We’ve seen many plaintiffs allege that drug and/or medical device manufacturers committed “fraud on the FDA” and bemoan that Buckman Co. v. Plaintiffs Legal Committee, 531 U.S. 341 (2001), prevents them from recovering based on such allegations.  Buckman still doesn’t prevent them from trying every form of evasive legal chicanery known to man to include such claims.  But what plaintiffs complain about overwhelmingly isn’t fraud, and most of the time the FDA already knows about whatever a plaintiff alleges was concealed, and imposed no regulatory sanctions for it.

In our Bone Screw cases – which gave rise to Buckman – the FDA looked at everything (sundry allegations concerning improper “predicate devices” in §510(k) clearances) and never found any fraud.  Instead, the agency re-examined the issue and retroactively down-classified all “pedicle screw spinal systems” as Class II devices, which was (at worst) precisely the classification they had originally received through the purportedly “fraudulent” applications.  See Orthopedic Devices: Classification, Reclassification, & Codification of Pedicle Screw Spinal Systems; Extension of Comment Period, 63 Fed. Reg. 40025 (FDA July 17, 1998).

More recently, time and time again we’ve encountered plaintiffs complaining about supposed failure to report adverse events to the FDA when, in fact, the adverse events were already reported to the FDA (sometimes by FDA-authorized alternative means) or at worst, a late report did not result in any adverse FDA action.  At best, plaintiffs are arguing for a stricter interpretation of some FDA regulation than the FDA itself uses.  At worst, the purported “fraud on the FDA” is simply a figment of the pleader’s imagination, with no facts to support the allegations.  For instance, among failure-to-report claims we find:  Weaver v. Ethicon, Inc., 2017 WL 680725, at *7 (S.D. Cal. Feb. 21, 2017) (plaintiff “has not presented specific instances of actual adverse events that Defendant failed to report”), aff’d, 737 F. Appx. 315 (9th Cir. 2018); Paturzo v. Boston Scientific Corp., 2017 WL 8220600, at *5 (C.D. Cal. April 21, 2017) (the “complaint must include allegations of actual adverse events that Defendants did not report”); Grant v. Corin Group PLC, 2016 WL 4447523, at *7 (S.D. Cal. Jan. 15, 2016) (same); Caton v. Stryker Sustainability Solutions, Inc., 2015 WL 12426110, at *8 (C.D. Cal. May 12, 2015) (“Plaintiff has not pled that Defendants had any reports”); Bueno v. St. Jude Medical Inc., 2013 WL 12142536, at *4 (C.D. Cal. Sept. 24, 2013) (plaintiff “merely baldy asserts that Defendants failed to report”); Felger v. Smith & Nephew, Inc., 222 F. Supp.3d 746, 755 (D. Alaska 2016) (no unreported events identified); Cline v. Advanced Neuromodulation Systems, 17 F. Supp.3d 1275, 1286 (N.D. Ga. 2014) (“Plaintiff does not clearly allege that Defendant outright failed to file an MDR for these events”); Simmons v. Boston Scientific Corp., 2013 WL 12130261, at *4 (C.D. Cal. Jan. 14, 2013) (“bald” failure-to-report allegation).  We’re sure if we did more than just lift case quotes from Bexis’ book, we’d find plenty more where these came from.

To put the plaintiffs’ almost-always-made-up fraud-on-the-FDA claims further into perspective, we offer the recent decision, United States v. Carter, 15 F.4th 26 (1st Cir. 2021), where the government successfully prosecuted a claim for fraud on the FDA.  Carter exemplifies what fraud on the FDA really looks like, and Carter bears no resemblance to the trivial pursuits that plaintiffs allege in civil actions.

Carter involved the concealment of unlicensed pharmaceutical manufacturing in guise of “pharmacy compounding.”  The defendants were company executives charged, and convicted, under 18 U.S.C. §371 for “interfering with and obstructing” the ability of the FDA properly to oversee their company’s practices.  15 F.4th at 29.  The case was on appeal by the government because after the defendants were convicted, the district court entered post-judgment verdicts of acquittal.  Id.  We blogged about that decision here.

The Court of Appeals in Carter reversed and reinstated the fraud-on-the-FDA convictions.  Id.

So what were the defendants convicted of doing?  To explain that requires a little background in FDA regulation of pharmacy compounding.  Pharmacy compounding has a long history and is an entirely legitimate practice.  Ordinarily the states regulate the practice of pharmacy, but since compounding involves modification of prescription drugs, it can fall within the general purview of the FDA, particularly when performed on a large scale.

We’ve touched on pharmaceutical compounding in the blog, here and here for example – but mostly in connection with the First Amendment decision, Thompson v. Western States Medical Center, 535 U.S. 357 (2002), which invalidated an FDA prohibition on advertising by compounding pharmacies.  The FDA had imposed a ban-speech-first method of preventing compounding pharmacies from morphing into unregulated drug manufacturers and undermining the FDA’s regulatory scheme − which as we’ve explained elsewhere is very similar to what the FDA has been doing with off-label speech for decades.

After losing the Western States case, the FDA came back with non-speech-related metrics (which it could also do for off-label promotion) to determine when a pharmacy was making an “inordinate” amount of not-really-compounded products.  The chief thing that the FDA looked at was whether a particular pharmacy sold compounded drugs for patients whose physicians had actually written prescriptions specifying a compounded version of a drug.  Shortly after Western States:

[The FDA] reiterated that, for enforcement purposes, [it] would continue to draw a line between, on the one hand, compounders that operated like traditional retail pharmacies . . . and, on the other hand, compounders that operated like manufacturers. . . .  The FDA . . . specified that one of the factors it would consider in determining whether a compounder fell into this latter category of manufacturers was whether it compound[ed] drugs in anticipation of receiving prescriptions, except in very limited quantities in relation to the amounts of drugs compounded after receiving valid prescriptions.

Carter, 15 F.4th at 36.  Carter involved fraud on the FDA primarily in evading this “valid prescription” requirement through various forms of anticipatory compounding in the absence of existing prescriptions.

Here is what the jury looked at in convicting the Carter defendants of criminal fraud on the FDA.

First:

[T]he defendants agreed to participate in a conspiracy by which [the company] would regularly misrepresent to the FDA that it was shipping its compounded medications to customers . . . pursuant to valid, patient-specific prescriptions.  Yet, . . . the company was processing the customers’ orders for those medications without there being any such prescriptions.

Carter, 15 F.4th at 31.

One of the acts of conspiracy for which the jury convicted the defendants involved a practice called “backfilling,” meaning that the company:

allowed customers to place their first order for medications without supplying any prescriptions or patient names.  [It] then collected from customers the roster of patient names to whom these customers ended up prescribing and administering the medications on site.

Id.  Thereafter, the company either “attached such a [patient] roster . . . retrospectively” or “used it to process a subsequent order by the same customer” – in both instances making it appear that orders had been filled “only after” receiving valid prescriptions.  Id.

Another aspect of the conspiracy involved inventing prescriptions out of thin air by:

  • process[ing] orders using the names of celebrities or fantasy characters that customers had supplied, such as “Michael Jackson” and “Wonder Woman”;
  • us[ing] the names of customers’ staff members or those of previous patients that customers had supplied;
  • Us[ing] a given patient name for multiple medications and for multiple units of the same medication in a single order.

Carter, 15 F.4th at 32.

A third method of avoiding the FDA’s prescription limits did not bother with fake prescriptions at all.  Rather:

[The company] processed some customers’ orders using just the names of those institutional customers . . . even though the customer was a hospital or medical facility that would then itself later dispense the drug to a patient and thus was not itself a patient for whom a prescription had been issued.

Id.

Thus, the indictment of these defendants alleged:

that [they] helped [the company] deploy these methods despite knowing that the company was representing to the FDA that it was a compounding pharmacy that dispensed drugs only pursuant to valid prescriptions for individual patients and therefore was not subject to the FDA’s [good manufacturing practice] regulations that govern drug manufacturers.  In setting forth this allegation, the indictment highlighted several statements allegedly made by the defendants that purportedly showed their awareness of both the alleged scheme and the regulatory background in which [the company’s] scheme was taking place.

Carter, 15 F.4th at 32.  See also Id. at 32-33 (describing the evidence at trial that supported the convictions).  “The jury found [the defendants] guilty of the §371 [conspiracy to defraud the FDA] count each faced.”  Id. at 33.

On appeal, the defendants didn’t really deny having done the things for which the jury convicted them – except as a subsidiary point.  Instead, they pursued the same legal impossibility theory that had succeeded in the district court.  This time, however, they lost.  They claimed that, after Western States, there was “no discernible federal law” for them to violate, and that the FDA’s prosecutorial discretion based on filling pre-existing prescriptions was merely “guidance” lacking force of law.  Carter, 15 F.4th at 36.  Essentially, the defendants argued that their elaborate ruse to disguise their lack of prior prescriptions from the FDA was unnecessary, because the prior prescription “safe harbor” from enforcement didn’t really exist, given that the FDA was powerless to act.

First, Carter held that, even if the FDA had mistakenly disavowed regulatory authority that it actually had in the wake of Western States, that mistake was “not written in stone.”  Id. at 42.  Rather, the FDA could correct that error “at any time.”  Id.  Indeed these fraudsters by their deceit may well have “lulled the agency into not determining that it needed to reverse course.”  Id.  Thus, “impossibility” by virtue of mistaken disavowal of actual authority bit the dust as a matter of law.  We’ll skip the lengthy discussion in Carter of why that theory also failed on the specific facts of that case.

The second prong of impossibility postulated that the FDA had “abstained from exercising its regulatory authority over compounders as a result of its uncertainty about its own authority” even in the absence of a specific disavowal of such authority.  Carter, 15 F.4th at 45.  That failed, as well:

[W]e do not find persuasive the notion that it was legally impossible for the defendants to have conspired to interfere with a government function just because it was unclear during the life of the conspiracy whether the government had that function or understood itself to have it. . . .  [W]e do not see how it would be legally impossible for the defendants to conspire to trick the government into wrongly concluding through misrepresentations about [the company’s] means of operating that it could not be regulated pursuant to that function.

Id. at 46.  Instead, the defendants had been convicted of “an alleged conspiracy to trick the FDA into thinking that a company subject to its regulatory authority was operating differently than it was in order to conceal the fact that its actual manner of operating would make it subject to more intensive regulatory oversight.”  Id.  In other words, the defendants could not take advantage of their own hoodwinking the FDA into thinking they were operating in a legal gray area, when in fact they had gone well beyond any gray area.  There was “no basis for concluding that the ambiguity about the FDA’s authority . . . precluded it from being reasonably clear at the relevant time that the defendant’s conduct was criminal.”  Id. at 47 (citation and quotation marks omitted).

We go back to the facts that established fraud on the FDA.  It’s hard to get around all those faked prescriptions.

The convicted defendants’ related Due Process claim failed for essentially the same reasons.  Id. at 48.  “[T]he uncertainty . . . regarding FDA authority does not preclude it from being reasonably clear that a conspiracy to pass off [the company] as a kind of compounding pharmacy that it was not − through the stratagems detailed [above] − was one prohibited by §371.”  Id. at 49.

Predictably, the defendant’s throw-away argument challenging the factual basis of the fraud on the FDA failed.  When you email your employees to remind them that “[a]ll names must resemble ‘real’ names no obviously false names! (Mickey Mouse),” id. (emphasis original), it’s hard to convince an appellate court, or a jury, that there was no fraudulent intent.

So we return to where we started.  There’s a damn good reason why private plaintiffs are not, and should not, be allowed to assert fraud on the FDA.  99% of the time the allegations are false, trivial, or based on a regulatory interpretation that the FDA does not share.  Without the FDA taking enforcement action, a private plaintiff cannot prove materiality, since the FDA itself cannot be deposed.  And as for the remaining 1% − Carter demonstrates what the Supreme Court held in Buckman Co. v. Plaintiffs Legal Committee:  “the federal statutory scheme amply empowers the FDA to punish and deter fraud against [it], and this authority is used by [the FDA] to achieve . . . [its] statutory objectives.”  531 U.S. 341, 348 (2001).  We’re strongly pro-defense, but we in no way defend what the jury concluded happened in Carter.