ACell Inc. (ACell), a Maryland-based medical device manufacturer, pleaded guilty to charges relating to its MicroMatrix powder wound dressing product (MicroMatrix), the Department of Justice announced today. ACell entered a guilty plea before U.S. District Court Judge Ellen L. Hollander in the District of Maryland to one misdemeanor count of failure and refusal to report a medical device removal in violation of the Federal Food, Drug, and Cosmetic Act (FDCA). In addition, ACell has agreed to settle allegations that it caused false claims to be submitted to federal health care programs for MicroMatrix, and to pay $15 million to resolve its criminal and civil liability arising from these matters.

“Today’s settlement underscores the Department of Justice’s commitment to holding device manufacturers accountable for ensuring that their products are safe, which includes making timely notifications to the FDA when a product recall is required,” said Assistant Attorney General Jody Hunt of the Civil Division.

“When companies use contaminated materials to manufacture devices and fail to notify the FDA of recalls of their products due to concerns of patient safety, they undermine the integrity of the FDA recall process and may cause patients to receive devices that are not safe,” said U.S. Attorney for the District of Maryland Robert K. Hur. “This joint criminal and civil resolution holds ACell accountable for this violation while returning dollars back to the Medicare program for false claims.”

“The FDA will not tolerate the actions of companies that put patients at risk by failing to report the market withdrawal of their medical devices to the FDA,” said Acting FDA Commissioner Ned Sharpless, M.D. “By not notifying the FDA nor being forthcoming about their reasons for the product removal, ACell executives placed profit above patient safety. They risked that doctors would use the devices in procedures that could jeopardize patient health, and violated both the trust of patients and the medical community in their medical device. We will continue to investigate and bring to justice companies that do not follow FDA’s postmarket compliance requirements, which are important to ensure the protection of the public health.”

Along with the civil settlement, ACell entered into a Corporate Integrity Agreement (CIA) with the HHS-OIG. The five-year CIA requires, among other things, the implementation of a risk assessment and internal review process designed to identify and address evolving compliance risks on an ongoing basis. In addition, the CIA enhances individual accountability by requiring sign-off certifications from the ACell Board of Directors and specified executives. The CIA requires training, auditing, and monitoring designed to address the range of activities (promotional and otherwise) at issue in the case.

“Neglecting to provide vital medical device information to the FDA, medical professionals, and even the company’s own sales force, posed a significant threat to the lives of patients across the country,” said Maureen Dixon, Special Agent in Charge for the Office of Inspector General of the U.S. Department of Health and Human Services region including Maryland. “Compounding that crime, the government contended the company paid thinly-veiled bribes to health providers and stuck taxpayers with inflated bills.”

As charged in a criminal information unsealed today, ACell removed MicroMatrix from its point of use to reduce a risk to health posed by the device, but failed to report the removal to the Food and Drug Administration (FDA). The United States alleges that in 2012, ACell clandestinely removed its MicroMatrix devices from sales representative inventories, hospitals, and other healthcare centers, due to a risk to patient health posed by endotoxin contamination of those devices. Endotoxin exposure on the human body can cause fever, infection, septic shock, and death.

Pursuant to a plea agreement, ACell admitted that it learned in January 2012 that more than 30,000 MicroMatrix devices were contaminated with endotoxin levels that posed a risk to patient health. Due to that health risk, ACell initiated a removal of certain sizes of MicroMatrix devices from the market. ACell admitted that it did not report the removal of these devices from the market to FDA. ACell also admitted that it concealed the reason for the product removal from doctors, hospitals, and the company’s own sales force, and did not notify doctors who had already used MicroMatrix devices from the lots subject to removal of the elevated endotoxin levels. Under the terms of the plea agreement, ACell agreed to pay a fine of $3,000,000. ACell must also abide by an agreement with the Department of Justice requiring ACell to enact extensive compliance reforms.

Pursuant to the civil settlement under the False Claims Act, ACell will pay $12 million over five years to resolve its civil liability for causing false claims for MicroMatrix to be submitted to government health care programs. Specifically, the United States alleged that, beginning in 2011, ACell’s marketing of MicroMatrix, which is indicated for the treatment of topical wounds, was false and misleading because, at the direction of management, ACell sales representatives stated to physicians that the use of MicroMatrix powder non-topically and internally was safe and effective, when the sales representatives knew that no such clinical data existed. Additionally, the United States contended that, beginning in March 2012, ACell provided coding recommendations to healthcare providers for ACell devices that were incorrect and improperly inflated reimbursement from Medicare. ACell continued to provide this erroneous guidance even after two separate coding consultants advised ACell that it was incorrect. Finally, the United States alleged that ACell induced prescribers to order ACell products by providing improper inducements, including entertainment, payments for being part of ACell’s speaker program, and free product, designed to encourage orders from the recipients of those inducements.

The civil settlement resolves a lawsuit filed by John Murtaugh, a former employee of ACell, under the qui tam or whistleblower provisions of the False Claims Act, which permit private individuals, known as relators, to sue on behalf of the government for false claims and to share in any recovery. The qui tam suit was filed in the District of Maryland and is captioned United States ex rel. John Murtaugh v. ACell, Inc., Action No. ELH-13-1820 (D. Md.). Murtaugh will receive $2,366,004 of the civil settlement.

The government is represented in the criminal case by Assistant U.S. Attorney Roann Nichols of the U.S. Attorney’s Office for the District of Maryland and Trial Attorneys Clint Narver and Ann Entwistle of the Civil Division’s Consumer Protection Branch, with assistance from FDA’s Office of Chief Counsel. The civil settlement was the result of the coordinated efforts of Assistant U.S. Attorney Thomas Corcoran of the U.S. Attorney’s Office for the District of Maryland and Senior Counsel Natalie Waites of the Civil Division’s Commercial Litigation Branch. The investigation was conducted by HHS-OIG, FDA’s Office of Criminal Investigations, the FBI, and the Department of Defense Criminal Investigative Services.

Except as to conduct admitted as part of the guilty plea, the claims resolved by the civil settlement are allegations only and there has been no determination of liability.