HHS and FDA Finalize Drug Importation Rule and Guidance for New Multi-Market Approved (MMA) Product Category; CMS Provides Guidance for MMA Products under the Medicaid Drug Rebate Program

HHS and FDA Finalize Drug Importation Rule and Guidance for New Multi-Market Approved (MMA) Product Category; CMS Provides Guidance for MMA Products under the Medicaid Drug Rebate Program

By Serra J. Schlanger & Faraz Siddiqui & Michelle L. Butler & Alan M. Kirschenbaum

On September 24, 2020, the Department of Health and Human Services (HHS) and the Food and Drug Administration (FDA) announced a Final Rule and an FDA Guidance for the importation of certain prescription drugs. (See our coverage of the proposed rule and draft guidance here.) The Final Rule and FDA Guidance set forth the details of the two separate pathways introduced in the July 2019 Safe Importation Action Plan (see our summary here) and satisfy the rulemaking directive in President Trump’s July 2020 Executive Order on Drug Importation (see our coverage of the Executive Orders here). The following day, the Centers for Medicare & Medicaid Services (CMS) issued Release No. 114 (CMS Release), containing guidance on manufacturer obligations under the Medicaid Drug Rebate Program (MDRP) with respect to multi-market approved (MMA) products created under the pathway provided in the FDA Guidance.

The Final Rule

The Final Rule implements Section 804 of the Federal Food, Drug, and Cosmetic Act (FDC Act), 21 U.S.C. § 384, to allow for the importation of certain prescription drugs from Canada. Under the Final Rule, states (including the District of Columbia and U.S. territories), Indian Tribes, and, in certain circumstances, pharmacists or wholesale distributors (SIP Sponsors), may develop a Section 804 Importation Program (SIP) that must be authorized by FDA. The SIP Sponsors must specify which prescription drugs will be included in the SIP. Certain categories of prescriptions drugs are excluded by statute from inclusion in the SIPs, including controlled substances, biological products, infused drugs, intravenously injected drugs, drugs inhaled during surgery, intrathecally or intraocularly injected drugs, and drugs subject to Risk Evaluation and Management Strategies (REMS). Drugs that are going to be imported must be approved by the Health Products and Food Branch of Health Canada, and, other than the labeling, meet the conditions in an FDA-approved new drug application (NDA) or abbreviated new drug application (ANDA). This does not mean that a SIP Sponsor or Importer (described below) must obtain FDA approval of an NDA or ANDA for the imported drug, but that the product is currently marketed in the U.S. under an NDA or ANDA, and the imported version of the drug meets the conditions of that NDA or ANDA. In order to ascertain that such conditions are met, the manufacturer must provide the Importer with an attestation that the imported drug meets the conditions of the NDA or ANDA (regardless whether the manufacturer approves of the importation). In addition, the Importer or manufacturer must arrange for the imported drug to be tested by a U.S. laboratory for compliance with established specifications and standards.

Before imported drugs may be sold in the United States, they must undergo testing as described above, and be relabeled for sale in the United States. Each SIP Sponsor must identify the FDA-registered repackager or relabeler in the United States that will relabel the imported products with the required U.S. labeling, including the following required labeling statement: “[This drug was/These drugs were] imported from Canada without the authorization of [Name of Applicant] under the [Name of SIP Sponsor] Section 804 Importation Program.”

To protect the drug supply chain, SIP Sponsors must identify a Canadian Foreign Seller that will purchase the prescription drug directly from its manufacturer and a U.S. Importer that will buy the drug directly from the Foreign Seller. The Foreign Seller must be licensed by Health Canada as drug wholesalers and registered with FDA as a Foreign Seller; the Importer must be a wholesale distributor or pharmacist licensed to operate in the United States. Both the Foreign Seller and the Importer will be subject to the supply chain security requirements set forth in the FDC Act and Final Rule. Initially, each SIP will include one SIP Sponsor, one Foreign Seller, and one Importer. However, if the SIP Sponsor can demonstrate that it has consistently imported eligible prescription drugs in accordance with Section 804 and the Final Rule, the SIP Sponsor may submit a supplemental proposal to FDA to add additional Foreign Sellers or Importers to the SIP. Each SIP is envisioned to be limited to an initial two-year period, but may be reauthorized by FDA if the SIP satisfies the statutory requirements that the program (1) pose no additional risk to public health and safety and (2) result in a significant reduction in the cost of drugs to the American consumer.

As we’ve noted in our previous posts, FDC Act § 804 was enacted in 2003, and until now, no administration has made the statutorily required certification that an importation program will pose no additional risk to the public’s health and safety and will result in a significant reduction in the cost of covered products to the American consumer. Concurrent with the issuance of the Final Rule, HHS for the first time made the required certification to Congress. However, the Final Rule places the burden of demonstrating consumer savings on the SIP Sponsors; each SIP Sponsor is required to provide FDA with data and information about its SIP, including the SIP’s cost savings to the American consumer. At this time, six states (Vermont, Florida, Colorado, Maine, New Mexico, and New Hampshire) have passed laws that allow for the development of drug importation programs.

The FDA Guidance

Unlike SIPs, which arrange for eligible drugs to be imported whether or not the manufacturer approves of such importation, the FDA Guidance provides an importation pathway that may be used at the option of manufacturers. The FDA Guidance explains that “FDA has become aware that some drug manufacturers may be interested in offering certain of their drugs at lower costs and that obtaining additional National Drug Codes (NDCs) for these drugs may help them to address certain challenges in the private market.” The challenges FDA refers to are most likely contracts with payors and GPOs that lock in drug prices and/or price reductions for the currently available NDCs during the term of the contract. The FDA Guidance outlines the process for drug manufacturers to obtain NDCs for FDA-approved products originally intended to be marketed and sold in a foreign country (not limited to Canada) that are imported to the United States. A “multi-market approved product” (MMA product) can be (1) an FDA-approved prescription drug, (2) an FDA-licensed biological product, including an FDA-approved NDA that was deemed to be an FDA-approved Biologics License Application (BLA) but not a blood or blood component or an allogeneic cellular or tissue-based product, or (3) a combination product approved in an NDA or BLA. In the United States, the MMA product has to be authorized for marketing by the manufacturer, be the subject of a supplement to an approved NDA or BLA, and meet certain quality and labeling requirements.

The MMA product, including its labeling, must be the same as the FDA-approved drug or FDA-licensed biological product, except that the prescribing information, container label, and package label must state, “Imported following the procedures recommended in FDA Guidance: see [current link to the FDA Guidance],” The FDA Guidance recommends that a manufacturer obtain a new labeler code for its MMA products to avoid confusion with the FDA-approved drug or FDA-licensed biological product. The FDA Guidance includes other recommendations to help distinguish an MMA product and minimize potential product confusion, such as adding easily visible contrast stripes to the MMA product container and issuing Dear Healthcare Provider Letters with information about the MMA product. A manufacturer that wishes to import an MMA product must complete the registration and listing process for each MMA product. A manufacturer of an MMA product must also comply with the FDC Act drug supply security requirements for product identification, tracing, and verification.

Although the Notice of Availability for the draft guidance had asked for comments related to expanding this pathway to generic drug manufacturers, the final FDA Guidance is limited to brand products. The biggest change from the draft guidance to the final FDA Guidance is the inclusion of FDA-licensed biological products, including deemed biological products such as insulin, in the MMA product category. This may be significant because, as noted above, biological products may not be imported from Canada under the SIPs.

The CMS Release

The CMS Release addresses the eligibility of MMA products to receive payment under the MDRP and determines that such products meet the definition of a “covered outpatient drug.” According to CMS, an MMA product satisfies the statutory definition of a covered outpatient drug because it is a prescribed drug that is approved under FDC Act § 505 or licensed under the Public Health Service Act § 351. The manufacturer must enter into a Medicaid drug rebate agreement with HHS that includes the new labeler code and NDCs for the MMA products to ensure payment by Medicaid. The manufacturer would also need to comply with the statutory and regulatory requirements for participation in the MDRP with respect to the MMA products.

With regard to calculation of average manufacturer price (AMP) and best price, CMS views a manufacturer authorizing the sale of an MMA product in the United States under the FDA Guidance as similar to the manufacturer marketing an authorized generic product, with the non-MMA product being equivalent to the brand product and the MMA product being equivalent to an authorized generic marketed under the manufacturer’s approved NDA. Accordingly, CMS refers manufacturers to the its rules and recently proposed updates on authorized generic for guidance on the calculation of average manufacturer price (AMP) and best price. See Medicaid Program Proposed Rule, 85 Fed. Reg. 37286 (June 19, 2020); see also 42 C.F.R. § 447.506; CMS Releases 111 and 112. (See our coverage of the proposed rule here.) The CMS Release does not address calculation of AMP and best price for biological MMA products, to which the authorized generic provisions do not apply.

With regard to AMP, a manufacturer should treat the FDA-approved MMA product as a separate product that it has authorized to be sold under its NDA and submit a separate AMP for the MMA product based on the sales of that MMA product only. The manufacturer would submit a separate AMP for the non-MMA product based on the sales of that product only, not taking into account any sales of the MMA product. The MMA and non-MMA products would likely have different labeler codes and NDCs (as recommended in the FDA Guidance) , but the base date AMP for the MMA product would be the same as that for the non-MAA product because both are marketed under the same NDA. As the proposed Medicaid rule is finalized, CMS may issue additional guidance on AMP calculations for MMA products.

A manufacturer’s best price should reflect the lowest price available to any entity sold under a manufacturer’s NDA. CMS again analogized to the authorized generic product scenario in which the statutory definition of best price expressly provides that, in the case of an authorized generic, the best price shall be inclusive of the lowest price for such authorized drug available from the manufacturer during the rebate period to best price eligible entities. See 42 U.S.C. § 1396r-8(c)(1)(C) and 42 C.F.R. §§ 447.505, 447.506. Accordingly, the best price for either the MMA product or the non-MMA product sets the best price for both products.

The CMS Release does not address the treatment of drugs imported from Canada under SIPs. However, such drugs most likely would not be considered covered outpatient drugs because, unlike MMA drugs, drugs imported under a SIP do not meet the definitional requirement of being approved under an NDA or ANDA.

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Citizen Petition Asks FDA to Enforce the FDC Act Requirement Regarding the Cumulative Effect of Food Substances as Part of Safety Assessment

Citizen Petition Asks FDA to Enforce the FDC Act Requirement Regarding the Cumulative Effect of Food Substances as Part of Safety Assessment

By Riëtte van Laack

On Sept. 23, 2020, a coalition of public health and consumer advocacy groups submitted a Citizen Petition to FDA, requesting that FDA start considering the cumulative health effects of substances added to food as (according to Petitioners) is required by the Federal Food, Drug, and Cosmetic Act (FDC Act) and FDA’s own regulations. Several of the coalition members  have previously challenged FDA’s approach to safety of food ingredients (the Environmental Defense Fund has challenged FDA’s GRAS regulations, and the American Academy of Pediatrics issued a policy statement in 2018 suggesting that FDA should consider cumulative and synergistic effects of food additives in the context of other chemical exposures that may affect the same biological receptor or mechanism).

Petitioners allege that FDA and the US food industry have failed their statutorily mandated responsibility to consider the cumulative effect of food ingredients.  Allegedly, this failure has resulted in Americans, in particular children, being exposed to health risks.  In fact, Petitioners suggest that it may have contributed to dramatic increases in a variety of chronic diseases such as obesity, diabetes, and kidney disease.

Petitioners claim that under the Federal Food, Drug, and Cosmetic Act (FDC Act), FDA must review the cumulative effect of substances added to foods “taking into account any chemically- or pharmacologically-related substances in the diet;” although FDA has incorporated that requirement into the regulatory definition of “safety” for the various categories of food ingredients, i.e., food additives, color additives, GRAS substances, and food contact substances, as well as for animal drugs, it allegedly has not enforced that requirement.

Petitioners claim that they reviewed all GRAS notices for human food ingredients since 1997 and identified only one notification, in which the notifying company considered the purported cumulative effect requirement.  Moreover, they note, FDA guidance for industry does not address how food manufacturers are to evaluate cumulative effects.  Instead, the cumulative effect seems to be equated to or confused with “cumulative exposure” or “cumulative intake” of the single substance rather than with cumulative effects of related substances in the diet.

Petitioners suggest that FDA use a regulation related to drugs, 21 C.F.R. § 201.57, which defined pharmacological class for drugs and biologics as model.  Petitioners also request that FDA define diet as not being limited to food and beverages but specifically include dietary supplements and tap water.

Petitioners summarize their requests as follows:

  • Update of FDA’s rules by defining key terms so they remove any ambiguity and removing outdated references;
  • Issuance of guidance to industry to explain the steps those conducting safety determinations should take to follow the law; and
  • Revision of FDA’s forms for notices and petitions to more clearly require the necessary information.

On Sept. 23, 2020, a coalition of public health and consumer advocacy groups submitted a Citizen Petition to FDA, requesting that FDA start considering the cumulative health effects of substances added to food as (according to Petitioners) is required by the Federal Food, Drug, and Cosmetic Act (FDC Act) and FDA’s own regulations. Several of the coalition members  have previously challenged FDA’s approach to safety of food ingredients (the Environmental Defense Fund has challenged FDA’s GRAS regulations, and the American Academy of Pediatrics issued a policy statement in 2018 suggesting that FDA should consider cumulative and synergistic effects of food additives in the context of other chemical exposures that may affect the same biological receptor or mechanism).

Petitioners allege that FDA and the US food industry have failed their statutorily mandated responsibility to consider the cumulative effect of food ingredients.  Allegedly, this failure has resulted in Americans, in particular children, being exposed to health risks.  In fact, Petitioners suggest that it may have contributed to dramatic increases in a variety of chronic diseases such as obesity, diabetes, and kidney disease.

Petitioners claim that under the Federal Food, Drug, and Cosmetic Act (FDC Act), FDA must review the cumulative effect of substances added to foods “taking into account any chemically- or pharmacologically-related substances in the diet;” although FDA has incorporated that requirement into the regulatory definition of “safety” for the various categories of food ingredients, i.e., food additives, color additives, GRAS substances, and food contact substances, as well as for animal drugs, it allegedly has not enforced that requirement.

Petitioners claim that they reviewed all GRAS notices for human food ingredients since 1997 and identified only one notification, in which the notifying company considered the purported cumulative effect requirement.  Moreover, they note, FDA guidance for industry does not address how food manufacturers are to evaluate cumulative effects.  Instead, the cumulative effect seems to be equated to or confused with “cumulative exposure” or “cumulative intake” of the single substance rather than with cumulative effects of related substances in the diet.

Petitioners suggest that FDA use a regulation related to drugs, 21 C.F.R. § 201.57, which defined pharmacological class for drugs and biologics as model.  Petitioners also request that FDA define diet as not being limited to food and beverages but specifically include dietary supplements and tap water.

Petitioners summarize their requests as follows:

  • Update of FDA’s rules by defining key terms so they remove any ambiguity and removing outdated references;
  • Issuance of guidance to industry to explain the steps those conducting safety determinations should take to follow the law; and
  • Revision of FDA’s forms for notices and petitions to more clearly require the necessary information.

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Restitution and Disgorgement Authority Under FTC Act Section 13(b) Rejected – Again

Restitution and Disgorgement Authority Under FTC Act Section 13(b) Rejected – Again

By Karin F.R. Moore

The Third Circuit handed down a precedential decision this week in the case of Federal Trade Commission v. AbbVie Inc., et al., Case No. 18- 2621 (3rd Cir. Sept. 30, 2020), ruling that the District Court for the Eastern District of Pennsylvania erred in requiring AbbVie and Besins to disgorge $448 million in the FTC’s case involving reverse payments under the Hatch-Waxman Act, and outright rejecting the FTC’s authority to seek disgorgement under 13(b) of the FTC Act.  This precise issue of 13(b) disgorgement is being heard by the Supreme Court this term in  FTC v. Credit Bureau Center and AMG Capital Management v. FTC.  The Third Circuit decision is consistent with the Seventh Circuit’s decision in Credit Bureau Center, 937 F.3d 764, 775 (7th Cir. 2019), and two judges on the Ninth Circuit in AMG Capital Management, 910 F.3d 417, 429 (9th Cir. 2018) (O’Scainlon, J., concurring).  See our previous posts here and here for more information about the cases at the Supreme Court.

As a brief aside, while this blog post focuses on the disgorgement aspect of this 99-page decision, many of our readers will be interested in the Court’s analyses of the FTC’s reverse payment theory and sham litigation under Noerr-Pennington.

And now back to disgorgement.  The Third Circuit analyzed the text of Section 13(b) and found it lacking: “Section 13(b) authorizes a court to ‘enjoin’ antitrust violations. It says nothing about disgorgement, which is a form of restitution, not injunctive relief.” (internal citations omitted).  The Court also looks at the statute contextually, indicating that Section 13(b) applies to antitrust violations that are believed to be imminent or ongoing. If there nothing imminent or ongoing, there is nothing to enjoin, and the FTC cannot sue under Section 13(b). Disgorgement, on the other hand, is intended to deprive a wrongdoer of past gains, which is not the focus of 13(b).  The court reasoned that “[i]f Congress contemplated the FTC could sue for disgorgement under Section 13(b), it probably would not have required the FTC to show an imminent or ongoing violation.”

As we noted in our post discussing the Supreme Court’s June 2020 decision in Liu v. Securities and Exchange Commission, the Securities Exchange Act, 15 U.S.C. § 78u(d)(5), includes explicit language giving courts the power to grant “any equitable relief” for securities violations, and the Supreme Court threw the SEC a lifeline and vacated and remanded that case for consideration whether disgorgement fell under the principles of equitable relief.  Unfortunately, Section 13(b) of the FTC Act does not include such specific language, nor does the Food Drug & Cosmetic Act.  The FDA simply relies on the vague statement that courts can “restrain violations” of the FDC Act to support its demand for disgorgement and/or restitution:  “The district courts of the United States and the United States courts of the Territories shall have jurisdiction, for cause shown to restrain violations of section 301 . . . .”   21 U.S.C. § 332(a).

As we eagerly await a date for oral arguments in the FTC cases, consider whether the decisions out of the 3rd and 7th Circuits (and two judges on the 9th circuit) reflect a more current view of Section 13(b) than the years of decisions holding that courts may order disgorgement under Section 13(b). A similar consideration would apply to the Food Drug and Cosmetic Act.  As the 3rd Circuit pointed out in its decision, quoting the 7th Circuit, “until recently, ‘[n]o circuit ha[d] examined whether reading a restitution remedy into section 13(b) comports with the FTCA’s text and structure.’”  And the Supreme Court will be examining just that issue shortly.  Stay tuned.

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Courts Reject Demands to Force FDA to Approve Hydroxychloroquine for COVID-19

Courts Reject Demands to Force FDA to Approve Hydroxychloroquine for COVID-19

By Anne K. Walsh

Two federal courts, in unrelated cases, separately rejected plaintiffs’ attempts to force FDA to authorize the use of hydroxychloroquine to treat or prevent COVID-19.  Hydroxychloroquine, a drug that has been used for over 60 years, has been touted by President Trump as an effective treatment or preventative measure against COVID-19.  In March 2020, FDA issued a narrow Emergency Use Authorization (EUA) for hydroxychloroquine, that allowed hospitalized patients diagnosed as having COVID-19 to obtain the drug from the Strategic National Stockpile if no clinical trial was available for them.  Just three months later, in June 2020, FDA revoked the EUA after it “determined that [hydroxychloroquine is] unlikely to be effective in treating COVID-19.”  FDA also stated that the “ongoing serious cardiac adverse events and other serious side effects” changed the risk-benefit basis for the EUA.  Neither the EUA, nor its revocation, affect physicians’ ability to prescribe commercially available hydroxychloroquine using their medical judgment.

In the Michigan case, the Association of American Physicians & Surgeons (“AAPS”) sued on behalf of its physician members who sought to prescribe the drug to their patients but claimed FDA “impeded the ability of President Trump to make [the drug] available to the public.”  AAPS claimed it had standing to sue in its own right, to sue on behalf of its members, and to sue on behalf of patients of its members.  AAPS alleged that it was injured because it had to cancel one of its conferences due to state mandates prohibiting large public gatherings; that doctors were injured because they were limited in their ability to prescribe hydroxychloroquine due to fear of retaliation by state medical boards; and that patients were injured because they were unable to receive prescriptions of hydroxychloroquine from AAPS member physicians.  Because these alleged injuries lacked causal connection to FDA’s actions, the court rejected all of plaintiff’s theories for standing and dismissed the case.

The Kansas case, brought by pro se plaintiff Peter Mario Goico, more colorfully alleged that FDA was effectively holding him and his elderly father hostage by not authorizing the “prophylaxis [sic]” use of hydroxychloroquine.  Goico claimed FDA was depriving his father and him of their First Amendment rights because they were unable to attend religious services and a political protest due to their susceptibility to COVID-19.  In denying plaintiff’s second emergency motion for TRO, the court found that plaintiff “having to take the kinds of safety precautions that many Americans have been taking for months to avoid or minimize the risk of exposure to COVID-19” is not sufficient to justify the high threshold for a TRO.   FDA’s response to plaintiff’s motion for a preliminary injunction is due on October 20, 2020.

Although both plaintiffs took issue with FDA for their inability to access hydroxychloroquine, neither appears to have a response to FDA’s position that doctors are free to prescribe the commercially available drug off-label as they see fit.  Perhaps the risk-benefit analysis FDA conducted in revoking the EUA is persuasive, but FDA generally declines to impede the practice of medicine, as it recently reaffirmed:  “FDA generally does not seek to interfere with the exercise of the professional judgment of health care providers in prescribing or using, for unapproved uses for individual patients, most legally marketed medical products.”  FDA, Proposed Rule: Regulations re “Intended Use,” fn. 3.

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HP&M’s Serra Schlanger to Present on State Drug Price Reporting Laws

HP&M’s Serra Schlanger to Present on State Drug Price Reporting Laws

Hyman, Phelps & McNamara, P.C. is pleased to announce that Serra Schlanger will present at this year’s Drug Pricing Transparency Congress, a virtual conference, on November 16–17, 2020.  This conference gathers stakeholders to examine the evolving landscape of state drug price reporting and transparency efforts.  Serra will speak about the state laws that require price disclosures to be made directly to health care providers, as well as join a panel of experts to discuss recent developments and practical tips for compliance with the various state requirements.

As a sponsor of the event, we can offer our readers a special discount off the registration.  The discount code is DPC200.  We look forward to seeing you at this virtual conference.

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FDA Launches Digital Health Center of Excellence

FDA Launches Digital Health Center of Excellence

By Adrienne R. Lenz, Senior Medical Device Regulation Expert

On September 22, FDA announced the creation of a Digital Health Center of Excellence (DHCoE), which has grown out of their existing Digital Health Program.  The objectives of the DHCoE include connecting and building partnerships, sharing knowledge and innovating regulatory approaches related to digital health.  The landing page provides helpful links to other content on the FDA website related to digital health.

It appears that the DHCoE provides new organization for the work that the Agency has already been doing in the digital health space. DHCoE services are organized into those that empower stakeholders, connect stakeholders, share knowledge and innovate regulatory approaches.  For each service, there are numerous examples of ongoing activities that the digital health team has been providing.

With its kick-off, the DHCoE focus will be to raise awareness and engage stakeholders.  Starting this winter and into next year, they plan to focus on building partnerships, including creation of a digital health community of practice and assembling FDA and CDRH advisory groups.  Overall, the DHCoE appears to set the stage for developing and implementing improvements to digital health policy and processes.

For those interested in learning more and asking questions related to the DHCoE, FDA is offering two listening sessions in October and November.  They will also be involved in the upcoming Patient Engagement Advisory Committee Meeting on Artificial Intelligence and Machine Learning in October.

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Final Decision on Economic Analysis Report of Organic Livestock and Poultry Practices Rule and Summary of Comments on the Economic Analysis Report; The Lawsuit Continues

Final Decision on Economic Analysis Report of Organic Livestock and Poultry Practices Rule and Summary of Comments on the Economic Analysis Report; The Lawsuit Continues

By Riëtte van Laack

Quite some time ago, we blogged on the organic livestock and poultry practice (OLPP) rule.  The rule established minimum indoor and outdoor space requirements for chickens based on the type of production and stage of life, as well as added new provisions for livestock handling and transport for slaughter.   After years of work, a final rule was published the day after President Trump’s inauguration, with an effective date two months later.  However, USDA delayed the effective date several times, and ultimately withdrew the rule because the agency concluded that it did not have the authority to issue the rule and it also determined that the costs outweighed the benefits.   The Organic Trade Association (OTA) sued USDA claiming that USDA’s basis for withdrawal was unfounded.

Fast forward to Oct. 31, 2019, when the OTA filed a motion for summary judgment.  In its motion for summary judgment, OTA argued, among other things, that the regulatory impact analysis (RIA) of the withdrawal rule contained serious flaws.  USDA had acknowledged that the RIA of the OLPP contained errors.  When it issued the withdrawal rule, it issued a revised (or withdrawal) RIA which corrected several main errors of the OLPP RIA and concluded that benefits of the OLPP had been overstated.

Rather than responding to the motion for summary judgment, USDA requested that the Court stay the proceedings and remand the case to USDA to allow USDA to correct the RIAs.  Upon review of OTA’s expert’s analysis, USDA had determined that the withdrawal RIA still contained errors and it requested remand to make sure that the impact of those errors would be addressed; it wanted to correct and clarify the record in a manner that would permit judicial review.

Recognizing the value of a complete and correct record, the Court granted the motion (over the opposition of OTA) and set a deadline of 180 days, or September 8, 2020, for USDA to publish a final rule fully explaining its updated cost/benefit analysis.

On April 23, 2020, USDA published the Economic Analysis Report (Report) reviewing and evaluating the OLPP RIA and the withdrawal RIA.  The Report identified several additional errors in the OLPP RIA which had been carried forward to the revised RIA.  USDA requested comments on the Report.

On September 17, 2020, USDA published its final decision, announcing that it had found nothing in the comments to the Report that  would cause it to reject or modify the findings of the Report, and affirming the findings of the Report which discredit both the OLPP RIA and the withdrawal RIA.

Based on the Report and comments to the Report USDA concluded that “the [flawed OLPP] RIA does not support promulgation of the OLPP Rule.”  It further concluded that “[i]mplementing the OLPP rule based on such a flawed economic analysis is not in the public interest.”  Because the parts of the final withdrawal rule that do not rely on the flawed revised RIA remain intact, USDA also concluded that no further action is needed for that RIA.  Now that the administrative record has been “corrected,” the lawsuit can proceed.

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A Couple of Firsts in Food Enforcement

A Couple of Firsts in Food Enforcement

By Ricardo Carvajal & Anne K. Walsh

Last week brought a reminder that the government can bring to bear a range of legal theories – some old, some new – in pursuing alleged violations of food safety requirements.

The U.S. Department of Justice (DOJ) announced a sentence levying $17.25 million in criminal penalties against Blue Bell Creameries, whose ice cream products were implicated in an outbreak of foodborne illness. The sentencing follows a plea agreement entered last May, in which Blue Bell pleaded guilty to misdemeanor counts of distributing adulterated products and agreed to pay the criminal penalties, and also agreed to pay $2.1 million to resolve alleged violations of the False Claims Act. According to DOJ, “the $17.25 million fine and forfeiture amount is the largest-ever criminal penalty following a conviction in a food safety case.”

We won’t recount the long history of the Blue Bell saga here, but the company allegedly declined to initiate a recall or issue a formal notification to consumers after being informed that product samples had tested positive for Listeria monocytogenes. Subsequently, the strain detected in the products was linked to a strain that sickened consumers, and FDA inspectors found sanitation issues at the company’s manufacturing facilities.  Although the government charged the company’s former president, Paul Kruse, with seven felony counts, the court dismissed those charges in July 2020 because the government failed to use proposed charging procedures.  With this corporate settlement, it is unknown whether the government will pursue any further charges against individuals.

Separately, DOJ announced the issuance of an injunction against Fortune Food Product, a producer of sprouts and tofu products whose manufacturing operation was alleged by FDA to be in violation of certain requirements of the produce safety regulation and the current good manufacturing practice regulation for food.  FDA’s press release notes that this is “the first consent decree of permanent injunction against a firm or grower for violating public safety standards under the Produce Safety Rule enacted under the Food Safety Modernization Act of 2011.”  The company will be unable to resume production until it has complied with the terms of the injunction, effectively closing the company’s doors until it demonstrates to FDA’s satisfaction that it can produce compliant products.

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FDA Pre-Cert Program Update – Good Progress but Full Launch Not Yet in Sight

FDA Pre-Cert Program Update – Good Progress but Full Launch Not Yet in Sight

By Adrienne R. Lenz, Senior Medical Device Regulation Expert

FDA’s Software Pre-Certification (Pre-Cert) Program is intended to create a new streamlined regulatory process for software as a medical device (SaMD) (see our earlier blog posts on the program here, here, here, here, and here).  On September 14, 2020, FDA updated the Digital Health Software Precertification (Pre-Cert) Program website with a new summary document, Developing the Software Precertification Program:  Summary of Learnings and Ongoing Activities (Summary) and updated Frequently Asked Questions.  The Summary highlights FDA’s key learnings from the initial testing and the next steps planned for the program.  In short, the Agency appears to be addressing important questions in their development and testing of the Pre-Cert program.  However, three years into the process it is not clear when the program might be ready to move into its next phases of beta testing and eventual launch.

As a refresher, the Pre-Cert program has four key components following a Total Product Lifecycle (TPLC) approach:

  • Demonstrate a culture of quality and organizational excellence through an Excellence Appraisal (pre-certification),
  • Determine the SaMD’s required review through a Review Determination Pre-Submission (Pre-Sub) meeting,
  • Conduct a Streamlined Review, and
  • Verify a SaMD’s continued safety, effectiveness, and performance and the organization’s commitment to culture of quality through post-market Real-World Performance.

The Pre-Cert program was initially formed in 2017.  The Agency conducted research in 2018 and in 2019 entered what it refers to as the “build and iterate phase”  with publication of the Working Model 1.0 and 2019 Test Plan.  FDA has said that upon completion of the build and iterate phase, the program will move to beta testing with scaled-up testing of the program and finally transition from Pilot to Program.  No proposed dates have been given yet for these next phases.

During the last year, FDA has continued to work with the nine pre-cert pilot companies and has also worked with new companies that volunteered to participate in the 2019 Test Plan.  While the test plan sought to include software developers that develop both low- and high-risk SaMDs as well as those that intend to develop a SaMD but are not considered a traditional medical device manufacturer in the test phase, it is not clear in the current Summary the type and number of companies that have been included beyond the nine pilot companies.

Mock Excellence Appraisals were conducted with an interactive approach and a draft framework for a library of activities, processes, and Key Performance Indicators (KPIs) used by high performing organization has been developed.  FDA also tested and continues to test the Streamlined Review process.  Comparisons are made between premarket submissions that have undergone traditional review with the outcomes of a Streamlined Review package. The Streamlined Review package includes extracted elements from the Excellence Appraisal, Review Determination Pre-Sub, and the traditional premarket submission.  FDA’s summary notes that “FDA found that there was variability regarding the specific information needed from the masked software review elements to achieve a comparable outcome to current review practices,” concluding that further work is needed.  Summary at 4.  The Summary additionally notes challenges with defining SaMD products consistently and collection of ongoing Real-World Performance data.

Next steps for the Pre-Cert Program include refinements across the program to “drive repeatability of the processes, improve the quality and quantity of information, provide clarity to internal and external stakeholders, and reduce the time burden on both internal and external stakeholders.” Id. at 6.  Per the Summary, the following are notable plans as the Pre-Cert programs continues to unfold:

  • Explore improvements to Excellence Appraisals to reduce variability and develop consistency across different SaMD developers,
  • Evaluate the usefulness and relevance of the software submission content in determination of SaMD market authorization and use that information to evaluate how information collected in Excellence Appraisals, Review Determinations, and Real-World Performance monitoring can be used for Streamlined Review,
  • Explore the use of technology, such as automated remote access to digital data, for collection of Real-World performance data,
  • Simulate scenarios to test interdependencies between the four components of the Pre-Cert program,
  • Determine criteria for maintaining Excellence Appraisal status, and/or the need for re-appraisals, and
  • Consider obtaining legislative authority to fully implement the Pre-Cert program as a new pathway for SaMD.

With this update, the Agency is acknowledging several challenges that this program presents.  In moving Agency oversight from a periodic, product-focused review to a continuous review of both product and company, new burdens are introduced, and, for the program to be successful, it is imperative that the overall burden to industry is not increased over the current premarket review of design documentation and test results.  The Agency’s planned approaches to further refine and test the program appear sound and, if successful, should result in a useful program.  However, this update shows that there is still much work to do and that the promise of a streamlined regulatory process for SaMD that will allow developers to more quickly release new and modified products is not yet a reality.

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New York Opioid Stewardship Act: Take 2 from the Second Circuit

New York Opioid Stewardship Act: Take 2 from the Second Circuit

By Kalie E. Richardson

On Monday, September 14, the United States Court of Appeals for the Second Circuit reversed the December 2018 opinion from the United States District Court for the Southern District of New York that invalidated the New York Opioid Stewardship Act (OSA).  In Association for Accessible Medicines v. James, the Second Circuit reinstates the New York OSA previously been invalidated by the District Court, with the exception of one key provision.

The New York State Legislature enacted the OSA in September 2018 to raise $600 million over six years to address the ongoing costs to the state of New York in addressing the opioid crisis.  As detailed below, the annual $100 million “opioid stewardship payment” is assessed collectively on all registered opioid manufacturers and distributors that sell or distribute opioids in the state, each of which is responsible for paying a portion of the $100 million based on its market share of opioid sales in New York.  As originally enacted, the OSA included a “pass-through prohibition” that barred registrant from passing the costs of their opioid stewardship payments on to purchasers, including the ultimate consumer.  Registrants that violated the pass-through prohibition were subject to a monetary penalty of up to $1 million per violation.

Various aspects of the OSA, including the pass-through prohibition, were challenged in three lawsuits brought by industry trade associations and an opioid manufacturer.  The plaintiffs argued that the pass-through prohibition violated the dormant Commerce Clause, which prohibits state laws from discriminating against interstate commerce, or favoring in-state commerce over out-of-state commerce.   New York moved to dismiss each case on jurisdictional grounds under the Tax Injunction Act (TIA), arguing that the opioid stewardship payment is a tax and is not subject to District Court review.  Under the TIA, “the district courts shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State.”  28 U.S.C. § 1341.  In a consolidated Opinion and Order issued December 19, 2018, the District Court held that neither the opioid stewardship payment, nor the pass-through prohibition is a “tax” under the TIA, and that the latter violated the dormant Commerce Clause.  Because the opioid stewardship payment requirement could not survive without the pass-through prohibition, the District Court held that the OSA was invalid in its entirety.

After the District Court’s decision, the New York State Legislature enacted a new payment mandate, the opioid excise tax, that did not include a pass-through prohibition and the pass-through provision was not included in the State’s appeal.  On appeal, the Second Circuit determined that the opioid stewardship payment required under the OSA is a tax within the meaning of the TIA and is thus not within the subject matter jurisdiction of the District Court.  The Second Circuit reversed the District Court’s judgment invalidating the OSA, with the exception of the pass-through prohibition not included in the appeal.

Under the current version of the OSA, each manufacturer and distributor registered in New York is required to submit an annual report detailing all opioids sold or distributed in the state.  The report must include gross revenue of all opioid sales, the number of containers and the strength and metric quantity of controlled substance in each container, and the total number of morphine milligram equivalents (MME) sold or distributed.  Annual  reports must be submitted on April 1 of each year based on the actual opioid sales and distributions of the prior calendar year.  The reports are used to determine the “ratable share” of the opioid stewardship payment owed by each manufacturer and distributor.  A registrant’s ratable share is calculated by dividing the total MMEs sold by the registrant in New York by the total amount of MMEs sold by all registrants.  For example, if a Registrant A sold a total of 100,000 MMEs in New York in one year and all registrants sold a total of 10,000,000 MMEs, Registrant A’s ratable share of the opioid stewardship payment is 1% or $1 million.

New York is required to notify registrants of their ratable share by October 15, based on opioids sold or distributed for the prior calendar year.  Given that the District Court had previously struck down the OSA as unconstitutional, it is our understanding that registrants would not have submitted an annual report on April 1, 2020 for 2019 opioid sales.  However, registrants likely should anticipate submitting an annual report by April 1, 2021 covering 2020 opioid sales in New York State.  The state will then notify registrants of their ratable share for 2020 sales by October 15, 2021.  Registrants will be required to pay their ratable share of 2020 opioid sales quarterly beginning January 1, 2022.  Failure to comply with the OSA may result in a civil penalty up to $1,000 per day.  Additionally, if the registrant fails to pay its ratable share, the state may also assess a penalty of 10-300% of the registrant’s ratable share.

Note that the OSA stewardship payment is wholly separate from the aforementioned excise tax on the sale of opioids, which is part of the state’s tax law and not the controlled substance law.  On April 12, 2019, after the District Court struck down the OSA as unconstitutional, Governor Cuomo signed a budget bill that included the opioid excise tax.  The excise tax, which went into effect July 1, 2019, is imposed on the first sale of an opioid unit in New York State by a registrant.  Generally, the “first sale” is the transfer of title from a registrant to a purchaser for consideration.  “First sale” does not include the dispensing of an opioid prescription to the end user, or the transfer of title of an opioid unit from a manufacturer in New York to a purchaser outside New York when the opioid will be used or consumed outside the state.  It is presumed that every sale of an opioid by a registrant within or into New York is the first sale unless it is established otherwise.  The New York Department of Health publishes a list of drugs that are subject to the opioid excise tax, as well as an MME calculation guidance.  The excise tax is also assessed based on the MME, but there are separate tax rates depending on the product’s wholesale acquisition cost (WAC):

  • $0.0025/MME for opioids with a WAC of less than $0.50 per unit
  • $0.015/MME for opioids with a WAC of $0.50 or more per unit

All first sales must be reported on a quarterly opioid excise tax return and paid no later than the 20th day of the month following the quarter in which the opioid was sold.  Registrants must file a return even if they had no sales during the quarter.  The first required filing was due January 21, 2020 and covered an extended period beginning July 1, 2019, and ending December 31, 2019.  The filing for the current July 1 – September 30 period is due October 20, 2020.

As it currently stands, it is our understanding that both the OSA (minus the pass-through provision) and the opioid excise tax remain in effect.  It is unclear whether New York will reconsider the opioid excise tax in light of the reinstatement of the OSA.   Hopefully further clarification from the state will be forthcoming.

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