Regulatory and Legal Enforcement in Life Sciences: 6 Trends to Watch

For a number of reasons, general regulatory enforcement in the life sciences industry took a back seat throughout much of 2020 and 2021. While there were differing approaches depending on which administration was in control of the White House, much of the focus in life sciences enforcement was squarely on the COVID-19 pandemic. And while that is still the case in some respects, priorities are beginning to shift, and the industry needs to take notice.

Early on in the Biden administration, delays in appointment and confirmation of top officials – along with the ongoing pandemic – led to an unsurprising decrease in enforcement action. The Food and Drug Administration (FDA) conducted fewer than half of the domestic inspections in 2021 than it did in the four years prior to the pandemic. As a result, the FDA issued significantly fewer warning letters and injunctions in 2021 than in years prior. Product recalls also dropped by more than a quarter in 2021 compared to 2020.

However, those trends will surely change quickly as the availability of vaccines and other treatments has made the virus more manageable. Attorney General Merrick Garland has already indicated the Department of Justice (DOJ) will boost its enforcement of white-collar crime and has the life sciences space squarely in its sights.

But what might the top enforcement trends in the life sciences space be? What should companies be on the lookout for, and how should their compliance strategies change, if at all? Here are the top six regulatory and legal enforcement trends to watch in the months and years ahead.

1. COVID-19-Related Fraud Enforcement

Yes, as previously stated, the easing of the pandemic is allowing the DOJ and FDA to focus on other priorities. However, in May 2021, the DOJ established a COVID-19 Fraud Enforcement Task Force, and their focus extends well beyond identifying those who may have misappropriated Paycheck Protection Program (PPP) loans. The task force also features a coordinated effort with the FDA to examine marketing, promotion and administration of certain COVID-19 remedies and treatments. This includes both domestic and international products and encompasses everything from the controversial hydroxychloroquine to nasal sprays and so-called herbal remedies.

Just this April, charges against 21 defendants were announced for their alleged involvement in COVID-19 fraud schemes resulting in more than $149 million in losses. Among those facing charges are physicians, marketers, clinical laboratories and other medical businesses. And with the FDA, through its cybercrime unit, continuing to identify unproven products for sale online – more than 2,800 as of May 2022 – enforcement is showing no signs of slowing down.

2. Clinical Trial Fraud Enforcement

Typically, fraud during clinical trials comes as a result of a contract research organization (CRO) cutting corners and falsifying information while conducting a clinical trial. In the past, the CRO has been held liable and the sponsor has avoided any criminal penalties for fraud committed by their CRO. That may soon be changing.

Before my time as Director of FDA’s Office of Criminal Investigations from 2015 to 2017, most issues of fraud in clinical trials have been previously dealt with in civil courts. Toward the end of my tenure, we made those issues a criminal enforcement priority, and that is continuing today. Now, with more time for enforcement as COVID-19 has eased, the FDA and DOJ are set to begin targeting pharmaceutical companies for not being more diligent in their monitoring and auditing of the clinical trial and the CRO’s activity. Although it can be difficult to closely monitor a CRO’s activity for some pharmaceutical companies that may have dozens of clinical sites operational at the same time, it is the sponsor who ultimately remains responsible for how a clinical trial is conducted and any fraud that occurs. When billions of dollars are on the line, the FDA is set to crack down on any corner cutting to get drugs approved or medical devices cleared.

3. Telemedicine and Remote Patient Monitoring Fraud Enforcement

At the onset of the COVID-19 pandemic, CMS announced that it would not take enforcement action against any health insurance issuer that makes mid-year changes to its health insurance offering if it provides greater coverage for telehealth services or reduces or eliminates cost-sharing requirements for telehealth services, even if the specific telehealth services covered by the change are not related to COVID-19. However, that does not mean that enforcement of telemedicine fraud is going unchecked, and with the billing flexibility that telemedicine and remote patient monitoring can present, the space is ripe for bad actors to take advantage.

Just this June, one telemedicine company owner was sentenced to 14 years in prison for his involvement in a healthcare and wire fraud scheme that saw him market unnecessary genetic tests to Medicare beneficiaries, defrauding Medicare out of over $20 million. And in May, a Tennessee court sentenced seven people and seven related corporate entities for their roles in a $1 billion telemedicine pharmacy fraud scheme that involved fraudulently soliciting insurance coverage information and prescriptions from consumers across the country. Enforcement in this area is getting stronger as the DOJ continues its crackdown on those who defraud patients, taxpayers, and federal healthcare programs through telemedicine.

4. False Claims Act, Anti-Kickback Statutes and Stark Law Enforcement – Especially Following Private Equity Investment

M&A activity in the healthcare and life sciences sector has roared back following a small dip during the pandemic. Many private equity (PE) firms are even taking a larger role in the management of their portfolio companies. And while the prospect of PE diversifying its portfolio by acquiring a small-but-promising player in the life sciences space – even with a reasonable risk profile – may seem appealing, the importance of proper due diligence to identify any violations of False Claims Act, Anti-Kickback Statutes and/or Stark Law is critical.

While some regulatory compliance issues can be identified and resolved prior to an acquisition and investors can benefit from a firm with experience in healthcare and life science transactions, the DOJ has recently brought a number of actions against private equity firms for their alleged knowledge of violations at entities in which they have invested. Specifically in Florida, where addiction treatment centers are plentiful and well suited not only for PE investment but also fraud, investors should beware of the increased scrutiny the DOJ has placed on these facilities.

5. Speaker Programs and Anti-Kickback Statute Enforcement

Now that many in-person events are returning, we may see the return of manufacturer-sponsored speaker programs. However, in late 2020, the Department of Health and Human Services (HHS) and the Office of Inspector General (OIG) released a Special Fraud Alert that put the industry on notice for fraud and abuse risks associated with the offer, payment, solicitation, or receipt of remuneration relating to speaker programs by pharmaceutical and medical device companies. Now a multi-billion-dollar business, speaker-related services come with high potential for Anti-Kickback Statute violations, and OIG is skeptical about the true educational value of these programs. Often, OIG has found that healthcare practitioners (HCPs) receive generous compensation to speak at programs offered “under circumstances that are not conducive to learning or to speak to audience members who have no legitimate reason to attend.” Unsurprisingly, studies show HCPs who receive payment from a pharmaceutical company are more likely to prescribe or order that company’s products than other alternatives. HHS will continue to scrutinize these programs, and violators may be subject to criminal, civil, and administrative enforcement actions.

6. Opioids and Controlled Substance Act Enforcement

The issues surrounding opioids have not gone away, and managing their distribution remains a priority for the DOJ. While the pharmaceutical industry still remains somewhat in the crosshairs, much of the enforcement has shifted away from large-scale investigations and into Controlled Substances Act violations monitored by the Drug Enforcement Administration (DEA). Beyond drug trafficking charges like the 2019 case involving Rochester Drug Co-Operative, challenges today come from distributors not properly reporting losses during distribution and/or having a lack of proper controls in place to oversee the wholesale distribution process. At the pharmacy level, the DEA is continuing to crack down on improperly filling prescriptions for opioids. Though drug manufacturers may not be liable in these instances, it remains clear that the government still considers access to opioids a major issue.

Life sciences and adjacent companies should view the increased enforcement we’ve seen over the past few months as just the tip of the iceberg. AG Garland has been clear in that. It’s never been more important to partner with experienced counsel early in any drug development or M&A transaction. By working with the right legal counsel, life sciences and healthcare companies, along with PE firms, can head off any issues before they turn into more serious investigations and other legal challenges. The attorneys and government relations professionals at Buchanan Ingersoll & Rooney have extensive experience in all areas of the life sciences space and can guide your team through all aspects of proper compliance, internal, and external investigations and, if it comes to it, litigation.