• Physicians Face Significant Liability for Purchasing Imported Drugs and Medical Devices
  • April 21, 2016 | Author: Clay J. Countryman
  • Law Firm: Breazeale, Sachse & Wilson, L.L.P. - Baton Rouge Office
  • A recent trend has been the increasing number of civil settlements and criminal convictions by physician practices that purchased foreign prescription drugs and medical devices from Canada and other countries that have not been approved by the U.S. Food and Drug Administration (FDA) for us in the United States. Another common scenario is that a clinic may purchase drugs or medical devices from a local supplier who had sold the clinic non-FDA approved drugs from another company.

    Specifically, recent civil False Claims Act (FCA) settlements by orthopedic clinics in Tennessee and Virginia by the U.S. Department of Justice (DOJ), guilty pleas by oncologists in Missouri and California, and enforcement by the FDA Office of Criminal Investigations highlight the significant liability physicians may have from purchasing non-FDA approved drugs from Canada and other countries, or from unauthorized suppliers. The clear message from these recent government enforcement actions, as well as recent changes to federal and state law, is that physicians are ultimately responsible for knowing the source of the drugs and medical devices they are purchasing for their patients.

    This article describes important aspects from recent government settlements, criminal cases, and other enforcement actions that physicians should consider including in their compliance efforts related to complying with Federal and state laws that apply to physicians purchasing prescription drugs to dispense or administer to their patients.


    Physician offices and clinics are often contacted through mass advertising campaigns via "blast faxes," phone calls, direct mail and online marketing. These distributors often pursue clinics and hospitals for sale of physician-administered drugs, including a variety of injectable drugs.

    A common approach is that a company will use false names to sell foreign pharmaceutical products throughout the United States. Large shipments may be broken down into multiple small shipments in order to smuggle pharmaceuticals across the U.S. border. These shipments may then be sent to addresses in multiple states and locations under different false names. Custom forms would falsely state the contents and value of the shipments. Local companies, referred to as drop shippers, in the United States would receive the packages, remove indicia that they were from abroad, and then re-ship them to doctors and clinics in the United States so that the packages would have a United States-based return address. According to the FDA, these drop shippers would store the drugs and medical devices in the basements of their private residences, often in violation of safety regulations requiring the pharmaceuticals to be stored at cool temperatures.

    In some cases, foreign, non-FDA approved drugs and medical devices may be delivered directly to physician clinics from another pharmaceutical company or supplier in another country. A local drop shipper will generally have UPS pick up this package from a clinic and re-package the drugs or medical devices in a box that does not contain any post mark or return address of another country, and have it re-delivered to the clinic.

    Recently, several companies and individuals have pleaded guilty to smuggling and selling misbranded prescription drugs and unlicensed (non-FDA approved) drugs to local suppliers and physician clinics in the U.S. Apparently, the FDA Office of Criminal Investigations is investigating local suppliers or drop shippers and physicians who may have purchased prescription drugs and devices from these companies.

    Beginning January 1, 2015, the Drug Supply Chain and Security Act (21 U.S.C. 351 et seq.) requires all healthcare providers who dispense or administer prescription drugs to patients to purchase their prescription drug prodcuts only from authorized trading partners licensed by or registered with the state or Federal government as applicable. Authorized "trading partners" would include wholesale distributors, manufactureres, re-packagers and dispensers. In short, healthcare providers, including physicians, are responsible for assuring that their immediate or local suppliers are "authorized," which means licensed byt the appropriate federal or state agency.

    The False Claims Act settlements diiscussed below described several aspects to the packaging that would alert a physician practice that the drugs or medical devices it purchased may be from a foreign country and not approved by the FDA.

    False Claims Act Settlements

    On January 24, 2014, the DOJ issued a press release that announced that two orthopedic practices would pay a combined $1.85 million to resolve state and federal False Claims Act allegations that they knowingly billed state and federal heath care programs for osteoarthritis medications (known as viscosupplements) that were distributed in foreign markets and then reimported into the United States. The two settlements involved orthopedic clinics located in Tennessee and Virginia.

    Viscosupplements are substances injected into a joint, which is a common treatment for arthritic knee pain. Viscosupplements are distributed under names such as Synvisc, Hyalgan, Orthovisc, and Supartz and are approved by the FDA as injectable Class III medical devices to treat osteoarthritic knee pain. Viscosupplements are reimbursed by Medicare, Medicaid and other federal health care programs at rates determined by the average domestic sales price in the United States.

    The government alleged that the clinics knowingly purchased deeply discounted viscosupplements that were reimported from foreign countries and billed them to state and federal health care programs in order to profit from the reimbursement system, which such reimported viscosupplements were not reimbursable by those programs. The government contended that the reimported products contained labeling in foreign languages and in English for additional uses not approved in the United States. This demonstrated that the prodcuts were reimported, and thus there was no reassurance that the products were safe or had not been tampered with or stored appropriately.

    The complaint against the Tennessee and Virginia clinics was filed in 2012 under the whitstleblower provisions of the civil False Claims Act by a representative for a pharmaceutical manufacturer of one of the viscosupplements. An interesting aspect was that the whistleblower was retained by the pharmaceutical manufacturer to educate medical providers about the use of synvisc. According to the DOJ press release, the reimported viscosupplements contained labeling and packaging that were not approved by the FDA, including labeling in foreing languages as well as labeling for additional uses that were not approved in the U.S.

    Buying and Selling Misbranded Prescription Drugs

    Several companies and individuals have recetly plead guilty to smuggling and selling misbranded prescription drugs in the U.S. Physicians who purchased these drugs have also pleaded guilty to buying and selling, as well as dispensing foreign, misbranded drugs to their patients.

    Government allegations that prescription drugs and devices were misbranded have been based in part on the following: (a) they were not in possesion of a person who regularly engages in the storage or wholesale distribution of prescription drugs or devices; (b) there was not a label that contained required language limiting their use to prescription only; (c) prescription drugs failed to have the FDA-approved labeling and/or the "Rx Only" symbol; and (d) the drugs and devices were misbranded in some cases because they did not have certain language required by the Food, Drug, and Cosmetic Act (FDCA) in English.

    According to the FDA, a drug may be considered misbranded even if it is determined to be identical in composition to an FDA-approved drug that is made by the same manufacturer in the same facility. It is important to keep in mind that misbranding is a strict liability offense under the FDCA. A person who participates in a violation can be convicted of a crime even if there is no intent to violate the law.

    On March 30, 2015, a Joplin, Missouri oncologist pleaded guilty in Federal court to dispensing foreign, misbranded drugs to his cancer patients. The oncologist had ordered prescription cancer drugs from a company based in Winnipeg, Canada. This Canadian based company had sold drugs to the oncologist that had been obtained from foreign sources and which had not been approved by the FDA for distribution in the United States.

    According to the DOJ, the labeling for the prescription drugs that the oncologist purchased was different from the versions of the drugs the FDA had approved for distribution in the United States. For example, the DOJ stated that the drugs did not have labels bearing the symbol "Rx Only," and the labeling for some of the drugs was in one or more foreign languages. Some of the prescription drugs lacked mixing and use instructions in the English language.

    The oncologist submitted claims for reimbursement for these drugs and their administration to Medicare and Medicaid programs, Tricare and private health insurance programs. The oncologist paid $971,854,000 in restitution to Medicare, Tricare, Missouri Medicaid and Oklahoma Medicaid and Kansas Medicaid programs.

    On January 29, 2014, the U.S. Attorney's Office of the Northern District of Ohio announced in a press release that seven Ohio oncologists were ordered to pay $2.6 million after pleading guilty to misdemeanor charges of causing the shipment of misbranded drugs in violation of the Federal Food, Drug and Cosmetic Act. These drugs purchased from Canada were not approved by the FDA for introduction into the U.S. Each physician was required to pay fines and restitution, ranging from $158,418 to $1,139,532, and was sentenced to probation. These seven oncologists were charged with purchasing cancer drugs from Canada, including Zometa, Kytril, Taxotere, Gemzar and Eloxatin, and providing the drugs to their patients.

    In December of 2013, the DOJ announced the guilty plea of a Texas oncologist to introducing misbranded cancer drugs into the U.S. that were purchased from Canada. According to the government, the drugs were not approved for distribution or use in the U.S. and did not satisfy labeling requirements. The oncologist used the drugs interchangeably with FDA-approved versions on his patients and filed claims with federal and state health care programs, including the Texas Medicaid program, Medicare and Blue Cross, Blue Shield. The physician agreed to repay over $1,000,000 for the reimbursements that he received for the drugs, and is awaiting sentencing that could result in up to a year in prison and up to $100,000 in fines and penalties.

    Purchasing Unapproved Prescription Drugs

    On June 28, 2013, the U.S. Attorney for the Southern District of California announced that a La Jolla oncology practice was sentenced to pay a $500,000 fine, forfeit $1.2 million and make restitution to Medicare in the amount of $1.7 million for purchasing unapproved foreign cancer drugs and billing the Medicare program. The practice had admitted that it purchased $3.4 million of a foreign cancer drug, knowing that they had not been approved by the FDA for use in the United States.

    According to the press release, the practice admitted that it was aware that the drugs were intended for markets other than the United States and were not approved by the FDA for use in the United States because: (a) the packaging and shipping documents indicated that drugs were shipped to the office from outside of the United States; (b) many of the invoiced identified the origin of the drugs and intended markets for the drugs as countries other than the United States; (c) the labels did not bear the "Rx Only" language required by the FDA; (d) the labels did not bear the National Drug Code (NDC) numbers found on the versions of the drugs intended for the U.S. market; (e) many of the labels had information in foreign languages; (f) the drugs were purchased at a substantial discount; (g) the packing slips indicated that the drugs came from the United Kingdom; and (h) the office had received a notice from the FDA in October 2008 that a shipment of drugs had been detained because the drugs were unapproved.

    In a related False Claims Act lawsuit filed by the United States, the physician owner of this oncology practice paid in excess of $2.2 million to settle allegations that they submitted false claims to the Medicare program because Medicare does not cover prescription drugs that are not approved byt the FDA.

    FDA Warning Letters to Physicians

    These FCA settlements and guilty pleas by physicians were preceded by FDA warnings to physicians in the last couple of years about the risks of purchasing medications from foreign manufacturers or local unlicensed suppliers (i.e., drop shippers). Generally, subsequent to a guilty plea or conviction of a pharmaceutical company or its distributor in the U.S. for selling misbranded and unapproved drugs, the FDA has sent warning letters to physicians who may have purchased unapproved drugs from these companies or one of their suppliers.

    For example, the FDA sent a warning letter to certain physicians that the FDA believed had purchased unapproved foreign drugs or unapproved injectable devices distributed by Gallant Pharma International, Inc. Gallant and twelve individuals, including a doctor and an office manager, had been convicted for their roles in distributing drugs and devices that had not been approved by the FDA in the U.S. The FDA letter to physicians on the Gallant case listed 39 drugs, primarily unapproved chemotherapy and injectable cosmetic drugs that Gallant had sold in the U.S.

    Recently, in March 2016, the FDA sent leters to physicians who the FDA believes may have purchased counterfeit Botox and viscosupplements, such as orthovisc and synvisc from an unlicensed supplier, TC Medical. This unlicensed supplier pleaded guilty last May to smuggling and selling misbranded prescription drugs in the U.S.

    In the March 2016 warning letter to physicians, the FDA stated "receiving misbranded drugs and devices in interstate commerce and delivery or offering to deliver these drugs and devices for use on others violates federal law."

    FDA Guidance for Physicians

    The FDA also included the following recommendations in the warning letters to physicians in an effort to "help physicians safely purchase drugs and devices from pharmaceutical distributors:
    • Ensure you receive FDA-approved prescription drugs by buying directly from the manufacturer or a wholesale drug distributor licensed in your state;
    • Beware of offers too good to be true, including aggressive marketing tactics and deep discounts on prescription drugs; 
    • Buy only from state-licensed wholesale drug distributors; 
    • Check for the following signs that a prescription drug may be unsafe, ineffective or fake:
      • label is not in English; 
      • packaging looks slightly different from the FDA-approved product; 
      • product name differs from the name of the FDA-approved drug; 
      • dosing recommendations are unfamiliar; 
      • safety information or warnings are missing; and 
      • dosage forms or administration is different. 
    • Pay close attention to patient feedback.
    In addition to potential prison time and fines for misbranding or other violations of the federal and state law, the potential consequences for physicans of purchasing medical devices or drugs through unauthorized distribution channels can include criminal and civil false claims liabilty, repayment obligations to government and private payors, exclusion from federal health care programs, liabiltiy to patients, and loss of professional licenses or hospital privileges.

    Physicians would be well advised to stay out in front of these issues and adopt compliance practices to ensure that they are purchasing drugs and medical devices from authorized suppliers. In the event that they later discover that they may have purchased unapproved drugs or medical devices, physicians should consider a self-disclosure or other reporting route to the applicable governmental agency.