Attorney East Hampton

By Larry K. Houck —

Owners and management of the Kilgoban Drug Company, a fictional prescription drug wholesaler in the fictional U.S. state of Moosissippi, are preparing to begin operations.  They have applied for and obtained all of the licenses required to operate their business, including a wholesaler license issued by the Moosissippi state board of pharmacy.  Owners and management believe that they are ready to begin purchasing drugs from manufacturers and selling them to pharmacies, hospitals, clinics and medical practices within Moosissippi and across the country.  But their belief would be incorrect if they have overlooked obtaining every license required by all of the states where their products may “end up.”  In fact, many wholesalers are unaware that they may need to obtain licenses even in those states where they are not physically located, or where they do not necessarily intend to send their products.

All states, and the District of Columbia, require wholesalers to obtain a license to ship or sell prescription drugs into or within their borders, and prohibit wholesalers from conducting those activities until they have obtained the required licenses.  The most niggling though consequential challenge confronting drug wholesalers is determining whether they hold all of the required state licenses to conduct their business activities.  To make that determination, wholesalers must identify, then obtain every license required by all jurisdictions where they conduct business.  While many states share similarities as to which activities require licensing, unfortunately they are far from uniform.  States are consistently inconsistent as to what triggers licensing requirements.

Failure to obtain and maintain required licenses can result in substantial civil financial penalties and administrative sanctions, including denial, suspension or revocation of a license and the prohibition of conducting activities within the state.

Initially, most states required and continue to require, drug wholesalers physically located within their borders to obtain in-state or “resident licenses.”  Later, most states also began requiring wholesalers to obtain “non-resident licenses” if they physically ship or move products into their state from another state.  Those are easy triggers for wholesalers to determine if they need non-resident licenses.  But states have gone even further, and drug wholesalers not located within their borders who do not physically ship products into the state may still have to obtain a non-resident license if they trigger one of the myriad licensing triggers.

Whether a wholesaler must obtain a non-resident license in certain states and not others depends upon how each state defines “wholesale” and “wholesaler” in combination with a number of different facts within the distribution scenario.  So, even if a wholesaler does not ship drugs directly into other states, owners and management must ask themselves whether their company…

•           Name appears on the products’ label?
•           Invoices customers in the state?
•           Employs sales representatives in the state?
•           Owns or holds title to products sold into the state?
•           Owns or holds the New Drug Application or the Abbreviated New Drug Application?
•           Conducts marketing activities or has customer accounts in the state?
•           Directs movement of products into the state?
•           Provides samples to entities in the state?

If the answer to any if these questions is “yes,” the wholesaler will have to obtain non-resident licenses in certain states.  The difficulty is determining exactly which states.  Deciphering unclear state statutes, regulations and licensing authorities’ (usually boards of pharmacy, but also possibly the state’s Department of Health or Occupational/Professions Division) websites to determine whether a license is required, can be a frustrating exercise.  Speaking or communicating directly with licensing authority personnel can cut through the foggy morass, but personnel within the same agency sometimes interpret definitions and requirements differently from their colleagues.

Once wholesalers have identified which state licenses they need, submitting applications and all required licensing components prior to beginning operations or after a change of ownership is a resource- and time-consuming endeavor.  Some applications are short and easy to complete, while others require detailed information about the company, ownership, officers (including fingerprints), products, operations and even customers.  As part of their application, a number of states require criminal background checks, including fingerprinting, of directors and employees, officers and owners.  States then may take up to ten weeks or longer to process applications, complete background checks and issue licenses.

We note that it is not only prescription drug wholesalers who must navigate through this difficult terrain.  Prescription and non-prescription drug manufacturers, non-prescription drug wholesalers, prescription and non-prescription medical device manufacturers and distributors, virtual manufacturers, third-party logistics providers and outsourcing facilities are subject to some of the same licensing requirements.

In addition, if controlled substances are among the prescription drugs that wholesalers distribute,  a number of states require joint or separate controlled substance registrations issued by the same agency or by a state controlled substance authority.  Wholesalers will also have to obtain a DEA distributor registration.

Diamonds may be forever, but state licenses are not.  Once obtained, state licenses must be renewed periodically, usually annually.  Ownership changes, mergers, acquisitions and corporate restructurings can require licensees to submit applications to obtain new licenses or, at the very least, to notify state regulatory authorities of the changes.  Changes of the corporate name, corporate officers and even federal tax identification number can trigger states requiring a wholesaler to obtain a new license.  A number of states allow operations to continue under the old license until a new license is issued, but some states require a new license be issued before operations can continue.  Notwithstanding any of the issues raised above, industry is awaiting FDA’s promulgation of regulations for wholesalers pursuant to Title II of the Drug Quality and Security Act (the Drug Supply Chain Security Act (“DSCSA”)) (FDCA Section 583), which will dictate on a uniform basis licensing standards for wholesale distributors distributing finished pharmaceutical human drug products throughout the United States.  Congress charged FDA with promulgating those regulations within two years after the DSCSA’s promulgation back in November 2013, yet to date those regulations have not been published or otherwise released.

The owners and management of Kilgoban, must obtain licenses in Moosissippi, the state where the facility is located.  However, they cannot overlook whether they need to also obtain non-resident licenses in other states before beginning operations or obtain new licenses if undergoing corporate changes.

By Gail H. Javitt & Jeffrey N. Gibbs —

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

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

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

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

By Sara W. Koblitz —

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

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

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

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

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

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

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

By Robert A. Dormer —

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

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

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

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

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

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

As noted above one of the defendants is named Walter O’Malley. That name brings up memories of a long-deceased man of the same name who was the owner of the Brooklyn Dodgers baseball team which he moved to Los Angeles in 1956. For this treachery O’Malley was despised in Brooklyn . There was a joke at the time about what a person should do if he found himself in a room with O’Malley, Hitler and Stalin and he had a gun with only two bullets. The correct answer was to shoot O’Malley twice to make sure he was dead.

By Riëtte van Laack —

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

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

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

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

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

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

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

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

By Mark I. Schwartz —

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

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

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

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

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

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

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

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

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

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

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

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

By Deborah L. Livornese & Riëtte van Laack —

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

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

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

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

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

By Sara W. Koblitz —

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

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

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

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

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

By Larry K. Houck —

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

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

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

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

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

By Alan M. Kirschenbaum —

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

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

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