A recall is defined as a “firm’s voluntary removal or correction of a marketed product that FDA considers to be in violation of the FD&C [Federal Food, Drug, and Cosmetic] Act and against which FDA would initiate legal action ex. Seizure. Recall does not include a market withdrawal or a stock recovery.”1
Most product recalls are voluntary, initiated by the manufacturer or distributor of a device. In some instances, a company discovers that one of its products (or its labeling) is defective and recalls it entirely on its own. In others, FDA informs a company of findings that one of its products is defective and suggests or requests a recall. Over the years, this cooperation between FDA and its regulated industries has been demonstrated to be the quickest and most reliable method to remove potentially dangerous products from the market.2
FDA has three categories of recalls: Class I, dangerous or defective products that could cause serious health problems or death; Class II, products that might cause a temporary health problem or pose only a slight threat of a serious nature; and Class III, products that are unlikely to cause any adverse health reaction, but that violate FDA labeling or manufacturing regulations.
FDA develops a strategy for each individual recall that sets forth how extensively it will check on a company’s performance in recalling the product in question. For a Class I recall, for example, FDA would check to make sure that each defective product has been recalled or reconditioned. In contrast, for a Class III recall, the agency may decide that it only needs to spot check to make sure the product is off the market.3
This article explores the changing trend in the FDA’s recall authority through the lens of several cases.
On May 3, 2010, FDA ordered Baxter to
- Recall and destroy 200,000 Colleague infusion pumps in use.
- Reimburse its customers.
- Assist customers in finding a replacement device.
This recall was implemented in the wake of more than 56,000 adverse-event reports received by FDA in the past five years against the infusion pumps. These adverse events included serious injuries and more than 500 deaths. To address identified safety concerns, FDA conducted 87 infusion pump recalls between 2005 and 2009. In 2006, FDA obtained a consent decree against Baxter forbidding further manufacture of the Colleague infusion pumps. The consent decree also required Baxter to submit a corrective action plan within 20 days for correcting the deficiencies with the Colleague pumps already in use. Apparently, Baxter attempted several rounds of upgrades during the past four years, with unsatisfactory results. Baxter’s most recent proposed plan contemplated a new round of corrections beginning in May 2012 that would be complete in 2013. FDA found this proposal unacceptable.
Baxter’s recall is unusual and raises several questions about the scope and course of FDA’s enforcement authority. What is so distinctive about FDA’s actions in Baxter’s recall is that almost all recalls in the past had been voluntary and this is the first time FDA has come so close to exercising its mandatory recall authority. In addition, FDA had never directly required a manufacturer to reimburse its customers for a defective device. In the past, FDA has sought and obtained refunds from defendant companies for the customers as part of the relief sought against the defendant in a permanent injunction action before a district court.4
Under Section 518 of the FD&C Act, FDA has the authority to order mandatory device recalls (S. 518 (a)), repairs, replacements, or refunds (S. 518 (b)). Although FDA’s order to Baxter to recall its Colleague infusion pumps is not technically an exercise of its mandatory recall authority under S. 518, because it is pursuant to the consent decree between FDA and Baxter, it has a stark resemblance to a mandatory recall order by FDA under S. 518 (a). It is further debatable where FDA draws its authority from to order Baxter to refund its customers. Is it the exercise of its authority to order refunds under S. 518 (b), is it pursuant to the consent decree, or is FDA arbitrarily giving itself an equitable remedy of restitution without recourse to the court to decide whether equity justifies restitution? A consent decree is an injunction issued by a federal judge where the parties, the Department of Justice on behalf of FDA, and the defendants (usually the company and one or more of its executives) agree to the terms. Refunds were certainly not negotiated between FDA and Baxter in their 2006 consent decree. FDA can order a defendant company to pay refunds to its customers under S. 518 (b) if the mandatory recall notification under S. 518 (a) would not be sufficient to eliminate the risk. If the recall is FDA’s exercise of its authority under S. 518 (b), doesn’t the recall automatically become a mandatory recall under S. 518 (a)? However, the consent decree permits FDA to take “any other corrective action” to protect the public health or to ensure Baxter’s compliance. FDA perhaps views the refund requirement imposed on Baxter as falling within the catch-all provision in the consent decree.
Not only is the source of FDA’s authority to order refunds ambiguous, but the fact that FDA provided no formula or guidance to calculate the refund to the customers is even more agonizing. S. 518 defines refund as “the purchase price of the device (less a reasonable allowance for use if such device has been in the possession of the device user for one year or more).” No recourse is available through the implementing regulations (21 CFR 810), which specify the procedure for ordering a mandatory recall but do not speak to the repair, replacement, or refund authority.
Baxter’s silence is strategic. It is certainly not in a position to challenge FDA’s actions. FDA has several enforcement tools available including seizures, injunctive relief, and criminal sanctions. The agency's Office of Criminal Investigations directly refers violations under 21 CFR 331 to U.S. attorneys for criminal prosecution.
Technically, it appears that the most potent tool in FDA's arsenal of enforcement tools is its criminal sanctions. However, criminal sanctions are rarely deployed because most of these violations are committed by businesses in their ordinary course of operations, and in most circumstances, they are willing to cooperate fully with FDA to remedy a violation.
Therefore, civil sanctions remain the most frequently used enforcement tool by FDA, and its authority on civil sanctions is far reaching. However, Congress has not entrusted FDA with the authority to impose compensatory relief or punitive damages. Ironically, FDA’s favorite and most powerful enforcement tools—i.e., disgorgement of profits and restitution—are also not provided to it by Congress. Disgorgement means to deprive the defendant of its “ill-gotten gain.” The difference between restitution and disgorgement is that disgorged funds typically go to the government entity whereas restitution is paid to the victims.
Technically, these remedies are equitable in nature to prevent unjust enrichment and are intended to be deterrent rather than punitive. In practice, FDA has put hundreds of millions of dollars in the U.S. treasury through disgorgement, thereby making the deterrent and nonpunitive nature of these remedies questionable. But disgorgement and restitution are here to stay with FDA having won the legal debate on their justification before three Courts of Appeals.5 The U.S. Court of Appeals for the Third Circuit held that “the inherent equitable powers of the district court that issues an injunction under the [FD&C Act] include the power to order restitution.”6 A regulated company must be increasingly cautious even before defending its products against an action of seizure by FDA in a court proceeding, because FDA will sometimes seek to amend its seizure case into an injunction, which may in turn serve as a stepping stone for disgorgement or restitution.7 Thus far, restitution and disgorgement remain the most practically potent weapons in FDA’s enforcement arsenal, and they remain a massive threat to the defendant companies in challenging FDA’s actions and during negotiations with the agency.
A Look at Enforcement History
FDA successfully employed its tool of disgorgement of profits in 1999 when it fined Abbott Laboratories $100 million through a consent decree of permanent injunction agreed to by Abbott for its failure to comply with good manufacturing practices (GMP) and the quality system regulation. This was also the beginning of FDA’s declining patience for noncompliance with its GMP regulations and increasing civil penalties. In 2002, Schering-Plough was fined $500 million under a consent decree for its failure to comply with GMP. In imposing these enormous fines on Abbott and Schering, FDA was motivated to ensure that its GMP regulations were taken very seriously by the industry and to warn the industry about the dire consequences of noncompliance. Through Baxter’s recall, is FDA setting a precedent for other device manufacturers to address device deficiencies promptly or face Baxter’s fate—or worse?
Baxter’s recall should not only alert all device manufacturers, but also officers, directors, and managers of such companies, particularly those whose devices have longer life spans. FDA has never in the past resisted naming the individuals as defendants. In fact, personal responsibility is a hallmark of the FD&C Act and reflects a core value of FDA’s compliance and enforcement policy.8
The effects of the permanent injunctions and civil fines go far beyond the fines paid to the government. The costs to the industry are equally expensive in both money and time spent on conversions to new products. According to one of the laboratories that used Abbott’s products, the allocated labor cost per conversion was $698 based on the average time required to complete the work. The conversion of assays required that laboratories take many steps to ensure proper transition, which among others included writing new procedures, performing correlation studies, reestablishing quality control, conducting linearity studies, changing specimen requirements, and establishing new reference ranges. Other steps included training personnel, changing delivery schedules, editing the format of reports, notifying clients, and establishing new relationships with alternative manufacturers. Baxter is taking a pretax charge of $400 million–$600 million for the recall. Given FDA’s high-end estimate of 200,000 units in the field, Baxter’s charge implies an average cost of $2000–$3000 per pump.
Infusion Pump Makers: Proceed with Caution
Infusion pump manufacturers should also in particular be alerted by the more-stringent premarket and postmarket requirements that FDA is implementing by its recently adopted, aggressive, and far-reaching initiative to improve the safety of infusion pumps (see the sidebar). The initiative’s purpose is twofold: to establish additional requirements for infusion pump OEMs and to proactively facilitate device improvements and increase user awareness.9 A central element of this initiative is the Total Product Life Cycle: Infusion Pump—Premarket Notification [510(k)] Submissions (or TPLC Infusion Pump Guidance), a first-of-its-kind guidance document that represents FDA’s current thinking regarding premarket and postmarket requirements for infusion pumps. It also suggests clinical trials for all new and modified devices.
Pump Up the Anxiety
The announcement of the infusion pump initiative was followed by a two-day workshop hosted by FDA on May 25–26, 2010, in Silver Spring, MD. Medical Device News and Insights, whose representatives attended the workshop, commented in its overview that “everyone who spoke wanted to stop the recalls that drain their already strained resources. As far as the existing manufacturers are concerned, it is not clear if every modification will now trigger a 510(k) and clinical trials. Even FDA could not provide satisfactory concrete information as to the design of these clinical investigations, including such critical elements as the numbers of subjects, clinical endpoints, duration, etc.”
Baxter could not cure the technical defects with its Colleague infusion pumps for six years in spite of its best efforts. Unfortunately, there is not always a quick fix for certain device deficiencies. It is debatable whether the infusion pumps available for replacement are completely free of defects. Even if it is assumed that the replacement devices are safer, can FDA ignore the reality of errors as part of any conversion process? FDA admitted that infusion pumps are medically indispensable and by their very nature cannot be 100% risk free.10
FDA has given mixed signals to OEMs by its contradicting statements and actions. On one hand, FDA admitted that the problems with infusion pumps are not confined to one manufacturer or one type of device. On the other hand, it is giving reassurance to users by saying that there are many legally marketed infusion pumps that are currently available for sale in the United States. What is it supposed to mean for the Baxter’s competitors who want to capture the lost market share of Baxter? What level of scrutiny does FDA expect to observe with respect to the replacement pumps? Are the competitors likely to face the same fate as Baxter if they fail to comply with the stringent initiative? Considering the immediate medical need for replacement pumps, is FDA going to be more lenient or stricter with the suppliers?
The new initiative further contradicts FDA’s own goal of encouraging device improvement. Any improvement or modification in the device may trigger FDA’s scrutiny under the new initiative and might induce infusion pump manufacturers to hold off on any device improvements. Hospira, which is the market leader in infusion pumps, has 29% of the market, followed by Baxter at 28%, and CareFusion at 24%. Hospira is ready to crank up production of its infusion pumps to replace Colleagues. It seems to have learned an important lesson from Baxter’s experience. It has put a hold on its high-end Symbiq infusion pump until it sorts out technological problems.11
In some ways, Baxter’s recall may be the first of its kind, but it won’t be the last. FDA’s actions in Baxter’s recall and the removal of 200,000 medically necessary, life-sustaining infusion pumps from the market show FDA’s merciless approach toward manufacturers’ failure to provide the defectless devices. Further, FDA is contemplating conversion of these new guidelines for infusion pumps into a force of law. Given the expansive nature of statutes and vague statutory interpretation, the survival in this highly regulated industry will depend upon solid regulatory compliance and strong policy arguments.
1. 21 CFR 7.3(g): Enforcement Policy: Definitions.
2. N Muni, T Gross, A Boam, S Wang, and B Zukerman, “Challenges in Regulating Breakthrough Medical Devices,” Food and Drug Law Journal 60, no. 2 (2005): 137–142.
3. Guidance for Industry: Product Recalls, Including Removals and Corrections (Rockville, MD: FDA, Center for Devices and Radiological Health, 2003).
4. U.S. v. Universal Management Services Inc., 191 F.3d 750, 760–62 (6th Cir. 1999).
5. U.S. v. Universal Management Services Inc.,191 F.3d at 761–63 (6th Cir. 1999); U.S. v. Lane Labbs-USA Inc., 4219 F.3d 27 (3rd Cir. 2005); U.S. v. Rx Depot Inc., 438 F.3d 1052 (10th Cir. 2006).
6. U.S. v. Lane Labbs-USA Inc., 4219 F.3d 27 (3rd Cir. 2005).
7. JN Gibbs, “Disgorgement and Restitution,” Regulatory Affairs Focus 11, no. 2 (2006): 34–35.
8. U.S. v. Dotterwich, 320 U.S. 277 (1943); U.S. v. Park, 421 U.S. 658 (1975).
9. White Paper: Infusion Pump Improvement Initiative, April 2010; available from Internet: www.fda.gov/medicaldevices/productsandmedicalprocedures/GeneralHospitalDevicesandSupplies/InfusionPumps/ucm205424.htm.
10. FDA, “Questions and Answers About the Baxter Colleague Recall, Refund, and Replacement Action,” available from Internet: www.fda.gov/MedicalDevices/Safety/AlertsandNotices/ucm210768.htm.
11. P Benesh, “Baxter Recall Creates Opening for Hospira,” Investor’s Business Daily (June 4, 2010); available from Internet: www.investors.com/NewsAndAnalysis/Article/536372/201006041738/Baxter-Recall-