Increase In FDA Inspections + Whistleblower Complaints = Heightened Compliance Scrutiny
By Arif Noorani, Christopher Fanelli, David Ludlow, and Raj Pai; Sidley Austin LLP
With the remaining COVID-19 travel restrictions slowly being lifted, we are seeing a significant increase in manufacturing facility inspections by the FDA and other health authorities globally. We expect this trend to continue into 2023 and beyond as FDA and global health authorities work to reduce the backlog of overdue inspections while also staying current on new inspection assignments. This increased inspectional activity has already led to significant compliance and enforcement activity. Meanwhile, there has been a notable and recent increase in whistleblower complaints, prompted by the COVID-19 pandemic.
Increase In FDA Inspections
FDA has now resumed inspections to pre-pandemic levels domestically and is quickly getting up to speed internationally as well. Recent changes to the Federal Food, Drug, and Cosmetic Act (the FDCA) mean that many of FDA’s foreign inspections will be unannounced, especially in India, China, and other countries that are not covered by a mutual recognition agreement (MRA) with FDA.
Unannounced inspections abroad add a layer of complexity to inspection readiness, as most foreign manufacturers have historically had weeks or even months to prepare for an announced FDA inspection. Companies whose pharmaceutical supply chains are reliant on manufacturing sites located abroad, especially in India or China, should take steps to assess these sites’ GMP compliance and inspection readiness (including their ability to respond quickly to an unannounced inspection), and subsequently shore up their operations or consider alternative manufacturing sites for key materials.
Increased inspectional activity is also driving elevated public regulatory enforcement by FDA, such as posting 483 observations and issuing Warning Letters and Import Alerts, including for product quality issues that occurred due to COVID-related staffing and supply chain restrictions. Manufacturers should not assume that FDA is going to “go easy” on issues that arose during the two-year pause on inspections. Indeed, we have already seen FDA issue a number of Warning Letters to manufacturers for critical deviations and other quality events that occurred during the height of the COVID-19 pandemic. Accordingly, as part of their inspection prep activities, manufacturers should reevaluate significant deviations that occurred during the pandemic to ensure their handling of such deviations will withstand scrutiny from FDA or another health authority.
Increase In Whistleblower Complaints
The pandemic prompted a substantial increase in the number of whistleblower complaints and, as the broader economic slowdown starts to impact manufacturers and companies in turn reduce workforces, we also expect there to be a growing number of whistleblowers. We have already seen a number of large government investigations stemming from whistleblower complaints in the second half of 2022, and we expect this trend to continue into 2023. In recent years, whistleblowers have attempted to expand the playing field of potential federal False Claims Act (FCA) cases by making the following types of allegations:
- data falsification and integrity issues,
- violations of GMP or Quality Systems Regulations (QSR), leading to the shipment of adulterated products,
- poor complaint handling and deviation investigations hindering FDA’s postmarketing oversight abilities, and
- “fraud on the FDA,” including allegations that the FDA would not have approved a product if it had been aware of undisclosed GMP/QSR violations.
The types of issues leading to whistleblower complaints has, in a number of cases, tracked the types of issues that are the focus of FDA inspectional observations and guidance; for example, the agency has focused extensively on data integrity issues.1 in recent years, and deficiencies related to complaints and deviation investigations are among the most frequent FDA inspectional observations annually.2
The increase in whistleblower complaints may be occurring for a number of reasons. As companies reduce their workforces, they create the potential for compliance issues as fewer people try to do the same amount of work. Further, employees who have been directly impacted by such reductions have historically been a source of whistleblower complaints to health authorities such as FDA and other government entities. Manufacturing sites that saw a decreased inspectional cadence during the pandemic may also have seen reduced internal audits for pandemic-related reasons. This could lead to a situation where issues that would have been noted and addressed in normal conditions go unaddressed for months or years. Finally, manufacturing sites may have seen significant turnover in staffing during the pandemic, leading to the greater likelihood of compliance issues from inexperienced staff, which in turn could lead to whistleblower complaints.
Coordinating Your Quality And Corporate Compliance Functions For Smoother Sailing
Given these increased risks, we see an increasing need for companies to coordinate across traditional quality and corporate compliance functions. Certain issues, like manufacturing data integrity problems, should be escalated quickly and managed from quality, corporate compliance, human resource, and legal perspectives in order to mitigate risks. We anticipate that in 2023 life sciences companies will need to reevaluate their U.S. healthcare fraud and abuse compliance programs vis-à-vis manufacturing, clinical research, and R&D activities.
Companies need to ensure they are adequately resourced and empowered to prevent, detect, and address potential instances of noncompliance given recent guidance issued by the U.S. Department of Justice (DOJ) coupled with an uptick in criminal and FCA enforcement actions coming out of the pandemic. In the September 2022 memorandum from Deputy Attorney General Lisa Monaco announcing additional revisions to DOJ’s corporate criminal enforcement policies, the DOJ stressed that an effective compliance program can have a “direct and significant impact” on the terms of a corporation’s potential resolution with DOJ.3 Expanding on this point, Assistant Attorney General Kenneth A. Polite Jr. stated that having an effective compliance program at the time of misconduct will be a key factor in determining whether declination is appropriate.4
In addition to mitigating the severity of an organization’s resolution terms with DOJ and other government agencies, life sciences companies are also realizing the true value-add of an effective compliance program in impacting a company’s bottom line. For example, companies are achieving cost savings by establishing better oversight and monitoring of their sales and marketing teams and building a more collaborative and productive workforce through increased transparency and open lines of communication.
A robust compliance program is also a proven strategic advantage in M&A due diligence, as it enables an acquiring or investing company to more readily gain comfort in a target company’s operations and practices.
We are seeing more and more emerging drug and device companies prioritize compliance programs at earlier stages in clinical development. As such, we expect that those companies that continue to invest the time and resources into developing and enhancing their compliance programs in 2023 will reap the benefits.
- See Data Integrity and Compliance With Drug CGMP Questions and Answers Guidance for Industry at https://www.fda.gov/media/119267/download.
- See Inspection Observations at https://www.fda.gov/inspections-compliance-enforcement-and-criminal-investigations/inspection-references/inspection-observations.
- See Further Revisions to Corporate Criminal Enforcement Policies at https://www.justice.gov/opa/speech/file/1535301/download.
- See Assistant Attorney General Kenneth A. Polite, Jr. Delivers Remarks on Revisions to the Criminal Division’s Corporate Enforcement Policy at https://www.justice.gov/opa/speech/assistant-attorney-general-kenneth-polite-jr-delivers-remarks-georgetown-university-law.