FDA Counterfeiting Investigations: What Manufacturers and Health Care Providers Need to Know to Avoid Allegations of Fraud - Medicare RAC Audits & Appeals Services
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FDA Counterfeiting Investigations: What Manufacturers and Health Care Providers Need to Know to Avoid Allegations of Fraud

FDA warning letter

Drug manufacturers have an obligation to secure U.S. Food and Drug Administration (FDA) approval before distributing their products in the United States, and health care providers have an obligation to ensure that they are only prescribing and dispensing FDA-approved drugs. When counterfeit ingredients and drugs enter the market, the risks for patients are obvious, and it is for this reason that the FDA (among other federal authorities) is so vigorous in pursuing charges against manufacturers and providers suspected of counterfeiting or facilitating the fraudulent distribution of counterfeit drugs.

Additionally, as the FDA notes, “[c]ounterfeiting is usually associated with a diversion scheme.” To cover up the diversion of opioids and other medications, criminal enterprises will often replace legitimate drugs with counterfeit ones in the stream of commerce. These counterfeit drugs will often contain adulterants and substitute active ingredients—if they contain any active ingredients at all.

Although the problem of counterfeiting does not originate with health care providers, the FDA nonetheless views health care providers as playing an essential role in protecting their patients from these ineffective, often harmful, and even potentially fatal drugs. As the FDA plainly states, doctors who purchase and administer counterfeit medications, “are putting their patients at risk.” Enacted in 2013 and effective as of 2015, the federal Drug Supply Chain Security Act (DSCSA) puts the legal onus on health care providers to ensure that they know the source of all medications they dispense and prescribe.

While the FDA issues letters to health care providers when it uncovers counterfeit drug operations, providers cannot rely on these letters alone. To the contrary, the DSCSA establishes several affirmative obligations. Among other obligations, providers (including, but not limited to, pharmacies) must examine the tracing documentation for all drugs they receive, reject any drugs that appear to be suspect, and ensure that they fully document both the source and destination of all medications passing through their facilities.

Common Examples of Drug Counterfeiting

The FDA identifies four main types of counterfeit drugs. All four types present risks for patients—whether due to providing ineffective treatment, introducing potentially-harmful substances into patients’ bodies, or both. The four types of counterfeit drugs are:

  • Drugs that are fake, contaminated, or ineffective
  • Drugs that the FDA has not evaluated for safety and efficacy
  • Drugs that do not contain the appropriate amount of active ingredients
  • Drugs that contain harmful ingredients

Oftentimes, counterfeit drugs will fall into more than one of these categories—if not all four. In recent years the FDA has reported cases involving vials filled with saline solution, prescription bottles filled with placebo pills, and non-approved generic drugs sold under FDA-approved brand names, just to name a few examples. Some counterfeit drugs can appear nearly identical to their approved counterparts, while others will be much more obvious.

However, unless a health care provider is intimately familiar with a medication’s packaging and appearance, even more-obvious counterfeits can be difficult to spot in day-to-day practice. This is where careful tracking comes into play (as required by the DSCSA); and, with the growing number of counterfeit drugs entering the U.S. market, providers can no longer safely assume that the medications they receive from their suppliers are legitimate.

Drug counterfeiting operations can take several different forms. For example:

  • Manufacturing and selling drugs that are identical to FDA-approved drugs and selling them under the legitimate drug manufacturers’ branding
  • Producing fake drugs that contain different or no active ingredients and selling them under FDA-approved brand names
  • Falsely representing medications as FDA-approved
  • Intercepting shipments of FDA-approved drugs and replacing them with counterfeit drugs as part of a diversion operation
  • Cutting FDA-approved drugs in order to increase the number of doses that can be sold
  • Re-labeling expired FDA-approved drugs
  • Importing non-FDA approved analogues to FDA-approved drugs (typically at a cheaper price than purchasing the FDA-approved drugs in the U.S.)

A medication does not have to be mislabeled or come from a nefarious source in order to be considered “counterfeit” by the FDA—nor does it have to be dangerous. Non-approval is enough to qualify a drug as counterfeit, and dispensing non-approved drugs is enough to get health care providers in trouble for counterfeit fraud. If a manufacturer jumps the gun and starts shipping drugs to doctors’ offices and hospitals before receiving FDA approval, or if a provider orders drugs online that are not FDA-approved, this is enough to trigger an FDA investigation carrying the potential for civil—or possibly even criminal—penalties.

How Health Care Providers Can Be Held Liable for Counterfeit Drug Fraud

While most health care providers understand the risks of counterfeit drug fraud for their patients, they do not fully grasp the risks that they themselves can face as the result of prescribing, dispensing, or administering counterfeit medications. The FDA has taken the position that health care providers must proactively guard against putting counterfeit drugs in their patients’ hands. Under the DSCSA and other pertinent sources of federal authority, health care providers can be held liable for counterfeit drug fraud as a result of:

  • Ordering non-FDA approved drugs from manufacturers, wholesalers, or other third-party intermediaries in the U.S. or abroad
  • Dispensing counterfeit medications to their patients
  • Failing to comply with the DSCSA’s provisions regarding confirmation of suppliers’ registrations and licenses
  • Failing to comply with the DSCSA’s provisions regarding prescription drug tracing
  • Failing to properly document (and retain documentation of) the source of medications
  • Failing to properly report and/or remove illegitimate or suspect drugs from the supply chain
  • Improperly billing Medicare, Medicaid, private insurers, or other payors for counterfeit drugs

These are just examples. Health care providers can face liability in connection with the distribution of counterfeit drugs to patients in a broad range of other scenarios as well.

Crucially, even if a health care provider’s violation of the law is unintentional, the provider can still face liability—most likely in the form of civil monetary penalties. This is a key aspect of federal health care compliance generally. When it comes to compliance, ignorance is not an excuse. Health care providers cannot turn a blind eye to their compliance obligations; and, even if a provider is wholly unaware of certain obligations (i.e., the obligations pertaining to counterfeit fraud prevention under the DSCSA), this is not an excuse for non-compliance.

How Health Care Providers (and Manufacturers) Can Avoid Liability for Counterfeit Drug Fraud

Given the risks associated with counterfeit drugs, what can (and should) health care providers be doing to protect their patients and themselves? Some of the FDA’s recommendations include:

  • Know the source of all medications ordered, purchased, and dispensed. Inquire about registration, licensure, and FDA approval, and “educate those that are making the decisions about drug purchases.”
  • Understand the risks associated with drugs purchased from unknown sources. Health care providers should avoid purchasing drugs from unknown sources, as these drugs may, “have unknown ingredients, may be counterfeit, or may not have been manufactured, transported, or stored under proper conditions as required by U.S. law.”
  • Avoid importing unapproved prescription drugs. The importation of unapproved drugs from foreign sources is illegal, “[i]n virtually all cases.”
  • Be vigilant about inspecting medications and their packaging. Health care providers should inspect all medications and packaging for irregularities. Abnormal packaging, labeling that is not in English, unfamiliar dosage recommendations, and different dosage forms and routes of administration are all common red flags for counterfeit drugs.
  • Check the Orange Book. Providers can check the FDA’s Orange Book to confirm whether a medication they have received from a supplier is FDA-approved.
  • Be wary of steep discounts and “special offers.” Providers should question why drugs are steeply discounted. “Deep discounts may be offered because the product is stolen, counterfeit, or unapproved.”
  • Implement a DSCSA compliance program. Implementing an effective DSCSA compliance program is a key step toward avoiding the purchase of counterfeit drugs and identifying counterfeit drugs received in place of legitimate FDA-approved medications.

For manufacturers, avoiding liability for counterfeit drug fraud is a matter of effectively implementing the concepts underlying these recommendations in their operations. For example, manufacturers should know the source of all ingredients they use in their medications, and they should implement safety measures to prevent counterfeiting (i.e., the use of proprietary labeling and sealing techniques). Manufacturers should also carefully track all ingredient shipments as well as their own shipments of medications to health care providers and third-party intermediaries.  

What To Do When Contacted by the FDA Regarding Possible Drug Counterfeiting Fraud

In addition to adopting policies and procedures designed to prevent the distribution of counterfeit medications, health care providers and manufacturers should also have documented procedures for responding to counterfeiting-related FDA inquiries. There are several steps involved in responding to an FDA investigation, and being prepared to respond effectively is critical for avoiding unnecessary consequences.

Speak with an FDA Compliance and Defense Lawyer at Oberheiden P.C.

If you need to know more about FDA anti-counterfeiting compliance, or if you need defense counsel for an FDA investigation, we encourage you to contact us promptly. Please call 888-680-1745 or contact us online to speak with an FDA compliance and defense lawyer in confidence.

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