August 6, 2019
SUMMARY
The New England Compounding Center (NECC) tragedy that sickened hundreds and killed an estimated 64 people ultimately resulted in fundamental changes in the way pharmacy compounding is regulated in the United States. Having grown exponentially in response to heightened demand and inflated profitability, the compounding market clearly “got out ahead” of federal and state regulators alike. The egregious facts of the case angered the American public, with filthy and unsanitary conditions placing lives needlessly in jeopardy. Notwithstanding public applause for the resulting convictions of 13 former NECC employees and shareholders to date (collectively found to be guilty of 178 charges), several recent key convictions are now being overturned due to a lag in regulatory response and the resulting lack of clarity regarding compliance requirements. This failure to act may also form the basis for additional similar convictions being overturned.
In December 2018, a jury convicted the majority shareholder of NECC, Doug Conigliaro, and the Director of Operations, Sharon Carter, of engaging in a conspiracy to defraud the U.S. Food and Drug Administration (FDA) in violation of 18 U.S.C. Section 371. Section 371 provides that a person commits a felony if he conspires “to defraud the United States, or any agency thereof in any manner or for any purpose” and either he or one of his co-conspirators performs “any act to effect the object of the conspiracy.” This crime is commonly known as a Klein conspiracy. The “defraud clause” of Section 371 encompasses schemes that seek to “interfere with government functions.” United States v. Goldberg, 105 F.3d 770, 773 (1st Cir. 1997).
At trial, the government produced evidence of correspondence between the FDA and Barry Cadden (the NECC Pharmacist in Charge) as well as evidence of a fraudulent scheme involving false patient names to convince the jury that Conigliaro, Carter, Cadden, Alla Stepanets (the NECC verification pharmacist), and Robert Ronzio (the NECC National Sales Director) conspired to defraud the FDA of its “right” to have its affairs conducted “free from corruption, fraud, improper and undue influence, dishonesty, unlawful impairment and obstruction” by holding out NECC as a more or less conventional pharmacy regulated by Massachusetts state law. In actuality, however, NECC was operating as a drug manufacturer that should have been subject to FDA oversight. The defendants argued “there was no discernible federal law defining any clear distinction between a compounding pharmacy and a drug manufacturer,” so it was “legally impossible for the FDA to be defrauded in the manner the government alleged.”
Both defendants moved for judgment notwithstanding the verdict, and the court granted the motions finding that it was legally impossible for the defendants to have engaged in a conspiracy to defraud the FDA.
LEGAL IMPOSSIBILITY
Legal impossibility occurs “when the actions which the defendant performs or sets in motion, even if fully carried out as he desires, would not constitute a crime. United States v. Oviedo, 525 F.2d 881, 883 (5th Cir. 1976). With legal impossibility, the right of the state to impose punishment is constrained by the principle of legality, which provides no person is punishable by the state unless his conduct is in violation of a positive law. Gerhard Mueller, Criminal Theory: An Appraisal of Jerome Hall’s Studies in Jurisprudence, 34 Ind. L.J. 206, 217–18 (1959).
The court started its analysis by noting the following three points:
- Precedent: The First Circuit has embraced the doctrine of legal impossibility in the past. See, e.g., United States v. Fernandez, 722 F.3d 1 (1st Cir. 2013).
- Burden of Proof: The government must meet its burden of proving the existence of the right the government is alleging was violated. See United States v. Pierce, 224 F.3d 158 (2d Cir. 2000).
- Valid Defense: Legal impossibility is an established defense to a Klein conspiracy when the intended target of the conspiracy is not the United States or one of its constituent agencies. See Tanner v. United States, 483 U.S. 107, 128–31 (1987).
From this, the court concluded that a legal impossibility defense would be available to the defendants in two situations:
- If the FDA disavowed a legal right to regulate compounding pharmacies (Subsequently, the evidence showed that the FDA abstained from regulating NECC as a result of its internal determination of its own jurisdiction.), and
- If the government failed to meet its burden of proving the government functions with which the defendants sought to interfere were actually being exercised by the FDA.
In determining whether the defense was available here, the court looked to legislative history, starting with the passage of the Food, Drug, And Cosmetic Act (FDCA) in 1938. While the FDA technically had authority to regulate compounded drugs under the FDCA, it did not exercise that authority for many years, leaving the regulation of compounding to the states. In a 1992 Compliance Policy Guide (CPG), the FDA provided it may exercise its authority over a pharmacy “when the scope and nature of a pharmacy’s activities raise the kinds of concerns normally associated with a manufacturer.”
Between 1992 and 2013 there was an attempt by Congress to modernize the FDCA with the passage of the Food and Drug Administration Modernization Act (FDAMA) of 1997, but court decisions and circuit splits rendered the Act entirely invalid in some parts of the country and partly valid in others. Accordingly, the clearest federal guidance compounding pharmacies had prior to 2013 was a 2002 nonbinding CPG that emphasized the FDA had chosen to focus its discretionary oversight on large-scale drug manufacturers. This guidance, however, did not articulate the line dividing small and large pharmacies. After the meningitis outbreak in 2012, the FDA responded in hearings that it did not know how to articulate this dividing line and it needed more guidance from Congress on the issue. From this, the court concluded that during the life of the charged conspiracy, “the FDA was not, and did not believe that it should be, in the business of regulating companies like NECC that were engaged in anticipatory pharmacy compounding,” and therefore, the NECC could not have defrauded the FDA.
NECC VERIFICATION PHARMACIST CASE
On May 2, 2019, a jury convicted two NECC verification pharmacists, Ms. Chin and Ms. Thomas, of a total of six counts of introducing into interstate commerce misbranded drugs with intent to defraud, a felony offense in violation of the FDCA. The two will be sentenced on Aug. 8 and 9, respectively. However, both pharmacists have now moved for judgment notwithstanding the verdict and a new trial.
Section 353(b) of the FDCA provides that a drug intended for human consumption that “is not safe for use except under the supervision of a practitioner licensed by law to administer such a drug” shall be dispensed only upon prescription. The act of dispensing such a drug in any other way is “deemed to be an act which results in the drug being misbranded while held for sale.” Section 331(a) prohibits the introduction or delivery for introduction into interstate commerce of any drug that is misbranded. Section 333(a)(2) provides that a violation of Section 331(a) “with the intent to defraud or mislead” is a felony offense.
At trial, the parties established that customers typically submitted orders to NECC by fax. After receiving the order, an employee in the confirming department would check to make sure there were patient names on the order form but would not make any checks to ensure that the doctor placing the order gave correct patient names. To fulfill the orders, an employee in the order processing department would collect drugs from stock shelves or for custom orders the employee would compound drugs. In addition, at this stage, the employee would create the relevant paperwork. None of the employees in the order processing department were licensed pharmacists and they were supervised by the Pharmacist in Charge, Barry Cadden, though he did not generally participate in the process of confirming and processing the orders.
Next, an employee would bring the drug and relevant paperwork including the shipping label, invoice, order form, and customer folder to the packing and shipping department. A verification pharmacist in the packing and shipping department would then perform a final verification check before the orders were packed and shipped to customers. In the verification check, the pharmacist would check the facility name and address, the medication, the vial size, the number of units and whether the lots matched. After completing the check, the pharmacist would record findings in the Pharmacist’s Rx Order Verification Sheet and sign it. This Verification Sheet had no reference to patient names or prescriptions on it. No drugs were allowed to be dispensed that had not gone through the verification process.
Each count against Ms. Chin and Ms. Thomas had to do with a faxed order made out to “obviously fake” patients. Five of the six counts were for vials of betamethasone repository sent to Lincoln, Nebraska. It was established at trial that the customer in Nebraska would initially provide fake names that would be corrected at a later point. The two counts against Ms. Thomas both were for the Nebraska customer. Ms. Thomas worked at NECC for under six months in 2012. Testimony at trial revealed that Ms. Thomas had asked her supervisor about the fake names for this first shipment but was told that they would be corrected, and the names later were corrected.
On motion for judgment notwithstanding the verdict, in addition to numerous evidentiary issues, the parties have raised several questions of FDCA law:
- Did the verification pharmacists dispense these drugs within the meaning of the FDCA?
- Can introducing a misbranded drug into interstate commerce with intent to defraud be proven by merely showing that there was a widespread conspiracy at NECC and without showing that the pharmacists were aware of the fake names?
- Can the defendants have had intent to defraud if they were under the impression that the fake names would be corrected?
- Is it possible for a reasonable jury to find intent to defraud beyond a reasonable doubt in this situation, yet not find it in Alla Stepanets? (Alla Stepanets, another verification pharmacist, was convicted in a trial with a number of other defendants of a violation of the same statute without intent to defraud for similar orders to the same customer in Lincoln, Nebraska.)
- What is the legal significance here of the FDA not having a defined enforcement scheme for compounding pharmacies at the time of the acts?
- Should the defendants’ verification checks fall under the good faith exception set out in Section 353(c)?
- Who has the burden of proof with regard to the good faith exception?
CONCLUSION
Unclear FDA regulation has now been found to create legal impossibility, letting bad actors in the pharmacy compounding market “off the hook.” It is not unusual for market innovation to outpace regulation, particularly in this day of limited enforcement resources and frenetic market advances. In the wake of the Conigliaro case, and as we prepare to see how the court will hold in the NECC verification pharmacist case, we are left merely to wonder how the doctrine of impossibility will impact regulatory response rates and/or market compliance.
For more information on this topic, please contact a member of our Life Sciences team.
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