The long-running saga of FDA regulation of laboratory-developed tests (LDTs) has taken yet another new turn.  In the most recent Unified Agenda, which is a list of planned regulatory actions published semi-annually by the Office of Management and Budget (OMB), FDA announced its intent to issue a proposed rule “to make explicit that laboratory developed tests (LDTs) are devices under the Federal Food, Drug, and Cosmetic Act.”  The Notice of Proposed Rulemaking (NPRM) for LDTs is scheduled to be published in the Federal Register in August.

Whether we will actually see a proposed rule in August is more than a little uncertain, however.  Take for example FDA’s Unified Agenda announcement for ISO 13485 harmonization, which first occurred in the Spring of 2018 and was re-issued until a proposed rule was published in early 2022 (see our post here).  Thus, simply because the Unified Agenda targets August, it doesn’t necessarily mean it will be August or even this year.  The difference between a proposed LDT rule and ISO 13485 is that the Unified Agenda categorizes LDTs as “Significant” priority as compared to ISO 13485, which was “Non-Significant.”

Timing aside, FDA’s plans should not come as a surprise.  In the wake of Congress’ failure to enact the VALID Act last year, Commissioner Califf and CDRH officials have made public statements affirming the Agency’s intent to take matters into its own hands and initiate LDT rulemaking.  The announcement in the Unified Agenda of a planned NPRM is the most concrete evidence that FDA is moving forward with this plan.

Over the years we have blogged many times on the twists and turns of the efforts to regulate LDTs.  These include FDA’s efforts to use guidance as the vehicle (see posts here, here, and here) and the multiple attempts to pass the VALID Act (see posts here and here).  So far, all of these efforts have been fruitless.  Given the make-up of the House and the aversion to expansion of FDA authority, it seems extremely unlikely that the newest version of the VALID Act, which was introduced in March 2023, will advance in the next two years.  And regulating LDTs through guidance documents is vulnerable to legal challenge on procedural grounds.  See, e.g., ACLA White Paper on LDTs here.  Rulemaking avoids the twin problems of dependency on action by Congress and the legal weakness of imposing substantive legal requirements through guidance.

Of course, the rulemaking process has its own uncertainties.  Once the NPRM is published, the public will have the opportunity to submit comments; given the wide range of stakeholders that would foreseeably be affected by FDA oversight of LDTs, the docket will no doubt be voluminous.  It will inevitably take FDA a substantial period of time to review these comments and incorporate responses in a final regulation.  Before a final rule can be issued, it will be scrutinized both by the Department of Health and Human Services and OMB.  FDA will also need to conduct an economic impact analysis pursuant to Executive Orders 12866 and 13563, which direct FDA to assess all costs and benefits of available regulatory alternatives and, when regulation is necessary, to select regulatory approaches that maximize net benefits (including economic benefits).  All of this will take time.  And, of course, there is the political calendar.  If there is a change in administration, this process will almost surely be halted immediately, unless the current administration abandons the effort on its own, as it did in 2016 (see post here).

Even if a final rule is issued, that will not be the end of the story.  The NPRM merely says that the regulation would make explicit that LDTs are devices, but what that means and how the existing device framework would apply to LDTs remains a mystery.  Would there be a new regulatory framework, as is proposed in VALID and outlined in FDA’s 2017 discussion paper (see our prior post here), or something different?

Moreover, while rulemaking may shield FDA from some procedural challenges, the imposition of substantive new requirements on clinical laboratories would be very likely to prompt lawsuits on other grounds.  Opponents of LDT regulation received a boost with last year’s Supreme Court decision overturning an agency action based on the “major questions” doctrine, West Virginia v. EPA.  Depending on what happens in the next few weeks in Loper Bright Enterprises v. Raimondo, FDA may also lose the shield of Chevron deference in any litigation.

In sum, the notice of a projected NPRM is not the end of the LDT story, or the beginning of the end, or even the beginning of the beginning of the end.  We still expect to be blogging about FDA’s efforts to regulate LDTs for years to come.

On May 24, Minnesota enacted the Commerce and Consumer Protection Omnibus Bill, Senate File 2744 (SF 2744), which significantly expands the state’s existing drug pricing activities with serious implications for all drug manufacturers, and particularly generic drug manufacturers.

The drug pricing provisions of SF 2744 establish two mechanisms intended to curb rising drug costs: (1) a prohibition on generic drug manufacturers from taking price increases above a specified threshold and (2) a Prescription Drug Affordability Board to identify, review, and establish an upper payment limit on certain high-cost drug products sold in the state.  We address each below.

Prohibition on Excessive Price Increases

The law prohibits manufacturers from imposing or causing to be imposed an “excessive price increase,” whether directly or through a wholesale distributor, pharmacy, or similar intermediary, on the sale of any generic or off-patent drug sold or dispensed to any consumer in the state.  A price increase is considered “excessive” when the increase, adjusted for inflation using the Consumer Price Index (CPI), exceeds $30 for a 30-day supply or course of treatment lasting under 30 days, and:

• 15% of the wholesale acquisition cost (WAC) over the immediately precedent calendar year; or
• 40% of the WAC over the immediately preceding three calendar years.

Importantly, “price increase” is not defined in this statute.  It appears not to mean a WAC increase, because the term WAC is specifically used in defining the price increase triggers, but not in reference to the manufacturer’s price increase.  If a price increase is not an increase in WAC, its meaning is unclear.  Is it an increase in average price, and if so, averaged over what period?  Is it an increase in AWP/SWP?  Best price?  Some other price?  Is the price that in Minnesota only or in the U.S. generally?  The ambiguity in this critical term makes it impossible for manufacturers to know how much they can increase prices without incurring severe penalties, and leaves the law vulnerable to legal challenge for unconstitutional vagueness.

Note also that the thresholds for violating Minnesota’s excessive price increase prohibition are below that which triggers generic drug price increase reporting to the state.  Under Minnesota’s Prescription Drug Price Transparency Act, manufacturers must submit detailed pricing information for any generic prescription drug with a WAC of at least $100 for a 30-day supply or shorter course of treatment for which it increased the WAC by 50% or greater over the previous 12-month period.  In other words, with the enactment of SF 2744, any manufacturer that triggers Minnesota’s price increase reporting for generics will also be in violation of Minnesota law.

Similar to state drug pricing reporting requirements, any manufacturer that takes an excessive price increase will receive notice from the commissioner of health and must submit a drug cost statement to the state attorney general within 45 days of such notice.  The statement must itemize the cost components related to production of the drug, identify increases in materials or manufacturing costs, and provide other information that the manufacturer believes relevant to determining whether a violation has occurred.

A range of steep penalties could befall a manufacturer who violates this prohibition.  After a manufacturer submits (or fails to submit) the required drug cost statement, the AG may petition a court to issue an order to, inter alia:

• compel the manufacturer to provide the required drug cost statement or additional information, including by answering interrogatories, producing documents, or being examined under oath;
• restrain or enjoin the violation, including by requiring drug prices to be restored to a non-violative level;
• require the manufacturer to repay to all Minnesota consumers, including any third-party payers, any money acquired as a result of the violative price increase; or

impose a civil penalty of up to $10,000 per day for each violation.  The statute confuses the issue by providing that “every individual transaction in violation of [the excessive price increase prohibition] is considered a separate violation,” making it unclear whether this is a per-day or per-transaction penalty, and, if the latter, what the transaction is.  SF 2744 also provides a private right of action to enforce the prohibition.

In case some manufacturers decide to pull their products from Minnesota rather than face its excessive price increase prohibition, SF 2744 also prohibits manufacturers from withdrawing a generic or off-patent drug from sale or distribution within the state for the purpose of avoiding the prohibition on excessive price increases.  In other words, a violative manufacturer not only pays penalties, but is also compelled to continue marketing the drug in Minnesota (at a reduced price).  As a separate requirement, a manufacturer that intends to withdraw a generic or off-patent drug from sale or distribution within the state must provide written notice of the withdrawal to the AG at least 90 days in advance.  Failure to comply with either of these withdrawal requirements will subject the manufacturer to a $500,000 penalty.

Prescription Drug Affordability Board

The law also establishes a nine-member Prescription Drug Affordability Board and an 18-member stakeholder advisory council to provide advice to the Board on drug cost issues.  Initial appointments to both the Board and advisory council will occur by January 1, 2024.

The Board, in consultation with the advisory council, is tasked with identifying certain prescription drug products based on the following criteria:

• brand name drugs or biologics for which the WAC increased by more than 15% or more than $2,000 during any 12-month period or course of treatment lasting under 12 months, adjusting for changes in the CPI;
• brand name drugs or biologics with a WAC of $60,000 or more per calendar year or course of treatment;
• biosimilar drugs with a WAC that is not at least 20% lower than the referenced brand name biologic at the time the biosimilar is introduced; and
• generic drugs for which the WAC:
  • is $100 or more for a 30-day supply, course of treatment under 30 days, or one unit of the drug if its labeling does not recommend a finite dosage; and
  • increased by 200% or more during the immediately preceding 12-month period, adjusting for changes in the CPI.

The Board is not required to identify all drugs that meet the above criteria and may, in consultation with the advisory council and the commissioner of health, identify drug products that fall outside these criteria but otherwise could create “significant affordability challenges” for Minnesota’s healthcare system or Minnesota patients.  Identified drugs and related price information will be publicly disclosed, except for information the Board determines to be proprietary, not public, or trade secret.

The Board may then initiate a cost review of any such identified drug product.  In conducting the cost review, the Board will determine whether appropriate utilization of the drug has led or will lead to affordability challenges for the state’s healthcare system or patients, which may include a review of the following factors:

• the price at which the drug has been and will be sold in the state, and the price of therapeutic alternatives;
• manufacturer price concessions, discounts, rebates, and drug-specific patient assistance;
• measures of patient access, including cost-sharing;
• the cost to group purchasers based on patient access;
• in the case of a generic or off-patent prescription drug, the extent to which the AG or a court has determined that the price increase was excessive in violation of the prohibition discussed above; and
• any information the manufacturer chooses to provide.

Note that any information submitted by the manufacturer will be publicly disclosed except information the Board determines to be proprietary, not public, or trade secret, based on standards the Board will establish.  There will be a public comment period to develop these standards.  For now, the law makes no reference to the manufacturer’s role in claiming trade secret exemption, but we expect manufacturers to make these claims when submitting any information it considers to be trade secret.

Given the possibility of public disclosure of likely sensitive business information, manufacturers with drugs under review may be reluctant to provide information to the Board.  At the same time, providing this information could influence whether the Board determines that the drug product creates an affordability challenge—a determination which has significant implications for the manufacturer.

If the Board makes such a determination, it will establish an upper payment limit (UPL) that will apply to all purchases of and payer reimbursements for that drug in the state.  The UPL may take effect no sooner than 120 days after the Board publicly releases this decision.  Any person affected by a Board decision may request an appeal within 30 days of that decision, but note that it is the Board who makes the initial decision, hears the appeal, and renders the appeal decision.  The appeal decision is subject to judicial review by a Minnesota court.

The establishment of a UPL is not the only consequence that manufacturers may face for its pricing activities under this provision of SF 2744.  Upon a determination that a manufacturer is noncompliant with the UPL requirements, the AG may pursue enforcement through civil or criminal penalties.

Potential Legal Challenges

In enacting the law, Minnesota lawmakers ignored opposition not only from trade groups like PhRMA and the Association for Accessible Medicines (see here and here), but also organizations including the Minnesota Society of Clinical Oncology, and the Association for Clinical Oncology (here), the Council for Citizens Against Government Waste (here), and the National Taxpayers Union (here).  We expect the Minnesota law to face Commerce Clause, vagueness, and possibly other constitutional challenges, similar to those brought against a generic price gouging prohibition in Maryland that was struck down by the Fourth Circuit in 2018 (see our post here).  For now, we will continue to monitor the law, its future implementing regulations, and any legal challenges as they develop.

“Total Product Life Cycle Advisory Program or TAP pilot — the most exciting thing in MDUFA V. This is about reducing the time and cost and increasing the predictability of going from concept to commercialization.” – Dr. Jeff Shuren

During a presentation at the May 17, 2023 Food and Drug Law Institute (FDLI) Annual Conference, CDRH Director, Dr. Jeff Shuren discussed TAP with enthusiasm.  In the ever-changing landscape of medical device development, FDA is touting steps it is taking that it says will enhance efficiency, foster innovation, and address key challenges faced by developers. He highlighted the following key features of TAP:

An Innovative Approach

To provide proactive support and guidance to medical device manufacturers, FDA has introduced a new CDRH position known as the “TAP Advisor.”  CDRH previously described the TAP as a voluntary program that is intended “to de-risk the medical device valley of death by providing industry with earlier and more frequent interactions with CDRH, more strategic input from stakeholders, and proactive, strategic advice from CDRH to spur more rapid development of high-quality, safe, effective, and innovative medical devices first in the world that are critical to public health.” At the FDLI Annual Conference, Dr. Shuren reinforced this by stating that TAP is about “reducing the time and cost and increasing the predictability of going from concept to commercialization to address the valley of death.”

The striking phrase “valley of death,” is generally understood to refer to the tendency for innovative technologies to fail to reach market, whether due to reimbursement and/or physician or patient preference. Given Dr. Shuren’s propensity to use the phrase, we have yet to see it formally defined by CDRH. According to Dr. Shuren, the TAP Advisor acts as a consultant, engaging with companies to identify key questions, challenges, and areas requiring strategic problem-solving. The TAP Advisor is supposed to serve as a conduit between the company and the FDA review team, facilitating proactive engagement and collaborative discussions.

The following enrollment criteria are used during the current TAP Pilot Soft Launch:

• Devices will be those with a granted Breakthrough Device designation;
• Potential participants will not have submitted a Pre-Submission about the device after being granted a Breakthrough Device designation;
• Devices will be early in their device development process (e.g., have not yet initiated a pivotal study for the device) at time of enrollment; and
• Each potential participant will have a maximum of one device enrolled in the TAP Pilot per fiscal year.

It remains to be seen how FDA would define and actually implement the role of a TAP Advisor. As of March 1, 2023, FDA had enrolled four cardiovascular devices in the TAP Pilot. FDA did not share whether a single TAP Advisor has overseen these four devices, or whether each device has its own TAP Advisor. Also, it is unclear which office within CDRH appoints the TAP Advisor, e.g., center-level, OPEQ-level, or division-level. Review teams already appoint a lead reviewer to each submission and sometimes assign a project manager to an extensive project.  It would be beneficial to understand how the TAP Advisor could actually further improve the interaction with companies to facilitate the FDA’s review beyond what is being done by a lead reviewer, project manager, or review division’s management.

“This is really a potential game changer.” – Dr. Jeff Shuren

Since its pilot launch in January, FDA has enrolled four cardiovascular devices in the TAP Pilot. Dr. Shuren stated that some of the manufacturers of these devices have already experienced more interactions in the past few weeks than they otherwise would have over the entire development course of their devices. (While that observation is intended as praise for the TAP Pilot, it can be considered a sad commentary on the general state of manufacturer-CDRH interactions.) FDA plans to expand the program to other device areas with the following goals:

• In FY 2023, enroll up to 15 products in a “soft launch” in one Office of Health Technology (OHT); selection of the OHT will include consideration of the OHT’s historical number of granted Breakthrough designations, workload, and available staffing and expertise.
• In FY 2024, continue to support products enrolled in the previous fiscal year and expand to enroll up to 45 additional products in at least two OHTs (i.e., up to 60 total products enrolled through FY 2024).
• In FY 2025, continue to support products enrolled in previous fiscal years and expand to enroll up to 65 additional products in at least four OHTs (i.e., up to 125 total products enrolled through FY 2025).
• In FY 2026 – FY 2027, continue to support products enrolled in previous fiscal years and expand to enroll up to 100 additional products each fiscal year within existing OHTs or expand to additional OHTs, depending on lessons learned from FY 2023 – FY 2025 experience (i.e., up to 225 total products enrolled through FY 2026 and up to 325 total products enrolled through FY 2027).
• For FY 2024 – FY 2027, in addition to the considerations above, selection of the OHTs will include consideration of experience from prior years and input from industry and other stakeholders.

Dr. Shuren described the TAP program and other programmatic changes at CDRH as a “potential game changer” in the medical device industry. We welcome CDRH’s effort and hope to see that TAP does, indeed, prove to be a “game changer” – at least for the 325 devices over the next 4 years that participate.  To put this in numerical context, in FY 2022 alone, there were 45 PMAs (original and panel-track supplements), 77 de novos, and 3,759 premarket notification 510(k)s (data from 2^nd Quarter FY2023 MDUFA IV Performance Report).

Enhancing Review Capacity

Recognizing the value of real-time interactions, particularly highlighted during the COVID-19 pandemic, FDA aims to expand review capacity. Dr. Shuren said the ability to engage with developers in near-real-time was essential to expediting the authorization of over 2,800 devices during the pandemic. FDA intends to build on its experience by moving away from rigid stage-gate processes and fostering more fluid interactions throughout the review process.

To accomplish the goals set forth in the TAP Pilot, FDA has made a commitment, as part of MDUFA V performance goals, to implement and track the following quantitative performance measures, starting with fiscal year 2024:

• CDRH will engage in a teleconference with the participant on requested topic(s) pertaining to the TAP device within 14 days of the request for 90% of requests for interaction.
• CDRH will provide written feedback on requested biocompatibility and sterility topics(s) pertaining to the TAP device within 21 days of the request for 90% of such requests for written feedback.
• CDRH will provide written feedback on requested topic(s) pertaining to the TAP device other than biocompatibility and sterility within 40 days of the request for 90% of requests for written feedback.

Understanding Stakeholder Perspectives

FDA has acknowledged the importance of incorporating voices from patients, providers, and payors into the decision-making process and evidence-generation strategies. One mechanism to incorporate payors’ voices is through the Payor Communication Task Force. The task force facilitates communication between device manufacturers and payors. CDRH can engage with the Centers for Medicare & Medicaid Services (CMS) for parallel review – the mechanism for FDA and CMS to simultaneously review the submitted clinical data to help decrease the time between FDA’s approval of a premarket application and the subsequent CMS national coverage determination (NCD). Participating in TAP, and thus having access to payors, offers the potential benefit of less time between FDA’s marketing authorization and coverage decisions by CMS.

Currently, 16 payors including CMS participate in the Early Payor Feedback Program where device sponsors can obtain payor input on clinical trial design or other plans for gathering clinical evidence needed to support positive coverage decisions. If a firm would like to request that one or more participating payor organizations join a Pre-Submission meeting, they may contact FDA prior to submitting a Pre-Submission to CDRH for review by sending an email to CDRHPayorCommunications@fda.hhs.gov.

Strategic Priorities

Besides TAP, Dr. Shuren also noted CDRH’s 2022-2025 strategic priorities during his presentation – “Enhance Organizational Agility and Resilience.” By December 31, 2025, CDRH intends to reduce the average amount of time spent on “at least 10 core business processes” without reducing performance or adversely impacting outcomes. The initial target for this simplification effort is the pre-market phase.

Other CDRH strategic priorities include:

• Reduce Barriers and increase opportunities for participation by diverse populations in evidence generation,
• Support Innovation of novel technologies that address health equity gaps,
• Empower People to make informed decisions regarding their healthcare, and
• Facilitate Availability of and access to existing and novel home-use medical technologies for all populations.

Suggestion

One of the goals of TAP is to publish an assessment of the TAP Pilot on the FDA web site no later than January 30, 2026. For a successful implementation of TAP, we believe it is essential that FDA shares information about TAP in a timely manner. While we recognize it may take a few years to gather information from TAP, 2026 is toward the end of MDUFA V and may be too late for any meaningful insight for participants at that time. We suggest that FDA publish an assessment of the TAP Pilot every year, beginning this fiscal year. Such effort may lead innovative developers to decide whether participation is worthwhile and would provide a mechanism for FDA to assess how well the project is working.

We also suggest outlining any commitments and obligation for device manufacturers once they sign up for TAP. Without knowing the details of the program, it may be challenging for manufacturers to understand the benefits and any potential risks of participating in TAP.

For those who are interested in the TAP, please check out the FDA’s website for the TAP and our previous blog posts on it (here and here).

After about a year without any untitled letters from OPDP, Xeris Pharmaceuticals received an untitled letter for their promotion for Recorlev (levoketoconazole) for misleading safety and efficacy claims.  To quote everyone’s favorite flautist (and TikTok sensation) Lizzo, “it’s about d@mn time!”  (Sorry for the bowdlerization, but we’re trying to make it past everyone’s filter and HR warned us in any event.)

MISLEADING PRESENTATION OF RISK INFORMATION

Recorlev is a drug for endogenous hypercortisolemia in adult patients with Cushing’s syndrome for whom surgery is not an option or was not curative.  It has boxed warnings for hepatoxicity and QT prolongation and is contraindicated in numerous patient populations and has 17 adverse reactions with an incidence of >20%.  In other words, this is a drug that requires serious risk information to be presented.

Apparently, however, Xeris treated Recorlev as if it was “fabulous” (sorry Lizzo, we’ll stop, we promise) and merely noted that monitoring was important for patients on Recorlev and that “Side effects can occur with Recorlev, including some that are serious.”  FDA took issue with that presentation considering that the product has boxed warnings for hepatotoxicity and QT prolongation which can cause death.  Moreover, the presentation of risk information suggested that monitoring would be sufficient to help patients avoid these potentially fatal adverse events.  Would that it were so!  But alas, FDA didn’t think this presentation of risk information was appropriate.  This is so even though elsewhere on the webpage the risk information was presented in the “INDICATION AND IMPORTANT SAFETY INFORMATION” section.  But the presentation did not mitigate the misleading effect of the “Monitoring and side effects” presentation because the boxed warnings were buried in the middle of a consolidated risk section.

MISLEADING CLAIMS ABOUT EFFICACY

On top of the misleading presentation of risk information, which would have been enough for a letter in our opinion, Xeris was apparently feeling fussy, walkin’ in [their] Balenci-ussy’s, tryna bring out the fabulous and made misleading claims about efficacy (sorry, we will stop quoting Lizzo, don’t take our blog away).  Without getting too complicated with numbers (we were promised there was no math in law), Xeris played fast and loose with the clinical trial data by inflating the numbers of who benefitted from Recorlev, such as claiming that 52% of patients had normal cortisol levels at the end of the trial without disclosing that more than half the patients had dropped out of the study due to adverse events or lack of efficacy.  Moreover, they tried to imply that 67% of patients who moved on to the second part of one of their studies had normal cortisol levels by the end of the study.  Which would be true, if one defined “end of the study” as “the end of the titration phase and we’ll ignore the other two phases of the study that would actually get us to the end of the study.”

TAKEAWAYS

First, as should be clear, these bloggers should never be trusted with pop culture.  We will only ruin it.  Second, as we have been stating for years (decades at this point), Important Safety Information (ISI) is not sufficient to present risk information and accurate risk information needs to be presented in the context of the main presentation.  An accurate summary in the ISI is not necessarily going to save an inadequate presentation of risk and safety information in the body of the promotional piece, especially if that presentation is itself inaccurate or misleading.

Lastly, and we’re unsure why this requires repeating, and yet, here we are, don’t mess with the clinical trial numbers.  The reviewers at FDA (unlike your loyal bloggers) are pretty good with numbers and can read the prescribing information.  They know when you’re juking the stats.  We’ve blogged on this previously almost exactly a year ago (we did a slightly better job on not offending pop culture).  Interestingly, in both instances, FDA’s Untitled Letters lead with the allegations about misleading efficacy claims and focus on the numbers presented.

This letter ticks several boxes regarding FDA priorities for enforcement – Xeris launched Recorlev in 2022 and it is a drug with significant risks.

In summary, stick to the basics – present safety information accurately and in the body of the presentation and don’t play around with the numbers and then turn up the music, turn down the lights, [we] got a feelin’ [we’re] gonna be alright.

FDA regulates pet food similar to other animal foods. The Federal Food, Drug, and Cosmetic Act (FDC Act) requires that all animal foods, like human foods, be safe to eat, produced under sanitary conditions, contain no harmful substances, and be truthfully labeled. As anyone familiar with pet (and other animal) food regulation knows, many states require premarket label review and approval and registration of the manufacturer/distributor and/or product for a fee. Moreover, ingredients used in pet food must be approved by FDA, affirmed or listed as Generally Recognized as Safe (GRAS) by FDA, or go through the AAFCO definition process. Many states require that ingredients used in pet food be included in the Association of American Feed Control Officials (AAFCO) Official Publication or included in an FDA regulation, and do not accept ingredients that are self-GRAS.  AAFCO also publishes model regulations, including model pet food labeling regulations which states may adopt.

Over the past few months the Pet Food Institute (PFI) has discussed a new system to federally regulate pet food.  PFI expressed some of its frustration with the current state of regulation of pet food by individual states in its comments on the Center for Veterinary Medicine (CVM) Virtual Public Meeting FDA and the AAFCO Animal Feed Ingredient Definition Process. As described in those comments, “[p]et food makers operate under two different sets of regulatory requirements. In one case, those issued by the FDA and separately those requirements found within each state’s commercial feed law. Enforcement for these regulations also occurs both by federal and state officials.” In its comments, PFI alluded to several instances of inconsistent interpretation across states resulting in labels for a pet product being approved in one state and a stop sale being issued for that same product (label) in another state, creating a “muddled” regulatory landscape and (costly) delays in bringing products to the market. PFI’s president has stated that “[t]he biggest issue is the inconsistency in state interpretation of AAFCO label definitions. Although many states adopt or reference AAFCO’s Model Bill for Pet and Specialty Pet Food, often the nuanced application or understanding of these model regulations by an individual state or individual regulator creates a barrier for compliance in one state, while the same product with the same packaging passes scrutiny in others.” PFI has noted that it is not feasible to develop and label products for an individual state.

PFI’s frustration and concern around the current regulatory process overseen by state governments was discussed during the Petfood Forum 2023 convention in Kansas City, MO. At that event, PFI proposed the creation of a federal system for regulating pet food including the creation of a new center within FDA, the Center for Companion Animal Nutrition, that will have federal regulatory authority over pet food and treats for dogs and cats. Based on various reports in the trade press and other public information, the proposed new framework would preempt and prohibit any state government from assessing registration fees, requiring label reviews and premarket approval, and any other measures to regulate pet food sales at the state level. The proposed new center would regulate only food and treats for dogs and cats. Moreover, PFI proposes to authorize the new center to collect user fees from pet food establishments and for ingredient submissions to support funding of the center.

On May 11, the Animal Feed Industry Association (AFIA) issued its initial comments on the proposed framework.  AFIA highlighted the impact the new framework could have for ingredient suppliers that provide products for all animals, including livestock, dogs, and cats. In AFIA’s view, such suppliers could potentially become subject to “a duplicative, dual registration process at the state and federal levels.” AFIA’s comments expressed interest in finding “common ground.”

On May 30, AAFCO released a statement  concerning the proposed framework. AAFCO does not believe that a federally regulated approach is in the best interest of pets or pet owners and asserts that “State feed programs are more accessible and equipped to inspect and regulate pet food. They have inspectors in the field everyday with eyes on the products, on the local manufactures, and on the distributors and retailers. A single federal regulatory system, without these local state partnerships, cannot have this level of awareness and surveillance in the marketplace to respond and take action on illnesses, recalls and issues quickly and effectively.” The AAFCO comment does not address the inconsistencies between states noted by PFI.

We will be monitoring further developments as industry and federal and state regulators continue to discuss potential changes to the current regulatory scheme for pet food.

In May 2023, CDER and CBER published a draft guidance titled “Pediatric Drug Development: Regulatory Considerations – Complying with the Pediatric Research Equity Act [“PREA”] and Qualifying for Pediatric Exclusivity Under the Best Pharmaceuticals for Children Act [“BPCA”]” (the “Draft Guidance”).  This Draft Guidance, in part, replaces a 2005 guidance titled “How to Comply with the Pediatric Research Equity Act.”  The Federal Register notice notes that “[c]ombining discussion of PREA and the BPCA together in regulatory guidance emphasizes the sponsor’s need to consider both laws when developing pediatric drugs and biological products.”

The Draft Guidance covers the legal requirements of PREA and the voluntary incentive  mechanisms of the BPCA in a comprehensive fashion.  However, one piece, excerpted below, stood out to us:

Historically, FDA has at times issued WRs solely for studies required under PREA, even if there were no other indications that may produce health benefits in the pediatric population.  However, over time, data on pediatric labeling changes pursuant to BPCA and/or PREA have been collected.  Between 2002 and 2019, there were 768 products with pediatric labeling changes under BPCA and/or PREA.  Sixty-three percent of these labeling changes were based on studies conducted under PREA/Pediatric Rule alone; 21 percent were based on studies conducted under BPCA alone; 16 percent were based on studies conducted under both the BPCA and PREA.  These data suggest that studies required under PREA are successfully completed, and that PREA requirements have resulted in an increase in pediatric labeling, even without the added incentive of the BPCA.

The BPCA provides FDA with discretion to determine whether to issue, and the appropriate scope of, WRs based on the information that “may produce health benefits” in the pediatric population.  In light of the data on pediatric labeling changes pursuant to the BPCA and/or PREA, FDA believes WRs should be reserved for those sponsors who conduct additional pediatric studies — beyond what is required under PREA — that may produce health benefits in children.  Thus, upon finalization of this guidance, FDA does not expect to issue WRs solely for studies or planned studies that are required under PREA.  In general, FDA expects that a WR that includes studies or planned studies required under PREA will also include additional indications or populations.  If there are no additional studies for indications or populations that may produce health benefits in the pediatric population beyond the studies or planned studies required under PREA, then FDA does not expect to issue a WR for that drug.

This represents a significant policy change from the 2005 guidance, wherein the Agency stated: “It is the Agency’s policy to offer applicants the opportunity to qualify for pediatric exclusivity under section 505A of the Act for studies required and conducted under PREA.”

It is perhaps not surprising that the statutory requirement of PREA, with accompanying enforcement tools, is responsible for such a large percentage of relevant pediatric labeling changes as compared to BPCA’s voluntary incentive.  Moreover, it is not surprising that such a small percentage of relevant pediatric labeling changes are due to the BPCA alone, as one might speculate these largely to be studies outside the scope of PREA – that is, studies for uses unapproved in adults.  However, given FDA’s prior announced policy, it is somewhat surprising that only 16% of pediatric labeling changes pursuant to BPCA and/or PREA between 2002 and 2019 were conducted under both the BPCA and PREA.

Still, however, it appears FDA has had enough of these 16%.  Instead, the Draft Guidance expresses an intention to limit pediatric exclusivity to the 21% of relevant pediatric labeling changes based on studies conducted under the BPCA alone.

It is not clear if any or all of the 16% of pediatric labeling changes based on studies conducted under both BPCA and PREA would have been conducted if BPCA exclusivity was not an option, but the Agency appears ready to test the theory that PREA is all it needs, when applicable.  BPCA exclusivity, consequently, appears likely to now be limited to studies outside the scope of PREA, such as studies in indications or populations unapproved in adults.

On May 11, 2023, the U.S. Department of Health and Human Services declared the long-awaited end of the federal COVID-19 Public Health Emergency.  The pandemic had changed the way people live, work and communicate.  Such changes are not limited to personal circumstances.  The pandemic also deeply impacted how industry and the government conduct their operations.  One distinct change has been the rise of conducting meetings over digital platforms.  However, not all changes are forever. FDA has begun to reintroduce in-person meetings.

CDER and CBER

CDER and CBER announced they would resume in-person face-to-face (FTF) industry meetings on February 13, 2023.  Soon after, the Agency announced beginning on March 27, 2023, the FDA generic drug program would resume in-person FTF meetings, but caveated that the in-person FTF meeting option would only be available for pre-ANDA product development meetings and pre-submission meetings for which the applicant requests this in-person FTF meeting format.

It is also noteworthy that in the March 27 announcement, FDA distinguished between teleconferences and videoconferences despite using the same online platform (e.g., Zoom).  A teleconference will be conducted by voice only with no projection of presentations or use of video/camera; a videoconference would involve sharing a screen so that a presentation can be viewed by all participants and/or involve the use of video.  Therefore, for planning purposes, applicants should clearly indicate the type of meeting they are requesting.  Applicants should also be aware that FDA has the discretion to decide the format of the meeting (e.g., videoconference, teleconference, or an in-person meeting).

On May 31, 2023, FDA announced that beginning on June 12, 2023, CDER and CBER will expand in-person FTF industry meetings (with a hybrid component), to include requests for Type B End-of-Phase 2 (EOP2), along with the previously announced Type A, BPD Type 1, and Type X meeting requests.  In this announcement, FDA clarified that an FTF meeting “includes in-person meetings and virtual meetings on IT platforms that allow for both audio and visual communication” per the PDUFA VII and BsUFA III commitment letters (see footnote 9 in PDUFA Reauthorization Performance Goals and Procedures Fiscal Years 2023 Through 2027, and footnote 2 in Biosimilar Biological Product Reauthorization Performance Goals and Procedures Fiscal Years 2023 Through 2027).

FDA notes that all in-person FTF formal meetings at CDER and CBER will have a hybrid component (virtual attendees in addition to in-person attendees).  Participants with a primary speaking role from FDA and the sponsor side are encouraged to attend meetings in-person while others join virtually.  FDA posted the recommendations for ZoomGov audio and video settings for in-person participants during the hybrid meetings.  FDA also notes that the number of approved in-person meeting requests is limited due to the availability of hybrid conference rooms.  Any meeting requests received before June 12, 2023, or meetings already scheduled, will not be converted to in-person format.

CDRH

As of this blog post, CDRH has not made any official announcements regarding the resumption of in-person meetings.  An estimated timeline for the return of in-person meetings has not been provided by CDRH.

That said, the availability of in-person meetings may differ among the Offices of Health Technology (OHTs).  Based on our experience, some OHTs may offer a meeting where certain members of the review team attend the meeting in person, while others may join the meeting online; others may be entirely online.  However, to the best of our knowledge, CDRH has not granted a meeting where sponsor participants are permitted to join a meeting in-person.

Advisory Committee Meetings

As of this blog post, all Advisory Committee Meetings that FDA has announced will be conducted via an online platform.

Tips for Successful FDA Meetings

Irrespective of the meeting type, it is essential for sponsors to be well-prepared in advance of meeting with FDA.  A successful meeting with FDA hinges on several key factors, including a comprehension of the meeting purpose, an understanding of FDA’s expectations regarding the matters at hand (often conveyed through written feedback before the meeting), the anticipation of and preparation for potential challenges from the review team, and the ability to communicate clearly and effectively.  It is also crucial to maintain a respectful and cooperative demeanor, document the meeting discussion and action items, and promptly address follow-up actions.  By following these tips, industry may be able to foster a productive and constructive engagement with FDA, leading to favorable outcomes for the development of new medical products and a strengthened relationship going forward.

As we move into the heat of the summer, we can look forward to the annual June deluge of opinions coming from the Supreme Court.  Last week, the Court ruled on a pair of combined cases that potentially impacts many of our blog readers in the pharmaceutical, device, and biologics space that benefit from reimbursements from Federal health care programs.

The court handed down its decision in cases colloquially referred to as SuperValu, which readers may recall from our coverage of another, related circuit court decision and the Supreme Court oral arguments.  The case pitted whistleblowers against chain pharmacies SuperValu and Safeway, both accused of overbilling Federal programs for reimbursements on prescription drugs.  The cases were both brought under the False Claims Act (FCA), the Civil War-era law that the government uses to claw back funds it pays out to parties that overbill federal programs.

The False Claims Act is an important tool for the Federal government to recoup misspent taxpayer dollars, used across numerous agencies to recapture billions of dollars each year.  Doing business with the federal government comes with numerous restrictions and special provisions in exchange for the benefit of having access to Federal reimbursements.  When recipients of federal funds violate those terms, whistleblowers can file a suit that the Department of Justice can take up to reclaim some of those lost taxpayer dollars.

The FCA incentivizes whistleblowers to come forward by awarding them a cut of any recovery.  They are entitled to receive one third of any claw back, which can result in multi-million-dollar awards.  Additionally, the FCA explicitly allows for treble damages, meaning that companies that overbill the federal government may be liable for up to three times the amount of their disallowed reimbursements.

What was SuperValu all about?

The FCA also has a scienter requirement, that is, a requirement to show intent to defraud.  It’s not a often viewed as a high evidentiary bar, as the FCA is a civil statute written and interpreted to sweep in a wide range of fraudulent intent in order to protect Federal funds.  The scienter requirement stated in the statute includes proof of actual knowledge, deliberate ignorance, or recklessness.  In this case, the Supreme Court provided greater clarity on how to interpret that requirement.

In SuperValu, whistleblowers accused the two nationally known retail pharmacies of overbilling the Centers for Medicaid and Medicare Services (CMS) for reimbursements for prescription drugs.  According to the suit, the pharmacies improperly collected the full price for drugs from CMS that they dispensed to consumers under a discounted pricing plan.  The whistleblowers alleged that the pharmacies were entitled only to claims for the discounted prices, and the full claims were therefore improper.

This case made it to the Supreme Court because the pharmacies defended the whistleblower claims by arguing that their practices amounted to an “objectively reasonable interpretation” of one of those aforementioned restrictions on doing business with the Federal government.  CMS requires payees to bill only for “usual and customary” prices of drugs.  Borrowing from a scienter standard set in the Fair Credit Reporting Act (FCRA), the chain pharmacies asserted that was exactly what they were doing.

According to their defense, CMS had not made clear that they had to discount their reimbursement claims to the same degree that they discounted prices to patients. Under their argument, billing the full price was objectively reasonable in the face of lacking guidance from CMS.  The Seventh Circuit accepted the pharmacies’ take in a 2-1 vote that resulted in a summary judgment victory for the pharmacies, and the dismissal of the whistleblowers’ suits.

The Supreme Court Decision

The unanimous Supreme Court was having none of it.  Justice Clarence Thomas authored the court opinion, which promptly dismissed the pharmacies’ strategy and the use of the FCRA’s “objectively reasonable” standard in FCA cases.  The FCA rises and falls on subjective intent of the overbilling party, the Court ruled, an idea now enshrined in the Supreme Court ruling in addition to the words of the statute.  Thomas wrote:

Based on the FCA’s statutory text and its common-law roots, the answer to the question presented is straightforward: The FCA’s scienter element refers to respondents’ knowledge and subjective beliefs—not to what an objectively reasonable person may have known or believed. And, even though the phrase “usual and customary” may be ambiguous on its face, such facial ambiguity alone is not sufficient to preclude a finding that respondents knew their claims were false.

This was the long-predicted outcome, as the pharmacies received a frosty reception at the oral argument earlier in the term.  SuperValu will now go back down to the Seventh Circuit for reconsideration, where the evidence of the pharmacies’ intent will presumably face a less forgiving re-evaluation.

The “objectively reasonable” standard was a potential boon for companies overbilling the government, as it would have allowed them to produce any sort of reasonable excuse well after the billings took place and use that as a shield against enforcement.  But the real loss here is for companies that, on a daily basis and with the blessing of CMS (see, e.g., footnote 16 of this guidance), are required to make reasonable assumptions in the hugely complex and often ambiguous rules for reporting average sales price, average manufacturer price, and best price.

This ruling tells these companies that an objectively reasonable interpretation of an ambiguous requirement may not always protect them from whistleblower and government scrutiny.  SuperValu is undoubtedly a victory for whistleblowers, and a shot over the bow for recipients of government reimbursements.

The Inflation Reduction Act’s price negotiation program for drugs covered under Medicare Parts B and D (“Negotiation Program”) has been challenged in federal court.  Yesterday, Merck filed a complaint in the D.C. District Court challenging the Negotiation Program as a “sham,” an “extortion,” and a violation of the First and Fifth Amendments to the Constitution.

We described the Negotiation Program in our summary of the IRA here.  Recall that CMS will require manufacturers of selected drugs to negotiate a maximum fair price (“MFP”) with the agency according to the following timeline (the dates apply from applicable year 2027 onwards).  Note, in particular, the array of severe penalties with which manufacturers are threatened for non-compliance at the various stages:

*unless manufacturer withdraws all its drugs from Medicare and Medicaid.

In its complaint, Merck characterizes the Negotiation Program as coercive and draconian. According to the company, neither the negotiations nor the agreements are genuine: the government unilaterally selects drugs for inclusion into the program, compels the manufacturer to sign an agreement to sell the drug at whatever price the negotiation will produce, and then requires the company to agree to the price—all under threat of enormous taxes or penalties.

Merck challenges the program on two constitutional grounds.  First, Merck characterizes the program as a “per se taking” without just compensation under the Fifth Amendment, because manufacturers are “force[d] . . . to transfer their patented pharmaceutical products to Medicare beneficiaries, for public use” at a government-dictated price that is a fraction of the drug’s value.  Complaint at 2.  Although the Act does allow manufacturers to avoid the tax penalty by terminating its agreements for all of its drugs under Medicaid and Medicare (i.e., the Medicaid Drug Rebate Agreement and the Medicare Part D Coverage Gap Discount Agreement or the agreement under the successor Part D discount program that begins in 2025), Merck characterizes that as a coercive penalty for the refusal to forfeit its First and Fifth amendment rights.  Merck also points out that it takes between 11 and 23 months for a manufacturer’s termination of the Part D agreement to take effect, during which it is subject to the tax.  Merck asks the Court to declare that the Negotiations Program is a taking without just compensation and to enjoin the government’s agreements under the Fifth Amendment.

Second, Merck argues that the parody of a negotiation and a fair price compels speech in violation of the First Amendment.  The “façade of ‘negotiations’ and ‘agreements’” require Merck to communicate that it has “agreed” to an HHS-mandated price, and to endorse the viewpoint that the price is ‘fair’”, when in fact there has been neither a real agreement nor a fair price.  The complaint characterizes this as political deception that conscripts companies to legitimize government extortion. Complaint at 3.

In a prior post, we commented that, in enacting previous government discount programs in the early 1990s (the Medicaid Drug Rebate Program, the 340B drug discount program, and the VA federal ceiling price requirements), and even the Medicare Part D Coverage Gap Discount Program in 2003, Congress was careful to found the programs on voluntary agreements, in part to avoid Takings Clause and other Constitutional challenges.  With the IRA Negotiation Program, Congress jettisoned the voluntary agreement approach in all but name.  Constitutional challenges by Merck, and probably other manufacturers, are the predictable result.

The Academy of Managed Care Pharmacy (AMCP)’s Format Executive Committee is excited to let you know that after two years of work, version 5.0 of the Format for Formulary Submissions (also known as dossiers) is on the horizon.  And we need your feedback!  We’ve included revisions to the Format in key areas related to digital therapeutics, health disparities, streamlining dossiers, as well as AMCP guidance on Pre-Approval Information Exchange (PIE) decks.

We want to hear from you!  The evidentiary recommendations and guidelines outlined in the Format  are used by manufacturers and health care decisions-makers to inform coverage, policy, and reimbursement decisions for medical products.  The Format was last updated to version 4.1 in 2020.  Please review the proposed revisions to the Format and provide your comments in this form by June 30.

FDA recently released further updates to the Customer Collaboration Portal (“CCP”).  Readers of the blog will know that I am a HUGE fan of the CCP (see our earlier posts here and here).  It has made filing of all premarket submissions much easier by facilitating a direct upload of the submission to FDA.

The CCP has also allowed industry the ability to track the status of 510(k) submissions.  The CCP identifies the 510(k) date of receipt, and the number of days until a decision/response is due.  It also lists all major 510(k) submission milestones and when they are complete.

The most recent updates to the CCP allow sponsors of Pre-submissions to track their status just as they are able to do for 510(k)s.  Just like the 510(k) tracker, the pre‑submission tracker shows the official correspondent the date on which the submission was received and the major milestones.  As shown in the screenshot below, the milestones include (i) acceptance decision, (ii) setting the meeting date, (iii) providing written feedback, and (iv) holding the meeting.  Sometimes pre-submissions do not follow as predictable a path as 510(k)s.  By providing standard pre-submission timelines, we hope it will provide greater transparency to sponsors as to the status of their pre‑submission review.

We look forward to continuing to see the expansion of the CCP.

Last Friday, May 26, CMS published in the Federal Register an assortment of proposals to change the regulations governing the Medicaid Drug Rebate Program.  Most are new or revised definitions and administrative changes, but several proposals represent new policies that should be of concern to drug manufacturers.  It is not our purpose to describe all of the nearly 20 changes proposed in this regulation, but the most noteworthy are described below, roughly in order of importance.

1. Price Transparency Surveys

The MDRP statute requires manufacturers to submit only three prices: average manufacturer price (AMP), best price, and nominal prices.  Absent from the statute is any requirement to report information on manufacturer costs and price setting.  Nevertheless, riding on the wave of drug price transparency legislation in several states and similar legislative proposals in Congress, CMS is proposing to expand the MDRP into the realm of drug price transparency reporting.  For 10 high-cost single source covered outpatient drugs selected annually by CMS, manufacturers would be required to respond to a so-called “price verification survey” by providing not only clinical and utilization information about the drug, but also costs of production, distribution, research, and marketing; revenue and profit; and ex-U.S. pricing.  Non-proprietary information disclosed in the survey would be posted on a public web site.

To select drugs for the annual survey, CMS would identify single source covered outpatient drugs that have the highest (top 5^th percentile) Medicaid drug spend per claim; the highest (top 0.5%) total Medicaid drug spend; the highest (top 1%) WAC increase over 12 months; or the highest (top 5^th percentile) launch price where the annual treatment price exceeds $500,000.  From this list would be removed drugs of manufacturers that have participated in a program of price negotiation with CMS, and those that have negotiated supplemental rebates with at least half the states totaling a specified aggregate amount.  If the resulting list exceeded 10 covered outpatient drugs, CMS would narrow the list by eliminating drugs subject to manufacturer price reduction programs offered to states, such as value-based purchasing arrangements or subscription models, and/or by considering cost.  A manufacturer that refused to respond to a survey would be subject to civil monetary penalties.

As authority for this dramatic expansion of manufacturer reporting requirements under the MDRP, CMS cites its authority to survey “manufacturers that directly distribute their covered outpatient drugs, when necessary, to verify manufacturer prices and manufacturers’ average sales prices (including wholesale acquisition cost) ….”  42 U.S.C. § 1396r-8(b)(3)(B).  However, the survey is not limited to manufacturers that directly distribute their drugs and its purpose goes well beyond verifying prices.

2. Best Price Stacking

We previously blogged about the 4^th Circuit Court of Appeals decision in United States Ex Rel. Sheldon, v. Allergan Sales, which affirmed a lower court decision in a Federal False Claims case involving best price stacking.  “Stacking” refers to aggregating discounts provided by a manufacturer to different customers on the same unit of drug – for example a discount to a pharmacy and a rebate to a third-party payor – when determining best price.  In the Allergan case, the relator claimed that Allergan knowingly failed to stack discounts on the same drug unit to two different customers when determining best price.  The Maryland Federal District Court found for Allergan, holding that the government could not establish the requisite intent because Allergan had not been warned by authoritative guidance from CMS and CMS had failed to clarify the stacking issue.  Now CMS proposes to rectify this shortcoming, and short-circuit any similar lawsuits in the future, by unambiguously requiring the stacking of discounts on the same unit of drug to different best-price eligible entities – regardless of whether the entities are affiliated or not.

3. “All In” Manufacturer Definition

CMS believes that the National Rebate Agreement (NRA) requires a “manufacturer” to report to Medicaid all of its covered outpatient drugs, under all of its labeler codes.  Some multi-affiliate manufacturers have withheld the drugs of a corporate affiliate from the MDRP on the ground that the affiliate is a different manufacturer with a different labeler code and does not have an NRA.  CMS proposes to eliminate this practice by reviving the substance of a 1995 proposed rule that was never finalized: CMS would add to the definition of “manufacturer” a requirement that “all associated entities of the manufacturer that sell prescription drugs, including but not limited to, owned, acquired,  affiliates, brother or sister corporations, operating subsidiaries, franchises, business segments, part of holding companies, divisions, or entities under common corporate ownership or control, must each maintain an effectuated rebate agreement.”  This includes newly acquired labeler codes and newly formed subsidiaries.  In CMS’s terms, manufacturers must be “all in” for all of its drugs or “all out.”  If a manufacturer terminates the NRA for one of its labeler codes, CMS will terminate all of the manufacturer’s NRAs for all labeler codes.

4. Penalties for “Misclassification”

The Medicaid Services Investment and Accountability Act of 2019 added new penalties to the Medicaid rebate statute for knowingly misclassifying a covered outpatient drug.  See 42 U.S.C. § 1396r-8(b)(3)(C)(iii).  The CMS regulation (unlike the statute) would expansively define a “misclassification” to include, not only misclassifying the drug category (e.g., misclassifying a single source drug or innovator multiple source drug as a non-innovator multiple source drug), but also reporting other “drug product information . . . that is not supported by the statute and applicable regulations.”  The preamble provides an example of reporting an incorrect baseline AMP, which reduces the unit rebate amount.  Under this contrived definition, an error in reporting any of the numerous drug and pricing data fields in the Medicaid Drug Programs reporting system would potentially be considered a “misclassification” subject to the new penalties – even if it did not result in any financial harm to Medicaid.  The new penalties (over and above the payment of any underpaid rebates) include a civil monetary penalty of 23.1% of the AMP of the drug multiplied by the number of misclassified units paid for under Medicaid, and suspension of the drug from federal payment under Medicaid.

5. Best Price Exemptions for Patient Savings Programs Restored

Under CMS regulations before December 2020, best price and AMP excluded patient savings programs in the form of manufacturer discount cards, coupons, copayment assistance, patient rebates, and free product vouchers, provided that the full value of the benefit provided is received by the consumer.  As we previously blogged, a final CMS regulation issued on New Year’s Eve 2020 added that the manufacturer must “ensure that” the full value is received by the patient, effectively requiring manufacturers to verify for each individual patient whether the patient’s health plan had an accumulator adjustment program, which would effectively prevent the patient from receiving the full value of the benefit.  PhRMA successfully challenged that amendment, and on May 17, 2022, the United States District Court for the District of Columbia ordered that the 2020 rule be vacated and set aside.  To implement the court order, CMS now proposes to eliminate the offending text and revert to the original exclusions.

6. Suspension of NRA for late submissions

The MDRP statute imposes per-day penalties for late pricing submissions, and also provides for suspension of the manufacturer’s NRA if the submission is over 90 days late.  42 U.S.C. § 1396r-8(b)(3)(C)(i).  CMS proposes a suspension procedure under which CMS would provide written notice to the manufacturer of a failure to submit a timely report.  If the information were not reported within 90 calendar days after the notice, the manufacturer’s NRA would be suspended for all of its covered outpatient drugs after the 90-day period, and federal payment would be unavailable for the drugs.  The NRA could be reinstated when the information is ultimately reported, but not until at least 30 days after the date of suspension.  The preamble clarifies that a suspension of the NRA would not affect the manufacturer’s obligations under the 340B drug discount program or reimbursement under Medicare Part B.

7. Internal Investigations

Under the MDRP, manufacturers must restate incorrect AMPs and best prices and may do so without CMS involvement going back three years from the current quarter.  Restatements of periods before the three-year window require CMS approval of a request, and one of the grounds for such a request is to address specific rebate adjustments as required “under an internal investigation.”  CMS now proposes to define an “internal investigation” as a manufacturer’s investigation of its AMP, best price, customary prompt pay discounts, or nominal prices previously certified to CMS that results in a finding of fraud, abuse, or a violation of law or regulation.  What is noteworthy about this proposed definition is that it adds a new requirement that “[a] manufacturer must make data available to CMS to support its finding.”  Presumably, the data referred to are the support for the recalculated values, which CMS heretofore has not required in the typical recalculation submission.  There is no limitation on the amount of detail CMS may require under this definition.

8. Diagnosis in prescriptions

The statutory definition of a “covered outpatient drug” excludes a drug used for an indication that is not a “medically accepted indication,” which is in turn defined as an indication that is approved by FDA or that is favorably noted in specified drug compendia.  42 U.S.C. §§ 1396r-8(k)(3) and 1396r-8(g)(1)(B)(i).  This limitation is virtually unenforceable because prescriptions and Medicaid claims for drugs do not identify the patient’s diagnosis or condition.  For this reason, CMS requests information (but proposes no rule yet) on whether prescriptions should be required to identify the diagnosis.  The preamble notes that this information would help ensure that drugs are being used for approved or otherwise medically accepted indications.

9. Definitions

Apart from the definitions of “manufacturer” and “internal investigation” discussed above, CMS proposes to add other definitions:

• “Market Date”: Largely consistent with the definition in existing subregulatory guidance, this term would be defined as the date on which the drug was first sold by any manufacturer.
• “Vaccine”: Because vaccines are excluded from the MDRP, CMS proposes to define them solely for purposes of the MDRP.  Vaccines would be defined as a product that is administered prophylactically to induce active, antigen-specific immunity for the prevention of one or more specific infectious diseases and that is licensed by FDA.  The preamble clarifies that the definition does not include a therapeutic vaccine.

*    *    *

Several of the changes described above – most notably the price transparency surveys, the best price stacking policy, the control group definition of “manufacturer”, and the expansive definition of a “misclassification” warranting penalties – represent substantial but questionable expansions of CMS authority under the Medicaid rebate statute.  These, at least, are deserving of comments, which are due by July 25, 2023.

CBS News caused a bit of commotion last week in reporting that after a four-year delay, DEA issued a final order revoking Morris & Dickson’s DEA registration.  However, until today there had been no public information about this decision. This morning, the Federal Register published two DEA notices on the Morris & Dickson matter (here and here).

The first notice is a Final Decision and Order revoking the Morris & Dickson registration, but not effective until 90 days after publication. Usually, a Final Decision and Order is effective 30 days from publication. The second notice solved that mystery. In the second notice the DEA Administrator is issuing an Order granting the 90-day effective date from publication of the Final Decision. According to that Order, Morris & Dickson had requested a stay of the Final Decision to renew settlement negotiations. The government, while opposing the stay, stated it was willing to enter settlement discussions.  Thus, the DEA Administrator has given the parties 90 days to work something out.

Those of us tracking DEA matters had wondered about the long delay in publication of a Final Decision in this matter. On May 24, 2019, Morris & Dickson paid a $22 million civil penalty related to the failure to report suspicious orders and ignoring certain red flags in the distribution of controlled substances.  However, at the time the parties were unable to settle the pending administrative show cause action based on the same violations.  DEA held an administrative hearing on the alleged violations in May 2019 and, according to the proposed Final Decision and Order, the DEA Administrative Law Judge transmitted his Recommended Decision to revoke the DEA registration to the DEA Administrator on November 26, 2019.

The Recommended Decision has sat through three (3) DEA Administrators and more than 3 (three) years before notice of the current proposed actions. There have been other cases where Final Decisions and Orders have taken more than a year, but 3 ½ years is as long as we can remember. It also highlights how such delays are a disservice to the industry and public interest.

While this decision was pending, Morris & Dickson remained an authorized DEA registrant to continue to handle controlled substances.  It has continued to serve customers who have relied on the distributor to supply controlled substances and other medicine. But such activity has operated under a cloud which affected both suppliers and customers of Morris & Dickson given that the DEA registration was not issued a new registration but nor was it revoked. Except in the case of an immediate suspension, a DEA registrant remains authorized to handle controlled substances during the course of a show cause proceeding.  We also speculate that if DEA had any new evidence that Morris & Dickson was not otherwise complying with its regulatory responsibilities it would/should have taken further action during this time, otherwise the delay in issuing the Final Order would have been contrary to the public interest. For its part, during these four years, Morris & Dickson has had the opportunity to demonstrate the effectiveness of its remedial measures.

Neither the CSA nor regulations promulgated by DEA provide any deadline for issuing a Final Order and Decision.  But given that the issue for granting or revoking a DEA registration is whether the registration is in the “public interest” the delay does raise issues about the reasonableness of revoking a DEA registration more than 3 years later, having let Morris & Dickson continue to actively handle controlled substances during that time.

The resolution to the conundrum appears to be a potential settlement that could result in Morris & Dickson obtaining a new DEA registration, likely subject to a Memorandum of Agreement.  DEA was unwilling to settle the matter four years ago, so the Agency’s willingness to discuss a settlement now would have to be based on findings that Morris & Dickson’s recent compliance efforts justify granting a new registration at this time.

ONE WEEK AWAY! Join attendees from around the globe at the IBA’s World Life Sciences Conference in Washington, DC.  We are honored to have keynote addresses from DOJ and FDA officials.  The conference will highlight hot topics affecting the healthcare and life sciences industries.

Hyman Phelps & McNamara, P.C. Director, Anne Walsh, will moderate a panel that addresses what companies should consider when in the crosshairs of a government investigation.  She will bring together speakers to discuss the wide variability in the penalties that can be brought against a company and any responsible individuals, particularly in light of the different frameworks available globally for making prosecutorial decisions.  Register here.

On May 16, the U.S. Food and Drug Administration (FDA) released a draft update to its Compliance Policy Guide (CPG) for FDA staff on the Agency’s enforcement of major food allergen labeling and cross-contact.  The draft CPG reflects the three major laws and regulations that form the foundation of FDA’s regulatory framework for major food allergens and which became effective since the issuance of the current CPG, CPG Sec 555.250 Statement of Policy for Labeling and Preventing Cross-contact of Common Food Allergens, which was first issued in 2001 and last revised in 2005.  Since then, the science and legal and regulatory framework for food allergens have evolved considerably:  Congress enacted the Food Allergen Labeling and Consumer Protection Act (2004) and the Food Safety Modernization Act (2011), and FDA implemented the regulatory requirements set forth in 21 C.F.R. Part 117, and the Food Allergy Safety, Treatment, Education and Research Act (2021).

The draft CPG describes FDA’s enforcement policy and cross-contact controls for major food allergens, including:

• The labeling requirements for major food allergens identified in the Federal Food, Drug and Cosmetic Act;
• FDA’s position on the proper use of the ingredient list and “Contains” statement for major food allergen declarations:
  • Major food allergens unintentionally incorporated into a food may not be declared in the ingredient list or the “Contains” statement;
  • When a “Contains” statement is used on a food label, then the food source of all major food allergens present in the food must be declared in the “Contains” statement, even if they are also declared in the ingredient list;
• Requirements for firms to implement controls that prevent or significantly minimize allergen cross-contact and a note that the allergen advisory statement does not relieve the manufacture from the obligation to minimize or prevent allergen cross contamination; and
• Additional allergen labeling violations (e.g., the product label declares “tree nut” or “fish” but fails to declare the type of tree nut or species of fish in either the ingredient list or in a separate “Contains” statement).

The draft CPG directs FDA field staff to examine possible food product adulteration due to labeling related to allergen cross-contact.  Specifically, field staff are advised to pay close attention to situations where allergen cross-contact may occur because of poor current good manufacturing practices (cGMPs), inadequate preventive controls, or inadequate controls under the juice or seafood HACCP regulations.

In the announcement of the release of the draft CPG, FDA acknowledged that “some manufacturers are intentionally adding sesame to products that previously did not contain sesame and are labeling the products to indicate its presence” to avoid implementing difficult and costly practices to prevent cross-contamination.  FDA noted that it “does not support” intentionally adding sesame as a regulatory compliance strategy, because it “may make it more difficult for sesame-allergic consumers to find foods that are safe for them to consume.”  Although the draft CPG does not address this industry practice, FDA commented that it is engaged with stakeholders on this issue.

The Center for Science in the Public Interest publicly condemned FDA’s “tepid” and “not adequate” statements regarding this practice—a practice which began shortly after the addition of sesame to the major food allergen list, and which has faced mounting criticism from other consumer advocacy groups and lawmakers.

To be considered, comments to the draft CPG must be submitted to the docket by July 17, 2023.  We expect to see comments urging FDA to act against the industry practice of intentionally adding sesame to foods, but it is unclear what actions FDA could take without interfering with manufacturers’ choice over the ingredients in their products.  We will have to wait and see whether FDA will add sesame-specific guidance addressing this issue (which seems to be limited to sesame) to its CPG for major food allergens.