Health Law Advisor

Thought Leaders On Laws And Regulations Affecting Health Care And Life Sciences

FCA Penalty Spike Confirmed by DOJ

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Entities that provide goods and services to the federal government, including health care providers and life sciences companies, should take note of the new civil monetary penalty amounts applicable to False Claims Act (“FCA”) violations. After much anticipation, the U.S. Department of Justice (“DOJ”) issued an interim final rule on June 30, 2016 confirming speculation that the penalty amounts will increase twofold.

The new minimum per-claim penalty amount will increase from $5,500 to $10,781, and the maximum per-claim penalty amount will increase from $11,000 to $21,563. The DOJ penalty increase mirrors the penalty spike announced by the U.S. Railroad Retirement Board (“Railroad Board”) in May of this year and discussed in our previous blog post.

The new penalty amounts will take effect August 1, 2016 and will apply to all violations that occurred after November 2, 2015.  This November date was the date that Congress passed the Bipartisan Budget Act of 2015 (the “Act”), which is the legislation that requires federal agencies that handle FCA cases to update their penalty amounts to adjust for inflation.

After this first adjustment, the Act allows DOJ and other federal agencies to make additional annual adjustments to penalty amounts based on the Consumer Price Index for Urban Consumers (CPI-U). Guidance on these annual adjustments is slated to be issued by the Office of Management and Budget this December.

If you would like to comment on this interim final rule, you must act quickly as the deadline for comments is August 29, 2016.

This post was written with assistance from Olivia Seraphim, a 2016 Summer Associate at Epstein Becker Green.

NY High Court Rejects Expansion of Common-Interest Doctrine

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In 2008, Ambac v. Countrywide defendants Bank of America Corporation and Countrywide Financial Corporation merged into a wholly-owned subsidiary of Bank of America.  In discovery, Bank of America withheld communications between Bank of America and Countrywide that occurred before the merger, on the basis that they were privileged attorney-client communications that were protected from disclosure under the common-interest doctrine.  In 2014, the New York Appellate Division, First Department, acknowledged that “New York courts have taken a narrow view of the common-interest [doctrine], holding it applies only with respect to legal advice in pending or reasonably anticipated litigation,” but rejected the litigation requirement.   Ambac v. Countrywide, 123 A.D.3d 129 (1st Dep’t 2014).

Last week, the Court of Appeals overturned the First Department decision and restated the narrower scope of the common-interest doctrine under New York law:

“Under the common interest doctrine, an attorney-client communication that is disclosed to a third party remains privileged if the third party shares a common legal interest with the client who made the communication and the communication is made in furtherance of that common legal interest.  We hold today, as the courts in New York have held for over two decades, that any such communication must also relate to litigation, either pending or anticipated, in order for the exception to apply.”

Ambac v. Countrywide.  The Court of Appeals noted that multiple jurisdictions take a more expansive approach to the doctrine, and commented that the Second Circuit (the federal appellate court with jurisdiction over New York) “ha[s] made clear that actual or ongoing litigation is not required” to invoke the common-interest doctrine, but does “not appear to have expressly decided whether there must be a threat of litigation in order to invoke the exception.”  Ambac v. Countrywide (citing Shaeffler v. United States, 806 F.3d 34 (2d Cir. 2015)).


  • The scope of protections under the common-interest doctrine varies significantly depending on jurisdiction and governing law.
  • In order to be protected under the common-interest rule under New York law, communications among merger counterparties, including health care entities,  must be made in furtherance of a common legal interest and relate to pending or anticipated litigation.

Supreme Court: False Claims Act & Materiality Requirement

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Stuart GersonThe U.S. Supreme Court has rendered a unanimous decision in the hotly-awaited False Claims Act case of Universal Health Services v. United States ex rel. Escobar.  This case squarely presented the issue of whether liability may be based on the so-called “implied false certification” theory.  Universal Health Service’s (“UHS) problem originated when it was discovered that its contractor’s employees who were providing mental health services and medication were not actually licensed to do so. The relator and government alleged that UHS had filed false claims for payment because they did not disclose this fact and thus had impliedly certified that it was in compliance with all laws, regulations, etc.  The District Court granted UHS’s motion to dismiss because no regulation that was violated was a material condition of payment. The United States Court of Appeals for the First Circuit reversed, holding that every submission of a claim implicitly represents regulatory compliance and that the regulations themselves provided conclusive evidence that compliance was a material condition of payment because the regulations expressly required facilities to adequately supervise staff as a condition of payment.

The Supreme Court vacated and remanded the matter in a manner that represents a compromise view of implied false certification.

The Court recognized the vitality of the implied false certification theory but also held that the First Circuit erred in adopting the government’s expansive view that any statutory, regulatory, or contractual violation is material so long as the defendant knows that the Government would be entitled to refuse payment were it aware of the violation.

Instead, the Court held that the claims at issue may be actionable because they do more than merely demand payment; they fall squarely within the rule that representations that state the truth only so far as it goes, while omitting critical qualifying information, can be actionable misrepresentations.   Here, UHS and its contractor, both in fact and through the billing codes it used, represented that it had provided specific types of treatment by credentialed personnel.  These were misrepresentations and liability did not turn upon whether those requirements were expressly designated as conditions of payment.

The Court next turned to the False Claims Act’s materiality requirement, and stated that statutory, regulatory, and contractual requirements are not automatically material even if they are labeled conditions of payment. Nor is the restriction supported by the Act’s scienter requirement. A defendant can have “actual knowledge” that a condition is material even if the Government does not expressly call it a condition of payment. What matters is not the label that the Government attaches to a requirement, but whether the defendant knowingly violated a requirement that the defendant knows is material to the Government’s payment decision.

The FCA’s materiality requirement is demanding. An undisclosed fact is material if, for instance, “[n]o one can say with reason that the plaintiff would have signed this contract if informed of the likelihood” of the undisclosed fact.   When evaluating the FCA’s materiality requirement, the Government’s decision to expressly identify a provision as a condition of payment is relevant, but not automatically dispositive. A misrepresentation cannot be deemed material merely because the Government designates compliance with a particular requirement as a condition of payment. Nor is the Government’s option to decline to pay if it knew of the defendant’s noncompliance sufficient for a finding of materiality. Materiality also cannot be found where noncompliance is minor or insubstantial.

Moreover, if the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated, that is very strong evidence that those requirements are not material. The FCA thus does not support the Government’s and First Circuit’s expansive view that any statutory, regulatory, or contractual violation is material so long as the defendant knows that the Government would be entitled to refuse payment were it aware of the violation.

The materiality requirement, stringently interpreted, and the fact that the First Circuit’s expansive view was rejected suggest that the game is far from over and that there still are viable defenses, facts allowing, to cases premised upon the implied false certification theory.


District Court Invalidates Payment of Cost-Sharing Subsidies, Setting Up Additional Legal Tests for the Affordable Care Act

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In its recent decision in U.S. House of Representatives v. Burwell,[1] the U.S. District Court for the District of Columbia ruled that the Obama administration’s payment of cost-sharing subsidies for enrollees in plans offered through the Affordable Care Act’s Exchanges is unauthorized for lack of Congressional appropriation. The decision would affect future cost-sharing subsidies, though the court immediately stayed the decision pending its outcome on appeal.[2]

In its decision, the court found in favor of the members of the House of Representatives, based upon its interpretation of the applicable law. Specifically, the court found that, when Congress passed the Affordable Care Act, including Sections 1401 (premium subsidies) and 1402 (cost-sharing subsidies), it permanently appropriated funds for the former but not the latter.

The court examined prior Office of Management and Budget submissions to the House Appropriations Committee, finding that the administration had explicitly acknowledged the lack of appropriated funds for the cost-sharing reduction payments. After the Republican-controlled Congress declined the administration’s appropriations requests for the cost-sharing reduction funds, President Obama signed an appropriations bill without it. Treasury subsequently paid the cost-sharing subsidies to issuers without an appropriation. As of December 2015, 56.4% of Exchange plan enrollees were receiving the subsidies.[3]

The court rejected the administration’s arguments that, under King v. Burwell, the Act must be read for its intended effect. While King identified “three key reforms”—guaranteed coverage and community rating, individual mandate and premium tax credits—the court found that King did not treat the section 1402 cost-sharing reduction provisions as integral to those reforms. Moreover, King found the Exchange statute nonfunctional due to drafting failure and thus in need of saving. By contrast, the district court found that, here, Congress’s simple failure to appropriate cannot be remedied by a court.

The case will almost certainly be appealed to the D.C. Circuit Court of Appeals.

Ultimately, if the ruling is affirmed, absent a Congressional fix, new legal problems would arise for the Affordable Care Act’s Exchanges. Regardless of an appropriation, the Act still requires issuers to reduce cost-sharing for eligible enrollees, which would likely shield consumers but leave issuers financially exposed.

Moreover, notwithstanding the apparent lack of appropriation, the Act requires the government to pay issuers for the cost-sharing subsidies. This raises questions concerning the government’s ability to recoup payments already made. Should the government elect to discontinue the payments going forward, issuers could seek legal redress.

Notably, an affirmation of the district court could impact Exchange premiums. Many issuers have already raised premium rates for 2017, citing a high proportion of costlier, sicker enrollees. Should the courts ultimately place the burden on issuers to subsidize cost sharing, these costs are also likely to be shifted to premiums.


[1] House of Representatives v. Burwell, No. 14-1967 (D.D.C. May 12, 2016), available at

[2] In an earlier, controversial ruling in this proceeding, the same court allowed members of the Republican majority of the U.S. House of Representatives to proceed with the suit against the Secretaries of Treasury and Health and Human Services. The administration had argued that the House members did not standing to sue, but the court disagreed and declined to dismiss the suit.

[3] According to CMS, as of December 31, 2015, the ten highest states by percentage of Exchange plan enrollees receiving cost sharing subsidies were Mississippi (76.7%), Alabama (72.2%), Florida (70.1%), Georgia (68.1%), Hawaii (67.90%), North Carolina (63.9%), South Dakota (63.3%), Idaho (62.9%), Tennessee (62.7%) and Utah (62.6%). See CMS, Effectuated Enrollment Snapshot (Mar. 11, 2016),

Recent California Court Decision Provides Useful Guidance for Management Services Organizations (MSOs)

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The California Court of Appeals, Second Appellate District (the “Court”) in Epic Medical Management, LLC v. Paquette rendered an decision that was published earlier this year that is helpful to those who engage in provision of management services to physicians or medical groups (possibly other professionals as well) including, without limitation, hospitals, health systems or private equity backed organizations.  In this case, although not directly ruling on the legality of the arrangement, the Court states that if it had so ruled, it would have determined that a comprehensive management services agreement for management of a physician’s practice, which used a percentage-based compensation structure, does not violate California’s anti-kickback statute under Section 650 of the California Business & Professions Code or related fee-splitting or corporate practice of medicine prohibitions.  This decision is most directly relevant to practice, operations and investments in California, but it may also be of use as a point of reference, for context or for its potential persuasive value in other jurisdictions, particularly where corporate practice of medicine prohibitions still remain on the stronger side of the spectrum. 

A physician (“Physician”) and a lay management services company that was at least partially owned by physicians (“Company”) entered into what appears to be a fairly comprehensive management services agreement for the “non-medical aspects of [Physician’s] medical practice” (“Agreement”).  The services to be provided by the Company to the Physician included office space, equipment, non-physician personnel (including nurses), establishment of a marketing plan and marketing services, billing and collection services, accounting services and other support services.  The Agreement provided that the Physician would pay the Company a management fee for all of these services of one hundred twenty percent (120%) of the aggregate costs the Company incurred in providing all of the management services per month, not to exceed fifty percent (50%) of the collected professional revenue plus twenty five percent (25%) of the collected surgical revenues.  However, the compensation arrangement that the parties actually engaged in consisted of the Company charging and the Physician paying a fee of 50% of the revenue for office medical services, 25% of revenue for surgical services and 75% of pharmaceutical-related revenues.  Notably, it later was determined that this formula likely actually provided less profit to the Company than if the parties had stuck to their original compensation terms, as written in the Agreement. 

The parties performed under the Agreement for about 3.5 years until the relationship turned sour and the Physician terminated the Agreement.  The parties entered into arbitration and the arbitrator concluded that the Physician breached by not paying a portion of the management fees that were due (under the compensation structure, as modified by conduct of the parties).  The Physician moved to vacate the determination and award of management fees, arguing in part that the portion of the payments made to the Company under the modified compensation arrangement violated anti-referral prohibitions in California Business & Professions Code Section 650, among other things.  This argument was based in part on a relatively small number of patient referrals made by the Company to the Physician during the term of the Agreement. 

The trial court reviewing the arbitration award denied the Physician’s motion to vacate.  The trial court’s decision was based, in part on rationale that any illegality (if any) resulting from the small number of referrals of patients made by the Company to the Physician under the Agreement and the modified compensation structure was only “technical”, and not material enough to result in a violation.   

At the Second Appellate District level, the Physician argued that California has an absolute public policy against making payments to anyone making referrals, but the Court noted that Business & Professions Code Section 650 (b), expressly permits such payments in circumstances similar to those at issue and reflected in the Agreement.  Based in part on this, the Court concluded that there was no clear or likely contravention of public policy that would render the underlying arbitration award reviewable. 

However, the Court went further and stated that if the arbitration decision and award were reviewable, it would find that the Agreement did not violate the law

The language under Section 650(b) states, in part that “payment or receipt of consideration for services other than referral of patients which is based on a percentage of gross revenue or similar type of contractual arrangement shall not be unlawful if the consideration is commensurate with the value of the services furnished…”.

The Court noted that the only way that the Agreement could have been found illegal is if it had been demonstrated and a finding had been made that the compensation paid to the Company was not commensurate with management services rendered under the Agreement, but there was no such demonstration or finding.  Moreover, the Court also stated that the terms of the Agreement showed a delineation between the medical elements of the practice that the Physician controlled and the non-medical elements that the Physician engaged the Company to handle.  The Court further noted that the Company exercised no control over the Physician’s practice, notwithstanding the modified, percentage-based compensation structure that the parties apparently actually engaged in and comprehensive services provided. 

The Court’s decision provides useful and recent guidance to hospitals, health systems, private equity investors and others who may engage in similar types of management services agreements in connection with their respective growth, alignment and investment strategies. 

FDA Rule Providing Generic Manufacturers with the Ability to Unilaterally Update Safety Labels May be Abandoned

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On May 19th, the FDA again postponed publication of the Final Rule entitled, “Supplemental Applications Proposing Labeling Changes for Approved Drugs and Biological Products” to April 2017 (the “Final Rule”).  On May 19th, the House of Representatives Committee on Appropriations approved the 2017 Agriculture Appropriations bill, which includes provisions within Section 747 expressly defunding any efforts by the FDA to enact the rule. The Notice of Proposed Rule-Making (“NPRM”) was originally published in November 2013 to provide generic drug and biologics manufacturers with the ability to update safety information on their labels independently of the brand manufacturer.

The proposed rule was published in response to the decision by the Supreme Court of the United States in the case of PLIVA, Inc. v. Mensing, 131 S. Ct. 2567 (2011), which held that generic drug manufacturers cannot be held liable for failure to update the safety label of a drug or biologic in violation of state “failure to warn” tort law.  FDA regulations currently require that the label of a generic drug must match the wording of the label of the corresponding name brand drug.  The Court found that, under its reading of those regulations, the generic manufacturer could not unilaterally update the generic drug’s label without violating these regulations.  As such, the Court held that FDA regulations preempt state tort law with regard to such failure to warn claims such that the generic manufacturer cannot be held liable for any failure to update the label except to match the label of the corresponding brand drug.

The goal of the proposed rule is to allow certain generic drug or biologics manufacturers to update the label of the generic drug or biologic upon receipt of new safety information and with notice to the FDA.  The proposed rule would not require, under certain circumstances and for limited durations, the generic label to match the label of the brand drug; however, it would require generic manufacturers to review and monitor safety information and scientific literature regarding its drugs in the same manner as brand manufacturers must monitor and review information about their marketed compounds and biologics.  Adoption of the proposed rule would likely give state courts the freedom to impose liability upon generic manufacturers for failure-to-warn claims given that the rule would undercut the basic premise of the Supreme Court’s holding in PLIVA, Inc. v. Mensing.

This is the second time the Final Rule has been postponed.  The FDA originally closed notice and comment on March 13th, 2014 with a projected publication date for the Final Rule in September 2015.  Rather than issue the Final Rule, the FDA reopened the comment period in February 2015, held a one day public meeting, and revised the anticipated publication date of the Final Rule to the Spring of 2016.  While the NPRM was originally meant to quell public outcry over the Supreme Court’s decision not to hold generic manufacturers liable for the labeling of their drugs, the proposed rule has caused possibly even greater controversy.  Trade groups for generic manufacturers opposed the original NPRM and continue to oppose any efforts to finalize the proposed rule.  Now that the House of Representatives has passed its appropriations bill the possibility that the proposed rule may be abandoned altogether is becoming more likely.

The Scope of FDA’s Proposed Revisions to the IND Regulations May Not Be Sufficient to Achieve Its Stated Goals

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Last week, the U.S. Department of Health and Human Services (“HHS”) announced that FDA intends to update its regulations governing clinical studies of new drugs.  More specifically, FDA intends to update Parts 312 and 16 of Title 21 of the Code of Federal Regulations (the “Code” or “CFR”).  In its announcement, HHS stated that the revisions will be focused on defining and clarifying “the roles and responsibilities of the various persons engaged in the initiation, conduct, and oversight of clinical investigations subject to [investigational new drug] requirements.”  The announcement also notes that the changes will “better protect the rights, safety and welfare of subjects and help ensure the integrity of clinical trial data.”

I don’t think anyone disagrees that these are important goals and that FDA should be commended for recognizing their importance and taking steps to achieve them.  However, these are not the only goals FDA should be striving to achieve as it revamps these regulations.  As noted in the January 29, 2015 Innovation for Healthier Americans report issued by Senators Alexander and Burr, clinical trials are becoming longer and the number of procedures subjects are required to undergo continues to increase.  This not only makes trials more expensive, but also makes it harder to enroll and retain subjects.  Addressing the rising costs and enrollment difficulties is one of the drivers behind the 21st Century Cures Act which is working its way through the House and the companion legislation working its way through the Senate.  Although addressing these goals has bipartisan support and FDA legislation traditionally has been less susceptible to the partisan gridlock in Congress, there is no guarantee that Congress will be able to address these issues legislatively.  Therefore, it would be advisable for FDA also to focus on streamlining the regulatory process and establishing a framework for the use of surrogate endpoints and adaptive clinical trial designs.  This can serve two purposes.  First, it hedges against the possibility that a legislative fix will not materialize.  Second, it reduces the potential that FDA will need to revisit these regulations again if a legislative fix does materialize.

In addition to expanding the goals FDA is pursuing with these changes, FDA should also expand the scope of the regulations that it will update to achieve these goals.  According to the announcement, FDA only intends to update Parts 312 and 16.[1]  However, it is unclear how FDA can achieve these goals if it limits the scope of changes to these parts of the Code.  Part 312 primarily focuses on the division of responsibilities as between the sponsor and the investigator.  However, there are other parties and entities responsible for the oversight of clinical investigations, including institutional review boards (IRBs) and the institutions where the studies are conducted.  Specifically, IRBs are responsible for ensuring the protection of rights, safety, and welfare of clinical trial subjects.  Although Part 312 requires the Sponsor and the Investigator to ensure IRB approval and continuing oversight, Part 312 does not specifically address the roles and responsibilities of an IRB or the research institutions.  Instead, these are addressed in Part 56.  Therefore, it is unclear how FDA will be able to effectively clarify the “roles and responsibilities of the various persons engaged in the initiation, conduct, and oversight of clinical investigations” and “better protect the rights, safety and welfare of subjects” without also updating Part 56.

I look forward to seeing the changes FDA proposes to make to Part 312. I just hope that these changes enhance the protection of study subjects and ensure the integrity of the data generated by clinical trials in a manner that also makes conducting and participating in clinical trials less burdensome than it is currently.



[1] 21 CFR Part 16 governs regulatory hearings to which investigators are entitled to in the event they are disqualified pursuant to 21 CFR § 312.70 or to which sponsors are entitled in the event FDA terminates an IND.

DOL’s New “White Collar” Exemption Rule To Impact Health Care Industry

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Act-Now-Advisory-BadgeOur colleagues, Michael S. Kun, Member of the Firm, and Jeffrey H. Ruzal, Senior Counsel, at Epstein Becker Green, have written an Act Now Advisory that will be of interest to many of our readers: DOL’s New “White Collar” Exemption Rule Goes Into Effect on December 1, 2016.

On May 18, 2016, the U.S. Department of Labor (“DOL”) announced the publication of a final rule that amends the “white collar” overtime exemptions to significantly increase the number of employees eligible for overtime pay. The final rule will go into effect on December 1, 2016.

What Is New

The final rule provides for the following changes to the executive, administrative, and professional exemptions:

  • The salary threshold for the executive, administrative, and professional exemptions will increase from $23,660 ($455 per week) to $47,476 ($913 per week), which represents the 40th percentile of full-time salaried workers in the lowest-wage census region (currently the South). This threshold is approximately $3,000 less per year than that proposed last summer in the NPRM.
  • The total annual compensation requirement for “highly compensated employees” subject to a minimal duties test will increase from the current level of $100,000 to $134,004, which represents the 90th percentile of full-time salaried workers nationally. This threshold is approximately $12,000more per year than that proposed last summer in the NPRM.
  • The salary threshold for the executive, administrative, professional, and highly compensated employee exemptions will be automatically updated every three years to maintain the standard salary level at the 40th percentile of full-time salaried workers in the lowest-wage census region to “ensure that they continue to provide useful and effective tests for exemption.”
  • The salary basis test will be amended to allow employers to use non-discretionary bonuses and incentive payments, such as commissions, to satisfy up to 10 percent of the salary threshold.


What Allowance Is Being Afforded to the Health Care Industry

With its publication of the final rule, the DOL announced a Time Limited Non-Enforcement Policy (“Policy”) for providers of Medicaid-funded services for individuals with intellectual or developmental disabilities in residential homes and facilities with 15 or fewer beds. Under the Policy, from December 1, 2016 (the effective date of the final rule) until March 17, 2019, the DOL will not enforce the updated salary threshold of $913 per week for employers providing these services.

The DOL issued the Policy in response to inter-agency discussion between the DOL and the U.S. Department of Health and Human Services (“HHS”) about the concern that the final rule would frustrate the HHS’s goal of providing services to individuals with intellectual or developmental disabilities in integrated settings that support full access to the community and the provision of services through small, community-based settings that maximize individuals’ autonomy, quality of life and community participation.

What This Means

While it is certainly good news for employers that the duties tests for the various exemptions will not be augmented in the final rule, the significant increase to the salary threshold is expected to extend the right to overtime pay to an estimated 4.2 million workers who are currently exempt. This change will not only affect labor costs but also require employers to rethink the current structures and efficiencies of their workforces, including assessing how the reclassification of workers from exempt to non-exempt will affect their fundamental business models. In addition, to the extent exempt employees are reclassified as non-exempt, employers will have to consider implementing policies and procedures to both comply with overtime laws and control overtime worked, such as proscription against off-the-clock work and proper maintenance of accurate record-keeping.

The apparent trade-off for scaling back the salary threshold from the proposed $50,440 to $47,476 for the executive, administrative, and professional exemptions is the increase in the highly compensated employee salary threshold from the proposed $122,148 to $134,004 announced in the final rule. That, of course, is a substantial increase to the current $100,000 threshold and will likely result in employers relying less than they had previously on this exemption.

The permitted use of non-discretionary bonuses and incentive payments, such as commissions, to satisfy up to 10 percent of the salary threshold may help soften the impact of the increase to the salary threshold. Employers should proceed carefully, however, if they wish to take advantage of that provision. For example, employers should make sure that the 10 percent maximum allowance is not exceeded, which could otherwise lead to misclassification claims. Also, employers should be mindful of maintaining a proper distinction between discretionary and non-discretionary bonuses and only attribute the latter to satisfy the salary threshold.

With respect to the DOL’s Policy delaying enforcement against providers of Medicaid-funded services for individuals with intellectual or developmental disabilities in residential homes and facilities with 15 or fewer beds, employers should take heed that that the Policy applies only to DOL investigations and enforcement actions. Because the FLSA provides employees with the right to bring a private cause of action, the Policy provides no apparent protection against private lawsuits that may be brought by employees who are treated as exempt but paid less than the updated salary threshold of $913 per week effective December 1, 2016. Although difficult to predict, plaintiffs’s attorneys may not pursue private litigation until the March 17, 2019 end date of the Policy to evaluate whether the DOL issues a NPRM addressing the application of the final rule for providers of Medicaid-funded services for individuals with intellectual or developmental disabilities in residential homes and facilities, and also to maximize the potential value of a lawsuit since the statute of limitations under the FLSA is two years (or three years if willful).

Resistance to the final rule can be expected. There is little doubt that the DOL modified its proposed salary threshold increase of $50,440 to $47,476 in response to nearly 300,000 comments, many of which were from employers and advocacy groups providing thoughtful commentary on the practical issues and repercussions of implementing such a significant increase to the salary threshold. Because of the severity of the final rule, a Congressional challenge may be in the offing. Subject to the Congressional Review Act, the final rule will be scrutinized by the next Congress to be seated in 2017.

For the full Act Now Advisory, click here.

Will Sad Facts Make Bad Law?

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Despite popular opinion, lawyers and judges are human and sometimes the facts of a case make it near impossible for judges to play the role of the modest umpire calling balls and strikes described by Chief Justice Roberts in his confirmation hearing.  Sometimes, bad facts make bad law because the plaintiff is so sympathetic that the just ruling may not be the “right” one.  Fachon v. U.S. Food and Drug Administration et al., appears to be the epitome of this.

Earlier this year, a 20-year old man, Eugene Neil Fachon, was diagnosed with Diffuse Intrinsic Pontine Glioma (“DIPG”) a form of brain cancer for which there is no cure.  His doctors told him he had only three months to live.  At the time of his diagnosis, Mr. Fachon was pursing an engineering degree at Northeastern University in Boston.  While his fellow college students were trying to figure out where to go for spring break, Mr. Fachon was trying to figure out what to do next in light of his grave prognosis.  Instead of undergoing the standard treatment, radiation, which may have had the potential to extend his life for up to three additional months, he decided to participate in a clinical trial that was intended to investigate the efficacy of Antineoplaston therapy.  The clinical trial was being performed pursuant to an Investigation New Drug Application (“IND”) that was in effect, pursuant to 21 CFR 312.40, at the time Mr. Fachon was enrolled.[1]  Mr. Fachon enrolled in the study on March 13, 2016, becoming the first and only subject enrolled.  On or about the same day Mr. Fachon began receiving the investigational drugs, April 21, 2016, FDA placed a clinical hold on the clinical trial and ordered the study site to stop administering the investigational drugs to Mr. Fachon.

After being unable to convince FDA to allow him to continue receiving the investigational drugs, despite the clinical hold, Mr. Fachon filed suit seeking a preliminary injunction, a permanent injunction and temporary restraining order prohibiting FDA from enforcing its clinical hold and requiring FDA to allow him to continue receiving the investigational drugs.  Mr. Fachon argued that FDA violated his due process rights under the 5th and 14th Amendments because FDA failed to notify Mr. Fachon of its intent to impose a clinical hold and grant Mr. Fachon an opportunity to be heard.  On May 17th, Judge John J. McConnell, granted Mr. Fachon the temporary restraining order he requested.

In granting the temporary restraining order, Judge McConnell concluded that once Mr. Fachon started participating in the clinical trial, he had a protectable interest in continuing his participation that entitled him to due process.  The key aspects of due process are notice and an opportunity to be heard.  Thus, Judge McConnell concluded that before FDA could take away Mr. Fachon’s right to continue receiving the investigational drugs, FDA may have been required to notify Mr. Fachon and provide him an opportunity to convince FDA otherwise.

However, other than concluding that this right arose once Mr. Fachon started receiving the study drug, Judge McConnell did not provide much of explanation about this right, including the source of this right or the scope of the right.

I am not saying that Judge McConnell was wrong in granting the temporary restraining order, to the contrary.  I agree that the balance of the equities favored granting the temporary restraining order, but Judge McConnell could have (and I think should have) granted the temporary restraining order without reaching the conclusion on the merits of the case and without concluding that Mr. Fachon was entitled to due process.

Because Judge McConnell chose to recognize this right, this case has the potential to significantly impact how clinical trials are conducted.  To the extent participants in clinical trials are entitled to due process, some questions will need to be answered, including:

  • Would subjects who benefit from the investigational product during the study be entitled to continue receiving the investigational product until it is approved by FDA? This is not an unusual concept as other countries grant subjects this right already.
  • How does this impact an investigator’s ability to remove a subject from a study without the subject’s consent? An informed consent is required to describe the “[a]nticipated circumstances under which the subject’s participation may be terminated by the investigator without regard to the subject’s consent.”[2] However, an informed consent cannot include any language through which a subject waives any of his or her legal rights.
  • Before FDA places a clinical hold on a study that includes a requirement that enrolled subjects stop receiving the study drugs, will FDA be required to notify all study subjects and provide them an opportunity to be heard before the clinical hold goes into effect?

These are complicated issues that are best suited for legislative and regulatory solutions.  Therefore, hopefully the parties and the judge can find an appropriate resolution to this case that allows Mr. Fachon to pursue this experimental treatment without opening up Pandora’s box.



[1] Although the Plaintiff’s motion characterizes the clinical trial as “FDA-Approved”, FDA does not necessarily “approve” clinical trials.  Rather, FDA regulated clinical trials must be performed pursuant to an IND that is “in effect” and an IND is deemed to be effective the earlier of 30 days after FDA receives the IND or FDA notifies the clinical Sponsor that the clinical trial may begin. 

[2] 21 CFR § 50.25(b)(2)

FDA Issues Draft Guidance Encouraging More Widespread Use of Electronic Health Record Data in Clinical Trials

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On May 17, 2016, FDA issued Draft Guidance for Industry on Use of Electronic Health Record Data in Clinical Investigations (“Draft Guidance”).  This Draft Guidance builds on prior FDA guidance on Computerized Systems Used in Clinical Investigations and Electronic Source Data in Clinical Investigations, and provides information on FDA’s expectations for the use of Electronic Health Record (“EHR”) data to clinical investigators, research institutions and sponsors of clinical research on drugs, biologics, medical devices and combination products conducted under an Investigational New Drug Application or Investigational Device Exemption.

While the recommendations set forth in the Draft Guidance do not represent a significant departure from existing guidance, research sponsors, institutions and investigators should consider the extent to which their existing policies and procedures, template agreements, protocols and informed consent documents should be updated to incorporate FDA’s recommendations.

Specifically, the draft guidance provides additional detail on FDA’s expectations for the due diligence to be performed by sponsors prior to determining the adequacy of any EHR system used by a clinical investigator to capture source data for use in a clinical investigation. FDA expects sponsors to assess whether systems have adequate controls in place to ensure the confidentiality, integrity, and reliability of the data. FDA encourages the use of EHR systems certified through the ONC Health IT Certification Program, and will presume that source data collected in Health IT certified EHR systems is reliable and that the technical and software components of privacy and security protection requirements have been met. Sponsors should consider requesting additional detail in site pre-qualification questionnaires or pre-study visits regarding any EHR system utilized by clinical investigators to record source data, including whether such systems are Health IT certified. Sponsors may also consider the extent to which their existing site qualification policies and clinical trial agreements templates adequately reflect the technical requirements for sites utilizing EHR systems to record source data, the need to ensure that any updates to those systems do not impact the reliability of the security of the data, and the extent to which the data, including all required audit trails, are backed up and retained by the site to ensure necessary access by FDA.

The Draft Guidance also includes recommendations regarding the information it expects to be included in study protocols and informed consent documents. When the use of EHR systems is contemplated, FDA recommends that study protocols include a description or diagram of the electronic data flow between the EHR and the sponsor’s EDC system, along with information regarding the manner in which the data are extracted and imported from the EHR and monitored for consistency and completeness. FDA also recommends incorporation into informed consent forms of information regarding the extent of access to EHRs granted to sponsors, contract research organizations, and study monitors, as well as a description of any reasonably foreseeable risks with the use of EHRs, such as those involving an increased risk of data breaches. While information related to third party access to health information is typically addressed in informed consent documents, specific details related to access to EHRs and their associated risks are less common. Sponsors and research institutions should consider the extent to which their template informed consent documents should be updated to incorporate the best practice recommendation in the Draft Guidance.

In addition, in the Draft Guidance, FDA encourages the development and use of interoperable EDC and EHR systems to permit electronic transfer of EHR data into the eCRFs being utilized for a clinical trial, including the adoption of data standards and standardization requirements of the ONC Health Information Technology (Health IT) Certification Program. While interoperability of EHR and EDC systems offers the promise of increasing efficiency of clinical trial data collection and reducing the transcription errors that commonly result from the maintenance of this information in separate repositories, FDA acknowledges challenges related to the diverse ownership of the data and EHR systems used to capture them, and the confidentiality of clinical trial information, that will need to be overcome in order to realize the benefits offered by interoperability.