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• 16 to produce a drug or certain medical devices, the FDA would be empowered to review the production process. In a subsequent memorandum, the FDA inspector summarized a telephone conversation with a senior compliance officer in the Office of Enforcement at FDA Headquarters. This official expressed pessimism regarding the chances that the FD&C Act would be changed because "the food lobby is very powerful." According to the inspector's notes, the official added a chilling observation: 66 the FDA will only be able to change the Act (write CFR sections) when there is a public outrage. He stated that the FDA has gained most of its regulatory powers be- cause a catastrophe (deaths, injuries) has occurred and the people of the U.S. forced the Congress into enacting new laws. FDA Lacks Subpoena Power The proposed legislation would empower the FDA to issue sub- poenas to require the testimony of witnesses or to compel the pro- duction of documentary evidence. The CRS concluded that such power would be comparable to the authority currently possessed by the Federal Trade Commission, but is not as broad as the powers enjoyed by other Federal agcIncies, including the Consumer Product Safety Commission, the Federal Grain Inspection Service of the U.S. Department of Agriculture and the Secretary of Labor pursu- ant to inspections or investigations under the Occupational Safety and Health Act of 1970.87 Some regulatory agencies appear to use subpoena power almost as a matter of routine. The Securities and Exchange Commission recently issued subpoenas to major brokerage houses in the wake of illegal bidding for Treasury notes by Salomon Brothers, and its action was not regarded as anything out of the ordinary.68 One recent example illustrates the potential value of subpoena authority to the FDA. On August 2, 1991, Public Citizen's Health Research Group released documents which it claimed showed that Hoffman-La Roche knew from cases in Europe that its 5 milligrams per milliliter dose of midazolam, a powerful sedative drug sold under the trade name Versed, was dangerous before the drug was marketed in the U.S. The 5 mg dose had caused a number of deaths in Europe because of inadvertent overdosage and some in the company favored the rapid issuance of a 1 mg form, which would be much easier to administer and therefore much less dan- gerous. A 1 mg formulation was eventually introduced in the U.S. in July 1987, but not before at least 20 persons reportedly died taking the stronger dosage, which was first marketed in 1985. The FDA investigated the matter, but the internal Roche documents did not come to light. According to press accounts, they were given to the Health Research Group by a disgruntled former Roche em- ployee.69 SME69v0z •° Memorandum to James Lahar from Dwight Abouhalkah, July 23, 1990. •' CRS Study, June 25, 1991, pp. 2-3. 's Wall Street-Journal, August 20, 1991, p. A-3. "The New York Times, July 4, 1991, p. A-l, The Wall Street Journal, August 1, 1991, p. B-4 and The Washington Post, August 2. 1991, p. A-21. • 17 • The point here is not the guilt or innocence of Roche, which will be established by the appropriate regulatory and law enforcement agencies, but the fact that these documents apparently only came to the attention of the FDA because a former company employee leaked them. It defies reason to expect all FDA regulated compa- nies to voluntarily and routinely disclose material that is highly embarrassing or exposes the company to potentially serious legal action, especially if the chance of getting caught at withholding the information is very small. For example, following the testimony before the Oversight Subcommittee of a former employee of the Gulf Coast Regional Blood Center of Houston, Texas, the FDA con- firmed that the blood bank had failed to disclose to the FDA a number of errors involving the mislabeling of blood by type. These were reportable events under FDA regulations.7O The former em- ployee testified that on one occasion when he gave such an error report to the laboratory supervisor, the blood bank official threw it in the trash can.' 1 The FDA's most recent investigation of Gulf Coast identified, perhaps not coincidentally, several instances where hospital records indicated that an error had been reported to the blood bank regarding blood Gulf Coast had shipped, but there was no corresponding record at the blood bank.72 The power to subpoena documents, and to review a wide range of company records, would increase the chances that the FDA would discover instances of unsafe or otherwise objectionable practices as well as the withholding of reportable information. Moreover, such authorities would reduce the temptation for companies to engage in or cover up such activities. Of course, the subpoena power would also enable the FDA to more quickly and effectively investigate in- stances where there were grounds to suspect the existence of a health or safety problem. A recent example of this was in the prosecution of several Chi- cago area companies for selling adulterated and misbranded apple juice, which was falsely represented to be 100 percent pure. Accord- ing to the testimony of an FDA regional director, the agency had to go to a grand jury to obtain records, such as the formula, process- ing, and distribution data, from the companies before they had enough information to bring an enforcement action.73 During the time it took to go through this process, the adulterated and mis- branded apple juice continued to be sold to, and consumed by, Americans. FDA Lacks Adequate Entry Authority Mr. Alan Hoeting testified in July 1991 that the FDA has the au- thority to enter and inspect regulated establishments "in a reason- able time and a reasonable manner." When Congressman Danne- meyer asked if this meant during normal business hours, Mr. Hoet- ing replied: " 1O Letter from Kay Holcombe, Acting Associate Commissioner for Legislative Affairs, FDA to Chairman John D. Dingell, August 2, 1991 (hereinafter cited as FDA Letter, August 2, 1991). "'Blood Supply Safety," Hearings, Subcommittee on Oversight and Investigations, Commit- tee on Energy and Commerce, U.S. House of Representatives, Serial No. 102-7, April 18 and May 15, 1991, p. 189. (hereinafter cited as Hearings, April 18 and May 15, 1991.) '2 FDA Letter, August 2, 1991. " Hearings. July 17. 1991, tr. p. 31. 74 Id., tr. p. 34.

• 1K When the establishment is open, during regular business hours, we can enter and inspect in reasonable times. What Mr. Hoeting's carefully chosen words did not say is that if the establishment is not open, or if the proprietor doesn't want to open up, the FDA may not be able to gain entry on a timely basis, or at all. The Oversight Subcommittee documented such a case that occurred in 1986. The firm, Military Exchange Co., Inc. of Miami, Florida, and its owner, Julio Klepach, bribed two employees of the Latin American subsidiary of American Cyanamid Company to divert six shipments of a Spanish labeled penicillin product to Military Exchange and its customers. Klepach had arranged for the product to be repackaged and relabeled in English.' 5 American Cyanamid discovered the scheme and promptly informed the FDA in December 1985. It was not then clear whether the relabeling process had affected the potency or the sterility of the product.7e In December 1985 and January 1986, the FDA investigators at- tempted to interview Klepach at his residence and to inspect his place of business. Klepach refused and the Offices of Military Ex- change were locked." The FDA then attempted to obtain a search warrant, but the request took so long to get through the FDA bu- reaucracy that the Assistant U.S. Attorney in Miami would not take it to the magistrate because by then (February 1986) the infor- mation upon which the request was based was stale.78 In the end, the FDA never did gain entry to the premises of Military Ex- change. This and other examples cited in Subcommittee hear- ings79 suggest that the FDA will forever be hard pressed to deal effectively with the type of outright criminal activity exemplified by Julio Klepach without changes in the agency's current statutory authority. A Presumption of Interstate Commerce Would Save FDA Resources Section 9 of the legislation would define interstate commerce such that the FDA would no longer have to waste scarce resources to prove that the products over which it exercises jurisdiction move in interstate commerce. This is rarely, if ever, a contested matter but the agency expends between 25 and 30 man years per annum documenting this fact. Commissioner Kessler testified that statuto- ry change would make no difference in the types of cases brought by the agency nor would it alter the agency's jurisdiction.eo 1' Hearings, Subcommittee on Oversight and Investigations of the Committee on Energy and Commerce, U.S. House of Representatives, Serial No. 99-156, July 15, 1986, pp. 204-213. (Herein- after cited at Hearings, July 15, 1986). "ld., p. 261. (~ ,v Id.. P. 270W 9V09 '• Id., p. 2? 1. "See Hearings, Subcommittee on Oversight and Investigations of the Committee on Energy and Commerce, U.S. House of Representativea, Serial No. 101-205, June 20 and July 18, 1990 and "Uncertain Returns," Staff Report, Subcommittee on Oversight and Investigations of the Committee on Energy and Commerce, U.S. House of Representatives, Committee Print 99-GG, July 1986. "See Hearings, July 17, 1991, tr. p. 96. • • CHAPTER V CIVIL PENALTIES ARE NEEDED The FD&C Act is an unusual statute. Violators can be criminally prosecuted, but violations are usually only misdemeanors. Despite regulating over 90,000 companies, many of which have multiple lo- cations, and whose products constitute about 25 cents of every dollar of our GNP, the FDA brings very few criminal cases. In 1989, for example, only 16 such cases were referred to the Depart- ment of Justice for prosecution. In the same year, by contrast, the HHS Inspector General referred 1,654 cases for prosecution.e t The Subcommittee has identified a number of reasons for this, includ- ing inadequate training, a lack of resources, the disinclination of prosecutors to take cases that are misdemeanors rather than felo- nies, and the glacial pace of the review process by the FDA Head- quarters bureaucracy.82 As the result of the Subcommittee's persistent inquiries, the FDA has attempted to streamline and speed up the complex and lengthy review process through which criminal referrals from the field must go. According to the FDA, the previous 14 step process has been reduced to only 5 steps.83 But since most of the same FDA offices are involved that contributed to the previous delays, it remains to be seen whether the process will be materially im- proved. Even if it is, the agency will still face the same daunting obstacles that have made it so difficult to get FDA cases prosecut- ed. The logic of this situation suggests the need for a system of civil penalties. The Administration recognized this in 1990, when it forwarded legislation including authority for civil money penalties.84 And problems in medical device regulation, some of which were the re- cipient of this Subcommittee's attention,85 led to the passage of the Safe Medical Devices Act, with its civil money penalties provisions, in 1990. An effective civil penalty regime would be more appropriate for most violations of the FD&C Act and would also be a credible de- terrent as compared with the relative handful of criminal cases that are successfully prosecuted at present. Moreover, the existence of civil penalties would enable the FDA to concentrate its limited criminal investigative abilities on those violations that truly de- serve criminal prosecution. •~ Hearings, July 15, 1990, p. 115. '= Hearings, June 20, 1990, Testimony of David Nelson. •~ Hearinga, Subcommittee on Oversight and Investigations, Committee on Energy and Com- merce, March 7, 1991, tr. p. 107. " April 23, 1990 Sullivan letter. •° See, e.g., "The Bjork-Shiley Heart Valve: Earn As You Learn," Report by the Staff of the Subcommittee on Oversight and Investigations, Committee on Energy and Commerce, t:ommit- tee Print 101-R, February 1990. (19)

•20 Nowhere is this more evident than in the FDA's handling of the problem of lead in housewares. Improperly glazed ceramicware re- lease excessive amounts of lead and cadmium into the food they contain, directly threatening the health and safety of consumers. The FDA does not have the inspectional resources to test more than a few importations of ceramicware, and has not brought any criminal cases against repeat violators. This enforcement posture has thus had little deterrent effect against the shippers of such dangerous ceramicware. The ability to assess civil penalties against negligent importers would significantly enhance the FDA's ability to protect American consumers from lead in houseware and many other dangerous products as well.86 The FDA will never have enough resources to check the over 40,000 annual ceramicware im- portations 117 and such a use of resources would not be cost effec- tive anyway. Another example is food. The 1984 GAO survey found that indi- viduals and firms in the food industry did not always correct un- sanitary conditions in food facilities even after they were prosecut- ed criminally under the Food, Drug, and Cosmetic Act because pen- alties were too low. Fines of up to $1,000 per violation and up to 1 year imprisonment on the first conviction, which rose to up to $10,000 and up to 3 years on the second conviction or where the intent to defraud or mislead was proven, were insufficient to deter violations in companies that had annual sales exceeding several hundred thousands of dollars.88 The GAO found that 5 of 19 firms prosecuted for unsanitary conditions did not correct the condi- tions.89 Moreover, the GAO found that the FDA tended not to pros- ecute violators in the first place, noting that the FDA was "selec- tive in seeking court action" and generally recommended prosecu- tion only against repeat violators. "See "Lead in Housewares." Hearing, Subcommittee on Oversight and Investigations, Com- mfttee on Energy and Commerce, Serial No. 100-34, June 27, 1988. " Id., p.18fi. "GAO/HRD-84-61, September 1984, p. 2.5. " Id. 090MV09 • • APPENDIX A June 21, 1991. Hon. HENRY A. WAXMAN, Chairman, Subcommittee on Health and the Environment, House of Representatives, Washington, DC'. DEAR CHAIRMAN WAXMAN: As trade associations representing in- dustries regulated by the Food and Drug Administration, we are writing to convey our opposition to the "Food, Drug, Cosmetic and Device Enforcement Amendments of 1991," H.R. 2597. We are par- ticularly concerned about its sweeping and unjustified scope. As a result of extensive committee hearings, a strong record of need was established prior to the introduction of legislation provid- ing for enhancements to FDA's regulatory authority over generic drugs. However, H.R. 2597 was developed and introduced without any hearings or justification. The legislation appears to be based on a misperception that the FDA needs broad new enforcement au- thorities with respect to all the industries it regulates. In fact, there is no such evidence, pattern or practice to suggest that the proposed authorities contained in H.R. 2597 are necessary or even appropriate-or that current FDA authority is somehow in- sufficient to ensure compliance with the Food, Drug and Cosmetic Act [FD&C Act]. The case simply has not been made for sweeping new legislation. To be clear, we strongly support an FDA with the will to use the already substantial enforcement authorities it has under the FD&C Act-a combination that has been amply demonstrated in recent weeks by Commissioner Kessler. Moreover, legislation has already been proposed to prevent future abuses in the generic drug area where they have been well- documented and carefully examined. Beyond that, we see no evi- dence to warrant further legislation at this time. Sincerely, Paul C. Abenante, American Bakers Association; Fred H. Holt, Animal Health Institute; Richard E. Cris- tol, Association for Dressings and Sauces; Richard Sullivan, Association of Food Industries; Robert C. Gelardi, Calorie Control Council; J.D. Milliken, Con- cord Grape Association; Edward Kavanaugh, Cos- metic, Toiletry & Fragrance Association; C. Manly Molpus, Grocery Manufacturers of America; Alan H. Magazine, Health Industry Manufacturers Associa- tion; Robert H. Kellen, Infant Formula Council; Richard D. Godown, Industrial Biotechnology Asso- ciation; James Elfstrum, International Food Addi- tives Council; Larry C. Davenport, International Jelly & Preserve Association; Joseph B. Morris, Na- t21i

• • • t.ional Association of Margarine Manufacturers; Robert G. Britain, National Electrical Manufactur- ers Association; John R. Cady, National Food Proc- essors Association; Joseph M. Lichtenberg, National Pasta Association; Ron Cannon, National Pecan Shellers Association; Steven C. Anderson, American Frozen Food Institute; Richard E. Cristol, National Single Service Food Association; James D. Cope, Nonprescription Drug Manufacturers Association; Gerald J. Mossinghoff, Pharmaceutical Manufactur- ers Association; and Jack Cole, The Vinegar Insti- tute. cc: Subcommittee on Health and the Environment 24 imported item must be posted. Articles that present a significant risk to human or animal health must be destroyed within 30 days. Upon the request of the Secretary of HHS, the Secretary of the Treasury shall revoke immediate delivery privileges of scofflaw im- porters. Section 9 Extends the presumption of interstate commerce, which current- ly applies only to devices, to foods, drugs and cosmetics. Sections 10 and 11 Technical change which moves biological products from the Public Health Services Act to the Food, Drug and Cosmetic Act, other minor technical amendments. T969E69fi®9- o E APPENDIX B SUMMARY OF PROVISIONS OF H.R. 2597 Section 1 Short title; reference; table of contents. Section 2 Empowers any Federal district court to order the recall of a food, drug, device or cosmetic involved in a fraudulent violation the Food, Drug, and Cosmetic Act or which presents a significant risk to human or animal health. Section 3 Gives the Secretary recall power as above. All recalls must be re- ported to the Secretary within 5 days or, if required by regulation, less. Regulations may also be issued by the Secretary which require manufacturers and distributors to adopt a method of tracking goods to facilitate recalls. Section 4 Provides seizure and embargo authority for any article in viola- tion of the Act. Section 5 The Commissioner may issue administrative subpoenas and obtain judicial enforcement for noncompliance. Section 6 Establishes a system of civil money penalties for false state- ments, failure to disclose a material fact, bribery, destruction or al- teration of evidence and obstruction of justice. Up to $250,000 for individuals and $1,000,000 for corporations. Provides for an eviden- tiary administrative hearing and judicial review. Section 7 FDA is authorized to enter and inspect at reasonable times estab- lishments where covered goods or labeling and packaging is manu- factured, processed, packed or held for introduction into interstate commerce; obtain samples; and copy any related records. An in- spection extends to all things bearing on whether the articles are in violation of the Act. Section 8 Refused goods must be marked "Refused Entry into the United States," and the intended destination of reexports declared. Cus- toms verifies. A bond equal to at least three times the value of the (23) fCant)