As part of its final push to lower drug prices, the Trump administration announced that it was finalizing a January 2019 proposed rule to amend the safe harbor provisions relating to manufacturer rebates to Medicare Part D plans, Medicaid Managed Care Organizations (MCOs) and their pharmacy benefits managers (PBMs). The Final Rule was published in the Federal Register on November 30, 2020.

The rebate rule has not had a straightforward history. Although the OIG claims that it never withdrew the rule from consideration, the White House and HHS Secretary Alex Azar scrapped the proposed rule in July of last year, soon after a Congressional Budget Office (CBO) report agreed with CMS’s own estimates that the rule will increase Medicare Part D premiums by $58 billion over ten years, likely offsetting any cost savings for patients, and cost the Federal government an additional $177 billion. This July, the President revived the rule in the middle of his election campaign with one additional mandate: that the HHS Secretary “confirm . . . that the action is not projected to increase Federal spending, Medicare beneficiary premiums, or patients’ total out-of-pocket costs.” (see our report on the executive order here).

We previously summarized the main elements of the rule when it was first proposed and it has largely stayed the same. As we explained, the rebate rule is based on the premise that confidential manufacturer rebates to plan sponsors under Medicare Part D, either directly or through PBMs acting under contract with them, do not result in cost savings for the patients but act as kickbacks to these “middlemen.”  According to the OIG, this system incentivized plan sponsors to negotiate higher rebates from manufacturers. Higher rebates allowed the plans to maintain higher profit margins, especially because these payments generally did not reduce patient out-of-pocket costs (deductibles and co-insurance), which are based on the published list price of the prescription pharmaceutical product, that is, the price before the rebates are applied. Manufacturers agree to higher rebates in exchange for exclusive or preferred positions on the plan formulary and the plans and PBMs give preferred formulary placement to the products that will provide them the greatest rebate. (p. 76685)

Under the final rule, the OIG aims to change these incentives by significantly narrowing the anti-kickback statute (AKS) safe harbor for discounts at 42 C.F.R. § 1001.952(h). The final rule would add an exclusion to the current discount safe harbor for “[a] reduction in price or other remuneration in connection with the sale or purchase of a prescription pharmaceutical product from a manufacturer to a plan sponsor under Medicare Part D either directly to the plan sponsor under Medicare Part D, or indirectly through a pharmacy benefit manager acting under contract with a plan sponsor under Medicare Part D, unless it is a price reduction or rebate that is required by law.” (p. 76731) The final rule also adds two new safe harbors: one to protect certain manufacturer price reductions at the point-of-sale (§ 1001.952(cc)), and another to protect certain administrative fees paid by pharmaceutical manufacturers to PBMs (§ 1001.952(dd)). The new safe harbor at § 1001.952(cc) requires the manufacturer to set the price reduction it is offering the plan sponsor under Medicare Part D or Medicaid MCO in writing before the first purchase of the product at that reduced price. The reduction in price must be completely reflected in the price of the prescription pharmaceutical product at the time the pharmacy dispenses it to the patient. The reduction in price can only be a rebate if the full value of the reduction is provided a dispensing pharmacy, directly or indirectly, through a point-of-sale chargeback, or if otherwise required by law. The point-of-sale chargeback is intended to make pharmacies whole for any difference between their acquisition cost and the price reduction agreed to by the Part D Plan, Medicaid MCO, or their PBM.

Changes from the Proposed Rule

Following are the main differences between the proposed rule and the final rule.

Discount safe harbor amendments effective date moved to January 1, 2022

In response to comments that the effective date of January 1, 2020 in the proposed rule would cause patient, pharmacy, and supply chain disruptions, the OIG moved the effective date to January 1, 2022. The proposed rule comment period was set to close on April 8, 2019, which would have meant that entities would have had six months or less to comply with any final rule.  Now, entities have just over a year to make any necessary changes to their business arrangements and come into compliance. OIG stated that the updated effective date should not impact the 2020 Part D bid submission process. (p. 76673) OIG also rejected requests to apply enforcement discretion past the effective date. (p. 76680)

The new safe harbors for point-of-sale price reductions and for PBM service fees will be available for entities to use within 60 days of the publication of the final rule, or January 29, 2021. (p. 76666)

Medicaid MCOs Can Continue to Benefit from the Existing Discount Safe Harbor

The most significant difference in the final rule as compared to the proposed rule is that rebates to Medicaid MCOs are not excluded from the discount safe harbor. In other words, rebates offered from pharmaceutical manufacturers directly to Medicaid MCOs will still be protected by the discount safe harbor, as long as all the conditions of the safe harbor are met. (p. 76675)  However, it is important to note that, in the OIG’s view, any rebates retained by a PBM are service fees, not discounts, and therefore never were, and still are not, protected under the discount safe harbor. (pp. 76675, 76679)

The OIG decided not to apply the rebate exclusion to Medicaid MCOs because of strong opposition from commenters. These commenters described additional costs to states to set and certify new Medicaid MCO rates, and for the various affected entities to renegotiate their contracts, some of which may require legislative or agency approval and could lead states to make significant cuts to other parts of their Medicaid programs. (p. 76675-76) OIG conceded that Medicaid beneficiaries often already have nominal cost-sharing obligations for prescription pharmaceutical products, maximum allowable cost-sharing amounts, or no coinsurance obligations. (p. 76675) For these reasons, the OIG agreed that eliminating discount safe harbor protection for reductions in price offered to a Medicaid MCO would have minimal, if any, effect on the amount a Medicaid beneficiary pays for a prescription pharmaceutical at the pharmacy. Id.

Changes in the new safe harbor on point-of-sale price reductions

The OIG also made some tweaks to clarify the new safe harbor on point-of-sale price reductions rule in several aspects:

• The final rule clarifies that under the new safe harbor, the price reductions can be contingent on formulary placement as long as all conditions of the safe harbor are met. (p. 76708) The OIG confirmed that the rule does not limit the types of negotiation methods the parties may use, and even noted that such contingent discounts can foster competition to the ultimate benefit of patients and Federal health care programs. (p. 76683) However, the OIG cautioned that the reduction in price must be a reduction in price and not a payment for a service (e.g., marketing or switching). (p. 76683, -708)
• The OIG clarified that the value of the point-of-sale chargeback to a pharmacy must be “equal to the reduction in price” between the manufacturer and the Part D plan sponsor or Medicaid MCO, rather than “at least equal to the [discounted] price,” as earlier proposed. (p. 76697) The OIG had not intended to permit patients to receive the entire dollar value of a discount but instead to apply the discount when calculating the price upon which the beneficiary’s cost sharing is calculated. (p. 76682) The modification is in line with this intent.
• The OIG also clarified that an entity other than a PBM may administer the point-of-sale chargeback process. (p. 76699-70)
• The chargebacks are renamed “point-of-sale chargebacks” under the final rule to avoid confusion. They are defined broadly enough to cover both direct rebates from a manufacturer to a pharmacy, or chargebacks administered by third parties.

Does the Final Rule Change the Cost Savings Calculation?

As required by the July 2020 Executive Order, Secretary Azar confirmed that the final rule “is not projected to increase Federal spending, Medicare beneficiary premiums, or patients’ total out-of-pocket costs.” The Secretary’s about-face is not based in any changes made to the rule itself but on a reassessment of the regulatory impact of the rule.

Indeed, the final rule dedicates a sizeable portion to a revised regulatory impact statement that attempts to explain away the earlier estimates by the CBO. The OIG notes that, unlike the proposed rule, the final rule “consider[s] the range of strategic behavior changes stakeholders may make in response to this rule, including the extent to which manufacturers lower list prices or retain a portion of current rebate spending, PBMs change benefit designs or obtain additional price concessions, and the impact on consumer utilization of lower-cost drugs.” (p. 76719) For example, the Secretary’s confirmation letter predicted that parties will continue to negotiate for several years into the future, and in his view (“informed by two decades of deep experience in pharmaceutical pricing, payment, and reimbursement”), this will lead to beneficiary price concessions beyond the earlier estimates.

It is unclear if the revised regulatory impact statement adds anything to the earlier analyses. For one, the CBO estimates appears to have already considered some of the behavior changes that the final rule claims to consider for the first time (e.g., likelihood that manufacturers will lower prices; the rule’s impact on beneficiary plan utilization). Also, the final rule presents the same analysis regarding the rule’s effects on Medicare premiums as the proposed rule, but highlights a different scenario as before (scenario with behavior change assumptions). Ironically, this scenario still predicts a smaller increase in Medicare premiums (the OIG claims that it is a de minimus increase). (p. 76726)

We can predict that these safe harbor amendments will dramatically alter the way in which Part D Plans, Medicaid MCOs, and their PBMs, use rebates received by manufacturers, and will reduce patient co-insurance obligations.  They will also create new opportunities for wholesalers or other entities to provide chargeback administration services to facilitate compliance with the point-of-sale price reduction safe harbor.  However, it is more difficult to predict whether these amendments will actually result in reduced list prices for pharmaceuticals, as intended, or whether the benefits to patients of reduced out-of-pocket expenses will be outweighed by increased premiums.  Answers to these questions will begin to emerge over the next two years, as rebate contracting begins to conform to the new safe harbors and reacts to the narrowing of the discount safe harbor effective in January 2022.

Hyman, Phelps & McNamara, P.C.’s Anne Walsh will be presenting on The Future of EUAs: What Happens Post-Crisis, as part of this year’s Food and Drug Law Institute’s virtual Enforcement, Litigation, and Compliance Conference on December 15-16.  Hear from your peers about how they are staying compliant and inspection-ready, what companies need to do to plan for next year, trends in competitor litigation, and government priorities post-election.

Sign up with the discount code Enforcement15 for 15% off registration.  You can learn more about the conference and register here.

Welcome to the latest edition of Hyman, Phelps & McNamara, P.C.’s (“HP&M”) monthly wrap up of food, beverage and supplement news, including regulations, guidances, events, and whatever else is catching our eye.

Tooting our own Horn:  HP&M has been named the “Law Firm of the Year” in FDA Law by the folks over at U.S. News & World Report!

Food & Beverage

• Traceability: The Food & Beverage Issues Alliance requested a comment extension for FDA’s recently published rule on traceability. The comment period currently ends on January 21, 2021.  The FDA also released additional resources, including a tool to help determine which foods to include on the Food Traceability List.
• Rarely Consumed Raw: FDA has extended the comment period until January 8, 20201 on its RFI for rarely consumed raw products  which are exempt from the Produce Safety Rule.
• Laboratories of Democracy, Part I: Remember last year when Illinois passed a law requiring sesame labeling? The FDA issued draft guidance on voluntary disclosure of sesame as an allergen, recommending that manufacturers clearly declare sesame in the ingredient list when it is used in foods as a “flavor” or “spice”, among other things. Comments are due by January 11, 2021.
• Laboratories of Democracy, Part II: On October 27, 2020, the New York State Department of Health issued proposed regulations regarding cannabinoid hemp products. These proposed regulations (availablehere) are open for public commentary until January 11, 2021. Check out our colleague’s post here.
• Less Sugar: NAD recently concluded that Chobani’s unqualified “45% less sugar than other yogurts” claim could reasonably convey a misleading message to consumers about the amount of sugar in “other yogurts” as it might imply that “other yogurts” include products that use non-nutritive sweeteners.
• Cancer Warnings on Alcoholic Beverages: Several public health and consumer group advocates filed a Petitionwith TTB requesting that the warning be updated to include a statement that alcohol consumption is linked to cancer. Check out Riëtte’s post here.
• Festivus for the Rest of Us: Check out Karin’s post on how to air grievances with the new administration and stay within the boundaries of the antitrust laws.
• GE Salmon Approval Stands: In long-running litigation over FDA’s approval of AquaBounty’s genetically engineered salmon, a federal court remanded the case to FDA for reconsideration of the agency’s environmental assessment under the National Environmental Policy Act and the Endangered Species Act. However, the court declined to vacate the agency’s approval on the ground that “the disruptive consequences of vacatur would outweigh the seriousness of the agency’s errors.”
• Boring but Important: Don’t forget to renew your food establishment registration.

Supplements

• Earnings and Health-Related Claims Draw Fire: The Direct Selling Self-Regulatory Council took issue with certain earnings claims and also weight loss and other health-related claims made by LurraLife, LLC. The company agreed to discontinue some claims, modify others, and take other compliance-related measures.
• Sport Supplement Company Pleads Guilty to Felony: The Department of Justice announced that a sports supplement company and its owner pleaded guilty to “distributing unapproved new drugs with the intent to mislead and defraud” FDA and consumers – a felony. The products contained selective androgen receptor modulators, and the product labels omitted certain ingredients and were misrepresented as dietary supplements.

Some Things We Are Monitoring:

• 2020-2025 Dietary Guidelines: Still expected by year end.
• A hemp case where HIA and RE Botanicals filed a lawsuit against the DEA in the D.D.C., seeking a declaration that the definition of hemp in Section 1639o, includes “intermediate hemp material” (IHM) and “waste hemp material” (WHM) and that the THC in IHM and WHM is not a controlled substance. You can read about that litigation in our colleagues’ post.
• FTC’s 13(b) Disgorgement: Scheduled for a Supreme Court argument on January 13, 2021. The FTC recently filed their brief.

To close out 2020, Hyman, Phelps & McNamara, P.C. is pleased to present the latest issue of our quarterly newsletter highlighting key postings from our nationally acclaimed FDA Law Blog.  Please subscribe to the FDA Law Blog to receive contemporaneous posts on regulatory and enforcement activities affecting the broad cross-section of FDA-regulated industry.  As the largest dedicated FDA law firm, we are happy to help you or your clients navigate the nuances of the applicable laws and regulations.

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Drug Development

• Kurt Karst probes HHS’ announcement to withdraw FDA’s guidance/Compliance Policy Guide related to the marketing of unapproved drugs, effectively ending FDA’s “Unapproved Drugs Initiative.” Karst describes the regulatory background and framework for such products, scrutinizes the purported reason underlying this withdrawal, and contemplates the end result of this decision.
• In this post, Sara Koblitzand David Clissold highlight the approval of Veklury (remdesivir) which was awarded a material threat medical countermeasure (MCM) Priority Review Voucher (PRV) despite COVID-19 not being designated a material threat, at least publicly.  Among other issues, the authors assess the effectiveness of the PRV program (i.e., encouraging development of MCMs) when the underlying information for obtaining such an incentive (i.e., a material threat determination) is not made public.
• Sara Koblitz analyzes the ramifications of a Federal Circuit decision holding that “skinny labeling” for abbreviated new drug applications (ANDAs) can constitute induced infringement. This decision encapsulates the delicate balance of interests that Congress dealt with in passing the Hatch-Waxman Amendments—protecting intellectual property while also facilitating generic drug access—and has potentially massive implications for the generic industry.

Compliance and Enforcement  

• Anne Walsh, John Fleder, and Robert Dormer provide a breakdown of Executive Order 13924 and a follow-on memorandum from the Office of Management and Budget, both of which purport to inject more fairness into administrative enforcement and adjudication actions.
• Jeffrey Shapiro reviews FDA’s proposed rule to amend the “intended use” regulation that governs the fundamental determination of whether a product is regulated by FDA, and if so, what regulatory requirements apply. The Agency proposes to remove language from the regulation that has proved problematic to regulated industry; however, Shapiro examines two other substantive, and arguably unnecessary, additions to the intended use regulation stemming from the proposed rule.
• Ricardo Carvajal and Anne Walsh discuss two firsts by the Department of Justice (DOJ):  1) the largest-ever criminal penalty following a conviction in a food safety case, and 2) the first ever consent decree of permanent injunction against a firm or grower for violating safety standards enacted under the Food Safety Modernization Act of 2011.
• Karin Moore describes a Third Circuit decision overruling a lower court’s order requiring disgorgement and outright rejecting the Federal Trade Commission’s (FTC) authority to seek disgorgement. The debate over the FTC’s authority to order disgorgement has been front and center in several recent cases and is pending before the Supreme Court, so look for our next update on this evolving jurisprudence.

Healthcare

• Faraz Siddiquiand Jeffrey Wasserstein examine a Special Fraud Alert from the HHS Office of Inspector General (OIG) targeting fraud and abuse risks associated with in-person speaker programs.  On top of expressing an overall skepticism regarding such speaker programs, OIG expounds upon examples of common violative practices and suspect characteristics.
• Serra Schlanger, Faraz Siddiqui, Michelle Butler, and Alan Kirschenbaumdetail the final rule and FDA guidance creating two discrete pathways for importing certain prescription drugs.  The authors detail the accompanying guidance from the Centers for Medicare & Medicaid Services (CMS), which discusses manufacturer obligations under the Medicaid Drug Rebate Program for products described in the FDA guidance.

DEA

• In a series of posts (here, here), John Gilbertand Karla Palmer survey the long-awaited proposed rule from the Drug Enforcement Administration (DEA) addressing the Agency’s interpretation of suspicious order requirements.  The authors address DEA’s proposed new definitions, frameworks for identifying and reporting suspicious orders, due diligence requirements, and reporting requirements.

Medical Devices

• Jeffrey Shapiro explains that the Department of Health and Human Services’ (HHS) announcement that FDA will no longer conduct premarket review of laboratory developed tests (LDTs) is not actually much of a course change for the Agency but, regardless, may herald beneficial effects. The potential beneficial effects are two-fold: 1) there will no longer be the specter of possible FDA enforcement hovering over clinical laboratories, and 2) the Agency can more efficiently direct its resources to combat the COVID-19 pandemic.
• Allyson Mullen discusses FDA’s guidance regarding patient-reported outcome (PRO) measures in clinical studies. Mullen describes how the guidance seeks to provide insight into the Agency’s understanding of PROs as well as the instruments for such measurements, but she also posits that the guidance could have gone further in clarifying the necessary level of evidence for a specific PRO in various regulatory decision-making situations.

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Hyman, Phelps & McNamara, P.C. has its finger on the pulse of FDA law.  Our technical expertise and industry knowledge are exceptional in scope and depth.  Our professional team holds extensive experience with the myriad of issues faced by companies.  Please contact us with any questions you may have related to the issues described here or any other FDA-related issue affecting your industry.

On November 23, 2020, the FDA announced that it had approved Alnylam Pharmaceuticals’ Oxlumo (lumasiran) as the first treatment for primary hyperoxaluria 1 (PH1), a rare metabolic disorder that causes recurrent kidney stones and loss of kidney function.  In the Agency’s press release, it credited the approval as the “cumulation of the work of experts and community members coordinated by the Oxalosis & Hyperoxaluria Foundation and the Kidney Health Initiative.”   More specifically, the press release quotes the Director of the Division of Cardiology and Nephrology, Dr. Norman Stockbridge:

The approval of Oxlumo represents a great triumph of community involvement to address a rare disease. It is a result of input from patients, treating physicians, experts and sponsors at a patient-focused drug development meeting and through other collaborative efforts.

As mentioned by Dr. Stockbridge, this approval comes on the heels of a recent Externally-Led Patient-Focused Drug Development (EL-PFDD) meeting for primary hyperoxaluria held virtually on October 5, 2020. HP&M’s James Valentine and Larry Bauer helped in the planning and moderation of this meeting which was sponsored by the Oxalosis & Hyperoxaluria Foundation. Benefit-risk assessment is the foundation for FDA’s regulatory review of human drugs and biologics; input from PFDD meetings can provide important data obtained directly from patients and caregivers, which we applaud FDA for acknowledging so prominently with this approval.

Building on a Legacy of Over 70 PFDD Meetings

This expression of FDA’s appreciation for PFDD meetings and the value of patient and caregiver input builds on a more than 8-year legacy of the PFDD initiative, including 29 FDA-led and 43 externally-led meetings to date. These meetings were established in 2012 as part of PDUFA V to more systematically collect patient and caregiver experiences and perspectives about the symptoms most impacting daily life, assessments of available treatments, and preferences for future treatments. This input was intended to inform the “clinical context” for benefit-risk decision-making, although it has much broader application (e.g., informing selection and development of clinical outcome assessments).

To supplement those meetings that FDA organizes, in 2015 the Agency broadened the program by allowing externally-led PFDD meetings, which are supported by FDA but sponsored by patient groups.  Each group has been responsible for organizing the meeting, speakers, and all aspects of the meeting. The FDA Patient-Focused Drug Development Program Staff review Letters of Intent for new meetings and provide guidance to advocacy groups planning meetings.

Other Examples of When PFDD Meetings Informed Regulatory Decision-Making

PFDD meetings have had an impact on several key FDA decisions and initiatives. As one example, an externally-led PFDD meeting for the rare skin disorder, epidermolysis bullosa (EB), was held on April 6, 2018, and sponsored by the advocacy group the Dystrophic Epidermolysis Bullosa Research Association of America (Debra of America). This meeting highlighted the devastating physical and emotional impacts of EB. Prior to this meeting, FDA directed drug developers to its “burn wounds” guidance as that reflected the most analogous clinical experience, despite the stark difference in etiology and chronicity to EB wounds. This guidance focused primarily on endpoints of complete wound healing, highlighting its clinical meaningfulness.

On its face this may seem reasonable, as EB is characterized by multiple open wounds all over the body. However, short of a cure, complete wound healing would not be expected due to the ever-present genetic defect in the skin cells. Yet, FDA requires a treatment effect that is “clinically meaningful,” so the Agency needed information that would enable it to calibrate its bar for drugs to treat EB. The EB EL-PFDD meeting highlighted the great unmet medical need in EB patients and their desire for treatments that might help shrink wounds or treat other symptoms, even if 100% wound healing was not possible.  For example, if a wound was made smaller, that might represent less overall pain a child with EB may experience each night during excruciatingly painful bandage changes that are required to keep the wounds clean. In response, just one month after that meeting, FDA on its own initiative (that is, no patient explicitly asked FDA to issue a new guidance) issued a disease-specific guidance.  This guidance focuses on drug development specific to the treatment of EB, including FDA’s thinking on trial endpoints. In it, FDA expresses that trial endpoints for new EB therapies can include effects on patients’ symptoms, such as pain, as well as on wound healing, although not establishing a 100% healing threshold.

Like PH1, other patient communities’ investments in EL-PFDD meetings have resulted in the first-ever approved drugs for their conditions or major advances in treatments over approved therapies.  This includes multiple products for forms of amyloidosis following the Amyloidosis Research Consortium’s November 16, 2015, EL-PFDD meeting, and the first-ever systemic gene therapy following CureSMA’s April 18, 2017, EL-PFDD meeting.

While these represent just a couple of examples of the lasting impact of PFDD meetings, we have seen impacts large and small across the EL-PFDD meetings we have had an active role in helping plan and moderated. HP&M has aided 31 of the 43 (72%) EL-PFDD meetings held to date.  Here are some examples of recent meetings we have helped plan:

EL-PFDD Meetings HPM Helped Plan and Moderated (Since November 2018)

* Fully virtual meetings; more information on the virtual EL-PFDD meeting can be found here.

FDA continues to show its support for EL-PFDD meetings and the value of learning from patients and caregivers about what matters most. We applaud the Agency’s efforts to continue to include the voices of patients in drug development and regulatory decisions. After all, the patients are the true experts.

Cannabidiol (“CBD”) products are everywhere.  They are sold in pharmacies, as well as grocery, health food and convenience stores, and over the Internet.  To protect its citizens in the absence of federal requirements governing CBD and hemp-derived products for human consumption, the New York Department of Health (“DOH”) announced the issuance of proposed regulations that if implemented would create new requirements for how those products are manufactured and sold there.   The proposed regulations would establish a closed, cradle-to-grave distribution system for cannabinoid hemp products.   Cannabinoid hemp processors (extractors and manufacturers) and retailers would have to obtain licenses issued by DOH and products would have to comply with stringent manufacturing, testing, packaging and labeling requirements.  New York’s proposed regulations may become a model for how the U.S. and other jurisdictions regulate CBD and hemp-derived products for human consumption.

Comments on the proposed regulations can be submitted until January 11, 2021.

Cannabinoid Hemp Products

The proposed regulations apply to “cannabinoid hemp products,” defined as hemp or any product manufactured or derived from hemp, that include hemp-derived terpenes in its final form “used for human consumption.”  Cannabinoid hemp products “used for human consumption” are products intended by the manufacturer or distributor to be used for their cannabinoid content or “used in, on or by the human body for its cannabinoid content.”  Cannabinoid hemp products expressly exclude cosmetics and, consistent with the Drug Enforcement Administration’s (“DEA’s) August 2020 Interim Final Rule, would also exclude synthetic CBD.

Cannabinoid hemp products sold at retail cannot:

• Contain more than 0.3% total Δ9-Tetrahydrocannabinol (“THC”) concentration;
• Contain tobacco or alcohol; or
• Be an injectable, transdermal patch, inhaler, suppository, flower product including cigarette, cigar or pre-roll, or any other form disallowed by DOH.

Products sold as a food or beverage product cannot contain more than 25 mgs. of total cannabinoids per product while supplements cannot contain more than 3,000 mgs. of  cannabinoids per product.

Cannabinoid hemp products will need to be labeled with the quantity of cannabinoids in the product and quantity per serving.  If the product contains THC, the label must state the THC quantity per serving and per package.  Products must have a scannable code linking them to a certificate of analysis.  Packaging must list consumer warnings and cannot be attractive to underage consumers.

Processors will have to test cannabinoid hemp products at a laboratory approved to test medical marijuana or that meets minimum requirements, including ISO/IEC 17025 accreditation and validation methods used for testing.  The regulations will establish which analytes will be tested and establish limits for cannabinoids, heavy metals, microbial impurities, mycotoxins, residual pesticides, residual solvents and processing chemicals.  Cannabinoid hemp products containing levels of analytes deviating from allowable limits will be considered adulterated and must be destroyed.

The regulations would establish advertising requirements for cannabinoid hemp processors and retailers, including prohibiting false or misleading statements and medical claims that they can or are intended to diagnose, cure, mitigate, treat or prevent disease.  Advertising cannot lead anyone to believe the cannabinoid hemp product is marijuana or medical marijuana.

Hemp Processors

Extractors and manufacturers of cannabinoid hemp products in New York would have to obtain a processor license from DOH.  Applicants must describe the products they intend to make, and submit proof of product liability insurance, evidence of Good Manufacturing Practices (“GMP”), organization documents and non-refundable $1,000 application fee, or $500 application fee for applicants seeking only to manufacture, not extract, cannabinoid hemp.  If approved, hemp processors will follow-up with their facility’s certificate of occupancy, evidence of a GMP audit, and license fee of $4,500 for extracting or $2,000 for manufacturing.  Processor licenses would be valid for two years.  Licenses will be non-transferable except with prior DOH approval.

Processors will have to maintain records demonstrating that all hemp and hemp extract they use was grown, derived, extracted and transported in compliance with applicable laws and licensing requirements where they were sourced.  Processors will have to maintain qualified third-party GMP certification.  They will also have to retain extraction and manufacturing process records documenting:

• Source of hemp or hemp extract;
• Calibration and inspection of equipment or instruments;
• Disposal of hemp extract or hemp by-product;
• Tracking and documentation of THC; and
• Testing of samples from lots or batches.

Processors procuring hemp from out-of-state will have to maintain records of the non-resident grower’s registration or license in the jurisdiction where they are located.  Processors will have to maintain records for five years and produce them to DOH upon request.

In addition, processors would have to comply with security and sanitary standards including prohibiting access by unauthorized individuals to their premises to ensure safe and sanitary conditions.  Unlike DEA’s unworkable prohibition, the New York regulations would allow sales of in-process hemp extract containing up to 3.0% THC concentration between licensed processors in the state.  This allowance more realistically reflects how the regulated industry transfers in-process hemp extract exceeding 0.3% THC concentration with safeguards against diversion from legitimate licensees.

Cannabinoid hemp processors will be limited to whom they sell their products.  They will not be able to sell cannabinoid hemp products directly to consumers unless they obtain a cannabinoid hemp retail license and can only sell cannabinoid hemp extract in New York to cannabinoid hemp processors or registered organizations in the DOH’s Medical Marijuana Program.  Distributors of cannabinoid hemp products manufactured outside New York to cannabinoid hemp retailers within the state, would have to obtain a permit from DOH.

DOH will be authorized to conduct unannounced random sampling and testing of hemp, hemp extract, and cannabinoid hemp products during licensees’ normal business hours.

Hemp Retailers

Everyone selling cannabinoid hemp to consumers in New York would have to obtain a retailer license from the DOH.  Applicants would have to describe the type of cannabinoid hemp products they intend to sell, name and state or country of origin of the manufacturers they intend to procure products from and proof of certificate of authority from the state Department of Taxation and Finance.  A refundable $300 license fee for each retail location must accompany applications.  Retailer licenses would be valid for only one year.  Retailer licenses, like processor licenses, will be non-transferable without DOH approval.

Retailers who submit a retail license application prior by April 1, 2021, will be allowed to sell cannabinoid hemp products before the DOH approves or denies their license if they comply with all proposed regulatory requirements.

Retailers can only sell cannabinoid hemp products manufactured, packaged, labeled and tested that comply with prescribed standards.  They cannot sell inhalable cannabinoid hemp products to underage consumers.  Retailers will have to maintain records of the cannabinoid hemp product’s source, including the name of the hemp processor and the wholesaler or distributor.

DOH will have authority to inspect cannabinoid hemp retailers, take samples of cannabinoid hemp products to ensure compliance and require display of cannabinoid hemp products separately from other products.

Penalties

Proposed penalties for noncompliance include graduating civil penalties that increase with each violation.  The first violation could incur a fine up to $1,000; the second violation within a three-year period, a fine of up to $5,000; the third violation or any additional violation, a fine of up to $10,000.  DOH would also be able to limit, suspend, revoke or annul a license.  Violating regulations three times within five-years may result in the licensee being deemed ineligible to manufacture or sell cannabinoid hemp products for five years.

Conclusion

There are significant changes on the near horizon for cannabinoid hemp product processors and retailers in New York, and those outside the state who supply hemp and hemp extract into New York.  We reiterate that retailers selling hemp cannabinoid products must apply to continue sales by April 21, 2021, cease sales, or face potential civil fines and future administrative sanctions.  FDA and other jurisdictions are watching closely what transpires in New York.

A flourish of drug regulatory actions have issued from the Trump Administration during its waning days.  Within the past two weeks, HHS has terminated FDA’s Unapproved Drug Initiative by withdrawing two guidances, finalized a proposed OIG safe harbor regulation on PBM rebates that HHS had earlier withdrawn, and revived a CMS rulemaking proceeding to establish international reference pricing under Medicare.  The first of these actions was addressed in our recent post here.  The OIG safe harbor amendments will be covered in a upcoming post.  This post is devoted to the CMS regulation, an interim final rule with comment period published in Friday’s Federal Register, which establishes a Most Favored Nation (MFN) Model for Medicare Part B drug payment.  If it survives legal challenges and a change in administration, this regulation promises to substantially change the drug reimbursement landscape.  The MFN Model is an extensively reformulated version of the International Pricing Index model set forth in a CMS Advance Notice of Proposed Rulemaking (ANPR) in October 2018 (see our post here), and it follows a September 2020 Trump Executive Order directing the Secretary of HHS to “immediately implement the Secretary’s rulemaking plan” to establish a most favored nation model (see our post here).

Developed under the auspices of CMS’ Center for Medicare and Medicaid Innovation (CMMI), the MFN Model will base Medicare Part B payment for 50 selected drugs on prices in foreign countries instead of average sales price (ASP), and will establish a fixed add-on payment in place of the current 6 percent (4.3 percent after sequestration) of ASP.  The MFN drug payment amount is expected to be lower than the current ASP-based payment limit because U.S. drug prices are generally the highest in the world.  CMS expects that, as the Part B payment amounts for the included drugs are reduced, “in order for MFN participants to purchase MFN Model drugs at prices that does [sic] not lead to financial loss, the manufacturer  will need to make available prices that are competitive with the MFN Drug Payment Amounts.”  (85 Fed. Reg. at 762280)  The essential features of the MFN Model are outlined below.

Performance Period:  The MFN Model will be implemented for seven years beginning January 1, 2021.  As described further below, the MFN pricing will be phased in over the first four years, taking full effect during the last three.

Participating Providers:  MFN-based reimbursement will mandatorily apply to all Medicare participating providers that submit a claim to Medicare Part B for a separately payable MFN Model drug.  These will include physicians and other practitioners, hospitals paid under the Outpatient Prospective Payment System (OPPS), and ambulatory surgical centers, among others.  Certain providers will be excluded from the model, including children’s hospitals, cancer hospitals that are not paid under a prospective payment system, critical access hospitals, rural health clinics, Indian Health Service facilities, Federally Qualified Health Centers, and others.

Covered Drugs:  In 2021, MFN payment will apply to the 50 separately paid drugs identified by CMS as having the highest aggregate 2019 total allowed charges.  In subsequent years, the list will be updated to include new drugs that have the top 50 aggregate allowed charges for the most recent calendar year.  However, drugs that drop out of the top 50 will not be deleted from the list, so the list will undoubtedly grow to more than 50.  Certain drug categories are excluded from the model, including, among others, drugs approved under an ANDA; drugs paid under the End Stage Renal Disease Prospective Payment System, including those paid separately using the transitional drug add-on payment (TDAPA); vaccines covered by Part B (influenza, pneumococcal pneumonia, COVID 19, and hepatitis B); oral anti-cancer agents and antiemetic drugs; oral immunosuppressive drugs; and drugs paid under the DME benefit.  Biosimilars are not excluded.  The list of 50 drugs to be included in the MFN Model for 2021 appears in the preamble at 85 Fed. Reg. at 76194.  The list includes one biosimilar.

MFN Drug Payment Amount Calculation Methodology:  The payment for an MFN Model drug will be the MFN Drug Payment Amount plus a fixed add-on payment.  The MFN Drug Payment Amount will be derived from the lowest price of the drug in a covered foreign country, adjusted for the difference in gross domestic product (GDP) between that country and the U.S.  Essentially, the method for establishing the MFN Drug Payment Amount for each quarter will be to (1) use a pricing data source in each of the 22 countries to identify available average price information corresponding to the HCPCS code descriptor for each of the 50 drugs; (2) identify each country’s price for each drug; (3) adjust each price for the difference in GDP between that country and the U.S.; (4) select the lowest country-level adjusted price; (5) compare the latter price with the ASP for the drug and select the lower of the two as the MFN Price; and (6) apply a phase‑in percentage to the MFN Price to obtain the MFN Drug Payment Amount.  This exercise will be repeated quarterly.

• Covered countries: The covered foreign countries are the 22 member countries in the Organisation for Economic Co-operation and Development (OECD) that have a per capita GDP that is at least 60% of the U.S. per capita GDP as of October 1, 2020.  According to the preamble, the rationale for this selection criterion is to identify countries that are economically similar and have comparable purchasing power to the U.S., and generally have drug pricing data available (85 Fed. Reg. at 76200).  The 22 countries from which pricing data will be collected are identified on page 76200 of the preamble.  The list will not be updated during the seven years of the Model.
• Foreign average price data sources: Wherever possible, CMS will select drug pricing data in each country for the same quarter for which the drug’s ASP was calculated (i.e., two quarters before the payment quarter).  Ideally, the data source for each drug in each country will have both sales and volume data, but if not, other sources may be selected based on a hierarchy of criteria identified in the regulation.  The price will be extracted from the data source by “aligning the MFN Model drug’s HCPCS code long description … with the data sources’ standardized method for identifying scientific names or nonproprietary names and dosage formulations, as applicable.”  We caution our readers that this “alignment” is not a strict one.  For example, there is at least one instance where the HCPCS code long description identifies a specific drug brand and formulation that is not sold outside the U.S., yet CMS has calculated an MFN Drug Payment Amount for it based on foreign pricing data listed under a general nonproprietary name that includes numerous other drugs.
• GDP adjustment: Each country-level price derived from its average price data will be adjusted by a GDP adjuster, which is simply the country’s per capita GDP (obtained from the CIA’s World Factbook) divided by the U.S. per capita GDP.  The resulting price is the MFN Price.  A list of GDP adjustors for each of the 22 countries appears on pages 76203-4 of the preamble.  The GDP adjuster for France, for example, is 0.737, so if a drug costs the equivalent of $100 in France, the GDP-adjusted price (MFN Price) is $135.69.
• Phase-in adjustment: After the lowest GDP adjusted country-level price (MFN Price) is selected for a drug, a phase-in formula is applied to obtain the final MFN Drug Payment Amount during the first four years of the model.  The phase-in formula for year one (2021) is 75% of the ASP plus 25% of the MFN Price, for year two, 50% of the ASP plus 50% of the MFN Price; and so forth, until 100% of the MFN price is used for years five through seven.
• Price increase penalty: To counteract the incentive for manufacturers to increase their prices in the commercial market to subsidize lower prices on MFN Drugs to Medicare Part B, the MFN Model incorporates a penalty for price increases, which operates differently during and after the four-year phase-in period.  During the phase-in period, the phase-in percentage of the MFN Price will be accelerated by 5% each quarter if the cumulative percentage increase in the ASP of an MFN Drug, or any of the WACs for any of the NDCs in the drug’s HCPCS Code, is greater than the cumulative percentage increase in both (1) the CPI-U, and (2) the MFN Price.  The cumulative percentage increase in the ASP, the CPI‑U, and the MFN Price will be measured from the end of a baseline quarter to the end of the applicable ASP calendar quarter (i.e., the second quarter before the payment quarter, because that is the quarter whose ASP is ordinarily used to set the payment rate for the current quarter).  The baseline quarter for a drug on the market during 1Q 2021 is 3Q 2020, and the baseline quarter for subsequently launched drugs will be two quarters before the first quarter in which an ASP is published and in effect for the drug.  If conditions (1) and (2) above persist from quarter to quarter, the phase-in percentage of the MFN price will continue to increase 5% each quarter.  For example, if a price increase triggers both (1) and (2) in 3Q 2021 and continues to do so for 4Q 2021, then the phase-in percentages in 2021 will be 25% MFN Price/75% ASP for 1Q 2021, 25% MFN Price/75% ASP for 2Q 2021; 30% MFN Price/70% ASP for 3Q 2021, and 35% MFN Price/65% ASP for 4Q 2021.  Once accelerated, the MFN Price percentage will not decrease, even if the manufacturer lowers its price so that the triggers are no longer met.  After the fourth year of the phase-in period, in every quarter in which both of the triggering conditions are met, the excess percentage increase of ASP or WAC  compared to the percentage increase of CPI-U or MFN Price (whichever increase is greater) will be subtracted from the MFN Drug Payment Amount.  For example, if the greatest cumulative increase is in the ASP compared to the MFN Price and that increase is 3%, then the MFN Drug Payment Amount will be reduced by 3%.
• Add-on payment: To break the link between the add-on payment and the price of the drug, which encourages the use of more expensive drugs, CMS has substituted a fixed add-on payment for 2021 of $148.73 per dose, to be adjusted for inflation in subsequent years.  This will represent a reduction in payment for more expensive drugs and an increase for less expensive ones, but CMS estimates that it will constitute an increase for 70% of drug doses compared to the current 4.3% add-on (after sequestration).

Financial Hardship Exemptions:  Providers may apply for a financial hardship exemption if they were unable to obtain covered drugs at price below the MFN Model Payment during the year, despite exhausting all reasonable methods of doing so.  The request must be submitted within 60 days after the end of the year, and must contain specified information on cost and the methods used to try to obtain each MFN model drug.

The Prospects for This Rule

Although the MFN Model interim final rule with comment period is effective as of November 27 and the model payment methodology is scheduled to begin on January 1, 2021, it faces uncertain prospects for implementation.  In the first place, the authority for the regulation is Section 1115A of the Social Security Act, which established CMMI, and which was added by the Affordable Care Act.  Paradoxically, the Trump Administration has joined a lawsuit brought by several states seeking to invalidate the Affordable Care Act in its entirety in a case pending before the Supreme Court.  See Brief for the Federal Respondents, State of California, et al. v. State of Texas, et al., Nos. 19-840 and 19-1019.  If the suit is successful, this rule will have no effect.

A more likely impediment will be the almost certain prospect of a pharmaceutical industry lawsuit challenging the regulation.  PhRMA has issued a statement criticizing the Administration for “blindly proceeding” with a rule that takes unilateral action to set prices.  At the very least, this interim final rule is vulnerable to a procedural challenge under the Administrative Procedure Act, since it was not preceded by a proposed rule, and is substantially different from the 2018 ANPR.  The APA permits an agency to forego ordinary notice and comment procedures if there is good cause for a finding that they are “impracticable, unnecessary, or contrary to the public interest.”  5 U.S.C. 553(b)(B).  The preamble explains that good cause exists because the Medicare population is in urgent need of relief from high drug prices in the midst of the financial burdens caused by the COVID-19 pandemic.  (85 Fed. Reg. at 76249)  However, it is uncertain whether this justification would prevail in an APA challenge.  An industry lawsuit can also be expected to challenge the substance of the rule.

Finally, President-Elect Biden will take office before the 60-day comment period for the rule expires, and the incoming administration may change or withdraw the rule in the infancy of the MFC Model.  As a concept, international reference pricing does have support among Democrats.  Indeed, a form of it was included in H.R. 3, the drug pricing bill that passed the Democrat-controlled House on December 12, 2019.  However, the scope and details of the rule, and especially its timing, may not suit the priorities of the Biden Administration.  President-Elect Biden has emphasized that his first priority is defeating COVID-19, and his administration will, to a large extent, be dependent on the cooperation of pharmaceutical companies in order to achieve that goal.  His administration may be unwilling to go to battle with the pharmaceutical industry at this sensitive time.  Nevertheless, even if this particular regulation does not come to fruition, the bi-partisan concept of international reference pricing is likely to find its way into a future regulation or legislation, especially if Democrats take control of the Senate.

On November 20, 2020, the Office of Prescription Drug Promotion (OPDP) hosted a webinar to announce a new process for review of “core launch” promotional materials.  Specifically, OPDP has added a five business day screening period to the beginning of core launch review to ensure that the submission meets the criteria for “core launch” as outlined in OPDP’s 2019 guidance document, Providing Regulatory Submissions in Electronic and Non-Electronic Format – Promotional Labeling and Advertising Materials for Human Prescription Drugs (OPDP Electronic Submissions Guidance).  OPDP also clarified what it considers to be core launch materials, for purposes of estimated review timing.

As background, firms have a voluntary option to submit promotional materials to OPDP for review prior to dissemination.  “Launch” materials are those draft promotional materials that firms intend to disseminate in the first 120 days that a new product indication, delivery system, formulation, dosage form, dosing regimen, strength, or route of administration is marketed to the public.  “Core launch” materials are the following key launch materials, as outlined in the OPDP Electronic Submissions Guidance:

• One comprehensive promotional labeling piece directed towards professionals (e.g., sales aid, detail aid), which is 12 or fewer pages;
• One advertisement directed toward professionals (e.g., journal advertisement), which is 4 or fewer pages not including prescribing information or brief summary;
• One comprehensive direct-to-consumer (DTC) labeling piece (e.g., patient brochure), which is 12 or fewer pages;
• One DTC advertisement (e.g., magazine ad), which is 4 or fewer pages not including brief summary; and
• A professional and/or DTC product website (12 printed legible pages each) or electronic sales aid if derivative of a comprehensive labeling piece that is also submitted for voluntary advisory comment.

OPDP has a goal of reviewing all core launch materials within 45 calendar days, and it tracks its performance in meeting this goal (see OPDP Metrics webpage).

During the November 20 webinar, OPDP explained that some recent core launch submissions have presented challenges for both OPDP and firms, prompting OPDP to make improvements to its process to help streamline review and ensure that OPDP can meet the 45-day turnaround time.  OPDP noted that there have been instances of lengthy comment letters from OPDP in sub-optimal timeframes for firms, core launch submissions with highly nuanced claims and presentations, and submissions with hundreds of pages of references requiring extensive review.

The purpose of the new five business day screening process is to ensure that the submission meets criteria for “core launch,” in that it is limited to the items listed in the OPDP Electronic Submissions Guidance and that the claims and presentations are based solely on information contained in the Prescribing Information, information from the pivotal trials, or publications directly related to those trials.  The screening process is also intended to ensure that the submission is administratively complete.  For example, firms must submit both clean and annotated versions of the draft promotional materials, and the annotated versions must be cross-referenced to annotated versions of the FDA-approved prescribing information.  FDA intends to notify firms via teleconference if the submission is not a core launch submission, exceeds the page limits, or otherwise does not satisfy the criteria for core launch review.  If no issues are identified, the firm will not be contacted, and FDA will proceed to the 45-day core launch review process.

The new process will help better frame expectations for industry as well as OPDP.  OPDP stated that it expects materials to “be a true representation of the core introductory messaging for the product” and not material that includes all potential claims the firm wants to make.  This is consistent with OPDP’s historical approach of reviewing pieces in totality to better understand format, context, and prominence of presentations.  Of particular interest, OPDP clarified that core launch materials may contain claims and presentations that are consistent with the drug’s prescribing information, per its CFL Guidance so long as those claims otherwise meet the criteria of a “core launch” claim (e.g., relates to the prescribing information or to pivotal trials).  While firms may provide a CFL analysis to support the presentation, one is not required and the example displayed during the webinar and as part of OPDP’s updated Frequently Asked Questions webpage is unhelpful in providing meaningful guidance to firms on information that supports the CFL analysis.  The example of a CFL analysis simply re-states the three-factor test articulated in the CFL Guidance, without specific analyses that would support the claim.

Despite the modified process, OPDP also emphasized that there are still circumstances when firms should expect a turnaround time longer than 45 days.  OPDP explained that if the submission of launch materials includes materials with claims that are not derived completely and directly from the prescribing information (e.g., it includes claims supported by clinical literature), OPDP may need to consult with other experts within FDA.  Any time necessary for consultation outside of OPDP is not counted within the 45-day clock and reviews that include consults may not be completed within 45 days.

The new core launch review process will go into effect starting January 1, 2021.

If your 2020 FDA BINGO card included the end to FDA’s Unapproved Drugs Initiative, then, BINGO!  Late last Friday, the Department of Health and Human Services—but not FDA—announced a forthcoming Federal Register Notice withdrawing both the 2006 (Docket No. FDA-2003-D-0030) and 2011 (Docket No. FDA-2011-D-0633) versions of FDA’s guidance document/Compliance Policy Guide (“CPG”), titled “Marketed Unapproved Drugs – Compliance Policy Guide Sec. 440.100, Marketed New Drugs Without Approved NDAs or ANDAs.”

According to the Notice and a Frequently Asked Questions document, “although [the CPGs] originated with the laudable goal of generating more clinical data about unapproved drugs, [they] are linked to prescription drug price increases and shortages.”  That alleged link comes from the results of a 2017 study published in the Journal of Managed Care and Specialty Pharmacy (“JMCP”), titled “The FDA Unapproved Drugs Initiative: An Observational Study of the Consequences for Drug Prices and Shortages in the United States.”  Another, more recent 2020 analysis also alleged prices increases as a result of FDA’s Unapproved Drugs Initiative.

It seems like it was just yesterday that we announced FDA’s September 2011 decision to ramp up enforcement on marketed unapproved drugs with the Agency’s revision to the 2006 Marketed Unapproved Drugs CPG, which is part of the Agency’s broader Unapproved Drugs Initiative.  And now it appears that it is on its way to the ash heap history.  (Though folks should keep in mind that someone’s trash is another’s treasure.  After all, the new administration may decide to reverse course.)

By way of background (and only some background, as the Marketed Unapproved Drugs CPG is rooted in the entirety of FDA law history), for a drug to be legally marketed in the United States, generally it must be approved by FDA as safe and effective for its intended use or comply with an FDA Over-the-Counter (“OTC”) drug monograph.  However, as a result of various changes to the law over the last 100+ years, certain drug products are marketed without approval.  FDA permits, subject to the Agency’s “enforcement discretion,” the marketing of certain unapproved drugs that are neither approved by FDA nor marketed under an OTC drug monograph.  They are, with some exceptions, considered “illegally marketed drug products,” but FDA, for myriad reasons, has generally not opted to take enforcement action against them.

The 2011 Marketed Unapproved Drugs CPG clarified FDA’s approach to prioritizing enforcement actions and exercising enforcement discretion with respect to marketed unapproved drug products.  For products marketed on or prior to September 19, 2011, FDA applied a historical risk-based enforcement approach.  FDA’s risk-based enforcement approach placed higher priority on actions involving unapproved drugs in the following categories:

• Drugs with potential safety risks;
• Drugs that lack evidence of effectiveness;
• Health fraud drugs;
• Drugs that present direct challenges to the new drug approval and OTC drug monograph systems;
• Unapproved new drugs that violate the FDC Act in other ways; and
• Drugs that are reformulated to evade an FDA enforcement action.

Unapproved drugs introduced to the market after September 19, 2011, have been subject to immediate enforcement action.  FDA stated in the 2011 Unapproved Drugs CPG that:

The enforcement priorities and potential exercise of enforcement discretion discussed in [the Unapproved Drugs CPG] apply only to unapproved drug products that are being commercially used or sold as of September 19, 2011.  All unapproved drugs introduced onto the market after that date are subject to immediate enforcement action at any time, without prior notice and without regard to the enforcement priorities set forth below.  In light of the notice provided by this guidance, we believe it is inappropriate to exercise enforcement discretion with respect to unapproved drugs that a company (including a manufacturer or distributor) begins marketing after September 19, 2011. [(Emphasis added)]

Although FDA states in the Unapproved Drugs CPG that “any product that is being marketed illegally is subject to FDA enforcement action at any time,” there is a general exception to this policy for marketed unapproved drugs subject to an ongoing proceeding under the Drug Efficacy Study Implementation (“DESI”) program.  There are very few pending DESI proceedings under the DESI program, which started nearly 50 years ago.  FDA explains this exception in the Unapproved Drugs CPG as follows:

Some unapproved marketed products are undergoing DESI reviews in which a final determination regarding efficacy has not yet been made.  In addition to the products specifically reviewed by the NAS/NRC (i.e., those products approved for safety only between 1938 and 1962), this group includes unapproved products identical, related, or similar [(“IRS”)] to those products specifically reviewed (see 21 CFR 310.6).  In virtually all these proceedings, FDA has made an initial determination that the products lack substantial evidence of effectiveness, and the manufacturers have requested a hearing on that finding.  It is the Agency’s longstanding policy that products subject to an ongoing DESI proceeding may remain on the market during the pendency of the proceeding.  See, e.g., Upjohn Co. v. Finch, 303 F. Supp. 241, 256-61 (W.D. Mich. 1969). [(Emphasis added)]

In addition, some companies market drug products without approval under the premise that they are so-called “grandfathered” drugs, and, therefore, are not “new drugs” subject to the FDC Act’s approval requirements.  To qualify for exemption from the statutory “new drug” definition, a drug product must have been subject to the Federal Food and Drugs Act of 1906 prior to the enactment of the FDC Act on June 25, 1938, and at such time its labeling must have contained the same representations concerning the conditions of its use.  See FDC Act § 201(p)(1).  Thus, for FDA to determine that a drug product is not a new drug under the grandfather exemption, the following two questions must be answered affirmatively:

1. Was the drug product marketed between January 1, 1907 (the effective date of the 1906 Federal Food and Drugs Act) and June 25, 1938?; and
2. Is the drug product at issue the same drug product that was marketed between January 1, 1907 and June 25, 1938, and does its labeling describe the same conditions of use?

Further, a drug product is not a “new drug” if: (1) its composition is such that the drug product is Generally Recognized As Safe and Effective (“GRASE”) by qualified experts under the conditions of use for which it is labeled; and (2) it has been used “to a material extent or for a material time under such conditions.”  See Weinberger v. Hynson, Westcott & Dunning, Inc., 412 U.S. 609, 631 (1973); Premo Pharmaceutical Labs., Inc. v. United States, 629 F.2d 795, 801 (2d Cir. 1980).

Both of these grandfathered drug exemptions have been construed narrowly by courts and FDA.  The burden of proof falls on the party seeking grandfathered status to prove the drug qualifies for such status, and that showing may be difficult to make.  In a 2010 district court decision, the court explained:

Unless the evidence produced by plaintiffs establishes that there have been no changes whatsoever in the formulation, dosage form, potency, route of administration, indication for use, or intended patient population for their 20 mg/ml morphine sulfate oral solution since 1938, plaintiffs’ drug does not qualify for the 1938 grandfather clause exemption. . . .  Plaintiffs admit that they have only been marketing their drug for the past five years and have failed to produce any pre-1938 labeling for their drug.  Thus, it is impossible for plaintiffs to demonstrate that their drug’s “labeling contained the same representations concerning the conditions of its use” in 1938 that it presently contains.

Cody Laboratories, Inc. v. Sebelius, No. 10-DC-00147-ABJ, 2010 WL 3119279 at *13 (D. Wyo. filed July 26, 2010).  Further, FDA has stated, “the Agency believes it is not likely that any currently marketed prescription drug product is grandfathered or is otherwise not a new drug.  However, the Agency recognizes that it is at least theoretically possible.”  Unapproved Drugs CPG at 12 (italics in original).

According to the forthcoming Federal Register Notice, the concern with FDA’s Unapproved Drugs Initiative stems from a passage in the 2011 Marketed Unapproved Drugs CPG concerning so-called “de facto market exclusivity.”

The September 2011 Marketed Unapproved Drugs CPG states that when a company obtains approval of a drug previously marketed without approval, other similar drug products on the market without approval become “[d]rugs that present direct challenges to the new drug approval and OTC drug monograph systems.”  Thus, they become a target for FDA enforcement action.  But that enforcement action is not immediate (or certain).  Here’s how FDA explains the situation in the 2011 Marketed Unapproved Drugs CPG:

When a company obtains approval to market a product that other companies are marketing without approval, FDA normally intends to allow a grace period of roughly 1 year from the date of approval of the product before it will initiate enforcement action (e.g., seizure or injunction) against marketed unapproved products of the same type.  However, the grace period provided is expected to vary from this baseline based upon the following factors: (1) the effects on the public health of proceeding immediately to remove the illegal products from the market (including whether the product is medically necessary and, if so, the ability of the holder of the approved application to meet the needs of patients taking the drug); (2) whether the effort to obtain approval was publicly disclosed; (3) the difficulty associated with conducting any required studies, preparing and submitting applications, and obtaining approval of an application; (4) the burden on affected parties of removing the products from the market; (5) the Agency’s available enforcement resources; and (6) any other special circumstances relevant to the particular case under consideration.  To assist in an orderly transition to the approved product(s), in implementing a grace period, FDA may identify interim dates by which firms should first cease manufacturing unapproved forms of the drug product, and later cease distributing the unapproved product.

The length of any grace period and the nature of any enforcement action taken by FDA will be decided on a case-by-case basis.  Companies should be aware that a Warning Letter may not be sent before initiation of enforcement action and should not expect any grace period that is granted to protect them from the need to leave the market for some period of time while obtaining approval.  Companies marketing unapproved new drugs should also recognize that, while FDA normally intends to allow a grace period of roughly 1 year from the date of approval of an unapproved product before it will initiate enforcement action (e.g., seizure or injunction) against others who are marketing that unapproved product, it is possible that a substantially shorter grace period would be provided, depending on the individual facts and circumstances.

The shorter the grace period, the more likely it is that the first company to obtain an approval will have a period of de facto market exclusivity before other products obtain approval.  For example, if FDA provides a 1-year grace period before it takes action to remove unapproved competitors from the market, and it takes 2 years for a second application to be approved, the first approved product could have 1 year of market exclusivity before the onset of competition.  If FDA provides for a shorter grace period, the period of effective exclusivity could be longer.  FDA hopes that this period of market exclusivity will provide an incentive to firms to be the first to obtain approval to market a previously unapproved drug.  [(Emphasis added)]

Latching on to this last paragraph, the HHS Notice states:

Through a guidance document issued in 2006 and later revised in 2011, and without conducting notice-and-comment rulemaking, FDA launched a program called the Unapproved Drugs Initiative (UDI).  The UDI sprang from a laudable objective, namely to reduce the number of unapproved drugs on the market.  To achieve this end, FDA provided in its 2011 UDI Guidance that “the first company to obtain an approval [of a previously unapproved drug] will have a period of de facto market exclusivity before other products obtain approval.”  The agency “hope[d] that this period of market exclusivity will provide an incentive to firms to be the first to obtain approval to market a previously unapproved drug.”  Ultimately, manufacturers of older drugs previously thought to be exempt from the FDA approval requirement obtained market exclusivity for those products after FDA took unapproved versions off the market.  An unintended consequence of the “period of de facto market exclusivity” provided by the UDI allowed manufacturers an opportunity to raise prices in an environment largely insulated from market competition.

This proffered basis for ending the Unapproved Drugs Initiative seems to this blogger like a bunch of malarkey.

Here are the results and conclusions from the 2017 JMCP article:

RESULTS: Between 2006 and 2015, 34 previously unapproved prescription drugs were addressed by the UDI.  Nearly 90% of those with a drug product that received FDA approval were supported by literature reviews or bioequivalence studies, not new clinical trial evidence.  Among the 26 drugs with available pricing data, average wholesale price during the 2 years before and after voluntary approval or UDI action increased by a median of 37% (interquartile range [IQR] = 23%-204%; P < 0.001).  The number of drugs in shortage increased from 17 (50.0%) to 25 (73.5%) during the 2 years before and after, respectively (P = 0.046).  The median shortage duration in the 2 years before and after voluntary approval or UDI action increased from 31 days (IQR = 0-339) to 217 days (IQR = 0-406; P = 0.053).

CONCLUSIONS: The UDI was associated with higher drug prices and more frequent drug shortages when compared with the period before UDI action, while the approval process for these drugs did not necessarily require new clinical evidence to establish safety or efficacy.

Buried in the article is a short discussion of “de facto exclusivity” as one of the “several possibilities that may account for why the UDI was associated with increased drug prices and shortages” (emphasis added).  And even then, the study authors suggest alternative ways to address the issue:

Our findings suggest several ways to mitigate the unintended consequences of the FDA’s regulation of unapproved drugs through the UDI.  First, the FDA views a short grace period as a way to incentivize manufacturers to be the first to obtain approval of a previously unapproved drug, since it may establish a period of de facto exclusivity for the first manufacturer.  However, grace periods should only be granted when the manufacturer guarantees supply and sets a fair price.  Grace periods should also be made longer to allow time for additional manufacturers to obtain approval.

While FDA’s forthcoming Federal Register Notice states that “[n]othing in this Notice otherwise limits FDA’s authority to take action against manufacturers of unapproved drugs that meet the statutory definition of a ‘new drug’ (such as, for example, an unapproved drug that claims to mitigate, treat, or cure COVID-19) or violate the FD&C Act in other ways,” one has to wonder whether there will now be a return to the Wild West of marketed unapproved drugs instead of companies deciding to seek FDA approval.  Curiously, FDA has been silent on the HHS announcement.

A new administration always brings with it the excitement of new political appointees, briefing books and never-ending speculation about forthcoming changes in the direction of various agencies.  It also brings the opportunity for meetings with incoming government officials for an airing of the grievances.  While Festivus will soon be upon the rest of us (we will save the Feats of Strength for another blogpost), we are referring to the First Amendment: the right of all persons to “petition the government for redress of grievances.”

Companies oftentimes meet with the government entities alone, or under the auspices of a trade association.  But similar-minded competitors collaborating on lobbying, advocacy, comments and other types of “petitioning” as part of a formal or ad hoc coalition is also common.  Regardless of the form the group takes, if two or more competitors are in a room together with or without government officials, all involved should be aware of the antitrust laws.

The law provides a limited exemption from antitrust liability for certain actions by individuals or groups that are intended to influence government decision-making, called the “Noerr-Pennington doctrine.” The purpose of the Noerr-Pennington doctrine is to protect the fundamental right to petition the government, including filing litigation in the courts.  It also seeks to support the flow of information to the government.  Noerr-Pennington immunity developed from two cases in the 1960s: Eastern Railroad Conference v. Noerr Motor Freight, 365 U.S. 127 (1961) and United Mine Workers of America v. Pennington, 381 U.S. 657 (1965).  But like most immunities from the antitrust laws, Noerr-Pennington is narrowly construed and has its limits—parties can’t just point to some potential future political impact of their actions to benefit from Noerr-Pennington immunity.  You can read more about the applicability and limits of the Noerr Pennington doctrine in Federal Trade Commission, Enforcement Perspectives on the Noerr-Pennington Doctrine: An FTC Staff Report (2006).

The bottom line here is any sharing or discussion among competitors regarding pricing, output, business strategies and likely responses to government action can be a minefield unless you carefully establish procedures to prevent the improper use of the information.  Before speaking with competitors, consider a few key antitrust guidelines:

DOs

• Set the ground rules for any competitor meeting, and clearly define the purpose of the meeting. There are many legitimate and laudable purposes for competitors to work together. Identify them and limit discussion accordingly.
• Involve antitrust counsel at the outset to identify potential competition concerns and develop procedures to mitigate risk. Have in-house or outside counsel for at least one party attend industry meetings to ensure that meetings stay appropriately focused and to document what transpires.
• Ensure that all petitioning efforts are focused on obtaining government relief, and not on how individual firms will behave in the market, either independent of such government actions or in response to them. Prospective government petitioning is generally protected activity but agreeing on how to react to existing laws and regulations is not.

DON’Ts

• Avoid exchanging competitively sensitive information. Information exchanges can be pro-competitive and lawful if done correctly. Among other things, data should generally be anonymized, collected by a third party and aggregated.
• Do not have discussions among the competitors about how they will price or compete among each other AFTER they achieve the requested relief from the government.
• Do not use the process of working together as an industry to seek relief from the government as an opportunity to have discussions or enter into agreements that could harm competition that are unrelated, or merely tangentially related, to the requested relief.

On Monday, the Office of Inspector General (OIG) at the U.S. Department of Health and Human Services (HHS) issued a Special Fraud Alert highlighting “some of the inherent fraud and abuse risks” associated with in-person speaker programs, a widely used channel to educate physicians and other health care professionals (HCPs) that prescribe the products of pharmaceutical and medical device manufacturers. According to the OIG, drug and device companies reported paying nearly $2 billion to HCPs for speaker-related services in the past three years.  While most companies have switched to virtual programs due to the COVID pandemic, OIG seems to be taking advantage of the pause in the action to fire what is likely the opening salvo in their renewed focus on speaker programs.

The alert noted OIG’s “significant concerns” that company-sponsored speaker programs that remunerate external HCPs to speak about the company’s drug or device product on behalf of the company may violate the Federal health care program anti-kickback statute (AKS). A party violates that AKS if, among other things, it knowingly and willfully makes an offer, payment, solicitation, or receipt of any remuneration (defined as the transfer of anything of value) to induce purchasing, ordering, recommending, or arranging for the use of items payable by a Federal health care program such as Medicare and Medicaid. See Social Security Act 1128B(b)(1)-(2), 42 U.S.C. § 1320a-7b(b)(1)-(2). The alert warned that all parties involved in speaker programs may be subject to increased scrutiny, including any “drug or device company that organizes or pays remuneration associated with the program, any HCP who is paid to speak, and any HCP attendees who receive remuneration,” such as free food and drink.

The OIG expressed skepticism whether such programs have any educational value, referring to its large number of investigations where speaker programs were allegedly organized with the intent to induce HCPs to prescribe or order (or recommend the prescribing or ordering of) the companies’ products paid for by Federal health care programs. The OIG provided examples of practices that are common in violative speaker programs: tying sales targets to HCP speaker recruitment or remuneration; holding programs at non-conducive venues or events; providing expensive meals; repeat attendance by HCPs at substantially similar trainings; and attendance by the HCP friends or families. According to the OIG, these examples “strongly suggest that one purpose of the remuneration to the HCP speaker and attendees is to induce or reward referrals.” The OIG noted that “[t]he availability of [educational and training] information through means that do not involve remuneration to HCPs further suggests that at least one purpose of remuneration associated with speaker programs is often to induce or reward referrals.”

The alert acknowledged that companies may engage in “meaningful HCP training and education” programs, and a remunerative arrangement may be lawful, depending on the particular facts and circumstances and the intent of the parties. Nevertheless, it presented a non-exhaustive list of “suspect characteristics” that may indicate whether a speaker program arrangement could violate the AKS. Many of the suspect characteristics mirrored the OIG’s examples of violative behavior (no substantive information presented; expensive meal; non-conducive venue for an education event; repeat attendees or attendance by HCP family or friends). Some additional “suspect characteristics” mentioned were the following:

• The company’s sales or marketing business units influence the selection of speakers or the company selects HCP speakers or attendees based on past or expected revenue that the speakers or attendees have or will generate by prescribing or ordering the company’s product(s) (e.g., a return on investment analysis is considered in identifying participants);
• The company sponsors a large number of programs on the same or substantially the same topic or product, especially in situations involving no recent substantive change in relevant information;
• There has been a significant period of time with no new medical or scientific information nor a new FDA-approved or cleared indication for the product;
• Alcohol is available or a meal exceeding modest value is provided to the attendees of the program (the concern is heightened when the alcohol is free);
• The company pays HCP speakers more than fair market value for the speaking service or pays compensation that takes into account the volume or value of past business generated or potential future business generated by the HCPs.

The OIG acknowledges in the Fraud Alert that many in-person activities have been curtailed by the pandemic, but cautions that the risks of these programs will increase once in-person programs resume, and encourages companies to consider less risky means of conveying information to HCPs.

Requirements to correct some of OIG’s “suspect characteristics” were incorporated into a Corporate Integrity Agreement (CIA) that the OIG entered into with Novartis as part of a July 2020 settlement agreement. The settlement resolved a qui tam False Claims Act case targeting Novartis’ speaker programs under the AKS.  Under the CIA, the OIG put strict restrictions on the company’s speaker programs, including prohibitions on holding any speaker events at restaurants and on serving or allowing the sale of alcohol. The CIA also limited the speaker program budget to $100,000 per product or indication (no more than $10,000 per speaker per drug or indication) and only permitted the company to hold such events within eighteen months of approval of such product or indication.  The Novartis settlement is the latest in a long line of settlements involving drug company speaker programs.

The OIG has historically used Special Fraud Alerts to put providers on notice of what it considers to be potentially violative of the AKS.  These alerts are rare—there have been only five such alerts issued in the last twenty years. They often suggest the general direction in which the government intends to focus its enforcement and litigation strategies. The Fraud Alert together with recent DOJ enforcement against speaker programs, specifically the Novartis CIA, which required all External Speaker Programs to be “conducted in a virtual format meaning that the External Speakers shall be remote and shall not be in the same location as any audience member,” indicate that the government will be continuing to scrutinize speaker programs, especially once in-person programs resume after the pandemic.

Hyman Phelps & McNamara, P.C. is pleased to announce that Sara Koblitz has been promoted to Counsel at the firm.

Sara joined HPM in 2017 and advises clients on a broad range of FDA regulatory issues with a particular focus on Hatch-Waxman patent and exclusivity, biosimilars, and the Orange Book. Sara also counsels clients in various stages of product development and guides clients through applicable regulatory requirements with respect to applications and submissions, promotional issues and post-marketing requirements.  Sara’s full bio can be found here.

“Sara is an invaluable member of the firm and our clients rely on her expertise and judgment,” said HPM Managing Director J.P.Ellison.  “HPM is proud to recognize Sara’s significant contributions to the firm and its clients.”

Recently, the Drug Enforcement Administration (“DEA”) published a notice of proposed rulemaking (“NPRM”) that provides much needed clarity on the requirements for how emergency medical services handle controlled substances.  The NPRM would codify its regulations consistent with the Protecting Patient Access to Emergency Medications Act of 2017 (“the Act”).  Registering Emergency Medical Services Under the Protecting Patient Access to Emergency Medications Act of 2017, 85 Fed. Reg. 62,634 (Oct. 5, 2020). Electronic comments on the proposed rulemaking must be submitted, and written comments postmarked, on or before December 4, 2020.

The Act amends the federal Controlled Substances Act (“CSA”) allowing for a new DEA registration category of emergency medical services (“EMS”) agencies, establishing registration standards and controlled substance delivery, storage and recordkeeping requirements for EMS agencies.

Currently, EMS vehicles have generally obtained controlled substances pursuant to physician instructions under the hospital’s DEA registration.  An EMS vehicle owned and operated by a hospital handles controlled substances under the hospital’s registration and obtains controlled substances from the emergency room as an extension of the hospital pharmacy.  In the alternative, an EMS agency acts as the hospital’s agent under the hospital registration and the hospital supplies controlled substances to EMS vehicles.

Many EMS agencies utilize the ‘‘hub-and-spoke’’ model whereby they have a main, centralized location that manages satellite stationhouses located throughout an area to timely respond in medical emergencies.  DEA is proposing to allow EMS agencies to obtain a single registration in each state where they operate rather than requiring them to obtain a separate registration at every location within that state.  DEA also proposes to allow hospital-based EMS agencies to operate under the hospital’s registration to administer controlled substances without being separately registered.

The Act authorizes EMS agencies to designate unregistered locations where controlled substances could be delivered and stored, requiring registered EMS agencies to notify DEA at least 30 days before delivery.  DEA proposes requiring notification designated locations through the agency’s website.  (An EMS agency must still obtain a DEA registration for the location where it receives controlled substances from outside the agency).  An EMS agency that has identified designated locations to DEA may deliver controlled substances to the locations after notifying DEA unless DEA objects.

DEA is proposing to allow EMS agencies to identify stationhouses as designated locations.   Only an agency location meeting the definition of a stationhouse, i.e., an enclosed structure housing EMS vehicles in the state where the EMS is registered which are used for emergency response, can be a designated location.  A building housing public fire and rescue equipment constitutes a stationhouse and can be selected as a designated location by a DEA-registered EMS agency.

DEA is proposing to codify where registered-EMS agencies may store controlled substances.  Permissible locations include the agency’s registered and designated locations, as well as EMS vehicles.  The Act, and DEA’s proposed regulation, define EMS vehicles as ambulances, fire apparatus, supervisor trucks, and other EMS agency vehicles used to provide or facilitate emergency medical care, and that transport controlled substances to and from registered and designated locations.  Controlled substances can be supplied to, and stored in, EMS vehicles under the control of the consultant practitioner’s registration or hospital’s registration.  DEA proposes allowing registered EMS agencies to store controlled substances in EMS vehicles at the registered location, a designated location, traveling between those locations or responding to an emergency.

DEA proposes to require EMS agencies to maintain records of the EMS personnel whose state license authorizes them to administer controlled substances in compliance with state law.  DEA observes that as states have different requirements for the authority to handle controlled substances, maintaining records of employees authorized to handle controlled substances will assist DEA to identify the source of any diversion at EMS agencies.

Because EMS personnel may not have time after an emergency response to return to the stationhouse to restock their vehicle, DEA is proposing to allow nonhospital-based EMS agencies to receive controlled substances from a hospital.

DEA is proposing that EMS agencies maintain records at each registered and designated location where it receives, administers and otherwise disposes of controlled substances.  Delivery records must include controlled substance name, finished form, unit quantity in commercial containers, date, and agency location address where controlled substances are delivered.  EMS personnel must document each administration with drug, date and patient.  DEA notes that these requirements are necessary because EMS personnel lack independent authority to administer controlled substances.

DEA proposes that designated EMS agency locations notify the agency’s registered location within 72 hours of receiving controlled substances from a hospital for restocking an EMS vehicle following an emergency response.  EMS agencies operating under a hospital-based registration receiving restock from the hospital would be exempt from this requirement because the hospital would have a record of the controlled substances delivered to the EMS agency operating under the hospital’s registration.

Recognizing that EMS agencies have unique security concerns, DEA is proposing to implement physical security requirements for EMS agencies similar to requirements for practitioners.  DEA proposes to allow EMS agencies to store controlled substances in a securely locked, substantially constructed cabinet or safe that cannot be readily removed at a registered location, designated location or in an EMS vehicle.

DEA proposes to also allow EMS agencies to store controlled substances in automated dispensing system (“ADS”) machines.  An ADS machine is “a mechanical system that performs operations or activities, other than compounding or administration, relative to the storage, packaging, counting, labeling, and dispensing of medications, and which collects,

controls, and maintains all transaction information.” 21 C.F.R. § 1300.01.  An ADS machine at an EMS agency’s registered or designated location would serve as a storage container before controlled substances are placed into EMS vehicles, and would facilitate monitoring transactions.  Further, DEA proposes that an EMS agency can store controlled substances in an ADS machine if:

(1) The ADS machine is located at a registered or designated location;

(2) The agency does not allow any entity other than the registered agency to install and operate the ADS machine;

(3) The ADS machine cannot directly dispense controlled substances to an ultimate user; and

(4) The agency operates the ADS machine in compliance with state law.

While the Act allows for controlled substance deliveries between EMS registered and designated locations, DEA is proposing that deliveries to registered or designated locations can only be accepted by the agency medical director or a person the medical director designates in writing.  DEA is proposing to require the medical director or designated person receiving the controlled substances to maintain records with their signature, title, date and quantity received.

DEA proposes to allow EMS professionals of registered EMS agencies when providing emergency services to administer controlled substances outside the physical presence of the medical directors or authorizing medical professional under their state license.  EMS professionals outside the physical presence of a medical director or authorizing medical professional must have authority to administer controlled substances pursuant to a standing or verbal order issued and adopted by agency medical directors.

Agencies have given EMS personnel autonomy to administer controlled substances in emergencies by establishing standing orders.  Under the Act, a standing order is “a written medical protocol in which a medical director determines in advance the medical criteria that must be met before administering controlled substances to individuals in need of emergency medical services.” 21 U.S.C. § 823(j)(13)(M).  DEA proposes to incorporate that definition into its regulations.  The proposed regulation also allows standing orders developed by state authorities to be issued and adopted by an EMS agency medical director.  Only the medical director of an EMS agency has the authority to issue and adopt a standing order.  EMS agencies must maintain a record of the standing orders issued and adopted at their registered location.

In the absence of standing orders, EMS personnel can receive and administer under verbal orders.  A verbal order is an oral directive communicated directly to an EMS professional to contemporaneously administer a controlled substance to individuals in need of emergency medical services outside the presence of the medical director or authorizing medical professional.  21 U.S.C. § 823(j)(13)(N).  Authorizing medical professionals include emergency or other physicians, or other medical professionals (including advanced practice registered nurses or physician assistants) acting within the scope of their DEA registration whose practice under their state license includes authority to provide verbal orders.  21 U.S.C. § 823(j)(13)(A).

DEA is proposing consistent with the Act that an EMS professional can administer controlled substances outside of a practitioner’s presence when providing emergency medical services if authorized by state law and pursuant to a verbal order.  The authorization must be provided by a medical director or authorizing medical professional in response to an EMS professional’s request for a specific patient.

Of all scenarios for obtaining, administering and securing controlled substances within the CSA’s closed system, doing so by EMS agencies and personnel in emergency situations require the most flexibility.  The Act, and now DEA’s proposed regulations, provide adequate clarification and needed flexibility for EMS agencies in different scenarios to handle controlled substances in emergency situations without increasing risk that the drugs may be diverted.

Hyman, Phelps & McNamara, P.C. (“HP&M”) has been named the FDA Law “Law Firm of the Year” by the folks over at U.S. News & World Report, who teamed up with Best Lawyers for the 2021 “Best Law Firms” rankings.  We’re truly honored!  But the honors don’t stop there.  HP&M was also once again ranked as a “Tier 1” law firm in the area of “FDA Law” (both nationally and in Washington, D.C.).

“The 2021 rankings are based on the highest lawyer and firm participation on record, incorporating 8.3 million evaluations of more than 110,000 individual leading lawyers from more than 22,000 firms. . . .  This year we reviewed 15,587 law firms throughout the United States – across 75 national practice areas – and a total of 2,179 firms received a national law firm ranking,” according to U.S. News.  The “Best Law Firms” rankings are based on a combination of client feedback, information provided on the Law Firm Survey, the Law Firm Leaders Survey, and Best Lawyers peer review.

As we blogged about last week, DEA published its long-anticipated Notice of Proposed Rulemaking (“NPRM”) addressing suspicious orders of controlled substances.  The Proposed Rule is intended to (finally) “clarify” the procedures that DEA registrants must follow for what DEA now deems “orders received under suspicious circumstances” (“ORUCS”).  In particular, DEA sets forth exactly what registrants are supposed to report to DEA’s centralized reporting database if they determine, through the exercise of due diligence, that the order is indeed “suspicious” as defined in 21 C.F.R. § 1301.74(b).  DEA states that the reporting requirement is one of the five “closely related legal obligations contained in the CSA and DEA regulations,” relating to the obligation to identify and report suspicious orders of controlled substances.

DEA elaborates on the five “requirements” as follows: (1) The obligation to maintain effective controls against diversion; (2) to conduct due diligence; (3) to design and operate a system to identify suspicious orders for the registrant; (4) to report suspicious orders (the reporting requirement); and (5) to refuse to distribute controlled substances that are likely to be diverted into illegitimate channels (the shipping requirement).  DEA also notes that Congress’ inclusion of the phrase “may include, but not be limited to” in the definition of “suspicious order” as part of the Preventing Drug Diversion Act (“PDDA”) of 2018 clarified that an order for controlled substances may be “suspicious” for reasons of its size, pattern or frequency, including reasons “related to the customer selling the order.”  While this “clarification” is indeed welcome, it surely was not readily ascertainable from either the PDDA’s, or Section 1301.74(b)’s definition of “suspicious order.”  DEA’s suspicious order regulation itself had left registrants guessing on what exactly to report — and DEA second guessing those reports — for years.

Under the Proposed Rule’s clarified framework for reporting suspicious orders after their identification, registrants have two options: (1) immediately file a suspicious order report (and maintain a record of the same), or (2) conduct due diligence concerning the suspicious circumstances surrounding the ORUSC (and maintain a record of the same).

DEA states that all suspicious order reports must be entered in the DEA’s centralized database within a seven calendar day time period “upon discovering” a suspicious order.  Importantly, the reports must contain certain required information, as follows:

• The DEA registration number of the registrant placing the order
• The date the order was received
• The DEA registration number of the registrant reporting the suspicious order
• The National Drug Code number, unit, dosage strength, and quantity of the controlled substances ordered
• The order form number for Schedule I and II controlled substances
• The unique transaction identification number for the suspicious order, and
• What information and circumstances render the order actually suspicious.

Readers may remember that one year ago, on October 23, 2019, DEA announced the availability of the Suspicious Orders Report System (“SORS”) Online for reporting of suspicious orders, as required by the PDDA.  DEA made this announcement, however, without providing the industry any advance notice or opportunity for comment (likely because DEA was facing a statutory deadline under the PDDA to make this portal available).  Importantly, SORS Online established more than just an online reporting method because DEA also for the first time required registrants to provide a “reason code” in the electronic suspicious order report.  Now — a year later — it appears DEA is trying to put some context around its expectations for documenting the basis for reporting a suspicious order.

Notwithstanding this proposed “new” requirement, which seems extremely costly and burdensome if the registrant does not already have such an electronic data capture and reporting system in place, DEA states that reporting to the DEA centralized database “is estimated to impose no additional burden” on registrants.  Hmmmm.  DEA notes that it believes that it is further “reasonable to estimate virtually all affected registrants have information systems capable of completing, submitting, and retaining electronic suspicious order reports at minimum additional cost.”  However, DEA admits that there are 15,974 practitioners and NTPs that distribute pursuant to the DEA’s “5 percent rule” that would now be required to identify and report suspicious orders.  In our opinion, few of these entities have previously established comprehensive SOM policies and procedures as DEA is now requiring.  Our continued review of the NRPM also raises concerns that DEA significantly underestimates the Rule’s regulatory impact and financial burden. The regulatory impact and financial burden will be addressed in a subsequent blogpost.

DEA adds that it “welcomes any comments” regarding the cost of complying with the reporting requirement, especially for those registrants that may not have access to broadband internet access.  Interestingly, in continuing to address its understanding and belief this is not a significant burden on registrants, DEA also says reporting of this information is a “codification of content expected of current suspicious order reports or content subsequently requested by DEA if not reported in a suspicious order report.”  Again,  hmmmm.  This may also leave numerous registrants (and their counsel) scratching their heads, because DEA (in its regulations, guidance or even less formal communications) never before has articulated any expectation — clear or otherwise — concerning “what” suspicious order information must be reported.  It is our understanding that, contrary to DEA’s claim that this is the type of information DEA requested from registrants in follow-up communications, we know of few, if any, registrants that received follow-up communications from DEA concerning an earlier suspicious order report.  In any event, such DEA follow-up was likely quite rare relevant to the number of reports the Agency received.

The comment period for the proposed rule ends on January 4, 2021, so time is ticking if for those registrants that find some (or all) of the new requirements inappropriate or otherwise unworkable.   And, stay tuned for another post soon on what DEA wants to hear about in industry comments.