tobacco Control Act. The Deeming Rule went into effect 90 days after its publication (see FDA clears the air, ‘deems’ e-cigarettes, hookah tobacco, cigars worthy of regulation, Health Law Daily, May 10, 2016). In May 2017, the FDA extended the compliance deadline by three months. In August 2017, the FDA extended the timelines to submit tobacco product review applications for deemed tobacco products that were on the market as of August 2016. In May 2019, the district court ruled that the FDA’s August 2017 compliance deadline extension violated the Administrative Procedure Act, as it was done without following notice and comment requirements. The court vacated the August 2017 Guidance and asked the parties to brief the court on potential remedies, given that the application deadlines in the Deeming Rule and May 2017 Guidance had passed.

Remedy

The court concluded that the case presented “extraordinary circumstances” that called for more than simply vacating the guidance and remanding the issue to the FDA (as was requested by manufacturers). It imposed a 10-month deadline for submissions and a one-year deadline for approvals, as suggested by the FDA. The plaintiffs had requested a four-month deadline for submissions, but the court rejected that solution because of the record from the FDA demonstrating that a four-month deadline would prevent them from timely approving or denying applications and could clear the market of e-cigarette products, thus creating a risk that adult smokers would switch from e-cigarettes to combustible tobacco products. The FDA also presented evidence that it plans to accelerate the premarket review requirements for the products that are most attractive to youth, such as flavored products.

The court concluded that without a deadline for filing, manufacturers would be unlikely to move forward with applications, because the record showed a purposeful avoidance by the industry of complying with the premarket requirements despite entreaties from the FDA that it can do so, and it establishes a shockingly low rate of filings.

Trader Joe’s enjoys sweet victory, dismissal of honey labeling case

A putative class action involving allegations related to Trader Joe’s Manuka Honey has been dismissed after a California federal district court granted Trader Joe’s motion to dismiss without leave to amend. The consumers alleged that Trader Joe’s mislabeled and falsely advertised its manuka honey as “pure” when it was allegedly adulterated. In dismissing the complaint, the court concluded that plaintiffs could not plead sufficient facts to support their adulteration theory since their theory involved the bee’s mixing of pollen and not the manufacturer intentionally mixing manuka honey with non-manuka honey. Since the consumers admitted they could not plead enough facts to support their adulteration claims, the court also dismissed the breach of warranty and fraud claims. The product labeling is accurate and, therefore, not misleading. Finally, the state law claims are preempted (Moore v. Trader Joe’s Company, June 24, 2019, Westmore, K.).

Trader Joe’s (manufacturer) markets and sells “Trader Joe’s Manuka Honey.” Plaintiffs (consumers) allege that two representations contributed to their alleged injuries. On the front label, the product states “100% New Zealand Manuka Honey” or “New Zealand Manuka Honey. The ingredient statement lists “manuka honey” as the only ingredient. The consumers allege that the product testing they purchased showed that approximately 57 and 62 percent of the pollen in the tested honey was from the manuka flower; the remaining pollen was from other floral sources. The consumers allege that Trader Joe’s sales and marketing violate consumer protection laws because the honey is mislabeled and falsely advertised as pure manuka honey, but it should be labeled as “Manuka-based.” Trader Joe’s filed a motion to dismiss.

Insufficient facts to support adulteration

The court granted the manufacturer’s motion to dismiss without leave to amend because the consumers confirmed they could not plead sufficient facts to support the adulteration theory.

The consumers’ theory of adulteration is that bees visit different floral sources and return to the hive, which lowers the manuka pollen count; their theory was not that the manufacturer purposefully mixed manuka honey with non-manuka honey. The FDA’s industry guidance on honey labeling, which was referenced by both parties, only discusses adulteration with non-honey sources and not mixing high-value honey with less expensive honey. Further, the guidance does not address whether the mixing would constitute adulteration.

The court concluded that to constitute adulteration, the manufacturer would have to purposefully mix manuka and non-manuka honey. In this case, all the involved honey is technically manuka honey with varying pollen counts—there is no adulteration in violation of the FDC Act.

Since the consumers could not demonstrate adulteration, the court also dismissed the breach of warranty claim and fraud claim. The fraud claim is not actionable because it is predicated on adulteration whereby the manufacturer (not bees) purposefully mixed manuka and non-manuka honey; the consumers have no facts to support that theory.

Product labeling is accurate and not misleading

The court concluded that product label is accurate because the consumers cannot allege adulteration, honey is a single ingredient food, and the chief floral source is manuka. Furthermore, since the label is accurate, a reasonable consumer cannot find it misleading. Trader Joe’s product is accurately labeled as 100 percent manuka honey.