In a jaw-dropping move, HHS  announced today that, effective immediately, FDA will no longer require premarket review of laboratory developed tests (LDTs)—including LDTs to detect the virus that causes COVID-19—absent notice and comment rulemaking.  HHS is rescinding all guidance documents and informal statements of policy concerning LDTs.  HHS said that it made this decision “as part of the HHS’s ongoing department-wide review of regulatory flexibilities enacted since the start of COVID-19” and consistent with Executive Orders 13771 (Executive Order on Reducing Regulation and Controlling Regulatory Costs) and 13924 (Executive Order on Regulatory Relief to Support Economic Recovery).  HHS offered no further explanation for this abrupt about-face.   Nor did HHS explain why this new approach was not extended to other FDA policies that have increased regulation and regulatory costs for companies seeking to offer COVID-19 tests (see our previous post here).

As a consequence of HHS’ decision, clinical laboratories will no longer be required to submit a request for emergency use authorization (EUA) before offering LDT-based testing for COVID-19.  The announcement does not alter clinical laboratory obligations under the Clinical Laboratory Improvement Amendments (CLIA).

According to the announcement, clinical laboratories may still voluntarily seek an EUA from FDA for COVID-19 tests, and laboratories that offer such LDTs without premarket authorization will not be eligible for PREP Act coverage.  As discussed in a previous post, the PREP Act provides immunity from liability for losses related to medical countermeasures used to combat a declared public health emergency.  The liability immunity applies to entities involved in the development, manufacture, testing, distribution, administration, and use of such medical countermeasures.  Clinical laboratories that have already obtained an EUA (or other marketing authorization) for an LDT are not affected by this announcement.

As readers of the blog know, we have long been critical of FDA’s limitations on LDTs (see, e.g., prior posts here, here, here, here, and here).  HHS’s announcement has far-reaching implications for all clinical laboratories offering LDTs, which we will explore in future blog posts.

Earlier this week, FDA was supposed to issue proposed rules—years in the making—implementing over-the-counter (OTC) hearing aid rules, as required by the Food and Drug Administration Reauthorization Act (FDARA) (read HPM’s summary here).  Under FDARA, FDA is required to issue proposed rules three years from the Act’s approval on August 18, 2017 and issue final rules 180 days after the close of the proposed regulation comment period.  August 18, 2020 has now come and gone with no sign of the proposed rule.  In fact, it hasn’t even been added to OMB’s dashboard, suggesting that it hasn’t been sent to OMB for review (though, we note the possibility that the rule could skip OMB review).

Given the current state of the world, and FDA’s significant role in addressing COVID-19, it’s not entirely surprising that FDA missed the statutorily mandated release date, but it does have us guessing as to the reasons for the hold-up. Given that many of the technical aspects of the rule were likely addressed in last year’s Bose de novo review, our best guess is that the broad preemption provisions are giving FDA trouble.  For those of you unfamiliar, the statute provides:

No State or local government shall establish or continue in effect any law, regulation, order, or other requirement specifically related to hearing products that would restrict or interfere with the servicing, marketing, sale, dispensing, use, customer support, or distribution of over-the-counter hearing aids . . . through in-person transactions, by mail, or online, that is different from, in addition to, or otherwise not identical to, the regulations promulgated under this subsection, including any State or local requirement for the supervision, prescription, or other order, involvement, or intervention of a licensed person for consumers to access over-the-counter hearing aids.

FDA therefore has to figure out how to go about preempting the hodge-podge of state consumer protections that currently govern hearing aids, applied through the licensing scheme.  That’s no easy feat.

As Bridget Dobyan, Director of Public Policy and Advocacy at the Hearing Industries Association, and I detail in a recent article in Hearing Review, preemption raises significant concerns about the future of several consumer protections that flow through the hearing aid professional license.  Specifically, we flag for FDA the following major areas that preemption could impact:

• licensing;
• receipt requirements;
• return periods;
• promotion and advertising; and
• assistive technology device warranties.

Figuring out a scheme to preempt restrictive state rules while maintaining important consumer protections will be incredibly tricky, and we look forward to seeing how FDA decides to address it.  For now, we continue to anxiously await the release of FDA’s proposed OTC hearing aid rules, as we have for the last three years.

“Here’s a rule of thumb; too clever is dumb.” Unfortunately, eight people didn’t follow Ogden Nash’s rule of thumb and are now facing a 19-count criminal indictment for falsifying records of clinical trials of investigational drugs and lying about it to FDA.

The 60-page indictment was returned by a grand jury in the Northern  District of Ohio, Eastern Division, and charges the defendants with criminal conspiracy, mail fraud, wire fraud and violations of the Federal  Food, Drug, and Cosmetic Act. In plain English the defendants are alleged to have falsified records of subjects in clinical trials and billed pharmaceutical companies for work that was never done. The indictment does not name the seven drug companies that were the victims of defendants’ conduct.  Instead, they are identified only as Sponsors 1 through 7.

Several of the defendants are related to each other by blood or marriage. For example, Amie Demming was President of Company 1 (the indictment does not provide the company’s name nor was any company indicted.). Also indicted were Demming’s mother, Debra Adamson who was Vice President of Clinical Operations, Demming’s brother William Adamson, William’s wife Ashley Adamson, and Walter O’Malley who was described as the “romantic partner”  of  Demming but was not an employee of Company 1. The three other defendants were employees of Company 1 including John Panuto who is a medical doctor and was the Principal Investigator for Company 1.

Reading the examples of document falsification leads one to wonder how these defendants ever thought for a moment they could get away with this conduct. Of course, the defendants are presumed innocent and the government has to prove its case beyond a reasonable doubt but here are a couple of examples alleged in the indictment:

• A woman by the name of “Nicole A. Bockman” was enrolled in a study conducted for Sponsor 1. However, there was no such study subject. According to the indictment, “Bockman” was Ashley Adamson’s maiden name and Nicole is her middle name. In addition, “Bockman” was enrolled in the study using Ashley Adamson’s correct date of birth and social security number. Debra Adamson signed the informed consent form attesting that she had obtained the informed consent to participate in the study from “Nicole Bockman.”
• “Hank W. Bobart” was another subject enrolled in the same study. According to study records he had the same date of birth and social security number as William Adamson. The real William Adamson signed the informed consent form attesting that he had obtained informed consent from “Hank Bobart.”
• The indictment alleges that Sponsor 1 paid Company 1 approximately $760,000 to conduct this study.

There are many more allegations of a similar nature involving the six other Sponsors. The indictment also alleges that the defendants knowingly made false statements to FDA. This is certainly not the first time companies have submitted false information to FDA but thankfully those are rare events. It also appears that in this case no drugs were approved and sold to consumers based on the studies “conducted” at Company 1.

As noted above one of the defendants is named Walter O’Malley. That name brings up memories of a long-deceased man of the same name who was the owner of the Brooklyn Dodgers baseball team which he moved to Los Angeles after the 1957 season.  For this treachery O’Malley was despised in Brooklyn . There was a joke at the time about what a person should do if he found himself in a room with O’Malley, Hitler and Stalin and he had a gun with only two bullets. The correct answer was to shoot O’Malley twice to make sure he was dead.

On July 23, FSIS acknowledged that it had received a Petition from the Harvard Law School’s Animal Law and Policy Clinic (Harvard or Petitioner) regarding the naming of cell-based or cultured meat and poultry products. Petitioner requests that the Food Safety Inspection Service (FSIS) of the USDA establish a labeling approach for cell-based meat and poultry that “does not overly restrict speech and that respects the First Amendment.”

As readers of this blog know, the issue of naming of what has been referred to as cell-based, cultured, or clean meat has been a topic of contention in recent years.  In February 2018, the United States Cattlemen’s Association (USCA) asked that FSIS establish formal definitions for “meat” and “beef” that would exclude what USCA called “lab grown” meat.  The USCA petition generated much discussion and based  on comments by many, including other meat and poultry associations, it became clear that there was no general agreement on the necessity to prohibit the use of the terms such as beef, meat, chicken, etc. for cell-based animal products.  FSIS has not yet responded to the USCA petition.

Meanwhile, in the absence of federal action, several states developed laws that bar cell-based meat companies from using common food terms traditionally used for products from slaughtered animals such as “beef” and “chicken.”

Cell-based products are still in development and detailed information about the composition and nature of the future cultured meat products is not (publicly) available.  (In a recent scientific conference, Dr. G. Forgacs, chief scientific officer of Fork & Goode, indicated that the cultured product is a “structureless biomass.”)

Nevertheless, based on statements by FSIS officials cited by Petitioner it appears that FSIS is in the process of drafting labeling regulations for cell-based products.  More recent statements in a joint FDA/USDA webinar confirm that FDA and FSIS are developing joint principles for the labeling of these products and FSIS mentioned that it plans to develop regulations for the labeling.  However, it did not identify a timeline.

The Petition by Harvard requests that FSIS use a flexible labeling approach that does not require new standards of identity or disclosures unless necessary to protect consumers from “an increased food safety risk or material compositional difference.” The Petition warns that a restrictive federal labeling policy can be expected to face legal challenges because of violation of the First Amendment commercial speech protections.  Petitioner asserts that, at this time, there is insufficient information about the cell-based products and, therefore, FSIS cannot determine what restrictions (if any) on the use of existing standards of identity and common or usual names now used on conventionally produced products would be needed to protect the consumer.

Petitioner also calls on FSIS to consult with FDA to ensure “regulatory consistency for cell-based meat and seafood products” and to offer “certainty to producers and states.”  The recently posted joint webinar indicates that FSIS and FDA are in fact cooperating on the development of procedures regarding the safety and labeling of cell-based products.

FSIS considers the Petition a rulemaking petition and referred it to the Office of Policy and Program Development.

On August 7^th, FDA Commissioner Dr. Stephen Hahn, CBER Center Director Dr. Peter Marks, and FDA Deputy Commissioner Dr. Anand Shah published an article in the Journal of the American Medical Association (JAMA) outlining what the review standards would be for the COVID-19 vaccines currently under development.

There are currently dozens of COVID-19 vaccine candidates in development, however, only five of those have been selected by FDA as the most likely to produce a vaccine for COVID-19 under Operation Warp Speed:

• The two messenger RNA vaccines from Moderna and BioNTech/Fosun Pharma/Pfizer, both of which have recently begun phase 3 clinical trials;
• Merck’s recombinant vesicular stomatitis virus vector vaccine;
• Johnson & Johnson/Janssen Pharmaceuticals replication-defective human adenovirus 26 vector vaccine; and
• AstraZeneca/University of Oxford’s replication defective simian adenovirus vector vaccine.

It is worth noting that all of these vaccine candidates are aimed at inducing antibodies directed against the receptor-binding domain of the surface spike protein of the virus.

The publication of this JAMA article by FDA officials is largely in response to concerns expressed that political pressure to get a vaccine approved will result in less robust vetting of the biological product by CBER than under normal circumstances.  To the contrary, the authors emphasize that the candidate vaccines “…will be reviewed according to the established legal and regulatory standards for medical products…[T]here is a line separating the government’s efforts to focus resources and funding to scale vaccine development from FDA’s review processes, which are rooted in federal statute and established FDA regulations…”

Apart from the concern over political pressure to license a COVID-19 vaccine that might not have been fully vetted, there are inherent risks in shortening the timeline of vaccine development from over a decade to less than a year.  Having spent many years at FDA, including several years as a deputy office director at CBER, it goes without saying that shortening timeframes by an order of magnitude is not easily achieved without creating unintended adverse consequences, particularly when a bureaucracy is involved.

In addition there is concern that the technologies being used for the vaccine candidates referenced above are largely novel in that only one of the five candidates uses a technology that has previously been employed for licensure of a vaccine intended for humans, namely, Merck’s recombinant vesicular stomatitis virus vector platform, which was most recently used for last year’s licensure of Ervebo, against Ebolavirus.  Indeed, there are no licensed messenger RNA vaccines, and because the RNA is so susceptible to degradation in vivo, its effectiveness depends in part on the novel lipid delivery system that would transport the RNA to the site of action.

To that end, the article states that the agency is committed to ensuring that all such vaccines are manufactured in accordance with FDA’s quality standards and that their safety and efficacy are verified before being authorized or licensed, adding that recommending a baseline for performance is necessary to provide confidence to the public that broad distribution of a potential vaccine could offer immunity to the majority of the population:

FDA has specifically recommended in its guidance to vaccine developers that the primary efficacy endpoint point estimate for a placebo-controlled efficacy trial should be at least 50%, and the statistical success criterion should be that the lower bound of the appropriately alpha-adjusted confidence interval (CI) around the primary efficacy endpoint point estimate is >30%.

Next, the authors state that to achieve population-wide immunity these vaccines would need to be widely disseminated in clinical trials, including with sufficient representation of racial and ethnic minorities, older adults, and individuals with medical comorbidities.

Finally, the article states that the vaccines could be reviewed under either the traditional Biologics License Application (BLA) framework or under the Emergency Use Authorization (EUA) program, and that issuance of an EUA for a COVID-19 vaccine could either occur once a sponsor’s studies have demonstrated safety and efficacy of the vaccine but before submission of the BLA or, alternatively, during the review of the BLA.

We are certainly hoping that FDA’s objectives are borne out when the application reviews take place in the coming months, and that the vaccines are legitimately determined to be safe, pure, and potent prior to widespread use.

Under the Sunscreen Innovation Act (SIA), GAO was to review and report on FDA’s regulation of sunscreens and other over-the-counter (OTC) drugs.  In late July, 2020, GAO issued its report on its performance audit conducted from July 2019 through July 2020.  The report focuses on factors that affect FDA’s ability to regulate OTC drugs, how FDA identifies and handles safety issues, and the status of FDA’s implementation of the SIA.  Due to the enactment of the CARES Act in March 2020, which includes OTC monograph reform legislation which extensively overhauls the OTC program and was intended to address some of these very issues (see our blog post here), the value of the report has diminished.

The report provides a summary of the reasons often cited for the need for monograph reform and of the major relevant provisions of the CARES Act.  GAO was informed by FDA officials that the OTC monograph system limited the Agency’s responsiveness. Due to the requirement for rulemaking and insufficient resources, the Agency was hindered in updating and amending a monograph in response to safety concerns.  However, this all changed in March 2020.  As we described in our memo (an updated version of which can be found here), the new legislation reforms the monograph system to one of administrative orders.  Instead of rulemaking which would take six or more years, FDA expects that the administrative orders process can be completed in less than two years.  Moreover, the legislation established an expedited process to address safety issues that pose an imminent hazard to public health or to change a drug’s labeling to mitigate a significant or unreasonable risk of a serious adverse event.

With respect to the requirements under the SIA, GAO notes that FDA had implemented most of the required activities within the mandated time frames, except that FDA did not meet the deadline of November 2019 for a final monograph for OTC sunscreen products.  However, this requirement was eliminated under monograph reform.  That said, the comments to the proposed rule will need to be considered in FDA’s future administrative order for OTC sunscreen drug products.  As of June 2020, FDA officials told GAO that the agency had not yet completed its review of the provisions in the CARES Act that affect FDA’s regulation of OTC drugs, and, therefore, officials could not comment on the specific requirements that will be included in the newly deemed administrative order. FDA officials said the Agency did not yet have a plan or time frame for publishing the deemed administrative order for sunscreen.  GAO also included a brief description of the 15,000 comments FDA received on the proposed sunscreen rule.  FDA informed GAO that 1,100 of the comments were unique comments and more than 100 comments included extensive attachments, such as studies or technical comments.

GAO also reports that FDA officials said it will take time before FDA is able to fully realize any benefits that might result from changes in the CARES Act. For example, it generally takes two years for any newly hired FDA staff to complete training and to acquire the knowledge and experience needed to be fully effective in reviewing scientific information related to the regulation of OTC drugs.

The new monograph user fee system is intended to provide FDA with much needed resources.  However, FDA may only collect user fees in the amount provided in an appropriation act.  As of the end of July 2020, legislation providing for an appropriation for the OTC user fees has not been enacted.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

DEA seeks comments from industry on the following:

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

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

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

Raising Registration Fees

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

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

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

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

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

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

Fee Calculation Methodology

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

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

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

The New Fees

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

Current and New Fees for Three-Year Cycle Registrants

Current and New Fees for Annual Cycle Registrants

Fed. Reg. 44,718.

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

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

Fee Refunds

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

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

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

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

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

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

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

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

Executive Order on Importation of Drugs

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

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

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

Executive Order on PBM Rebates

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

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

Executive Order on Dispensing of Insulin and Epinephrine by FQHCs

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

Possible Executive Order on International Reference Pricing

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

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

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

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

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

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

The published guidances address options 2 and 3.

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

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

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

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

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