First round of settlements over NECC compounding scandal sets a $100-million fund

The New England Compounding Center scandal, in which contaminated, compounded dosages of injectable steroids are alleged to have caused (at latest count) 751 cases of fungal meningitis—including 64 deaths—has reached the preliminary-settlement stage. A $100-million fund is being set up, drawing on the now-bankrupt NECC, its owners and insurers. Negotiations are proceeding between the bankruptcy trustee and two groups: the Official Unsecured Creditor’s Committee and the Plaintiffs Steering Committee, in US bankruptcy court in Boston.

If the $100 million were equally distributed, the math works out to about $133,000 per victim—but that’s just for starters, according to the attorneys involved. "This preliminary settlement marks a critical milestone in our efforts to maximize recovery for the victims and their families," according to the co-chairs of the creditors’ committee. "We are enormously pleased with what the Trustee and our Committee have accomplished after prolonged negotiations." A plaintiffs committee representative says it is “supportive” of the settlement. Counsel for the creditors’ committee, the law firm Brown Rudnick, stated that the settlement is "a material step in expediting compensation to victims and should bring momentum to the Trustee's and Committee's ongoing and vigorous efforts to add to this victims' fund with settlements from others, including medical care providers and pain clinics that administered the tainted steroids to their patients."

The news release announcing this settlement also tossed in a statement from the NECC owners: “NECC's owners commented that ‘while they deny any liability or wrongdoing, nonetheless they strongly desire to play a major role in establishing a fund for people who died or suffered as a result of this tragic outbreak.’”

Effect of new law?

The meningitis outbreak occurred over the course of 2012 as public health officials noticed a rise in spinal meningitis cases (and other fungal infections) that were traced to shipments of compounded methylprednisolone acetate (a steroid used for back pain, among other applications) from NECC. NECC produced large quantities of the compounded product and then shipped it to clinics and hospitals across the country—a practice that exists in a nether world between traditional pharmacy compounding (in which a pharmacists compounds a product for an individual customer) and drug manufacturing. FDA and state-pharmacy-board inspections of other high-volume compounders led to warning letters and shutdowns at multiple sites (in fact, nearly every one that had been inspected by FDA). That situation—coming after years of politicking and litigation between compounding pharmacies, FDA and Congress, led to passage of the Drug Quality and Security Act (DQSA) in November.

There’s a clear implication that healthcare providers who dispensed the tainted product are at risk—and will be in the future if outsourced, high-volume compounding continues. This will undoubtedly lead to some rethinking of the outsourcing practice, if not at the providers than certainly at their insurers. (The matter is complicated even more because some compounded products also show up on lists of drug shortages, which is a continuing problem for providers.) DQSA sets up a voluntary system for high-volume compounders to undergo FDA inspections, but it remains to be seen whether providers will insist on that level of quality assurance.