On November 5, 2019, the U.S. District Court for the Northern District of California ruled in favor of Theranos founder Elizabeth Holmes and former Theranos president Sunny Balwani, in a battle over access to government documents.  While this represents a small victory for these defendants, it may not ultimately impact the outcome of this high-profile criminal prosecution.

In response to charges of wire fraud and conspiracy to commit wire fraud against key officers of the now-extinct Theranos, Holmes and Balwani moved to compel federal prosecutors to produce documents held by FDA and CMS. Under Ninth Circuit case law, DOJ prosecutors have access to discoverable material, even if held by other government agencies. The prosecution maintained that it could not be compelled to produce documents from governmental agencies outside DOJ because it lacked access to such documents. The court disagreed, however, noting that Rule 16 “grants criminal defendants a broad right to discovery.”  The court noted that while FDA and CMS are not a part of DOJ, they clearly have been involved in the litigation, pointing to the significant access, communication and assistance by-and-between the three Agencies.  The government was thus ordered to produce the documents as part of their Rule 16 obligation and to “assist the Agencies however possible to ensure the timely production of documents.”

Defendants also identified several deficiencies relating to the Agencies’ preservation efforts of the documents the government had produced.  For example, defendants claimed, FDA, rather than produce documents in whole or in original format, “produced [over 1,000 emails] as fragmentary documents – i.e., that the produced emails omit portions of the original email, such as the ‘to,’  or ‘from,’ or the body fields….”  Defendants also complained FDA failed to run appropriate search terms and, in its order, the court dictated the use of specific terms in FDA’s files: “LDT,” “Laboratory Developed Test,” “Theranos,” “fingerstick,” “finger stick,” and “nanotainer.”

Lastly, the court ordered the parties (including FDA and CMS) to meet and confer on outstanding discovery issues, such as production of employee text messages and de-duplication of documents.  The court set a tight production deadline of December 31, 2019, just in time for New Year’s celebrations.

On November 5, 2019, the U.S. District Court for the Northern District of California added another entry in the long running saga United States ex rel. Campie v. Gilead Sciences, Inc. when it granted the DOJ’s motion to dismiss.  We have extensively covered this case (see here, here, here, here, here, here, here, and here), but an overview is helpful to understand the latest development.

This case results from a qui tam complaint filed in 2010 by two former employees alleging that Gilead made false statements to the FDA about the company’s anti-HIV drugs.  According to the relators, if the FDA had been aware of the false statements it would not have permitted Gilead to market the drugs.  Because the drugs were reimbursed by federal healthcare programs, the relators contended that Gilead’s actions resulted in the submission of false claims in violation of the False Claims Act (FCA).  The DOJ declined to intervene in the case, but the relators chose to proceed with the litigation.  The District Court dismissed the relators’ complaint twice for failure to state a claim under the FCA.  However, in July 2017, the Ninth Circuit Court of Appeals reversed the District Court and found that the relators had alleged sufficient facts to state a claim for relief.  Gilead’s petition for rehearing before the Ninth Circuit was denied, so the company filed a petition for certiorari with the Supreme Court in December 2017.  In April 2018, the Supreme Court invited the U.S. Solicitor General to file a brief expressing the views of the United States on Gilead’s petition.  The DOJ’s Statement of Interest, filed in November 2018, generally agreed with the Ninth Circuit decision but also disclosed that the government would affirmatively seek dismissal of the case if it was remanded.  The Supreme Court denied Gilead’s petition for certiorari in January 2019, and the case returned to the District Court.  The DOJ filed its motion to dismiss in March 2019.

The District Court evaluated the DOJ’s motion to dismiss using the two-step analysis established in United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139 (9th Cir. 1998).  Under the Sequoia Orange test, the government’s dismissal of an FCA case may be justified based on “(1) identification of a valid government purpose; and (2) a rational relation between dismissal and accomplishment of the purpose.”  If the government satisfies the two-step test, the burden switches to the relators “to demonstrate that dismissal is fraudulent, arbitrary and capricious, or illegal.”

In its motion to dismiss, the DOJ identified two government purposes to support dismissal of the relators’ suit: (1) to prevent undermining the decisions made by FDA and CMS about how to address the conduct at issue, and (2) to avoid the additional expenditure of government resources on a case that it fully investigated and decided not to pursue.  The relators acknowledged that these purposes have previously been identified by the DOJ as relevant considerations (see our post about the Granston memo), but argued that there was an insufficient factual basis to support the asserted government purposes.

The District Court did not agree with the relators’ assessment, in part due to the “substantial evidence” the DOJ presented about its investigation which included interviews with the relators and other witnesses, consultations with experts from FDA, meetings with Gilead, collection of over 600,000 pages of documents, and review of the history of multiple manufacturing lots identified by the relators as having problems.  The Court also looked at FDA’s oversight of Gilead and noted that history included a Warning Letter, Field Alert Reports, and multiple inspections.  Based on this history, the Court concluded that there was a “concrete factual basis” for the government to argue that allowing the case to proceed would undermine the decisions made by FDA and CMS.

The relators also argued that the DOJ did not provide a factual basis for the second identified government purpose, the cost of continued litigation.  Although the Court noted that the DOJ could have provided a more specific and robust cost analysis, the Court ultimately determined that the DOJ had considered the cost and benefit such that its decision to seek dismissal was supported by a rational basis.  The Court also acknowledged that the facts of this case would likely entail extensive discovery of government witnesses and documents due to the unresolved issue of whether Gilead’s alleged false statements were material.  The Court reasoned that discovery into what the government knew and when could not be avoided if the case continued.

After determining that the DOJ had met the two-step Sequoia Orange test, the Court then concluded that the DOJ’s decision to dismiss this case was not arbitrary and capricious.  As such, the Court granted the DOJ’s motion to dismiss, but noted that the relators could still proceed with their remaining claims.

After almost ten years of investigation and litigation, this may be the end of this saga.  Although this case once seemed destined to provide clarity on the materiality standard established in Universal Health Services. Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016), it appears that we may need to continue to wait for that clarity.  However, this case does reveal how the DOJ is implementing the Granston memo and the factors and evidence that may be used to support the dismissal of FCA claims when the government declines to intervene in a qui tam case.

FDA is issuing final guidance on how device firms may request review of a decision to withhold issuance of a Certificate to Foreign Government (CFG).  What is a CFG?  In many cases, foreign governments will seek official assurance that products exported to their countries are in compliance with U.S. law or meet specific U.S. regulations, such as Quality System Regulations (QSR).  In these cases, firms may request that FDA provide a CFG.  If a domestic firm’s manufacturing establishment has an outstanding Form 483, due to a bad QSR inspection, or is conducting a Class I or II product recall, the non‑compliance may lead FDA to refuse to issue a CFG until it is resolved.

In 2017, Congress amended the export provisions of the Federal Food, Drug, and Cosmetic Act (FDCA) to establish specific procedural rights and appeal options for device companies faced with a CFG denial.  The following year, FDA issued a draft guidance on how the statutory change will be implemented.  We explained the background and summarized FDA’s draft guidance here.

Our main complaint about the draft guidance was a lack of clarity and detail on implementation of the statute.  We are pleased to report that the final guidance is improved in this regard.  Here are the key points:

Grounds for Denial

Pursuant to the amendment to the FDCA, a CFG may denied in the event of an injunction, a seizure action, a Class I or II voluntary recall, or an establishment out of compliance with the QSR.

If a CFG is denied due to non‑compliance with the QSR, FDA will provide a “substantive summary” of the specific grounds for non‑compliance.  It appears likely that this information will be distilled from the inspectional observations in a Form 483.

Plan of Correction                    

A firm may submit a “plan of correction” responsive to the substantive summary.  FDA states that they interpret a plan of correction to be a response to inspectional observations.  The procedure is as follows:

• The firm submits via e‑mail the steps it is taking to address the inspectional observations and prevent a recurrence, including timeframes for completing the actions. The email subject line should state “Plan of Correction.”
• FDA reserves the right to seek clarification of the plan before making a decision. FDA intends to provide a response within 90 days, with due allowance for the complexity of the issues and the responsiveness of the firm.
• If the plan is determined to be sufficient, FDA will issue a CFG (provided no other grounds of denial are present).

Appeal of Denial

A firm whose CFG has been denied has a right to supervisory review and an opportunity for an in‑person meeting or teleconference.  The appeal must be submitted by email within 60 days of denial.  CDRH will follow its usual procedures (per this guidance).  CBER will use its Formal Dispute Resolution Request (FDRR) process (per this guidance).  In both cases, FDA indicates an intent to follow the standard timelines in Section 517A(b) of the FDCA but does not guarantee it, which may be a questionable interpretation of the statute, which directed FDA to follow the standards of the Section 517A(b).

New Information

A firm whose CFG has been denied has the right to request review of the decision based upon new information, including evidence that corrective actions are being or have been implemented to address FDA’s substantive summary of the grounds for denial.  Once again, this review can be obtained by submitting an email.  Once again, FDA says it will target 90 days for a decision, to the extent possible.

* * * * *

A right of supervisory appeal of a CFG denial is unlikely to be successful unless FDA has issued a Form 483 that is plainly wrong (a high bar in most cases).  The plan of correction (or the request for review based on new information) appear to offer greater potential.  Since it is likely that FDA will put the most important QSR non-compliance in its substantive summary, a firm could use the vehicle of a plan of correction to help unlock CFGs sooner than would ordinarily be the case.  Additionally, there may be a collateral benefit of obtaining a relatively quick read on FDA’s assessment of a corrective action plan addressing the most serious Form 483 issues.  Certainly, it remains to be seen how FDA actually implements the new procedures, but the final guidance holds out the prospect of improved communication with FDA as firms seek to resolve outstanding Form 483s.

Hyman, Phelps & McNamara, P.C. (“HP&M”) has once again been ranked as a “Tier 1” law firm in the area of “FDA Law” (both nationally and in Washington, D.C.) by the folks over at U.S. News & World Report, who teamed up with Best Lawyers for the 2020 “Best Law Firms” rankings.

“The 2020 rankings are based on the highest number of participating firms and client votes received on record.  Almost 16,000 lawyers provided more than 1,229,000 law firm assessments, and more than 12,000 clients participated providing 107,000 evaluations. . . . This year we reviewed 14,931 law firms throughout the United States – across 75 national practice areas – and a total of 2,106 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.

On November 7, 2019, gene therapy company Regenxbio Inc., filed suit in U.S. District Court in Washington, D.C. against FDA asking the court to set aside a partial clinical hold on one clinical trial and a full clinical trial for another.  The complaint also seeks to have a section of the Food, Drug, and Cosmetic Act (“FDC Act”) – 21 U.S.C. §355(i)(3)(B)(ii); FDC Act §505(i)(3)(B)(ii) – that allows FDA to issue a clinical hold for a reason established by regulation that is other than a determination that the drug involved represents an unreasonable risk to subject safety.

As described in the complaint, FDA issued a clinical hold on the sponsor’s investigative drug for treatment of retinal disease on October 18, 2019 “without notice or explanation,” and has failed to provide the sponsor with a detailed explanation of the basis of the clinical hold other than to say that the INDs were placed on hold due to issues associated with the delivery system.  The company withdrew one IND on October 25, 2019, and the other IND remains on partial clinical hold.  FDA notified the sponsor on November 1^st that it would provide a written basis for the hold by “the due date of 11/15/19.”

The complaint also alleges that FDA failed to comply with its regulations because the original email providing notice of the clinical hold did not “briefly explain the basis for the action,” as required by 21 C.F.R. § 312.42(d).  The same regulation also provides that within 30 days after imposition of the hold, the Division Director will provide the sponsor a written explanation of the basis of the hold.  November 15th is the date by which FDA stated it would provide the sponsor with the written basis of the hold (it falls within that 30 days based on the dates provided in the complaint).

While it seems unlikely that the merits of the clinical hold will be resolved through the judiciary process in a helpful timeframe, the complaint has likely increased the chances that FDA will respond with a thorough explanation of its reason for the hold when it does provide the written basis.

USDA published its much-anticipated interim final rule establishing a domestic hemp production program, as directed by the Agriculture Improvement Act of 2018 (a/k/a the Farm Bill).  The rule sets out the requirements for hemp production plans developed by States and Indian Tribes that choose to have primary authority over production of hemp within their jurisdiction.  The rule also sets out the USDA hemp production program requirements, which will apply in States and Tribal Nations that don’t have their own plans but choose to allow production of hemp within their jurisdiction.

Generally, all hemp producers will be subject to similar requirements, regardless of whether they are licensed by a State, Tribe, or USDA.  These include obtaining a license, submitting information on land areas under cultivation, securing appropriate sampling and testing for TCH content, disposing of plants containing excess levels of THC, participating in compliance audits, and maintaining appropriate records.  USDA has posted a webinar that provides a high-level overview of what producers can expect.  USDA is also maintaining web pages with resources for state departments of agriculture and tribal governments, hemp producers, and hemp testing labs.

Hemp producers and other stakeholders are encouraged to read the regulation and at least the first 12 pages of the preamble, in which USDA has embedded requests for comments on specific issues.  These include appropriateness of a 15-day sampling window prior to harvest, whether USDA should establish a fee-for-service laboratory approval process, whether labs should be required to have ISO 17025 accreditation, and what efforts should be considered as reasonable in determining whether a producer has committed a negligent violation.  Comments are due by December 30.

Readers with the time and inclination may also find it worthwhile to dive into the Regulatory Impact Analysis in the preamble, which starts with this statement: “The future of the hemp industry in the United States (U.S.) is anything but certain.”  The preamble acknowledges that U.S.-based hemp production recently has seen a “massive resurgence.”  Indeed, hemp acreage reportedly increased 8-fold from 2016 to 2018, and is projected to double in 2019.  However, the preamble states that “it remains unclear whether consumer demand will meet the supply.”  Producer interest is said to be “largely driven by the potential for high returns from sales of hemp flowers to be processed into CBD oil,” but products that contain CBD oil and are intended for human or animal use must still comply with whatever federal and state laws apply to those products – including the Federal Food, Drug, and Cosmetic Act and its implementing regulations.

In discussing projected growth in gross revenues and the potential benefits of its hemp program regulation, USDA pointedly states that, “if FDA does not provide clarity about their plans for future regulation of CBD, there will continue to be uncertainty and downward pressure on the CBD portion of the hemp market….  As a result, full realization of the benefits estimated here could be delayed pending regulatory certainty.”

Hyman, Phelps & McNamara, P.C. is pleased to publish the third installment of the FDA Law Alert, a quarterly newsletter highlighting key postings from our nationally acclaimed FDA Law Blog.  Please subscribe to the FDA Law Blog to receive contemporaneous posts on government 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 laws and regulations affecting them.

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Patient Engagement

• Patient-Focused Drug Development: James E. Valentine highlights FDA’s guidance on Patient-Focused Drug Development, the second in a series of four guidance documents, which provides approaches to identifying what is most important to patients with respect to their experience as it relates to burden of disease and burden of treatment. Valentine’s post outlines FDA’s new recommendations for quantitative and qualitative research, considerations for specific populations, and the use of social media to elicit patient information.

• Patient Engagement in Clinical Trials: Véronique Li, Larry J. Bauer and Sarah Wicks write about FDA’s Draft Guidance on Patient Engagement in the Design and Conduct of Medical Device Clinical Investigations. The guidance delineates between patients, study/research participants and patient advisors, noting that early input from patient advisors could lead to quicker study/research participant recruitment, enrollment and study completion, streamlined data collection and more relevant data outcomes that are important to patients.

Medical Devices

• Government Investigations: The District of Minnesota required a defendant in a False Claims Act case to turn over to a qui tam relator the presentations the company had made to the government prior to the government’s decision to decline the matter. This post by Rachael E. Hunt, Serra J. Schlanger and Anne K. Walsh discusses the arguments made by Boston Scientific Corporation to protect the materials from disclosure (which ultimately were rejected) and the effect this holding may have on other proceedings to obtain defendants’ presentations.
• Medical Software Policies and Guidance: FDA issued a series of guidance documents relating to medical software this quarter. Véronique Li describes changes to existing medical software policies resulting from the 21^st Century Cures Act, Adrienne R. Lenz details FDA’s second draft guidance for clinical decision support software, and Allyson B. Mullen writes about CDRH’s draft guidance on the Safer Technologies Program.

Human Cell, Tissue, and Cellular and Tissue-Based Products (HCT/Ps)

• Jeffrey K. Shapiro writes about the unique regulatory regime for HCT/Ps, outlines the regulatory definitions of “clinical effect” and “homologous use” and discusses whether advertising the clinical effects/performance characteristics of an HCT/P meets the homologous use regulatory requirement.

Drugs

• Patents and Drug Innovation: Kurt R. Karst discusses how the legal system may be steering researchers away from drugs that take a long time to develop. In this post, Karst summarizes a recent research paper that focuses empirically on the relationship between the patent incentive and drug innovation.
• Compounding: Karla L. Palmer discusses several updates to the bulks list prompted by an August decision from the District Court for the District of Columbia that upheld FDA’s strict interpretation of “clinical need” for use of a bulk substance and removal of vasopressin from the Section 503B bulks list discussed here. Shortly after, FDA released a preliminary determination to remove nine other substances from the bulks list while adding five additional substances that Palmer discusses here and here.

Healthcare

• Fraud and Abuse: CMS and OIG proposed substantial amendments to the regulations implementing the Medicare physician self-referral law (i.e., Stark Law) and the safe harbor regulations under the Federal Anti-Kickback Statute in October. Serra J. Schlanger, McKenzie E. Cato and Alan M. Kirschenbaum highlight the proposed changes in this post.

Food & Dietary Supplements

• Importation: Riёtte van Laack discusses FDA’s first Warning Letter for a violation of the FSMA’s requirements for a Foreign Supplier Verification Program (FSVP). Her post describes the FSVP requirements, including the new responsibility of importers to ensure that products are held to the same safety standards as domestically produced food.
• DMHA Regulation: Douglas B. Farquhar and Ricardo Carvajal discuss the 11^th Circuit Court of Appeals concurrence with FDA that DMAA (1,3-dimethylamylamine) is not a “botanical” or a “constituent” of botanicals and that Hi-Tech Pharmaceuticals, Inc. should not have sold DMAA as a dietary supplement. See their post for details about FDA’s and Hi-Tech’s arguments and stay tuned for further developments in other Hi-Tech litigation previously blogged about here.

DEA & Cannabis

• Medical Cannabis: John A. Gilbert and Larry K. Houck continue the discussion of DEA’s planned doubling of the 2019 aggregate production quota for marijuana (prior posts here and here), which would require DEA to act on pending marijuana manufacturer registrations. Their post describes DEA’s announcement to propose additional regulations to address the process and the many questions that remain unanswered.

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Hyman, Phelps & McNamara has its finger on the pulse of FDA. Our technical expertise and industry knowledge are exceptionally wide and deep. Our professional team possesses extensive experience with the universe of issues faced by companies regulated by FDA.  Please contact us for any questions on the issues described here or others affecting the FDA-regulated industry.

Final rule regarding vending machine calorie labeling

Almost 5 years ago, as part of nutrition labeling requirements under the ACA, FDA issued a final rule which requires operators who own or operate 20 or more vending machines to disclose calorie information for food sold from vending machines.  Under that rule, vending machine operators may choose to rely on front-of-pack (FOP) labeling to disclose calories on food items that consumers can see in glass-front vending machines, provided the declaration for calories is at least 50% of the size of the largest printed matter on the label.  FDA had received several objections against the type size requirements for the FOP, arguing that the requirement was impractical, needlessly burdensome, and would disrupt existing voluntary industry FOP nutrition labeling programs.

In response, FDA proposed to revise the type size requirement to be linked to the size of net quantity of contents statement rather than to the largest printed matter on the front panel.  On October 28, 2019, FDA issued the final rule.  The final rule is largely the same as the proposed rule.  FDA made a minor revision clarifying that the size must be at least 150% of the required minimum size of the net contents statement, rather than 150% of the net contents statement as it actually appears on the label. FDA also clarified that only the numerical value indicating the total calories, rather than the word “calories,” is subject to the final rule’s type size requirements.

The compliance date for the new font size requirement is July 1, 2021. FDA also announced that it will continue its enforcement discretion with respect to the vending machine labeling requirements for gums, mints, and roll candy products sold in glass-front machines in packages that are too small to bear FOP labeling. FDA had previously announced its intention to exercise enforcement discretion until at least January 1, 2020, to allow for further consideration of the issue. In the final rule, FDA announced that it will continue to exercise enforcement discretion for these products on an on-going basis.

More enforcement discretion re nutrition labeling for retail foods

In case you missed it, at around the same time as FDA issued the final rule re FOP calorie labeling for vending machine, FDA “announced” enforcement discretion for nutrition labeling of foods sold at retail.

As readers of this blog know, FDA published amended (new) nutrition labeling regulations in 2016.  Changes were quite extensive, and FDA set the compliance date at July 26, 2018, for manufacturers with more than $10 million in annual sales (smaller companies were to get an additional year).  However, upon requests from industry and, in light of timing of FDA’s review of dietary fiber petitions, questions about added sugar labeling, etc., the compliance date was extended to Jan. 1, 2020.  Although this could have been enough time to revise labels, the timing of pertinent FDA guidance, FDA’s action in response to the Farm Bill prohibiting FDA from requiring the declaration of added sugars on single ingredient product, and some other issues caused industry to request for additional time to comply.  Last week, FDA responded to that request by updating its webpage “Industry Resources on the Changes to the Nutrition Facts Label,” questions and answers. This webpage now states that the agency does not intend to take enforcement actions related to the new nutrition labeling requirements for the first six months following the January 1, 2020 compliance date.  Specifically, FDA added the following Q&A:

I understand that the FDA has received multiple requests from manufacturers to provide additional time to comply with the new requirements. Do I still have to meet the January 1, 2020, compliance date?

The FDA has heard from several manufacturers and groups that more time may be needed to meet all of the requirements.  Therefore, during the first 6 months following the January 1, 2020, compliance date, FDA plans to work cooperatively with manufacturers to meet the new Nutrition Facts label requirements and will not focus on enforcement actions regarding these requirements during that time.

As we have mentioned before, the Industry Resources webpage provides useful information and anyone working on nutrition labeling should check out the page regularly.

In two Federal Register notices and the denial of a citizens petition, FDA laid out a revised enforcement program for homeopathic drugs.

Under the FDC Act, just as allopathic drug product, homeopathic drug products are subject to new drug requirements related to approval, adulteration, and misbranding.  However, historically drug products labeled as homeopathic have been manufactured and distributed without FDA approval and with perceived Agency tolerance under the enforcement policies in FDA’s Compliance Policy Guide (CPG) 400.400 from 1988.  This permissive regulatory posture allowed the growth and expansion of a market for safe, properly manufactured homeopathic products as the public interest in nutrition and alternative therapies has grown.

However, as readers of our blog may recall, in response to comments resulting from an FDA public hearing in 2015 and several incidents related to improperly manufactured homeopathic drug products, FDA more recently became concerned about safety.  In 2017, the Agency announced the availability of a draft guidance describing FDA’s intent to switch to a risk-based enforcement approach to homeopathic products marketed without FDA approval.  In the 2017 draft guidance, FDA indicated that it would withdraw the CPG once it finalized the new guidance, because, according to the Agency, the CPG is inconsistent with a risk-based approach to regulatory and enforcement action.

The draft guidance, particularly FDA’s proposal to withdraw the CPG once the guidance, generated many adverse comments. In 2018, Americans for Homeopathy Choice petitioned FDA to keep the CPG or convert it to a regulation so as to allow the continued marketing of and consumer’s access to homeopathic drug products.

FDA was not convinced.  In actions last week, the Agency not only denied the Petition, it also decided to withdraw the CPG now rather than wait until it finalizes the draft guidance.  According to the Agency’s announcement, FDA has concluded that CPG 400.400 is inconsistent with the Agency’s risk-based approach to enforcement generally and that the CPG no longer accurately reflect the Agency’s current thinking.  FDA stresses, both in the announcement of the withdrawal and in its denial of the Petition, that the withdrawal of the CPG does not represent a change in the legal obligations that apply to homeopathic drugs under the statutes FDA administers.

FDA also announced issuance of a revision to the 2017 draft guidance.  The revised draft guidance includes a definition of “homeopathic drug product” for purposes of the guidance, additional explanation of some of the safety issues that contributed to the development of the draft  guidance, and clarification of FDA’s intent to use risk-based factors to prioritize enforcement and regulatory actions involving the marketing unapproved homeopathic products.

Until the draft guidance is finalized, FDA intends to apply its general approach to prioritizing regulatory and enforcement action, which involves risk-based prioritization considering all the facts of a given circumstance.

To ensure that the Agency considers comments to the draft guidance before it begins work on the final version of the guidance, comments should be submitted by January 23, 2020.

What do you get when you “cross an approach to discovery à la Inspector Clouseau with a corporate lawyer caricature found in cartoon caption contests?” According to Judge Steven Rau of the District of Minnesota in a 32-page order that required an “exhaustive” 15-page factual outline, you would get the 2011 qui tam case U.S. ex rel. Higgins v. Boston Scientific Corp., 11-cv-02453, Dkt. No. 313 (D. Minn. Oct. 16, 2019).  In this “disaster” of a case, Judge Rau sanctioned Defendant Boston Scientific Corporation (BSC) for failing to disclose a “central” witness until the final day of a year-long discovery. Notably, the court justified its finding that BSC acted intentionally with respect to its discovery strategy because an alternative finding would mean that BSC acted nefariously during the nearly five-year government investigation that preceded this case.

Higgins caught our attention earlier this month due to the potential ramifications of Judge Rao’s dramatic decision ordering BSC to produce presentations it had made to the government as part of settlement discussions.  We explained how this ruling could potentially discourage defendants from engaging in candid discussions with the government in the future.

Here, the court issued a new order regarding BSC’s failure to identify four key custodians until the final day of a year-long discovery process. One of these witnesses, Erika Huffman was “central” to the litigation, given her communications with FDA on pertinent matters. The court found that these incomplete discovery disclosures violated BSC’s disclosure obligations under Rule 26 because they were without any justification, they “prejudiced” the Relator, and affected the “entire course of discovery in this matter.” Moreover, “it [was] readily apparent to the Court that this was an intentional discovery tactic by Boston Scientific . . . Essentially, Boston Scientific calculated that since the discovery endpoint was not likely to shift, it would be worthwhile to delay and obstruct discovery to hamstring Relator’s efforts to gather information to support his claims.” The court said that it “will not reward such gamesmanship.”

The court rejected BSC’s arguments that the Relator should have realized Huffman’s importance to the litigation as “disingenuous and mendacious.” By that token, the court reasoned, BSC itself should have realized Huffman’s importance—particularly after going through a 4.5-year government investigation on the matter. He found BSC’s arguments that it did not know that Huffman had discoverable information “absurd” and “stretch[ing] all credulity,” given that BSC “operates in a heavily regulated medical device industry and, as such, has compliance departments in contact with federal agencies like the FDA.” The court concluded that BSC “intended to use Huffman as a witness and hid that information until the final moments of discovery.”

Of particular note is how the court related BSC’s behavior at discovery to its actions during the government qui tam investigation. The court reasoned that “either Boston Scientific knew of Huffman’s importance and deliberately left her off its list of initial disclosures,” or the company “withheld documents from the federal government during its investigation.” The court concluded that it was “much more palatable to believe Boston Scientific committed a discovery violation than impeded a government investigation.” Order at 22-23.

In the end, the judge used the judicial discretion permitted under Fed. R. Civ. P. 37(c)(1) and tailored sanctions for the circumstances of the case in an effort to “cleanse” the “taint of Boston Scientific’s Rule 26 violation.” The court ordered BSC to produce within 14 days all documents from the four newly disclosed custodians that hit on the parties’ search terms; barred BSC from using any documents or testimony that had not been produced to Relator in the normal course of discovery; and required BSC to pay Relator’s costs and attorney’s fees for this motion and for any additional discovery required beyond the discovery deadline. The court did not go as far as to apply an “adverse inference sanction,” as requested by Relator, but left open that possibility “should Boston Scientific fail to meet its obligations under this Order.” Although judge Rau called out the Relator for not being diligent enough and backloading discovery to near the end of the process, he refused to punish “the bully and the victim” equally, where the “Relator was essentially fighting with a blindfold on because of Boston Scientific’s discovery actions.”

This case illustrates the risks defendants face when litigating claims declined by the government.  Not only are there tremendous costs for the protracted investigation and discovery process, but even “technical” discovery violations can result in painful rulings that could potentially affect the outcome of the case. The judge’s admonition to outside counsel is also worth noting. “Even if lead counsel was merely implementing directives from Boston Scientific’s in-house counsel, lead counsel ultimately bears the burden of Boston Scientific’s actions. . . . [I]t was outside counsel’s obligation to actually counsel Boston Scientific as to the propriety of such a tactic.” Order at 27, n.13 (emphasis in original).

It is generally accepted that FDA’s authority under the Federal Food, Drug, and Cosmetic Act (FDCA) does not allow for FDA to regulate the practice of medicine.  FDCA § 1006 (21 U.S.C. § 396) explicitly states that FDA may not interfere with the practice of medicine related to legally marketed medical devices.  However, when it comes to the practice of medicine related to prescription drugs, this line is not always bright.  A complaint filed in September in the District Court for the District of Idaho by Rebecca Gomperts, a European physician, and Aid Access, a website designed to “serve women with unwanted first trimester pregnancies globally”, draws new attention to FDA’s role in regulating access to prescription medications and how FDA’s authority may intersect with the practice of medicine.  Gomperts v. Azar et al., 1:19-cv-003450DCN (D. Idaho Sept. 9, 2019).  At the outset, we note that this case is centered on two potentially divisive issues – telemedicine and medical abortion.

As discussed in our article, in March 2019, Aid Access received a Warning Letter from FDA alleging that Aid Access violated the FDCA by introducing misbranded and unapproved new drugs into interstate commerce.  This lawsuit appears to be a direct consequence of that Warning Letter.

Before discussing the allegations in the complaint, it is helpful to understand the regulatory background of the drugs used for medical abortion.  Mifeprex (mifepristone) is used with misoprostol to end an early pregnancy.  FDA approved Mifeprex in September 2000 with a REMS program that includes an Element to Assure Safe Use (ETASU).  The ETASU allows only specially certified prescribers that have completed a Prescriber’s Agreement to prescribe Mifeprex.  In order to prescribe Mifeprex to a patient, a certified prescriber must have:

1. the ability to date a pregnancy and diagnose an ectopic pregnancy,
2. made plans for the patient to receive surgical abortion care in cases of incomplete abortion or severe bleeding, and
3. ensured that the patient has access to medical facilities equipped to provide blood transfusions and resuscitation, if necessary.

The certified prescriber must also agree to provide the patient with the Medication Guide and a Patient Agreement, discuss the Patient Agreement with the patient, have the patient sign the Patient Agreement, and counter-sign the Patient Agreement.  Mifeprex may only be dispensed in certain health care settings, specifically clinics, medical offices, and hospitals, by and under the supervision of a certified prescriber.  Mifeprex may not be distributed or dispensed through retail pharmacies.

According to the complaint, the REMS and ETASU imposed by FDA pose an undue burden on the rights of U.S. women to terminate unwanted pregnancies during the early stages.  Because of the high cost of in-clinic abortion services and the limited availability of misoprostol and mifepristone in the U.S., the complaint argues that many women in the U.S. are forced to use the internet to obtain the medications necessary to end their unwanted pregnancies.  The complaint alleges that women who live in rural or medically underserved areas, have low income, are experiencing domestic abuse and/or are young, are the most impacted by the restrictions imposed by FDA.  The complaint characterizes FDA’s restrictions on these drugs as “actively using the power of the US government to deny Plaintiffs’ patients their constitutionally protected right to terminate their unwanted pregnancies.”

Dr. Gomperts founded Aid Access in 2018; she uses the website to serve women with unwanted first trimester pregnancies by prescribing misoprostol and mifepristone after a telemedicine consultation.  The complaint explains that, between March 30, 2018 and August 27, 2019, over 37,000 women in the U.S., spanning all fifty states and the District of Columbia, contacted Aid Access.  Dr. Gomperts prescribed misoprostol and mifepristone to 7,131 of these women.  According to the complaint, Dr. Gomperts only prescribes the drugs to women in the U.S. if, in her professional judgment as a licensed physician, she believes that the woman can safely have a medical abortion.

Since the REMS specifically state that these drugs may not be distributed or dispensed through retail pharmacies, Dr. Gomperts provides her patients with instructions for how to get the misoprostol and mifepristone delivered to them in the U.S.  Patients are directed to send their prescriptions to a merchant exporter of prescription medications in India.  The exporter sends the prescription medications from India directly to the U.S. patients with customs declarations describing the contents of the packages as “Personal Supply of Rx Medicines.”  Notwithstanding this apparently accurate description, the complaint alleges that FDA, through U.S. Customs and Border Patrol and the U.S. Postal Service, has seized between three and ten individual doses of misoprostol and mifepristone prescribed and exported to individuals in the U.S.

The complaint alleges that FDA is violating Dr. Gomperts’ patients’ substantive due process rights to liberty and privacy.  The complaint includes a number of allegations that the FDA is violating Dr. Gomperts’ and her patients’ right to equal protection under the Fifth Amendment by treating Dr. Gomperts and her patients differently from other similarly situated parties without a sufficient state interest.  The complaint also includes several claims under the Administrative Procedure Act, such as FDA is acting in excess of its statutory authority under the FDCA, and that FDA’s treatment of these drugs is arbitrary, capricious and an abuse of discretion.

FDA has not yet filed a response to this complaint, but we expect that the Agency will fight to preserve its authority to regulate access to these prescription medications under the FDCA.  As mentioned above, although the practice of medicine is generally outside of FDA’s statutory purview, this case presents facts that may tip the balance in FDA’s favor.  For example, Dr. Gomperts is not licensed to practice medicine in the U.S.  FDA typically avoids issues related to the practice of medicine because the regulation of the practice of medicine has been delegated to the states.  Each state sets its own licensure requirements and the individual state Boards of Medicine enforce compliance with those state laws.  Here, however, where multiple states are implicated, it may be that FDA is an appropriate agency to regulate the practice of medicine for these particular products.

FDA’s statutory authority does allow the Agency to regulate medications that are in the stream of commerce.  As already asserted in its Warning Letter to Aid Access, FDA will likely argue that Dr. Gomperts has violated the FDCA by causing the introduction of an unapproved and misbranded drugs, since the misoprostol and mifepristone prescribed by Dr. Gomperts and shipped directly to the patients from India is not in compliance with the REMS provisions for these drugs.  We note that FDA’s website includes numerous warnings that patients should not buy Mifeprex or mifepristone over the internet because doing so “will bypass important safeguards designed to protect your health.”

We will continue to monitor this case and other developments related to FDA and the use of telemedicine.

On October 8, 2019, the California Chamber of Commerce (CalChamber) filed a lawsuit in federal district court against the State of California requesting that the Court enjoin the State, its agents and private enforcers from requiring Prop. 65 warnings on foods that contain acrylamide.  Plaintiff claims that the requirement for a Prop. 65 warning is illegal because it compels Plaintiff’s members and other entities that produce, distribute, or sell acrylamide-containing food products to make false, misleading, and highly controversial statements about their products.  In addition, the warning requirement allegedly will mislead consumers into avoiding certain foods based on incorrect information.  Further, over-warning purportedly dilutes the effectiveness of Proposition 65 warnings on other products that actually pose a risk of harm to consumers, diminishes consumers’ confidence in public health messages and the authorities who promulgate them, and may result in avoidance of foods that are part of a well-balanced diet.

Prop. 65 is officially known as the Safe Drinking Water and Toxic Enforcement Act of 1986.  With some exceptions, Prop. 65 prohibits businesses with ten or more employees from knowingly and intentionally exposing California residents to a chemical known to the State to cause cancer without providing required warnings.  Prop. 65 requires that the California Office of Environmental Health Hazard Assessment (OEHHA) maintain a list of chemicals known to the state to cause cancer or reproductive toxicity.  A chemical is “known to the state to cause cancer” if “a body considered to be authoritative by [the state’s qualified] experts has formally identified it as causing cancer.”  No warning is required if the exposure is below the No Significant Risk Level (NSRL), i.e., the level at which exposure poses no significant risk, assuming lifetime exposure at the level in question for the substance.

Prop. 65 has what is often referred to as a bounty hunter provision.  Under the statute, any person (even one who has suffered no injury) may bring a private enforcement action for an alleged failure to provide an adequate warning.  Such private enforcers are eligible to recover 25 percent of the penalty (the statute imposes penalties up to $2,500 per day for each violation) and their reasonable attorneys’ fees and costs, creating very strong incentives for private enforcement.  Such bounty hunters have a low burden.  In alleging an exposure to a listed chemical, they are not required to prove that an exposure exceeds the NSRL.  Instead, the burden is on the defendant business to prove that exposure is below the NSRL (a potentially costly endeavor).

Acrylamide is the result of a chemical reaction (known as the Maillard reaction) which takes place in certain types of starchy foods when they are cooked at high temperatures or otherwise processed using heat.  The Maillard reaction contributes to taste, aroma and color.  It occurs in a multitude of foods such as French fries, breakfast cereals, baked goods and roasted coffee.  FDA has recognized that acrylamide forms during the cooking process and is present in both store-bought foods and home-cooked foods.

Acrylamide has been on the Prop. 65 list as a potential carcinogen since 1990 based on identification by “authoritative bodies,” namely the International Agency for Research on Cancer (IARC) and the U.S. Environmental Protection Agency (“EPA”).  Both the EPA and IARC classifications of acrylamide as a “probable” human carcinogen were based on studies in laboratory animals in which virtually pure acrylamide was administered orally or via injection to rats and mice.  However, according to Plaintiff CalChamber, there is no evidence that acrylamide is a carcinogen in humans, and IARC, EPA, and as the State have acknowledged the lack of evidence that dietary acrylamide is a human carcinogen.  Further, studies have shown that certain foods that contain acrylamide, such as coffee, may reduce the risk of cancer in humans.

Nevertheless, dietary acrylamide remains on the Prop. 65 list and remains a popular target for bounty hunters.  According to CalChamber, since its addition to the list, there have been more than 500 notices for alleged violations of the Prop. 65 warning requirement related to acrylamide in food products.  Companies trying to avoid the cost of defending actions and penalties, as well as costly and complicated testing, may decide to include the warning.  Thus, consumers may be misled and be exposed to over-warning.

CalChamber requests that the Court declare that the Prop. 65 warning requirement for cancer relating to acrylamide in human food products violates the First Amendment of the United States Constitution, and enjoin the State as well as bounty hunters from enforcing or threatening to enforce the Prop. 65 warning requirement for cancer relating to acrylamide in human food products.

In the Federal Register of Thursday, October 17, the Centers for Medicare & Medicaid Services (CMS) and the Department of Health and Human Services (HHS) Office of Inspector General (OIG) both published substantial amendments to the regulations implementing the Medicare physician self-referral law (commonly referred to as the Stark Law) and the safe harbor regulations under the Federal health care program anti-kickback statute (AKS).  These proposed rules are part of HHS’s Regulatory Sprint to Coordinate Care initiative, which, according to HHS’s press release, “seeks to promote value-based care by examining federal regulations that impede efforts among providers to better coordinate care for patients.”

The proposed revisions add new Stark exemptions and AKS safe harbors for value-based and other arrangements, which, if finalized, will have a substantial impact on much of the healthcare industry.  Unfortunately, CMS and OIG are considering excluding drug and device manufacturers from many (but not all) of these protected arrangements.  Below we highlight the proposed changes that may be of particular interest to our readers.

I.  CMS Proposed Stark Rule Revisions

The CMS proposed rule sets forth new exceptions to the Stark Law, 42 U.S.C. § 1395nn, for certain value-based arrangements (VBAs).  According to the CMS Fact Sheet, the goal of these new exceptions is to “unleash innovation by permitting physicians and other healthcare providers to design and enter into value-based arrangements without fear that legitimate activities to coordinate and improve the quality of care for patients and lower costs would violate the Stark Law.”

The new exceptions would be applicable to VBAs between or among value-based enterprise (VBE) participants.  The preamble explains that CMS is considering whether to exclude pharmaceutical manufacturers, manufacturers and distributors of durable medical equipment (DME), pharmacy benefit managers, wholesalers, and distributors from the definition of “VBE participant,” or, alternatively, to impose a requirement that the arrangement not be between a physician (or immediate family member of a physician) and a pharmaceutical manufacturer, manufacturer or distributor of DME, pharmacy benefit manager, wholesaler, or distributor.  Either of these limitations would have the effect of excluding these entities from the new Stark Law exceptions.

The new proposed Stark Law exceptions include:

• Full financial risk exception. This exception would apply to VBAs between VBE participants assuming “full financial risk” for the cost of all patient care items and services covered by the applicable payor for each patient in the target patient population for a specified period of time.  This would protect VBE participants that receive a prospective, capitated payment for all items and services covered by Medicare Part A or B or by Medicaid Managed Care.
• Value-based arrangements with meaningful downside financial risk to the physician. This would protect remuneration, including partially capitated and other arrangements, paid under a VBA where the physician is at meaningful downside financial risk for failure to achieve the value-based purpose(s) of the VBE.
• Value-based arrangements. CMS is proposing an exception for compensation arrangements, regardless of the level of risk undertaken by the VBE or any of its VBE participants.  The exception would permit monetary and nonmonetary remuneration between the parties.  This exception would have some requirements that are included in the meaningful downside financial risk exception.
• Certain indirect compensation arrangements. This exception recognizes that indirect compensation arrangements can meet the other exceptions.  When a VBA is the link in the chain closest to the physician (i.e., the physician is a direct party to the VBA), the indirect compensation arrangement would qualify as a VBA.
• Arrangements involving the donation of cybertechnology technology and services. This would, for example, allow hospitals to share cybersecurity software with physicians, including physicians who refer patients to the hospital.  The purpose of this exception is to protect recipients of electronic health record information from “weak links” in the health care system.
• Limited remuneration to a physician. This exception would allow for remuneration that does not exceed $3,500 per calendar year (adjusted for inflation) if the compensation is not determined in a manner that takes the volume or value of referrals into account; the compensation does not exceed fair market value; the arrangement is commercially reasonable; compensation for leased space or equipment or for the use of premises, equipment, items, supplies or services are not based on percentage of revenue raised, business generated, or per unit charges.

In addition to proposing new exceptions, CMS includes a new definition for “commercially reasonable” and revises the definition of “fair market value.”  The proposed new general definition of “fair market value” is “the value in an arm’s length transaction, with like parties and under like circumstances of like assets or services, consistent with the general market value of the subject transaction.”  Definitions of fair market value are also provided with respect to rental of equipment and of office space.

The preamble explains that CMS is considering whether to include a requirement related to price transparency in every exception for VBAs.  For example, CMS is considering whether to require that a physician provide notice or have a policy to provide public alerts to patients that their out-of-pocket costs for items and services for which they are referred by the physician may vary based on the site where the services are furnished and the type of insurance they have.

II.  OIG Proposed Safe Harbor Revisions

The OIG proposed rule revises the safe harbors under the AKS, 42 U.S.C. § 1320a-7b(b), and provisions on civil money penalties for beneficiary inducements, 42 U.S.C. § 1320a-7a(a)(5).  As described in the OIG Fact Sheet regarding the proposed rule, HHS has determined that these provisions, as currently written, potentially inhibit “beneficial arrangements that would advance the transition to value-based care and improve the coordination of patient care among providers and across care settings in the both the Federal health care programs and commercial sector.”

A.  Safe Harbors From Which Pharmaceutical Manufacturers and DME Manufacturers/Distributors are Excluded

1.  Value-Based Care Safe Harbors

OIG has proposed three new safe harbors for remuneration exchanged VBAs that foster better coordinated and managed patient care: (1) care coordination arrangements to improve quality, health outcomes, and efficiency, (2) VBAs with substantial downside financial risk, and (3) VBAs with full financial risk.  As currently proposed, pharmaceutical manufacturers, manufacturers and distributors of DME, and laboratories would be excluded from the new safe harbors for VBAs.  OIG expressed concern that these entities, which are heavily dependent upon practitioner prescriptions and referrals, would misuse the new safe harbors to promote products, rather than creating value by coordinating care.  OIG stated that it is considering future rulemaking to address “pharmaceutical manufacturers’ role in coordination and management of care” or create a “specifically tailored safe harbor … for value-based contracting and outcomes-based contracting for the purchase of pharmaceutical products (and potentially other types of products).”  OIG is seeking comments on whether other entities – pharmacies (including compounding pharmacies), pharmacy benefit managers, wholesalers, and distributors – should also be excluded from the VBA safe harbors.

The proposed safe harbor for care coordination arrangements to improve quality, health outcomes, and efficiency could include, for example, providing data analytics systems, remote monitoring technology, or care coordinators to ensure patients receive appropriate follow-up care.  For example, if a hospital provided a behavioral health nurse to a nursing facility to follow discharged patients with mental health disorders, savings shared between the hospital and nursing facility from managing the care of mental health patients and reducing emergency room visits would be eligible for protection.  The care coordination safe harbor would protect in-kind (but not monetary) remuneration exchanged between participants in the VBA.  The safe harbor would include other limitations and requirements.  For example, parties would be required to establish one or more specific evidence-based, valid outcome measures against which the recipient of remuneration will be measured, and which the parties reasonably anticipate will advance the coordination and management of care of the target patient population.  Additionally, the VBA must be commercially reasonable, in that it must make commercial sense if entered into by reasonable entities of a similar type and size.

Similar to the CMS proposed Stark rule revisions, the value-based care safe harbor for VBAs with full financial risk would protect VBE participants that receive a prospective, capitated payment for all items and services covered by Medicare Part A or B or by Medicaid Managed Care.  Since providers are fully at risk for the cost of the items and services provided to patients, the potential for overspending and overutilization is reduced, and the conditions of this safe harbor are therefore more flexible than those of the care coordination safe harbor.  The third value-based care safe harbor, for VBAs with “substantial downside financial risk,” would apply to partially capitated and other arrangements where a VBE participant is partly responsible for loss.  The full financial risk and substantial downside risk safe harbors would protect both in-kind and monetary remuneration that meets the conditions of the safe harbor.

2.  Safe harbor for outcomes-based payments

The OIG proposed rule adds to the current safe harbor for personal services and management contracts (42 CFR 1001.952(d)) protection for outcomes-based payments.  The outcomes-based payment safe harbor is intended to protect payments for improving or maintaining an improvement in patient health by achieving outcomes measures that coordinate care across care settings, or achieve outcomes measures that reduce payor costs while improving or maintaining the quality of patient care.  Similar to the VBA safe harbors discussed above, OIG proposes to exclude pharmaceutical manufacturers, manufacturers and distributors of durable medical equipment, and laboratories from the outcomes-based safe harbor.  OIG is seeking comments on whether other entities – pharmacies (including compounding pharmacies), pharmacy benefit managers, wholesalers, and distributors – should also be excluded from the outcomes-based safe harbors.

3.  Patient Engagement and Support

The OIG proposed rule includes a new safe harbor for certain tools and supports furnished under patient engagement and support arrangements to improve quality, health outcomes, and efficiency.  According to the OIG, “[a]ppropriate patient engagement tools and supports can foster successful behavior modifications that improve health, ensure that patients receive the medically necessary care and other nonclinical, but health-related, items and services they need, and improve adherence to an appropriate treatment regimen.”  The HHS press release provided the example of a smart pillbox given to patients without charge to help them remember to take their medications on time.  Once again, pharmaceutical manufacturers, manufacturers and distributors of durable medical equipment, and laboratories are excluded from this safe harbor.

B.  Safe Harbors and Safe Harbor Revisions That Do Not Exclude Pharmaceutical or Device Manufacturers

1.  Modification of personal services and contract safe harbor

Heretofore, this safe harbor has contained two conditions that have limited its usefulness in protecting arrangements between drug and device manufacturers and consultants and other service providers.  First, for part-time or sporadic arrangements, the “agreement must specify exactly the schedule of intervals, their precise length, and the exact charge for such intervals.”  Few consulting arrangements that are not full-time are capable of meeting this exacting requirement.  Another current requirement is that the aggregate compensation for the term must be set in advance – also a requirement that is difficult to meet under many circumstances, for example where an investigator agreement provides for per-patient compensation, or a speaker arrangement provides for compensation per speaking engagement.  The OIG is now proposing to eliminate the part-time schedule requirement entirely, and in place of the aggregate compensation condition, to substitute a requirement that the methodology for determining compensation be set in advance.  These changes, if finalized, will substantially expand the scope of consulting and other service arrangements eligible for safe harbor protection.

2.  Modification of warranty safe harbor

OIG is also proposing a modification of the existing safe harbor for warranties that would (1) protect warranties for one or more items and related services upon certain conditions, (2) exclude beneficiaries from the reporting requirements applicable to buyers, and (3) define “warranty” directly, and not by a reference to the definition at 15 U.S.C. § 2301(6).  This proposed modification would allow for “bundled warranties” that cover certain services in addition to items, as long as the items and services are reimbursed by the same Federal health care program and in the same Federal health care program payment (e.g., the same Medicare Severity Diagnosis Related Group for hospital inpatients, the same Ambulatory Patient Classification for hospital outpatients, or the same Medicaid managed care payment).  However OIG raised concern that certain warranted services, such as medication adherence services, could increase risk or patient harm and inappropriate utilization.  OIG also noted that free or reduced-price items or services provided as part of a bundled warranty agreement or ancillary to a warranty agreement (for example, laboratory tests to determine if an outcome was achieved) could still implicate the AKS.

3.  Donations of cybersecurity equipment

As with the CMS proposed Stark rule revision, the OIG proposed rule includes a new safe harbor for donations of cybersecurity technology and services.  Although pharmaceutical and device manufacturers are permitted donors under the proposal, the OIG solicits comments on whether such entities should be prohibited as donors.

4.  CMS sponsored models

A new safe harbor would protect certain remuneration provided in connection with a CMS-sponsored model, which is aimed to reduce the need for OIG to issue separate fraud and abuse waivers for new CMS-sponsored models.  This safe harbor would (1) permit remuneration between and among parties to arrangements under a model or other initiative being tested or expanded under CMS-sponsored models and (2) permit remuneration in the form of incentives and support provided by CMS model participants under a CMS-sponsored model to patients covered by the CMS-sponsored model.

*     *     *

Comments on the CMS and OIG proposed rules are due by 5 pm on December 31, 2019.  The link to submit comments on the CMS proposed rule can be found here.  The link to submit comments on the OIG proposed rule can be found here.

A warning letter issued earlier this year by the Food and Drug Administration (FDA) to Inova Genomics (Inova) prompts some reflections on where things stand now with the regulation of laboratory developed tests (LDTs) under the Federal Food, Drug, and Cosmetic Act (FDCA).  An LDT, as FDA views it, is an in vitro diagnostic test that is designed, manufactured and used within a single laboratory.

In general, the Centers for Medicare and Medicaid Services (CMS) regulates clinical laboratories pursuant to the Clinical Laboratory Improvement Amendments of 1988 (CLIA) and implementing regulations (42 U.S.C. § 263a; 42 C.F.R. Part 493).  According to CMS, CLIA covers approximately 260,000 laboratory entities.  This regulation extends to LDTs.

In 1976, the Congress amended the FDCA to give the FDA significant new statutory authority to regulate medical devices.  The FDA maintains that LDTs fall under this authority.  At the same time, the FDA never actively followed through on this assertion of authority.  To this day, it is the FDA’s announced position that the FDCA’s requirements apply to all LDTs.  Therefore, these tests are subject to 510(k) clearance or premarket application (PMA) approval and a panoply of post‑market requirements, including the Quality System Regulation (QSR), Medical Device Reporting (MDR) and labeling requirements.  Yet, clinical laboratories make little effort to comply with these requirements.  If FDA’s position is accepted, then these clinical laboratories are massively violating the law every day.

This state of affairs continues because, FDA does not “generally” enforce these requirements.  In a handful of cases during a period spanning more than 30 years, FDA has singled out specific LDTs, or a specific class of LDTs, for active enforcement.  In the vast majority of cases, though, the FDA has conferred a dispensation upon clinical laboratories under the rubric of “enforcement discretion.”

This state of affairs is troubling.  FDA has repeatedly acknowledged that “LDT’s are important to the continued development of personalized medicine.”  Nonetheless, the agency’s official position is that clinical laboratories are serious and persistent lawbreakers, absolved only by the agency’s grace.

In 2018, FDA issued a public safety notice foreshadowing that pharmacogenetic testing (using a person’s genetic variants to predict their response to certain drugs) would likely be targeted.  FDA apparently contacted Inova among other companies in this space.  In correspondence, Inova told FDA that:  “Inova believes it is properly operating within the scope of FDA’s LDT exemption and thus is not subject to FDA’s premarket review or labeling requirements.”  In a 2019 warning letter, FDA replied:

FDA has not created a legal ‘carve-out’ for LDTs such that they are not required to comply with the requirements under the Act that otherwise would apply.  FDA has never established such an exemption.  As a matter of practice, FDA, however, has exercised enforcement discretion for LDTs, which means that FDA has generally not enforced the premarket review and other FDA legal requirements that do apply to LDTs.  Although FDA has generally exercised enforcement discretion for LDTs, the Agency always retains discretion to take action when appropriate, such as when it is appropriate to address significant public health concerns.

The word “appropriate” is a tell, because it requires decision‑making.  How do FDA officials decide what is “appropriate”?  The letter does not provide any criteria for this exercise of broad discretion.  The letter provides a single example — “significant public health concerns.”  This phrase is a vague and not a statutorily authorized basis for distinguishing this class of LDTs from the vast majority of LDTs against whom the statute is not enforced.

In United States v. Franck’s Lab, Inc., 816 F. Supp. 2d 1209 (M.D. Fla. 2011), FDA claimed for 70 years that bulk compounding of animal medications was subject to the FDCA, but on the ground of enforcement discretion had not brought any enforcement actions against state‑licensed pharmacies.  The Franck’s Lab case was the first and only instance in which FDA had sought to do so.  The court ruled against FDA on summary judgment.  It found, among other things, that forcing compounders to rely on the good graces of FDA’s enforcement discretion “invites arbitrary enforcement, which is antithetical to our system of criminal justice.”  Id. at 1254‑1255 (This case was vacated on appeal on joint motion of the party.  United States v. Franck’s Lab, Inc., No. 11-15350, 2012 U.S. App. LEXIS 27100 (11th Cir. Oct. 18, 2012).  It cannot be cited as precedent but can be discussed based upon its persuasive value.)  If FDA were to attempt to enforce the Inova warning letter, a number of the considerations in Franck’s Lab would apply. In particular, FDA’s purported lifting of enforcement discretion as to a single targeted type of LDT based upon unstated and/or nebulous criteria invites arbitrary enforcement here just as much as in that case.

In Franck’s Lab, the court also found that the selective lifting of enforcement discretion did not comport with the rule of lenity, which requires that, when a statute carries criminal penalties, any ambiguities be interpreted in the defendant’s favor.  As the court found in Franck’s Lab, this rule applies even in civil enforcement matters, because a statute must be interpreted consistently in both criminal and civil contexts.  That concern is present here, too.

Looking at the non‑enforcement aspect of the LDT situation, the FDA’s decision to suspend enforcement of the FDCA against the vast majority of clinical laboratories is constitutionally dubious.  Under our Constitution, it is Congress’ role to pass laws of general applicability and it is the Executive’s role to enforce the laws.  Thus, Congress possesses “[a]ll legislative powers,” and the Executive “shall take Care that the Laws be faithfully executed.”  U.S. Const. Art. I, § 1; id. Art. II, § 3.  In the case of LDTs, Congress enacted the FDCA to govern the regulation of medical devices.  The FDA has interpreted this law as applicable to LDTs.  Yet, FDA has systematically declined to enforce the very law that it insists is applicable.  In doing so, FDA is effectively denying congressional supremacy by prospectively refusing to enforce a duly enacted law.  See generally Z. Price, Enforcement Discretion and Executive Duty, 67 Vand. L. Rev. 671 (2014).

It is, of course, well accepted that the faithful execution of the laws encompasses the exercise of enforcement discretion in particular cases.  This issue has arisen in the context of challenges to the exercise of enforcement discretion under the Administrative Procedure Act (APA), 5 U.S.C. §§ 701‑706.  In Heckler v. Chaney, 470 U.S. 821 (1985), the Supreme Court famously found that FDA’s decisions not to enforce the FDCA in particular cases are not subject to judicial review.

With regard to LDTs, however, FDA has prospectively announced general non‑enforcement.  This suspension of the FDCA is not an exercise of Heckler v. Chaney enforcement discretion.  It is more like a recent APA case involving e‑cigarettes.  In Am. Acad. of Pediatrics v. FDA, 379 F. Supp. 3d 461 (D. Md. 2019), the court found that FDA could not lawfully rely on putative enforcement discretion to create a generally applicable five‑year grace period for continued marketing of e‑cigarettes without premarket review, contrary to the FDCA.  If a five year grace period with general non‑enforcement of a premarket provision of the FDCA for e‑cigarettes cannot be justified based upon enforcement discretion, how much more it would seem that the same conclusion would apply to more than 30 years (with no end in sight) of general non‑enforcement of the entire statutory scheme.  The latter, of course, is an apt description of FDA’s enforcement policy with respect to LDTs.

No doubt clinical laboratories enjoying the benefit of FDA’s so‑called enforcement discretion will not object to being left alone (even if they do not agree that FDA is correct in its assertion of authority to potentially regulate them).  But it is the suspension of the law against the many that makes it arbitrary to enforce it against the few.  A basic protection against arbitrary government is the requirement that executive agencies faithfully apply general rules as applicable.  Under the FDCA, if an article meets the definition of a medical device, a host of requirements apply.  There is no provision in the FDCA that authorizes FDA to select a specific class of medical devices for suspension of the law; and yet, that is what FDA has done with respect to LDTs.

Likewise, there is no provision in the FDCA that authorizes FDA to unsuspend the law against just a few clinical laboratories based upon “significant public health concerns.”  FDA has conjured up this idea.  This conjuring is an act of official fiat, not authorized law enforcement.  FDA is not statutorily authorized as a roving commission to protect the public health in any way that it deems fit.  It is a powerful Executive Branch agency whose mission to protect the public health has been carefully fenced in by duly enacted law.  Yet, when it comes to LDTs, FDA has jumped the fence and is roaming free.

Another way in which the Inova warning letter is problematic relates to FDA’s 2014 draft LDT guidance and the ensuing discussion.  The draft guidance proposed to apply the FDCA much more fully to LDTs in a complex, phased‑in, risk‑based scheme.  There ensued a many‑sided dialogue that rather mimicked legislative deliberation, enlivened by threats of legal challenges under the APA.  After several years, the upshot was a failure to launch; in 2017, FDA issued a discussion paper explaining that it would not finalize the guidance.  Instead, FDA said it was stepping back from the draft guidance “to give our congressional authorizing committees the opportunity to develop a legislative solution” (p. 1).  A legislative process seems to be underway. (Normally, in a well‑functioning republic, agencies do not allow the legislature “the opportunity” to authorize the agency to enforce a law.  Rather, the legislative enacts the law and then the agency implements it.  One wonders from this turn of phrase if FDA envisions that if Congress does not enact legislation, the agency will do so in its place.  The reference to “authorizing committees” is also an odd locution.  Typically, the Congress as a body enacts legislation.)

In the discussion paper, FDA suggests that a possible approach would be to grandfather all existing LDTs and then begin applying the FDCA in a phased approach.  This suggestion testifies to the basic safety and effectiveness of LDT technology, as developed over the years under CMS regulation with minimal FDA oversight.

More to the point here, the discussion paper focuses heavily on the need for a new framework due to advances in LDT technology.  FDA says that the draft guidance was the agency’s attempt to provide one.  In the discussion paper, FDA says it is stepping back to allow Congress to provide a legislative solution.  Nothing in the discussion paper suggests that FDA will continue to enforce the current FDCA against select LDT technology during the pendency of the legislation.  The implication of the discussion paper is the opposite.

Yet, as shown by the Inova warning letter, FDA is now enforcing the unamended FDCA against pharmacogenetic tests, a prime example of novel LDT technology, without waiting for the legislation FDA has suggested is needed.  In this regard, FDA appears to have lulled the industry.  Compare Franck’s Lab, 816 F. Supp. 2d at 1252 (“the FDA promised that it would publish new guidance, then it didn’t”).  There is no reason for FDA to act in advance of Congress with regard to pharmacogenetic tests, or other LDTs, particularly those marketed on a prescription basis to medical professionals.

To date FDA’s oversight of LDTs has been the worst of all worlds.  FDA claims the authority to regulate them under the FDCA, but has suspended the statute against almost all LDTs (in violation of the Take Care clause of the constitution).  And yet, FDA has applied the law haphazardly against a few select categories of LDTs, including new technology that it concedes must be addressed in legislation that would amend the FDCA.  The selective enforcement is inherently arbitrary and capricious and may violate the APA.

How to make this right?  Two years ago, FDA publicly said it would stand down so that Congress can set the authorized terms of FDA’s role in LDT oversight.  FDA should follow through on that commitment.  All enforcement of the FDCA against LDTs should end until Congress enacts an amendment to the FDCA explicitly authorizing FDA to regulate LDTs and defining how it is to be done.

FDA recently finalized a Guidance for Industry to help guide the development of new products for patients with amyotrophic lateral sclerosis (ALS). The original draft guidance was published early in 2018 (see our previous post here).

ALS, colloquially known as Lou Gehrig’s Disease (ALS forced the baseball player to retire in 1939), is a progressive neurodegenerative disease that deteriorates nerve cells in the brain and spinal cord. About 5,000 people in the U.S. are diagnosed with ALS each year. Early symptoms can include stiff or weak muscles, twitching or spasms, fatigue and trouble walking. Eventually it leads to difficulty in speaking, breathing and swallowing, as well as loss of voluntary movement with premature death often within 2-5 years after diagnosis. This disease is sporadic, typically with no known pattern of inheritance or familial patterns, although gene mutations have been identified in some sporadic ALS patients. This disease can affect multiple body systems including cognitive and behavioral changes.

This guidance focuses on specific clinical drug development and trial design issues that are unique to ALS. One of the changes that is immediately noticeable is the emphasis on drug developers communicating with people affected by ALS. This is part of the ongoing emphasis of the FDA on greater patient engagement at every phase of drug development. The guidance states that, “Sponsors should understand how affected patients view treatment goals and risk tolerance.”

Additionally, the FDA encourages broader inclusion in clinical trials of patients at every age and at every stage of the disease. They suggest enrolling the broad population of affected individuals with ALS and possibly conducting a primary analysis on a specified subset of those enrolled and using the totality of the data collected as secondary and supportive. This advice is in sync with the FDA guidance published in June of this year on the topic of broadening inclusion criteria in clinical trials.

Another significant change from the draft guidance is the emphasis on greater flexibility in the review of drugs for this devastating rare disease.  This emphasis reflects the Agency’s continued evolution in flexible approaches to approving drugs for patients with serious and unmet needs. The FDA is committed to providing flexibility which is supported by statute.  21 CFR 314.105 states:

While the statutory standards apply to all drugs… the many kinds of drugs… and the wide range of uses for those drugs demand flexibility in applying the standards. Thus FDA is required to exercise its scientific judgment to determine the kind and quantity of data and information an applicant is required to provide for a particular drug to meet the statutory standards.

As the prospect of gene therapies continues to grow, FDA advises sponsors to meet with the staff at the Center for Biologics Evaluation and Research (CBER) when planning phase 1 clinical trials. Gene therapy trials must start slowly to ensure there are no immediate safety concerns or off-target effects from the intervention which is usually irreversible once administered. This advice reflects similar advice given in the 2015 guidance “Considerations for the Design of Early-Phase Clinical Trials of Cellular and Gene Therapy Products.”

The draft ALS guidance was somewhat rigid and  recommended that sponsors conduct randomized, placebo-controlled, double-blind studies for ALS. In the spirit of flexibility and concern for patient well-being, the final guidance has modified that directive. The final guidance states that no patient should be denied effective therapies by being randomized to a placebo-only arm of the study. The Agency also suggests that everyone in a study be given a treatment that has previously been shown to be effective so that no one in the study is on placebo alone.  They also state that placebo-controlled studies can be designed as time-to-event trials so that if a participant in the placebo arm worsens, they can be transitioned to open-label study drug. The final guidance maintains that using historical controls as a control group can be very challenging in ALS since there is tremendous variability in disease course.

Regarding efficacy endpoints, FDA has added emphasis on engaging with patients in developing any new measures being considered. It is refreshing to see how consistently the Agency is asking industry to inquire about the patient perspective at all points in drug development. One of the specific suggestions they make for endpoints is related to the measurement of the key symptom of ALS – loss of strength.  This can include effects on the ability to perform activities of daily living (ADLs) where any improvement might be significant to patients. The guidance also suggests considering measuring respiratory function as a potential treatment benefit. Consistent with the draft guidance, mortality will be an important outcome to be measured in all patients.

ALS strikes people between the ages of 40 and 70 and there are approximately 16,000 Americans who are sick at any given time. ALS takes away a person’s ability to walk, to write, to dress, to swallow and eventually to breathe. This disease is devastating to individuals and families with affected loved ones. This final guidance will help guide and expedite the development of new treatments for people with ALS.

*  Not admitted to the Bar. Work supervised by the firm pending Bar admission.