Last week, FDA finalized the guidance document, “Postmarket Management of Cybersecurity in Medical Devices.” We previously blogged on the draft guidance released in early 2016 (here). The final guidance is similar to the draft issued in early 2016. There are, however, several noteworthy and significant edits.

In our view, the most significant of these edits is that FDA has changed nearly all references to “essential clinical performance” to “patient harm.” This change appears to shift the way in which FDA plans to evaluate cybersecurity risk—from essential clinical performance to the potential for patient harm. Specifically, FDA modified the purpose of the guidance to read, “this guidance recommends how to assess whether the risk of patient harm is sufficiently controlled or uncontrolled. This assessment is based on an evaluation of the likelihood of exploit, the impact of exploitation on the device’s safety and essential performance, and the severity of patient harm if exploited.” As exemplified by this quote, patient harm is now a key element of the final guidance.

The draft guidance dedicated several sections to defining and discussing essential clinical performance. It stated:

essential clinical performance means performance that is necessary to achieve freedom from unacceptable clinical risk, as defined by the manufacturer. Compromise of the essential clinical performance can produce a hazardous situation that results in harm and/or may require intervention to prevent harm.

Thus, while the shift from essential clinical performance to patient harm is significant for purpose of the guidance, it may ultimately be simpler for manufacturers to apply. Essential clinical performance incorporated the concept of harm, but also used more amorphous concepts such as acceptable and unacceptable clinical risk. These elements may have been difficult for manufacturers to determine on a case-by-case basis. Patient harm appears to be more straightforward and in line with standards that the device industry is already used to, including for example, reporting corrections and removals under 21 C.F.R. Part 806, which is required when the action is undertaken to reduce a risk to health.

A few additional important changes include:

• FDA added a new definition section discussing patient harm. The term “patient harm” was not used at all in the draft guidance. Thus, it was essential for FDA to provide additional clarity regarding this term. The final guidance defines patient harm “as physical injury or damage to the health of patients, including death. Risks to health posed by the device may result in patient harm.”

• FDA added a new Section IX to detail what it means to actively participate in an Information Sharing Analysis Organization (ISAO). ISAOs are public-private partnerships that, according to the guidance, “gather and analyze critical infrastructure information in order to better understand cybersecurity problems and interdependencies, communicate or disclose critical infrastructure information to help prevent, detect, mitigate, or recover from the effects of cyber threats, or voluntarily disseminate critical infrastructure information to its members or others involved in the detection and response to cybersecurity issues.” Both the draft and final guidances state, “the Agency considers voluntary participation in an ISAO a critical component of a medical device manufacturer’s comprehensive proactive approach to management of postmarket cybersecurity threats and vulnerabilities and a significant step towards assuring the ongoing safety and effectiveness of marketed medical devices.”

• FDA expanded the scope to expressly include mobile medical applications (MMAs). MMAs could have been inferred from the original scope which included all devices.

• Both the draft and final state that software changes made to strengthen cybersecurity are not typically subject to Part 806 recall reporting requirements so long as they meet certain criteria. One such criteria in the draft guidance required implementing device changes and compensating controls within 30 days of becoming aware of the cybersecurity vulnerability. The final guidance modified this requirement to be that as soon as possible, but no later than 30 days after becoming aware of the cybersecurity vulnerability, a manufacturer must “communicate with . . . customers and user community regarding the vulnerability, identify interim compensating controls, and develop a remediation plan to bring the residual risk to an acceptable level.” The final guidance adds several other requirements regarding this process and timing.

• The final guidance adds that upgrades to increase confidentiality protection (i.e., cybersecurity) are also not generally subject to Part 806 reporting.

• Both the draft and final guidances indicate that routine cybersecurity updates and patches will not generally require premarket review. The final guidance adds, however, that cybersecurity routine updates and patches could change other functionality of the device, and therefore must be assessed to determine whether premarket review is required.

• One of the recommendations in the draft and final guidance for remediating a cybersecurity threat is to “identify and implement compensating controls to adequately mitigate the cybersecurity vulnerability risk.” The final guidance notes that manufacturers should consider the knowledge and expertise necessary to properly implement the recommended control.

• The final guidance adds a new section titled “Examples of Vulnerabilities Associated with Controlled Risk and their Management.” In this section FDA provides four examples of instances in which a device manufacturer becomes aware of a cybersecurity vulnerability after a device has been commercialized. The examples describe the manufacturer’s evaluation as to whether the risk of patient harm is controlled or uncontrolled and the manufacturer’s response. In all three examples, the risk of patient harm is controlled, and consequently, the resulting routine update or patch to address the cybersecurity vulnerability does not need to be reported to FDA. While these examples are helpful, there are no corresponding examples of when the risk is uncontrolled and reporting under Part 806 would be required.

• In assessing uncontrolled risk, the final guidance states that “manufacturers should consider the exploitability of the vulnerability and the severity of patient harm if exploited.”

This list of some of the most significant changes in the final guidance highlights a key point we made in our post on the draft guidance: this guidance imposes significant new requirements on manufacturers of devices with potential cybersecurity vulnerabilities. For legacy products, manufacturers may need to consider cybersecurity vulnerability for the first time in its product’s life cycle. This can be a daunting task. However, like the draft guidance, the final guidance provides no additional information as to how FDA plans to enforce the recommendations set out in this guidance. Thus, only time will tell how (or if) FDA will choose to enforce the need for cybersecurity in medical devices in the postmarket setting.

On December 21, FDA announced the availability of a draft guidance for lead levels in cosmetics. As further described in that draft guidance, FDA has concluded that use of lipstick and externally applied cosmetics that meet the recommended maximum lead level of 10 ppm would not pose a public health risk. The 10 ppm level is consistent with international levels.

The draft guidance is in response to a June 2011 Citizen Petition (Docket No. FDA-2011-P-0458) submitted by the Personal Care Products Council (PCPC).  Congress repeatedly had directed FDA to respond to the Petition. Apparently, the delay in response was (at least partly) due to FDA’s research regarding lead levels in cosmetics and the health effects of these levels. FDA published “supporting documents” that present the details of FDA’s research, the scientific and legal background, and the Agency’s rationale for the recommended maximum level of 10 ppm.

Prior to 2011, FDA analyzed the lead content of more than 400 cosmetic lip products and updated its webpage regarding lead levels in lipstick and other cosmetics. Since then (presumably in response to the Citizen Petition), the Agency conducted two additional surveys of lip products and two surveys of externally applied cosmetics, including eye shadows and body lotions. All in all, the surveys provided results for lead content in 685 cosmetic lipand externally applied cosmetic products.  In all but four externally applied cosmetics, the lead level was below 10 ppm. After completing testing of cosmetics products and an exposure analysis (also described in detail in the supporting documents), FDA is granting the petition.

FDA stresses that this limit concerns the lead that is unavoidable despite adherence to good manufacturing practice and appropriate sourcing of raw materials. Companies are encouraged to keep the levels as low as possible. Moreover, FDA will take enforcement action against products that contain lead levels that may harm consumers.

Comments on the draft guidance may be submitted any time, but to be considered in finalizing the guidance, they should be submitted by February 21, 2017.

Our firm has previously posted some summaries of the 21st Century Cures Act (Cures Act), which the President signed into law on December 13, 2016 (Public Law No. 114-255). (Those summaries are available here, here, and here.)

This post focuses on only one section of the new law: Section 3060, “Clarifying Medical Software Regulation.” We covered the basics of Section 3060 in our prior summary, but thought it would be worthwhile to delve a little further in a separate post.

Section 3060 amends the Food, Drug, and Cosmetic Act (FDCA) to exclude from the definition of a “device” software intended:

(A) “for administrative support of a health care facility, including the processing and maintenance of financial records, claims or billing information, appointment schedules, business analytics, information about patient populations, admissions, practice and inventory management, analysis of historical claims data to predict future utilization or cost-effectiveness, determination of health benefit eligibility, population health management, and laboratory workflow;”

(B) “for maintaining or encouraging a healthy lifestyle and is unrelated to the diagnosis, cure, mitigation, prevention, or treatment of a disease or condition;” and

(C) “to serve as electronic patient records, including patient-provided information, to the extent that such records are intended to transfer, store, convert formats, or display the equivalent of a paper medical chart, so long as” such records “were created, stored, transferred, or reviewed by health care professionals, or by individuals working under supervision of such professionals” and the software “is not intended to interpret or analyze patient records, including medical image data, for the purpose of the diagnosis, cure, mitigation, prevention, or treatment of a disease or condition.”

The exclusion of the above classes of software from the FDC Act should not be controversial. Category A are obviously not medical devices. Categories B and C are arguable, but FDA has said already that, even if these types of software fall within the definition of a medical device, as a matter of agency enforcement discretion, FDA does not intend to regulate them. Now Congress has taken them off the table altogether.

The fourth exclusion provided in the Cures Act is software intended:

(D) “for transferring, storing, converting formats, or displaying clinical laboratory test or other device data and results, findings by a health care professional with respect to such data and results, general information about such findings, and general background information about such laboratory test or other device,” unless the software “is intended to interpret or analyze clinical laboratory test or other device data, results, and findings.”

Category D above appears to include products meeting the definition of either a medical device data system (MDDS) or a laboratory information system (LIS). FDA has previously announced it is exercising enforcement discretion not to regulate MMDS; this provision codifies that position. FDA currently regulates LIS as 510(k)‑exempt Class I devices under 21 C.F.R. § 862.2100, product code NVV. An LIS is “intended to store, retrieve, and process laboratory data.” FDA has continued to apply the quality system regulation (QSR) to these devices. Under the exclusion above, LIS products will now not be subject to the QSR or any other regulatory requirements at all.

The last type of software excluded from the definition of a device is software intended:

(E) unless the function is intended to acquire, process, or analyze a medical image or a signal from an in vitro diagnostic device or a pattern or signal from a signal acquisition system, for the purpose of –

(i) displaying, analyzing, or printing medical information about a patient or other medical information (such as peer-reviewed clinical studies and clinical practice guidelines);

(ii) supporting or providing recommendations to a health care professional about prevention, diagnosis, or treatment of a disease or condition; and

(iii) enabling such health care professional to independently review the basis for such recommendations that such software presents so that it is not the intent that such health care professional rely primarily on any of such recommendations to make a clinical diagnosis or treatment decision regarding an individual patient.

The software described in the above provision is commonly known as “clinical decision support software” (CDSS). It is well known that FDA has been mulling CDSS guidance for the past few years. However, it has never issued draft guidance. The closest FDA has come is the Mobile Medical Apps guidance (Feb. 2015), which classifies mobile apps as medical devices if they perform “patient‑specific analysis and provid[e] patient-specific diagnosis, or treatment recommendations.” This statement suggests that FDA intended to regulate CDSS. However, it is possible that the CDSS guidance, had it been issued, would have walked that position back to some extent. In any event, Section 3060 resolves the status of CDSS more definitively than FDA guidance could have, by excluding CDSS from the definition of a medical device altogether.

The application of the definition in Category E will not always be self‑evident. There are questions about what it means for a health care professional to “independently review” the basis for software recommendations. Surely it does not require that the health care professional understand how the software reached a recommendation at the level of software coding and algorithms. It would be more reasonable to infer that the software must provide a sufficient level of transparency to allow a health care professional to discern the clinical basis of a recommendation. How exactly that must be accomplished will have to be worked out by FDA in guidance and administration and implementation of the statute.

In many cases, it may be sufficient for the software to provide links to the underlying clinical literature or guidelines. But what if the software uses “big data” from hospital records to derive recommendations for a patient? What information must the health care professional be given? And may the recommendations have confidence levels attached, if they are worked out with complicated probabilistic analysis? If so, what must be said about how the confidence levels are derived or should be used?

Another question is how the intended use environment factors in. For example, healthcare professionals have different levels of training and expertise. One of the benefits of CDSS is to encode the expertise of the best trained and most experienced doctors and make it available to other doctors. Yet, the latter are likely to rely more heavily on the software recommendations than would the best trained and most experienced doctors. Does that bring the CDSS under FDA regulation? FDA has long been prohibited under the statute from restricting devices to particular classes of health care practitioners based upon training or experience (see FDCA § 520(e)). However, the question here is whether the software is or is not to be regulated as a medical device. Therefore, it is not so clear that FDA may not make distinctions among the health care practitioners for whom the CDSS is intended when determining if it is regulated.

There is one more aspect of Category E we have not discussed. The clause that begins “unless the function is intended to acquire, process, or analyze a medical image or a signal from an in vitro diagnostic device or a pattern or signal from a signal acquisition system” designates software products that are excluded from Category E and will continue to be fully FDA regulated as medical devices.

Had this clause not been included, one could argue that computer‑assisted detection or diagnostic (CAD) devices that analyze image data (e.g., identifying suspicious lesions in a CT scan) and in vitro diagnostic devices are a type of CDSS. Nonetheless, FDA has a long history of regulating these types of devices. This language ensures that FDA will continue to do so.

Section 3060 also gives FDA authority to bring some excluded CDSS software back under its jurisdiction. FDA may bring software described in Categories C, D, or E, above, back under its jurisdiction if it makes certain findings regarding: (1) the likelihood and severity of patient harm if the software does not perform as intended, (2) the extent to which the software is intended to support the clinical judgment of a health care professional, (3) whether there is a reasonable opportunity for a health care professional to review the basis of the information or treatment recommendation, and (4) the intended user and use environment.

For FDA to determine that software excluded from the device definition should in fact be regulated, FDA must publish a notification and proposed order in the Federal Register, and must include its rationale and evidence on which it is relying for the conclusion that such software should be regulated. The notice must allow for at least 30 days of public comment before issuing a final order or withdrawing the proposed order.

Section 3060 requires the Secretary of Health and Human Services to publish a report, within two years of enactment of the Cures Act and every two years thereafter, that includes input from industry, consumers, patients, health plans, and other “stakeholders with relevant expertise.” The report must include information about any risks and benefits associated with the software functions provided in the Cures Act, and “summarizes findings regarding the impact of such software functions on patient safety, including best practices to promote safety, education, and competency related to such function.” Time will tell how this information may be used to further modify FDA’s authority over software.

For now, the software exclusions in Section 3060 of the Cures Act are welcome news to an industry that has been struggling with the question of whether its products are subject to FDA regulation, particularly in the area of CDSS. The new clarity will allow innovative software developers to move forward with greater confidence as to whether a product will or will not be regulated by FDA as a medical device.

In June 2016 CDRH released the draft guidance “Factors to Consider Regarding Benefit-Risk in Medical Device Product Availability, Compliance, Enforcement Decisions” (see our earlier post here). In the waning days of 2016, CDRH finalized the guidance.

The final guidance is largely unchanged from the draft with CDRH making mostly minor clarifying changes. A few of these changes are noteworthy, including:

• Clarifying that manufacturers wishing to provide relevant risk-benefit information, including data and calculations, should contact FDA or provide it to the FDA contact person for the matter.
• Noting that the guidance is adopting the definitions for serious injury and malfunction from 21 C.F.R. Part 803.
• Adding further information regarding how the Agency will assess uncertainty, one of the factors considered as part of the overall benefit-risk assessment. The added language focuses on the real-world data being assessed, including its type, the degree to which it is representative of the intended use population, and statistical inferences and limitations.

Finally, CDRH also added one new example of a benefit-risk assessment in the hypotheticals section of the guidance. This additional hypothetical is a situation in which a marketed OTC pregnancy test is found to have a higher rate of false positive results than expected based on data submitted in the 510(k).  CDRH reviewed the benefits, risks, patient tolerance for risk, mitigation, and patient impact, and concluded that, given the number of other similar products on the market, and the possibility that a false positive could delay certain medically necessary treatments, the risks of continuing to make the affected lots available outweighed any potential benefits.  In the hypothetical, the manufacturer notified retailers and distributors to remove the affected lots, and FDA classified that removal as a Class II recall.

Both the draft and final guidances state, almost in passing, that FDA intends to use pilots “to help determine how to apply the benefit-risk framework described” in the guidance. There is no further discussion of what these pilots will include, when they will be conducted, whether the public will have any input, or whether FDA will provide the results of the pilots to the public. It would be very useful to industry for FDA to publish the results of these initial pilot cases to further allow the public to see how CDRH plans to implement the guidance. The information could be published in an anonymized fashion as to protect the companies with whom CDRH is working.  Even if it does not give industry any further information, it is clear that any company facing an enforcement action or a potentially significant product shortage situation due to a recall should contact CDRH and make as strong a case as it can for enforcement discretion based on the factors laid out in the final guidance.

Week 52 is often more laid back than any of the other 51 weeks in the calendar year. It offers us a chance to sift through and clean out the office in preparation for yet another busy year.  But it’s also a chance for this blogger to catch up on some pleasure reading – you know, Citizen Petitions, FDA letter decisions, NDA Approval Packages, and law review and other similar academic articles on food and drug law – with my album of the year (“Subway Gawdz” by Too Many Zooz) in the iTunes playlist rotation.  If you too have a few minutes to spare this week, then below is a list of food and drug law-related articles (including an abstract of each article) that we think are worth a read.  Although we may not agree with some of the positions staked out in some of the articles, good research and writing is always appreciated and a pleasure to read.  Happy reading!

Empirical Evidence of Drug Pricing Games – A Citizen’s Pathway Gone Astray
Robin Feldman, Evan Frondorf, and Andrew K. Cordova
University of California Hastings College of the Law

The FDA’s citizen petition process was created in the 1970s as part of an effort to fashion more participatory regimes, in which ordinary citizens could access the administrative process. The theoretical underpinnings hypothesize that a participatory structure will prevent regulatory agencies from being captured by the very industries they were intended to police. Anecdotal evidence suggests, however, that the FDA’s citizen petition process may have taken a different turn. This empirical study explores whether pharmaceutical companies are systematically using citizen petitions to try to delay the approval of generic competitors. Delaying generic entry of a drug — even by a few months — can be worth hundreds of millions of dollars of additional revenue, a cost ultimately born by consumers and government agencies in the form of high drug prices.

The study results provide empirical evidence that the citizen petition process at the FDA has now become a key avenue for strategic behavior by pharmaceutical companies to delay entry of generic competition It is a far cry from the “participatory citizen” notion that fueled the creation of such avenues at regulatory agencies. The article concludes by examining the nature of the problem and exploring the feasibility of three types of approaches to curb the behavior. These include: 1) a simple prohibition, if one were to conclude that most behavior in the category is likely to be inappropriate; 2) procedural blocks to ensure that the behavior cannot create sub-optimal results; or 3) punitive measures as a deterrent.

The Law of 180-Day Exclusivity
Erika Fisher Lietzan, University of Missouri School of Law
Julia Post, Covington & Burling LLP

In 1984, Congress created a statutory pathway for approval of generic drug applications and included an incentive for generic applicants to challenge the patents claiming the reference drugs on which they based their applications. The first generic applicant to file an ANDA with a patent challenge is eligible for 180 days of generic market exclusivity. This article is the fourth in a series of articles describing the resulting body of law, as interpreted and applied by FDA (in regulations, guidances, citizen petition responses, and individual decisions awarding and denying exclusivity) and the courts. The heart of the article is section II, which discusses a series of twenty-eight discrete interpretive issues, arranged in five categories: which rules apply, earning exclusivity, forfeiture of exclusivity, commencing the exclusivity term, and enjoyment (use) of the exclusivity term. It devotes considerable attention to developments since 2009 (our last article): new issues that have arisen relating to 180–day exclusivity generally, such as premature notice of paragraph IV certification, as well as the body of law emerging around the forfeiture provisions enacted in 2003. Section III briefly discusses three policy issue arising out of the 180–day exclusivity scheme: the impact of the scheme on subsequent generic applicants, the relationship between the scheme and patent settlements, and authorized generics — noting key judicial, legislative, and academic commentary on each. The Article concludes with a discussion of recent and pending legislative proposals that indirectly or directly address 180–day exclusivity and notes the exclusivity for interchangeable biologics that was modeled, in part, on the generic drug precedent.

Regulatory Property: The New IP
Robin Feldman
University of California Hastings College of the Law

For thirty years, a new form of intellectual property has grown up quietly beneath the surface of societal observation. It is a set of government-granted rights that have the quintessential characteristic of intellectual property and other forms of property — that is, the right to exclude others from the territory.

The impact of this form of IP on the US health care system, in particular, is enormous. In 2014, more than 40% of all new drugs approved by the FDA came through just one of these portals, with the companies collecting regulatory property rights along the way.

Some forms of this regulatory property are quasi-patent. Other forms are quasi-trade secret. Finally, some forms of this regulatory property are more like pure personal property, in that these benefits can be sold or traded on the open market. Sprawling and incremental, the system has grown by accretion as various groups have succeeded in making good arguments that they, too, should have a benefit. When accidental property combines with a system that is largely hidden from view, the danger is great.

Treating regulatory property in its rightful place among the pantheon of intellectual property rights allows appropriate analysis of the interactions among these powerful forces. It isn’t just a matter of labelling these phenomena as forms of property. It is a matter of understanding and making sense out of them as a coherent whole, as well as making sense of how they interact with other types of rights to exclude, such as patent and trade secret.

The Myths of Data Exclusivity
Erika Fisher Lietzan
University of Missouri School of Law

This article contributes to an ongoing academic and public policy dialogue over whether and on what terms U.S. law should provide “data exclusivity” for new medicines. Five years after a new drug has been approved on the basis of an extensive application that may have cost more than one billion dollars to generate, federal law permits submission of a much smaller application to market a duplicate version of the drug. This second application is a different type of application, and it may cost no more than a few million dollars to prepare. A similar sequence is true for biological medicines: twelve years after approval of an application that may have cost over one billion dollars to generate, the law permits approval of a smaller and less expensive application for a duplicate. Scholars, courts, and policymakers use the phrase “data exclusivity” to describe the period before the new pathway opens – a nod to the fact that applications of the second type rely on the research submitted by the first entrant. The primary “myth” of data exclusivity is that it is a benefit provided by the government for the benefit of first entrants. This article reframes data exclusivity instead as a period of time during which all firms are subject to the same rules governing market entry. It uses this insight as the foundation for an exploration of the complex web of legal, regulatory, and practical factors that may influence whether and on what terms firms enter the market with duplicates during and after that period, and for a systematic comparison of the new drug exclusivity and biological product exclusivity schemes in order to propose an approach that could prompt strategic decisions – both during and after that period – that will contribute to dynamic social welfare.

The Uncharted Waters of Competition and Innovation in Biological Medicines
Erika Fisher Lietzan
University of Missouri School of Law

Six years ago, Congress fundamentally changed how federal law encourages the discovery and development of certain new medicines and for the first time authorized less expensive “duplicates” of these medicines to be approved and compete in the marketplace. The medicines at issue are biological medicines, generally made from, or grown in, living systems. Many of the world’s most important and most expensive medicines for serious and life–threatening diseases are biological medicines.

We have a profound interest in understanding and evaluating the impact of this legislation on innovation and competition. Scholars and courts considering this question may be tempted to reason from, or analogize to, experience with generic drugs. And the 2010 biosimilar law was similar to the 1984 generic drug statute in basic purpose and structure. But the biologic framework as a whole — the complete landscape within which innovation and competition in biological medicines take place — is profoundly different from anything that scholars and courts have seen before.

This Article is the first to offer a high level description of the framework organized around the characteristics that define it and distinguish it from the conventional drug framework. It argues that unlike the drug framework, the framework for competition and innovation in biologics is variable and dynamic. And it argues that biologic framework separates and distinguishes patents, both conceptually and functionally, from the regulatory paradigm. As a result, although scholars and policymakers focusing on innovation incentives and competitive behavior with respect to medicines have decades of experience with the generic drug paradigm, there is a meaningful risk that this experience is mostly irrelevant when it comes to biologics. This article provides the basis for understanding both the specific differences and broader thematic divergence at play in the biologic paradigm.

Citizen Petitions: Long, Late-Filed, and At-Last Denied
Michael A. Carrier & Carl J. Minniti III, Rutgers Law School

The pharmaceutical industry is ground zero for many of the most challenging issues at the intersection of antitrust and intellectual property (IP) law. It also presents a complex regulatory regime that is ripe for anticompetitive behavior. It thus should not be a surprise that the industry has been subject to rigorous antitrust scrutiny in recent years.

While settlements between brand and generic firms and “product hopping” from one version of a drug to another have received attention, one behavior has avoided serious scrutiny. Brand firms’ filing of citizen petitions with the U.S. Food and Drug Administration (FDA) has almost entirely slipped beneath the radar. While citizen petitions in theory could raise concerns that a drug is unsafe, in practice they bear a dangerous potential to extend brand monopolies by delaying approval of generics, at a potential cost of millions of dollars per day.

This Article offers an empirical study of “505(q)” citizen petitions, which ask the FDA to take specific action against a pending generic application. It analyzes every 505(q) petition filed with the FDA between 2011 and 2015, documenting (1) the number of petitions each year, (2) who files the petitions, (3) the success rate of the petitions, (4) the petitions’ length, (5) whether petitions were filed in close proximity to the expiration of a patent or data exclusivity date, and (6) occasions in which the FDA approved generics on the same day it decided petitions.

The study finds that brand firms file 92% of 505(q) petitions. And it concludes that the FDA grants an astonishingly low 8% of petitions, rejecting a full 92%. Why is the grant rate so low? We consider several reasons. First, in the past 5 years, the average length of petitions has more than doubled, and the FDA almost never grants petitions with a length above the mean. Second, 39% of petitions are filed within 6 months of the expiration of a patent or FDA exclusivity date, with almost all of these petitions denied. Third, the FDA resolved a number of petitions on the same day it approved the generic, likely delaying generic entry. These three settings result in grants of only 3%, 2%, and 0%, respectively.

The Article concludes by offering examples of serial petitions, late-filed petitions, and a combination of petitions with other behavior such as product-hopping and settlements. In short, citizen petitions represent a hidden tool in brands’ toolkit of entry-delaying activity, and when used inappropriately force consumers to pay high drug prices while providing no offsetting safety benefit.

Memo To The President: The Pharmaceutical Monopoly Adjustment Act Of 2017
Alfred Engelberg

Since 1980, Congress has enacted many laws granting pharmaceutical manufacturers monopolies that no other industry enjoys. These extra monopolies were created with the expectation that monopoly profits would spur greater investment in research to find important new drugs.  In fact, they have caused US consumers to pay higher prices for medicines for longer periods of time while making the pharmaceutical industry far more profitable than any other industry.  I believe the next president and Congress should take several key steps, which I outline below, to roll back these costly, unnecessary monopolies.

The Need for FDA Reform: Four Models
Adam D. Thierer & Michael Patrick Wilt
George Mason University – Mercatus Center

The Food and Drug Administration, one of the oldest regulatory agencies, is showing unfortunate signs of age, particularly in its drug and device approval process. The approval process was established with the best of intentions — namely, to keep unsafe products off the market — but it has always come at a cost in terms of delaying life-enriching, and even lifesaving, drugs and devices.

The current cumbersome approval process generates both expense and uncertainty for inventors. The slow pace of approvals from the agency imposes avoidable suffering on patients, even as the FDA falls further behind technological progress. The agency’s review process needs to undergo comprehensive reform to streamline the process so that it may keep pace with modern developments and the need for speedier drug and device approval. The most important reform is for policymakers to determine where the FDA has a comparative advantage and where the private sector can take on some of the duties that the FDA has been performing.

The consequences of failing to implement comprehensive reform will be profound for innovators and, ultimately, patients. This policy brief summarizes four models for reform proposed by scholars affiliated with the Mercatus Center at George Mason University and others which would change how medical products are brought to markets and removed from markets by creating a process to adapt to technological growth and consumer demand in the 21st century.

A Second Look at the CREATES Act: What’s Not Being Said
Erika Fisher Lietzan
University of Missouri School of Law

The recently introduced CREATES Act would require innovative drug companies to sell their products to their competitors, and it would also require these companies to share with these same competitors the use and distribution arrangements they developed to manage the risks of the products. Supporters describe the bill as the latest remedy for the “regulatory abuse” and “predatory delay tactics” of the innovating pharmaceutical companies and thus part of a broader program to address high drug prices. Earlier proposals relating generally to the same topic, but differing in approach, were introduced in 2014 and 2015 but failed to move forward. Several recent drug pricing controversies have placed the pharmaceutical industry in the spotlight, however, and momentum for the proposal has picked up.

This brief article offers important additional context for understanding the proposal by laying out some of the things that are not being said — about use and distribution restrictions associated with new medicines, about the underlying complaints from the generics industry, and about the design and likely effect of the bill. The first part explains pharmaceutical risk management and FDA’s decades–old practice of requiring use and distribution restrictions for certain drugs to manage risk. The second part critically assesses the complaints levied against the research–based companies and the proposals offered to address those complaints. The final part explores the possible practical effects of the proposed legislation and broader implications for innovation policy.

Drug Shortages, Pricing, and Regulatory Activity
Christopher Stomberg
University of California, San Diego – Department of Economics

This study examines the patterns and causes of shortages in generic non-injectable drugs (e.g., tablets and topicals) in the United States. While shortages for injectable drugs have garnered more attention, shortages of other forms of prescription drugs have also been on the increase. In fact, they follow a strikingly similar trend with a number of important tablet drugs having recently been affected by shortage. This poses important questions about the root causes of these trends since most explanations found in the literature are specific to generic injectable drugs. Using a simple heuristic framework, three contributing factors are explored: regulatory oversight, potential market failures in pricing/reimbursement, and competition. This paper features an empirical examination of the contribution of changes in regulatory oversight to drug shortages. A pooled dynamic regression model using FDA data on inspections and citations reveals a statistically significant relationship between FDA regulatory activity (inspections and citations) and drug shortage rates. This result cuts across both injectable and non-injectable drugs, and could reveal a transition in equilibrium quality that should be transitory in nature, but it should also be interpreted with care given the other factors likely affecting shortage rates.

Pharmaceutical Antitrust: What the Trump Administration Can Do
Michael A. Carrier Rutgers Law School

Drug prices are in the news. “Pharma Bro” Martin Shkreli increased the price of Daraprim, a treatment for fatal parasitic infections, by 5000%. Mylan found itself on the hot seat for raising the price of the anaphylaxis-treating EpiPen 15 times in 7 years, resulting in a 400% increase to more than $600. Politicians rail about the harms of high drug prices.

What can the next Administration do? A lot. This article shows how — even without directly regulating price — it can use antitrust law to reduce prices by challenging an array of anticompetitive behavior. It can target settlements by which brand drug firms pay generics to delay entering the market. It can go after “product hopping,” by which a brand firm switches from one version of a drug to another to forestall generic competition. It can target distribution restrictions that brands have instituted to block generics. And it can challenge other conduct in the industry.

In short, antitrust law has a vital role to play. Antitrust is about competition, which lowers prices and increases choice. Consumers in the pharmaceutical industry suffer harms as directly in this setting as anywhere. High drug prices have resulted in patients not being able to take vital medicines or splitting pills in half. To add insult to injury, this anticompetitive behavior typically is not justified based on innovation or patents. The agencies in the next Administration have important tasks ahead of them in targeting conduct in the pharmaceutical industry.

The Scope of Preemption under the 2009 Family Smoking Prevention and Tobacco Control Act
Sam Halabi, University of Missouri School of Law

The 2009 Family Smoking Prevention and Tobacco Control Act endeavored to alter the regulatory regime for tobacco products in the United States by allocating authority to regulate tobacco products to the U.S. Food and Drug Administration (FDA). While the law aims at greater transparency in the constituent components of cigarettes and non-combustible tobacco products, it also includes a provision which will bring FDA’s consumer protection and tobacco control mandates into tension: Section 911’s process for the approval of modified risk tobacco products. That provision allows tobacco manufacturers to submit applications to label products as “reduc[ing] the harm or the risk of tobacco-related disease associated with commercially marketed tobacco products.” As public health researchers have noted, Section 911 threatens to codify and authorize long-standing industry practices of asserting or implying health-promotion or harm-limiting claims that are in fact intended and shown to have precisely the opposite outcome including most recently the use of descriptors like “mild”, “light”, “ultra-light” and “low.”

In 2014, FDA opened a comment period for the first modified risk tobacco product produced by Swedish Match as part of a joint venture with Philip Morris. One of the most effective ways of policing industry use of modified-risk tobacco labeling is product liability claims based on state common law torts. Section 916 of the Tobacco Control Act provides an ambiguously phrased preemption provision which will implicate the reach of Article VI preemption for FDA-approved products. This article is the first to analyze the heretofore unanswered question: what is the scope of constitutional preemption when Section 911 (modified risk tobacco products) and Section 916 (preemption of state law) are read together against the broader background of U.S. Supreme Court precedent that will shape that inquiry? Tobacco consumers will inevitably use state law causes of action to allege that the content of tobacco manufacturers’ modified risk claims are misleading, that modified risk claims extend use of non-modified risk claim products, and that modified risk tobacco products are used to shape risk perception across other product lines. At stake in answering the preemption question correctly is how the tobacco industry may use Section 911 to continue historical practices with FDA’s approval and the public health implications of doing so as well as the broader relationship between the 2009 Act and state law as FDA and federal courts shape the law’s implementation.

It’s been a couple of months since the dust has settled from FDA’s October 26, 2016 approval of Mylan Pharmaceuticals Inc.’s (“Mylan’s”) ANDA 078276 for a generic version of Daiichi Sankyo Inc.’s (Daiichi’s) BENICAR (medoxomil) Tablets, 5 mg, 20 mg, and 40 mg, so we though it might be a good time take a look back on the case. What had the potential to raise an interesting dispute over the so-called “failure-to-market” 180-day exclusivity forfeiture provision at FDC Act § 505(j)(5)(D)(i)(I) based on Mylan’s Paragraph IV certification to U.S. Patent No. 6,878,703 (“the ‘703 patent”) – see our previous post here – never materialized.  Instead, an issue concerning pediatric exclusivity applicable to U.S. Patent No. 5,616,599 (“the ‘599 patent”) listed in the Orange Book for BENICAR cropped up just before FDA was poised to take an approval action and became the defining exclusivity issue in the case.  We’ve previoulsy discussed the power of pediatric exclusivity (see our previous post here).  FDA’s October 26, 2016 approval of Mylan ANDA 078276 puts into action an FDA interpretation that makes it even more powerful (if just by a single day), and an interpretation we raised back in 2010 (see our previous post here).

The ‘599 patent expired on April 25, 2016, but was subject to a period of pediatric exclusivity that expired on October 25, 2016. The ‘703 patent expires on November 19, 2021, and is also subject to pediatric exclusivity that expires on May 19, 2022.  Mylan ANDA 078276 contained a Paragraph III certification to the ‘599 patent (which converted to a Paragraph II certification once the patent expired), and a Paragraph IV certification to the ‘703 patent (which, we note for completeness, is identified in the Orange Book as being subject to a request for delisting).

In September 2016, Daiichi filed a motion in U.S. District Court for the District of New Jersey seeking clarification of an August 6, 2009 Final Judgment enjoining Mylan from making, using, and selling its generic olmesartan medoxomil drug products until the expiration the ‘599 patent and “all extensions” thereof. The August 2009 Final Judgment doesn’t identify the precise date when Mylan would be free to market generic.  According to Daiichi, however, that date should be October 26, 2016, which is the day after expiration of pediatric exclusivity applicable to the ‘599 patent expires:

[Daiichi] ask[s] this Court to resolve a dispute between them and [Mylan] over when, consistent with the Judgment entered herein on August 6, 2009 (D.I. 143), Mylan can begin marketing its generic versions of Daiichi Sankyo’s patented olmesartan medoxomil blood pressure medicines BENICAR®, BENICAR HCT® and AZOR® (collectively, “the olmesartan medoxomil products”). The dispute is over one day—October 25, 2016, as Mylan contends, or October 26, as Daiichi Sankyo contends.  But it is significant, as North American sales of Daiichi Sankyo’s olmesartan medoxomil products average over $2.2 million per day.

Mylan opposed Daiichi’s motion and argued that:

Daiichi is wrong about the “one day.” Because patents are in effect from midnight on the day they issue, they expire at the stroke of midnight on the day of expiration—i.e., at the very start of the day.  Because Daiichi’s patent expired at the stroke of midnight on April 25, Daiichi’s Pediatric Exclusivity period will expire at the stroke of midnight on October 25. . . .  In other words, FDA’s approval becomes effective at that moment the calendar rolls over from October 24 to October 25, and marketing can commence immediately at that time.  Daiichi may not double count the issuance day of its patent by adding it on to the end of the term to extend its statutory monopoly, even by a single day.

Various briefs and letters filed in connection with the pediatric exclusivity issue are available here, here, here, here, and here.

The New Jersey District Court denied Daiichi’s motion for clarification on October 20, 2016, saying that Daiichi improperly employed Federal Rule of Civil Procedure 60(a) in an effort to fundamentally alter the Judgment.  In a footnote, the court also deferred to FDA on the question of pediatric exclusivity: “The question of whether Daiichi Sankyo’s pediatric exclusivity expires on October 25 or 26, 2016, is a question for the FDA to answer.  It has never been before the Court in this case and is wholly improper for the Court to consider under a Rule 60(a) motion.”

FDA’s decision on the matter is apparent in the Agency’s October 26, 2016 approval of Mylan ANDA 078276 instead of an October 25, 2016 approval. There, FDA interprets the phrase “after the date the patent expires” at FDC Act § 505A(b)(1)(B) to mean that ANDA (and 505(b)(2) NDA) approval cannot occur until the day after the expiration date identified in the Orange Book. But FDA hasn’t always interpreted pediatric exclusivity applicable to a patent in this manner.  It’s a relatively new FDA interpretation of the FDC Act, and one that has only been implemented by FDA in the past (approximately) six months.

In an October 25, 2016 presentation given at the Generic Pharmaceutical Association’s Fall Technical Conference (yes, we recognize the irony in the date of the presentation), FDA’s Office of Generic Drugs announced (Slide 25) that “ANDA approval [is] permissible [on the] day after expiration of pediatric exclusivity pursuant to section 505A(b)(1)(B)(ii) of the FD&C Act.” FDA points to the Agency’s January 25, 2015 denial of a Citizen Petition (Docket No. FDA-2012-P-0661) concerning calculation of the start of the 30-month period in which an ANDA holder must obtain tentative approval or risk forfeiture of 180-day exclusivity as proof of this interpretation (see our previous posts here, here, and here).  There, in footnote 20, FDA cites various courts that have considered the term “after” in the Hatch-Waxman context and that have concluded that the relevant period begins the day after a particular trigger event.  Here’s FDA’s support for that proposition:

See Janssen Pharmaceutica, N.V. v. Apotex, Inc., 540 F.3d 1353, 1360 (Fed. Cir. 2008) (interpreting pre-MMA section 505(j)(5)(B)(iv)(II) of the FD&C Act (subsequent AND As approvable “one hundred and eighty days after the date” of notice of first commercial marketing) to permit marketing on “181 days after” after first-filer marketing); Caraco Pharm. Labs., Ltd. v. Forest Labs., Ltd., 527 F.3d 1278, 1284 (Fed. Cir. 2008) (same); Altana PharmaAG v. Teva Pharms. USA Inc., no. 04-2355, 2010 U.S. Dist. LEXIS, at *11-12 (D.N.J. Aug. 13, 2010) (ANDA approval permissible day after expiration of pediatric exclusivity pursuant to section 505A(b)(I )(B)(ii) of the FD&C Act (which provides that ANDA approval not permissible until “six months after date the patent expires”)); Takeda Pharm. Co. Ltd. v. Teva Pharms. USA, Inc., no. 06-0033, 2009 U.S. Dist. LEXIS 105324, at *7-8 (D. Del. Nov. 9, 2009) (same). See also Scott v. U.S. Veteran’s Admin., 929 F.2d 146, 147 (5th Cir. 1991) (upholding like interpretation of analogous language in 28 U.S.C. 2401(b), which provides that “a tort claim against the United States shall be forever barred . . . unless action is begun within six months after the date of mailing, by certified or registered mail, of notice of final denial of the claim by the agency to which it was presented”) (emphasis added); Santiago v. U.S., 2004 WL 758196, at *1-*2 (E.D.N.Y. 2004) (same).

So, for those companies out there with pending ANDAs and 505(b)(2) NDAs containing a Paragraph III certification that converts to a Paragraph II certification upon patent expiration, and to which a period of pediatric exclusivity applies, don’t forget to take into consideration that FDA approval will not occur until the day (or the next business day) after the date identified in the Orange Book when pediatric exclusivity expires.

Approximately one year ago, on New Years Eve, FDA surprised the device industry with a draft guidance on emerging postmarket device signals (see our post on the draft guidance here). On December 14, FDA issued the final guidance document: Public Notification of Emerging Postmarket Device Signals (“Emerging Signals”). FDA has made significant changes to the draft guidance, including a modified definition of “emerging signal,” a description of the process CDRH will follow in identifying and assessing emerging signals, and the prospect for interactions between industry and FDA as the Agency assesses emerging signals and decides whether to post a public notification announcing the emerging signal.

The guidance defines an emerging signal as “new information about a marketed medical device:

1. that supports a new causal association or a new aspect of a known association between a device and an adverse event or set of adverse events, and
2. for which the Agency has conducted an initial evaluation and determined that the information has the potential to impact patient management decisions and/or the known benefit-risk profile of the device.”

Notably, the final guidance adds to the definition that “[i]nformation that is unconfirmed, unreliable, or lacks sufficient strength of evidence is not an emerging signal.” As we noted in our post on the draft guidance, there is a significant risk with providing unconfirmed data to the public too soon, including the risk that such notification could lead to the public not using a beneficial device. This addition to the definition, therefore, represents an important, and welcome, change from the draft guidance’s definition, which stated in part that an emerging signal is information “that has not yet been fully validated or confirmed.”

The most substantial addition to the final guidance is a section which outlines the process CDRH intends to follow in evaluating “signals that support a new causal association or a new aspect of a known association between a medical device and an adverse event or set of adverse events.” The draft guidance did not include a description of this process; this section is entirely new. This process appears to be independent of and will occur prior to FDA’s assessment of whether to issue a public notification announcing an emerging signal. The guidance states that this process will typically include the following elements: (i) collection of information; (ii) interaction with impacted medical device companies; (iii) review by a multidisciplinary team of subject matter experts; (iv) stakeholder engagement; and (v) management oversight. Note: these elements are not necessarily listed in order of occurrence, as explained by the process overview described below.

In this process section, the guidance explains that FDA initially identifies potential emerging signals using information from a variety of sources, such as Medical Device Reports (MDRs), MedSun Network reports, postmarket studies, data from clinical trials or scientific literature, epidemiological research, health care claims data or registries, and inquiries or investigations from other health agencies. Once an emerging signal has been identified, a CDRH “signal management team” of multidisciplinary experts is convened.

Next, the emerging signal undergoes a “signal refinement stage,” in which CDRH “attempts to better understand” the identified adverse event or risk, including the likelihood of a causal relationship between the device and the adverse event or risk. CDRH will conduct a preliminary assessment to determine whether the issue is limited to a single device model or manufacturer or whether the issue is more widespread (e.g., across a device type). During the signal refinement stage, the Agency identifies, gathers, and evaluates additional information from other data sources. It may also consult with other stakeholders, such as clinical or scientific experts, patients, industry, or other government or regulatory agencies.

The guidance notes that the signal refinement stage will also include interactions with the affected device manufacturer(s) “unless time does not permit because of the risk of patient harm or it is not feasible, e.g., CDRH cannot reach all manufacturers.” This is an important and necessary addition. The draft guidance did not indicate that the Agency would consult with or obtain information from industry regarding emerging signals. Unfortunately, the guidance does not elaborate on FDA interactions with industry. Therefore, it is still unclear the extent to which FDA will communicate with industry and the type of information that FDA will seek or accept from affected manufacturers. Furthermore, the guidance does not elaborate on the caveat that FDA will attempt to interact with manufacturers “unless time does not permit because of the risk of patient harm.” It remains to be seen how frequently FDA will determine that “time does not permit” interaction with industry.

Finally, the signal management team will identify public health and/or regulatory actions to mitigate the risks or adverse events which led to the identification of the emerging signal. The guidance lists several “tools” the Agency may employ in attempting to mitigate the risks or adverse events, including public communication (described below), requests to manufacturers to modify product labeling (e.g., to include a new warning/precaution), development of Agency guidance documents (e.g., that relate to premarket testing or requirements), and/or ordering postmarket surveillance studies.

In regard to the public communication “tool,” the draft guidance included a list of factors that CDRH will consider in determining whether FDA should issue a public notification about an emerging signal. This list is largely unchanged in the final guidance, but FDA did include two new factors: “[t]he quality of the data or information” and the “[p]otential for patients to not receive treatments they should even in light of the new information.”

Additionally, the guidance includes the clarification that the purpose of a public notification is to give the public current information about a device which may help inform patient management decision making, but it does not mean that FDA has definitively concluded that a causal relationship exists. However, the guidance notes, in instances where FDA has not definitively concluded that a causal relationship exists, “CDRH generally does not intend to issue a public notification unless 1) credible scientific evidence supports a new causal relationship, but the Agency needs additional time to reach a more definitive conclusion . . . or 2) FDA has concluded a causal relationship exists, but the Agency needs additional time to develop recommendations . . . .”

The draft guidance permitted public notification when FDA had identified a “potentially” causal relationship between the adverse event or risk and the use of the device. The prospect that the Agency might prematurely release a public notification based on a “potentially” causal relationship, which could irreversibly affect a device’s reputation, caused us concern. Thus, we are pleased to see that the final guidance appears to reflect CDRH’s intent not to release a public notification until they are more certain of a causal relationship. We will have to wait and see, however, how much or how little information the Agency believes “supports a new causal association” in practice.

In addition, it is yet to be seen how much information FDA will share with the public regarding the information on which it relied in deciding to make its notification. For example, earlier this year, FDA issued a public notice recommending against use of screening tests for ovarian cancer. In this publication, FDA generally referred to data not supporting tests currently on the market and that relying on an unproven test could lead to a delay in treatment or unnecessary treatment. In this instance, however, there are no other options for potential early detection of ovarian cancer. Therefore, it may have been helpful to provide readers with more specifics as to the information on which FDA relied and specific instances of deaths or serious injury so that healthcare providers could more fully evaluate whether to continue to use available tests.

Regarding the process and timeline for issuing public notifications and updates to notifications, the guidance includes a new statement that, in addition to interacting with affected companies during the signal management process, FDA will “inform the impacted company or companies shortly before issuing a public notification, unless time does not permit because of the risk of patient harm or it is not feasible, e.g., CDRH is not able to reach all manufacturers.” This statement contains the same caveat as with FDA’s attempt to interact with manufacturers during the signal management process. Again, it remains to be seen how frequently CDRH will determine that “time does not permit” sending notification to companies. This addition, as with the prospect for interaction with industry during the emerging signal assessment process, is an important addition further acknowledging that FDA needs to work with industry while investigating and publishing emerging signal notices.

The guidance indicates that FDA will issue an initial notification within 30 days of receiving information generating an emerging signal. However, FDA has still not clarified how it will communicate the initial notice to the public (e.g., actively through letters/emails or passively on its website). The guidance states that “updates to the public notification should be posted to the FDA website at least twice per year,” but, as with the draft guidance, it is still possible that FDA could actively notify the public (e.g., through letters to doctors), but then only provide updated information passively by posting it on the website. Those who are initially notified of an emerging signal may not be aware of updates later posted on FDA’s website.

FDA has also added to the final guidance that it “may notify the public when FDA has completed its evaluation and determined that additional regulatory or public health actions are not required.” It is notable that this communication is possible (“may notify”), but not necessary. We would have expected stronger language if it turns out that FDA action is not required after an initial communication. Nonetheless, after issuance of an emerging signal notice, further notification from FDA, even if it says that there is no further action needed, may not be effective in repairing any damage already done to a device’s reputation.

In sum, we are happy to see that FDA has stated that unconfirmed or unreliable information will not meet the definition of an emerging signal, and that FDA has seemingly created stricter criteria for a causal relationship that would warrant a public notification. It should be reassuring to industry that FDA has added several references to communicating with manufacturers regarding emerging signals. In practice, we continue to hope that the Agency balances the need to provide up-to-date risk information to the public with the risk that the public will reduce or cease use of a beneficial device following public notification of an emerging signal.

Change is inevitable (cue David Bowie’s “Changes”). Sometimes change occurs slowly and goes (largely) unnoticed, and sometimes it comes fast and unexpected.  Sometimes change is good, and sometimes it’s not.  Change should not be confused with progress, growth or retreat, which are not inevitable, but rather optional and potential reactions to change.

We were reminded about change and the reactions to change the other day when listening to a piece on National Public Radio about how some scientists are racing to preserve climate data before January 2017 when a new administration takes the helm in the United States. That got this blogger thinking about change in FDA-world . . .  but not fast and unexpected change caused by a world-altering event.  Instead, we were reminded of change of the slow and largely unnoticed variety.   And change at FDA that isn’t particularly good for the regulated industry, and that seems to be counter to FDA’s commitment to transparency.  In fact, you might say that recent changes are part of an effort by FDA to be opaque.

The change we’re talking about concerns drug approval information. Over the past several years, we’ve noticed the slow pull-back and disappearance of drug approval information that has historically been very valuable to the regulated industry for purposes of making drug development and business decisions.

We’ll start in 2009, when FDA implemented a new information technology platform called DARRTS (Document Archiving, Reporting and Regulatory Tracking System). As we reported back then, DARRTS implementation meant the creation of a new application numbering system (i.e., the new 200,000 series application numbers).  Under that system, all NDA and ANDA submissions are numbered sequentially regardless of application type.  With that new numbering system, as well as the ability to reserve an application number well before submission, the generic drug industry lost some transparency with respect to the ability to track when an ANDA is submitted to FDA.

Despite the loss of some transparency with DARRTS implementation, folks swallowed the change. After all, when (and if) FDA posts a tentative or final ANDA approval letter, the date of application submission is provided and companies can use that information to make some initial determination on 180-day exclusivity eligibility . . . right?  Not so fast!

That was the case . . . until recently. As our friend Bob Pollock over at Lachman Consultants reported earlier this year, FDA’s Office of Generic Drugs decided (for unknown reasons) to no longer identify the date of ANDA submission in approval letters.  So instead of the first line of an approval letter stating “This is in reference to your abbreviated new drug application (ANDA) dated [DATE], submitted pursuant to section 505(j) of the Federal Food, Drug, and Cosmetic Act (FD&C Act), for [DRUG],” approval letters now state: “This is in reference to your abbreviated new drug application (ANDA), submitted pursuant to section 505(j) of the Federal Food, Drug, and Cosmetic Act (FD&C Act), for [DRUG].”

Well, at least companies can still refer back to a tentative approval letter once an ANDA is approved to help inform business decisions or to inform an analysis of 180-day exclusivity . . . right? Wrong again!

The recent transition of FDA’s Drugs@FDA database to a new platform and address brought with it some other changes. Historically, the Drugs@FDA database identified and included links to approval and tentative approval information and letters.  Now the tentative approval history of an application is erased.  If you don’t believe us, then go to the Drugs@FDA webpage and select “Drug Approval Reports by Month.” From there, select a month and “Tentative Approvals by Month.” Note the message at the top of the page: “This report lists Tentative Approvals for the selected month.  This page shows current information for the products listed.  If a submission was approved after its tentative approval, it no longer appears in this report” (emphasis in original).  In fact, not only does the tentative approval information not appear in the Drugs@FDA report, but other than a possible mention in a final approval letter, it’s gone entirely . . . . no link to the tentative approval letter or any mention of tentative approval in the database.  (One real-world example is ANDA 202653.  The final approval letter references a July 1, 2013 tentative approval letter that is neither available nor identified in the Drugs@FDA database.)  Of course, the letter is still available, but someone would have to submit a FOIA request to obtain it.

The disappearance of drug approval information is not limited to ANDA approval information. We’ve also seen information on NDA drug approval packages disappear from FDA’s website.  Take, for example, NDA 022051.  FDA initially approved NDA 022051 on April 27, 2007 for the prescription drug VERAMYST (fluticasone furoate) Nasal Spray.  On August 2, 2016, FDA approved a supplemental NDA for a prescription-to-OTC switch of the drug product (now known as FLONASE SENSIMIST).  With that change, information on FDA’s drug approval package (also known as a Summary Basis of Approval) stemming from the initial 2007 approval of NDA 022051 was removed from the Drugs@FDA website.  That’s too bad, because not only is easy access to FDA’s review documents now gone, but also FDA’s Exclusivity Determination.  (Fortunately, however, the old link still works . . .  but for how long?)

In any case, we hope this short post will cause some change of its own. Unless the regulated industry speaks up, who knows what other drug information will disappear from FDA’s website in the months and years to come.

The 21st Century Cures Act was signed into law on December 13, 2016. The Act addresses acceleration of medical product discovery, development, and delivery.  Hyman, Phelps & McNamara, P.C. ("HP&M") will hold complimentary webinars on Thursday, January 12, 2017 from 12:00-1:30 PM (Eastern) and Wednesday, January 18, 2017 from 12:00-1:30 PM (Eastern). The January 12 webinar will focus on the pharmaceutical and biologics provisions, and the January 18 webinar will focus on the device and combination products provisions.

Attendees of the first webinar will hear the significance of provisions such as:

• Potential use of real world evidence in evaluating new indications for drugs;
• The extension of priority review voucher programs;
• Patient-focused drug development; and
• A new pathway for limited population use of drugs such as antibiotics or antifungals.

Speakers for the first webinar will be Frank Sasinowski, David Clissold, and James Valentine, with Michelle Butler moderating. In 2014, Frank Sasinowski appeared on a panel before the House Energy and Commerce’s Subcommittee on Health to present testimony at the first hearing on the 21st Century Cures Initiative.  See below for a photograph from the hearing.

Attendees of the second webinar will learn about:

• New issues relating to combination products;
• Important changes to the regulation of software, including clinical decision support software;
• Changes to the humanitarian device exemption criteria; and
• Cleaning and validation requirements for reusable medical devices.

Speakers for the second webinar will be Jeff Shapiro and Allyson Mullen.

Both webinars will provide a question and answer period and attendees will have an opportunity to submit questions during the webinar. Responses to any questions that are not addressed will be available on the HP&M firm website after the webinar.

You can register for the first webinar here and the second webinar here.

Please contact Lisa Harrington at lharrington@hpm.com with any registration questions.

The meaning of product dating on foods and why companies use it (are they required to do so?) is a frequent question. With the exception of infant formula, which by regulation must include product dating, there are no federal regulations requiring product dating. (States may require product dating for certain products).

In the context of food waste, the practice of product dating comes up frequently. Why do companies include a “best by,” “sell by,” “best if used by,” “expiration date” or other similar date on their foods and is there a difference between these terms?

On December 14, 2016, the Food Safety Inspection Service (FSIS) of the USDA issued an updated guidance on food product dating. According to FSIS, the industry’s use of a variety of statements such as “Sell-by” and “Use-by” on product labels to describe quality dates is confusing to the consumer and, as a result of misunderstanding about food product dating, the consumer discards more food than necessary.

In its updated guidance, FSIS claims that research shows that a “Best if Used By” date is best understood by the consumer as a quality date. Apparently, other terms such as “sell by” are more frequently interpreted as a date by which the food must be discarded because it has become unsafe. FSIS does not provide further information about the research that forms the basis of their recommendation. In the guidance FSIS explains that dating of food, be it the “best by,” “sell by,” “best if used by” date, is based on product analysis throughout storage, tests, or other information. In this testing, the companies use the conditions of handling, storage, preparation, and use printed on the label or commonly applied.

The date on the product is not relevant if a food is mishandled, e.g., a refrigerated food has been kept at room temperature for extended time. Generally, unless the food has been mishandled, a food need not be discarded until spoilage has occurred or there are other changes in wholesomeness. In fact, according to FSIS, food can still be donated after the “best if used by” date passes. Although FSIS appears concerned about food waste due to product dating, it does not make suggestions about a more standardized approach for companies to establish the “best if used by” product date.

Comments on this updated guidance may be submitted for 60 days after publication, i.e., until February 13, 2017.

We’ve previously posted some summaries of the 21st Century Cures Act (Cures Act), which the President signed into law on December 13, 2016 (Public Law No. 114-255).  (Those summaries are available here, here, and here.)  This post focuses on only one section of the new law: Cures Act Section 3038, titled “Combination Product Innovation.”  We did not cover Section 3038 in great detail in our  prior summaries.  Instead, given the significant changes made to the law and the potentially wide-ranging effects, we knew that a stand-alone post would be necessary.

Section 3038 spans roughly 15 pages of text and revises Section 503(g) of the Federal Food, Drug, and Cosmetic Act (FDC Act) concerning the regulation of combination products.  It has a number of interesting new features.  Perhaps most striking is the importation of the FDC Act’s Hatch-Waxman provisions concerning drugs into the review of drug-device combination products.

Our summary:

1.  Definition of PMOA

Section 3038 reaffirms FDA’s task of choosing a lead center (CDER, CBER, or CDRH) to regulate combination products based upon their “primary mode of action” (PMOA).  The PMOA is “the single mode of action of a combination product expected to make the greatest contribution to the overall intended therapeutic effects of the combination product.”  FDA by regulation had already promulgated this definition of PMOA.  Section 3038 incorporates the regulatory definition essentially unchanged into the statute.

Section 3038 also directs FDA to “conduct premarket review of any combination product under a single application, whenever appropriate.”  This statutory provision is a nudge and not a change in existing law, because FDA already has this authority and often requires only a single application for a combination product.  The “whenever appropriate” qualifier plainly continues FDA’s discretion to use separate applications in appropriate situations.  21 CFR 3.4(c).

2.  Impact of Chemical Action

A new provision is the instruction to FDA that it “shall not determine” that the PMOA is “that of a drug or biological product solely because the combination product has any chemical action within or on the human body.”  Under this new directive, the presence of chemical action is insufficient by itself for the Office of Combination Products (OCP) to find that the primary mode of action is that of a drug.  It is left unexplained what additional evidence is required.  Presumably, there would need to be evidence that the chemical action makes the greatest contribution to the therapeutic effects.

Absent such evidence, presumably the OCP would revert to the portion of the algorithm in its regulations applicable to cases in which it cannot be determined with “reasonable certainty” which mode of action makes the greatest contribution.  21 CFR 3.4(b).  The algorithm requires the OCP to determine which center has regulated similar combination products or is best equipped to handle the relevant safety or effectiveness questions raised by the combination product.

If this interpretation is correct, Section 3038 seems likely to move the OCP away from more formalistic inquiry as to the presence (or absence) of chemical action and its putative role in achieving therapeutic effects, and toward a more practical inquiry as to which center is best suited to review a particular combination product.  That would be an improvement.

A similar issue sometimes arises when the OCP must determine whether a single entity product is a drug or device.  In practice, the OCP places the burden of proof on a sponsor to show that its product does not achieve its primary purposes via chemical action if any is present.  If the sponsor cannot meet this often difficult evidentiary burden, the OCP will likely classify the product as a drug.  Section 3038 does not address the regulation of single entity products.

3.  Meetings and Studies

Once a combination product is assigned to a lead center, a sponsor who disagrees may require the OCP to provide a substantive rationale and scientific evidence underlying the decision.  The provision also spells out a collaborative process by which a sponsor and the OCP are to reach agreement within 90 days on the design of proposed studies (preclinical, clinical, or both) to establish the relevance of chemical action in achieving the primary mode of action.  The OCP is then required to reconsider its decision in light of the data from such studies.

It remains to be seen how useful this provision is.  Conducting clinical studies simply to establish product jurisdiction (as opposed to demonstrating safety and efficacy) will add yet another costly burden to the approval process.  On the other hand, some products will not survive inappropriate placement in CDER.  If that occurs because of a lack of data about the role of chemical action, it may be worth trying to save them by conducting studies that would answer this question.

After a PMOA is determined, there is a new procedure for requesting a meeting with the OCP within 75 days to clarify and reach written agreement upon what standards and requirements for clearance or approval of the combination product will apply and what postmarket requirements relating to manufacturing and product modification will apply.

4.  Hatch-Waxman Rules Apply for Certain Combination Products

Section 3038 addresses the thorny issue of combination products that incorporate an already approved constituent.  For example, it is not uncommon for new devices to be invented that improve upon the delivery of approved drugs, or provide a new route of administration for otherwise approved drugs.

Under Section 3038, FDA is instructed that “[f]or purposes of conducting the premarket review of a combination product that contains an approved constituent part,” FDA “may require that the sponsor of [the] combination product submit . . . only data or information . . . necessary to meet the standard for clearance or approval, . . . including any incremental risks and benefits posed by such combination product, using a risk based approach and taking into account any prior finding of safety and effectiveness or substantial equivalence for the approved constituent.”  As a general matter, this provision should relieve sponsors of the burden re proving the basic safety or effectiveness of the approved constituent.  It allows focus on the new constituent plus the incremental risk created by a new use of the approved constituent.

But there’s a flip side to this benefit.   If a combination product has a device primary mode of action (PMOA) and the other constituent is an approved drug, then Section 3038 essentially imports the familiar panapoly of Hatch Waxman requirements applicable to 505(b)(2) NDA applicants into the device clearance and approval processes.  Here’s what new FDC Act § 503(g)(5) says:

(A)  If an application is submitted under section 515 or 510(k) or a request is submitted under section 513(f)(2), consistent with any determination made under paragraph (1)(D), for a combination product containing as a constituent part an approved drug—

(i) the application or request shall include the certification or statement described in section 505(b)(2); and

(ii) the applicant or requester shall provide notice as described in section 505(b)(3).

(B)  For purposes of this paragraph and paragraph  (4), the term ‘approved drug’ means an active ingredient—

(i) that was in an application previously approved under section 505(c);

(ii) where such application is relied upon by the applicant submitting the application or request described in subparagraph (A);

(iii) for which full reports of investigations that have been made to show whether such drug is safe for use and whether such drug is effective in use were not conducted by or for the applicant submitting the application or request described in subparagraph (A); and

(C)  The following provisions shall apply with respect to an application or request described in subparagraph (A) to the same extent and in the same manner as if such application or request were an application described in section 505(b)(2) that referenced the approved drug:

(i) Subparagraphs (A), (B), (C), and (D) of section 505(c)(3).
(ii) Clauses (ii), (iii), and (iv) of section 505(c)(3)(E).
(iii) Subsections (b) and (c) of section 505A.
(iv) Section 505E(a).
(v) Section 527(a).

To translate this statutory language: the sponsor of the combination product must submit a certification with respect to any patent information identified in the Orange Book for the listed drug identified, and, in the case of a Paragraph IV certification, provide notice that the challenged patent(s) is invalid, unenforceable, or not infringed.  If the NDA holder or patent owner timely brings suit, then approval of the 510(k) or PMA for the proposed combination product can be delayed up to 30 months while patent infringement is litigation.  After that, clearance or approval could be granted, but if patent infringement litigation is not finally resolved, then a combination product sponsor will need to decide whether or not to market its product “at risk.”

New FDC Act § 503(g)(5) also imports various exclusivity provisions into the device clearance and approval processes.  Subsection (C) above says that 5-year new chemical entity exclusivity, 3-year new clinical investigation exclusivity, 6-month pediatric exclusivity, 7-year orphan drug exclusivity, and any 5-year add-on exclusivity as a result of the 2012 Generating Antibiotic Incentives Now Act apply to prevent use of the drug in the combination product.

It appears that the Hatch-Waxman provisions are triggered only if the combination product is reviewed under the device provisions of the FDC Act and there is an approved drug constituent.  They can be avoided if separate marketing applications are submitted (one for the device and the other for the drug), and Section 3038 expressly provides that nothing prevents the sponsor for doing so, unless FDA determines that a single application is necessary.

These statutory changes clearly have an impact on combination products in which a device and drug are physically combined or are packaged together.  In such cases, the sponsor can control the labeling and make it harmonious with the intended use of each constituent, and FDA’s premarket data requirements now must focus only on the unapproved device and the incremental risk of the combination product as a whole.

Section 3038 apparently does not address the thornier issue of combination products created by cross labeling.  In such cases, a new device and an approved drug would be sold separately, and changes are needed for the drug labeling to make it compatible with the new device.  Such products have been stymied by lack of cooperation from the drug sponsor.  It does not seem that Section 3038 provides any relief from the necessity to obtain such cooperation.  Section 3038 only provides a solution when the combination product sponsor is in full control of all relevant labeling.

Curiously, although Section 3038 incorporates Hatch-Waxman into the device approval/clearance process, the provision makes no mention of combination products containing a proposed device with a biological constituent already licensed under the Public Health Service Act.  Will a future bill or amendment reference the 2009 Biologics Price Competition and Innovation Act and, in particular, the statute’s 12-year (and pediatric) exclusivity provisions and complex patent resolution process?

On December 9, 2016, FDA released a guidance document addressing its Drug Supply Chain Security Act (DSCSA) implementation: “Identification of Suspect Product and Notification.”  The Federal Register Notice announcing the release of this (partially, as explained below) final guidance explains that it is the result of review of comments on FDA’s draft guidance issued back in June of 2014 (see our previous post here). FDA intends that the guidance will aid certain trading partners along the prescription drug distribution chain, including manufacturers, repackagers, wholesalers, and dispensers in their identification of suspect and illegitimate products. If you recall the 2014 draft, it set forth several helpful examples and specific scenarios of how trading partners in the pharmaceutical supply chain should identify, notify trading partners and report to FDA suspect or illegitimate products (as defined by the DSCSA) in their possession or control. The new final guidance does not deviate from the draft guidance in its provision of examples and scenarios addressing what trading partners should consider, look for, notify and report (and how to terminate notifications) to the Agency. It does, however, add at page 12 (bullet 5) that in addition to notifying FDA, if a trading partner determines it has an illegitimate product in its possession or control, it must notify all immediate trading partners that it has reason to believe may also possess the drug (and lists reasonable methods of communication). FDA will assign an incident number to the matter to be used on all future communications.

A new, important part of the guidance, however, seeks to impose requirements on drug manufacturers, and is set forth at pages 8-11 (in grey shading). This addition is specific to manufacturers and sets forth scenarios dealing with “High Risk of Illegitimacy Notifications.” FDA states that section 582(b)(4)(B)(ii)(II) (“High Risk of Illegitimacy”) requires manufacturers to notify (1) FDA, and (2) its immediate trading partners (that the manufacturer has reason to believe may have in the trading partner’s possession a product manufactured by, or purported to be a product manufactured by, the manufacturer) in three general scenarios:

Within 24 hours after determining or being notified by FDA or a trading partner that:

1. there is a high risk that a product that the manufacturer has reason to believe is in an immediate trading partner’s possession is an illegitimate product;
2. there is a specific high risk that could increase the likelihood that illegitimate product will enter the U.S. pharmaceutical distribution supply chain;
3. there exists an “other high risk” as determined by FDA in guidance pursuant to subsection 582(h). Under this somewhat vague scenario, the manufacturer would be required (but recommended) to notify FDA but not other immediate trading partners.

FDA provides specific examples for each of these three high risk scenarios and non-exclusive lists of circumstances where they may occur. The Agency explains that it believes that Congress intended this statutory section to “leverage the surveillance systems that many manufacturers already have in place to detect counterfeit and otherwise violative versions of their product.” As FDA points out, manufacturers may learn about such high risk products from trading partners, FDA, their own company, or other regulatory authorities, “even when a product may not be in the manufacturer’s possession or control.” Thus, whether or not the manufacturer has possession or control of the product, FDA provides certain examples that would require the manufacturer to notify FDA and its immediate trading partners of certain “high risk” scenarios. This obligation would be broader than that of other trading partners because notification of suspect or illegitimate product is typically only required when the product is one’s custody or possession. FDA also sets forth in the draft guidance (page 12) steps manufacturers should follow to notify FDA and trading partners of products with a high risk of illegitimacy.  Comments on the new, draft, guidance provisions are due to FDA by February 7, 2017.  

Your friendly neighborhood bloggers were tempted to headline this post with a Buzzfeed worthy headline such as “When FDA pointed out THIS ONE THING, industry was SHOCKED!” or “FDA issues flood of letters – 25% of 2016 output in a single day.  What happened next will leave you breathless!”  But we restrained ourselves for we are models of decorum, substance, and gravitas.  No, really.

On December 12, 2016, demonstrating that they’re not dead yet, the Office of Prescription Drug Promotion (OPDP) issued two letters relating to television ads, one to Sanofi-aventis relating to TOUJEO (insulin glargine injection) U-300, for subcutaneous use (here), and one to Celgene for OTEZLA (apremilast) tablets, for oral use (here).  TOUJEO is indicated to improve glycemic control in adults with diabetes mellitus and OTEZLA is approved for the treatment of adult patients with active psoriatic arthritis and for patients with moderate to severe plaque psoriasis who are candidates for phototherapy or systemic therapy.  Both drugs carry serious contraindications and risks.

OPDP had similar objections to both of the advertisements, namely that the presentation of risk information was false or misleading. Why was it false or misleading?  Did the companies lie about the risks?  Was the presentation of the risk information inadequate?

In a word, no. FDA had no objections to the substance of the risk communication.  Rather, FDA objected to the presentation of the risk information.  Specifically, FDA objected to the fact that the visuals changed fairly quickly and the background music was distracting.

The presentation of these compelling and attention-grabbing visuals and SUPERs, all of which are unrelated to the risk message, in addition to the frequent scene changes and the other competing modalities such as the musical interjections, compete for the consumers’ attention. As a result, it is difficult for consumers to adequately process and comprehend the risk information.

In other words, playing Katrina and the Waves (OTEZLA), or Earth, Wind & Fire (TOUJEO) while rapidly shifting between distracting images can render otherwise appropriate risk information inappropriate and misbranding in nature.  While your bloggers, as children of the ‘80s, applaud the musical choices, the takeaway from these letters is that OPDP still has what to say, and that in crafting the type of slick DTC ads we’ve grown to know and love, one must be careful to keep the viewer’s attention focused on the risk information when presenting such information, rather than distracting them with music and images that are unrelated to the presentation of risk information.  Perhaps Men Without Hats’ “Safety Dance” would be more appropriate music?

As we previously reported, the President signed into the law the 21^st Century Cures Act (Act) on December 13, 2016 (find the full text here). This post is part two of a two-part post that summarizes the relevant provisions related to development of drugs and biologics. Part one of this summary (covering Subtitles A-D of Title III of the Act) can be found here.

In addition, Hyman, Phelps & McNamara, P.C.’s summary of Subtitle F of Title III of the Act pertaining to medical device development provisions can be found here. We expect to publish additional posts, including a post summarizing the combination product provision and a post summarizing relevant health care provisions.

Here is a summary of Subtitles E, G-I of Title III of the Act pertaining to drug development.

TITLE III—DEVELOPMENT

Subtitle E—Antimicrobial Innovation And Stewardship

Sec. 3041. Antimicrobial resistance monitoring.

Section 3041 amends the Public Health Service Act (PHS Act) to require HHS to encourage reporting on aggregate antimicrobial drug use and antimicrobial resistance to antimicrobial drugs and implementation of antimicrobial stewardship program by the DoD, VA, and the Indian Health Service. The section also directs HHS to provide technical assistance to the DoD and VA as appropriate and upon request.

The section requires HHS to publish a report on antimicrobial resistance in humans and use of antimicrobial drugs, including qualified infectious disease products under section 506(h) of the Federal Food, Drug, and Cosmetic Act (FDC Act). The report is required within one year of the date of enactment of the Act. In addition, HHS is directed to disseminate, as appropriate, guidance and educational materials related to development and implementation of evidence-based antimicrobial stewardship programs or practices at health care facilities.

The section requires HHS to work with State and local public health departments on programs related to antimicrobial resistance.

To fulfill the purposes of this section, HHS is directed to provide a mechanism for facilities to report data related to their antimicrobial stewardship activities.

Sec. 3042. Limited population pathway.

Section 3042 amends the FDC Act to allow FDA to approve an antibacterial or antifungal drug, along or in combination with other drugs, as a limited population drug if:

• The drug is intended to treat a serious or life-threatening infection in a limited population of patients with unmet needs;
• The standards for NDA or BLA approval/licensure are met; and
• FDA receives a written request from the sponsor to approve the drug as a limited population drug.

FDA then must make its determination of safety and effectiveness of the drug to reflect the benefit-risk profile of the drug in the intended limited population, considering the severity, rarity, or prevalence of the infection and the available or lack of alternative treatment. FDA may approve the drug even though there is a lack of evidence to fully establish a favorable benefit-risk profile in a broader patient population.

A drug approved under this section is subject to the following requirements:

• Labeling and advertising of the drug must contain the statement “Limited Population” in a prominent manner;
• Inclusion of the statement “This drug is indicated for use in a limited and specific population of patients” in the prescribing information; and
• Submission to FDA copies of all promotional materials at least 30 days prior to dissemination of the materials.

These postapproval requirements can be removed if a broader indication for the drug is approved under an NDA or BLA.

The section also requires FDA to issue draft guidance describing criteria, processes, and other considerations for demonstrating safety and effectiveness of limited population antibacterial and antifungal drugs. FDA has 18 months to issue the draft guidance document, and another 18 months after the public comment period on the draft guidance ends, to issue a final guidance. However, FDA may still approve antibacterial and antifungal drugs under this section prior to issuing such guidance.

The section requires FDA to provide prompt advice to the sponsor of a drug seeking approval under this section.

In addition, FDA must report to Congress at least every other year the number of requests for approval and the number of approvals of drugs under this section. No later than December 2021, GAO must also provide Congress a report on the coordination of activities of the Antimicrobial Resistance Task Force and the approval pathway under this section.

Sec. 3043. Prescribing authority.

Section 3043 specifies that nothing in Subtitle E of the Act restricts the prescribing of antimicrobial drugs and other products, including qualified infectious disease products, by health care professionals, or otherwise limits the practice of health care.

Sec. 3044. Susceptibility test interpretive criteria for microorganisms; antimicrobial susceptibility testing devices.

Section 3044 amends the FDC Act to clarify FDA’s authority to update susceptibility test interpretive criteria for antimicrobial drugs (i.e., to determine how much of a drug to use and which infections a drug is useful in treating) when necessary for public health, due to, among other things, the constant evolution of microorganisms that leads to the development of resistance to drugs. Unique management of such drugs is necessary to delay or prevent the development of further resistance. The section requires FDA to identify appropriate susceptibility test interpretive criteria for such drugs at the time of approval, if available, or at some later date that they become available. The bases for initial identification of these criteria must be based on available and relevant:

• Preclinical and clinical data;
• The relationship of the susceptibility test interpretive criteria to morbidity and mortality associated with the disease or condition for which the drug is used; and
• Other evidence as appropriate.

The section also requires FDA, within one year of the date of enactment of the Act, to establish and maintain on FDA.gov a dedicated website that contains a list of any appropriate new or updated susceptibility test interpretive criteria standards, including those established by nationally or internationally recognized standards development organizations (referred to as the Interpretive Criteria Website). In addition, FDA must post a list of any interpretive criteria that the Agency has determined to be appropriate regarding legally marketed antimicrobial drugs where:

• FDA does not recognize, in whole or in part, an interpretive criteria standard from the first list;
• FDA withdraws recognition of a standard, in whole or in part;
• FDA approves an NDA or BLA with respect to marketing such a drug for which there are no relevant interpretive criteria included in a standard; and
• Because the characteristics of such a drug differ from other drugs with the same active ingredient, the interpretive criteria with respect to such drug differ from otherwise applicable interpretive criteria and are determined by FDA to be appropriate for the drug.

FDA must announce the creation of the Interpretive Criteria Website containing this information in the Federal Register. Furthermore, once the Interpretive Criteria Website is established, and every 6 months thereafter, FDA evaluate the lists for new or updated susceptibility test interpretive standards, as well as for approved NDAs and BLAs, and make necessary changes. Each year, FDA must compile all of changes to the lists and publish this information in the Federal Register and provide for public comment.

The section also requires, within one year of the establishment of the Interpretive Criteria Website, a holder of an approved NDA or BLA to remove susceptibility test interpretive criteria, if any, and related information from the approved drug labeling and replace it with a reference to the Interpretive Criteria Website. This can be accomplished through an annual report. Drugs approved after the establishment of the Interpretive Criteria Website must include reference to the website.

In addition, the section creates special conditions for marketing of antimicrobial susceptibility testing devices if those devices meet the following conditions:

• The device is used to make a determination of susceptibility using susceptibility test interpretive criteria that are either included in a standard recognized by FDA or otherwise listed on the Interpretive Criteria Website;
• The labeling of such device conveys
  • Information about the in vitro susceptibility of microorganisms, as applicable to antimicrobial drugs,
  • That the safety and efficacy of such drugs in treating clinical infections may or may not have been established in adequate and well-controlled clinical trials for the device to report susceptibility and that the clinical significance of such susceptibility information in those instances is unknown;
  • That the approved labeling for drugs tested using such a device provides the uses for which FDA has approved such drugs; and
  • Any other information FDA finds appropriate to adequately convey the meaning of the data supporting the standards and criteria;
• The device meets all other requirements to be cleared under section 510(k), classified under section 513(f)(2), or approved under section 515.

The section requires within 2 years of enactment of the Act that FDA submit to Congress a report on the progress of implementing this section.

Subtitle G—Improving Scientific Expertise And Outreach At FDA

Sec. 3071. Silvio O. Conte Senior Biomedical Research and Biomedical Product Assessment Service.

Section 3071 amends the PHS Act to expand the Silvio O. Conte Senior Biomedical Research Service from a maximum of 500 members to 2000 members, which allows the recruitment of additional qualified scientific and technical experts in biomedical research, clinical research evaluation, and biomedical product assessment across HHS. The section also increases the maximum salary of the members to now not exceed the amount of annual compensation of the President (currently $400,000 per year).

The section also directs GAO to study the effectiveness of these reforms on all agencies or departments within HHS that must be provided to Congress as a report within 4 years of the date of enactment of the Act. The GAO study and report must address:

• Total number of members recruited and retained, and the effect of increasing the number of members;
• The number of members hired with a doctoral level degree in biomedicine or related field, and the number of members hired with a doctoral or master’s level degree in engineering, bioinformatics, or related emerging field; and
• The number of members that have been hired by each agency or department within HHS, and how HHS assigns such members.

Sec. 3072. Hiring authority for scientific, technical, and professional personnel.

Section 3072 amends the FDC Act by allowing FDA to appoint scientific, technical, or professional positions that support the development, review, and regulation of medical products within the competitive service. In addition, the section provides that such appointments may have a maximum salary to now not exceed the amount of annual compensation of the President (currently $400,000 per year).

The section requires FDA to provide to Congress, within 18 months of the date of enactment of the Act, a report on workforce planning that examines FDA’s need for qualified individuals for scientific, technical, or professional positions. The report must address:

• An analysis of workforce needs at FDA and the strategic plan for addressing such needs, including through use of this section; and
• A recruitment and retention plan for hiring qualified candidates.

In addition, GAO is directed to conduct a study of the ability of FDA to hire, train, and retain qualified scientific, technical, and professional staff, not including contractors, needed to fulfill its missions. The GAO study and report must address:

• Information about the progress of FDA in recruiting and retaining qualified scientific, technical, and professional staff outstanding in he field of biomedical research, clinical research evaluation, and biomedical product assessment;
• Any critical staffing needs at the FDA, and any barriers to hiring, training, and retaining qualified staff;
• An examination of FDA recruitment and retention strategies; and
• Recommendations for potential improvements that would address FDA staffing needs.

The GAO report must be sent to Congress by January 1, 2022.

Sec. 3073. Establishment of Food and Drug Administration Intercenter Institutes.

Section 3073 amends the FDC Act to require FDA to establish one or more “Intercenter Institutes” within FDA for a major disease area or area. Such Intercenter Institute is directed to develop and implement processes for coordination of activities, as applicable to the disease area(s), among CDER, CBER, and CDRH, including:

• Coordination of staff from Centers with diverse product expertise in the specific diseases;
• Streamlining, as appropriate, the review of medical products for specific diseases;
• Promotion of scientific programs within the Centers;
• Development of programs and strategies to recruit, train, and provide continuing education opportunities for the personnel of the Centers;
• Enhancement of interactions of the Centers with patients, sponsors, and the external biomedical community; and
• Facilitation of collaborative relationships of the Centers with other HHS agencies.

FDA must establish at least one Intercenter Institute within one year of the date of enactment of the Act, and must provide for a period of public comment during the time that each institute is being implemented. The section also allows for FDA to terminate any institute with 60 days public notice. FDA has already established an “Oncology Center of Excellence” that largely mirrors the structure and activities of an Intercenter Institute; it is unclear if the Agency will attempt to satisfy the requirement to establish an Intercenter Institute by converting it the Oncology Center of Excellence to an “Oncology Intercenter Institute” under the process set out in this section.

Sec. 3074. Scientific engagement.

Section 3074 establishes that scientific meetings that are attended by HHS professionals for whom attendance is directly related to their professional duties and the mission of HHS (a) are not considered conferences for the purposes of complying with Federal reporting requirements contained in annual appropriations Acts and (b) are not considered conferences for purposes of a restriction contained in an annual appropriations Act or any other regulation restricting travel to such a meeting.

The section requires each operating division of HHS to post an annual report on scientific meeting attendance and related travel spending for each fiscal year no later than 90 days after the end of the fiscal year.

Sec. 3075. Drug surveillance.

Section 3075 amends the FDC Act to make targeted revisions to FDA’s drug surveillance program. FDA will have more flexibility related to existing requirements that it screen the Adverse Event Reporting System database and evaluate its REMS program. The section also directs FDA to make publicly available best practices for drug safety surveillance using the Adverse Event Reporting System and criteria for public posting of adverse event signals.

Sec. 3076. Reagan-Udall Foundation for the Food and Drug Administration.

Section 3076 amends the FDC act to amend the governance of the Board of Directors in the following ways:

• Allows the Board of Directors of the Reagan-Udall Foundation, through amendments to the bylaws, to provide for more than 14 voting members on the Board of Directors and provides procedures for appointing such Directors;
• Clarifies that a Special Government Employee is not considered an “employee of the Federal Government” for purposes of being allowed to serve on the Board;
• Provides for staggered terms of Directors; and
• Eliminates the restriction that the Executive Director’s compensation may not exceed that of the FDA Commissioner.

The section also amends how funds received from entities other than the U.S. Treasuring (e.g., from private entities) must be managed with regard to accounting practices.

Subtitle H—Medical Countermeasures Innovation

Sec. 3081. Medical countermeasure guidelines.

Section 3081 amends the PHS Act to require HHS to ensure timely and accurate recommended utilization guidelines for qualified countermeasures, qualified pandemic and epidemic products, and security countermeasures, including for such products in the Strategic National Stockpile.

The section also requires HHS, no later than March 1 of each year in which HHS determines that the amount of funds available for procurement of security countermeasures (i.e., in the BioShield Special Reserve Fund) is less than $1.5 billion, to submit to Congress a report detailing the amount of such funds available for procurement and the impact of such amount on:

• Meeting security countermeasure needs; and
• The annual Public Health Emergency Medical Countermeasures Enterprise and Strategy Implementation Plan.

Sec. 3082. Clarifying BARDA contracting authority.

Section 3082 amends the PHS Act to direct Biomedical Advanced Research and Development Authority (BARDA) to carry out programs funded by the special reserve fund (e.g., for procurement of security countermeasures), specifically including the execution of procurement contracts, grants, and cooperative agreements.

Sec. 3083. Countermeasure budget plan.

Section 3083 amends the PHS Act to direct HHS to develop a five-year budget plan based on medical countermeasures priorities, including addressing novel or emerging infectious diseases and the efforts to development medical countermeasures for such threats. Finally, the section specifies that the plan must be provided to Congress no later than March 15 of each year and must be made publicly available.

Sec. 3084. Medical countermeasures innovation.

Section 3084 amends the PHS Act to direct BARDA to enter an agreement with an independent, nonprofit entity (a Medical Countermeasures Innovation Partner) to:

• Foster and accelerate development and innovation of medical countermeasures and technologies that may assist advanced research and development of qualified countermeasures, including using strategic venture capital practices;
• Promote the development of new and promising technologies that address urgent medical countermeasure needs, as identified by HHS;
• Address unmet public health needs relating directly to medical countermeasure requirements; and
• Provide expert consultation and advice to foster viable medical countermeasure innovators.

Under the agreement, BARDA must provide direction to the partner, including by communicating the medical countermeasure needs, requirements, and problems to be addressed. The section requires that BARDA provide Congress quarterly reports from the partner on the progress being made toward meeting the needs set out in the agreement. In addition, the section directs GAO within 4 years of the date of enactment of the Act to conduct an independent evaluation and report to Congress on the activities conducted under this section. This section sunsets after September 30, 2022.

Sec. 3085. Streamlining Project BioShield procurement.

Section 3085 amends the PHS Act to remove certain steps from the BioShield Special Reserve Fund, which is intended to reflect current execution of the fund. The section also requires HHS to notify Congress of each decision to make special reserve funds for procurement of a security countermeasure. Finally, the section makes available payments from the special reserve fund to a vendor for procurement of a security countermeasure.

Sec. 3086. Encouraging treatments for agents that present a national security threat.

Section 3086 amends the FDC Act to establish a priority review voucher program for a “material treatment medical countermeasure application,” which is

• A human drug application intended for use:
  • To prevent, or treat harm from a biological, chemical, radiological, or nuclear agent identified as a material threat; or
  • To mitigate, prevent, or treat harm from a condition that may result in adverse health consequences or death and may be caused by administering a drug or biological product against such agent;
• Determined by FDA to be eligible for priority review;
• Approved after the date of enactment of the Act, and
• For a human drug, no active ingredient of which has been approved under section 505(b)(1) of the FDC Act or section 351(a) of the PHS Act.

The section specifies that a priority review voucher is to be awarded for such an application upon approval by FDA. It also allows for the sponsor that receives the priority review voucher to transfer the voucher (and subsequently be transferred) prior to its use.

The section also provides specific requirements regarding notice of use of the priority review voucher: at least 90 days notice to FDA prior to submission of the application, which serves as a legally binding commitment to pay the user fee. A sponsor may transfer the voucher after such notice is given, provided that the application has not yet been submitted.

Furthermore, the section requires FDA to publish notice in the Federal Register and on FDA.gov within 30 days of (a) issuing a voucher under this section and (b) approving a drug that used a voucher issued under this section. The section limits the eligibility of applications from receiving more than one priority review voucher under the various voucher programs. The awarding of vouchers under this section sunsets after October 1, 2023.

Sec. 3087. Paperwork Reduction Act waiver during a public health emergency.

Section 3087 amends the PHS Act by allowing HHS to make a determination that waives voluntary collection of information from the Paperwork Reduction Act requirements during the period of a public health emergency or the period of time necessary to determine if a disease or disorder will become a public health emergency, or for a reasonable period of time during the immediate postresponse review regarding the public health emergency. If HHS determines that a waiver is necessary, it must promptly post on the HHS website a brief justification for the waiver, the anticipated timeframe, and the HHS agencies and offices that the waiver applies to; this must be updated, as applicable.

Sec. 3088. Clarifying Food and Drug Administration emergency use authorization.

Section 3088 amends the FDC Act to explicitly allow for emergency use authorizations for animal drugs.

Subtitle I—Vaccine Access, Certainty, And Innovation

Sec. 3091. Predictable review timelines of vaccines by the Advisory Committee on Immunization Practices.

Section 3091 directs the Advisory Committee on Immunization Practices, as appropriate, upon licensure of any vaccine or any new indication for a vaccine, to consider the use of the vaccine at its next regularly scheduled meeting. If the Advisory Committee does not make a recommendation regarding use of the vaccine, it must provide an update on the status of its review.

The section also directs the Advisory Committee to make recommendations with respect to use of certain vaccines in a timely manner, including those that are designated as Breakthrough Therapies or could be used in a public health emergency.

Sec. 3092. Review of processes and consistency of Advisory Committee on Immunization Practices recommendations.

Section 3092 requires the Centers for Disease Control and Prevention (CDC) to conduct a review, with input from vaccine stakeholders, of the processes used by the Advisory Committee on Immunization Practices in formulating and issuing recommendations pertaining to vaccines, including with respect to consistency. Such review must include an assessment of:

• The criteria used to evaluate vaccines, including any areas for which flexibility is necessary and the reason for it;
• The Grading of Recommendations, Assessment, Development, and Evaluation (GRADE) approach to the review and analysis of scientific and economic data, include the scientific basis; and
• The extent to which the processes used by the work groups of the Advisory Committee are consistent among such groups, including the reasons for any variation.

The section requires CDC within 18 months after the date of enactment of the Act to provide Congress a report on the results of the review, including any recommendations on improving consistency of the processes.

Sec. 3093. Encouraging vaccine innovation.

Section 3093 directs CDC to ensure that its staff within the Office of Infectious Diseases coordinate with respect to public health needs, epidemiology, and program planning and implementation considerations related to immunizations, including with regard to meeting with stakeholders.

Specifically, the section requires HHS, in collaboration with NIH, CDC, FDA, and BARDA, and in consultation with the DoD, VA, and stakeholders, to submit to Congress and post on the HHS website a report on ways to promote innovation in the development of vaccines that minimize the burden of infectious diseases. The report must include:

• The current status of vaccine development;
• Consideration of the optimal process to determine which vaccines would be beneficial to public health and how information on such vaccines is disseminated to key stakeholders;
• Examination and identification of whether obstacles exist that inhibit the development of beneficial vaccines; and
• Recommendations about how best to remove any obstacles in order to promote and incentivize vaccine innovation and development.

The section also amends the PHS Act to require HHS to revise the Vaccine Injury Table as part of the vaccine injury compensation program to include vaccines recommended by CDC for routine administration in pregnant women. The section further amends the PHS Act, for purposes of petitions for compensation for vaccine-related injury or death, to explicitly include both a woman who received a covered vaccine while pregnant and any child who was in utero at the time such woman received the vaccine.

If you have questions or need more information, contact:

• Frank J. Sasinowski, fsasinowski@hpm.com, 202-737-4287
• Josephine M. Torrente, jtorrente@hpm.com, 202-737-7554
• David B. Clissold, dclissold@hpm.com, 202-737-7545
• James E. Valentine, jvalentine@hpm.com, 202-724-1745
• Michelle L. Butler, mbutler@hpm.com, 202-737-7551

On December 7, 2016, the U.S. Department of Health and Human Services Office of Inspector General (“OIG”) published a Final Rule amending the safe harbor regulations under the Federal health care program antikickback statute (“AKS”) (42 U.S.C. § 1320a-7b(b)) and established exceptions to the Civil Monetary Penalty (“CMP”) prohibiting remuneration to Medicare and Medicaid beneficiaries (42 U.S.C. § 1320a-7a).  This Final Rule changes existing safe harbors and adds new ones, while also adding new exceptions to the beneficiary inducement CMP.  We previously discussed the Proposed Rule issued by OIG in 2014 here.  All of the proposed AKS safe harbor regulations and beneficiary inducement CMP exceptions were finalized (some with modifications), with the exception of the gainsharing CMP regulation. The Final Rule is effective January 6, 2017. We describe the finalized changes to the regulations below, with particular focus on those of most interest to drug and device manufacturers.

Proposed Changes to the AKS Safe Harbors

Cost-sharing waivers by pharmacies:  In the Final Rule, the OIG added a safe harbor to protect the waiver or reduction by a pharmacy of cost sharing under a Federal health care program if: (1) the waiver or reduction is not advertised or part of a solicitation; (2) the pharmacy does not routinely waive cost-sharing; and (3) the pharmacy either makes a good faith determination of the patient’s financial need or fails to collect the cost-sharing after a reasonable effort to do so.  The Proposed Rule, consistent with the statutory provisions of section 101 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (“MMA”) (see 42 U.S.C. § 1320a-7b(b)(3)(G)), originally limited this safe harbor protection to Part D cost sharing, but OIG expanded the scope to all Federal health care programs in the Final Rule. This safe harbor protects the waiver of co-insurance, copayments, or deductibles by a pharmacy under any Federal health care program as long as such waivers are unadvertised, not routine, and made after an individualized determination of financial need (or reasonable effort to collect the cost-sharing amount).  OIG declined, in the Final Rule, to provide specific guidelines as to the method in which pharmacies must determine financial need, but it is expected that pharmacy guidelines would be “reasonable and applied uniformly.” 81 Fed. Reg. at 88,374.

OIG received a comment that proposed restrictions on advertising and solicitation impinged on pharmacies’ protected commercial speech under the First Amendment. OIG defended this safe harbor requirement by explaining that advertising is not a per se violation of the AKS. Rather, programs that advertise a cost-sharing waiver are ineligible for protection under the safe harbor and would be evaluated on a case-by-case basis under the AKS. Furthermore, OIG stated that Congress explicitly included an advertising prohibition in the Health Insurance Portability and Accountability Act of 1996 (see 42 U.S.C. § 1320a-7a(i)(6)(H)(i)), which OIG cannot ignore. Finally, OIG concluded that “interpretation of the statutory prohibition on advertising is no broader than necessary to preclude communications that create a high risk of abusive steering arrangements under the fraud and abuse laws.” 81 Fed. Reg. at 88,372.

We note that subsidization of a patient’s copayment or co-insurance by a third party, such as a drug manufacturer, will not be protected under the safe harbor and there was no indication in the Final Rule or its preamble that the OIG would interpret the safe harbor broadly to protect third party subsidies. The OIG has previously made clear that co-pay subsidies provided by drug manufacturers to Federal program beneficiaries are problematic under the AKS.

Medicare Coverage Gap Discount Program:  To implement another existing exemption in the AKS—one that was added in 2010 by section 3301 of the Patient Protection and Affordable Care Act (“ACA”)—the OIG added a safe harbor protecting brand drug discounts provided by drug manufacturers to Part D enrollees in the coverage gap under the Medicare Coverage Gap Discount Program.  We previously described this Program here. As originally proposed, this safe harbor regulation would protect “a discount in the price of an ‘applicable drug’ of a manufacturer that is furnished to an ‘applicable beneficiary’ under the Medicare Coverage Gap Discount Program . . . as long as the manufacturer participates in and is in full compliance with all requirements of the Medicare Coverage Gap Discount Program.” 81 Fed. Reg. at 88,378 (emphasis added). OIG revised this provision of the safe harbor in the Final Rule so that mere technical noncompliance with the Medicare Coverage Gap Discount Program by the manufacturer will not remove the arrangement from safe harbor protection.

Local transportation:  The OIG established a new safe harbor protecting free or discounted local transportation made available by an “Eligible Entity” to “Established Patients” for the purpose of obtaining “medically necessary items or services.”  Id. at 88,379. Eligible Entities do not include individuals or entities that primarily supply health care items, such as pharmaceutical companies, pharmacies, and durable medical equipment (“DME”) suppliers. OIG explained that free or discounted transportation services provided by a pharmaceutical manufacturer to a physician who is a referral source for the manufacturer’s products could influence the physician’s decision-making to use the manufacturer’s products, which may increase costs to Federal health care programs. The Proposed Rule excluded laboratories from the definition of “Eligible Entity,” however, this exclusion was not maintained in the Final Rule. To be protected under this safe harbor, Eligible Entities cannot provide air, luxury, or ambulance transportation services. Vouchers or other reimbursement for transportation services can be provided by Eligible Entities who do not provide transportation directly to their Established Patients. The Final Rule also adds protection for shuttle transportation services, in certain circumstances.

Under the safe harbor, free or discounted transportation services cannot be used as a marketing tool. Therefore, while Eligible Entities can inform their patients that free or discounted transportation services are available, such services may not be advertised or marketed. If the transportation services are provided through donations to the Eligible Entity, acknowledgements of the donation are prohibited if the donor is a health care provider or supplier or an entity that “makes, markets, or sells health care items or supplies.” Id. at 88,387.

Other safe harbors:  In addition, the OIG made a technical correction to the referral services safe harbor and:

• Established a new safe harbor protecting waivers of cost-sharing or deductible amounts owed to ambulance services owned and operated by a state or political subdivision of a state;
• Implemented an existing statutory exemption protecting remuneration between a federally qualified health center and a Medicare Advantage organization (see 42 U.S.C. § 1320a-7b(b)(3)(H)).

Changes to the Beneficiary Inducement CMP Statute

The beneficiary inducement CMP (Id. § 1320a-7a(a)(5)) prohibits an individual or entity from offering or transferring remuneration to a Medicare or Medicaid beneficiary that such individual or entity knows or should know is likely to influence such beneficiary to order or receive from a particular “provider, practitioner, or supplier” any item or service for which payment may be made, in whole or in part, under Medicare or Medicaid.  The Final Rule provided interpretive guidance to a beneficiary inducement CMP statutory exception and added several exceptions to that CMP as well.

Access to care/low risk of harm:  The CMP statute provides an exception for remuneration “which promotes access to care and poses a low risk of harm to patients and Federal health care programs.” Id. § 1320a-7a(i)(6)(F). If an activity or arrangement is not protected under a more specific statutory exception or regulatory safe harbor, an individual or entity may assert this as a defense. As in the Proposed Rule, OIG provided its interpretation of “promotes access to care” and “low risk of harm” in the Final Rule.

OIG clarified its interpretation of the term, “promotes access.” In the preamble, OIG stated that promoting access means “giving patients the tools they need” to remove socioeconomic, educational, geographic, mobility, or other barriers to receiving items and services covered by Medicare or Medicaid. OIG explicitly stated that this would not include rewards or inducements to receive care. As an example, OIG indicated that a health care provider could offer free childcare to a patient so that the patient could attend a smoking cessation program. However, according to OIG, movie tickets or other rewards for attending the smoking cessation program would not be protected under OIG’s interpretation of “promotes access.”

The preamble also explained that remuneration that promotes compliance with a treatment plan may promote access to care, as long as there is no reward for accessing care (as discussed above). OIG gave several examples of items that promote access to care: programs that promote adherence to medication therapy, such as an item that dispenses medication at specific times; a web-based food and activity tracker for diabetic patients; reimbursement for parking; and free child care.

It is important to note that, in conjunction with the publication of the Final Rule, OIG has increased the limits applicable to providing nominal gifts to Medicare or Medicaid beneficiaries. In its 2002 Special Advisory Bulletin, OIG stated that it would exercise enforcement discretion for inexpensive gifts or services provided to Medicare or Medicaid beneficiaries as long as such items or services had a retail value of no more than $10 individually, and no more than $50 in the aggregate annually per patient. On December 7, 2016, OIG issued a notice increasing those amounts, based on inflation, to no more than $15 individually, and no more than $75 in the aggregate annually per patient. In the Final Rule preamble, OIG explained that the exception for items or services that promote access to care may protect remuneration that exceeds these nominal value thresholds.

The preamble cautions that, “if a pharmaceutical manufacturer offered rewards or incentives for treatment compliance (without regard to any provider or supplier furnishing treatment), it might not implicate the beneficiary inducements CMP because the rewards would not incentivize the beneficiary to receive items or services from a particular provider or supplier, but it would implicate the [AKS] because the remuneration could induce the beneficiary to purchase a federally reimbursable item.” 81 Fed. Reg. at 88,395. The beneficiary inducement CMP would not be implicated by an inducement to use a particular manufacturer’s drug because OIG’s long-standing interpretation of the CMP is that pharmaceutical manufacturers are not “providers, practitioners, or suppliers” for purposes of the CMP.

To qualify for this exception, items or services must not only “promote access,” but also must also “pose a low risk of harm” to Federal programs and beneficiaries. Consistent with the Proposed Rule, the Final Rule defines a “low risk of harm to Medicare and Medicaid beneficiaries and the Medicare and Medicaid programs” as meaning that the remuneration: (1) is unlikely to interfere with, or skew, clinical decision-making; (2) is unlikely to increase costs to Federal health care programs or beneficiaries through overutilization or inappropriate utilization; and (3) does not raise patient-safety or quality-of-care concerns.  The preamble cautions that an incentive to use a higher cost brand drug instead of a lower cost generic would not be low risk.  In addition, OIG explained that it does not consider educational items or informational materials alone to fall within the definition of remuneration.

Coupons or rewards from a retailer:  To implement another exception to the beneficiary inducement CMP added by the ACA, the OIG would exclude from the definition of “remuneration” a coupon, rebate, or other reward offered by a retailer, if it is offered on equal terms available to the general public regardless of health insurance status, and if it is not tied to the provision of other items or services reimbursed under Medicare or Medicaid.  OIG considers a retailer to be any entity that sells items directly to consumers. “Other rewards” may be, for example, gasoline discounts, frequent flier miles, or other items purchased from the retailer, but may not be earned by the purchase of federally reimbursed items, or redeemed for such items. OIG noted that coupons offered to patients who transfer their prescriptions from another pharmacy would not be protected under this statutory exception.

Free or discounted items or services where financial need exists:  To implement a statutory provision added by the ACA (see 42 U.S.C. § 1320a-7a(i)(6)(H)), the OIG proposed and finalized a CMP exemption for “the offer or transfer of items or services for free or at less than fair market value after a determination that the recipient is in financial need and meets certain other criteria.”  These “items or services” cannot include cash or instruments convertible to cash (i.e., cash equivalents).  The Final Rule sets out four requirements that must be met:  (1) the items or services may not be offered as part of any advertisement or solicitation; (2) they may not be tied to the provision of other items or services reimbursed in whole or in part by Medicare or Medicaid; (3) there must be a reasonable connection between the items or services and the medical care of the individual; and (4) there is a good faith determination of financial need.  To be protected under this provision, providers and suppliers may not advertise the free or discounted item or service in the media or via some other public display, such as a website, but may inform patients that a such an item or service is available on a “targeted” basis.

The “reasonable connection” requirement includes both a medical and a financial component. Free or discounted items or services must be reasonably connected to the patient’s medical care, which may include treatment or prevention of illness or injury. In addition, although OIG declined to provide a threshold retail value, items or services with a value that is disproportionate to the benefit—for example, a smart phone loaded with an app for management of blood sugar levels—would not be considered to have a “reasonable connection” to medical care.  Financial need is not defined, but the preamble explains that a good faith determination requires use of a reasonable set of income guidelines, uniformly applied.  Financial hardship need not be limited to indigence.

The preamble provided examples of items or services that may qualify as reasonably connected to medical care under this proposed exception. These included:

• protective helmets and safety gear to hemophiliac children
• pagers to alert patients with chronic medical conditions to take their drugs
• free blood pressure checks to hypertensive patients
• free nutritional supplements to malnourished patients with end-stage renal disease
• provision of air conditioners to asthmatic patients

Nothing in the Final Rule or preamble suggests that items or services provided by a drug or device manufacturer would be ineligible for this exclusion, as long as the four conditions of the rule were met.  Note, however, that free or discounted items conditioned on the use of a particular manufacturer’s drug or device would probably be considered to violate requirement (2), above (no tie to other reimbursable items).

Other CMP provisions:  In addition, the Final Rule implemented:

• A statutory exception to the definition of “remuneration” in the beneficiary inducement CMP for a waiver by a Part D Plan sponsor of the copayment owed by enrollees for the first fill of covered generic drug.
• Another statutory exception to the definition of “remuneration” for reductions in copayment amounts for covered hospital outpatient department services.

OIG, in the Proposed Rule, sought to implement a statutory prohibition on gainsharing arrangements (see 42 U.S.C. § 1320a-7a(b)), but the OIG could not finalize this exception in the Final Rule because section 512(a) of the Medicare and CHIP Reauthorization Act of 2015, Pub. L. No. 114-10, 129 Stat. 170, (“MACRA”) amended the gainsharing CMP statutory language. Since MACRA amended the statute before the proposed regulatory changes were finalized, OIG was unable to finalize these provisions in the Final Rule.