When California first passed its Pay for Delay bill, AB 824: Preserving Access to Affordable Drugs, we questioned whether the law could withstand a constitutional challenge, and indeed, the Association for Accessible Medicines (“AAM”) brought such a challenge in November 2019.  For those of you who need a refresher, AB 824 Business: Preserving Access to Affordable Drugs presumes an anticompetitive effect if, as part of a Paragraph IV litigation settlement, an ANDA sponsor receives anything of value in exchange to limiting or foregoing entry of a generic drug product.  “Anything of value” includes an exclusive license or promise that the brand company will not launch an authorized generic version of the RLD, but the term “value” is not specifically defined, leaving room for interpretation (though there are several provisions explaining what the term does not include).  Essentially, AB 824 shifts the burden from the government to demonstrate that a settlement is anticompetitive to the parties to show that it is not anticompetitive, making it significantly easier for the government to challenge these settlements—regardless of whether the parties do business in California.

AAM sued the state of California in November 2019 seeking an injunction staying the implementation of AB 824 on January 1, 2020, primarily alleging that AB 824 violates the Dormant Commerce Clause because it applies to parties outside of California.  Other arguments posed included federal preemption, violation of the Eight Amendment to the U.S. Constitution (Excessive Fines Clause), and breach of procedural due process rights.  On December 31, 2019, the Eastern District of California denied AAM’s request for a preliminary injunction on ripeness grounds “due to the nature of Plaintiff’s pre-enforcement attack on AB 824.”  The Court was sympathetic to AAM’s arguments, explaining that AB 824 as applied may very well violate the Dormant Commerce Clause, but denied the injunction because it was, at the time, too speculative.

AAM didn’t take that setback lying down:  in January 2020, AAM filed an interlocutory appeal, challenging the denial of its motion for preliminary injunction in the Ninth Circuit.  On July 24, 2020, the Ninth Circuit denied the interlocutory appeal on the basis of standing.  In a short and quick Memorandum Opinion, the Ninth Circuit dismissed AAM’s appeal because it has not shown a “substantial risk” that AB 824 will cause any member to suffer an injury in fact.  Though the lower court made its decision based on ripeness, the Ninth Circuit focused on standing.  The Court acknowledged its departure from the lower court and explained that standing and ripeness basically “boil down to the same question.”  Given this, the Court analyzed the case under the Article 3 standing criteria.

The Ninth Circuit explained that, under the Supreme Court’s standing analysis, AAM was required to show that it (1) suffered a concrete, particularized, and actual or imminent injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision.  In this instance, the Court explained, where the injury in fact is the enforcement of an allegedly unconstitutional statute, the plaintiff satisfies the injury-in-fact requirement by alleging an intent to engage in a course of conduct under which a credible threat of prosecution exists.  AAM, the Court determined, failed to show that AAM members intent to enter into settlements “of the sort prohibited by AB 824.”  As such, the Court noted, “AAM has not shown that there is a ‘substantial risk’ that AB 824 will cause any of its members to suffer injury that is concrete, particularized, and imminent.”  Next, the Court explained that AAM members have not established economic injury due to complying with AB 824, which would require foregoing pay-for-delay settlements or litigating patent-infringement suits to judgment.  The possible future injury is not enough to establish a substantial risk of harm.

As we (and the Eastern District of California) explained previously, AAM still has plenty of ammunition for an “as-applied” challenge.  Once AB 824 has been applied to an AAM member (or other putative plaintiff), the constitutionality of the law can be challenged again.  But this means that parties looking to settle have to worry about proving the settlement is not anticompetitive, providing confidential commercial information to a government in which the parties may not even do business, and potentially litigating the findings with California before a settlement can be finalized.  Regardless of the actual content of the settlement, this is inherently burdensome on industry and has the potential delay settlements and eventual market access.  This is what California wanted: the bill was intended to discourage certain patent infringement settlements.  But it does more because the burden it puts on industry actually discourages most, if not all, patent infringement settlements between sponsors and generics.  With any luck, the state of California will see the District Court’s original decision as a “how not to” guide to enforcing the law, but for now, we wait until California actually tries to enforce (or a settlement is actually delayed because of the law) to see what happens.

Last week, in what has become an annual ritual, the House of Representatives voted 254-163 (222 of 228 Democrats, 31 of 188 Republicans) to approve an amendment prohibiting the Department of Justice (“DOJ”) from using appropriated funds to enforce federal laws against authorized marijuana activities that are legal under state, territorial or tribal law.  Representative Earl Blumenauer (D-Oregon), founder and co-chair of the Congressional Cannabis Caucus, co-sponsored the amendment to H.R. 7617, the Department of Defense Appropriations Act of 2021, with Representatives Tom McClintock (R-California), Eleanor Holmes Norton (D-District of Columbia) and Barbara Lee (D-California).  Blumenauer explained “[a]s we work to ultimately end the senseless prohibition of cannabis and the failed war on drugs, these amendments will help ensure the protection of legal state, territory and tribal cannabis programs.”  Press Release, Offs. of Rep. Earl Blumenauer, House Approves Blumenauer Amendment to Protect Cannabis Programs (July 30, 2020).

The Blumenauer Amendment prohibits DOJ, which includes the Drug Enforcement Administration and other agencies, from using any funds “to prevent any … [state, territory or Indian tribe] from implementing their own laws that authorize the use, distribution, possession, or cultivation of marijuana.”  H.R. Rep. 116-461, at 51.

In recent years, a majority of states, the District of Columbia, Puerto Rico, Guam and the U.S. Virgin Islands have approved medical cannabis programs and over a dozen states have legalized adult use of cannabis.  But marijuana remains a schedule I controlled substance federally.  21 U.S.C. § 812(c)(10).  Schedule I substances under the federal Controlled Substances Act (“CSA”) have a high potential for abuse, have no currently accepted medical use in treatment in the U.S. and lack accepted safety under medical supervision.  21 U.S.C. § 812(b)(1).  Idaho, Kansas, Nebraska, and South Dakota have no approved medical cannabis programs nor do they allow recreational cannabis use.  The Blumenauer Amendment therefore does not cover cannabis activities in those states and would not cover any cannabis activities that those states may authorize.

Congress has attached similar riders to appropriations bills since 2014 shielding medical cannabis activities that are legal under state law from DOJ enforcement of the federal CSA.  Then-Attorney General Jeff Sessions urged congressional leaders not to renew the amendment in 2017.  Letter from Jeff Sessions, Att’y Gen., to Mitch McConnell, Sen.; Charles Schumer, Sen.; Paul Ryan, Rep.; and Nancy Pelosi, Rep. (May 1, 2017).  We are not aware if Attorney General William Barr has taken a position on the amendment.  We note that the current amendment would expand protection of medical cannabis programs to also include recreational cannabis operations.

The Blumenauer Amendment continues efforts to provide some comfort to those in the industry that federal law enforcement will not take enforcement action against them if their activities are authorized and legal under state law.  However, because the amendment now includes recreational cannabis operations, that comfort may be short-lived or abbreviated as the Defense Appropriations bill moves to the Senate and may itself be amended in whole or in part.

Our post was a day too early.  Yesterday, we posted an article on a D.C. Circuit decision upholding CMS’s payment cuts to hospitals for drugs purchased under the 340B Drug Discount Program.  We wrote in that post that CMS was expected very soon to issue its proposed rule on the Hospital Outpatient Prospective Payment System (HOPPS) for 2021, and that the Court’s decision opened two options for CMS: continuing to implement its current ASP minus 22.5% rate for 340B drugs in 2021; or basing payment rates to hospitals for 340B drugs on CMS’s recent survey data on drug acquisition costs, which could result in even larger cuts.  CMS did indeed issue its HOPPS proposed rule very soon – today –  and somewhat surprisingly, CMS did not choose between these options but instead proposed them as two alternatives.

As predicted, CMS used its acquisition cost data gathered in a survey of 1,422 340B hospitals in April and May of this year to arrive at an average acquisition cost of ASP minus 34.7%.  To this amount CMS proposes to add a 6% add-on for handling, storage, and other overhead (similar to the add-on for non-340B drugs under Medicare Part B), for a net payment rate of ASP minus 28.7%.  However, referring to its win in the D.C. Circuit last Friday, CMS argues, as it did successfully to the Court, that its current ASP minus 22.5% payment rate also represents a reasonable interpretation of the statute.  The result is that the two payment rates, ASP minus 28.7% and ASP minus 22.5%, are proposed as alternatives.  The likelihood of an ASP+6% rate for 340B drugs (i.e., zero cuts) has faded as a result of CMS’s use of survey data, which would be authorized under the statute even if the hospitals requested reconsideration by the D.C. Circuit and won.

Excluded from the payment cuts would be children’s hospitals, PPS-exempt cancer hospitals, and rural sole community hospitals, which would preserve their payment rate of ASP+6% for 340B drugs and other separately paid drugs.  See pp. 296-323 of the preamble.  The deadline for comments on the HOPPS proposed rule is October 5, 2020.

In December 2018, we reported on a decision of the Federal District Court for the District of Columbia enjoining CMS from implementing a 28.5% cut in Medicare Part B drug payments to hospitals that purchase drugs under the 340B Drug Discount Program.  On Friday, July 31, the D.C. Circuit reversed that decision.  Both courts applied the Chevron analysis for evaluating the lawfulness of an agency’s interpretation of the statute it administers, but they came to opposite conclusions.  Whereas the lower court had held that the extent of the cuts exceeded CMS’s authority under 42 U.S.C. § 1395l(t)(14)(A)(iii)(II) (“Clause II”) to “adjust” average prices in setting payment rates, the D.C. Circuit concluded that CMS’s interpretation of Clause (II) was not directly foreclosed by the statute and was therefore entitled to deference if reasonable.  The court found that CMS’s interpretation was reasonable, since there was no limit on “adjustments” that may be made under Clause (II), CMS adopted the cuts pursuant to notice and comment rulemaking, and the hospitals did not dispute that the 28.5% reduction (from average sales price (ASP) plus 6% to ASP minus 22.5%) would bring payment rates in line with actual drug acquisition costs under the 340B program.  The court rejected the hospitals’ argument that, under Clause (II), CMS could make only minor adjustments for overhead costs, and could not target 340B hospitals for cuts but not other hospitals.  It is possible that the hospitals will request reconsideration or reconsideration en banc, which must be done within 45 days.

This decision comes at a time when CMS is expected very soon to issue its proposed regulation on the Part B hospital outpatient prospective payment system (“HOPPS”) for 2021, which raises speculation about what action CMS will now take regarding hospital payment for 340B drugs.  CMS had issued the 28.5% cuts in 2018 and 2019, but the 2018 cuts were enjoined by the lower court decision in December 2018, and that court extended its injunction to the 2019 cuts in an opinion issued in May 2019.  Despite the lower court decision, CMS doubled down and maintained the cuts in the 2020 HOPPS rule while the government pursued its appeal.  CMS explained in the preamble to that rule that the lower court decision prohibited CMS from implementing the cuts as an “adjustment” to average prices under Clause II, but CMS was still permitted to reduce rates based on acquisition costs obtained through survey data under 42 U.S.C. 1395l(t)(14)(A)(iii)(I) (“Clause I”).  Accordingly, CMS explained that, if the government lost on appeal, CMS would either use hospital survey data to estimate acquisition costs under Clause I, or rely on solicited public comments to fashion a different remedy for the rates found unlawful under Clause II.  See 84 Fed. Reg. 61142, 61322 (Nov. 12, 2019).  In the meantime, hedging its bets, CMS conducted a survey of hospital acquisition costs for 340B drugs in April-May 2020 with an eye toward a Clause I rate setting.

The D.C. Circuit’s decision now opens two options for CMS: (1) the Clause II option of continuing to implement the 28.5% cuts for 2021 and subsequent years; or (2) the Clause I option of basing payment rates for 340B drugs on the new survey data on drug acquisition costs, which could result in even larger cuts.  A third possibility depends on the November election.  A newly elected Biden Administration could order the withdrawal of the payment reductions so as to avoid further financial stress on 340B safety net hospitals during the COVID 19 pandemic.  We will update our readers in the near future when CMS issues its proposed HOPPS rule for 2021.

On July 29, 2020, DEA published a Notice of Proposed Rulemaking titled, “Reporting of Thefts or Significant Loss of Controlled Substances.”  (85 Fed. Reg. 45547 (Jul. 29, 2020)). See Federal Register notice here.  As registrants are well aware, the current DEA regulation addressing reporting to DEA of thefts and significant losses of controlled substances requires applicable registrants to submit in writing an “initial notification” of a theft or significant loss to the Field Division Office of Administration in his or her area, within one business day of discovery.  Next, the registrant must complete, and submit to the Field Division Office in his or her area, a DEA Form 106 regarding the loss or theft.  There is currently no time limitation for when the DEA Form 106 must be submitted.  Registrants regularly submit a Form 106 upon completion of their internal investigation concerning the theft or loss, and then provide updates to the DEA Field Division to the extent that the registrant learns new facts or circumstances surrounding the same.  The DEA Form 106 currently may be submitted either in writing (hard copy) or electronically.

DEA proposes to amend the rule to require the registrant to file a “complete and accurate DEA Form 106 with the Administration through the DEA Diversion Control Division secure network application within 15 calendar days after discovery of the theft or loss.”  (Emphasis added.) 85 Fed. Reg. at 45551.  While we indeed applaud DEA’s proposal to require electronic submissions (as DEA states 99.5 percent of all Form 106’s are already reported electronically), we are curious that DEA seems to be requiring the submission of a “complete and accurate” Form 106 within 15 days of discovery of the theft or significant loss.  While this may seem unimportant or even obvious, if the registrant cannot complete the investigation into the significant loss or theft within the 15-day period, then that submission will not, in fact, be “complete” or even “accurate.”

We assume DEA will accept supplemental Form 106’s after the initial 15-day clock has expired.  We also assume that a registrant will be permitted to supplement its initial Form 106 to correct any “inaccurate” or “incomplete” information included in the initial Form 106 submission based on the later discovery of additional facts or upon completion of an investigation.  Note that DEA is still requiring the submission of an Initial Notification of a theft or significant loss – in writing– within one business day of discovery.  DEA’s regulation on the Initial Notification remains unchanged, so a registrant may still submit it in writing to the appropriate DEA Field Division.

DEA also states in its Notice that the proposed amendment would clarify the submission process by aligning it with the current requirements of reporting losses or disappearance of listed chemicals on a DEA Form 107 and not accepting physical copies. DEA Form 107 also must only be submitted electronically, within 15 days of discovery of the circumstances requiring the report.

DEA seeks comments from industry on the following:

• Whether the proposed collection of information is necessary for the proper performance of the functions of DEA, including whether the information will have practical utility.
• The accuracy of DEA’s estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used.
• Recommendations to enhance the quality, utility, and clarity of the information to be collected.
• Recommendations to minimize the burden of the collection of information on those who are to respond, including through the use of automated collection techniques or other forms of information technology.

Registrants must submit comments to OMB (include RIN 1117-AB57/Docket No. DEA–574 on the submission) on or before September 28, 2020.

An interesting aspect of a federal or state administrative agency seeking appropriations or raising fees is its justification for doing so and the light it sheds on the priorities for fulfilling its mission.  The Drug Enforcement Administration’s (“DEA’s”) recent increase of initial registration and renewal fees, through its Notice of Proposed Rulemaking, (Registration and Reregistration Fees for Controlled Substance and List I Chemical Registrants, 85 Fed. Reg. 14,810 (Mar. 16, 2020)) and Final Rule, (Registration and Reregistration Fees for Controlled Substance and List I Chemical Registrants, 85 Fed. Reg. 44,710 (July 24, 2020)) is no exception.  In addition to raising fees, DEA also codifies the conditions under which it will now refund registration fees.

Raising Registration Fees

DEA asserts that increasing controlled substance and chemical registrant fees is necessary to recover the full costs of the Diversion Control Program (“DCP”) “so it can continue to meet the programmatic responsibilities set forth by statute, Congress, and the President.”  Without the fee increases, DEA continues, “the DCP will be unable to continue current operations, necessitating dramatic program reductions, and possibly weakening the closed system of [controlled substance] distribution.”  Fed. Reg. 44,717.

The Controlled Substances Act (“CSA”), while authorizing DEA “to charge reasonable fees relating to the registration and control of the manufacture, distribution, and dispensing of controlled substances and listed chemicals” also requires the agency to set fees “at a level that ensures the recovery of the full costs of operating the various aspects of” the DCP.  21 U.S.C. §§ 821, 886a(1)(C).  So, DEA must set registration fees that are not only “reasonable” but which also cover all costs of the DCP.

DEA most recently increased registration fees in March 2012 to cover the “full costs” of the DCP for Fiscal Years 2012 through 2014.  DEA has determined that it must increase its total collections by 21 percent to fund the DCP for Fiscal Years 2021 through 2023.  Fed. Reg. 44,721.

DEA cites the following activities as factors justifying the fee increase:

• Continuing to address the nationwide opioid abuse crisis;
• Managing and supporting the growing registrant population, expected to rise from 1.4 million in 2012 to over 2 million by 2023, through inspections, registration improvements, enhanced information technology, education and outreach;
• Fulfilling expanded responsibilities and scope, that include promulgation, implementation and enforcement of regulations due to legislative amendments to the CSA by:
  • The Designer Anabolic Steroid Control Act of 2014 (providing for temporary and permanent scheduling of anabolic steroids);
  • The Comprehensive Addiction and Recovery Act of 2016 (expanding the type of practitioners who can dispense narcotic drugs for maintenance or detoxification treatment);
  • The Protecting Patient Access to Emergency Medications Act of 2017 (creating emergency medical service agencies as a new registration category with recordkeeping and handling requirements); and
  • The Substance Use-Disorder Prevention That Promotes Opioid Recovery and Treatment for Patients and Communities Act (addressing the opioid epidemic in a number of ways including establishment of a centralized database for suspicious order reports and providing manufacturer and distributor access to ARCOS data);
• Increasing scheduled regulatory inspections of various registrant types;
• Increasing education and outreach;
• Identifying additional sources of diversion;
• Collaborating investigations with state and local entities;
• Expanding the use of Tactical Diversion Squads (“TDSs”) (comprised of DEA diversion investigators and special agents, state and local law enforcement and regulatory officers conducting criminal investigations);
• Scheduling drugs of abuse;
• Establishing controlled substance and listed chemical quotas; and
• Employing sufficient personnel to fulfill DEA’s regulatory and enforcement mission. Reg. 14,814-14,819.

As of the end of Fiscal Year 2019, DEA employed 86 TDSs, 87 Diversion Groups, 15 Diversion Staff employees and 16 TDS Extensions (2 DEA special agents) around the country.  DEA estimates that it will need 94 TDSs, 95 Diversion Groups, 10 Diversion Staff employees and 10 TDS Extensions by the end of Fiscal Year 2023.  Fed. Reg. 44,720.

Fee Calculation Methodology

DEA considered three methodologies for determining reasonable fees for each registrant category to cover DCP costs during Fiscal Years 2021 through Fiscal Year 2023.  DEA decided to continue using Weight-Ratio methodology that has been in use since Congress established registrant fees and because it remains “a reasonable reflection of differing costs.”  Fed. Reg. 44,725.  The Weight-Ration methodology assigns fees to the different registrant categories based on DEA’s general historical cost data expressed as weighted ratios.  The different fees are expressed in ratios: 1.0 for researchers, canine handlers, analytical labs, and narcotics treatment programs; 3.0 for registrants on three-year registration cycles including pharmacies, hospitals/clinics, practitioners, teaching institutions, and mid-level practitioners; 6.25 for distributors and importers/exporters; and 12.5 for manufacturers.  Fed. Reg. 44,724-25.  Fees under the Weighted-Ratio methodology result in different fees for each registrant group in which “registrants with generally larger revenues and costs pay higher fees than registrants with lower revenues and costs.”  Fed. Reg. 44,725.

DEA considered a Flat Fee methodology that would have set the same fee for all registrants.  This methodology would not take into account the proportion of DCP costs and resources, such as cyclic inspections, that certain registrant categories require.  DEA concluded that calculating fees using this methodology is “not reasonable” as required by the CSA as the disparity among registrant would be “too great,” resulting in reduced fees for manufacturers and distributors by 90 percent and 80 percent, and increase practitioner fees by 23 percent.  Fed. Reg. 44,722-23.

DEA also considered a Past-Based methodology that would use historic DEA investigative work hour data to apportion the cost to each registrant type.  DEA determined that Past-Based methodology would disproportionately burden a small number of registrants, finding that Narcotic Treatment Program fees would increase by 856 percent, while changes for the other registrant groups would range from a 44 percent decrease to an increase of 131 percent.  DEA characterized the Past-Based methodology as “backward looking” and could not assume that the agency’s future workload would reflect past work hour data.  Fed. Reg. 44,723-44,725.

The New Fees

DEA’s new initial registration and renewal fees for each three-year and annual registration cycle registrant category is as follows:

Current and New Fees for Three-Year Cycle Registrants

Current and New Fees for Annual Cycle Registrants

Fed. Reg. 44,718.

DEA received twelve comments received in response to the proposed fee increases.  Five comments were outside the scope.  Two comments supported the fee increases in part while the remaining five expressed concern.

DEA will begin collecting the increased fees for new applications and renewal applications submitted on and after October 1, 2020.  Fed. Reg. 44,710.

Fee Refunds

In addition to establishing new registration fees, DEA also amended 21 C.F.R. §§ 1301.13(e) and 1309.12(b) to “codify existing practices” for issuing controlled substance and chemical registration fee refunds.  Fed. Reg. 44,718, 44,732, 44,734.  Although registration fees are “generally . . . not refundable,” DEA recognizes the need to refund fees as they increase.  The DEA Administrator now has discretionary authority to refund fees in limited circumstances, that include: applicant error such as making duplicate payments for the same renewal, incorrect billing or transposing incorrect credit card digits, payments for incorrect business activities or payments by exempt registrants; DEA error such as incorrectly advising that a new application was needed, or to submit payment for a wrong business activity; and death of a registrant within the first year of the three-year registration cycle.  Fed. Reg. 44,718.

DEA will identify the process for obtaining refunds on the DCP website.

On July 21, 2020, the U.S. Food and Drug Administration (FDA) announced in a letter of enforcement discretion that it does not intend to object to the use of certain qualified health claims regarding consumption of certain cranberry products and a reduced risk of recurrent urinary tract infection (UTI) in healthy women.

A health claim characterizes the relationship between a substance and a disease or health-related condition. Under the law, FDA may authorize health claims provided that there is significant scientific agreement (SSA) that the claim is supported. In 2017, a Petition submitted on behalf of Ocean Spray Cranberries, Inc. requested that FDA authorize a health claim regarding the relationship between the consumption of cranberry products and a reduced risk of recurrent UTI in healthy women.  FDA determined that the evidence supporting the claim did not meet the SSA standard for an authorized health claim, and, early in 2018, the Petitioner agreed to have the Petition treated as a qualified health claim petition.

As described in FDA’s letter of enforcement discretion, FDA will not object to claims regarding the consumption of cranberry juice beverages containing at least 27 percent cranberry juice, provided that claims include a qualifier that there is limited and inconsistent evidence showing that daily consumption of 8 fl ounce of a cranberry juice beverage reduces the risk of recurrent UTI in healthy women.

For cranberry dietary supplements, FDA will also exercise enforcement discretion for a claim about the relationship between the consumption of cranberry dietary supplements containing at least 500 milligrams (mg) of cranberry fruit powder (100% fruit) and the reduced risk of recurrent UTIs in healthy women provided the claim specifies that the claim is supported by limited scientific evidence.

The letter of enforcement discretion is effective immediately, i.e., the qualified health claims may be used immediately in the labeling of eligible products.

On Friday, July 24, Donald Trump signed three Executive Orders addressing the high prices of prescription drugs, and threatened to sign a fourth if drug manufacturers do not put forward acceptable proposals for reducing prices.  For the most part, these Orders recycle proposals previously issued by the Department of Health and Human Services (HHS), and their implementation will require rulemaking by that agency.  Nevertheless, it is significant that Trump has now very publicly thrown his weight behind these approaches, all of which are likely to carry momentum regardless of the results of the November election.  The three executive orders and the possible fourth are described below.

Executive Order on Importation of Drugs

One Executive Order directs HHS to complete its rulemaking process to permit the importation of certain drugs from Canada – something that HHS is doing anyway.  HHS issued a proposed rule in December 2019 that would implement Section 804 of the Federal Food, Drug, and Cosmetic Act (FDC Act) to allow FDA-authorized entities to import certain prescription drugs from Canada.  We reported on this proposed rule here.  HHS’s regulatory agenda identifies December 2020 as the expected time of finalization.

The Executive Order also directs HHS to grant waivers of the prohibition on importation of prescription drugs for the personal use of individuals, provided that the importation poses no additional risks to public safety and results in lower costs to American patients.  This is merely a reiteration of FDC Act section 804(j)(2), which authorizes such waivers with the same provisos.  HHS has never yet certified that waivers under Section 804(j)(2) pose no additional risks to public safety and result in lower costs to American patients.  In fact, when HHS issued the proposed rule described above in December 2019, it specifically declined to implement Section 804(j), citing problems with rogue on-line Canadian pharmacies.  It is unclear whether HHS is prepared to change its outlook now.  If it is, HHS would presumably issue another proposed regulation to implement Section 804(j) and set forth the procedures for obtaining waivers.

Finally, this Executive Order authorizes HHS to permit the re-importation of insulin under FDC Act Section 801(d) upon a finding by HHS that it is required for emergency medical care.  Once again this merely reiterates FDC Act Section 801(d), which has provided HHS with such authority since 1997.

Executive Order on PBM Rebates

On February 6, 2019, the Office of the Inspector General (OIG) of HHS published a proposed rule designed to eliminate the current antikickback law safe harbor protection for rebates paid by drug manufacturers to pharmacy benefit managers (PBMs), and replace it with a new safe harbor protecting manufacturer discounts provided to federal program beneficiaries at the point of sale.  We reported on that proposal here.  HHS withdrew this proposed regulation on July 10, 2019 following a May report by the Congressional Budget Office (CBO) that the rule, if finalized, would increase federal spending by about $177 billion over a ten-year period while increasing premiums for Medicare Part D enrollees.

This Executive Order directs HHS to revive and complete the rulemaking process, but only after confirming “that the action is not projected to increase Federal spending, Medicare beneficiary premiums, or patients’ total out-of-pocket costs.”  In light of the CBO’s findings in May 2019, it appears doubtful whether such confirmation is possible.

Executive Order on Dispensing of Insulin and Epinephrine by FQHCs

The third Executive Order provides that Federally Qualified Health Centers (FQHCs) must provide insulin and self-injectable epinephrine to low income individuals at discounted prices.  FQHCs, which are community-based health care providers that receive funds from HHS to provide primary care services in underserved areas, currently purchase these drugs (among many others) at a statutory discount under the 340B Drug Discount Program.  However, FQHCs are not currently required to provide these drugs to patients at the discounted price.  The Executive Order directs HHS to ensure that FQHCs make these drugs available to their patients at their cost plus a minimal administration fee.

Possible Executive Order on International Reference Pricing

The fourth Executive Order will peg drug payment by Medicare (and perhaps other payors) to prices in foreign countries.  This Order once again recycles a previous HHS proposal – this time, an October 30, 2018 Advance Notice of Proposed Rulemaking (ANPRM), which we reported on here.  The 2018 ANPRM would provide for drug payment rates under Medicare Part B to be based on an international pricing index derived from prices in 14 foreign countries.  To date, the ANPRM has not reached the proposed regulation stage.  A similar international reference price approach is included in H.R. 3, the drug pricing bill passed by the House on December 12, 2019.

The details of this Executive Order are not known, because Donald Trump did not actually sign and issue it.  Instead, he threatened to sign it on August 24 at noon (“not 12:01”) unless drug manufacturers put forward proposals to significantly reduce drug prices before then.  In his remarks, Trump said he will be meeting with the heads of the major drug manufacturers on Tuesday, July 28, to discuss pricing.

On July 8, the Agricultural Marketing Service (AMS) of the U.S. Department of Agriculture (USDA) published in the Federal Register its notice on the issuance of final guidance to assist regulated entities in complying with the National Bioengineered (BE) Food Disclosure Standard (Standard).  AMS previously announced the publication of these guidances on its website.  The guidances concern Guidance to Ensure Acceptable Validation of a Refining Process, a frequently asked question (FAQ) document regarding this validation guidance, Guidance on Testing Methods, and an FAQ document pertaining to the testing method guidance.

Under the Standard, regulated entities must make a BE food disclosure if they are using a food on the AMS List of BE Foods (the List), or a food produced from an item on the List unless they maintain records to demonstrate that modified genetic material is not detectable.  If regulated entities do not maintain the required records and do not want to create them, they must make a BE food disclosure.

The regulated entity has three option to demonstrate that modified genetic material is not detectable:

1. maintain records that demonstrate the food is sourced from a non-bioengineered variety of the crop or source;
2. validate (and keep records) that the refining process removes the modified genetic material, so it is not detectable; or
3. maintain testing records that demonstrate genetic material is not detectable.

The published guidances address options 2 and 3.

Validation of the refining process carries certain benefits.  Once a refinement process has been validated, no further testing is required unless there is a change in the refining process.  The regulated entity must maintain validation data and records that demonstrate that the validated refining process has been used.  A refining process needs to be validated only once and may be applicable to multiple facilities and manufacturers. That said, the validated refining process must be verified continually.  Verification focusses on monitoring steps in the refining process that are key to removal of the genetic material.

AMS notes that the regulated entity is responsible for ensuring that the refining process removes the modified genetic material to below detectable levels.  Neither the regulations nor AMS specify a threshold of minimal detection for rDNA.  Over time, testing methods may evolve and become more sensitive,  detecting increasingly smaller levels of genetic material.  However, this should not be interpreted as requiring continual adjustment of the refining process because the level of detection is moving target.  In the FAQ, AMS states that once a regulated entity has determined that the genetic material is not detectable, the validation is complete.  The regulated entity has no obligation to determine if a more sensitive method shows presence of rDNA.

The alternative way to demonstrate that modified genetic material is not detectable is by testing to demonstrate the absence of modified genetic material.  When using this option, the regulated entity must keep records, such as certificates of analysis, showing that each batch or lot of a food or ingredient was tested and does not contain detectable modified genetic material.  USDA does not recommend a specific test, but the test must be fit for purpose. In the FAQ on testing methods, AMS recommends referencing the International Organization for Standardization (ISO) International Standard Foodstuffs – Methods of analysis for detection of genetically modified organisms and derived products – General requirements and definitions; Codex Alimentarius Commission document CAC/GL 74-2010 Guidelines on Performance Criteria and Validation of Methods for Detection, Identification and Quantification of Specific DNA Sequences and Specific Proteins in Foods; or AOAC Official Methods of Analysis.

AMS reminds regulated entities (and others) that compliance with the Standard is based on recordkeeping and AMS will look at a regulated entity’s records to determine whether they complied with the disclosure requirements of the Standard.

This concludes AMS’s planned work on BE labeling.  Regulated entities should (in theory at least) have the information they might need to handle BE labeling questions, and Hyman Phelps & McNamara is available if you need assistance or have further questions.

On May 20, the Physician’s Committee for Responsible Medicine (PCRM) submitted a Petition to FSIS requesting that FSIS require all meat and poultry establishments to test and report on a weekly basis the number of workers and the number of their family members with presumptive or confirmed SARS-CoV-2 infections and those dying of COVID-19; weekly posting of the number of FSIS inspectors with presumptive or confirmed SARS- CoV-2 infections and those dying of COVID- 19; and requiring a label statement on meat and poultry: “Warning: Workers in the U.S. meat and poultry processing facilitates have been sickened or killed by the SARS-CoV-2 virus, and this product has not been certified virus-free.”

On July 1, after an expedited review, FSIS denied the Petition.  As to the warning statement, FSIS responded that public health and food safety experts have found no evidence to support the notion that COVID-19 is transmitted by meat or poultry products. The Petition referenced a study regarding transmission of viruses via food.  However, as FSIS noted, the referenced study focused on common foodborne viruses, such as norovirus, which can be transmitted by infected food handlers.  SARS-CoV-2 and other coronaviruses are airborne, and the study did not suggest that airborne viruses can be transmitted by meat and poultry products.

The requested warning statement would be misleading because it implies that meat and poultry products that have not been “certified as virus-free” may transmit COVID-19 or are somehow unsafe. Because public health and food safety experts have found no evidence to support the transmission of COVID-19 associated with meat or poultry products (and the Petitioner did not provide any such evidence), the requested warning statement would cause meat and poultry products to be misbranded.

Similarly, it also would not be useful to test meat and poultry for the presence of the virus because there is no evidence of transmission.  The effort and resources spent on testing the meat and poultry would be better used on preventing transmission of COVID-19 in the meat and poultry establishments.

Some of the actions requested were outside the scope of FSIS’s authority.  There is nothing in the law or regulations that gives FSIS the authority to require that FSIS-regulated establishments report information on the health status of employees to public health authorities, or that authorizes FSIS to make information related to the health status of Agency inspectors available to the public.

After a few months’ delay caused by the COVID-19 pandemic, FDA released its blueprint for adapting to ongoing and anticipated changes in the food system, titled New Era of Smarter Food Safety: FDA’s Blueprint for the Future.  The blueprint is the result of discussions that have been underway since last year, and FDA describes it as a work in progress that is subject to change. Nonetheless, the four “core elements” identified by FDA seem likely to remain central to the agency’s strategy for enhancing foodborne illness prevention and response. Those elements are:

• Tech-enabled traceability – FDA’s ultimate goal is “to have end-to-end traceability throughout the food safety system.”  To that end, FDA seeks to foster development of “foundational components” (e.g., adoption of existing consensus standards), encourage industry to adopt new technologies, and leverage “the digital transformation” (e.g., potential internal implementation of blockchain). FDA flags as its first step the completion of rulemaking under section 204 of the Food Safety Modernization Act “to harmonize the key data elements and critical tracking events needed for enhanced traceability.”
• Smarter tools and approaches for prevention and outbreak response – FDA seeks to harness new data streams to “enhance and strengthen root cause analysis and predictive analytics” so as to minimize identified risks, optimize use of resources, and maximize the agency’s “food safety reach.” Specific goals identified in the blueprint include invigoration of root cause analysis; strengthening of capabilities in predictive analytics (e.g., expanded use of artificial intelligence for activities such as screening imported foods); strengthening of mutual reliance with regulatory partners; implementation of additional tools for inspections, training, and compliance (e.g., use of remote/virtual inspections); enhancing response to outbreaks of foodborne illness; and modernization of recalls (e.g., develop guidance on consumer notification).
• New business models and retail modernization – New models of food production and delivery – and continuing risks associated with existing models – are prompting a fresh look at how best to protect against contamination. FDA seeks to ensure food safety as new models are implemented (e.g., home delivery), and modernize retail food safety.
• Food safety culture – The blueprint posits that the burden of foodborne illness cannot be dramatically reduced without behavioral changes. FDA thus seeks to “promote food safety culture throughout the food system” (including among consumers); promote food safety culture throughout FDA itself (e.g., by potentially factoring food safety culture into the frequency of inspections); and educate consumers on the importance of food safety.

In FDA’s view, the experiences of the COVID-19 pandemic only highlighted the need for the blueprint and the need to modernize FDA’s approach –  from “unprecedented imbalances in the marketplace, to changing consumer behaviors and a rise in e-commerce, to challenges to performing inspection and compliance work in FDA’s traditional manner.”

FDA has appointed some familiar senior food staff as team leaders for each of these core elements, who will “help to identify the short and long-term actions to fulfill the goals laid out in the blueprint over the next decade, working in partnership with stakeholders.” In the context of that partnership, the agency may find itself working through thorny questions regarding the limits of its statutory authority, and confronting significant internal and external resource limitations that could hamper the fulfillment of its vision. Given the agency’s description of that vision as a “sea change,” those who haven’t been paying attention and have a stake in the outcome might want to start tuning in.

On July 10th, FDA announced its goal of restarting domestic on-site inspections beginning the week of July 20th.  The regions of the U.S. that will be on the receiving end of these inspections are those that the agency’s rating system demonstrates are the safest for conducting prioritized inspections.  Apparently, the rating system assesses the number of COVID-19 cases in localities based on both state and national data.

The Advisory Level is based upon the outcome of three metrics: Phase of the State (as defined by the White House guidelines) and statistics measured at the county level to gauge the current trend and intensity of infection. When each of these is taken into consideration, the FDA will identify regulatory activities that can occur within the given geographic region. The three main categories of regulatory activity at the county level will be: mission critical inspections only, all inspections with caveats to help protect staff who have self-identified as being in a vulnerable population and resumption of all regulatory activities.

This is all well and good, but the bulk of inspection sites, particularly drug and biologic manufacturing facilities, are outside the United States, and that’s where the major backlog is.  Indeed, according to Congressional testimony provided by FDA officials in June of this year, the U.S. only accounted for one quarter of all Active Pharmaceutical Ingredient (API) manufacturing, and less than half of all Finished Dosage Form (FDF) manufacturing.

It remains unclear when on-site foreign drug and biologic inspections will resume, but arguably, FDA should be able to restart those soon based on the same principles FDA has outlined above regarding domestic inspections.  In countries where the testing is widespread and reliable, where epidemiological information from such governments can be trusted, and where the data shows an analogous concentration of COVID-19 cases as what is considered acceptable for domestic inspections, FDA should be able to resume on-site foreign inspections.  Of course, FDA investigators will need to be able to get to their foreign destinations, meaning that the entry of Americans into the countries in question will need to be permitted.

Failing a resumption of foreign on-site inspections soon, it is unclear what FDA’s plan is to resolve the existing backlog, and that is presumably worsening by the week.  As a result of the COVID-19 pandemic, FDA suspended foreign on-site inspections in early March of this year, except for those deemed “mission critical.”

It is also reasonable to assume that this suspension in inspections has, or will soon be, worsening the drug shortage situation, as foreign manufacturing facilities that have been designated by FDA as Official Action Indicated (OAI) are generally unable to obtain approval of Abbreviated New Drug Applications, New Drug Applications and Biologics License Applications without an improvement in facility status to Voluntary Action Indicated (VAI).  Furthermore, these facilities are hampered from taking on new drug development opportunities as sponsors are reluctant to risk contract manufacturing with a facility for which they do not see a plausible end to OAI status (i.e., little chance for quick FDA re-inspection).

Furthermore, FDA appears unwilling, or unable, to use its statutory authority under section 706 of Food and Drug Administration Safety and Innovation Act (FDASIA) (codified at 704(a)(4) of the Federal Food, Drug, and Cosmetic Act (FDCA)) to conduct so called “record review” to resolve the OAI status at these facilities.

(4)(A) Any records or other information that the Secretary may inspect under this section from a person that owns or operates an establishment that is engaged in the manufacture, preparation, propagation, compounding, or processing of a drug shall, upon the request of the Secretary, be provided to the Secretary by such person, in advance of or in lieu of an inspection, within a reasonable timeframe, within reasonable limits, and in a reasonable manner, and in either electronic or physical form, at the expense of such person. The Secretary’s request shall include a sufficient description of the records requested. [emphasis added]

Indeed, FDA officials have been quoted over the past few weeks as saying that if the FDA is not on-site at the manufacturing facility, then whatever remote FDA facility review takes place “cannot be an inspection” for purposes of the FDCA, and therefore presumably cannot resolve a firm’s OAI status.  That seems like an unduly restrictive interpretation of the agency’s statutory authority.  Arguably, if FDA had maintained such a restrictive construction of the FDCA over the 80 years since its enactment, the agency would have had to abandon some of the authority it currently exercises and takes for granted.

In summary, one of three occurrences are likely over the coming months: either on-site foreign inspections will resume; FDA will loosen its overly restrictive interpretation of section 704(a)(4) of the FDCA regarding “record review”; or we can expect a worsening of America’s drug shortage and a slowing of the availability of new drugs.  Here’s hoping that it won’t be the latter.

Back in the Spring, one of the first COVID-related guidances FDA issued was on the conduct of clinical trials during the COVID-19 emergency.  This guidance was updated with a Q & A section just a week later (see our blog posts here and here) and several times thereafter.  On July 2, 2020, FDA issued another update to its guidance on “Conduct of Clinical Trials of Medical Products during COVID-19 Public Health Emergency”.

The Q & A Appendix has been updated by the addition of a new question and revisions to existing questions concerning the informed consent process.  These changes expand on and clarify previously suggested methods to obtain informed consent in certain scenarios that have become routine among patients suffering from COVID-19 and recognize the limitations on face-to-face interactions and the retention of paper copies imposed by infection control protocols being implemented in many hospitals.

For hospitalized patients in isolation, the guidance provides for two alternative methods of obtaining and documenting informed consent from a hospitalized patient in isolation if the infection-control procedures prevent the collection of the usual signed consent form.  One alternative is to have a photograph of the signed informed consent transmitted to the clinical trial staff following a telephone or video conference call between the patient and investigator or designee (and any others requested by the patient if feasible), during which the patient has a copy of the consent document and the investigator or designee reviews the consent document with the patient and answers questions.  The patient must state their consent and affirm that they have signed and dated the consent form.

The second method is an alternative for use when a photograph of the signed consent form cannot be transmitted.   In this case, the call between the patient and investigator or designee includes a witness who is otherwise unconnected to the study, as well as others requested by the patient, if feasible.  In lieu of using a witness, the call can be recorded.  As with the first method, the patient will have a copy of the consent document and the investigator or designee will go through the consent document and answers questions, and the patient will affirm verbally that they consent and have signed and dated the form.

In each of the scenarios above, the prospective trial participant has a paper or electronic copy of the consent form that can be signed physically or electronically.  A new question-and-answer (Q12) has been added to the guidance to address obtaining informed consent from a prospective trial participant when:

• the enrollment timeframe is limited such that providing a physical copy of the consent form via mail or courier is not feasible;
• the patient can receive a copy of an informed consent document electronically; and,
• the patient cannot sign it electronically or print it out for signature.

The guidance outlines the steps that must be taken to obtain and document informed consent in this scenario.

The updated guidance also describes what records of these varying consenting procedures must be retained by the clinical trial staff.

Earlier this year FDA established an email box for receipt of questions on clinical trial conduct during the COVID-19 emergency: Clinicaltrialconduct-COVID19@fda.hhs.gov.

On July 7, 2020, a unanimous panel of the D.C. Circuit held that FDA violated the Tobacco Control Act (TCA) and the Administrative Procedure Act by failing to study whether the extensive health warnings required on cigars would actually lower the number of smokers in promulgating the regulation “Deeming Tobacco Products to Be Subject to the FDCA,” 81 Fed. Reg. 28,973 (May 10, 2016) (the Deeming Rule).  In Cigar Association of America, et al. v. FDA, No. 18-5195 (D.C. Cir. July 7, 2020), the panel said that while the FDA did conclude that the warnings would help convey the health risks of smoking, they were required to consider how the warnings would likely affect the number of smokers, but did not do so. The panel determined that because the FDA failed to consider that question, they acted arbitrarily and capriciously.  The court did not address the First Amendment challenge to the required warnings, indicating that their “analysis begins, and ends, with the plaintiffs’ statutory claims.”

This decision is an appeal of a 2018 ruling by the federal district court in D.C., which found that the regulation was lawful and the required health warnings on cigars did not violate the First Amendment since they are aimed at informing the public of health risks. 315 F. Supp. 3d 143 (D.D.C. 2018). On the First Amendment question, the district court applied the standard set forth in the U.S. Supreme Court’s 1985 ruling in Zauderer v. Office of Disciplinary Counsel of Supreme Court of Ohio, and held that the warnings are factual, uncontroversial disclosures meant to disseminate information about the risks of smoking cigars, and to correct public misperceptions about the use of cigars and pipe tobacco.

Under the TCA, which amended the Federal Food Drug and Cosmetic Act (FDCA), Congress directed the agency to establish a comprehensive regulatory scheme for tobacco, and requires the FDA to consider the impact of any tobacco regulation on smoking cessation and adoption rates. The 2016 Deeming Rule which extended the FDA’s authority over tobacco products and requires warnings statements on tobacco products, did not consider the impact of warnings on smoking cessation, according to the appeals panel. “In fact, the rule scrupulously avoids that issue, and the FDA barely even contends otherwise,” the panel said.  Indeed, the FDA acknowledged in the Deeming Rule’s Final Regulatory Impact Analysis that “[r]eliable evidence on the impacts of warning labels . . . on users of cigars, pipe tobacco, waterpipe tobacco, and [electronic nicotine delivery systems] does not, to our knowledge, exist.”

The appeals court ultimately determined that “[b]y its terms, section 906(d)(1) [of the FDCA] required the FDA to “tak[e] into account” whether the warning requirements would affect the number of smokers.  Because the FDA declined even to consider that question, it violated section 906(d)(1) and acted arbitrarily and capriciously.”

We will keep you informed of this case as it is remanded back to district court.

On June 22, 2020, the Eastern District of California entered a permanent injunction barring enforcement of the Proposition 65 (Prop 65) cancer warning requirements for glyphosate.  Those familiar with Prop. 65 know that a win for industry battling Prop 65 is a rare event.

California Proposition 65, the Safe Drinking Water and Toxic Enforcement Act of 1986, is a state law that requires that the Governor of California publish a list of chemicals (the Prop 65 list) known to the State to be a reproductive toxicant or to cause cancer, as determined by certain authoritative entities, including the United States Environmental Protection Agency (EPA) and the International Agency for Research on Cancer (IARC).  Prop 65 prohibits businesses from knowingly exposing individuals to listed substances without providing a clear and reasonable warning

In 2017, after the IARC classified glyphosate as “probably carcinogenic” to humans based on evidence that it caused cancer in experimental animals and could cause cancer in humans, the substance was added to the Prop 65 list as a cancer-causing chemical.  IARC’s determination was inconsistent with determinations by other authorities, such as the EPA and the European Commission, which had concluded that glyphosate is not likely to be carcinogenic in humans.  In fact, IARC was the only entity that determined that glyphosate was a probable carcinogen.

On November 14, 2017, Plaintiffs Monsanto and several farming associations sued the State of California alleging that the listing of glyphosate under Prop 65 as a carcinogen, and the resulting warning requirements, violated Plaintiffs’ First Amendment rights by forcing them to make “false, misleading, and highly controversial statements.”  The Court initially entered a preliminary injunction precluding enforcement of the warning rules.

The Court considered whether California’s regulation of commercial speech should be scrutinized under the standard set by the Supreme Court in Zauderer v. Office of Disciplinary Counsel or under the intermediate standard set by Central Hudson Gas & Electric v. Public Service Commission.  The Zauderer standard applies to mandatory disclosure of “purely factual and uncontroversial information.” In light of the inconsistency between the finding of IARC and others, such as EPA, the Court found that the Prop 65 warning for glyphosate was not factual and not uncontroversial.  Thus, the higher standard of scrutiny of the Central Hudson level would apply.  Under that standard, a governmental agency may restrict commercial speech when the restriction directly advances an important governmental interest and the restriction may not be more extensive than necessary to serve that governmental interest.  The Court determined that the Prop 65 warning for glyphosate is misleading because it requires a warning that the chemical is known to the state of California to cause cancer when that statement is not true – only one organization concluded glyphosate was “probably carcinogenic” (IARC), and a multitude of other organizations that reviewed the safety of the product found the opposite.  Requiring a misleading statement does not directly advance the interest of the state in informing consumers regarding potential cancer hazards.  Thus, the warning could not be justified as a valid restriction on commercial speech and, therefore, is contrary to the First Amendment of the Constitution.

California argued that it had set a quantitative “safe harbor” level for glyphosate exposure that in practice means that few if any products would need to include a Prop 65 warning.  However, the Court found that a safe-harbor level does not protect companies from enforcement actions; even if a product were tested and found to contain glyphosate well below the safe harbor level, there was no reasonable assurance that a company would not be subject to enforcement actions. In fact,  there have been enforcement actions for various chemicals notwithstanding a defense of compliance with the safe harbor level for those chemicals, including where the California Attorney General said a proposed enforcement suit had no merit.

The statute allows any person to file an enforcement suit notwithstanding the State’s finding of no merit. To bring suit, a private party need only credibly allege that that a product has some amount of the chemical at issue, not that the amount of the chemical is harmful or that it exceeds the safe harbor level;  defendants in Proposition 65 enforcement actions have the burden of showing that the level of the chemical in their product falls below the safe harbor level.  As a result, without a permanent injunction, Plaintiffs in this case would face a credible threat of enforcement regardless of the safe harbor level for glyphosate.

As we previously reported, there is a similar First Amendment challenge to the required Prop 65 warning for acrylamide filed in October 2019.  Similar to the case with glyphosate, neither OEHHA nor any other governmental entity has determined that acrylamide is a known human carcinogen; in fact, OEHHA acknowledged that the agency does not know that acrylamide increases the risk of cancer in humans.  That case is still ongoing, and the glyphosate decision could greatly impact the ongoing acrylamide litigation.

We will be monitoring further developments.