Is the MIA DOA? Bill to Assess Fees on Top of Settlements Doesn’t Receive Bipartisan Love

February 5, 2015

By James C. Shehan

The new Congress has been very busy introducing legislation that affects FDA and regulated industry, including the 21st Century Cures Act (see our previous post here); the Limited Population Pathway for Antibacterial Drugs Act (PATH) (here) and the Improving Regulatory Transparency for New Medical Therapies Act, which aims to speed up DEA’s scheduling of new drugs (see our previous post here).  While these bills have been favorably received by many in the regulated industry, there’s another recently introduced bill that has found a less welcoming reception among industry: the Medical Innovation Act of 2015 (“MIA”) (S. 320), introduced by Senators Elizabeth Warren (D-MA), Ben Cardin (D-MD), Sherrod Brown (D-OH), and Tammy Baldwin (D-WI).  (Senator Warren’s press release, floor introduction video, and a bill summary are available here.)  Characterized by the sponsors as a bill that would boost funding for critical medical research, MIA does indeed provide for substantial NIH and FDA funding, estimated at $6B per year.  But that funding is provided via a novel mechanism – drug companies that market blockbuster drugs and enter into certain settlements with the federal government would be required to pay portions of their net profits for a five year period to the two agencies, a mechanism Senator Warren likens to a “swear jar.”  Delving into the bill, we see some proposals likely to be opposed on both policy and legal grounds, and perhaps capable of generating some swearing by those subject to it.

Here’s how the bill works.  A “covered blockbuster drug” is defined as one for which a manufacturer realizes $1B in net sales (presumably global sales) and developed in whole or part through federal government investment in medical research.  Federal government medical research investment is to be determined by the HHS Secretary considering whether information included in any patents that claim the drug or a method of use for the drug  relate to (1) “prior science conducted, in whole or in part, by a person” funded by the federal government; (2) “a signaling pathway, cellular receptor, ion channel, protein, DNA or RNA sequence or mutation, virus, or any other scientific information discovered, in whole or in part”, through such funded research; or (3) “the manufacturing process or testing process of the covered blockbuster drug, technology derived, in whole or in part,” through such funded research.  Given the breadth of this definition, especially clause 2, it appears that many products will meet the definition.

“Covered manufacturers” are those who hold the NDA or BLA for the covered blockbuster drug or who are a licensed partner of the holder.  “Covered settlement agreement” is one between an agency and a covered manufacturer with a payment of at least $1M and related to an alleged violation of the anti-kickback statute, the False Claims Act, the Federal Food, Drug, and Cosmetic Act, or any other federal civil or criminal law.  This is a very broad definition but the bill contains an exception that narrows it – “covered settlement agreement” does not include any settlement that the HHS Secretary determines does not involve an alleged criminal violation and does not involve fraud resulting or potentially resulting in loss of taxpayer dollars or allegations of conduct having an adverse or potentially adverse impact on the public health. 

Covered manufacturers that enter into covered settlement agreements after the MIA is passed and that have net income of at least $1B will be required to pay1 the federal government each year for five years an amount equal to 1% of their net income multiplied by the number of covered blockbuster drugs sold by that manufacturer in that year. 

Funds equivalent to the payments would be allocated by the HHS Secretary every year between NIH and FDA to “meet urgent needs in medical research.”  NIH’s funding would be used to support “research that fosters radical innovation,” “research that advances fundamental knowledge,” “research related to diseases that disproportionately account for Federal health care spending” and “early career scientists.”  FDA’s funding would be used to support its implementation of Section 1124 of FDASIA and other research to promote the public health and advance innovation in regulatory decision-making.  Between NIH and FDA, funds would be allocated according to the ratio of discretionary Congressional funding that each receives in that year.  MIA also contains mechanisms to prevent the funds from being used to replace budget cuts.

Among possible concerns about the bill is that it punishes settlements instead of fault.  Indeed although the bill summary states that it applies to companies that “[b]reak the law and enter into a settlement” with the government, by its text it applies to settlements and alleged violations, not actual violations of the law.  Indeed, somewhat perversely, the payments would not be owed by companies that went to trial and were actually found guilty of breaking the law. 

The bill may also be subject to legal as well as policy challenges as imposing an unconstitutionally excessive fine, given that the payments are not linked to any degree of culpability but instead to the size of corporate profits. 

Coverage of the bill in the media has been limited.  But PhRMA is reported to have offered the following point of view: “Pursuing misguided policies that siphon funding from the groundbreaking medical research happening in the biopharmaceutical industry will have devastating consequences for patients and society.  The proposed legislation would result in fewer medicines for patients and lost jobs at a time when our economy can least afford it.” 

Introduced by minority party Senators and lacking bipartisan support, unlike the other bills referenced at the start of this blog, it’s difficult to see this bill gaining much traction.  But if the situation changes, we are likely to blog on it.