State Licensing Spotlight – Medical Device Manufacturers & Distributors: Compliance Strategies for Avoiding or Reducing Penalties

This article is the fourth in our thought leadership series on the critical and continually evolving state regulatory concerns facing medical device manufacturers. Part one of the series examined complex licensing challenges that set devices apart from drugs. Part two explored the role of the National Association of Boards of Pharmacy (NABP), and its impact on licensing and compliance for prescription medical device manufacturers and distributors. Part three reviewed the enforcement measures and penalties associated with operating without a license, highlighting the risks and consequences associated with non-compliance. For more information about state medical device licensing and compliance generally, please see our other articles on these topics, available online here.

Given the potential penalties for unlicensed operations, companies should prioritize compliance by adopting the following strategies:

1. Know what licenses you need: Start by identifying any required licenses across all jurisdictions where the company conducts business as well as all jurisdictions in which the company’s products are sold. Licensing statutes and regulations can be confusing, and a state licensing agency’s interpretation of state law can be inconsistent and subject to unpredictable changes. It is therefore necessary to possess both a detailed understanding of the company’s operations as well as the state specific legal requirements, including relevant exceptions that may apply to the company’s business, in order to accurately determine what licensing requirements may apply within any particular state.

It is important to emphasize that every business is different, with unique operational characteristics that must be analyzed against the state-specific requirements. Applying a “one size fits all” analysis approach that fails to consider e.g., the company’s particular products, activities, distribution network, and business model, invariably results in some combination of failing to identify necessary licenses or directing the company to obtain licenses that were not required. The former opens the company up to potential state disciplinary action and the latter results in unnecessary licensing costs and state regulatory oversight.

2.  Do Not Obtain Unnecessary Licenses. There is often a mistaken belief that obtaining and maintaining licenses in every state in which the company does business can reduce regulatory risk. However, this strategy can needlessly cost the company significant time and money. Each license the company acquires requires time to complete the application and subsequent renewals, fees to submit the initial and renewal applications, and the burden of additional state regulatory oversight.

It is important to consider that once the license is issued, the issuing state is typically not concerned with whether the license was actually required, and instead focuses on whether the firm complies with the ongoing license requirements. Failure to comply with state reporting, notice, or other requirements can result in monetary and other penalties. Further, discipline in any one jurisdiction can open the company up to follow-along discipline in any other state in which it is licensed.

3. Use a Systematic Method of Tracking State-Based Compliance. Advanced tools and compliance software can help track licensing and renewal dates, ensuring companies meet state-specific requirements and reduce the risk of lapses.

4. Negotiate Penalties by Understanding Disciplinary Trends. Negotiations with state regulators are typically more successful if armed with an understanding of the specific legal construct and how similar violations have been historically dealt with in that state. This is particularly true in states where penalties are assessed on a “per violation” basis.

5. Conduct Regular Licensing Audits. Routine audits of licensing status and renewal dates can identify gaps in compliance. State laws and licensing authority policies are subject to change without notice. Inadvertent violations can be prevented by routinely auditing across all states in which the company operates.

6. Establish a Compliance Program. A formal compliance program that includes state-specific licensing requirements, employee training, and internal audits can promote regulatory adherence.

7. Build Relationships with State Regulators. Establishing communication channels with state regulators can facilitate the resolution of potential issues and help companies stay informed about changes in state licensing laws.

8. Seek Assistance Where Appropriate. If a company lacks the resources to manage its licensing requirements, it should seek external assistance rather than delay compliance. Similarly, if enforcement concerns arise, engaging legal counsel experienced with state regulators can prove invaluable. External expertise can reduce or eliminate fines and prevent costly business disruptions.

Conclusion

Operating without a license as a medical device manufacturer or distributor can lead to severe penalties, including fines, operational disruptions, and even criminal charges. A robust compliance strategy, including identifying and obtaining the proper licenses and managing ongoing requirements is critical. By establishing effective compliance programs, conducting regular audits, monitoring regulatory changes, and seeking expert assistance when needed, companies can safeguard their operations, reputation, and long-term success.

If you have any questions about the penalties and consequences associated with operating without a state license, please contact any of the authors of this article or the Hogan Lovells lawyer with whom you usually work.

Authored by Jodi Scott, Wil Henderson, Greg Kass, Lauren Massie, and Hannah Wailes.