2019 Significant Settlements
Justine E. Johnson*
This chapter summarizes a selection of significant settlements in 2019 between members of the food and drug industry and the U.S. Food and Drug Administration (“FDA”) alongside the U.S. Department of Justice (“DOJ”). The enforcement authority of FDA and DOJ includes both civil penalties and criminal prosecution.
Consistent with prior years, a majority of these settlements arise from DOJ’s use of the False Claims Act (“FCA”), which imposes liability on persons and companies who defraud governmental programs and contracts. In 2019, the federal government recovered $3.05 billion in FCA judgments and settlements, $2.6 billion of which came from health care and life sciences companies. The 2019 recovery increased five percent from the ten-year low of $2.9 billion in 2018 and total recoveries amount to $62 billion since Congress overhauled the FCA in 1986 in order to encourage whistleblower complaints. Whistleblower, or qui tam, actions continued to be a driving force behind DOJ enforcement activity, with 633 whistleblower suits filed in 2019 (as compared to 146 cases filed by the government), which resulted in DOJ recovering $2.1 billion from these and earlier filed suits and $244 million awarded to relators for their role.
Reflecting DOJ’s focus on drug companies’ role in the prescription opioid crisis, two of the largest recoveries involved opioid manufacturers, Insys Therapeutics and Reckitt Benckiser Group plc, both detailed in this chapter. Consistent with DOJ’s memorandum issued in September 2015 commonly referred to as the “Yates Memorandum,” DOJ also continued its commitment under the FCA to deter and remedy fraud by corporations and individuals alike. The settlement reached with Diabetic Care Rx LLC and a private equity firm, Riordan, Lewis & Haden Inc., involved settlement by two executives in an amount totaling over $300,000. Further, many of the resolutions involved multi-year Corporate Integrity Agreements (“CIAs”), which require individual accountability for corporate decision-making going forward.
Certain DOJ policy developments in 2019 also help to reveal what DOJ may prioritize in lawsuits and investigations going forward. In April 2019, DOJ issued updated guidance that, while binding only on the Criminal Division, is intended to assist prosecutors across the department in their evaluation of corporate compliance programs. The Criminal Division evaluates each corporate compliance program in the context of the individual investigation; however, the guidance encourages prosecutors to consider a set of factors including: (i) whether the program was well designed (e.g., the company appropriately identified, assessed, and defined its risk profile and designed a program to address this risk, had an appropriate reporting structure and investigation process, etc.); (ii) whether the program was implemented effectively; and (iii) whether the program actually works in practice. DOJ expects that successful compliance programs will be designed to identify the type of misconduct most at risk of occurring in the company’s line of business, and the success of a program may directly impact a prosecutor’s decision to “charge only the corporation’s employees and agents or to mitigate charges or sanctions against the corporation.” Further, in an effort to encourage companies to voluntarily disclose misconduct, DOJ issued guidance in May 2019 that sheds light on DOJ’s position of awarding credit to defendants who cooperate in an FCA investigation by identifying the type of activities eligible for credit.
This chapter reviews some of the key FCA settlements and other representative settlements and consent decrees between the food and drug industry and the government in 2019.
Reckitt Benckiser Group plc
Reckitt Benckiser Group plc (“RBG”) agreed to pay $1.4 billion to resolve potential criminal and civil liability related to a federal investigation into the sales and marketing of Suboxone, an opioid addiction treatment drug, by Indivior Inc. (“Indivior”), a wholly-owned subsidiary of RBG until December 2014 (then known as Reckitt Benckiser Pharmaceuticals Inc.). This resolution included: (i) $647 million in forfeiture of proceeds; (ii) $700 million in civil settlements with the federal government and the states; and (iii) $50 million in an administrative resolution with the Federal Trade Commission (“FTC”), and constitutes the largest recovery by the U.S. in a case regarding an opioid drug.
The government alleged that Indivior (and from 2010 to 2014, RBG either directly or through its subsidiaries) engaged in an illicit nationwide scheme to increase prescriptions of Suboxone by promoting the film version of the product with unsubstantiated, false and misleading claims that it was less-divertible, less-abusable, and less susceptible to unintended pediatric exposure than other buprenorphine drugs. The government further alleged that Indivior discontinued the tablet form of Suboxone with the intent to delay the entry of generic tablet forms of the drug to the market (and not due to alleged concerns of pediatric exposure).
RBG executed a non-prosecution agreement that required the forfeiture of $647 million in proceeds received from Indivior and prohibits RBG from manufacturing, marketing, or selling Schedule I, II, or III controlled substances in the U.S. for three years. With respect to the civil investigation, RBG agreed to pay $500 million to the federal government and up to $200 million to state governments to resolve claims that Indivior’s marketing of the product caused the submission of false claims to government health care programs. This settlement resolves six lawsuits filed under the whistleblower provision of the FCA. Lastly, RBG entered into a consent decree with FTC and agreed to pay the commission $50 million to resolve claims that the company engaged in unfair methods of competition in violation of the Federal Trade Commission Act.
Insys Therapeutics (“Insys”) agreed to pay $225 million to resolve criminal and civil liability related to kickbacks and other unlawful marketing practices allegedly perpetrated by Insys in connection with its marketing of Subsys, a sublingual fentanyl spray. This resolution included: (i) $195 million in civil remedies; and (ii) $30 million in criminal restitution ($2 million monetary fine and $28 million forfeiture of proceeds). Additionally, an operating subsidiary pled guilty to five counts of mail fraud, and Insys entered into a five-year deferred prosecution agreement with DOJ and an “unprecedented” five-year CIA and Conditional Exclusion Release with the Office of Inspector General (“OIG”). Insys filed for Chapter 11 bankruptcy five days after announcement of the settlement, the proceedings of which remain ongoing; however, it is expected that DOJ will recover at least a portion of the agreed settlement amounts.
The civil settlement resolves five lawsuits filed under the whistleblower provision of the FCA. The government and whistleblowers alleged that Insys induced prescribing of Subsys through kickbacks to physicians and nurse practitioners, which took the form of payments for “sham speaker program speeches,” employment of the friends and family of prescribers, and “lavish meals and entertainment.”
OIG required that Insys agree to a detailed statement of facts detailing its criminal conduct and acknowledge that such conduct provides a basis for the company’s exclusion from federal health care programs. However, OIG chose not to pursue its permissive exclusion authority at this time citing Insys’ cooperation in the prosecution of company executives and agreement to enhanced CIA requirements (such as enhanced material breach provisions), subject to Insys’ fulfillment of its obligations under the CIA. DOJ noted that OIG’s Conditional Exclusion Release in which it reserved its exclusionary authority is counter to its normal practice in FCA settlements.
Avanir Pharmaceuticals (“Avanir”) agreed to pay more than $108 million in criminal penalties and civil damages related to the false and misleading marketing of its product, Nuedexta, and the payment of kickbacks to a physician to induce prescribing the product. Avanir also agreed to cooperate in the indictment against four individuals, three former employees and one of the product’s top prescribers, related to the kickback scheme.
This resolution includes $95 million in civil remedies, which resolved FCA allegations of kickbacks and false and misleading marketing of the product to providers in long term care facilities for unapproved uses of the drug (specifically, for behaviors associated with dementia). The government alleged that Avanir remunerated physicians and other healthcare professionals in the form of money, honoraria, travel, and food in exchange for issuing prescriptions for the drug or participating in speaker programs. Further, the government alleged that the company took advantage of the Centers for Medicare and Medicaid Service’s efforts to reduce the use of anti-psychotics on dementia patients in long-term care facilities by, among other things, promoting misinformation about typical behaviors of patients suffering from pseudobulbar affect that, in fact, are commonly observed in dementia patients. The civil settlement resolves two lawsuits filed under the whistleblower provision of the FCA.
Avanir also entered into a CIA with the Department of Health and Human Services OIG that requires Avanir, among other things, to implement additional controls related to physician interactions and conduct internal and external monitoring of promotional activities. The CIA also requires that compliance-related certifications be obtained from Avanir’s Board of Directors and key executives, increasing individual accountability.
Avanir also entered into a three-year deferred prosecution agreement to resolve allegations that the company violated the Anti-Kickback Statute by paying a physician and offering him other financial incentives to increase the number of prescriptions he issued to beneficiaries of federal healthcare programs, as well as inducing him to recommend that other physicians do the same. Under this agreement, Avanir must pay a monetary penalty of $7.8 million and forfeit proceeds in the amount of $5.1 million. In identifying the facts and circumstances that prompted a deferred prosecution agreement, the agreement explicitly identified Avanir’s ongoing cooperation with the investigation, the extensive remedial measures taken by the company (including terminating or permitting the resignation of multiple employees), and its enhanced compliance program in response to the allegations. Further, a conviction would likely have prompted the OIG of the Department of Health and Human Services to impose a mandatory exclusion of the company from all federal health care programs, resulting in potentially substantial negative consequences to consumers.
Diabetic Care Rx LLC (doing business as Patient Care America) and Riordan, Lewis & Haden Inc.
Compounding pharmacy Diabetic Care Rx LLC, doing business as Patient Care America (“PCA”), two PCA executives, and private equity firm Riordan, Lewis & Haden Inc. (“RLH”) agreed to pay a combined amount of $21.36 million to resolve allegations of involvement in a kickback scheme to generate referrals of prescriptions, reimbursed through a federal health care program for military members and their families, in violation of the FCA. The government alleged that the defendants made kickback payments to outside “marketers” who targeted military members and their families and solicited medically unnecessary prescriptions for expensive compounded pain and scar creams and vitamins. This resolution included: (i) payment by PCA and RLH in the amount of $21.05 million; and (ii) payment by two executives in amounts at least $300,000 and $12,788, respectively.
Notably, this is the first time DOJ named a private equity firm alongside one of its portfolio companies in a lawsuit under the FCA. RLH managed PCA on behalf of its investors and the government emphasized the connection between PCA’s kickbacks and RLH’s liability. The private equity firm allegedly knew of and agreed to pay the outside marketers to generate the prescriptions and financed the kickback payments to these individuals. The government also noted RLH’s participation in high-level management of PCA (with two RLH partners on PCA’s Board of Directors), as well as PCA’s daily operations (with PCA’s CEO agreeing to seek RLH’s approval on all key company decisions).
The settlement resolves a lawsuit filed under the whistleblower provision of the FCA by two former employees of PCA.
PharMedium Services, LLC
Compounding pharmacy PharMedium Services LLC (“PharMedium”) and two of its executives agreed to be bound by a consent decree of permanent injunction to settle allegations that PharMedium distributed adulterated, misbranded, and unapproved new drugs in violation of the Federal Food, Drug, and Cosmetic Act (“FDCA”). PharMedium operated four registered outsourcing facilities in Tennessee, Mississippi, Texas, and New Jersey and manufactured and distributed drugs intended to be sterile, such as oxycontin and morphine sulfate.
The government’s complaint alleged that the drugs were prepared, packed, or held under insanitary conditions in which they may have been contaminated with filth or rendered injurious to health and that the company failed to comply with current good manufacturing practices. Further, the complaint alleged that PharMedium failed to comply with all requirements for drugs compounded in a registered outsourcing facility and did not properly label their products with adequate directions for use. This enforcement action came after multiple inspections of PharMedium’s corporate headquarters and outsourcing facilities between 2013 and 2018 that resulted in an FDA warning letter citing insanitary conditions and other violations of the FDCA. PharMedium had previously received a warning letter from FDA in 2007 for similar violations.
PharMedium voluntarily ceased operations at its Tennessee facility after inspection by FDA. In order to reopen the Tennessee facility, PharMedium must complete certain corrective actions and receive authorization from FDA. PharMedium has also ceased operations at its Mississippi facility and must, among other things, hire an independent expert to review the company’s operations at its Texas and New Jersey facilities to ensure compliance with the FDCA. The two PharMedium executives identified in the complaint and the consent decree are the individuals responsible for establishing and maintaining current and future compliance with the law.
ACell Inc. (“ACell”) agreed to pay $15 million to resolve criminal and civil liability arising from claims related to its MicroMatrix device, a powder wound dressing product. This resolution included: (i) a $3 million fine pursuant to a plea agreement for failure to report to FDA its recall of MicroMatrix devices in violation of the FDCA; and (ii) a $12 million civil settlement over five years to resolve allegations that the company caused false claims to be submitted to federal health care programs for MicroMatrix in violation of the FCA.
ACell pled guilty to one misdemeanor count for its failure to report to FDA its recall of the MicroMatrix devices from the market over safety concerns. After learning that over 30,000 MicroMatrix devices were contaminated with endotoxin levels that posed health risks to patients, ACell discretely removed the product from inventories, hospitals, and other healthcare centers. ACell admitted that it did not report the removal of the devices to FDA; it concealed the reason for removal from doctors, hospitals, and the company’s salesforce; and it did not notify doctors who had already used devices from the contaminated lots.
Under the civil settlement, the government alleged that ACell engaged in false and misleading marketing of MicroMatrix by directing its sales representatives to inform physicians that non-topical and internal use of the device was safe and effective (contrary to its indication for the treatment of topical wounds). The government further alleged that ACell provided coding recommendations to healthcare providers that improperly inflated Medicare reimbursement, notwithstanding that two consultants separately advised the company that such coding was incorrect. Lastly, the government alleged that ACell improperly induced prescribers to order MicroMatrix products through various payment and entertainment benefits. This settlement resolves one lawsuit filed under the whistleblower provisions of the FCA.
ACell also entered into a five-year CIA with the Department of Health and Human Service’s OIG requiring, among other things, that the company implement a risk assessment and internal review process designed to identify ongoing compliance risks. Further, the CIA requires sign-off certifications from the company’s Board of Directors and certain executives, as well as increased training, auditing, and monitoring to address the types of activities at issue.
ABH Nature’s Products, Inc.
Three dietary supplement companies under common ownership, ABH Nature’s Products, Inc., ABH Pharma, Inc., and StockNutra.com, Inc., as well as their owner (collectively “ABH”) agreed to a consent decree of permanent injunction to settle allegations that ABH manufactured, prepared, labeled, packed, held, and distributed dietary supplements in violation of current good manufacturing practices.
The government’s complaint alleged that FDA had observed “several critical deviations” from current good manufacturing practices in its inspection of ABH’s manufacturing facilities. Specific practices included failure to confirm that the dietary supplements met the product’s specifications for identity, purity, strength, and composition; failure to implement a product system that ensured the quality of the product; failure to detail necessary information in production records; and failure to properly investigate a consumer complaint. Further, the complaint alleged that ABH violated the FDCA by marketing the product to be used in the treatment of certain medical conditions such as cancer, heart disease, HIV, and AIDS, causing the product to be misbranded and an unapproved new drug.
The injunction obligates ABH to destroy all dietary supplements that are in its possession, custody, or control within fifteen days. Further, ABH must implement several consumer safety measures before resuming the manufacture and distribution of its products, including hiring an independent expert to inspect the facility and certify that all deficiencies have been corrected. ABH must also engage a labeling expert to review product labeling and certify that all claims on its dietary supplements comply with the FDCA. Pursuant to the consent decree, on January 21, 2020, ABH issued a recall of all of its dietary supplement products manufactured and sold between January 2013 and November 2019.
Golden Gate Soy Products Inc.
Food company Golden Gate Soy Products Inc. (“Golden Gate”) and two owners/executives agreed to a consent decree of permanent injunction to settle allegations that Golden Gate manufactured and distributed ready-to-eat tofu and other soy-based products in a facility with chronic insanitary conditions in violation of the FDCA. The government’s complaint alleged that the company’s facility contained Listeria monocytogens (“L. mono”) for a prolonged period and that the facility failed to have adequate measures in place to reduce the consequent risk of health hazards.
The complaint cited three prior FDA inspections of the Golden Gate facility (2017, 2018, and 2019) that each uncovered violations of FDA food safety regulations. Among other things, the inspections found the presence of L. mono in Golden Gate’s food preparation area and that food was held in insanitary conditions for distribution. FDA advised Golden Gate of its violations, to which the company responded with promised corrective actions; however, FDA found in a follow up inspection that none of Golden Gate’s remedial measures were adequate.
The consent decree prohibits Golden Gate from receiving, preparing, processing, packing, holding, labeling, or distributing food at its facility or any other facility until it complies with specific remedial measures and receives a written determination from FDA that Golden Gate’s manufacturing practices comply with the FDCA. Among other things, Golden Gate must hire a qualified independent expert to develop an effective sanitation control program.
Topway Enterprises (doing business as Kazy’s Gourmet)
Food company Topway Enterprises, doing business as Kazy’s Gourmet (“Topway”), and three principals of the business agreed to a consent decree of permanent injunction to settle allegations that Topway sold ready-to-eat fish and fishery products in a facility with serious insanitary conditions in violation of the FDCA. The government’s complaint alleged, among other things, that the company failed to adequately control the growth of L. mono at its facility.
This enforcement action came after several FDA inspections identified the presence of egregious sanitation deficiencies, including poor employee sanitation and production practices and significant facility deficiencies (e.g., cracked and uncleanable floors, uncleaned utensils, fish particles on walls, etc.). In July 2019, FDA suspended Topway’s food facility registration, prohibiting the company from selling or distributing food from the facility, and advised restaurants and retailers in two states to stop selling or serving Topway seafood products. This was the sixth instance in which FDA exercised its authority to suspend a food facility registration since receiving such authority under the FDA Food Safety Modernization Act.
The consent decree requires Topway to comply with specific remedial measures and incorporates safeguards to ensure that future processing at Topway’s facility complies with FDCA requirements.
The 2019 settlements illustrate FDA’s and DOJ’s commitment to food and drug safety, particularly as this relates to the prescription opioid crisis, sterile compounding violations, and dietary supplement fraud. The recoveries also illustrate DOJ’s efforts to enforce the FCA against individuals through joint and several liability with offending corporations.
The recovery figures are generally consistent with recent years, with a slight increase from the ten-year low observed in 2018. While it does not appear that the 2016 change in presidential administration affected FCA enforcement goals and activity, it remains to be seen whether the upcoming 2020 election will have this same result. Such a trend would likely manifest slowly, if at all, as lawsuits are pursued by long-time DOJ FCA attorneys and often take several years to resolve.
What will undoubtedly remain, however, is the strong interest of relators in initiating FCA lawsuits. Although the number of qui tam actions initiated in 2019 dropped since an all-time high of 757 lawsuits initiated in 2013, whistleblowers will likely continue to make up a majority of newly initiated FCA actions.
* Justine E. Johnson is an associate at Kleinfeld, Kaplan & Becker LLP. She advises and represents pharmaceutical, food, dietary supplement, cosmetic, tobacco product, and medical device companies on regulatory and advertising law matters. Justine gratefully acknowledges Jacqueline Chan for her assistance on this chapter.
 Fraud Statistics – Overview (DOJ Dec. 2019).
 Id.; Press Release, Justice Department Recovers Over $3 Billion from False Claims Act Cases in Fiscal Year 2019, DOJ (Jan. 9, 2020), https://www.justice.gov/opa/pr/justice-department-recovers-over-3-billion-false-claims-act-cases-fiscal-year-2019.
 DOJ Criminal Division, Evaluation of Corporate Compliance (June 2020), https://www.justice.gov/criminal-fraud/page/file/937501/download.
 DOJ, Justice Manual—9-28.800 Corporate Compliance Programs (July 2019), https://www.justice.gov/jm/jm-9-28000-principles-federal-prosecution-business-organizations#9-28.800.
 Press Release, Department of Justice Issues Guidance on False Claims Act Matters and Updates Justice Manual, DOJ (May 7, 2019), https://www.justice.gov/opa/pr/department-justice-issues-guidance-false-claims-act-matters-and-updates-justice-manual; DOJ, Justice Manual—4-4.112 Guidelines for Taking Disclosure, Cooperation, and Remediation into Account in False Claims Act Matters (May 2019), https://www.justice.gov/jm/jm-4-4000-commercial-litigation#4-4.112.
 Press Release, Justice Department Obtains $1.4 Billion from Reckitt Benckiser Group in Largest Recovery in a Case Concerning an Opioid Drug in United States History, DOJ (July 11, 2019), https://www.justice.gov/opa/pr/justice-department-obtains-14-billion-reckitt-benckiser-group-largest-recovery-case.
 Press Release, Opioid Manufacturer Insys Therapeutics Agrees to Enter $225 Million Global Resolution of Criminal and Civil Investigations, DOJ (June 5, 2019), https://www.justice.gov/opa/pr/opioid-manufacturer-insys-therapeutics-agrees-enter-225-million-global-resolution-criminal [hereinafter Press Release, Insys Therapeutics].
 See United States v. Insys Therapeutics Inc. et al., No. 1:19-cr-10191 (D.C. Mass.).
 Press Release, Insys Therapeutics, supra note 8.
 Press Release, Pharmaceutical Company Targeting Elderly Victims Admits to Paying Kickbacks, Resolves Related False Claims Act Violations, DOJ (Sept. 26, 2019), https://www.justice.gov/opa/pr/pharmaceutical-company-targeting-elderly-victims-admits-paying-kickbacks-resolves-related.
 Press Release, Compounding Pharmacy, Two of Its Executives, and Private Equity Firm Agree to Pay $21.36 Million to Resolve False Claims Act Allegations, DOJ (Sept. 18, 2019), https://www.justice.gov/opa/pr/compounding-pharmacy-two-its-executives-and-private-equity-firm-agree-pay-2136-million.
 See First Amended Complaint in Intervention, United States ex rel. Medrano and Lopez v. Diabetic Care Rx LLC, d/b/a Patient Care America, et al., No. 15-CV-62617 (S.D. Fla. Oct. 1, 2019).
 Press Release, District Court Orders Illinois Compounding Company and Two Executives to Comply with Drug Safety Standards, DOJ (May 22, 2019), https://www.justice.gov/opa/pr/district-court-orders-illinois-compounding-company-and-two-executives-comply-drug-safety; Press Release, Federal Judge Enters Consent Decree Against Compounder PharMedium Services for Violations at Multiple Facilities, FDA (May 22, 2019), https://www.fda.gov/news-events/press-announcements/federal-judge-enters-consent-decree-against-compounder-pharmedium-services-violations-multiple.
 Press Release, Medical Device Maker ACell Inc. Pleads Guilty and Will Pay $15 Million to Resolve Criminal Charges and Civil False Claims Allegations, DOJ (Jun 11, 2019), https://www.justice.gov/opa/pr/medical-device-maker-acell-inc-pleads-guilty-and-will-pay-15-million-resolve-criminal-charges.
 Press Release, Federal District Court Orders New York Company to Stop Distributing Adulterated and Misbranded Dietary Supplements, DOJ (Dec. 26, 2019), https://www.justice.gov/opa/pr/district-court-orders-long-island-company-stop-distributing-adulterated-and-misbranded.
 Company Announcement, ABH NATURE’S PRODUCTS, INC., ABH PHARMA, INC., and STOCKNUTRA.COM, INC. Issues Nationwide Recall of All Lots of Dietary Supplement Products, FDA (Jan. 21, 2020), https://www.fda.gov/safety/recalls-market-withdrawals-safety-alerts/abh-natures-products-inc-abh-pharma-inc-and-stocknutracom-inc-issues-nationwide-recall-all-lots.
 Press Release, District Court Orders California Firm to Stop Manufacturing and Distributing Adulterated Food, DOJ (Nov. 25, 2019), https://www.justice.gov/opa/pr/district-court-orders-california-firm-stop-manufacturing-and-distributing-adulterated-food; Press Release, California-Based Food Manufacturer Agrees to Stop Production After Repeated Food Safety Violations, FDA (Nov. 26, 2019), https://www.fda.gov/news-events/press-announcements/california-based-food-manufacturer-agrees-stop-production-after-repeated-food-safety-violations.
 Press Release, District Court Orders Texas Company to Stop Selling Adulterated Food, DOJ (Aug. 30, 2019), https://www.justice.gov/opa/pr/district-court-orders-texas-company-stop-selling-adulterated-food.
 Press Release, FDA Suspends Facility Registration of Texas-Based Seafood Producer After Significant, Repeated Food Safety Violations, FDA (July 22, 2019), https://www.fda.gov/news-events/press-announcements/fda-suspends-facility-registration-texas-based-seafood-producer-after-significant-repeated-food.
 Alerts, Advisories & Safety Information, FDA Advises Restaurants and Retailers in Texas and Louisiana to Stop Selling or Serving Topway Enterprises Inc. Doing Business as Kazy’s Gourmet Seafood Products due to Possible Listeria Contamination, FDA (July 18, 2019), https://www.fda.gov/food/alerts-advisories-safety-information/fda-advises-restaurants-and-retailers-texas-and-louisiana-stop-selling-or-serving-topway-enterprises.