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Insight Report Vol.4 No. 3

FDA's Civil Money Penalty Policy - The Guidance on Reduction of Civil Money Penalties for Small Entities
Becomes Effective April 19, 2001

In July 1999, the FDA released their Guidance Document for Civil Money Penalty. Information on this guidance document is provided below (a reprint of the mdi July 1999 FDA update).

Now the FDA is issuing the final guidance entitled "Reduction of Civil Money Penalties for Small Entities" as required by the Small Business Regulatory Enforcement Fairness Act of 1996 and the Presidential Memorandum of April 21, 1995.

This final guidance seeks to improve the regulatory climate for small entities by, among other things, requiring agencies to establish small entity penalty reduction policies. The Presidential Memorandum directs them to use their discretion to modify the penalties for small businesses in certain situations.

The following is an excerpt taken directly from the FDA compliance reference. As you will see the FDA has given itself the ability to look at certain violate situation with a non-biased eye and provide companies an out from steep penalties, if the companies show some signs of complying and meaning it. This is the important thing, that the companies mean it a well as say it.

Guidance for Reduction of Civil Money Penalties for Small Entities

FDA will consider, on a case-by-case basis, whether to reduce or waive CMPs against a small entity. In determining whether to reduce or waive CMPs against a specific small entity, the following considerations should apply:

A. Except as provided in paragraph C below, penalty reduction or waiver may not be available for any small entity if:

The small entity was subject to an enforcement action (e.g. seizure, injunction or prosecution) by FDA within the last 5 years, and is still owned or managed by the same persons;
Any of the small entity's violations involve willful conduct;
The small entity does not make a good faith effort to comply with the law; or
Any of the small entity's violations pose serious health, safety or environmental threats.

B. In considering whether FDA should reduce or waive a CMP, FDA may consider:

The egregiousness of the violations;
The isolated or repeated nature of the violations;
The small entity's history (if any) of violations;
The amount of harm caused by the violations;
The degree to which a CMP may deter the small entity or others from committing future violations;
The extent to which the small entity cooperated during the investigation;
Whether the small entity corrected the violations within a reasonable time period;
Whether the small entity has engaged in subsequent significant remedial efforts to mitigate the effects of the violations and to prevent future violations;
Whether the small entity voluntarily reported the violations to FDA promptly after discovering them; and
The small entity's efforts to determine and meet its legal obligations.

C. FDA may also consider whether to reduce or waive a CMP against a small entity, including a small entity otherwise excluded from this guidance under paragraph A above, if the small entity can demonstrate to the FDA's satisfaction that it is financially unable to pay the penalty, immediately or over a reasonable period of time, in whole or in part.

D. If a small entity corrects the violative conditions within a reasonable time period, FDA may reduce the amount of any CMP that may be imposed for the violations, up to the amount spent by the small entity for corrective action. FDA may take into account the time in which the small entity took corrective action and any difficulties the small entity encountered when doing so.

Penalties Eligible for Reduction

The penalty reduction guidance applies to judicial and administrative CMPs.

Exclusions from the Penalty Reduction Guidance

The penalty reduction guidance does not apply to any remedy that may be sought by FDA other than CMPs. SBREFA also permits an agency to apply penalty reduction to violations discovered through a small entity's participation in a compliance assistance or audit program operated or supported by the agency or state. Although various units within FDA provide regulatory guidance to small entities, FDA does not operate a formal compliance assistance or audit program. Because FDA does not have a compliance program of the type described in SBREFA, this condition is not included in the penalty reduction guidance.

If a small entity is eligible for CMP reduction, but has obtained an economic benefit from the violations such that it may have obtained an economic advantage over its competitors, FDA may seek the full amount of the penalty. FDA retains this discretion to ensure that small entities that comply with public health laws enforced by the agency are not disadvantaged by those who have not complied.

FDA has determined that all CMPs assessed under the authority of the Generic Drug Enforcement Act (GDEA) and the Prescription Drug Marketing Act (PDMA) should be excluded from the penalty reduction guidance. Because of the level of scienter required to assess a CMP under GDEA or PDMA, FDA believes it is not appropriate to consider reduction or waiver of penalties in such cases. Under GDEA, CMPs may be assessed for a variety of intentional or "knowing" conduct related to abbreviated new drug applications (21 U.S.C. 335b(a)). Also, GDEA permits CMPs for debarred individuals who provide services in any capacity to persons who have approved or pending drug product applications (id). In accordance with the PDMA, CMPs may be assessed on a firm following conviction of that firm's representative for a violation of section 503(c)(1) of the Federal Food, Drug, and Cosmetic Act or any state law prohibiting the sale, purchase, or trade, or the offer to sell, purchase, or trade of a prescription drug sample. CMPs may also be assessed on a firm if that firm fails to report the conviction of that firm's representative to the FDA. Such conviction is a prerequisite for imposition of CMPs under the PDMA, and the "knowingly" standard must be met for conviction.

The National Childhood Vaccine Injury Act (NCVIA) also has a provision for CMPs, for which intentional or knowing conduct is a requirement for assessment of penalties. Section 2128(b) of the Public Health Service Act (42 U.S.C. 300aa-28) states that a CMP may be assessed when a vaccine manufacturer intentionally destroys, alters, falsifies, or conceals records associated with the manufacture of vaccines. Accordingly, FDA believes it is not appropriate to consider reduction or waiver of CMPs in cases involving this provision of the NCVIA.

Definition of "Small Entity"

Section 211(1) of SBREFA defines the term "small entity" as having the same meaning as in section 601 of the United States Code (5 U.S.C. 601). Section 601 defines "small entity" as "small business," "small organization" and "small governmental jurisdiction."

Under section 601(3) of 5 U.S.C., a "small business" has the same meaning as "small business concern" under section 3 of the Small Business Act (15 U.S.C. 632(a)), unless an agency, after consultation with the Office of Advocacy of the Small Business Administration (SBA) and after opportunity for public comment, establishes its own definition.

Section 632(a)(1) of 15 U.S.C. defines a "small business concern" as an enterprise "which is independently owned and operated and which is not dominant in its field of operation" (15 U.S.C. 632(a)(1)). The SBA has further defined "small business concern" for a number of specific industries based on the sizes of the enterprises and their affiliations (see 13 CFR part 121 and the SBA Table of Size Standards).

When SBA determines whether an enterprise is a small business, it generally counts the enterprise's affiliations (see 13 CFR 121.103). Family enterprises or enterprises in which the same individual or individuals have a controlling interest are aggregated for this purpose. If the aggregate total of the affiliated enterprises exceeds the size requirement for small businesses, none of the affiliated enterprises is considered a small business.

Federal law defines "small organization" as a not-for-profit enterprise which is independently owned and operated and not dominant in its field (5 U.S.C. 601(4)). The U.S. Code defines a "small governmental jurisdiction" as a governmental entity with a population of less than 50,000 (5 U.S.C. 601(5)). The definitions of "small organization" and "small governmental jurisdiction" may be changed by agencies after an opportunity for public comment.

FDA intends to use the "small entity" definition, in reference to CMPs, as described in the above statutes, regulations, and SBA Table of Size Standards. The small business definitions within the nutritional food labeling exemptions (21 CFR 101.9(j) and 101.36(h)) are not applicable to CMPs.

Statutory and Regulatory Requirements

This penalty reduction guidance shall not supersede or negate any applicable statutory or regulatory requirements. For example, in device and food cases, in determining the amount of a CMP and any modification, the agency shall comply with 21 U.S.C. 333(f). Subsequently, this penalty reduction guidance would be applied to small entities.

The FDA first gives and now they take away. It is appropriate that the FDA set up such a guideline in that the agency knows that to impose penalties without having the capabilities of looking at each case independently does not provide the FDA the ability to keep a company in business while attempting to bring them into compliance. We know that not all companies could withstand the $100,000,000. penalty imposed on Abbott Laboratories. But, if you think that because you are company is small and not able to maintain compliance, the FDA will not impose penalties on you and hold you to them, you are mistaken.

For more information on this guidance document visit the FDA's website at www.fda.gov/ora under "compliance references, or contact mdi at info@mdiconsultants.com.

Previously printed FDA Update July 1999.

The FDA just recently released the Guidance for FDA Staff - Civil Money Penalty Policy. This was marked as a Draft Document - Not for Implementation, but you can be sure if it was released it will soon be implemented.

This document was released to all FDA Regional And District Directors for the purpose of advising field personnel of this new guidance policy when pursuing potential Civil Money Penalty or now called CMP, recommendations under the Safe Medical Devices Act of 1990 (SMDA).

These penalties could be considered for all violations of the FDC Act involving medical devices except:

GMP and MDR violations unless they constitute a significant or knowing departure from such requirements or a risk to public health.
Filth violations in devices that are not otherwise detective
Minor violations for tracking and reports of corrections.

Thus, the FDA has considerable latitude when applying CMP to violations involving devices. The FDA goes on to state that CMP cases should serve to eliminate the profit from violative activities and/or to provide non-compliant firms with the financial incentive to correct violations. This financial incentive is created by a defendant's desire to minimize the number of violations and, when appropriate, by FDA's decision to allow a defendant to apply a portion of the CMP to offset the cost of correction.

The Guideline outlines cases for applying CMP and how to deal with the small medical device manufacturer who may not be in a position to pay a CMP.

The areas that may be targets for CMP actions are:

Continued violations of GMP regulations
Lack Premarket Notification with prior warnings
Chronic/Repeat Violator
When Seizures/Injunctions Not Appropriate
Problems with Low Risk Devices
Less Significant Violations

In the Guideline the FDA outlines a Decision Tree to assist the Districts in making their decision to apply the CMP action.

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