AG Offers Guidance on Buying Drugs, Devices
Law Feature – June 2012
Tex Med. 2012;108(6):43-46.
By Crystal Conde
After months of negotiating, the Texas Medical Association persuaded the Texas Attorney General's Office to give physicians some guidance on how to avoid legal problems when purchasing drugs and medical devices. That advice, however, may be hard to follow.
TMA asked for the guidance because Attorney General Greg Abbott has been cracking down on physicians who purchase medical products and drugs deemed illegal to use in the United States. In some instances, the physicians purchased misbranded products or medical devices that the U.S. Food and Drug Administration (FDA) had not approved from companies outside the United States. And some physicians unknowingly bought products from a distributor not licensed or authorized to do business in Texas or in the United States.
When physicians find themselves in these situations, they must either settle with the attorney general or endure the costly and time-consuming process of defending themselves at trial. The attorney general's office generally alleges receiving and using unapproved drugs or devices violate the Texas Deceptive Trade Practices Act (DTPA). The penalties are severe. The attorney general may seek up to $20,000 per violation, plus an added penalty of up to $250,000 if the affected consumer is older than 65.
Six Grapevine physicians were embroiled in a lawsuit with the attorney general in 2010 for selling patients a version of the Mirena intrauterine device the FDA has not approved for distribution in the United States. The physicians last March agreed to pay $271,605 in civil penalties, attorneys' fees, and Texas Department of State Health Services (DSHS) investigative costs. They agreed not to purchase or sell unapproved or misbranded drugs or devices.
Physicians also can face violations of the Texas Food, Drug, and Cosmetic Act. The civil penalty may not exceed $25,000 a day for each violation under the act. In determining the penalty, the court considers:
- Any previous violations,
- The seriousness of the violation,
- Any hazard posed to the public's health and safety, and
- Demonstrations of good faith by the person charged.
TMA protested the attorney general's hardline position and sought clear guidance for physicians on the legal requirements for drug and device purchases.
Tom Kelley, spokesperson for Attorney General Abbott, says the agency "worked with TMA to inform doctors about the problem, educate physicians about applicable legal requirements, and establish steps doctors and their staff can implement to avoid conducting business with an unlicensed distributor."
Attorneys say portions of the attorney general's guidance seem simple to follow. For instance, the guidance advises physicians to check with DSHS before buying drugs or medical devices from Texas or out-of-state companies. The DSHS Drug and Medical Devices Group licenses drugs and medical device distributors in the state.
But attorneys say it could be difficult for physicians to comply with other parts of the guidance. For example, the attorney general says if DSHS doesn't license an out-of-state medical device distributor, physicians have to contact the appropriate state's licensing agency. To read the guidance document, visit the TMA website.
To find out if a drug has FDA approval, email Drugs@FDA.com or call (888) 463-6332. For information about medical device approvals, visit http://1.usa.gov/rjDrwB.
Letter From Austin
One physician ran afoul of the attorney general when he purchased a medical device from Elite Med LLC, an unlicensed distributor operating in New Braunfels. It turns out that besides operating without a license, Elite Med sold physicians medical products not approved for sale in the United States – unbeknownst to many of the purchasers. Following an investigation by the attorney general, Elite Med shut down in 2010 when a Texas court prohibited the company and its owner from doing business in the state.
The physician, who asked to remain anonymous, received a letter from the attorney general's office telling him he violated the DTPA and could be liable for huge fines. He wound up signing a settlement because, he said, "I was given absolutely no choice in the matter. It was that or go to court and risk millions of dollars in penalties for using an Elite Med product."
Among the agreement's many provisions, the physician pledged not to purchase devices from a Texas manufacturer or distributor without verifying that it has a DSHS license.
The physician says the attorney general's guidance will be difficult to follow and is an unreasonable burden on physicians and their staff members.
"There has been no real effective guidance from the attorney general's office on how to discern which companies are in Texas. No doctor's office has the time to spend hours trying to find out who is licensed," the physician said.
Mr. Kelley says as of April, 50 physicians had signed similar agreements with the attorney general's office for purchasing products from Elite Med. He says physicians who signed agreements with the state didn't pay any financial penalties "as long as they agreed to take steps that would ensure they only utilized licensed distributors in the future."
Compliance Could Be Difficult
The attorney general's guidance directs physicians to consult the DSHS online Public License Search, www.dshs.state.tx.us/dmd/find.shtm, before buying drugs from a distributor, whether located in Texas or another state, and before purchasing medical devices from a distributor located in Texas. The attorney general says physicians can also fax DSHS at (512) 834-6741 to verify licensure. "Physicians should print this page [the fax page or the website page] and save it as proof of status of verification," the guidance states.
When verifying licensure status for medical device distributors outside Texas, however, the attorney general says doctors should start with DSHS because it licenses some out-of-state distributors. If DSHS doesn't license an out-of-state medical device distributor, physicians must contact the appropriate state's licensing agency.
TMA has compiled a list of contact information for most states' medical device licensing entities. To access it, log on to the TMA website. TMA used information from the Health Industry Distributors Association Licensure Standards for Medical-Surgical Products Distributors in creating the list.
In its guidance, the attorney general acknowledges the possibility that a medical device distributor "may not possess a state license, but may still be authorized by a manufacturer to distribute a medical device. In that case, the physician should contact the manufacturer to verify the manufacturer's authorization." The attorney general's guidance says physicians should contact the medical device manufacturer directly only when the medical device distributor doesn't have a Texas license.
James McClendon, an Austin attorney for another Texas physician who purchased a medical product from Elite Med, says that could prove cumbersome, time-consuming, and complicated.
David Bragg, an Austin attorney who represented two physician groups that signed agreements with the attorney general's office over using Elite Med products, agrees.
"I've not come across a lot of physicians who routinely check licensure status of drug and medical device vendors," he said, adding that in the case of Elite Med "ostensibly, everything suggested the company was properly licensed."
He says physicians need to know "they can't take things at face value but have to confirm licensure status when purchasing drugs and medical devices they plan to use in their own facilities."
Educating staff members on how to determine a drug or medical device distributor's licensure status is pivotal to ensure compliance with the attorney general's guidance, Mr. Bragg says. Because physicians are ultimately responsible for verifying that a company has legal authority to distribute drugs and devices, Mr. Bragg stresses the importance of documentation. He encourages physicians to print and retain the fax or Internet record when verifying licensure status. (See "TMLT Education for Policyholders.")
"The more precise the documentation, the more valuable it is," Mr. Bragg said.
Guidance Has Some Benefits
Mr. McClendon says the attorney general's guidance does help in some ways. If, for example, a physician needs a drug or medical device from a distributor in Texas, "it appears relatively simple to determine the distributor's licensure status through contacting DSHS."
Mr. Bragg says one of the primary benefits of the state's guidance is that it removes the burden of proof from physicians who use a drug or medical device purchased by a third party, such as a hospital. The attorney general's guidance says the hospital or outpatient facility must verify authorization.
The guidance warns, however, that a physician commits a violation if he or she knows a drug or medical device is unauthorized and uses it anyway. If a physician becomes aware a hospital or outpatient facility is using unauthorized drugs or medical devices, the guidance says he or she "should take immediate action, documented in writing, to notify the hospital facility of the unauthorized drug or medical device."
Mr. Bragg says the attorney general also gives physicians notice of alleged violations and allows them 30 days to respond or correct a deficiency, based on the facts of the case.
Both attorneys say there are provisions in the attorney general's guidance that benefit physicians who may unknowingly purchase a drug or medical device from a distributor lacking a license or selling unapproved products.
The attorney general will evaluate physicians' compliance based on their good-faith efforts to follow the state's guidance.
Donald P. "Rocky" Wilcox, JD, TMA's general counsel, says the attorney general's office adopted a more moderate position as a result of TMA's efforts. "However, that position still requires diligence for those purchasing drugs or medical devices for their patients to ensure that these items are being sold through lawful channels," he said.
Crystal Conde can be reached by telephone at (800) 880-1300, ext. 1385, or (512) 370-1385; by fax at (512) 370-1629; or by email.
TMLT Education for Policyholders
Last year, the Texas Medical Liability Trust (TMLT) alerted its policyholders to the attorney general's actions against physicians who purchase products from unlicensed distributors and to the presence of misbranded drugs on the market. (See "Drug and Device Safety – Monitoring and Use of Safety Information.")
To educate policyholders on the topic, TMLT offers "Buyer Beware! Physicians Targeted for Use of Unapproved Drugs & Devices" for 1 AMA PRA Category 1 CreditTM in ethics. The live presentation by Jay Henderson, JD, informs physicians about applicable state and federal laws, outlines risk management considerations, and provides resources to guide them in purchasing drugs and medical devices.
For more information on programs for policyholder groups, contact the TMLT Risk Management Department at (800) 580-8658.
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