Avanos Medical Pays $22 Million to Settle Criminal Mislabeling Charges for Surgical Gowns
Avanos Medical, a global medical device company, agreed to pay $22 million to resolve criminal charges relating to its fraudulent misbranding of its MicroCool surgical gowns. Avanos Medical falsely labeled the surgical gowns as providing the highest level of protection against fluid and virus penetration.
As part of the settlement, Avanos Medical agreed to a three-year deferred prosecution agreement (DPA), in exchange for a payment of $22,228,000, consisting of a victim compensation payment of $8,939,000, a criminal fine payment of $12.6 million, and a disgorgement payment of $689,000. Avanos Medical was threatened with criminal charges of misbranding of its MicroCool surgical gowns under the Federal Food, Drug and Cosmetic Act (FDCA) and its obstruction of an FDA inspection in 2016.
Surgical gowns are subject to FDA regulation, which incorporates a classification system established by the American National Standards Institute (ANSI) and the Association of Medical Instrumentation (AAMI), known as the ANSI/AAMI PB70 standard. The standard was first established in 2003 and revised in 2012. Under the standard, the highest protection level for surgical gowns (AAMI Level 4) is assigned to gowns intended for use in surgeries and other high-risk medical procedures on patients suspected of having infectious diseases.
As part of the DPA, Avanos Medical admitted that between late 2014 and early 2015, it sold hundreds of thousands of MicroCool surgical gowns that were labeled as AAMI Level 4 but did not actually meet the standard. In addition, Avanos Medical made false misrepresentations to customers about meeting the highest quality standard.
In November 2014, Avanos Medical sent letters to certain hospitals and other potential purchasers falsely claiming that the MicroCool gowns met the revised and more rigorous 2021 standard for classification – a standard that Avanos Medical salespersons knew the gowns had never met. One the false letters was sent ion response to a specific request from a health care provider seeking assurances that the surgical gowns could be used in treating patients with the 2014 Ebola outbreak.
Employees in Avanos Medical, including a senior R&D official, knew that the MicroCool surgical gowns did not meet the claimed standard. As a result, hundreds of thousands surgical gowns sold to hospitals and other health care providers were misbranded.
In total, Avanos Medical sold approximately $8.9 million of misbranded MicroCool gowns to customers.
Avanos Medical also avoided potential obstruction charges arising from a July 2016 FDA inspection because of making numerous false entries in four documents requested by the FDA investigators.
Under the Justice Department’s Corporate Enforcement Policy, Avanos Medical did not voluntarily disclose the offense, and fully cooperated with the investigation by conducting a thorough internal investigation and making foreign evidence and witnesses available for interviews. Avanos Medical engaged in remedial measures, including (i) changing the manufacturing process for the surgical gowns to improve the quality of their sleeve seams; (ii) reorganizing its quality and regulatory departments so they report directly to the CEO; (iii) increasing its budget and headcount of its compliance and quality departments; (iv) creating a stand-alone Compliance Committee of the Board of Directors; (v) enhancing the independence and authority of its compliance department and appointing a Chief Ethics and Compliance Officer who reports directly to the CEO and reports to the Compliance Committee at least five time each year; (vi) enhancing compliance training for its employees; and (vii) revising procedures for review and approval of all marketing materials.
Avanos Medical earned a 25 percent discount from the low end of the sentencing guidelines range.
DOJ decided not to impose an independent corporate compliance monitor because of Avanos Medical’s enhancements to its compliance program, its commitment to continue implementing enhancements, and its agreement to submit annual reports on its compliance program improvements and performance.