Avanos Medical Inc. to Pay $22 Million to Resolve Criminal Charge Related to the Fraudulent Misbranding of Its MicroCool Surgical Gowns

Avanos Medical Inc., a U.S.-based multinational medical device corporation, has agreed to pay more than $22 million to resolve a criminal charge relating to the company's fraudulent misbranding of its MicroCool surgical gowns.

A criminal information filed yesterday in the U.S. District Court for the Northern District of Texas charges Avanos with one count of introducing misbranded surgical gowns into interstate commerce with the intent to defraud and mislead. According to court filings, Avanos falsely labeled the gowns as providing the highest level of protection against fluid and virus penetration. Under the terms of a deferred prosecution agreement filed with the criminal information, Avanos will pay $22,228,000, composed of a victim compensation payment of $8,939,000, a criminal monetary penalty in the amount of $12,600,000 and a disgorgement payment of $689,000. The deferred prosecution agreement resolves a criminal investigation into Avanos's misbranding of its MicroCool surgical gowns under the Federal Food, Drug, and Cosmetic Act (FDCA) and the company's obstruction of a 2016 for-cause inspection conducted by the U.S. Food and Drug Administration (FDA) into Avanos's surgical gown business.

"Companies that sell medical products put their customers at risk when they misrepresent the quality of those products," said Acting Assistant Attorney General Brian M. Boynton of the Justice Department's Civil Division. "The Department of Justice will work with its law enforcement partners to prosecute companies that put profits over safety, especially when they provide products meant to protect medical professionals in potentially high-risk situations involving infectious diseases."

"Customers of Avanos trusted the company to deliver on the promises it made about the safety of its surgical gowns," said Acting Assistant Attorney General Nicholas L. McQuaid of the Justice Department's Criminal Division. "Avanos betrayed that trust. This resolution emphasizes that the department will hold companies in the medical device industry accountable and shows the Criminal Division's dedication to partnering with the Civil Division's Consumer Protection Branch to root out fraud."

"The last thing health care workers should have to worry about is whether their personal protective equipment lives up to manufacturers’ claims," said Acting U.S. Attorney Prerak Shah for the Northern District of Texas. "Misbranded PPE can pose serious risks to medical professionals and patients alike. All companies that do business in Texas, health care or otherwise, will be held accountable for the promises they make about their products."

"Medical devices, such as surgical gowns, must have truthful and accurate labeling," said Assistant Commissioner for Criminal Investigations Catherine A. Hermsen of the FDA. "Surgical gowns with false or misleading labeling can put health care practitioners and patients at risk. The FDA's Office of Criminal Investigations protects the American public by aggressively investigating allegations involving FDA-regulated products and violations of the FDCA. In this case, OCI worked with the Department of Justice to ensure a just resolution, and we applaud the exceptional work done by the team."

According to court documents, surgical gowns sold in the United States are subject to regulation by the FDA, which recognizes a system of classification set forth by the American National Standards Institute (ANSI) and the Association for the Advancement of Medical Instrumentation (AAMI) — known as the ANSI/AAMI PB70 standard. The ANSI/AAMI PB70 standard was first established in 2003 and revised to be more rigorous in 2012. Under the standard, the highest protection level for surgical gowns — AAMI Level 4 — is reserved for gowns intended to be used in surgeries and other high-risk medical procedures on patients suspected of having infectious diseases.

As part of the deferred prosecution agreement, Avanos admitted that between late 2014 and early 2015, it sold hundreds of thousands of MicroCool surgical gowns that were labeled as AAMI Level 4 under the 2012 ANSI/AAMI PB70 standard but did not actually meet that standard. In addition, Avanos made direct misrepresentations to customers about the MicroCool gowns’ compliance with the 2012 ANSI/AAMI PB70 standard. For example, in November 2014, Avanos sent letters to certain hospitals and other potential purchasers that falsely claimed that the MicroCool gowns met the revised and more rigorous 2012 ANSI/AAMI PB70 standard for classification as AAMI Level 4 — a standard that Avanos's employees knew the gowns had never met. At least one of these letters was sent in response to a request for assurances made by a health care provider seeking to obtain surgical gowns for use in responding to the 2014 Ebola outbreak. In total, Avanos sold approximately $8,939,000 worth of misbranded MicroCool gowns to customers in the United States and abroad.

In addition, according to court documents, an employee and an agent of Avanos obstructed a July 2016 FDA for-cause inspection of the company's surgical gown business by making numerous false entries in four documents requested by FDA investigators.

As part of the criminal resolution, Avanos has agreed to continue to cooperate with the Justice Department and to report any evidence or allegation of a violation of the FDCA or U.S. obstruction or fraud laws committed by Avanos's employees or agents upon any domestic government agency (including the FDA), regulator or any of Avanos's customers. Avanos has further agreed to strengthen its compliance program and abide by specific reporting requirements, which require the company to submit yearly reports to the government regarding the status of Avanos's enhancements to its compliance program and internal controls, policies and procedures aimed at deterring and detecting violations of the FDCA and U.S. obstruction and fraud laws, and the status of its remediation efforts.

The government reached this resolution with Avanos based on a number of factors, including the nature and seriousness of the offense conduct and Avanos's failure to timely and voluntarily self‑disclose the offense conduct to the department. In addition, Avanos fully cooperated with the investigation conducted by the government, including conducting a thorough internal investigation, meeting requests from the government promptly, making factual presentations to the government, assisting in making a key foreign-based employee available for interview, and producing extensive documentation to the government, including documents located in a foreign jurisdiction.

The government also considered that Avanos engaged in remedial measures after the offense conduct, including: (i) changing the manufacturing process for the MicroCool surgical gowns to improve the quality of their sleeve seams; (ii) reorganizing its quality and regulatory departments so that they report directly to the CEO; (iii) substantially increasing the 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, autonomy and resources of its compliance function by creating a stand-alone compliance department and appointing a full-time Chief Ethics and Compliance Officer who reports directly to the CEO and presents compliance reports to the Compliance Committee at least five times per year; (vi) enhancing compliance training for its employees; and (vii) implementing revised procedures for the review and approval of all medical device marketing material.

The criminal case was investigated by the FDA's Office of Criminal Investigations.

Senior Litigation Counsel Allan Gordus and Trial Attorneys David Gunn and Max Goldman of the Civil Division's Consumer Protection Branch, Trial Attorney John "Fritz" Scanlon of the Criminal Division's Fraud Section and Assistant U.S. Attorney Katherine Miller of the Northern District of Texas prosecuted the case.