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Published 7/1/2013
John E. Kelly, JD; Matthew M. Curley, JD

Buyer Beware of Foreign Drugs, Devices

Doctors who purchase them risk civil, criminal charges

Perhaps more than ever before, physicians are being inundated with fax and Internet advertising by foreign pharmacies selling prescription drugs and medical devices. Often, the prices are well below those set by the physician’s usual domestic drug and device suppliers.

Although the opportunity to lower costs to patients and to increase net reimbursements from payers might be enticing, physicians who purchase drugs and devices from foreign sources can also land in hot water with federal regulators and expose themselves to civil and/or criminal liability.

Strict federal guidelines set forth in the Food, Drug, and Cosmetic Act (FDCA) govern the approval and distribution of medical drugs and devices within the United States. The U.S. Food and Drug Administration’s (FDA) process for approving drugs and devices is complex and covers not just the drug or device itself, but also labeling and packaging, inspection of the facility where the drug or device is made, and how the drug or device is shipped.

As part of this process, the FDCA and related federal regulations generally prohibit the importation of drugs and devices from foreign sources. This prohibition stems from the FDA’s approval process with respect to the manufacturing and labeling of drugs and devices available for use within the United States. In nearly all instances, drugs and devices purchased from foreign-based pharmacies are not approved for use within the United States.

Nonetheless, seemingly endless numbers of foreign-based Internet pharmacies offering the sale of drugs and devices are merely one click away. Many of these foreign-based pharmacies aggressively market themselves to U.S. physicians as less costly alternatives to domestic suppliers of drugs and devices.

Although many of the pharmacies marketing themselves to U.S. physicians are Canadian-based, it is not unusual for Canadian pharmacies to obtain the drugs and devices sold to physicians from countries in Europe, Asia, or Africa. Given the lack of control over the standards governing the manufacture and distribution of foreign-sourced drugs and devices, it is not difficult to understand the interest federal regulators have in enforcing the prohibitions concerning the importation of such drugs and devices.

Consequences may be severe
The potential consequences for a physician caught in the crosshairs of a federal investigation into the importation of drugs and devices from a foreign distributor can be significant. The FDCA provides for criminal liability for bringing an adulterated or misbranded drug into interstate commerce, which is a particular concern for physicians.

The FDCA allows for misdemeanor liability for anyone who violates this provision without regard to intent. In other words, a physician who violates this provision of the FDCA can be found criminally liable even if the physician had no intention of violating the law or had no idea that ordering drugs or devices from a foreign supplier was illegal. Individuals found to have intentionally violated this provision of the FDCA or who have previously been convicted of a misdemeanor under the FDCA can be found guilty of a felony.

Misdemeanor and felony liability under the FDCA also implicates permissive and mandatory exclusion from participation in federal healthcare programs. For many providers, exclusion from participation in the federal healthcare programs effectively results in the end of their practice.

Federal regulators also can pursue civil liability under the False Claims Act (FCA) with respect to physicians who seek reimbursement for drugs or devices purchased from foreign suppliers. The FCA allows the government to seek triple damages for false claims submitted to the government for reimbursement and allows for the imposition of a penalty of between $5,500 and $11,000 for each false claim submitted to the federal government.

In other words, a physician who receives $1,000,000 in reimbursement as a result of the submission of 1,000 claims related to drugs or devices purchased from foreign supplies could face potential liability of $3,000,000 in damages—as well as up to $11,000,000 in penalties under the FCA.

Increased scrutiny
Physicians should have every reason to expect increased civil and criminal enforcement efforts stemming from FDCA violations. In a 2010 letter from FDA Commissioner Margaret Hamburg to Sen. Charles E. Grassley (R-Iowa), the FDA indicated an intention to increase the number of misdemeanor prosecution cases under the FDCA. In recent years, the U.S. Department of Justice has significantly increased the resources devoted to civil and criminal enforcement efforts with respect to healthcare fraud and abuse issues.

With respect to foreign drugs and devices specifically, federal regulators have stepped up warnings to providers regarding the risks associated with the purchase and use of those products. On Jan. 13, 2012, the FDA issued a notice to providers about the risks of purchasing unapproved cancer medications from unlicensed sources and included information on how to identify whether distributors or the products received are legitimate. This warning was reiterated in a letter to physicians from the FDA sent on Nov. 30, 2012, concerning foreign-supplied botulinum toxin products.

Recent examples by state regulators also highlight the government’s enforcement efforts in pursuing providers who purchase drugs or devices from foreign sources. In November 2010, the Texas Attorney General announced that a physician-owner of an orthopaedic clinic had been charged with providing unapproved devices (Hyalgan) to patients. The physician agreed to pay $86,000 in civil monetary penalties, as well as attorneys’ fees and investigative costs, and was enjoined from using unapproved devices in the future.

Physicians in other specialties have encountered similar enforcement efforts. In October 2009, a federal grand jury in Arkansas returned a multicount indictment against a gynecologist stemming from his purchase and use of non–FDA-approved intrauterine devices (IUDs) from foreign suppliers.

That physician was ultimately convicted of both misdemeanor liability under the FDCA and healthcare fraud; he was sentenced to probation for 5 years on each count of his conviction. In addition to serving 200 hours of community service during each year of his probation, the physician had to pay restitution and forfeit the proceeds obtained from the healthcare fraud. The Office of the Inspector General in the Department of Health and Human Services also excluded this physician from participating in federal healthcare programs. A Kentucky-based obstetrician currently faces similar charges related to the use of IUDs purchased from foreign suppliers.

In March 2012, an oncologist in St. Louis pleaded guilty to a misdemeanor violation of the FDCA stemming from his purchase of cancer drugs from foreign suppliers. That physician began his foreign purchases after receiving facsimile transmissions offering deep discounts on certain cancer drugs. A San Diego-based oncologist pleaded guilty to similar charges earlier this year.

Protect yourself
Orthopaedic surgeons should examine their purchasing practices and should purchase only approved drugs and/or devices directly from manufacturers or from state-licensed wholesale distributors in the United States. And, because nearly all FDA-approved drugs have a unique National Drug Code (NDC), the absence of an NDC is a strong indicator that a particular drug may not be approved for use within the United States.

Orthopaedic surgeons who have purchased drugs or devices from foreign sources should seek legal counsel to determine appropriate next steps to reduce the risk of criminal or civil liability.

John E. Kelly, JD, and Matthew M. Curley, JD, are partners with Bass Berry & Sims PLC and practice in the firm’s Compliance and Government Investigations practice group.

Additional References:

21 U.S.C. § 331: http://uscode.house.gov/download/pls/21C9.txt

42 U.S.C. § 1320a-7: http://uscode.house.gov/uscode-cgi/fastweb.exe?getdoc+uscview+t41t42+2224+0++%2742%20USC%20Sec.%201320a-7%27

31 U.S.C. § 3729-3733: http://www.justice.gov/civil/docs_forms/C-FRAUDS_FCA_Primer.pdf


FDA notice: Jan. 1, 2012: http://www.fda.gov/downloads/Drugs/DrugSafety/DrugIntegrityandSupplyChainSecurity/UCM287717.pdf