The Baxter Settlement and its Implications for FCA Liability

Kaitlin Lavin
Executive Editor
Loyola University Chicago School of Law, JD 2017


In January, Baxter Healthcare Corporation (“Baxter”) agreed to pay $18,158 million after the Department of Justice (DOJ) brought suit for violating the Food, Drug, and Cosmetic Act (FCDA) and the False Claims Act (FCA). The Baxter case is unique because it was based on a rare theory of FCA liability: failure to follow Current Good Manufacturing Practices (cGMP).

Alleged Noncompliance under FDCA

Baxter owns and operates North Cove, a facility that manufactures large volumes of sterile intravenous (IV) solutions and related products. Baxter employed people at North Cove to help ensure that the facility remained clean and produced unadulterated drugs and related products. They regularly shut down the facilities to inspect air filters, some of which were placed directly over equipment used to fill IV bags with solution. During these inspections, employees were directed to look for discolored or stained filters that needed replacement, including filters that potentially had mold. Managers at North Cove failed to take appropriate action for months after an employee complained that there were moldy filters that needed to be replaced. Finally, in November of 2012, the Food and Drug Administration (FDA) conducted an unannounced inspection of the facility which found numerous moldy filters. There was no evidence that these filters had any impact on the IV solutions or other products. However, under the FDCA, a drug is considered adulterated where there is any violation of cGMPs. The government charged Baxter with a misdemeanor for “introducing and causing introduction into interstate commerce of an adulterated drug in violation of Title 21, United States Code, Sections 331(a), 333(a)(1), and 351(a)(2)(B).” To resolve this charge, Baxter entered into a deferred prosecution agreement. Under the deferred prosecution agreement, Baxter is required to implements enhanced compliance provisions and pay $16 million in monetary penalties and forfeiture.

Enhanced Compliance Measures & Certifications

Baxter agreed to maintain or establish quality compliance policy and procedures, develop training to educate employees, implement a mechanism for detecting and preventing noncompliance, and assure appropriate corrective action is taken. Further, Baxter agreed to maintain/establish policies to ensure effective investigation of quality-related complaints through an enhanced corrective and preventative action (CAPA) system. The deferred prosecution agreement also requires the Board of Director at Baxter to provide a Certifications and Board resolution to the government annually, after conducting a review of the quality compliance program.

FCA Liability

The government brought suit under the FCA, on behalf of the Department of Veteran Affairs, which had contracts with Baxter for the IV solutions and products. The DOJ alleged that Baxter submitted false claims to the government by indicating compliance with the FDCA in its product terms and conditions of sale, including compliance with the cGMPs.

The DOJ has demonstrated a desire to bring more FCA cases against pharmaceutical manufacturers. The Baxter case is unique because it involves violation of cGMPs, rather than the usual off-label promotion or kickback scheme.  Here, the allegations also suggest that management actively concealed the presence of mold and failed to follow its own maintenance policy. Specifically, it told employees to stop using the word “mold” on any documentation for inspections and failed to remove moldy filters for months. Moreover, Baxter guaranteed compliance with the cGMPs to support every sale of IV solutions to hospitals and other healthcare providers.

This theory of liability for noncompliance with cGMPs may be limited. In United States ex rel. Barry Rostholder v. Omnicare, Inc., the Fourth Circuit found that, without more, cGMP violations cannot establish FCA liability for reimbursement under Medicare and Medicaid.  The court held that there was no valid claim for FCA liability for misbranding and adulteration of an FDA-approved drug, because the statute does not expressly prohibit reimbursement for drugs that do not comply with the FDCA. The statute only requires that items and services are reasonable and necessary.

Still, the Baxter settlement is a warning for pharmaceutical manufacturers that the DOJ is taking violations of the cGMPs more seriously. It also serves as a reminder for all compliance programs to implement or maintain mechanisms for employees to report misconduct, involve leadership, and provide training for all employees.