FDA Steps Up Oversight of Physicians Receiving Medications From Outside U.S.

CORP - July 19.pngAs a practicing physician, it may seem like the great price you got from a third party distributor for Botox is too good to be true. You might be right. Let’s look at the legal side of what could go wrong. If the distributor is bringing medications from out of the country into the U.S., they must be licensed or registered with the FDA to sell in the U.S. The FDA requires specific coding on the drug labels that allow them to track the product throughout the supply chain. Based on this code and the product’s final destination for sale, the FDA may conclude that the physician is administering medications that are ‘misbranded.’ If the medications are not stored properly en route to the physician’s office, there is a risk of selling products that are ‘adulterated’, another FDA violation.

What has changed?

The FDA has stepped up its oversight which will result in increased enforcement. The FDA’s import software screening program (PREDICT) and U.S. Custom’s software program (ACE) now require more information from the foreign source(s). The FDA’s product codes and U.S. Harmonized Tariff Schedule (HTS) now link these requirements. The software coding information must be correct or a physician may face costly delays and possibly a refusal of entry for the medications into the U.S. In addition, information on the entry’s commercial or pro forma invoice must be consistent with the information entered into PREDICT and ACE software: however, the FDA does offer some relief from the strict requirements if you participate in a voluntary Affirmation of Compliance (AOC).

Still, delays are not the physicians’ biggest problem. What also occurs is a spotlight on the importation, or attempted importation, of medications that may or may not conform to regulations. In these cases, the FDA may deem the purchasing physician to be ‘in receipt of misbranded and/or adulterated drugs in interstate commerce and delivering those drugs to others – the end user, or patient. The laws are clear in that they require all healthcare providers who dispense or administer prescription drugs to purchase drug products from authorized trading partners licensed by, or registered with, the State or Federal government.

How do they do it?

The new import entry filing requirements became effective in 2016 and are posing problems for users who fail to provide the correct information, creating costly delays and, in some cases, the frustrating task of contacting the FDA to resolve the issue. PREDICT and U.S. Custom’s ACE program link your legal requirements by using the correct Harmonized Tariff Schedule (HTS) code. This sets up how the FDA will apply its requirements. Any error means the FDA may flag a physician as a problem that requires greater scrutiny for data verification.

Why is it important?

Physicians do not want to have an Agent from the Office of Criminal Investigations showing up at their office to search and seize misbranded and/or adulterated prescription drugs. The FDA stance is that non-FDA approved prescription drugs are virtually always misbranded and/or adulterated. Their mission is to ensure the safety of the public and to stop the use of medications that are improperly labeled or may not have been manufactured, transported and/or stored under proper conditions. Violations, including past violations, are subject to enforcement actions, including criminal prosecution. A typical Acknowledgement Letter to be signed by the physician from the FDA’s Special Agent will reflect that he or she has been informed that the ‘minimum penalties for a criminal violation of the Food, Drug & Cosmetic Act authorizes a sentence of up to one year in prison and/or a fine that could exceed $100,000 for each separate offense committed.’ In addition, violations can extend to the responsible corporate official for misdemeanor violations without proof of intent, or even negligence, even if the corporate official did not have actual knowledge of the specific offense.

So what’s a physician to do?

One immediate step a physician can take to protect themselves is to first make sure that all existing medications received in the office are in compliance with the FDA regulations. Following that, the medical office should have in place an “Approved Vendors” policy that evaluates the suppliers for all prescription drugs before initiating a purchase and understands the approval steps involved in the evaluations of their vendors. Know, too, that once a physician takes receipt of the medications, he or she is responsible for conforming to the requirements of the Drug Supply Chain Act in how they are stored. Finally, a physician should know how to read the coding on the medication labels and be able to cross check to verify that the medications being receiving are actually coming from authorized trading partners or ‘Approved Vendors.’

If an FDA Criminal Investigations Special Agent shows up at your office, be prepared to show proof of conformity and that purchasing policies are in place.

Recent Legislation May Ease LLC “Divorces”

CORP - July 5It is always a best practice for persons forming a limited liability company (an LLC) to agree in advance about terms of separation, how to end the relationship in case they become unable or unwilling to remain co-owners of the LLC. These provisions, which could be thought of as an LLC-owners’ “prenup,” are usually set out in the Company Agreement of the LLC. However, sometimes the Company Agreement does not contain adequate terms for owners separating themselves from each other or from the LLC. If the Agreement is inadequate, owners have always had another remedy, which is a lawsuit asking a court to order a termination of the LLC.

Section 11.314 of the Texas Business Organizations Code (the law that deals with LLC’s and other business entities — sometimes called the TBOC) provides that a court can order the winding up and termination of a Texas LLC. Under the current law, this can only happen if the court finds that it is not “reasonably practicable” to carry on the LLC’s business under its governing documents. It is not clear when discord or lack of cooperation among owners makes it no longer “reasonably practicable” to carry on the LLC’s business. This uncertainty may have discouraged unhappy LLC owners from seeking a court ordered termination.

This situation changed somewhat this year when the Texas legislature amended the TBOC (effective September 1, 2017) to expand the reasons a court can order a termination of an LLC. Under the new law, the court can also order the termination of an LLC if it finds that the economic purpose of the LLC is likely to be unreasonably frustrated or when an owner has engaged in conduct that makes it not reasonably practicable to carry on the business with that owner. When problems arise with an LLC that lead an owner to want a “business divorce” from another owner, there are usually allegations of bad actions by the other owner. By adding bad owner conduct to the list of ways a court can terminate an LLC, the legislature has hopefully made it a little easier for an owner to exit from an LLC relationship that the owner wants to end.