| | To: Healthcare Liability and Litigation Practice Group Members From: Healthcare Liability and Litigation Practice Group Leadership
Rebekah Plowman, Chair
George Breen, Vice Chair of Publications
Edwin Brooks, Vice Chair of Membership
Thomas Kenny, Vice Chair of Strategic Activities
Cavender "Chris" Kimble, Vice Chair of Educational Programs
Laura McBride, Vice Chair of Research and Website Date: October 17, 2012 Health Briefs e-Newsletter
October 2012 Increased Governmental Investigations of Compounding Pharmacies Presents Unique Investigative and Compliance Challenges for Lawyers
By Dan Silverboard* Over recent years government investigations over pharmacies specializing in producing compounded medications has increased significantly. These investigations have arisen in several different contexts, including instances where compounded drugs have resulted in adverse patient events. Such an event occurred last week where, as reported by several news sources, regulators linked a meningitis outbreak that has sickened 170 people in ten states and resulted in fourteen deaths to date to an injectable steroid produced by a Massachusetts compounding operation. In 2011, nine patients at an Alabama hospital died after receiving a feeding solution contaminated with bacteria, which had been prepared by a compounding pharmacy in Birmingham. Other causes for government investigations include allegations that: (1) compounding pharmacies have impermissibly engaged in drug "manufacturing" without authorization by the U.S. Food and Drug Administration; and (2) improper billing of compounds to Medicare Part D. As explained herein, there are unique issues in defending compounding pharmacy operations that counsel should be aware of in their representation. The more than 7,500 compounding pharmacies in the United States account for $3 billion in sales and 3% of all prescriptions filled, the Associated Press writes. However, as reported in the October 6 issue of the Boston Globe, compounding pharmacies are primarily small "mom and pop" operations with little compliance infrastructure or technical sophistication. As a result, counsel representing compounding pharmacies in government investigations can expect to face significant challenges in ascertaining the relevant facts giving rise to the government action. Such information gaps include drug inventory at the National Drug Code level, communications from relevant pharmacy benefit managers and health insurance companies, provider contracts, and, often, licensure information. The fact that there are such significant information gaps also reflects the traditionally lax governmental and industry oversight over compounding pharmacies; only 162 compounders of the 3,000 or so compounding pharmacies around the country have applied for voluntary industry accreditation, according to the International Academy of Compounding Pharmacies. While this challenge means that government regulators will typically have little documentation to utilize in their investigations, the same challenge applies to defense counsel. As such, defense counsel should, as a first action, advise the pharmacy to adopt and implement a corporate compliance program with effective recordkeeping policies. That compounding pharmacies often lack standardized billing and compliance protocols also raises the importance of gathering witness statements as to the pharmacy's operations as an early investigative action. As a separate challenge, compounding pharmacies usually operate across state lines; the Massachusetts pharmacy referenced above operated in at least twenty-three states. This presents a significant compliance hurdle. With the exception of the USP 797 standards for sterile compounding, licensure rules for compounding pharmacies vary significantly by state. This includes, for example, rules for drug labeling, and requirements for selling to out-of-state providers (i.e., "mail order" rules). Thus, the exact nature of a pharmacy's legal exposure to regulatory investigation will hinge significantly on the scope of the pharmacy's geographic operations. Given this fact, in developing a plan to address government investigations, defense counsel must review each of the specific laws and regulations relating to compounding in the states in which the pharmacy is present to ensure the pharmacy's business operations and compliance program account for such variances. *We would like to thank Thaddeus M. Pope, Esquire (Hamline University School of Law, Saint Paul, MN), and Dan M. Silverboard, Esquire (Balch & Bingham LLP, Atlanta, GA), for contributing articles to this issue of Health Briefs. 
Dan Silverboard, Attorney, Balch & Bingham LLP
30 Ivan Allen Jr. Boulevard, N.W. • Suite 700 • Atlanta, GA 30308-3036
t: (404) 962-3586 f: 888-897-8549 e: dsilverboard@balch.com
www.balch.com
1 Anthony J. Diana et al., Current Developments in Federal Civil Practice 2012: Electronic Discovery in Specific Areas of Practice, 875 Practicing Law Institute 299, 325, § 11:10.2 (Feb. 1, 2012). In 2009, in the massive In re Pharmaceutical Industry Average Wholesale Price Litigation, Abbott Laboratories Inc. and other defendants made motions for spoliation sanctions, claiming that the government did not implement any litigation holds until eleven years after the investigation was filed. MDL No. 1456, No. 01-CV-12257-PBS (D. Mass. June 4, 2009) (Docs 6096 & 6097). But the court denied these motions at the hearing without a written opinion. Id. (Jan. 27, 2010) (Saris, J.).
2 United States ex rel. Baker v. Community Health Systems, No. 1:05-CV-00279-WJ-ACT (D.N.M. Aug. 31, 2012) (Doc 538).
3 Procedurally, the District of New Mexico's action is a Report and Recommendation of a Magistrate Judge. See 28 U.S.C. 636 § (b)(1). The government filed objections. Baker, No. 1:05-CV-00279-WJ-ACT (D.N.M. Sept. 14, 2012) (Doc 539). The parties agreed that the recommended sanctions should be held in abeyance pending a final ruling on the Objections. Id. (Sept. 23, 2012) (Doc 540).
4 United States ex rel. Baker v. Community Health Systems, 709 F. Supp. 2d 1084 (D.N.M. 2010).
5 See Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 218 (S.D.N.Y. 2003).
6 SEC v. Collins & Aikman Corp., 256 F.R.D. 403, 418 (S.D.N.Y. 2009).
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