Separate decisions by federal district courts in Texas and Puerto Rico in the past two months provide cautionary tales for every pharmacy and wholesale distributor dispensing or distributing controlled substances.  On October 10th, based on ability to pay, the U.S. District Court for the Western District of Texas imposed a $275,000 civil penalty on Zarzamora Healthcare LLC, in San Antonio, and its pharmacist-owner.  Federal Court Orders San Antonio-Area Pharmacy and Pharmacist to Pay $275,000 Civil Penalty in Case Alleging Unlawful Opioid Distribution, Oct. 11, 2023 (DOJ Press Release).  Several weeks later, also based on ability to pay, the U.S. District Court for the District of Puerto Rico entered a consent decree requiring Drogueria Betances LLC (“Betances”) to pay $12,000,000.  Federal Court Orders Puerto Rico Pharmaceutical Distributor to Pay $12 Million in Connection with Alleged Failure to Report Suspicious Orders of Pharmaceutical Drugs and Other Controlled Substance Violations, Nov. 6, 2023 (DOJ Press Release).

But in addition to imposing civil penalties for alleged failure to comply with their obligations under the federal Controlled Substances Act and DEA regulations, the courts mandated how those registrants must handle controlled substances going forward.  Pharmacies and distributors should be aware of the noncompliant activity alleged in these cases and tailor their own compliance programs to include at least some of the requirements imposed by the courts.

This post examines the Zarzamora pharmacy and prescribing red flags decision.  Our post on the Betances distributor decision and suspicious orders will appear in the near future.

Part One:  Zarzamora and Prescribing Red Flags

The government alleged that Zarzamora Healthcare, dba Rite-Away Pharmacy and Medical Supply #2 and its pharmacist-owner (collectively “the Defendants”) repeatedly dispensed opioids and other controlled substances in violation of the CSA “by filling prescriptions while ignoring “red flags,” – that is, obvious indications that the prescriptions were not for any legitimate medical use.”  Zarzamora Press Release.  The government alleged that the Defendants specifically failed to exercise their corresponding responsibility to ensure that the controlled substance prescriptions they filled were issued for a legitimate medical purpose by practitioners acting in the usual course of their professional practice, and by filling the prescriptions outside the usual course of their professional pharmacy practice.  Consent Agreement and Final Judgment 2-3.  The government asserted additional allegations that are outside our scope.

Pharmacists’ Corresponding Responsibility

A controlled substance prescription, to be valid, must be issued for “a legitimate medical purpose by an individual practitioner acting in the usual course of [their] professional practice.”  21 C.F.R. § 1306.04(a).  The prescribing practitioner is responsible for proper prescribing and dispensing but a corresponding responsibility rests the pharmacist filling the prescription.”  21 C.F.R. § 1306.04(a).  A prescription not issued in the usual course of professional treatment or in legitimate, authorized research is not a prescription within the meaning of the CSA and the pharmacist knowingly filling it, along with the prescriber issuing it, is subject to penalties.  21 U.S.C. § 829; 21 C.F.R. § 1306.04(a).

DEA has interpreted pharmacists’ corresponding responsibility as prohibiting the filling of a prescription where the pharmacist or pharmacy “knows or has reason to know” that the prescription is invalid.  Holiday CVS, L.L.C. d/b/a CVS/Pharmacy, Nos. 219 and 5195; Decision and Order, 77 Fed. Reg. 62,316, 62,342 (Oct. 12, 2012).  “[W]hen the circumstances surrounding the presentation of a prescription would give rise to suspicion in a ‘reasonable professional,’ there is a duty to question the prescription.”  Holiday CVS, 77 Fed. Reg. at 62,341.

DEA precedent has evolved to define corresponding responsibility as requiring a pharmacy to resolve red flags before filling a prescription: “[A] pharmacist or pharmacy may not dispense a prescription in the face of a red flag (i.e., a circumstance that does or should raise a reasonable suspicion as to the validity of a prescription) unless he or it takes steps to resolve the red flag and ensure that the prescription is valid.”  Holiday CVS, 77 Fed. Reg. at 62,341.  A red flag does not prohibit a pharmacist from filling a prescription but is a potential concern with the prescription that the pharmacist must address and resolve.  If the pharmacist can resolve it, they must make a record of the resolution.

Prescribing Red Flags

The government alleged that from at least 2017 to April 2021 Defendants knowingly filled controlled substance prescriptions “that raised obvious ’red flags’ of potential abuse or diversion.”  Complaint ¶ 55.  The government further alleged that “Defendants deliberately ignored or were willfully blind to circumstances indicating that controlled substance prescriptions were not issued for a legitimate medical purpose or were issued outside the usual course of professional practice.”  Id.  By doing so they “violated the pharmacist’s corresponding responsibility under 21 C.F.R. § 1306.04(a), and Defendants acted outside the usual course of professional pharmacy practice in violation of 21 C.F.R. § 1306.06.”  Id.

The Zarzamora decision identifies the following as prescribing red flags at issue in the case:

1.  Unusual Amounts and Dosages

Dispensing high doses of opioids in quantities far exceeding the daily morphine milligram equivalent (“MME”) dose recommended by the Centers for Disease Control and Prevention (“CDC”).  Complaint ¶ 57.  (The CDC has advised clinicians to carefully assess increasing total opioid dosage to greater than 50 MMEs per day).

2.  Lack of Individual Drug Therapy

Pattern prescribing can occur when physicians prescribe the same drugs, in the same quantities, in the same strengths to their patients, or a patient receives the same controlled substances repeatedly with no adjustment or change in therapy.  Complaint ¶ 58.  Individuals at the same household receiving the same or substantially similar controlled substance prescriptions likewise indicates lack of individual treatment.”  Complaint ¶ 59.

3.  Routinely Abused Controlled Substances

Dispensing controlled substances when a prescriber exhibits a pattern of routinely prescribing controlled substances known to be abused such as opioids, benzodiazepines, muscle relaxers, psychostimulants, and/or codeine-containing cough syrups, or any combination of these drugs.  Complaint ¶ 60.

4.  Prescriptions Containing No Diagnosis or Intended Use

Controlled substance prescriptions issued with a non-specific diagnosis or no diagnosis.  Complaint ¶ 61.

5.  Unusual Geographic Distances

Individuals travelling long distances to the pharmacy from their home, the prescriber or both, including passing other pharmacies.  Complaint ¶ 62.

6.  Controlled Substances Received from Multiple Providers

Individuals presenting controlled substance prescriptions from multiple prescribers may indicate “doctor shopping.”  Providers should be aware of the other drugs prescribed to their patients.  Complaint ¶ 63.

7.  Immediate Release Opioids

A prescription for immediate release (“IR”) opioids on a set schedule or for a certain length of time.  An extended release (“ER”) opioid in legitimate pain management generally accompanies an IR opioid, with patients taking the ER opioid on a set schedule and the IR opioid as needed.  Complaint ¶ 64.

Future Dispensing

The court mandated specific requirements for the pharmacy’s future dispensing , requiring reviews and monitoring of those activities for seven years.  The Consent Agreement permanently restrained and enjoined the Defendants from administering, dispensing, or distributing:

1. Any controlled substance earlier than two days prior to completion of the intended duration of the previous fill;
2. Concurrent opioid and gabapentin medications unless approved by the same prescriber and the pharmacy has a documented treatment plan on file describing the basis for concurrent use;
3. Concurrent opioid and benzodiazepine medications unless approved by the same prescriber and the pharmacy has a documented treatment plan on file describing the basis for concurrent use. In addition, the pharmacy must counsel the patient regarding the FDA Boxed Warning on concomitant use and provide a written copy;
4. One or more opioids for a patient that together exceed 90 MMEs per day, except for patients who have current treatment plans on file indicating the medications are necessary for end-of-life palliative purposes;
5. More than one prescribed IR opioid for a patient except for patients who have current treatment plans on file indicating the medications are necessary for end-of-life palliative purposes;
6. More than one prescribed ER opioid to a patient except for patients who have current treatment plans on file indicating the medications are necessary for end-of-life palliative purposes;
7. Oxycodone single-entity opioids in excess of 15 mgs.;
8. Any schedule II drug to a patient paying in cash, cash equivalents, or otherwise out-of-pocket, except where the pharmacy has documented that the customer is not covered by any insurance plan or other third-party payor for prescription services;
9. IR opioids for more than 90 days unless the pharmacy first obtains a written treatment plan from the prescribing physician;
10. Methadone in combination with other opioids unless the pharmacy first obtains a written treatment plan from the prescribing physician;
11. Opioids to any person unless the pharmacy first obtains a written treatment plan from the prescribing physician;
12. Controlled substances from multiple prescribers unless the pharmacy first obtains written documentation from each prescriber acknowledging treatment with the controlled substances by other prescribers;
13. Controlled substances totaling greater than 60 MMEs per day unless the pharmacist-in-charge (“PIC”) first provides counseling on the risk of overdose and has offered naloxone. (For patient counseling, the pharmacy must maintain a handwritten logbook containing patient’s name, date of birth, address, telephone number, date of counseling, and signed acknowledgment of counseling by the patient, the PIC, and an additional pharmacy employee as witness);
14. The following combinations, unless the pharmacy has contacted the prescribing practitioner and received verbal confirmation of issuing the prescriptions’ and the diagnoses supporting the treatment plan or a written, signed explanation of the purpose of the prescriptions:
    • Opioids and gabapentin, pregabalin, or topiramate;
    • A musculoskeletal agent and an opiate; or
    • An opiate and one or more opiate potentiators.

Consent Agreement and Final Judgment ¶ 10.a.-n.

Periodic Reviews

In addition, the Defendants must conduct periodic comprehensive reviews of controlled substance dispensing and compliance with the CSA and its regulations for seven years that include electronic prescription data and patient profiles, hardcopy prescriptions, treatment plans and correspondence with prescribers, and internal notes regarding resolution of red flags, and responses to questions or clarifications posed to any prescriber, as necessary.  Within one month of each comprehensive review, the pharmacy must prepare a written report identifying prescriptions filled that were not issued for a legitimate medical purpose or filled outside the usual course of the professional practice of pharmacy, and prescriptions in violation of the permanent injunction terms.  Consent Agreement and Final Judgment ¶ 14.a.-b.

The order also enjoins the pharmacist-owner from serving as a PIC at any other pharmacy for seven years.  Consent Agreement and Final Judgment ¶ 17.

****

Pharmacists and pharmacy management should pay heed to these prescribing red flags, resolve them when they appear and document their resolution.  Part Two will focus on the Betances decision and suspicious controlled substance orders.

The Inflation Reduction Act (IRA) significantly changed the Part D benefit. As part of this change, the Coverage Gap Discount Program (CGDP), a program that has existed since 2011, will sunset on December 31, 2024, and be replaced by the Medicare Part D Manufacturer Discount Program (the “Discount Program”). On November 17th, CMS issued its final guidance on the Discount Program in which it responded to public comments and provided updated guidance for the Discount Program for 2025 and 2026.

The Discount Program is similar to the CGDP with respect to several requirements and operational processes, and CMS will implement it in a similar manner. Below, we provide a high-level summary of the Final Guidance, focusing on the legal and regulatory updates from the May 2023 draft guidance. We do not address the technical and administrative details of the Discount Program here.

Sunsetting of Coverage Gap Discount Program: The 70% coverage gap discount under the CGDP will continue until December 31, 2024. CMS will send the final manufacturer invoice for discount liabilities accrued by then on April 30, 2028. Final Guidance at 2.

Conditions for Coverage after January 1, 2025: Any manufacturer that wishes to have its applicable drugs covered under Medicare Part D after January 1, 2025 (“participating manufacturers”) must execute a Discount Program agreement with CMS by March 1, 2024. Id. at 35. Applicable drugs are covered Part D drugs approved under a new drug application (NDA) or biologics license application (BLA) that are on a Part D plan formulary or for which benefits are available under a Part D plan, including through an exception or appeal, but do not include drugs selected under the Medicare Drug Price Negotiation Program for a Maximum Fair Price (MFP) applicability year. See id. at 54. The manufacturer’s agreement must cover all its labeler codes that contain an applicable drug or a selected drug. Id. at 33-34. All labeler codes that are covered by Discount Program agreements will be distributed to PDP sponsors and posted on the CMS website. Id. at 21.

The Final Guidance clarifies that, although both applicable drugs and selected drugs must be covered under a Discount Program agreement, selected drugs are excluded from the definition of an applicable drug, so they are not subject to applicable discounts during an MFP applicability year. Id. at 20-21. Non-applicable drugs (e.g., generics) will be coverable under Part D regardless of the manufacturer’s participation in the Discount Program. See id. at 22. CMS expects to provide additional guidance on payments, direct and indirect remuneration (DIR), and calculating subsidies for selected drugs in the coming months. Id. at 10.

Applicable drugs or selected drugs that are not covered by a Discount Program will not be covered by Part D. Although the IRA allows CMS to cover applicable drugs that CMS determines are “essential to the health of [Part D] beneficiaries” even if they are not under a manufacturer’s Discount Program agreement, CMS does not interpret this exception as allowing the agency to proactively create a list of essential medicines that can circumvent the Discount Program. Instead, CMS anticipates using this exception on rare occasions. Id. at 2-3.

Overview of Medicare Part D Design Changes: Beginning in 2025, the Medicare Part D benefit will consist of a 3-phase benefit:

• the deductible, during which the enrollee is responsible for 100% of their gross covered prescription drug costs.
• the coverage phase, during which the enrollee pays a 25% coinsurance, participating manufacturers cover 10% of the negotiated price through the Discount Program (or less if a manufacturer phase-in applies) and Part D plans (PDPs) cover the remainder, typically 65% (but more if a phase-in applies). at 6. This phase extends up to the out-of-pocket (OOP) maximum.
• The catastrophic coverage phase, during which the enrollee pays 0%, participating manufacturers typically provide a 20% discount and PDPs typically cover 60% of the costs for all covered Part D drugs. Medicare pays the remaining 20% reinsurance subsidy for applicable drugs. This reinsurance subsidy increases to 40% for selected drugs and non-applicable drugs, where no manufacturer discounts apply. at 20.

Discount Program Agreements and Requirements: CMS published the Discount Program agreement without the opportunity for public comments. It shares many of the same requirements of the CGDP: manufacturers must provide and maintain updated information on their labeler codes and NDCs; they must provide the applicable discount by making payments within 38 days after receiving the invoice; and they must comply with the program’s legal, regulatory, administrative and technical requirements.

Manufacturers must sign the agreement by March 1, 2024, to participate in the 2025 plan year. The initial term is valid for 12 months and the agreement will automatically renew each January 1 thereafter. For calendar year 2026 and subsequent years, an agreement will become effective on the first day of a calendar quarter that is at least 60 days after a manufacturer has signed the agreement. Id. at 35. An initial term that does not start on January 1 will end on December 31^st of the following year and then follow the yearly renewal cycles thereafter.

At a minimum, the manufacturer’s agreement must cover all its labeler codes that contain an applicable drug or a selected drug, and update CMS within 3 business days of being assigned a new labeler code. Id. at 34-35. Manufacturers must collect, maintain, and have available appropriate labeler code data needed to comply with the Discount Program. These may include data on changes in corporate ownership, or data on any new, transferred, or discontinued labeler codes. Manufacturers must also ensure that all electronic FDA listings and all NDC listings with the electronic database vendors used to process pharmacy claims, including information about discontinued drugs, are up to date for all applicable drug and selected drug NDCs.

CMS can terminate an agreement for any knowing and willful violation of the requirements of the agreement. 42 U.S.C. § 1395w-114c(b)(4)(B)(i). The agency may refuse to enter into a Discount Program agreement with a manufacturer that was terminated from the CGDP for a similar reason. Final Guidance at 34. For-cause terminations by CMS are subject to a hearing and a review by the CMS Administrator. Manufacturers can terminate their participation in the Discount Program at any time for any reason, subject to the requirements related to the effective date of the termination. Id. at 11. The primary manufacturer of a selected drug may also request CMS to terminate its agreement if they are unwilling to participate in the Medicare Drug Price Negotiation. Id. at 36-37.

Use of a Third-Party Administrator: CMS will continue to use an accredited Automated Clearing House (ACH) vendor Third Party Administrator (TPA) for the new Discount Program. Manufacturers will have to enter into a TPA agreement, which CMS has provided on its website, in order to access the Discount Program payment portal. The TPA will use PDE data to invoice participating manufacturers and plan sponsors and to report ACH activity to CMS.

Applicable Discounts: The manufacturer discounts apply regardless of whether the enrollee is entitled to low-income subsidies (LIS) that pays their deductible, has an enhanced benefit plan with a reduced or no deductible, or uses a drug that is not subject to the deductible (e.g., covered insulin product or vaccine). Id. at 23. The value of the applicable discounts applies before the application of any available supplemental benefits that Part D plans offer, and before any coverage or financial assistance under another plan (e.g., state pharmaceutical assistance programs). Id. at 30-31.

After 2024, the PDP sponsors will pay the enrollees’ 5% coinsurance during the catastrophic phase. Once participating manufacturers start making discounts available, those discounts will not count towards the enrollee’s incurred costs. Finally, claims that straddle more than one phase will be apportioned to those respective phases and the discount applicable for those phases will apply.

Phase-Ins:  To ease the transition to 10% and 20% discounts, the IRA has two phase-in programs for certain manufacturers. Each phase-in policy allows eligible manufacturers to build up in a stepwise manner to the 10% and 20% applicable discounts by 2029 and 2031, respectively. Each phase-in program requires the manufacturer to have had a Coverage Gap Discount Program agreement in effect in 2021, and only covers applicable drugs that have been in the market as of August 16, 2022 (i.e., had Part D expenditures on or before August 16, 2022). Id. at 24.

The first phase-in allows “specified manufacturers” to phase-in those discounts that apply to enrollees who receive LIS subsidies (this was not the case for the CGDP). A specified manufacturer is one that:

• Had a CGDP for plan year 2021 (or had its labeler codes listed in another manufacturer’s CGDP)
• Its total Part D expenditures under such 2021 CGDP represented less than 1.0% of the total expenditures for all Part D drugs in 2021.
• Its total expenditures for all specified drugs that are single source drugs or biologics for which payment may be made under Part B in 2021 represented less than 1.0% of the total expenditures for all drugs or biologics under Part B in 2021.
  • A “specified drug” means, for 2021, an applicable drug that is produced, prepared, propagated, compounded, converted, or processed by a specified manufacturer.

The second phase-in allows “specified small manufacturers” to phase-in their discounts. A specified small manufacturer is one that is a specified manufacturer and:

• Had total expenditures under Part D for any one of its specified small manufacturer drugs covered under a CGDP for 2021, and covered under Part D in 2021, equal to or greater than 80% of the total expenditures for all of its specified small manufacturer drugs covered under Part D in 2021.
  • A “specified small manufacturer drug” means, for 2021, an applicable drug that is produced, prepared, propagated, compounded, converted, or processed by a specified small manufacturer.

All manufacturers that sign a Discount Program agreement in time to participate in any year of the phase-in will be considered for the phase-in, and do not need to submit a separate application. Final Guidance at 27. CMS will identify which manufacturers qualify for these phase-ins by analyzing Medicare Part B claims data, Part D PDE data, and ownership information submitted by manufacturers. CMS requires the ownership information in order to apply the IRA’s aggregation rule. See 42 U.S.C. § 1395w-114c(g)(4)(B)(ii)(II)(bb). Under this rule, CMS will consider all entities, including corporations, partnerships, proprietorships, and other entities treated as a single employer under subsection (a) or (b) of section 52 of the Internal Revenue Code of 1986 as one manufacturer. Phase-in Memorandum at 2. CMS will require participating manufacturers to submit and attest to this ownership information in the Health Plan Management System (HPMS). Final Guidance at 27. CMS issued instructions for manufacturers on how to submit this required ownership information. Participating manufacturers that have concerns with CMS’ calculation have the opportunity to ask CMS for a recalculation within 30 days of the eligibility determination. Id. at 29.

CMS also provides manufacturers a “special opportunity” to get a preliminary (i.e., before such manufacturer signs a Discount Program agreement) and non-binding of their phase-in eligibility if they provide CMS all ownership information by December 8, 2023. Id. at 28. CMS will provide this by January 2024 but will not extend the recalculation option to manufacturers that have not signed a Discount Program agreement.

Point-of-Sale (POS) Discounts and Payment Processes: As under the CGDP, PDP sponsors will provide applicable discounts at the POS. CMS confirmed in the Final Guidance that manufacturers must also provide discounts for out-of-network claims or in-network paper claims through direct member reimbursements. Id. at 8. CMS will pay the plans through monthly prospective payments based on the estimated per-member per-month costs submitted in plan bids. CMS recommended plans to incorporate all new risks they anticipate under the Discount Program into their annual bids. Id. at 9.

The plans must report the applicable discounts on the PDE records associated with such discounts to allow CMS to reconcile the prospective payments and issue quarterly invoices to the manufacturers. CMS intends to provide additional guidance on PDE data fields and calculating discounts on more complex claims. See id. at 8, 31. The pharmacy prompt payment requirements from the CGDP will also apply to the Discount Program.

Audits and Compliance Monitoring: Using its discretionary authority under 42 U.S.C. § 1395w-114c(d), CMS will allow participating manufacturers to audit the TPA up to one time per year with at least a 60-day notice. Manufacturers may only review a statistically significant random sample of the TPA data used to determine discounts (which includes claim-level information), and only do so on site, at a location specified by the TPA. CMS may similarly audit participating manufacturers up to once a year to monitor their compliance after a similar 60-day notice of a reasonable basis for the audit. CMS also intends to implement a compliance monitoring program through future regulations or guidance.

Dispute Resolution: CMS will set up a dispute resolution mechanism to help resolve disagreements between CMS, Plan D sponsors, and manufacturers over invoice data received from TPAs. This will be a 3-level process analogous to the one set up for the CGDP (initial dispute; independent review entity; CMS administrator). This dispute resolution system will not cover CMS decisions to terminate a Discount Program agreement or CMS decisions regarding phase-in program eligibility. Manufacturers are not permitted to withhold payment for any disputed invoiced amount, even while a dispute is pending, with the sole exception of a dispute over NDCs that do not correspond with the labeler codes covered under manufacturer’s agreement. Id. at 40. CMS will release requirements and operational guidance in the coming months.

Civil Money Penalties: The statute provides for civil monetary penalties (CMPs) each time a participating manufacturer fails to provide discounts to applicable beneficiaries. 42 U.S.C. § 1395w-114c(e). A participating manufacturer fails to provide this discount each time they fail to make a payment within 38 days of receiving an invoice. Final Guidance at 52-53. The penalty is equal to the amount outstanding plus 25% of such amount. 42 U.S.C. § 1395w-114c(e)(1). Although the statute states that the CMP amount equal to the outstanding amount “will be used to pay the discounts which the manufacturer had failed to provide,” § 1395w-14c(e)(1)(A), CMS states in the Final Guidance that CMS “may” reduce the CMP “by any amount the manufacturer has paid after 38 calendar days.” Id. at 53.

A manufacturer with a delayed payment will first receive a Notice of Non-Compliance and have 5 business days to cure it or challenge it. If the manufacturer can cure the delay show that it was due to reasons beyond the manufacturer’s control, CMS will generally not assess a CMP. Final Guidance at 15. CMS will not consider insufficient compliance controls as reasons enough to avoid the penalties. If CMS determines that CMPs do apply, the agency will send a written notice of this determination. The manufacturer will have 60 days to appeal the CMP before an administrative law judge (ALJ).

The 2023 Food and Drug Law Institute’s (“FDLI”) Enforcement, Litigation and Compliance Conference will boast two speakers from Hyman, Phelps & McNamara, P.C. (“HPM”), as well as other experts from FDA, DOJ, and the private sector.

HPM Director Anne Walsh will moderate a panel discussion on “Due Diligence and Mitigating Securities Violation Risks for Emerging Life Science and Novel Food Companies.” Ms. Walsh is a nationally recognized expert on FDA enforcement matters across all sectors and has held numerous leadership positions with FDLI and with the Women’s White Collar Defense Association. HPM Counsel John Claud joined the firm last year after a long career with DOJ and will speak on a panel to discuss “Top Cases in Enforcement and Compliance: Challenges to FDA and Other Federal Agency Authority.”

The speaker faculty of top FDA regulatory authorities will share critical insights on foreign and domestics inspections, digital health, DOJ’s compliance guidelines, and data privacy, among many other topics. The conference will also include its annual panel discussion with FDA’s Center Compliance Directors. Arun Rao, the Deputy Assistant Attorney General for DOJ’s Consumer Protection Branch, will deliver the keynote address, and Peter Barton Hutt, Senior Counsel at Covington & Burling LLP, will deliver the Tenth Annual Eric M. Blumberg Memorial Lecture.

The Enforcement, Litigation and Compliance Conference will be held in Washington, D.C. next week, on December 6-7, 2023.  It is attended by experienced professionals in the fields of regulatory, legal, public relations, marketing, and management who work in the pharmaceutical, medical device, diagnostic, biologics, and veterinary medicine industries. The conference is also beneficial for consultants in the areas of advertising, public relations, law, and marketing communications.

In October 2021, FDA and MHRA (United Kingdom’s Medicines and Healthcare products Regulatory Agency) jointly developed 10 guiding principles for the development of Good Machine Learning Practice (GMLP) with the goal of promoting “safe, effective, and high-quality medical devices” that are based on Artificial Intelligence/Machine Learning (AI/ML) technologies.  Guiding Principle 10 focused on monitoring the performance of the models and managing re-training risks.  It stated:

Deployed models have the capability to be monitored in “real world” use with a focus on maintained or improved safety and performance.  Additionally, when models are periodically or continually trained after deployment, there are appropriate controls in place to manage risks of overfitting, unintended bias, or degradation of the model (for example, dataset drift) that may impact the safety and performance of the model as it is used by the Human-AI team.

Since that time, FDA issued a draft guidance for predetermined change control plans (PCCPs) for Artificial Intelligence/Machine Learning (AI/ML) software functions.  See our prior blog post on the topic here.  FDA announced that FDA, Health Canada, and MHRA are jointly publishing guiding principles for PCCPs for AI/ML devices to help stakeholders when developing solutions for these countries. Five guiding principles were identified for PCCPs and relate to being focused, risk-based, evidence-based, transparent, and taking into consideration total product lifecycle management.

Focused and Bounded

This guiding principle recommends that the PCCP describe a specific planned change that is consistent with the claimed intended use and intended purpose of the Machine Learning Medical Device (MLMD).  The plan should identify the methods for verifying and validating the change.  If the change does not meet specified performance criteria, it will not be implemented under the PCCP.

Risk-based

This guiding principle ensures risk management principles are used to evaluate the individual and cumulative changes over the life of the device.

Evidence-based

This guiding principle discusses the generation of evidence for the change.  Data should demonstrate the benefits of the change outweigh the risks and any risk identified are appropriately controlled and mitigated to ensure the device remains safety and effective.  The evidence used to measure the device’s performance should be scientifically and clinically justified, consistent with the level of risk for the proposed change.

Transparency

This guiding principle calls for manufacturers to be transparent with users regarding the device performance before and after the implementation of the change.  Considerations include transparency regarding the data used to develop the change, comprehensive testing of the change, characterizing the performance of the device before and after the change, and plans in place for ongoing monitoring of device performance and communication of any unexpected changes in performance.

Total Product Lifecycle (TPLC)

This guiding principle reminds manufacturers that PCCPs and MLMD changes should be integrated into the lifecycle management of the device and be part of their existing quality system processes including but not limited to risk management and post market monitoring.

FDA considers these guiding principles as complimentary to their recent efforts around PCCPs including their proposed draft guidance on PCCPs. However, FDA’s draft guidance included more requirements around data management practices, re-training practices, and update procedures that are not included in these guiding principles.  Perhaps, that is why the Agency believes these guiding principles, although developed specifically for AI/ML devices, could apply to other devices when developing PCCPs.

A recent review of 510(k) summaries for AI/ML devices show very few have taken advantage of including a PCCPs as companies struggle to apply the recommendations in the draft guidance in a practical manner within their already established design change processes.  For those that have referenced a PCCPs, the 510(k) summaries do include a list of the specific modifications however the explanation of the PCCP itself is vague and high level, simply stating that the modifications will be controlled and implemented in a manner that assures the device is safety and effective, the modification will be analyzed against acceptance criteria which will demonstrate substantial equivalence, and labeling will be provided to the end users to inform them of the changes and characterize the performance. The 510(k) summaries also include details on the planned modification protocols, including an impact assessment to address requirements for data management.  It will be interesting to see how these principals are combined with FDA’s draft guidance in practice and whether this will accelerate the use of PCCPs or increase confusion for industry.

Shortly before the Thanksgiving holiday, FDA announced with no fanfare that it would be holding a Molecular and Clinical Genetics Panel meeting this Wednesday November 29.  The notice (here) indicates that FDA plans for the panel to “discuss and make recommendations on the design of multi-cancer detection (MCD) in vitro diagnostic devices (tests) as well as potential study designs and study outcomes of interest that could inform the assessment of the probable benefits and risks of MCD screening tests.”  It is well known in the industry that FDA has been skeptical of multi-cancer (sometimes also referred to as pan-cancer) tests.  Thus, it’s not entirely surprising that FDA would seek input from a panel on this topic.

What is shocking, however, is that the panel meeting was announced on Monday November 13 and FDA only accepted comments until November 15.  Not surprisingly, there were exactly zero comments received prior to November 15.  We cannot recall any other situation where FDA gave stakeholders precisely two days in which to comment.  FDA offers no explanation for either the short advance notice of the meeting or the two-day comment period.  Although comments submitted after November 15 won’t be presented to the panel, FDA says it will still take them “into consideration.”  The docket will remain open through December 29.

The timing of this meeting has certainly raised more than a few eyebrows, particularly given its relationship to the proposed LDT rule (see our prior posts here, here, and here).  Why is the Agency now in such a rush to understand how MCDs should be validated?  Is it that the Agency is preparing from this question from labs that are currently offering/developing MCDs?  Why are the panelists being given such scant background (a mere 6 pages of substantive information in the executive summary)?   While the topic of MCDs is important, it seems like everyone—regulators, labs, patients—deserve a better process to provide thoughtful, informed feedback on important questions regarding MCDs than an extraordinarily hasty meeting.

FDA’s haste is even more surprising given that CDRH has convened only 5 other panel meetings so far in all of 2023.  Further, CDRH announced another panel meeting the same day as the MCD panel notice (November 13) and yet another panel meeting was announced on the day after the MCD panel notice (November 14).  Both of these other panel meetings are scheduled to be held in February 2024, which is months later than the November 29 MCD panel.

The meeting information, including the short agenda and questions, are posted on FDA’s website (here) along with the zoom link.  We hope that interested parties will tune in and file docket comments to make their voices heard both with regard to the process of holding this rushed meeting but also the substance of the topics to be considered.

Although the Consumer Product Safety Act (CPSA) has been around for over 50 years to “protect the public against unreasonable risks of injury associated with consumer products,” it was not until 2008 that the statute was amended to authorize the Consumer Product Safety Commission (“CPSC”) to impose criminal liability against individual directors, officers, or agents of a corporation for violating the CPSA.  See 15 U.S.C.  § 2070.  Now, fifteen years later, on Nov. 17, 2023, the Department of Justice (DOJ) announced the first-ever conviction of two corporate executives in a criminal prosecution for failure to report a consumer product defect under the CPSA.

What led to this conviction?  It is a long story that started more than a decade ago.  It involved Gree Electric Appliances Inc. of Zhuhai, Hong Kong, Gree Electric Appliances Sales Co. Ltd., and Gree USA Inc. (the “Gree Companies”), an appliance manufacturer and two of its subsidiaries that were involved in the manufacturing, marketing, and sale of dehumidifiers.  According to the government, these companies knew as early as 2012 that their dehumidifiers were defective, in that they could overheat and catch fire.

The government also alleged that the Gree Companies and some of its executive officers knew of their obligation to report this information to the CPSC in a timely manner, but not only did they fail to report (for at least six months), they willfully continued selling products to avoid losing customer contracts, and  used falsified UL certifications to lie to the public about the safety of the dehumidifiers.

DOJ’s enforcement against the Gree Companies and its executives occurred in stages.  First, as is more common under the CPSC, the Gree Companies agreed to pay civil penalties for failing to make the required reporting to the CPSC.  At the time, in 2016, the Gree Companies’ settlement for $15.45 million in civil penalties set a new record for CPSC.

In 2021, DOJ announced that the Gree Companies agreed to plead guilty to one felony count for willfully failing to report consumer product safety information as required by the CPSA.   According to DOJ, the action against the Gree Companies represented the first corporate criminal enforcement action brought under the CPSA.

Then, earlier this year, in April 2023, Gree USA, Inc., the U.S. subsidiary of the Chinese appliance company, was sentenced to pay a $500,000 criminal fine.  The fine, along with provisions to pay restitution to victims, was part of a $91 million resolution with the three related Gree Companies.

Gree USA’s Chief Executive Officer, Charley Loh, and the Chief Administrative Officer, Simon Chu, however, did not agree to the plea deal for the corporate entity, and elected to go to trial.

According to the prosecution, Defendants Chu and Loh:

• deliberately withheld information about the defective and dangerous dehumidifiers from the retail companies that bought the dehumidifiers; from the insurance companies that paid for damage caused by the fires resulting from the dehumidifiers; and from the CPSC.
• continued to sell the dehumidifiers to retailers with false certifications that the products met safety standards, including the UL flammability standard;
• caused a company employee to solicit materials that would falsely portray to an insurance company that the dehumidifiers were safe and not defective; and
• sent an untimely report to the CPSC that falsely stated that the dehumidifiers were not defective or hazardous.

The government charged these individuals with conspiracy (18 U.S.C. § 371), failure to immediately report required Information to the CPSC (15 U.S.C. §§ 2068(a)(4), 2070), and wire fraud (18 U.S.C. § 1343).  After a brief trial, on Friday Nov. 17, 2023, DOJ announced that both defendants had been convicted of conspiracy and failure to immediately report the defects in the dehumidifiers to CPSC. Both defendants were acquitted of the wire fraud charges.  Per DOJ, this is the first-ever criminal prosecution of individuals for failure to report under the CPSA.  The two defendants face a maximum of five years in federal prison on each of the counts; a sentencing hearing is set for March 11, 2024.

Although the facts of these criminal enforcement actions are quite extreme and not limited to a mere failure to delay reporting of a product defects, the criminal actions and conviction of corporate officers serve as a reminder and as a warning to companies and corporate officers that CPSC has the tools to aggressively pursue action against those who fail to take consumer product safety seriously and do not follow the law.  Like FDA’s long-touted authority under the Park Doctrine, time will tell whether this recent prosecution will become a trend or whether they will be reserved for only the extreme scenarios.  Regardless, companies would be well-advised to ensure that they have the processes and policies in place so that they can (and will) timely comply with the reporting requirements related to defective consumer products.  Where it concerns the CPSC mum’s certainly not the word!

For any of our readers seeking recommendations on which drinks pair well with turkey this Thanksgiving, certain fruit-flavored beverages may be off the table.  Earlier this month, FDA issued a proposed rule that would revoke 21 C.F.R. § 180.30, its interim authorization of the use of brominated vegetable oil (BVO) in in fruit-flavored beverages.

BVO is a complex mixture of plant-derived triglycerides that have been reacted to contain atoms of the element bromine bonded to the molecules.  As authorized, BVO is used in small amounts as a stabilizer and emulsifier for flavoring oils in fruit-flavored beverages, primarily to keep the citrus flavoring from separating and floating to the top of the beverage during distribution.

BVO has been used as a flavoring oil stabilizer and emulsifier since the 1920s, and it was generally recognized as safe (GRAS) for this use by FDA.  Fast-forwarding half a century, in 1970, FDA removed BVO from the codified list of GRAS substances due to toxicity concerns at a level of approximately 150 parts per million (ppm) in beverages.  The Flavor and Extract Manufacturers Association responded by submitting a food additive petition to FDA, requesting approval to use BVO in beverages at a maximum use level of 15 ppm.  Based on the data available at the time and the historical use of BVO in food without an immediate threat to health, FDA determined that there would be an adequate margin of safety for BVO in beverages at the use level of 15 ppm on an interim basis while additional, longer-term safety studies were conducted.  FDA subsequently established an interim food additive regulation, codified at 21 C.F.R. § 180.30, which authorizes the use of BVO as a stabilizer for flavoring oils in an amount not to exceed 15 ppm in the finished fruit-flavored beverage.  Since then, FDA has evaluated new information on BVO’s possible health effects as it became available.

As described in the preamble to FDA’s proposed rule, recent toxicology studies in cooperation between FDA and the National Institutes of Health have provided “conclusive scientific evidence” for FDA to remove its authorization for BVO.  FDA asserts that the studies demonstrate that BVO consumption has the potential for adverse health effects in humans, including but not limited to thyroid toxicity.  Once the rule is finalized, companies will have one year from the effective date to reformulate, relabel, and deplete their inventory of BVO-containing products.

Some may wonder what took FDA so long.  Australia, the European Union, Japan, and New Zealand have already banned BVO use in beverages.  Moreover, California recently enacted the California Food Safety Act, prohibiting the manufacturing, selling, delivering, distributing, or holding food that contains BVO, with a $5,000 civil penalty for first violations, as of January 1, 2027.  In addition, New York introduced a similar bill prohibiting certain food additives, including BVO.

Before any reader starts hoarding certain citrus-flavored beverages, rest assured: apparently safe substitutes for BVO are available and have long been used for the same functions as BVO (e.g., ester gum, locust (carob) bean gum, and sucrose acetate isobutyrate).  Over the past decade, beverage manufacturers have already reformulated their products to replace BVO with these alternatives.

Comments on the proposed rule can be submitted here until January 17, 2024.

The word last week was that FDA is re-organizing the Office of Pharmaceutical Quality (OPQ) within the Center for Drug Evaluation and Research (CDER).  It is the latest item on a long list of similar initiatives that have marked 2023.  Those efforts add up to a clear message to industry that FDA is looking beyond CGMP when it evaluates drug makers. The Agency wants to see functional, effective cultures of quality, and expects that C-suites will provide support to quality units.

CDER Director Patrizia Cavazzoni first announced the upcoming changes at OPQ last week in an email to staff, which then went out to trade media. The restructuring divides OPQ into 11 sub-offices that FDA described as creating “a more streamlined, agile, and flexible organization. . . .” Only within the Federal bureaucracy can a (1) complex restructuring of (2) an office of (3) a Center into (4) eleven sub-units be described as “streamlining.” But to be sure, FDA is going beyond just making 10 louder. The Agency has high expectations of industry’s willingness to invest in and proactively address quality matters.

The new parts of OPQ reflect that. Of note, the new structure removes any separation between new and generic drug quality review offices. Under the new OPQ, quality is assessed without much concern of the relevant premarket approval process.

It’s also clear that culture counts. Cavazzoni told staff that the changes at OPQ will strengthen “connections between assessment, inspection, surveillance, research, policy, and administrative operations.” Under this enforcement assessment, quality affects everything. The changes at OPQ will take effect on January 14, 2024.

FDA is putting time and effort into quality systems because when they are lacking, numerous problems can follow, including drug shortages. The changes at OPQ are the latest in FDA’s expanded 2023 quality efforts. For example, in August, CDER and OPQ initiated the Quality Management Maturity Program (QMM) that aspires to “implement quality management practices that go beyond current good manufacturing practice (CGMP) requirements.” Quality agreements between manufacturers and third-party suppliers are on FDA’s radar, and the Agency has shown a willingness to delay approvals in the face of quality concerns. And we are seeing more and more warning letters that cite entire quality units for lacking qualifications and failing to execute their responsibilities.

FDA is putting resources into evaluating quality units across all types of manufacturing and is on the lookout for failures of quality cultures. We’ll almost certainly hear more about this as the Agency cements its organizational changes in 2024. Under this scrutiny, quality units are no places for free-form jazz odysseys.

Hyman, Phelps & McNamara, P.C. (“HP&M”) is proud to announce the firm has been selected to the 2024 edition of Best Law Firms.  Firms included in the 2024 Best Law Firms ranking are recognized for professional excellence with persistently impressive ratings from clients and peers.

To be considered for this milestone achievement, at least one lawyer in the law firm must be recognized in the 2024 edition of Best Lawyers.  HP&M is proud that we have 14 lawyers recognized for their outstanding support of our clients.

In 2024, eight of the 14 are new additions.  Those recognized for their outstanding legal work include:  Paul Hyman, Ricardo Carvajal, Robert Dormer, Douglas Farquhar, Jeffrey Gibbs, Kurt Karst, Josephine Torrente (new 2024), Michelle Butler (new 2024), Sara Koblitz (new 2024), Allyson Mullen (new 2024), Anne Walsh (new 2024), McKenzie Cato (new 2024), Kalie Richardson (new 2024), and James Valentine (new 2024).

“The recognition of the professional excellence of our firm and so many of our lawyers is a great source of pride to all of us at HP&M,” said co-founder Paul Hyman.  “We are especially gratified by the much-deserved recognition of several of our young lawyers, who are continuing the strong traditions of HP&M and leading the firm into the future.”

Receiving a tier 1 designation represents an elite status, integrity and reputation that law firms earn among other leading firms and lawyers. The 2024 edition of Best Law Firms includes rankings in 75 national practice areas and 127 metropolitan-based practice areas.

Best Law Firms rankings are based entirely on annual peer-review and have earned the respect of the profession, the media and the public as the most reliable, unbiased source of legal referrals.  Recognition by Best Law Firms is widely regarded by both clients and legal professionals as a significant honor conferred on a firm by its peers.

On January 23-24, 2024, the American Conference Institute (“ACI”) will host its “Advanced Legal, Regulatory and Compliance Forum on OTC Drugs” conference at the Sofitel New York, NY.  Designed for in-house legal and compliance counsel, industry executives, and private practice attorneys working for the OTC drug industry, the event will welcome distinguished industry thought leaders – including from the National Advertising Division and FDA – to share their expertise and strategic insights.  Program highlights include:

• Spotlight on FDA’s newly proposed ACNU Rule and Monograph Reform updates featuring FDA commentary
• Think tank on the reclassification of Phenylephrine
• PFAS concerns for OTCs
• Cases Studies on recent Rx- to-OTC Switches: Analyzing the legal and regulatory implications of the Opill and Naloxone switches
• Special focus sessions on the Homeopathic Monograph and MoCRA’s impact on the OTC industry
• Advertising drill down on the impact of the FTC’s Health Claims and Influencer Guidances and Green Guides on OTC promotion
• OTC Post Marketing Challenges: Addressing Adverse Events, Product Recalls, Inspection and Investigations

Hyman, Phelps & McNamara, P.C. Director Deborah L. Livornese will be speaking at the event in a session titled “Case Studies on Opill and Naloxone: Key Takeaways from the Latest Switch Approvals and What They Mean for Future Industry Opportunities.”

Click here to view this year’s agenda and to register for the event.  FDA Law Blog readers can save 10% with the following promo code: D10-999-FDA24.

On October 31, 2023, the U.S. Food and Drug Administration (FDA) issued a proposed rule that would amend its prior notice regulations to add new information requirements and deadlines.  More specifically, the proposed rule, if finalized, would:

• Amend 21 C.F.R. § 1.281(b)(10) to require that prior notice for articles of human and animal food arriving by international mail include the name of the mail service and tracking number; and
• Amend 21 C.F.R. §§ 1.283 and 285 to require that, once a notice of refusal or hold is issued, prior notice be submitted within 10 calendar days and food facility registration information be submitted within 30 calendar days.

“Prior notice” informs FDA about the products it can expect to be offered for import into the country. The requirement for prior notice originates in the Public Health Security and Bioterrorism Preparedness and Response Act of 2002 (the Bioterrorism Act).  This law directs FDA to take additional steps to protect the public from a threatened or actual terrorist attack on the U.S. food supply and other food-related emergencies. Among other things, the Act requires that FDA receive prior notification of food that is imported or offered for import into the United States. This advance notice of import shipments is intended to help FDA, with the support of the U.S. Customs and Border Protection (CBP), target import inspections more effectively and help protect the nation’s food supply against terrorist acts and other public health emergencies.  The FDA Food Safety Modernization Act (FSMA) enacted in 2011, aims to ensure the U.S. food supply is safe by shifting the focus of federal regulators from responding to contamination to preventing it.  Pursuant to FSMA, FDA amended the requirements for prior notice of imported food, to include a requirement to report the name of any country to which the article has been refused entry.  As a result FDA can make better informed decisions in managing potential risks of imported food into the United States.  Over time, FDA amended the prior notice regulations to require tracking numbers and other information to more easily identify foods that pose a higher health risk.

However, currently, prior notice of food articles arriving by international mail requires the notifier to provide to FDA only with the anticipated date of mailing.  This information is insufficient to allow FDA to predict when a shipment will arrive.  As a result, FDA cannot monitor, locate, inspect, and if needed, contain any shipment that has been identified as a possible public health or bioterrorism risk.  More detailed information about the mailing such as the tracking number and the mailing service would help FDA to better coordinate with other federal agencies and refuse or hold specific food shipments that pose risks.

The proposed rule also establishes a timeframe by which food articles subject to refusals or holds must become compliant.  In some cases, foods imported without a prior notice, with inadequate prior notice, or from an unregistered foreign food facility that is required to register have been held at ports for weeks or months, accumulating substantial demurrage costs for the importers.  Under the proposed rule, if held articles are not brought into compliance within 10 days (if held because prior notice was missing) or within 30 days (if held because food facility registration was missing), they may only be sold for export or destroyed, unless otherwise agreed to by FDA and CBP.

Like The Marvelettes, FDA is tired of wondering when its mail will arrive and “waitin’ so patiently” for importers to achieve compliance.  But unlike this Motown girl group, FDA doesn’t need to plead with the postman; it can propose a rule.

Comments on the proposed rule can be submitted here until January 30, 2024.

The first anniversary is always special.  Janus-like, it offers the opportunity to simultaneously reflect on hitting a milestone and projecting the future.  The first anniversary can also prompt a taking of stock: how well did the first year go?

Recently, the over-the-counter (OTC) hearing aid rule, which went into effect on October 17, 2022, celebrated its first anniversary.  The rule established a new category of OTC hearing aids for individuals with mild to moderate hearing loss, allowing them to purchase hearing aids directly from stores or online retailers without the need for a medical examination, prescription, or fitting adjustment by an audiologist.

When FDA released the final rule, it outlined its ambitious goals.  The Agency stated that the rule was “designed to assure the safety and effectiveness of OTC hearing aids, while fostering innovation and competition in the hearing aid technology marketplace.”  The rule also aimed to provide “consumers with perceived mild to moderate hearing loss with improved access to devices that meet their needs and are less expensive than current options.”  There was widespread agreement among stakeholders that utilization of hearing aids by people with hearing loss was far too low, although there was substantial disagreement as to causes for the underutilization.  Proponents of OTC hearing aids had long claimed that these products would sharply reduce price, expand options, reduce barriers to purchase, and thereby increase usage.  One year later the question begging to be answered is: have these goals been met?

For those who are unfamiliar with the rule, let us briefly explore its history across three different administrations (see our previous blogs: here, here, and here).  The journey began in October 2015 when the President’s Council of Advisors on Science and Technology (PCAST) during the Obama Administration recommended the creation of a class of hearing aids for OTC sale.  Following this, in June 2016, the National Academies of Sciences, Engineering, and Medicine (NASEM) made a similar recommendation of creating a new category of OTC “wearable hearing devices.”  Under the Trump Administration, Congress directed FDA to establish a new category of OTC hearing aids in the FDA Reauthorization Act and publish proposed OTC hearing aid rules by August 2020.  However, FDA missed that deadline.  Almost a year later, in July 2021 President Biden issued an Executive Order mandating publication.  FDA issued a proposed rule in 2021 and the final rule in August 2022, culminating a seven-year effort involving three Administrations, Congress, FDA, and various stakeholders.  That rule went into effect on October 17, 2022, leading us to this blog post about the one-year anniversary.

In some measurable ways, the rule has been a success.  Access has expanded.  Over the past year, many retailers—including some very large ones—started offering OTC hearing aids in their stores or on their websites, and some are available at audiology clinics.  And the number of companies selling OTC hearing aids is impressive: as of this blog post, 54 companies list OTC hearing aids with FDA under the product code QUF while 18 companies list OTC self-fitting hearing aids under the product code QUH.  However, estimating the number of entirely new OTC hearing aids spurred by the rule over the past year is not straightforward given that many of these OTC devices were previously accessible as “direct-to-consumer” (DTC) devices without FDA oversight.  Nevertheless, the presence of over 70 companies currently listing OTC hearing aids with FDA signifies a positive trajectory for further improving accessibility, at least for this first year.

By one measure, affordability has improved.  There are now more cheap OTC hearing aids available.  Price has been seen as a barrier for some consumers.  (By law, Medicare is barred from paying for hearing aids.)  As expressed in the NASEM report, and the price of hearing aids has often been cited as a deterrent to their purchase.  At the 67^th International EUHA Congress in October in Nuremberg, Germany, Hearing Industries Association (HIA) reported a wide price range for OTC hearing aids, spanning from $89.97 to $5,500.00.  Such a wide price range has allowed for more customers to dive into the market, but the technological differences between lower and higher cost products are often confusing, leading to questions about the distinction between the higher and lower end devices—and even more questions about whether the higher priced devices are worth the premium or whether the low cost products really work.  And the lack of third party coverage is still a problem such that OTC hearing aids—at least for higher priced versions—may still be unaffordable for many potential customers.

As far as we know, there are no definitive data on the volume of OTC sales.  According to HIA, OTC hearing aid sales are estimated from 100,000 to one million units.  It is unknown how many of these sales are ones that would not have occurred but for the existence of OTC products.  Reportedly, buyers of OTC hearing aids tend to be younger and seek a simple process without appointments or prescriptions.  Notably, some hearing aid companies have partnered with consumer brands (e.g., GN and Jabra, Nuheara and HP, WSAudiology and Sony, Sonova and Sennheiser), and, because these consumers frequently prefer purchasing from recognized brands, these brands apparently have had some traction.

Nevertheless, it’s not quite clear how well these OTC hearing aids are working.  Anecdotal data suggests that some OTC devices sufficiently meet the hearing aid fitting algorithm targets—called the NAL-N2 targets—which aim to make speech intelligible and overall loudness comfortable; some, however, reportedly do not.  The New York Times recently pointed out a considerable range of quality among OTC hearing aids that are currently on the market.  This poses a problem because if bad quality products fail to satisfy the user, the user might assume that OTC devices do not work and give up entirely, rather than trying another device or hearing care program.  (Data have shown that once dissatisfied consumers stow away their hearing aids, it can take years before they try buying a new set.)  This is reflected by return rates: One publicly traded company reports a sales return rate of 34 to 36% and notes that unsatisfactory fit and insufficient audio amplification are the most commonly cited reasons for product returns.  Further public information reveals sales with returns of more than 30% for OTC devices.  According to HIA, OTC buyers receiving some assistance from a hearing care professional or from customer service representations may have higher rates of satisfaction and lower returns to the company than those buyers who receive no assistance at all, suggesting that a hybrid OTC model is working for some customers.  This is not entirely a surprise, since people who were skeptical of the pure OTC model said that, unlike with eyeglasses, use of hearing aids was a process that required some professional help.

One of the ostensible advantages of the implementation of OTC hearing aid rules is FDA oversight.  “DTC” hearing aids had become notorious for exaggerated claims and misleading statements.  Even with the advent of OTC hearing aids and FDA oversight, however, there are still concerns about bad actors making unsubstantiated claims, engaging in misleading advertising, and failing to conform to FDA regulations.  Examples of misleading advertising include claims of “Restore Your Natural Hearing” or recommending an OTC hearing aid for those who “Suffer from mild to severe hearing loss.”  Given that OTC hearing aids are only for mild or moderate hearing loss and cannot “restore” natural hearing, this kind of claim is plainly impermissible.  And then there is a personal favorite: using “CIA technology” for invisible hearing aids.  Most of the time, these bad actors are not registered with FDA.

Previously, we emphasized that the success of OTC hearing aids is contingent on robust FDA enforcement, but despite this abundance of improper claims, FDA has yet to take public enforcement action to address bad actors within the hearing aid industry.  To its credit, FDA did post notices on its website including information about OTC hearing aids for both companies and consumers, but it is doubtful that these kinds of statements on an FDA website will have much effect on bad actors.  This absence of public enforcement, such as warning letters, may only serve to embolden these companies. Strengthened enforcement is crucial to protect the public health and facilitate the success of OTC hearing aids.  Bogus claims for OTC hearing aids will hurt consumers and may lead to public skepticism that OTC hearing aids are useful products.

The one-year anniversary is a good point for reflection, but it is also early to assess the ultimate success of OTC hearing aids.  Yet the milestone should not pass without recognition, and it provides a great opportunity for objective evaluation.  It seems that results thus far have been mixed: we may have made some progress, but there’s still a ways to go.  It does seem likely that without FDA intervention, bad claims will proliferate, devaluing the entire OTC hearing aid market.

There is one other point worth making.  Proponents of OTC hearing aids had long predicted that the adoption of the model would almost instantly lead to a blossoming of high-quality, low-cost hearing aids and a dramatic uptick in utilization.  It seemed simple: allowing consumers to by-pass costly hearing professionals would save money, make sales more “frictionless,” and lead to much greater product use.  While the advent of OTC hearing aids has had an impact, those lofty goals have not been met, at least yet.  As FDA embarks upon much more far-reaching and consequential rulemaking, such as the complete overhaul of regulation of laboratory developed tests, it is important to keep in mind that marketplaces are complex and messy, and the Law of Unintended Consequences should never be ignored.

“Human sacrifice! Dogs and cats living together! Mass hysteria!”  At least that’s this blogger’s reaction to the recent news that FTC sent out Notice letters to 10 different drug companies about the patent information they list in the Orange Book.  It’s so exciting that we might actually have an answer to some lingering questions about listability!  Maybe I’m overreacting, but it’s been almost 20 years since industry first asked FDA if it could list device patents in the Orange Book, and FTC’s intervention here is the closest thing we’ve seen to an answer to that question.  This is only by implication though: FTC did not provide an explanation as to why it thinks the patents listed are improperly listed—at least in the Notice letters made publicly available.  While I’m not a patent lawyer, these patents appear to be mostly device patents, which signals that FTC not only thinks REMS patent-listings are anti-competitive, but it also thinks device patents are.  My rudimentary and cursory review of some of these patents (NB: I’m not a patent lawyer) suggest that they aren’t all device component patents but are patents that cover entire devices in some cases.

As FTC explains in a Press Release, the Agency “challenged more than 100 patents” that it believes are improperly or inaccurately listed in the Orange Book.  Using FDA’s process for such disputes, codified at 21 C.F.R. § 314.53(f)(1), FTC notified FDA that it disputes “the accuracy or relevance of patent information submitted to . . . and published by FDA.”  As part of that requirement, FTC must have described the specific grounds for disagreement for each patent, which FDA will send to the NDA holder.  The NDA holder then must confirm the correctness of the patent and sign a verification of accuracy, or the NDA holder must amend the patent information within 30 days of FDA’s dissemination of the statement of dispute.  So ultimately whether the patent is delisted is up to the applicant, and we should know more in about 30 days, but it’s really not the effect of the activity that’s so notable—it’s that it happened at all.

As we have recounted a number of times, most recently here, FDA has been reluctant to comment on the types of patents that should be listed in the Orange Book.  FDA has asked for comments and published a report, but really nothing has come of that other than repeated requests from industry for guidance in this space.  As noted, the statute says that only drug formulation, composition, or method of use patents are listable, but FDA has said that patents that claim finished dosage forms, which can include “metered aerosols, capsules, metered sprays, gels, and pre-filled drug delivery systems,” should be listed in the Orange Book, suggesting that a patent that claims both the drug substance and the delivery device must be listed.  But whether a patent that only claims a device constituent of a combination product has been unclear.  And there have been no signs that FDA is planning to opine on that issue.

So instead of FDA getting involved, FTC has taken a vested interest and issued a Policy Statement lamenting the anticompetitive listing of patents in the Orange Book.  But FTC failed to explain exactly what type of patents are anticompetitive, leaving the industry waiting with bated breath to find out what exactly FTC would do, to whom, and for what—and of course whether FTC would actually do anything or leave it to FDA, who has statutory authority over the List (AKA the Orange Book).

Well, what FTC apparently did was review hundreds of patents in the Orange Book and utilize FDA’s regulatory processes.  But there’s no telling what the implicated manufacturers will do, because again, it is legally unclear whether the listing of the device patents is actually anticompetitive.  And this is the first inkling we have about the government’s position.  And we still haven’t heard anything substantive from FDA.

It also is notable that FTC reserved the right to take further action, including under Section 5 of the FTC Act, which suggests that FTC is ready to take further enforcement action against companies that don’t de-list.  Indeed, that one line in the Notice letters FTC sent may end up being really critical if companies don’t willingly de-list.  But if FTC takes this further, it’s going to be interesting from a legal perspective to see how this will be handled given that neither FTC nor FDA has given a clear answer about whether device patents are listable in the Orange Book.  Requests for delisting likely don’t count as Notice and Comment…

Anyway, it’s going to be some time before there’s any movement here.  The companies who received the Notices will need some time to assess, and FTC will need time to review the resulting activity.  But, given how quickly FTC moved after issuing its Policy Statement, it seems like there’s a big appetite for this issue at FTC.  I’m guessing that FTC is going to continue to cross FDA’s streams, and that really raises the risk of gooey marshmallow everywhere.

We were preparing this blogpost about FDA’s draft guidance on “Remote Interactive Evaluations” when we learned something.  A phone call to FDA requested information about the number of Remote Interactive Evaluations (RIEs) that FDA has performed at drug manufacturing facilities since it announced in April 2021 that it would start using them as an alternative to on-site inspections.  In response, we learned that only about seven – and certainly less than 10 – RIEs for manufacturing compliance have been performed at drug facilities in the last 30 months.  This stands in stark contrast to FDA on-site drug manufacturing inspections, which have resumed in the wake of the easing of COVID-related restrictions, totaling more than 1,800 during the same period.  To accomplish so few RIEs, especially when on-site inspections dropped off dramatically about three and a half years ago, is certainly a missed opportunity, in our view.  The number of RIEs also stands in stark contrast to the number of RIEs – more than 100 – that the Bioresearch Monitoring (BiMo) Program has performed.  Admittedly, BiMo inspections (into items like adequacy of bioequivalence data, consistency of clinical trial data with medical records, and compliance with clinical trial protocols) lend themselves better to an RIE than assessing manufacturing compliance with regulatory requirements.

Not having much more to say about the paucity of the use of this alternative method of reviewing a manufacturing site’s regulatory compliance, let us turn to the recent draft guidance about RIEs.  Compared with the COVID-centered version of the document released in April 2021, there is very little that is new or different.

We should explain what RIEs are.  Early in the COVID epidemic, many other regulatory agencies worldwide – but not FDA – launched virtual inspections (also referred to as “remote inspections”) of drug and medical device manufacturing facilities when COVID restricted travel and on-site inspections.  FDA, late to the game, published a guidance about its substitute for virtual inspections, making clear it doesn’t want to call RIEs “inspections,” for reasons that are somewhat obscure but are discussed in the guidances.  Significantly, FDA agrees that the RIEs may be conducted in lieu of an inspection.

Under the new guidance, many of the same conditions apply as under the one that was issued 30 months ago:

• The guidance notes that requests for documents under the governing statutes and virtual inspections (inspectors are in a remote location, and tour the facility using equipment that can furnish an audio and video feed, with the inspectors directing where the video camera should venture and asking the questions) are both considered “Remote Regulatory Assessments.”
• The guidance states that FDA does “not intend to accept requests from applicants or facilities for FDA to perform a remote interactive evaluation,” because decisions to perform an RIE “depend on many factors and information not always known to applicants or facilities, and it would be unduly burdensome on all parties to establish a request-based program.” Raising the question: how does FDA define “all parties?”  Many of our clients wouldn’t consider it a burden to request an RIE to try to resolve a Warning Letter, an Import Alert, or a suspension of review of a new drug application because an earlier inspection resulted in a manufacturing facility being classified as Official Action Indicated.  Contrariwise, FDA states in the draft guidance that RIEs may be used to “rank or prioritize a facility for an inspection, particularly a surveillance CGMP inspection.”  This implies that FDA may engage with companies on a more frequent basis than the standard (although unobserved, in practice) 2-year cycle.
• FDA specifically states that RIEs may be utilized to conduct Preapproval Inspections, which are conducted at manufacturing facilities prior to approval of a new drug application.
• RIEs will require the facility to accommodate the “use of teleconference, livestream video, and screen sharing of data and documents.”
• The guidance applies to facilities manufacturing human drugs, biologics, and veterinary medications, and to clinical trial sites for drugs.
• Responses to written observations made as a result of an RIE will not be made in a Form 483 (issued at the conclusion of about half of FDA’s on-site drug inspections), but facilities are still “encouraged” to file responses within 15 business days.

What was added in the new draft guidance?

• Facilities where FDA requests that an RIE be performed will need to consent, in writing, to the performance of the RIE (the earlier guidance did not require consent in writing). It is unclear what would happen if the facility refuses: probably, a refusal would be foolhardy, for a number of reasons. The current and earlier guidances note that declining an RIE may delay regulatory decisions, such as approvals of applications for marketing authorization.  Likewise, a refusal to permit an RIE may well trigger an on-site inspection.  The answer to which type of inspection industry would prefer is probably self-evident.
• Comments on the guidance are invited. In contrast, the April 2021 guidance noted that it was being “implemented immediately,” without “public participation” in the drafting of a final guidance.

WASHINGTON, DC — Hyman, Phelps & McNamara, P.C. is pleased to announce it took top honors in two categories in the 2023 LMG Life Sciences Awards, which recognize the best life science practitioners and firms over the past 12 months from the United States, Canada, and Europe.

Hyman Phelps & McNamara received the following honors:

• Tier 1 FDA: Pharmaceutical
• Tier 1 FDA: Medical Device

Additionally, eight professionals are included in LMG’s coverage:  Robert A. Dormer (Hall of Fame), Jeffrey N. Gibbs (Hall of Fame), John A. Gilbert, Gail H. Javitt, Kurt R. Karst, Alan M. Kirschenbaum, Frank J. Sasinowski, and Josephine M. Torrente.

“While our attorneys don’t do this work for the recognition, it is gratifying to see their excellent work recognized.  The LMG awards are reflective of HPM’s excellence across several of our core life sciences practices, from controlled substances work to drug development, to Hatch-Waxman, to drug pricing, to medical device regulation. That combined depth and breadth of experience is why clients come to us.  The excellent work of these and other professionals at HPM is why we’ve maintained a high level of client service for 43 years,” said JP Ellison, HPM’s managing director.

The LMG Life Sciences awards are based on case evidence and feedback from clients and peers and selected by the editors to provide attorneys and law firms with information on the legal market and the U.S. life sciences industry. Research for the guide was based on 1,000s of interviews and surveys completed by law firm partners active in the market.

About Hyman, Phelps & McNamara

Hyman, Phelps & McNamara, P.C. is the largest dedicated food and drug law firm in the country. Niche practices in new drug development, controlled substances, advertising, and health care law complement our core FDA practice. Our knowledge of the laws and regulations governing drugs, medical devices, foods, dietary supplements, and cosmetics is unparalleled in breadth and depth. Due to our broad bench of expertise, the firm is well equipped to defend companies against government enforcement actions and advise clients on necessary compliance efforts. The firm’s clients are as diverse as the regulatory issues they face. They range from individuals and start-up companies with no in-house legal staff to large multinational corporations. In addition, other law firms retain HPM to provide targeted expertise in food and drug law to assist their clients. HPM works to avoid legal problems when possible, and to help solve them when necessary. The firm helps companies conduct business as efficiently and profitably as possible by providing advice and counsel on meeting current and future regulatory requirements.

Contact:

Jeff Grizzel, Chief Marketing Officer

Hyman, Phelps & McNamara, P.C.

700 13th Street, N.W., Suite 1200

Washington, DC 20005

(202) 999-0302 cell

(202) 800-6116 direct

jgrizzel@hpm.com