The U.S. Justice Dept. announced that Avanos Medical (NYSE:AVNS) agreed to pay more than $22 million to resolve a criminal charge related to fraudulent misbranding.
Charges levied against the Alpharetta, Ga.-based medical device company relate to alleged fraudulent misbranding of its MicroCool surgical gowns.
According to a DOJ news release, criminal information filed on July 7 in the U.S. District Court for the Northern District of Texas charged Avanos with one count of introducing misbranded surgical gowns into interstate commerce with the intent do defraud and mislead.
Court filings allege that Avanos falsely labeled the gowns as providing “the highest level of protection against fluid and virus penetration.”
The company agreed to pay $22,228,000, comprised of a victim compensation payment of $8,939,000, a criminal monetary penalty of $12.6 million and a disgorgement payment of $689,000.
“Companies that sell medical products put their customers at risk when they misrepresent the quality of those products,” Acting Assistant Attorney General Brian M. Boynton of the Justice Department’s Civil Division said in the release. “The Department of Justice will work with its law enforcement partners to prosecute companies that put profits over safety, especially when they provide products meant to protect medical professionals in potentially high-risk situations involving infectious diseases.”
Surgical gowns sold in the U.S. are subject to FDA regulation, which recognizes classification set forth by the American National Standards Institute (ANSI) and the Association for the Advancement of Medical Instrumentation (AAMI) — known as the ANSI/AAMI PB70 standard, the DOJ said.
Avanos admitted in the deferred prosecution agreement that, between late 2014 and early 2015, it sold hundreds of thousands of MicroCool surgical gowns labeled as AAMI Level 4 under the 2012 ANSI/AAMI PB70 standard, but those gowns did not actually meet that standard.
The company also made direct misrepresentations to customers about the gowns’ compliance with the standard, including letters to hospitals falsely claiming that the MicroCool gowns met the revised and more rigorous standard, although the employees knew the gowns never met them, the DOJ said. In total, the company sold approximately $8,939,000 in misbranded MicroCool gowns to U.S. and other global customers.
Other documents showed that an employee and agent of Avanos obstructed a July 2016 FDA for-cause investigation of the surgical gown business at the company by making a number of false entries in four documents requested by FDA investigators.
Avanos agreed to continue to cooperate with the DOJ and to report evidence or allegation of a violation of the FDCA or U.S. obstruction or fraud laws committed by the company’s employees or agents. Further, the company agreed to strengthen its compliance program and abide by specific reporting requirements that stipulate the company must submit annual reports to the government regarding the status of its enhancements to its compliance program and internal controls, policies and procedures aimed at detecting and deterring violations of the FDCA and U.S. obstruction and fraud laws, as well as the status of its remediation efforts.
DOJ said Avanos fully cooperated with the investigation conducted by the government and engaged in a series of remedial measures after the offense conduct.
“Medical devices, such as surgical gowns, must have truthful and accurate labeling,” FDA Assistant Commissioner for Criminal Investigations Catherine A. Hermsen said. “Surgical gowns with false or misleading labeling can put health care practitioners and patients at risk. The FDA’s Office of Criminal Investigations protects the American public by aggressively investigating allegations involving FDA-regulated products and violations of the FDCA. In this case, OCI worked with the Department of Justice to ensure a just resolution, and we applaud the exceptional work done by the team.”
Avanos Medical issued the following statement on the matter:
“We are pleased to have resolved this matter, as it allows us to move forward and concentrate on our vision of getting patients back to the things that matter in their lives bydelivering breakthrough medical device solutions.
“As the government acknowledged, Avanos cooperated fully with the investigation from the beginning. We have accepted responsibility for these issues, which relate to activities that concluded in 2016 and a product that Avanos divested more than three years ago, when it sold its Surgical and Infection Prevention business.
“Avanos takes its responsibility to patients and healthcare providers very seriously and is committed to high ethical standards. We have robust compliance and quality programs, which we will continue to enhance through new and revised policies, procedures, and training requirements.”
This story has been updated with comment from Avanos Medical.