Hyman, Phelps & McNamara, P.C. is  pleased to announce that Adrienne Lenz will be speaking on Deciphering New and Proposed Regulatory Guidances For Medical Devices and Diagnostics at the Q1 Productions 4th Annual Life Science Regulatory Intelligence Virtual Event being held January 24-25, 2022.  The foundation of the regulatory intelligence and strategy is to remain abreast of current regulatory and legislative guidelines.  The magnitude of guidance documents affecting a product throughout its lifecycle makes this a continual challenge for regulatory teams. This session will highlight current guidance documents that are of key importance to device and diagnostic manufacturers and regulatory intelligence executives.  This virtual event brings together global intelligence, strategy, policy and legal experts to share best practices on challenges faced by regulatory teams.

FDA Law Blog readers are offered a discount of 15% off the registration price.  The case-sensitive discount code is Q1HPM15.  You can access conference information and register for the event here.

On December 7, 2021, the Natural Products Association (NPA) filed a complaint seeking an injunction based on FDA’s actions excluding N-acetyl-L-cysteine (NAC) from the definition of dietary supplement.  At issue is FDA’s interpretation of the “exclusionary clause,” section 201(ff)(3)(B)(ii) of the FDC Act, which among other things excludes from the dietary supplement definition articles that are approved as new drugs, or authorized by FDA for investigation for therapeutic uses for which “substantial clinical investigations have been instituted and for which the existence of such investigations has been made public” and which were not “marketed as a dietary supplement or as a food” before such approval or authorization.  Specifically, the issue is whether this provision applies to bar dietary supplements, such as NAC, that were on the market before the enactment of the Dietary Supplement Health Education Act (DSHEA), in 1994, which added this exclusionary clause into the FDC Act.

NAC is widely available as a dietary supplement and has been marketed as a dietary supplement since before the enactment of the DSHEA.  It also has been approved and is used to treat acetaminophen poisoning and some other conditions.   According to FDA, NAC is excluded from the dietary supplement definition because NAC was approved as a drug in 1963 and, as far as the Agency has been able to determine, there is no evidence that NAC was marketed as a food or supplement before the drug approval.

In July 2020, FDA sent warning letters (WLs) to seven companies about products containing NAC.  The main reason for the WLs seemed to have been the companies’ impermissible use of drug claims that NAC was effective against hangover.  However, FDA also asserted that NAC is excluded from the dietary supplement definition because NAC has  been approved as a drug in 1963 and FDA was not aware of evidence of the marketing of NAC before that date.  FDA did not consider that NAC was legally marketed as a dietary supplement before 1994.

Although FDA had previously questioned or suggested that NAC was excluded, FDA had not taken any enforcement action against NAC supplements during the more than 25 years that they have been marketed as a dietary supplement.

In December 2020,  the Council for Responsible Nutrition (CRN) sent a letter asserting, among other things, that NAC had been on the market before DSHEA was enacted and, therefore, was a “grandfathered” ingredient.  CRN argued that the exclusionary clause in DSHEA was not intended to apply to such grandfathered ingredients but instead was intended to bar new dietary ingredients which would be first introduced into the US market after the enactment of DSHEA.  Absent a specific provision in DSHEA, the exclusionary clause would not apply retroactively; the passing of DSHEA did not affect the status of ingredients on the marketed prior to DSHEA.  FDA did not respond to the letter.

Six months later, in an effort to get FDA to address the issue, CRN submitted a Citizen Petition (CP) again asking that FDA reconsider its position that NAC is excluded.   Several months later, NPA filed its own CP  making the same arguments.

In November 2021, FDA issued tentative responses to the two CPs, here and here.  In these responses and in the Constituent Update , FDA requests information on the earliest date that NAC was marketed as a dietary supplement or as a food, the safe use of NAC in products marketed as a dietary supplement, and any safety concerns.  Much to the frustration of the industry, the tentative response did not address the legal issue crucial to the future of NAC, i.e., that NAC is a legal (grandfathered) dietary ingredient because DSHEA does not apply retroactively to exclude dietary supplements that were on the market before the enactment of the law.  FDA merely indicated that it was still considering that issue.

As readers of this blog may know, FDA is not required to provide a substantive response to a CP within a specific time and it may take years before FDA issues a response (In fact, HPM submitted a CP in 2000 to which FDA has yet to respond).  Since FDA’s statements about NAC as dietary supplement had resulted in several retailers barring the sales of NAC supplement, getting to FDA to address this issue was an urgent matter.  Therefore, NPA filed a lawsuit.  NPA’s complaint includes essentially the same arguments and facts as the Citizen Petitions.  In addition, it points to statements by an FDA Office of Criminal Investigations agent in an application for search warrants that NAC is excluded from the definition of dietary supplement.  NPA points to these and subsequent statements by FDA in the prosecution as final agency action re NAC which can be challenged in court.

NPA asks the court to declare that the exclusionary clause does not retroactively apply to the dietary supplement NAC and seeks a preliminary and permanent injunction prohibiting FDA from taking any regulatory action against manufacturers, sellers or distributors of NAC based on the claim that the drug exclusion prohibition is retroactive.

There are interesting procedural and substantive issues in this case, both with respect to NAC specifically and with respect to FDA regulation generally.  First, what constitutes, reviewable agency action?  Here, FDA has not issued a rule or other formal administrative action, but it has—in what are purportedly non-final actions—pressed its interpretation.  Seemingly that should give a plaintiff standing.  Second, was DSHEA intended by Congress to apply retroactively?  As a matter of statutory construction, absent explicit language, statutes are generally intended to apply prospectively.  Third, even if Congress intended DSHEA to apply retroactively, does the Constitution permit it?  The Ex post facto clause of the Constitution generally makes it unconstitutional to have a law retroactively impose penalties. We will be monitoring developments in this litigation.

On December 6, 2021, FDA published a proposed rule to reorganize and amend the highly criticized agricultural water provisions of the Produce Safety Rule (PSR). This marks the Agency’s latest effort to balance public health protections with covered farms’ persistent concerns that the current provisions are overly complex, difficult to implement, and ill-suited to address the diversity of water uses and sources in the produce industry.

The proposed changes are extensive, but the three main takeaways to note are that the proposed rule:

• will replace microbial quality and testing requirements with systems-based agricultural water assessments;
• will enhance risk-based mitigation measures with expedited mitigation for known or reasonably foreseeable hazards from animal activity, biological soil amendments of animal origin, or improperly treated human waste associated with adjacent or nearby lands; and
• emphasizes flexibility for covered farms to choose how to comply with the agricultural water requirements.

These changes are described in greater detail below. We note that the proposal concerns pre-harvest activities and the existing standards for covered farms’ harvest and post-harvest activities are not affected by the proposed rule. Also, the proposal concerns all produce except for sprouts, which are subject to separate requirements.

Background

The PSR, finalized in 2015 under the Food Safety Modernization Act (FSMA) and codified at 21 C.F.R. Part 112, established (for the first time ever) mandatory federal science-based minimum standards for the safe production and harvesting of produce for human consumption. FDA has long recognized (in its own investigations and based on decades of scientific research) that the quality of agricultural water is an important factor in produce safety. Subpart E of the PSR was specifically developed to address agricultural water quality control.  Among other requirements, it establishes testing obligations and microbial quality criteria for agricultural water based on the water’s intended use, e.g., irrigation water, water used in preparing crop sprays, etc.). In addition, Subpart E includes measures that a covered farm must take if its agricultural water fails to meet these requirements.

FDA quickly found itself in troubled waters with these new requirements. The regulated industry criticized the complexity and the one-size-fits-all approach of Subpart E.  In 2017, in an effort to lighten the burden for affected parties, FDA proposed to extend compliance dates until at least Jan. 26, 2022.  Despite opposition, FDA finalized the proposal to extend the compliance dates in March 2019.

Now, six years after finalizing the PSR but before the compliance date, FDA published a proposal to address stakeholders’ concerns about the PSR’s agricultural water requirements.

Testing the waters with a comprehensive assessment framework

FDA proposes to replace Subpart E’s prescriptive and highly technical testing requirements and microbial water quality criteria with more flexible provisions. These provisions will instead require covered farms to perform comprehensive, systems-based, and management-reviewed agricultural water assessments to identify and address potential risks associated with pre-harvest agricultural water.

If finalized, covered farms will be required to conduct written pre-harvest agricultural water assessments annually. The assessments must include all possible sources which are reasonably likely to introduce known or reasonably foreseeable hazards regardless of whether the farm has control over those hazards, specifically:

• The location, nature, and current and previous use(s) of the water source;
• The type of water distribution system;
• The degree to which the system is protected from possible sources of contamination, such as adjacent and nearby land uses, and particularly animal impacts;
• The type of application method (e.g., overhead sprinkler or seepage irrigation);
• The time interval between the last direct application of agricultural water and harvest of the covered produce;
• Crop characteristics that make covered produce vulnerable to contamination (e.g., susceptibility of the produce to surface adhesion or internalization of contaminants);
• Environmental conditions (e.g., rainfall patterns that may impact the agricultural water system or damage produce); and
• Other relevant factors that could inform the assessment (e.g., optional testing).

Covered farms will also be required to conduct pre-harvest agricultural water assessments whenever a significant change occurs that may increase the likelihood that a known or reasonably foreseeable hazard will be introduced into or onto produce or food contact surfaces. In other words, any change in the factors considered in the agricultural water assessment will trigger a reassessment requirement if that change may impact hazard identification or a risk management determination. For example, a change in the manner of water application will require a farm to conduct another agricultural water assessment if that change introduces, or increases the chance of introducing, a known or foreseeable hazard into or onto produce or food contact surfaces.

This comprehensive assessment approach is adaptable to diverse and changing circumstances.  The proposal recognizes that many interconnected factors, such as variability in agricultural water sources, systems, and practices, nearby land uses, crop characteristics, and environmental conditions, pose possible sources of contamination which differ from farm to farm. In addition, the proposed rule is designed to accommodate future improvements in agricultural water quality science. For instance, although generic E. coli is currently the preferred indicator for monitoring water quality, future scientific developments may provide for the use of viral indicators, such as coliphages, to inform water quality assessments. As FDA explains, “as new science [becomes] available in the realm of water quality monitoring, farms should have the flexibility to take those findings into account when establishing or updating their sampling programs.”

The proposed rule further provides covered farms the flexibility to choose whether to test their pre-harvest agricultural water for generic E. coli and, as science evolves, other appropriate organisms or analytes. This option, which would be in addition to the required agricultural water assessments, includes detailed requirements for sample collection, testing frequency, and validation to ensure that the testing is adequate to supplement a farm’s agricultural water assessment. Optional testing helps alleviate the burden on produce farms that lack nearby laboratories capable of testing water samples, or that rely on water sources that are too numerous or inconsistent to provide representative water sampling.

Finally, proposed exemption provisions add flexibility to the regulations. FDA proposes to exempt covered farms from conducting a pre-harvest agricultural water assessment if they can demonstrate that their pre-harvest agricultural water for covered produce:

• meets the PSR requirements for harvest and post-harvest agricultural water (such as the microbial quality criterion and testing requirements for untreated ground water);
• is received from a public water system that meets Safe Drinking Water Act or state regulations (provided that the farm has public water system results or certificates of compliance demonstrating that the water meets relevant requirements); or
• is treated in accordance with the applicable PSR standards (i.e., the method, delivery, and monitoring of the treatment are done in a manner that is effective to make the water safe and of adequate sanitary quality for its intended use).

Corrective and mitigation measures to keep farmers’ heads above water

FDA proposes that covered farms use the assessments to determine whether corrective or mitigation measures will be necessary to reduce the risk of contamination of their pre-harvest agricultural water, or whether routine inspections and maintenance will suffice to ensure the water’s safety and sanitary quality. The assessments also allow covered farms to evaluate trends impacting their agricultural water systems and the effectiveness of any mitigation measures taken.

FDA is proposing to require that corrective or mitigation measures be taken based on certain findings, displayed in the chart below.

Even though the proposed rule prescribes measures that covered farms must take based on findings from their agricultural water assessments, it provides covered farms with choices of mitigation measures.  For example, they may adopt microbial die-off or removal post-harvest activities (e.g., commercial washing) as a mitigation measure.

By providing covered farms with options rather than being prescriptive, the proposed rule helps address the root cause of covered farms’ complaints that Subpart E’s requirements are too complex and rigid to implement effectively.

It’s Time to Sink or Swim: Proposed Effective and Compliance Dates

As mentioned above, the earliest compliance date for Subpart E is Jan. 26, 2022 (the compliance date for small farms is Jan. 26, 2023, and the compliance date for very small farms is Jan. 26, 2024). Since the current requirements are likely to change, FDA proposes to exercise enforcement discretion for the agricultural water requirements for covered produce while it works to extend the compliance dates until after the proposed rule has been finalized.

FDA has not identified a target date for publication of the final rule. Comments to the proposed rule may be submitted until Apr. 5, 2022 here.

It seems like every other discussion I have these days someone asks, “what is going on with the pre-submission program?”  “I heard CDRH isn’t reviewing pre-submission,” or “I heard FDA is only providing written feedback and not holding meetings.”  So, we thought it was time for a post dedicated to every device manufacturer’s favorite early interaction process – the pre-submission program.

This spring, CDRH provided an update on how the pandemic had affected the Center’s workload (announcement here).  The announcement indicated that OHT7 (formerly OIR) has been and would continue to be declining most pre-submissions.  The only pre-submission that this Office have been and would be continuing to review are those “related to COVID-19, companion diagnostics, a breakthrough designation request, or have a significant public health impact.”  In our experience, OHT7 has been reviewing pre-submissions for these product types.  Companies with non-COVID diagnostics should carefully consider whether their tests fit within one of these categories.

For pre-submissions in other Offices, the announcement stated that CDRH “anticipate[s] pre-submissions . . . be[ing] completed within 120 days, rather than the usual 70 days.”  In our experience, these estimates have held true.  Offices, other than OHT7, have continued to review pre-submissions and hold teleconferences, when requested.  These meetings are often taking longer than the pre-pandemic 70-day timeline, however.  In our experience, these delays, sometimes, come at the last minute just before a meeting has been scheduled.  Thus, sponsors will need to remain flexible even when a meeting has been scheduled.  We have also noticed, in some circumstances, Offices declining to answer all of a sponsor’s questions noting that, for example, a separate pre-submission was required for a question regarding study risk when the pre-submission is seeking input on the study design.  These efforts appear designed to limit the focus of pre-submissions.

Bottom line – the pre-submission program is still running just with some minor modifications.  Meetings are being held – virtually still.  In light of Omicron, it is unclear when in-person pre-submissions will return.  We confirmed that there have been no other changes to the Center’s policies.  Sponsors should be aware that CDRH is doing its best to remain flexible with its Divisions given their workload and many Divisions are currently understaffed due in part to departures and/or resources having been pulled to other Divisions.

Nothing says “happy holidays” quite like the issuance of Federal Trade Commission (FTC) orders – essentially, subpoenas – to large retailers, wholesalers and suppliers of food, cosmetics, personal care and OTC products, among other things, during the supply chain’s busiest time of the year. Antitrust has had an unusually crazy year, and things are getting crazier with the FTC section 6(b) study into the consumer goods supply chain approved by the FTC on November 29, 2021.

Back in July, the White House issued an Executive Order on Promoting Competition in the American Economy which set forth 72 initiatives for multiple federal agencies suggesting sweeping and decisive change in antitrust policy and priorities at the agency level. As one of those initiatives, the FTC is tackling concerns with the consumer goods supply chain. While the study will do nothing to alleviate the economy’s current bottlenecks, it could shape future regulatory actions intended to maintain or increase competition in key industries, consistent with the Executive Order.

Section 6(b) of the FTC Act allows the FTC to conduct “wide-ranging studies that do not have a specific law enforcement purpose.” The FTC is planning to study the effect of the supply chain disruptions of the past year on competition, and states it “will examine whether supply chain disruptions are leading to specific bottlenecks, shortages, anti-competitive practices, or contributing to rising consumer prices.”

The recent section 6(b) orders were sent to Walmart Inc., Amazon.com, Inc., Kroger Co., C&S Wholesale Grocers, Inc., Associated Wholesale Grocers, Inc., McLane Co, Inc., Procter & Gamble Co., Tyson Foods, Inc., and Kraft Heinz Co. It is possible the FTC will issue orders to other participants in the supply chain at a later date. The FTC seeks information about “the primary factors disrupting [these companies’] ability to obtain, transport and distribute their products; the impact these disruptions are having in terms of delayed and canceled orders, increased costs and prices; the products, suppliers and inputs most affected; the steps the companies are taking to alleviate disruptions; and how these companies allocate products among their stores when they are in short supply.” The orders also seek internal company documents such as “strategies related to supply chains; pricing; marketing and promotions; costs, profit margins and sales volumes; selection of suppliers and brands; and market shares.” The FTC is soliciting public comments on the impact of supply chain disruptions on competition in consumer goods and retail.

As mentioned above, section 6(b) studies do not have a specific law enforcement purpose, but they could lead to focused investigations and help reshape the FTC’s enforcement strategy. Conduct that may raise potential antitrust concerns such as exclusive agreements, allocation systems, or sudden price increases will certainly catch their eye. Additionally, a number of groups (see here, here, and here) have recently raised concerns to the FTC, House and Senate about industry practices that include price discrimination, trade promotion, category captain and online retail sales.

The information the FTC is collecting, the comments it is soliciting, and the hearings it will hold will eventually be distilled down to a written report, but that will take time – perhaps a year or longer. While the supply chain disruptions will hopefully be a distant memory by the time the report is issued, the report will no doubt provide insights into antitrust issues in the CPG supply chain and the direction of the FTC’s future enforcement efforts.

Hyman, Phelps & McNamara, P.C.’s Anne Walsh will be moderating “Updates in Litigation Risks: Product Liability, Private Litigation, and Consumer Class Actions,” at the upcoming Food and Drug Law Institute’s Enforcement, Litigation, and Compliance Conference on December 9-10.  As we move out of the COVID-19 pandemic, come hear from your peers about how they are staying compliance- and inspection-ready as FDA ramps up inspections, what companies need to do to plan for and manage enforcement risk, trends in criminal and civil litigation, and government priorities for the new year. Sign up with the discount code SAVE15 for 15% off registration.  Learn more here.

Earlier this fall, in accordance with its MDUFA IV commitments, CDRH launched an online platform that allows sponsors to track the status of its submissions.  The platform is called the Customer Collaboration Portal (CCP) and is “a secure, web-based tracker that displays the CDRH progress in reviewing traditional 510(k) submissions.”  See announcement here.  The CCP is currently only available for Traditional 510(k)s.

Now that sponsors have had the opportunity to use the system for a couple of months, we thought we would share our thoughts on it.  Unsurprisingly, we think it’s great.  It includes all the necessary information for each submission under review including the reviewer and all relevant dates in a concise format.  A sample is shown below.

This summary also appears to remain available even once a final decision is made on the 510(k).  To date, completed 510(k) submissions are still showing in the CCP.  This historical reference may also be useful to sponsors in the future.

While sponsors have always had all of these dates, they have had to keep track of them manually and then calculate when the next interaction will/should occur.  It is, certainly, convenient to have it all in one place.  Also, at the top of the page, there is a helpful tracking bar that shows how long until the next major date; for example, when the sponsor’s response to a hold letter is due or when FDA expects to render its decision on the 510(k).  Examples of the tracking bar are shown below.

Again, sponsors could always calculate these dates but having a location where they are easily accessible is expedient and ensures that there is a clear and consistent understanding between the sponsor and the Center.  We applaud the Center’s efforts to make this system available.  Sponsors who have not previously used the system will automatically be sent login credentials shortly after CDRH begins its review of the submission.

In terms of improvements – the system provides all the basic information for Traditional 510(k)s.  Given that this is only one type of submission that sponsors will file, it would be helpful to have all submission types included in the CCP going forward.  Also, in the future, it would also be nice if copies of the relevant correspondence to the sponsor were also linked to in the submission for ease of reference.  But, for now, in our view, the CCP is a welcomed tool for sponsors.

DEA is proposing to amend its regulations to expressly permit the transfer between pharmacies of an initial controlled substance prescription.  Currently, DEA regulations do not address transfer of controlled substance prescriptions — whether paper or electronic — between pharmacies for the initial filling of the prescription.  Historically, if a patient presented a paper prescription to a pharmacy and the pharmacy was unable to fill it, the pharmacist would simply return the prescription paper to the patient and the patient would carry the prescription to a second pharmacy.  There really was no need to “transfer” the paper prescription between pharmacies; paper prescriptions are “portable” by the nature of their paper format.

However, the growing use of electronic prescriptions (DEA notes that more than half of all states mandate electronic prescription opioids, all controls, or all prescriptions) requires DEA to rethink its position on initial prescription transfers.  This is especially important given that the SUPPORT Act of 2018 (section 2003) requires EPCS (with few exceptions) for those prescriptions covered under Medicare Part D beginning in January 2021.

The proposed rule also just makes sense.  More specifically, if a pharmacy receives an electronic prescription for a controlled substance that it cannot fill, the pharmacy simply cannot “return” the prescription (which now is likely an electronic data file) to the patient to take to another pharmacy.  DEA regulations currently do not include any provision for a pharmacy to transfer an EPCS to another pharmacy.  The regulations also do not describe how a pharmacy should handle an EPCS that it receives but cannot fill. At present, a pharmacy that receives an EPCS that it is unable to fill can only notify the patient that the prescription cannot be filled. In this scenario, the patient could then call the prescribing practitioner to request that a new EPCS be sent to a different pharmacy. DEA realizes that this scenario creates the potential for a duplication of prescriptions if, for example, the practitioner transmits a new EPCS to a different pharmacy and does not cancel or void the original EPCS that was sent to the first pharmacy. DEA also recognizes the inability to transfer prescriptions creates an additional burden for patients, who must get back in touch with the original prescribing doctor and request a new prescription.

DEA’s proposal states that, upon request, a registered retail pharmacy may transfer an EPCS in schedules II-V to another registered retail pharmacy for initial filling. This rule will also specify the procedures that retail pharmacies must follow, and the information they must document and maintain when transferring EPCS.

The following recordkeeping requirements will apply to the EPCS transfers:

• The transferring pharmacist must update the patient’s prescription record with the following information: name, address, and DEA registration of the pharmacy to which the prescription was transferred; the pharmacist receiving the transfer; the name of the transferring pharmacist; and the date of the transfer.
• The receiving pharmacist must record the transferring pharmacist’s name, address and DEA registration number, the name of the transferring pharmacist, the date of the transfer, and the name of the pharmacist receiving the transfer.

As with other DEA recordkeeping requirements, the electronic record must be maintained for two years.  DEA estimates that the annual cost savings from the transfer rule would be $22.0 million.  The anticipated savings are based on calculations related to the pharmacists, patients, and prescribers’ time communicating concerning the need to generate and send a new EPCS instead of having the ability to electronically transfer the prescription to another pharmacy.   Comments from industry are due January 18, 2022 (Docket No. DEA-637).

On November 15, HHS announced that it was withdrawing the prior administration’s policy that prevented FDA from requiring premarket review of laboratory developed tests (LDTs) without notice and comment rule making.  See the prior post on this policy here.  This statement comes at least six months after the policy was removed from the HHS website without any public notice (a copy of the prior policy is available here for reference).  Although we were surprised to learn that the prior policy had vanished from the HHS website at least six months ago, we were not surprised that the Biden Administration had reversed the prior policy.

The announcement is light on details, simply stating that the policy was withdrawn and that “HHS no longer has a policy on LDTs that is separate from FDA’s longstanding approach in this area.”  This suggests that the LDT status quo ante has been restored. As our readers know, our firm has long been critical of this status quo (see our prior posts here, here, here, here, and here, just to name a few).

The rationale for withdrawal appears to have been that the prior policy allowed LDTs with “poor performance” to enter the market without prior FDA review.  This rationale is weak, at best.  In the past, when pushed to provide examples, FDA has struggled to provide examples or evidence of poorly performing LDTs.  Nevertheless, FDA has said that in its review of 125 EUAs applications for COVID-19 LDTs, 82 contained design or validation issues that the agency believed needed to be resolved before an EUA could be authorized.[1]  Further, the prior HHS policy was supported by a legal analysis concluding that FDA could regulate LDTs only after notice and comment rulemaking. (legal memo available here).  It is unclear whether HHS revised this analysis prior to reversing the August 2020 policy.

The HHS announcement was accompanied by a corresponding statement from FDA as to how this change will affect its review of LDTs.  In relevant part, the FDA announcement states, “the FDA now generally expects newly offered COVID-19 tests, including LDTs, to have an EUA or traditional marketing authorization such as a granted De Novo or cleared 510(k), prior to clinical use.” (emphasis added).  The announcement goes on to say that the notification pathway available for certain tests intended for use in CLIA high-complexity laboratories had led to “some poorly performing testing being offered prior to FDA review.”  See our prior post on the notification pathway here.  Thus, the FDA states that it is “ending those notification policies going forward” and revised its COVID testing guidance, available here, and added new Q&As to its FAQs for SARS-CoV-2 Testing.

No doubt many questions will be raised regarding the rationale, legality, and impact of HHS and FDA’s actions, but two threshold questions for clinical laboratories are: what does this mean for COVID-19 LDTs they are currently offering or may seek to offer going forward?; and what impact will HHS’ removal of constraints on FDA’s oversight of LDTs mean for laboratories performing non-COVID LDTs? We discuss each of these key questions below.

What do these announcements mean for Labs performing COVID-19 LDTs?

If the lab has obtained an EUA for its COVID-19 LDT, which many did because of the PREP Act protections afforded by the authorization, there is nothing more for the lab to do because the only change introduced by the policy is the need for an EUA.  Certain modifications to the LDT could, however, require the submission of an amendment to the EUA.

If a lab is performing a COVID-19 LDT that is not subject to an authorized or pending EUA and that is not included in one of FDA’s notification lists (see our discussion of the notification list below), the Guidance states that the laboratory should either submit an EUA within 60 calendar days of November 15, 2021 (i.e., Friday, January 14, 2022) or cease marketing on or before this date.  FDA notes that it plans to review all LDT EUA submissions.  If FDA declines to issue an EUA after such review, a lab will need to cease offering the test within 15 calendar days of being notified by FDA.

FDA’s decision to again require EUAs for COVID-19 LDTs raises a serious question of capacity. OHT7 is already unable to perform its normal functions, such as reviewing pre-submissions for non-COVID diagnostic devices.  It is unclear why FDA would choose to devote resources to reviewing COVID-19 LDTs that are on the market instead of providing feedback to companies that have new types of diagnostic devices or reviewing IVD submissions in a timely manner.

It is also unclear why FDA would take steps that could reduce the availability of COVID-19 testing.  Even if the Agency believes that there is sufficient access nationwide, LDTs have played an important role in filling local needs.  The sudden loss of access to a laboratory is bound to be disruptive to institutions, physicians, patients, employers, and schools, among others, who have relied upon testing at that facility.

What does the withdrawal of the notification pathway mean for COVID-19 tests?

If a lab is performing a COVID-19 LDT that was added to the notification list and for which an EUA submission is pending, then the consequences depend on whether the EUA was submitted before or after February 1, 2021.  If the EUA was submitted after February 1, 2021, there is nothing for the lab to do as FDA does not intend to object to offering of such tests while the EUA is under review.  If the EUA was submitted prior to February 1, 2021, a lab must notify FDA on or before December 30, 2021, as described in the Guidance, letting FDA know that:

1. the developer wants FDA to continue reviewing its EUA request;
2. the EUA request is for the current version of the test; and
3. either the developer does not have additional data to add, or the developer submits updated information to FDA within that same timeframe including, if not previously provided, validation with clinical specimens using an appropriate comparator.

The Guidance indicates that if a lab needs to submit additional information under item 3, it should also explain how the test falls within the test priorities for the “current stage of the public health emergency and the tests for which FDA will be prioritizing review.”

As many on the notification list know, FDA review of certain EUAs has been slow, with many ultimately being “deprioritized.”  FDA’s revised guidance states that, for tests on the notification list, “FDA intends to notify test developers by email if FDA declines to issue or otherwise decides not to authorize a test for any reason,” (emphasis added) and the test manufacturer will be required to cease marketing within 15 calendar days of such declination.  The language “for any reason” raises significant questions, e.g., what if FDA declines to review an EUA because it is deprioritized?  Will these tests need to be taken off the market?  There is a difference, after all, between FDA determining that a test may not perform well and deciding that a test is low priority.  It is unclear how the deprioritization process affects the new call for EUAs. The lack of clarity here underscores, once again, the uncertainty surrounding various aspects of the LDT process.

What do these announcements mean for non-COVID LDTs?

FDA’s press release and guidance give no hint as to the FDA’s intentions with respect to the hundreds of thousands of LDTs being performed for conditions other than COVID-19.  As we noted above, HHS appears to have restored the status quo ante for LDTs – in other words, a general policy of enforcement discretion with exceptions (e.g., for companion diagnostics, direct-to-consumer tests).  But certain actions taken by HHS during the last administration arguably create “facts on the ground” that may have implications for FDA’s next steps.  For example, the prior HHS policy revoked all LDT guidance documents.  The latest notice makes no mention of the status of such guidance documents.  Furthermore, as noted above, the previous General Counsel prepared a memorandum for then FDA Commissioner Hahn that called into question the scope of FDA’s authority over LDTs and unequivocally concluded that FDA is legally required to engage in rulemaking before regulating LDTs. How, if at all, will the current administration respond to the legal arguments laid out in this memorandum?

HHS’ policy reversal and FDA’s guidance updates raise numerous practical questions that laboratories offering, or contemplating whether to offer, COVID-19 LDTs are now scrambling to address. These laboratories must decide whether to withdraw, submit, or update their LDTs, taking into account whether additional data will be needed to supplement their EUAs and whether their tests are likely to be authorized given FDA’s new test priorities.  The impact of FDA’s resumption of COVID-19 LDT regulation on laboratories and the public remains to be seen.

[1] COVID-19 Tests Highlight Need for Strengthened FDA Oversight and Diagnostics Legislation, PEW Charitable Trusts (May 19, 2021), https://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2021/05/covid-19-tests-highlight-need-for-strengthened-fda-oversight-and-diagnostics-legislation [https://perma.cc/49Z9-3R2C].

Sixteen years after the publication of the Guidance for the Content of Premarket Submissions for Software Contained in Medical Devices issued May 11, 2005, FDA issued a new draft guidance document on November 4, 2021 that describes the recommended documentation that a sponsor should include in their premarket submissions. To put the age of the existing guidance into perspective, it was published two years before the first iPhone was released. Over the past 16 years, there have been numerous advances in healthcare technology, particularly with respect to the use of software in and as a medical device. Please see our previous blog postings on various software regulatory developments (here, here, and here).

This new draft guidance document applies to “device software functions” that meet the definition of a device under section 201(h) of the Federal Food, Drug, and Cosmetic Act (FD&C 17 Act).

If you’re interested in software products that do not enjoy any of the 21st Century Cures exemptions and require premarket submissions, please continue to read this blog. Summaries of the impact of the 21st Century Cures Acts on software and the definition of a medical device are available here, here, here, and here.

The new draft guidance applies to both Software in a Medical Device (SiMD) which would be your traditional hardware with embedded software and Software as a Medical Device (SaMD). The scope of the new draft guidance is basically the same as the 2005 guidance which includes:

(1) firmware and other means for software-based control of medical devices, (2) stand-alone software applications, (3) software intended to be operated on general-purpose computing platforms, (4) dedicated hardware/software medical devices, and (5) accessories to medical devices when those accessories contain or are composed of software. It does not apply to software-related documentation that may be needed to evaluate post market software device issues (e.g., corrections and removals). Like the 2005 guidance, this new draft guidance applies to all types of premarket submissions, but now the Agency has specifically added De Novo Classification Requests and Biologics License Applications (BLA).

The most obvious update to the new draft guidance is the shift from three to two categories for determining what software documentation to include in a premarket submission. According to the 2005 software guidance document, FDA used Major, Moderate, or Minor Level of Concern to determine the recommended documentation for software. In the new draft guidance document, FDA introduced four risk-based factors to help determine the device’s documentation level—either Basic Documentation level or Enhanced Documentation level.

Basic Documentation is necessary for all device premarket submissions that include software functions. But if the device (i) is a constituent part of a combination product, (ii) is intended to test blood donations, or to determine donor and recipient compatibility, or a blood establishment computer software, (iii) is categorized as a Class III device, or (iv) presents a probable risk of death or serious injury upon failure, then such device software functions are categorized as Enhanced Documentation level. Note that, unlike the 2005 software guidance, the new guidance only references serious injury, which is an injury or illness that is life threatening, results in

permanent impairment of a body function or permanent damage to a body structure, or necessitates medical or surgical intervention to preclude permanent impairment of a body function or permanent damage to a body structure. Both the draft guidance and the 2005 guidance require the assessment of the risk to be evaluated prior to the implementation of risk control measures. Interesting to note, FDA specifically called out the use of the word “probable” versus purely hypothetical, when determining the risk of death or serious injury. However, “probable” risks also include the likelihood that the device could be compromised due to cybersecurity risks.

Below is an overview of the software documentation sponsors would need to provide for Basic and Enhanced levels:

The major difference between the two is that Basic Documentation Level does not need to submit the Software Design Specification. However, there are differences in the level of detail expected for some of the deliverables. For example, Software Development and Maintenance Practices allows a declaration of conformity to IEC 62304 to work for both categories.

However, if the sponsor does not provide a declaration of conformity, Basic level devices would only need to provide a summary of configuration management and maintenance activities while sponsors of devices in the Enhanced level would need to provide the summary as well as complete configuration management and maintenance plan documents.

For software testing as part of verification and validation, only a summary description of the testing activities at the unit, integration, and system levels is required for devices categorized as Basic level, but for sponsors of devices in the Enhanced level, they need to also provide unit and integration level test protocols and results. The Agency added details that clarify their expectations around test results, specifically that it would not only include the pass/fail determinations, but additionally include expected results and observed results.

Under the proposed framework, the amount and type of software documentation may increase or decrease for existing software devices when a sponsor files its next premarket submission.

“Minor” level of concern software devices, under the 2005 guidance, were defined as failures or latent design flaws that were unlikely to cause any injury to the patient or operator. If the draft guidance is finalized, the next time a sponsor submits for a formerly “Minor” level of concern software, it will need to provide documentation similar to what had been previously required of a “Moderate” level of concern device. “Moderate” level of concern was defined as failures, malfunctions or latent design flaws in the software that could directly or indirectly likely lead to minor injury to the patient or operator. (Refer to Table below).

Under the 2005 guidance, if a sponsor’s software was a “Moderate” level of concern device the required documentation would decrease under the draft guidance. The software device would now be categorized as Basic Documentation Level and the Software Design Specification would not need to be submitted.

Other significant changes include the FDA’s details around what is expected for System and Software Architecture and Risk Management. FDA has devoted an entire Appendix to providing sponsor’s examples of architecture charts. With respect to Risk Management, now in addition to submitting your Risk Analysis (previously referred to as a hazard analysis), sponsors also need to

submit their Risk Management Plan and Risk Management Report, which should address methods for collection of relevant production and post-production information. For those of you who thought Traceability Analysis went away, it did not. Traceability was simply included in the description of the Software Requirement Specification document.

FDA has also taken steps to update the guidance for Artificial Intelligence/Machine Learning software devices. This is a welcome change given that AI/ML software is becoming much more widely used in medical devices, as evidenced by the list of AI/ML-enabled medical devices recently published by FDA (here). For AI/ML software, specifically, the draft guidance indicates that the software description should include the populations or samples informed your model(s) and what steps were taken to identify and address potential biases and limitations of your model(s). Interestingly, the draft guidance does not reference other AI/ML-specific considerations, like, Predetermined Change Control Plan, which has been contemplated in FDA’s AI/ML action plan (see our prior post on the action plan here). We would encourage FDA to consider aligning the final guidance with the AI/ML action plan so the expectations for AI/ML software documentation is clear and comprehensive.

When final, this new document will replace the 2005 guidance document. Interested parties have until February 22, 2022 to comment on the new guidance at this link.

In England, over‑the‑counter (OTC) rapid antigen tests for COVID are widespread and available at low cost.  In America, these tests are scarce and relatively high‑priced.  Why is that?

Background

Rapid tests for COVID-19 are fast, inexpensive to manufacture, and a relatively easy method to detect the presence of an active SARS‑CoV‑2 infection.  The tests are similar to a pregnancy test in the sense that they display one or two lines to indicate a result after a few minutes.

The tests are very accurate in detecting individuals with a relatively high viral load (symptomatic or not).  They generally have a high Positive Predictive Value (PPV), which means that when users test positive, there is a high likelihood that they are infected.  A positive result, however, is treated as a screen.  A follow up laboratory‑run molecular diagnostic (RT‑PCR) test is considered the gold standard for actual diagnosis.

On the minus side, a rapid antigen test may miss an infected individual with a low viral load (e.g., early in an infection).  Therefore, if a test is negative, the test‑taker is a presumptive negative, meaning that there has not yet been a rule out of SARS‑CoV‑2.  That is just another way of saying, however, that the rapid antigen tests are best positioned as a screening tool.

By law, a rapid antigen test may only be marketed after FDA grants an Emergency Use Authorization (EUA).  We have worked with dozens of clients trying to obtain an EUA for prescription and OTC rapid antigen tests.  Unfortunately, in these cases, FDA has acted less like a gatekeeper and more like a brick wall.

Unrealistic Performance Standard

A significant obstacle to approval of these tests is the performance standard that FDA applies.  As context, a rapid antigen test is uniformly evaluated by comparing the results to the RT‑PCR gold standard.  For OTC intended use, until very recently, FDA had been requiring 90% positive percent agreement (PPA) in detecting positive cases between the rapid antigen tests and RT‑PCR.

This threshold is unreasonable given the differences in the technology.  A rapid antigen test analyzes the sample as‑is, while the RT‑PCR can amplify the sample many times to create a detectable signal.  In the case of a person who is positive but with a low viral load, the RT‑PCR analytical instrument may detect it, while the rapid antigen test may be called incorrectly simply due to an incorrect visual reading by a lay user.  Despite this significant difference in technological characteristics and human factor impact, FDA’s 90% agreement requirement has effectively required rapid antigen tests to perform as though they were RT‑PCR tests, even for specimens with a low viral load.

FDA’s unreasonable requirement has excluded perfectly good rapid antigen tests from the American market.  These tests could have been a valuable screening tool for COVID during the past year or so.  True, these tests will never provide the same diagnostic quality results as RT‑PCR, nor will they perform as well in patients with a low viral load.  All things being equal, we would only need RT‑PCR tests.

But all things are not equal.  For one thing, there is limited laboratory capacity to test specimens.  This capacity limitation does not apply to OTC lateral flow antigen tests, which can be manufactured in the hundreds of millions per month at a much lower cost than RT‑PCR tests.  Additionally, the RT‑PCR tests generally require that a specimen be collected and mailed to a laboratory, creating at least a 2‑day turnaround.  They are not rapid.  In short, the low-cost OTC rapid antigen tests are not a replacement for RT‑PCR tests, but they provide a testing option better suited for mass screening.

On November 9, 2021, FDA lowered the threshold from 90% to 80% positive percent agreement for OTC rapid antigen tests.  Both of these thresholds appear to be arbitrary.  FDA has never publicly explained how it chose either threshold.

It would be sensible, given the inherent technological characteristics of rapid antigen tests, to avoid an overly high (and arbitrary) PPA threshold that many candidate tests will struggle to meet.  Sometimes, the ability to hit the threshold depends randomly on how many low viral load subjects enroll in a study.  That is not a real measure of the test performance, but rather, the luck of the draw.

An alternative would be to significantly lower the PPA threshold to a level that most rapid antigen tests, if they are performing correctly, can meet.  For instance, consider the blood tests that detect the antibodies produced by SARS‑CoV‑2 infection.  FDA only requires a PPA of 70% (when compared to RT‑PCR) for devices that detect IgM antibodies produced by a SARS-CoV-2 infection.  Why not apply this same threshold to rapid antigen tests?

Another alternative might be to allow a calculation of PPA limited to specimens exceeding a set minimum viral load.  That would exclude the low viral load specimens that all rapid antigen tests struggle with.  It also would help standardize the performance evaluation among the different tests by focusing on the viral load range that all of these tests should be able to handle well.

Or, perhaps FDA could eliminate the PPA threshold but require disclosure of a test’s performance in lay language on the outer box.  FDA has taken a similar approach to other devices like OTC blood glucose meters.

Any number of alternatives would be worth considering to escape the unsatisfactory status quo.  But what FDA must first do is to stop demanding near‑diagnostic quality results from OTC rapid antigen tests.  They need to be reviewed in a manner that is appropriate in light of their inherent technological characteristics and intended screening use.  Then, the other players in the healthcare system may determine whether the tool is right for this pandemic and how best to deploy it.

These players include the federal and state public health authorities, the healthcare profession, third party payors, and patients.  They all have a role to play, but right now they all are sitting on the sidelines because FDA has not let the OTC rapid antigen tests out of the locker room.

Not A Priority

FDA’s flawed review approach is compounded by its failure to make the review of these tests a priority.  To the contrary, FDA has strangled these tests with red tape and delays.

For example:

• The EUAs for prescription and OTC rapid antigen tests can sit for months before FDA even assigns a reviewer. By its (in)action, FDA has strongly signaled that OTC rapid antigen tests are not a priority.
• FDA requires companies to select RT‑PCR comparators for their clinical studies but refuses to publicly designate which ones are acceptable. We have had more than one client spend considerable time and money conducting a clinical study, only to be told that the comparator is not acceptable.
• FDA recommends that the choice of comparator be discussed as part of a confidential pre‑EUA (PEUA) submission. Unfortunately, this option has been proven to be impractical.  Once submitted, PEUAs are reviewed in an unpredictable timeframe spanning anywhere from two months to never.  On average, our experience with PEUAs is closer to 6 months from submission to feedback.
• During the EUA review process, FDA sets deadlines for responding to deficiencies that are impossible to meet. They can be as short as 24 to 48 hours.  Sometimes, FDA will issue a deficiency letter and, on the same day, close the file.  The sponsor must gather the requested information and cycle through with a brand new EUA filing.

When all is said and done, FDA’s review system does not efficiently process EUA submissions for OTC rapid antigen tests.  There is no sign that FDA understands what it has done wrong or that the agency is taking steps to fix it.

The Biden Administration announced almost a month ago that it hopes to streamline the review process.  Apparently, the National Institutes of Health (NIH) will spend $70 million on a new program to accelerate test-makers through FDA’s process. It was reported as follows:

HHS said in a statement that as part of the new program, government health experts will conduct studies on over-the-counter tests and work with the companies ‘to compile proper data, work towards the right benchmarks for performance and support other needs that will help ensure they are providing the best submissions possible for FDA’s regulatory review.

This statement is another way of saying that FDA has not been doing its job properly.  So now taxpayers will pony up $70 million for NIH to help companies navigate FDA’s flawed process.  It would be better if FDA were to fix the process itself.

This announcement also looks like it may be regulatory vaporware.  We have not seen any evidence of a stood‑up program.  FDA has not responded to our request for details and none have been publicized.  All we have so far is an announcement.

Needed Reforms

FDA should urgently initiate a rapid reboot of its current review of OTC rapid antigen tests.  The following quick reforms would go a long way:

• Publish a list of acceptable RT‑PCR comparators (with the option to discuss other comparators in a PEUA). That would significantly facilitate clinical study design.
• Significantly lower or eliminate the PPA requirement (or modify it to exclude low viral load subjects). Consider requiring disclosure of performance data in lay language on the outer box.
• Remove deadlines for sponsors to respond to deficiencies. It costs FDA nothing to put an EUA file on inactive status rather than requiring a brand-new filing.

If these reforms (and others) were carried through, FDA would be in a better position to ensure that sponsors wishing to offer high quality OTC rapid antigen tests for COVID can readily do so.  Whether the other players in the American healthcare system would choose to use these tests is not guaranteed, but at least the option would be available.

There’s a lot of things packed (and that need to be unpacked to understand) into the latest version (as amended) of H.R. 5376, the 2100-plus page bill better known as the “Build Back Better Act.”  The bill has gone through the House Committee on Rules and will likely be debated soon on the floor of the House of Representatives.

One of the new programs included in the H.R. 5376 that has garnered the greatest amount of attention (at least in the food and drug law world) is TITLE XIII, Subtitle J (Drug Pricing), Part 1 (Lowering Prices Through Fair Drug Price Negotiation), Section 139001 (Providing for Lower Prices for Certain High-Priced Single Source Drugs).  That section of the bill – along with the other accompanying sections and parts of the bill – would amend Title XI of the Social Security Act to create a new part – Part E – requiring the HHS Secretary to establish a “Fair Price Negotiation Program” intended to lower prices for certain high-priced single-source drugs and biological products.

Specifically, proposed Section 1191 (in Title XI of the Social Security Act) provides:

SEC. 1191. ESTABLISHMENT OF PROGRAM.

(a) In General.—The Secretary shall establish a Fair Price Negotiation Program (in this part referred to as the “program”).  Under the program, with respect to each price applicability period, the Secretary shall—

(1) publish a list of selected drugs in accordance with section 1192;

(2) enter into agreements with manufacturers of selected drugs with respect to such period, in accordance with section 1193;

(3) negotiate and, if applicable, renegotiate maximum fair prices for such selected drugs, in accordance with section 1194; and

(4) carry out the administrative duties described in section 1196.

The provisions in Section 139001 of H.R. 5376 that would implement the “Program” get pretty complicated from there.  Fortunately, MedPac put together a short summary of the “Program” that runs through the process for the identification of  “negotiation-eligible drugs” from among “qualifying single source drugs,” the selection of drugs for negotiation (i.e., “selected drugs”), and more.  (Another summary of the drug price negotiation provisions is available here.)  Here are the important points from the MedPac summary:

Sec. 139001 lays out a process by which the Secretary would:

• Identify “negotiation-eligible drugs” from among qualifying single-source drugs that are among the top 50 with the highest Part D spending, the top 50 with the highest Part B spending, and insulins. Qualifying single-source drugs are those that were approved at least 7 years ago (for drugs) or licensed 11 years ago (for biologics) for which no generic or biosimilar product has been approved/licensed and marketed. There are exceptions for certain orphan drugs and for certain drugs manufactured by small biotech companies.

• Select a limited number for negotiation (“selected drugs”) and enter into agreements with their manufacturers to negotiate a “maximum fair price.” In 2025, the Secretary would select no more than 10, 15 in 2026, 15 in 2027, and 20 in 2028 and subsequent years. The Secretary is to take into account factors such as whether the manufacturer has recouped its R&D and the comparative effectiveness of alternative therapies.

• The negotiation process would take place between March and November in the year two years prior to which the maximum fair price would be applicable. The Secretary may not negotiate a price higher than a ceiling that is a 25% to 60% discount (depending on the length of time the drug has been approved without generic or biosimilar competition) off the average price paid to the manufacturer by wholesalers and others for drugs distributed to nonfederal purchasers (non-federal AMP. . .). There would also be a renegotiation process beginning in 2027 for selected drugs for which factors that the Secretary considered had changed.

• The maximum fair price shall not apply before at least 9 years have passed since first approval (for drugs) or at least 13 years since first license (for biologics).

While this blogger does not have any particular comments on whether or not the idea of government drug price negotiation is good or bad, the way it has been structured in H.R. 5376 appears to have been without regard to the generic drug an biosimilar biological product industries.  That is, it was apparently conceived and drafted without regard to the Hatch-Waxman Amendments and the Biologics Price Competition and Innovation Act (“BPCIA”).  How so?  Well, as one commentator noted: “Companies considering launching a generic or biosimilar product may not be able to undercut the government-set price of the reference product enough to obtain market share sufficient to offset their costs.”

Let’s put a little more detail on that . . . .

Under H.R. 5376, the HHS Secretary may negotiate a price that is at least a 60% discount off the average price paid to brand-name drug and biological product manufacturers by wholesalers and others.  And the maximum fair price shall not apply before at least 9 years after a brand-name drug is approved, and before at least 13 years after a biological reference product is licensed.

Given how Hatch-Waxman and the BPCIA operate, with periods of marketing exclusivity, 30-month stays related to Paragraph IV certifications (Hatch-Waxman only), patent infringement litigation, and patent settlement agreements, it’s not uncommon for a company that has invested millions or tens of millions of dollars into developing a drug (particularly a “complex generic”), or perhaps $100 million or more to develop a biosimilar biological product, to finally obtain approval and market the drug product well after 9 years after the brand-name NDA drug is approved, and well after 13 years after a BLA reference product is licensed.  But at the point, the generic drug/biosimilar market is destroyed under the price negotiation provisions of H.R. 5376 because the price of the brand-name drug/biologic may have been cut by at least 60%.  And at that minimum price point alone, “a generic or biosimilar [manufacturer] may not be able to undercut the government-set price of the reference product enough to obtain market share sufficient to offset their [development] costs.”

That’s a difficult pill to swallow.

It means less – or no – generic/biosimilar competition.  After all, given the uncertainty around what drugs and biologics the government could decide are subject to price negotiation, when they might be approved or licensed relative to the price negotiation triggers, and whether any negotiated price in effect at the time a generic drug/biosimilar is approved and marketed will allow a company to – at the very least – recoup costs, why would a company even entertain getting into (or even continuing on with) the generic drug and biosimilars business??

Whatever the short-term benefits may be by establishing the Medicare drug price negotiation system proposed under H.R. 5376, Congress ignores the Hatch-Waxman Amendments and the BPCIA at its own peril (and perhaps at the peril of the public health), as the long-term consequences of H.R. 5376 may be the dismantling and drying up of a robust generic drug and biosimilars industry.  (Heck, nobody ever thought the Colorado River would dry up either.)  So, in 10, 15, or 20 years from now we may be in need of a new type of Build Back Better Act.

While most of the Congressional focus on drug pricing has centered on the reconciliation bill currently being hammered out in the House and Senate, the Infrastructure Investment and Jobs Act (the “Act”), which was signed by President Biden yesterday, contains two provisions relating to drug payment and discounting.  First, section 90006 imposes a moratorium on HHS’s implementation of an HHS OIG final rule, published on November 30, 2020, which amends the Federal health care program antikickback statute safe harbors as they apply to drug rebates paid to Medicare Part D plans and Medicaid Managed Care plans (or their PBMs).  As we’ve previously reported, the effect of the safe harbor amendments would be to protect such rebates only if they were passed through by the plan sponsor or PBM to the dispensing pharmacy, which would be a major change from the typical practice today.  The effective date of the amendments had already been delayed until January 1, 2023 pursuant to court orders in a lawsuit brought by the PBM industry association.  The Act now extends that delay until January 1, 2026.

In addition, section 90004 of the Act requires manufactures of drugs sold in single-dose containers to pay refunds to Medicare for discarded Part B drugs.  Medicare Part B reimburses providers for quantities of drugs packaged in single-use containers that are left over after administration and discarded.  Congressional proponents of this provision argued that manufacturers have been deliberately overfilling single-use drug containers to permit their customers to obtain greater reimbursement, and have profited from the resulting increase in utilization of the drug.  The new refund requirement applies to drugs that are (1) separately paid under Medicare Part B; (2) single source drugs (i.e., having no A-rated therapeutic equivalents) or biologics (including biosimilars); and (3) sold in single-dose containers or packages.  Manufacturers covered by this provision will have to pay refunds for discarded amounts beginning 18 months after the drug is first covered under Part B, but no earlier than January 1, 2023.  CMS will send the manufacturer a quarterly report showing the number of units (if any) that were discarded during the quarter, based on claims using the JW modifier, which CMS has established to identify discarded units.  The CMS report will also show the total amount due for the quarter, which will be the number of discarded units multiplied by 90% of the allowed charge per unit.  That percentage may be reduced by regulation for drugs with “unique circumstances” (an undefined term).  Excluded from the refund requirement are drugs that are not separately payable, radiopharmaceuticals, imaging agents, and drugs that require filtration prior to administration where drug is discarded after the filtration process.

Hyman, Phelps & McNamara, P.C. (“HP&M”) is pleased to announce that Lisa M. Baumhardt, MS, MJ, MT(ASCP), RAC, FRAPS, has joined the firm as a Senior Medical Device Regulation Expert, and that Sophia Gaulkin has joined the firm as an Associate.

Ms. Baumhardt provides counsel to medical device, in vitro diagnostic, and combination product manufacturers on a wide range of pre- and post-marketing regulatory topics.  In the pre-market area, Ms. Baumhardt develops regulatory strategies, prepares pre-submissions and regulatory market authorization submissions, drafts regulatory policies and procedures, and reviews advertising and promotional materials.  In the post-market area, Ms. Baumhardt advises clients on complaint handling, MDRs, Quality System Regulation compliance and enforcement matters.

Prior to joining the Firm, Ms. Baumhardt was the Regulatory Affairs/Quality Assurance Executive for medical devices at IBM, where she worked on new and novel artificial intelligence/machine learning technologies.  She has also held positions in regulatory affairs, clinical affairs, quality assurance, and compliance at Mallinckrodt Pharmaceuticals, GE Healthcare, and Abbott Laboratories.

Ms. Baumhardt earned a Master’s in Jurisprudence from Loyola University Chicago School of Law, a Master’s in Healthcare Technology Management from the Medical College of Wisconsin and Marquette University and a Bachelor of Science in Medical Technology.

Ms. Gaulkin assists clients across a range of pre- and post-marketing regulatory matters relating to dietary supplements, food products, drugs, medical devices, cosmetics, pet products, and consumer products.  She advises clients on compliance issues, including packaging, labeling and claim substantiation, state licensure requirements, e-commerce platforms, and drug pricing reporting.  She also assists with transactional due diligence, internal investigations, and supplier subcontracts and negotiations.  In addition, Ms. Gaulkin has published on a range of emerging issues related to food and drug regulation, from color additives and flavors in oral drug products to master protocols in the era of COVID-19, FTC- and USDA-regulated labeling claims, and the edible insect industry.

Before joining HP&M, Ms. Gaulkin practiced FDA law at an AmLaw 100 firm. She earned her J.D. from the University of Pennsylvania Law School and her B.A., magna cum laude, from Hamilton College.

It may be just a coincidence that DOJ released its latest policy pronouncement at the same time as the final “Daniel Craig as James Bond” movie.  But like James Bond, companies in the crosshairs of a government investigation have No Time to Die, as they answer to shareholders and fight for corporate survival.  In an October 28, 2021 Memorandum issued by Deputy Attorney General Lisa Monaco, DOJ announced that it is reverting to and reinforcing the Individual Accountability Policy originally announced in the Yates memo, which we discussed here.  That policy permits prosecutors to award cooperation credit to companies only if they provide DOJ with all relevant facts relating to the individuals responsible for the misconduct:

To receive any consideration for cooperation, the company must identify all individuals involved in or responsible for the misconduct at issue, regardless of their position, status, or seniority, and provide to the Department all nonprivileged information relating to that misconduct. To receive such consideration, companies cannot limit disclosure to those individuals believed to be only substantially involved in the criminal conduct. This requirement includes individuals inside and outside of the company.

Note that last sentence: individuals inside and outside of the company.  Corporate counsel previously may have taken the position that there is no control over individuals outside of the company, so there could not be any disclosure related to those individuals, but DOJ Does. Not. Care.

The new policy also requires prosecutors to consider all past misconduct, not just violations that relate to the instant offense:

[W]hen making determinations about criminal charges and resolutions for a corporate target, prosecutors are directed to consider all misconduct by the corporation discovered during any prior domestic or foreign criminal, civil, or regulatory enforcement actions against it, including any such actions against the target company’s parent, divisions, affiliates, subsidiaries, and other entities within the corporate family.

Again, companies take note: DOJ is expanding its prior position to consider foreign enforcement actions (even if standards and laws are different in those jurisdictions), violations of “regulatory rules” (which in the FDA space are commonplace), and misconduct of affiliated companies (which in this day, with multi-structured corporate entities, could require consideration within wholly unrelated industries).  This new calculus likely will impact future settlement discussions as the implication of a settlement by one corporate entity could present DOJ with a License to Kill one of its sister entities.

DOJ intends to revise the relevant sections of the Justice Manual relating to Principles of Federal Prosecution of Business Organizations.