Attorney East Hampton

By Karin F.R. Moore —

The FDA announced last week that it intends to withdraw its guidance documents issued in March 2020 outlining temporary policies regarding the manufacture of hand sanitizers. Effective December 31, 2021, companies manufacturing hand sanitizers and alcohol for use in hand sanitizer under the temporary policies must cease production of these products. Hand sanitizers manufactured before or on December 31, 2021, and produced under the temporary policies by can no longer be sold or distributed by manufacturers after March 31, 2022.  Those who wish to continue to manufacture hand sanitizer after December 31, 2021 must comply with the tentative final monograph for over-the-counter topical antiseptics and other applicable requirements, including the FDA’s Current Good Manufacturing Practice requirements.

As you may remember, at the outset of the pandemic, there was a shortage of hand sanitizer, and many different types of companies, like distilleries and breweries, sought to step into the breach and manufacture hand sanitizer.  Because of this, the FDA issued a Temporary Policy for Preparation of Certain Alcohol-Based Hand Sanitizer Products During the Public Health Emergency (COVID-19), and policies for the manufacture of alcohol to be used in hand sanitizer.  The FDA is now withdrawing these policies because consumers and health care professionals are no longer experiencing difficulties finding hand sanitizer products, and these temporary policies are no longer needed to help meet demand.

The FDA has posted a helpful Q & A to assist those who have been manufacturing under the temporary policies.

By Deborah L. Livornese —

Many of us have been waiting not-so patiently for FDA to begin implementing the over-the-counter (OTC) monograph reform provisions of the 2020 Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (see our blog post here).  While we are aware that behind the scenes the Office of Nonprescription Drugs has been busy hiring, training, reorganizing and otherwise working on implementation, apart from setting the amount of the new fees and related actions (see our blog post here), until very recently, little had been officially forthcoming from FDA under these provisions.  Now FDA has taken several actions in the past few weeks that we describe below.

Deemed Final Administrative Orders

As part of the process of moving from the old rule-based monograph system to an administrative order framework, the CARES Act provides that in most cases a final monograph or tentative final monograph that establishes conditions of use for a drug described in section 505G(a)(1) or (2) of the FD&C Act is “deemed to be a final order”. These deemed final orders provide the current OTC drug monograph conditions that are in effect for each therapeutic category addressed by them.

As a first step in implementing this provision of the CARES Act, FDA issued a Federal Register notice on September 21, 2021, announcing the availability of the first group of deemed final administrative orders.  In that notice, FDA also announced the establishment of a web portal, OTC Monographs@FDA, which provides access to the repository of final orders.  FDA intends to make the deemed final orders available in batches on a rolling basis until all 32 orders are available in the repository.  Their availability will be announced on the FDA website and FDA will not make additional announcements in the Federal Register.  As of this writing, 12 final orders can be found in the repository.

For each OTC monograph title (e.g., nighttime sleep aid drug products), the repository provides an OTC Monograph ID (e.g., M002) and an Order ID (e.g., OTC000001) and an Order Title.  Perhaps one day those numbers will be as familiar as references to the various parts of the CFR containing the monographs (maybe).

What is not found in the repository (as far as we can tell) is an easy way to access the rulemaking history for each order (the various tentative final monographs and amendments, and the advance notice of proposed rulemaking). The preambles to the rulemaking notices provide essential insights into FDA’s intent in adopting the original rules.  The final administrative orders include the same citations to the relevant Federal Register notices that have always been found in the Code of Federal Regulations, but no links.  We here at HPM hope that FDA will continue to maintain the webpage Status of OTC Rulemakings which contains easily accessed historical information and links. Even taking into consideration the webpage’s well-known shortcomings that resulted from a lack of funding for its upkeep over the years, it is a handy research tool.  Better yet, the addition of links for the rulemaking/administrative order history for each administrative order in the repository would be quite welcome.

Sunscreen Orders

As described in our blog post here, in 2019 FDA issued a proposed rule for sunscreens under the OTC drug review as required implicitly by the Sunscreen Innovation Act (a deadline for a final rule, but not the requisite proposed rule was included in the SIA).  By operation of its terms, the CARES Act, however, established a deemed final order for sunscreens, among other therapeutic categories as discussed above.  The CARES Act also mandated that FDA issue a proposed order to amend and revise the deemed final order for sunscreens by September 27, 2021.  FDA  posted both the sunscreen deemed final order and the new proposed order before this deadline.

The provisions of the sunscreen deemed final order essentially maintain the status quo, including requirements related to active ingredients from the 1999 final monograph, which was stayed and did not go into effect, and the labeling and effectiveness requirements from the 2011 final labeling and testing rule codified at 21 CFR § 201.327.  The deemed final order establishes the current monograph for OTC sunscreen products.  Consequently, there is no longer a need for the guidance Enforcement Policy – OTC Sunscreen Drug Products Marketed Without an Approved Application and it has been withdrawn.

The sunscreen proposed order is substantively consistent with the 2019 proposed rule.  Like the 2019 proposed rule, the new proposed order includes a maximum SPF value of 60+ and a requirement that all sunscreens with an SPF of 15 or higher meet the requirements for broad spectrum protection.  As to active ingredients, again consistent with the 2019 proposed rule, the new proposed order proposes only zinc oxide and titanium oxide sunscreens as generally recognized as safe and effective (GRASE) and identifies the others as not GRASE either because of safety concerns (aminobenzoic acid and trolamine salicylate) or because of inadequate data to support safety (for the remaining ingredients).

A 45-day public comment period on the proposed order ends November 12, 2021.  FDA will consider comments received on the proposed order in concert with those previously submitted for the 2019 proposed rule in developing a final administrative order.  Interestingly, FDA has stated in FDA’s Questions and Answers  and elsewhere that if at the close of the comments for the proposed order, available data do not resolve the outstanding questions about an ingredient, but FDA has received “satisfactory indication of timely and diligent progress on the necessary studies for a specific ingredient,” it would be prepared to initially defer issuance of a revised final order regarding the status of sunscreens containing that ingredient.  If that sounds familiar, it’s because it is the approach FDA has taken with antiseptic monograph ingredients.  For more information on the effects of these sunscreen orders, see FDA’s Questions and Answers webpage.

The Forecast

One of the commitments FDA made in the OMUFA goals letter was to publish by October 1^st of each year a nonbinding list of monograph issues FDA intends to address in the coming three years.  What issues would appear on the first list has been a subject of speculation since long before the CARES Act became law.  We expected to see monographs related to drugs that have been the subject of drug safety communications from FDA such as benzocaine-containing products and codeine-containing cough medicines and also expected FDA would want to tackle pediatric dosing of acetaminophen. Others appearing on the list are more surprising.  Here’s the list issued October 1, 2021 (in no particular order per FDA):

Planned Proposed Safety Orders

• Risks Associated with Codeine-Containing Cough Medicine
• Pediatric Acetaminophen Dosing
• Risks Associated with Propylhexedrine Abuse and Misuse
• Nonsteroidal Anti-inflammatory Drugs (NSAIDs) and Oligohydramnios
• Oral Healthcare in Infants and Children (addressing benzocaine and phenol preparations)
• Serious Skin Reactions Associated with Acetaminophen

Also included on the list is a planned proposed order on the anticaries test method to address test methods.

FDA indicates in the forecast that it is not seeking additional data at this time in advance of issuing a proposed order and notes that each proposed order will specify a comment period during which data and comments can be submitted.

By Jeffrey K. Shapiro & Allyson B. Mullen —

In recent years, for novel robot assisted surgery (RAS) devices, FDA’s Center for Devices and Radiological Health (CDRH) has taken the approach of clearing RAS devices for specific indications for use.  Gone are the days of tool type indications for this type of device.  Rather, FDA seems intent on regulating RAS devices almost as if they were therapeutics responsible for long term clinical outcomes.

This view was highlighted, recently, in a safety warning issued by FDA regarding surgical robots for treatment of cancer (here).  In this safety communication, FDA states:

The U.S. Food and Drug Administration (FDA) is reminding patients and health care providers that the safety and effectiveness of robotically-assisted surgical (RAS) devices for use in mastectomy procedures or in the prevention or treatment of breast cancer have not been established. ***

RAS devices have been cleared for use in certain types of surgical procedures commonly performed in patients with cancer, such as hysterectomy, prostatectomy, and colectomy. These clearances are based on short-term (30 day) patient follow up. The FDA has not evaluated the safety or effectiveness of RAS devices for the prevention or treatment of cancer, based on cancer-related outcomes such as overall survival, recurrence, and disease-free survival.

This view of FDA’s role in regulating RAS devices is strange.  The essence of RAS devices is to aid surgeons in conducting surgery.  Therefore, it makes sense that FDA would review data on intra‑operative performance and perhaps acute outcomes.  But these devices are not independent cancer therapeutics.  It is well out of bounds for FDA to regulate them as if they were a determinant of long term clinical outcomes.

As a scientific/medical matter, there are many variables beside the RAS device that are responsible for clinical outcomes.  Will FDA now begin reviewing various types of manual surgical tools based on their long term clinical outcomes?  The question answers itself.  Although RAS devices do introduce some novelty in how the surgery is performed, they should not be treated as if they were intended to confer a specific therapeutic benefit any more than manual surgical tools would be.

FDA issued the same type of warning regarding RAS devices and mastectomy back in February 2019 suggesting that FDA believes the problem has persisted.  Notably, the 2021 safety warning makes no mention of FDA actually be aware of patients having been injured or adverse health outcomes related to RAS devices being used for mastectomy or other cancer-related procedures, and the 2019 safety warning mentions only “limited, preliminary evidence that the use of robotically-assisted surgical devices for treatment or prevention of cancers that primarily (breast) or exclusively (cervical) affect women may be associated with diminished long-term survival.”

The recent safety warning also highlights that FDA expects an investigational device exemption (IDE) for studies of RAS devices for new indications for use.  FDA states that such studies should include long-term patient follow-up regarding the prevent and treatment of cancer, and safeguards such as study stopping rules and periodic reporting to FDA.  Given these onerous requirements, it is not a surprise that RAS device manufacturers have not sought clearance for RAS devices for oncology procedures.  It would also be beyond the scope of what RAS device manufacturers are intending to offer, which is a better surgical tool, not a therapeutic for cancer.

For many years, Intuitive surgical had the sole FDA clearances for surgical robotic systems.  The original clearances were largely for a tool-type indication, even if examples of specific procedures were provided.  Subsequently, more companies have entered this space with full or partially roboticized devices.  Examples include the Medrobotics Flex System and the Hominis Surgical System.

FDA has taken a hard line that each new surgical robot, as compared to Intuitive’s original robot, are not tools and each one presents new issues of safety and effectiveness due to their complex design and construction and specific indications.  This approach has the perverse effect of slowing innovation in RAS devices, helping to further entrench Intuitive’s 20 year old technology.

Again, this situation raises the question of where FDA’s role ends and the surgeons’ role begins with regard to use of RAS devices in the field of medicine.  The Federal Food, Drug, and Cosmetic Act states that nothing in the Act shall “limit or interfere with” the authority of a clinician to utilize any legally marketed device on a patient “for any condition or disease within a legitimate health care practitioner patient relationship.”  21 U.S.C. § 395.

With FDA’s push for more specific indications for use for RAS devices, healthcare providers cannot be limited only to those indications for use, especially if a device could be useful for an unapproved procedure/patient.  Thus, this part of the Act becomes that much more important to healthcare providers innovating in the field of medicine.  Healthcare providers must assess and make use of legally marketed devices in whatever way they see fit to treat their patients appropriately.

Equally, how can FDA issue a specific warning, like its recent cancer warning, regarding use of a legally marketed device if a surgeon believes it is appropriate for his/her patient, especially when, at best, FDA has cited “limited, preliminary evidence” of adverse outcomes?  If limited evidence is the bar for putting patients and healthcare providers on notice that an alleged off-label use of a medical device is dangerous, it seems that FDA should be warning about all sorts of issues.

We support FDA’s general efforts to inform healthcare providers and protect patient safety.  In the case of RAS devices, however, it seems to have may be going too far with policing practice of medicine and surgeons’ ability to choose which tool is right for a patient’s procedure.  To further innovation, FDA should limit itself to a review of whether a novel surgical platform is safe and effective for use in performing surgery and perhaps out to 30 days’ follow up.  Anything more is unwarranted mission creep.  FDA’s focus on long term clinical outcomes in surgical procedures performed with RAS devices invades a space that should be left to the practice of medicine.

By David B. Clissold —

It seems that although FDA giveth, the ITC taketh away.

IQOS is a tobacco heating system in which “heatsticks” (reconstituted tobacco blended with glycerin) are electrically heated to release nicotine-containing aerosol, but the tobacco is not combusted.  Because IQOS was classified as a cigarette by FDA, it was required to have FDA marketing authorization before it could be marketed.  Accordingly, the IQOS premarket tobacco applications (PMTAs) were submitted to the FDA Center for Tobacco Products (CTP) on May 15, 2017.  On April 30, 2019 CTP issued PMTA marketing orders for IQOS  to Phillip Morris S.A., Marketing Order from Matthew R. Holman, Ph.D., Office of Science Director, Center for Tobacco Products, U.S. Food and Drug Admin., to Philip Morris Products S.A. (Apr. 30, 2019), which became the second company of only three companies to date ever to receive such an order.  Accordingly, the CTP’s 122-page “Decision Summary” for IQOS, U.S. Food and Drug Admin., Premarket Tobacco Product Marketing Order Decision Summary for IQOS System Holder and Charger, PM0000479 (Apr. 30, 2019), became something of a guidepost for companies seeking a PMTA marketing order, particularly for those products such as e-cigarettes and the other deemed tobacco products that were required to submit a PMTA by the September 9, 2020 deadline (the uncertain fate of these PMTAs will be discussed in a later post).

However, in a patent case filed by R.J. Reynolds, the U.S. International Trade Commission ruled on September 30, 2021 that Philip Morris International and Altria must stop the sale and import of the IQOS tobacco product. Certain Tobacco Heating Articles and Components Thereof; Commission’s Final Determination Finding a Violation of Section 337, 86 Fed. Reg. 54,998 (USITC Oct. 5, 2021) (notice).  The trade agency found that IQOS infringed two of Reynolds’ patents.  The import and sales ban will take effect in two months after an administrative review that requires President Joe Biden’s signature.  While an appeal or settlement is always a possibility, it appears that for now consumers will not be able to obtain IQOS in the United States.

By McKenzie E. Cato & Deborah L. Livornese —

As surveyed in detail by our colleagues in an earlier blog post, FDA’s PDUFA VII goals letter, for fiscal years 2023-2027, is full of announcements and new agency initiatives.  One of those announcements is a commitment to create a new process for reviewing sponsor-initiated requests for release from postmarketing requirements (PMRs).

The process outlined in the goals letter begins when a sponsor submits a request to FDA summarizing its rationale for why an existing PMR is no longer needed, including all necessary supporting data and information.

The relevant FDA review division or office will initiate review of the request, and will notify the sponsor of any additional information considered necessary to evaluate the request within 45 days of receipt.  FDA will then respond to the sponsor with a decision on the PMR release request within 60 days of receipt of the original request, or within 60 days of receipt of the additional information requested by FDA, whichever is later.

FDA’s decision will take the form of an “agreement letter” or a “non-agreement letter.”  In the case of a non-agreement letter, FDA will provide its rationale for the decision.

If FDA’s response is a non-agreement letter, the sponsor has the option of submitting a request for reconsideration with justification, and any additional information and/or data if appropriate.  The process as outlined in the goals letter does not include a deadline for when such a request for reconsideration must be submitted.

Upon receiving a reconsideration request, the review division/office will discuss with the appropriate internal committee that includes senior agency leadership (e.g., Medical Policy and Program Review Committee, Medical Policy Coordinating Committee, and Pediatric Review Committee).  The review division/office will issue a written response to the reconsideration request within 45 days of receipt.  As with the original request for release from the PMR, FDA’s decision will be an agreement letter or a non-agreement letter, and if a non-agreement letter, will include FDA’s rationale for the decision.

Today, sponsors are able to submit requests for release from PMRs.  FDA may respond to these requests by arranging a teleconference to discuss and/or providing a decision in the form of a General Advice Letter.  However, there is currently no formalized timeline or review process.  There is also no guarantee that FDA will provide any rationale for its decision to deny a request for PMR release.

The new review process announced in the PDUFA VII commitment letter will bring much-needed consistency and predictability to requesting release from PMRs.  Additionally, the commitment to include FDA’s rationale in a non-agreement letter will provide sponsors another opportunity to address FDA’s concerns in the form of a reconsideration request.

We look forward to the roll-out of this new process, but it will be some time until we see it in action.  This new process will be incorporated into relevant agency procedures and guidances beginning FY 2023, and will be finalized by the end of FY 2027 and are not subject to PDUFA performance goals.  So, FDA may not begin implementing this new process immediately, but it may be a potential avenue for sponsors starting in late 2022 or early 2023.

By Faraz Siddiqui —

Last week, we blogged about a growing list of drug manufacturers that have refused to follow a 2010 guidance issued by the Health Resources and Services Administration (“HRSA”), which permits 340B covered entities to contract with multiple pharmacies to dispense drugs to covered entity patients.  Because of concerns that these contract pharmacies, which include some of the largest chains in the U.S., are diverting drugs purchased at low 340B prices to non-340B patients, the companies are declining to sell drugs to 340B covered entities that use multiple contract pharmacies.

When HRSA threatened enforcement action and penalties, several companies sued the HHS in federal district courts in Maryland, Indiana, Delaware, New Jersey, and the District of Columbia to enjoin those enforcement actions (see list below). These lawsuits were filed between January and June of 2021.

On May 31, 2021, even as the contract pharmacy dispute was playing out in federal courts, the Arkansas legislature enacted Act 1103 of 2021, entitled the “340B Drug Pricing Nondiscrimination Act.” See Ark. Code Ann. § 23-92-604(c)(1), (2). Among other things, Act 1103 makes it unlawful for pharmaceutical manufacturers to prohibit pharmacies from contracting with a 340B covered entity by denying the pharmacy access to its drugs and makes it unlawful for pharmaceutical manufacturers to deny or prohibit 340B drug pricing for Arkansas-based community pharmacies that receive drugs on behalf of a 340B covered entity. Id.

On September 29, PhRMA sued Arkansas in federal court for declaratory and injunctive relief, seeking to stay the enforcement of Act 1103 pending resolution of the 340B lawsuits in federal courts. This follows PhRMA’s July 2021 petition to the Arkansas Insurance Department, the agency charged with the implementation and enforcement of Act 1103, for a Declaratory Ruling relating to the state’s ability to enforce these two provisions. According to PhRMA, Arkansas effectively seeks to add Arkansas pharmacies as a sixteenth type of covered entity into a federal 340B statute that defines fifteen covered entities.

PhRMA seeks a declaration that pharmaceutical manufacturers need not offer price discounts to contract pharmacies in Arkansas because Ark. Code Ann.§ 23-92-604(c) is both preempted by the federal 340B statute (conflict and field preemption), and because it is unconstitutional under the dormant commerce clause (having the practical effect of regulating commerce occurring wholly outside that State’s borders). PhRMA also requests an injunction barring Defendants from implementing and enforcing Act 1103 against PhRMA and its members.

In response to PhRMA’s petition to the Arkansas Insurance Department, the Commissioner of the Department immediately stayed the enforcement of Act 1103 for 90 days, until October 26, 2021. It remains to be seen if the Department will renew the stay after it expires later this month.

[The currently pending lawsuits in federal court are AstraZeneca Pharmaceuticals v. Becerra, No. 1:21-cv-00027-LPS, 2021 WL 2458063 (D. Del. Jan. 12, 2021); Eli Lilly & Co. v. Cochran, No. 1:21-cv-00081-SEB-MJD (S.D. Ind. Jan. 12, 2021); Sanofi-Aventis U.S., LLC v. HHS, No. 3:21-cv-00634-FLW-LHG (D.N.J. Jan. 12, 2021); Novo Nordisk Inc. v. HHS, No. 3:21-cv-00806-FLW-LHG (D.N.J. Jan. 15, 2021); Novartis Pharms. Corp. v. Becerra, No. 1:21-cv-01479 (D.D.C. May 31, 2021); United Therapeutics Corp. v. Espinosa, No. 1:21-cv-1686-DLF (D.D.C. June 23, 2021); PhRMA v. Cochran, No. 8:21-cv-99198-PWG (D. Md. Jan. 22, 2021).]

The American Bar Association has published a guide to food law that was co-authored by a number of practitioners in this growing field. The book is billed as having been “written by practicing lawyers for practicing lawyers, with a focus on information that is both practical and actionable.” The book includes chapters on federal regulation, food litigation, safety and recalls, nutrition programs, international law, use of block chain in the industry, securing the food system during the pandemic, and intellectual property. HPM’s Ricardo Carvajal contributed the chapter that provides an overview of federal regulation.

By Karla L. Palmer —

The tale of “David versus Goliath” is never a dull skirmish.  This time, “David” consists of a cast of seven compounding pharmacies and their amicus curiae supporters.  And the “David” cast of characters has successfully challenged FDA’s promulgation of its final Memorandum of Understanding (“MOU”) intended to “address” shipments of compounded medications interstate.  See Federal Food, Drug, and Cosmetic Act (“FDCA”) Section 503A(b)(2).

The U.S. District Court’s opening sentence of its Memorandum Opinion captures the historical essence of compounding:

Evoking Victorian apothecary scales and porcelain mortars and pestles, compounded drugs are formulated by pharmacists to create medicines tailored for individual patients.

Plaintiffs challenge FDA’s attempt—through promulgation of the MOU—to redefine compounding and the distribution of compounded formulations interstate in a manner that violates the procedural requirements of the Regulatory Flexibility Act (“RFA”).  See 5 U.S.C. § 603-604.  Remanding the MOU to FDA to engage in that required RFA analysis, or certify why it is not necessary, the Court deferred ruling on Plaintiffs’ substantive claims concerning whether the MOU—in particular its redefinition of the terms “distribute,” “dispense” and “inordinate amounts” and “shall issue regulations” clause—violates FDCA Section 503A.  The District Court spent 30 pages of its 38 page opinion detailing exactly why the Court has standing to adjudicate the aggrieved Plaintiffs’ claims, which standing arguments were briefed in excruciating detail by the government.

The matter involves a “decades old skirmish” dating back to the late 1990s, (and previously blogged about here and here) when Congress passed the Food and Drug Administration Modernization Act (“FDAMA”), which created Section 503A.  Section 503A’s language requires FDA to promulgate a MOU to “address” the “distribution” of “inordinate amounts” of compounded drugs interstate and that it “shall issue regulations” to do so.  Pharmacies located in states that choose to not sign the non-negotiable MOU are limited to an interstate distribution limit of 5% of their compounded formulations.  In signatory states, compounding pharmacies are subject to a 50% “threshold” and certain reporting requirements.  To date, two states have signed the MOU.  Notably, FDA recently extended the time period for states to sign the MOU until October 2022, at which time FDA would commence enforcement of its provisions.

FDA’s MOU drafts were the subject of various iterations over the past two decades, evoking comments from thousands of interested parties.  FDA finally settled on a “final” MOU a year ago, and a coalition of compounding pharmacies immediately filed suit.

The Plaintiffs’ complaint alleges both substantive and procedural violations in FDA’s development of the MOU.  Plaintiffs  claim that, because the MOU is a legislative rule, its promulgation violated the RFA due to FDA’s failure to analyze the economic impact of the regulation on pharmacies.  Plaintiffs also plead a substantive violation—that FDA exceeded its statutory authority under Section 503A in defining several key statutory terms.

The Court stated, “by defining key statutory terms in Section 503A that have binding legal consequences, FDA has evinced its intent to speak with the force of law in the MOU.” Mem. Op. at 32.  Furthermore, FDA’s “ultimate decision has significant binding legal consequences for plaintiffs and pharmacies across the country, and it signals a substantive change in the current legal regime governing interstate compounding.” Mem. Op. at 37.

Determining that the MOU is indeed a legislative rule, the Court ruled in favor of the pharmacies on the procedural issue, but deferred on the critical substantive issue: in essence, whether the MOU improperly defines “inordinate amounts,” conflates the acts of “dispensing” and “distribution,” and violates the “shall issue regulations” requirement in Section 503A.

Given Plaintiffs’ successful procedural challenge, the Court has remanded the matter back to FDA.  The Court ordered the Agency either to prepare the required regulatory analysis or certify that the MOU “rule” will not have a “significant impact on a substantial number of small entities.”  Mem. Op. at 37 (citing the RFA, 5 U.S.C. § 605(b)).  This blogger is interested in that analysis, especially because all of the Plaintiffs submitted declarations concerning the economic impact of the rule.  The Court will request a progress report from FDA in 60 days.  Does this take FDA back to the MOU drawing board, for the fourth time in 21 years?  And, after the Agency complies with the Court-ordered RFA requirement, will the Court then turn to the substantive merits addressing the significant remaining definitional issues raised by Plaintiffs?  Stay tuned.

By Faraz Siddiqui —

The 340B drug pricing program has been booming, according to the Health Resources and Services Administration (“HRSA”), the agency under the U.S. Department of Health and Human Services (“HHS”), which reported that discounted purchases totaled $38 billion in 2020, a 27% increase compared to 2019.  The 340B program, authorized under Section 340B of the Public Health Services Act and administered by HRSA, imposes a ceiling price on pharmaceutical manufacturer sales to “covered entities,” which are certain health clinics that receive federal funding and certain types of safety net hospitals to provide them drugs at lower prices.  Manufacturers may choose not to participate in this program, but the federal government will not reimburse for their outpatient drugs under Medicaid or Medicare Part B if they do not.

A growing list of drug manufacturers are claiming that the discounts meant for low-income patients of 340B covered entities are instead contributing to profits for pharmacies that contract with covered entities to dispense 340B drugs.

Use of contract pharmacies ballooned after  a guidance issued by HRSA in 2010 allowed covered entities to use multiple contract pharmacies to dispense drugs to covered entity patients. By 2014, the HHS Office of Inspector General (“OIG”) found that the rise of contract pharmacy arrangements resulted in duplicate discounts and drug diversion, and a lack of access to 340B pricing at the contract pharmacies. A 2018 report by the Government Accountability Office (“GAO”) found similar issues, as well as contract pharmacy noncompliance and poor federal oversight.

Drug Manufacturers Fight Back Against Proliferation of Contract Pharmacy Arrangements

Drug manufacturers raised their concerns about the 340B program with HRSA with no success. Starting August 2020, several drug manufacturers announced that they would offer 340B prices only to covered entities that have an in-house pharmacy or contract with a single contract pharmacy, essentially reverting to a 1996 HRSA guidance. The companies asserted that their position fully complied with applicable law, and objected  that the practice of using multiple contract pharmacies, based on HRSA’s nonbinding interpretive guidance, has resulted in widespread contract pharmacy noncompliance, and has affected costs, distorted prescribing decisions, and hurt patient care.

In response to this trend, the HRSA general counsel issued an Advisory Opinion (“Opinion”) on December 30, 2020 reaffirming that the 340B program allows covered entities to distribute discounted drugs through multiple contract pharmacies—and that manufacturers are required to sell them those drugs. HRSA based its opinion on the statute and agency precedents over the last 25 years. In January 2021, several companies and the Pharmaceutical Research and Manufacturers of America (PhRMA) sued the agency on various statutory and procedural grounds.  See, e.g., AstraZeneca Pharmaceuticals v. Becerra, No. 1:21-cv-00027-LPS, 2021 WL 2458063 (D. Del. Jan. 12, 2021).

Despite the ongoing legal proceedings, HRSA sent letters to the drug companies on May 17, 2021 stating that their 340B restrictions violated the 340B statute and that they “must immediately begin offering its covered outpatient drugs at the 340B ceiling price to covered entities through their contract pharmacy arrangements.” (see for example, this letter to Astra Zeneca).  The letters also stated that a refusal to do so may result in civil monetary penalties of around $5,883 for each instance of overcharging—over and above repaying the covered entity the amount overcharged. In AstraZeneca v. Becerra, the company requested, but the Court refused to an administrative stay of these fines until the lawsuit was settled. According to AstraZeneca’s court filings, the fines alone would accrue to the tune of $530 million per month.

Federal Court Found HRSA’s Advisory Opinion Was Based on Faulty Legal Grounds

On June 16, 2021, the District Court of Delaware issued a memorandum opinion denying HRSA’s motion to dismiss AstraZeneca’s case, finding that the Advisory Opinion was based on faulty legal grounds. Judge Stark found that, although HRSA’s interpretation of the statute was permissible, the Advisory Opinion unjustifiably assumed that Congress imposed this interpretation as a statutory requirement. According to the court, the relevant language of the Act was ambiguous and neither the plain meaning of the statute, nor the context of the statutory provisions or the legislative intent, explicitly supported HRSA’s Opinion (or, for that matter, AstraZeneca’s position). Because “the agency wrongly believes that interpretation is compelled by Congress,” the court refused to give agency deference to HRSA. The court also disagreed with HRSA’s arguments regarding longstanding agency precedents. The court noted that HRSA “dramatically expanded how covered entities may purchase 340B drugs” in the past 25 years. In fact, the Advisory Opinion was the first agency document to explicitly conclude that manufacturers are required by statute to provide 340B drugs to multiple contract pharmacies. According to the court, “because the government has changed what covered entities may do,” HRSA “has consequently changed what drug manufacturers must do” (emphasis in original).

Two days after the court’s opinion, HHS withdrew the December 30, 2020 Opinion, but the parties agreed that the lawsuit was not moot because HRSA did not withdraw the May 17 letters and continued to maintain that companies must sell to covered entities through contract pharmacies.  AstraZeneca was permitted to amend its complaint to focus on the unlawfulness of the May 17 letters instead of the Advisory Opinion.  As of this writing, the court is still deliberating on the relief to be granted to the manufacturer.  A decision is expected in the coming months.

HRSA Ploughs on With Enforcement Despite Federal Court Decision

Despite the ongoing litigation, on Wednesday, September 22, 2021, HRSA signaled its continued intention to enforce its own interpretation of the 340B program requirements by referring the alleged violations of six drug companies to the HHS OIG. In its letters to the companies informing them of the referral, HRSA notes that, “given [the companies’] continued refusal to comply, HRSA has referred this issue to the HHS Office of Inspector General (OIG) in accordance with the 340B Program Ceiling Price and Civil Monetary Penalties Final Rule.”  OIG enforcement would provide HHS another opportunity to impose fines and restitution while avoiding the procedural issue of lack of notice-and-comment rulemaking. The OIG will nevertheless have to account for the federal court’s conclusion that the requirement to sell 340B drugs to multiple contact pharmacies is not contained in the statute.  The drug companies can be expected to challenge any OIG penalties.

At some point, Congress may cure the statutory ambiguity by clarifying the scope of permitted contract pharmacy use under the 340B program, but such a clarification does not appear in the White House drug pricing plan (summarized here) or the major drug pricing bills currently being considered by Congress.