The Centers for Medicare & Medicaid Services (CMS) and the Department of Health and Human Services Office of Inspector General (OIG) issued their long-awaited proposed rules in connection with the Regulatory Sprint to Coordinated Care today.  Transforming our healthcare system to one that pays for value is one of the Department’s top four priorities, and the Deputy Secretary launched the Regulatory Sprint to remove potential regulatory barriers to care coordination and value-based care.

OIG’s proposed rule revising the safe harbors under the anti-kickback statute includes a number of noteworthy proposals, but by far the most significant are the proposed new safe harbors for value-based arrangements and patient engagement arrangements.  The breadth and scope of the proposed new safe harbors is remarkable; unlike OIG’s previously issued safe harbors, if finalized, they would protect arrangements of unknown design and unproven efficacy as long as the parties reasonably anticipate the arrangement will advance the coordination and management of care of a target patient population and the arrangement satisfies all of a safe harbor’s other requirements. The proposed rule also includes a new safe harbor for cybersecurity donations, and modifications to the personal services and management contracts safe harbor that would provide new protections for outcomes-based arrangements such as shared savings, gainsharing, and pay-for-performance arrangements. Given the challenges associated with designing safe harbor protections for emerging healthcare arrangements, OIG took great pains to emphasize that it had not yet made a final determination that the arrangements described in its proposals should be exempt from liability under the anti-kickback statute and that any final safe harbors would provide only prospective protection.

Although most within the industry surely will welcome OIG’s proposed rule, others will be unhappy with it, including pharmaceutical manufacturers; manufacturers, distributors, or suppliers of durable medical equipment, prosthetics, orthotics or supplies (DMEPOS); and laboratories, all of which would be excluded from participating in value-based and patient engagement arrangements.

CMS has taken the next step in the regulatory sprint to coordinated care by proposing new exceptions to the Stark Law that specifically address various types of value-based arrangements and has created a special rule related to indirect value-based arrangements.  Similar to OIG, CMS also is proposing a new exception related to donations of cyber security technology and services to physicians.  In addition to these broad sweeping new exceptions recognizing the changes in the reimbursement system, CMS also made other modifications to the existing exceptions and notably have provided clarity in definitions.  On first blush, the new rule appear to allow for opportunities for more flexible arrangements.

Stay tuned to updates on Health Law Advisor for an in-depth analysis of both the OIG’s proposed rule and CMS’ special rule.

Based on findings of the Payment Accuracy Report recently issued by the Department of Health and Human Services (DHHS), six Democratic United States Senators questioned the Centers of Medicare and Medicaid Services’ (CMS) oversight and enforcement of Medicare Advantage (MA) plans. In a letter dated September 13, 2019, the Senators highlighted their belief that MA plans have been overbilling the federal government for years, specifically in excess of $30 billion dollars over the last three years.

The Senators requested that CMS provide a response on how the Agency intends to hold MA plans responsible for failing to meet purported contractual obligations, including the accuracy of risk adjustment submissions.

This letter comes on the heels of several setbacks that may affect the Agency’s ability to police Medicare Advantage plans. The Supreme Court ruling in Azar v. Allina Health Services, No. 17–1484 (U.S. June 3, 2019) may restrict CMS’s ability to rely on interpretive publications and sub-regulatory guidance in lieu of formal rulemaking. Additionally, CMS’s Medicare Part C and D overpayment regulation was struck down in United Healthcare Ins. Co. v. Azar, 330 F. Supp. 3d 173 (D.D.C. 2018). Finally, the health plan industry comments to CMS’s proposed Risk Adjustment Data Validation (RADV) rule have heavily criticized the Agency’s proposed handling of RADV, CMS’s primary risk adjustment enforcement tool.

Although payment integrity and risk adjustment were at the forefront of their concerns, the Senators flagged other issues regarding CMS’s oversight of MA operations that they believe could create access to care barriers for MA plan members. The Senators asserted that MA plans fail to provide members with complete and accurate provider directories to make informed decisions when choosing a plan and that CMS has failed to ensure these MA networks even comply with network adequacy requirements. The Senators further noted that the MA plans have not been forthright in providing comprehensive encounter data that reflects the actual services provided to its members, encouraging a reduction in bonus payments for failure to disclose this information. Finally, the Senators called for more transparency with encounter data, denial information, Star ratings and potential out-of-pocket expenses, encouraging CMS to make this information publicly available.

CMS has mechanisms to police most of the concerns raised by the Senators through its MA Program Audits, Civil Monetary Penalties and contract sanctions, which can include termination. However, as noted in CMS’ 2018 Program Audit report, the plans audited by the Agency in 2018 covered only 2% of the MA enrollee population, though the Agency levied 10 civil monetary penalties and 3 intermediate sanctions on audited plans for issues of non-compliance.

The letter from this group of Senators follows previous concerns expressed by Senator Chuck Grassley in 2017 and several high profile settlements related to the MA Program, all of which suggest that MA plans, downstream providers and vendors should increase their efforts to comply with rules and be prepared for increased government scrutiny.

Ashley Creech, a Law Clerk (not admitted to the practice of law) in the firm’s Washington, DC office, contributed significantly to the preparation of this post.

Earlier this month, the FDA released programmatic guidance intended to clarify the current review practices for the Humanitarian Device Exemption (“HDE”) Program (“Guidance”) reflecting recent changes in the HDE Program resulting from statutory amendments made by the 21st Century Cures. The Guidance addresses frequently asked questions about FDA actions on HDE applications, post-approval requirements, and includes a filing checklist to clarify the required information for the FDA to consider whether an HDE application is ready for substantive review.

Unlike premarket applications (“PMAs”) or De Novo Submissions, an HDE application is not required to include data that demonstrate the subject device has a reasonable assurance of effectiveness – instead the review standard requires the applicant show a probable benefit that exceeds the risk of using the device. An applicant must also demonstrate (among other things) that no similar device exists and that there is no other way to bring the device to market, and that the device would be used diagnose or treat rare diseases or conditions affecting less than 8,000 individuals in the United States per year (up from the longstanding limit of 4,000 that existed prior to passage of 21st Century Cures at the end of 2016).

The Guidance has not changed much since the June 2018 draft guidance. However, there are a few additional clarifications. For instance, the Guidance acknowledges “that investigations using laboratory animals or human subjects, as well as nonclinical investigations and analytical studies for in vitro diagnostics,” not just human subject testing may be used as evidence to support approval of an HDE application. The FDA also clarified the conditions under which an HDE can be suspended or withdrawn.

Overall, the FDA Guidance may be helpful in preparing HDE submissions, and may acknowledge additional flexibility with respect to HDE data requirements.  However, the fundamental limitations with the HDE pathway, such as limitation to very small populations and extensive post-approval requirements, remain unchanged.

Interoperability and patient access to data has been pushed to the forefront as a primary concern for the health industry. This is largely due to proposed rules published this spring by the Office of the National Coordinator for Health Information Technology (ONC) and the Center for Medicare and Medicaid Services (CMS) that seek to advance interoperability and support the access, exchange, and use of electronic health information. In August 2019, the ONC held its third annual National Coordinator for Health IT Interoperability Forum in Washington DC. The event brings together the Health IT technology community, developers, policymakers, and staff to promote the goal of interoperability. One of this year’s keynote speakers was the Food and Drug Administration (FDA)’s Principal Deputy Commissioner, Amy Abernethy, M.D. Ph.D.

Dr. Abernethy’s speech focused on improving the FDA’s competence as it steps into a more substantive role in promoting interoperability in health care. First, Dr. Abernethy highlighted the FDA’s need to improve its overall technical expertise in order to adequately engage with the industry and exchange data among the agency’s Centers. Furthermore, Dr. Abernethy emphasized the need for FDA to change the way it interacts with the technology community at large. Dr. Abernethy explained that, over the years, FDA has learned to work with drug and device industries, patient groups, and trade organizations, but lacks a similar effective line of communication with tech companies.  Dr. Abernethy suggested that this may be due to the historical perception of tech firms as “vendors being told what to do rather than creating solutions with collaboration and guidance.” These efforts by FDA to enhance its capabilities to address increasingly prevalent interoperability concerns is a positive step for the agency, as technology is rapidly advancing and infiltrating the health care space. Such actions are in addition to FDA’s PrecisionFDA movement and the agency’s embrace of artificial intelligence in recent years. In her speech, Dr. Abernethy underscored that the FDA intends to learn from these initiatives in order to improve its capabilities in the future.

Dr. Abernethy ended her keynote by revealing FDA’s upcoming publication of an action plan to modernize the agency’s “approach to the use of technology for its regulatory mission, including the review of medical product applications.” The action plan is also rumored to include information on “uses of artificial intelligence, blockchain, and other technologies,” and promises stakeholder engagement. The action plan is scheduled to be released in the coming months. Stakeholders should monitor developments and evaluate how this update will change its engagement with the FDA. EBG will continue to monitor the progress of the FDA’s interoperability and modernization efforts.

On September 10, 2019, the Office of Inspector General of the Department of Health and Human Services (“OIG”) published Advisory Opinion 19-04.  In this favorable opinion, OIG approved a technology company’s proposal to make its online healthcare directory search results visible to federal healthcare beneficiaries in locations where the company charges the healthcare professionals a per-click or per-booking fee to be included in the directory.  It also approved the company’s proposal to make sponsored advertisements that appear on its online healthcare directory and on third-party websites visible to federal healthcare beneficiaries.

This opinion provides valuable insight regarding how OIG evaluates the fraud and abuse risks posed by online scheduling tools, as well as demonstrates OIG’s recognition of the increasing importance of technology in the delivery of healthcare.

Proposed Arrangement

The company that requested the opinion operates an online website and mobile app (the “Platform”) that allows users to select various criteria to search for healthcare providers and book medical appointments.  In response to a user’s selected search criteria, the Platform returns up to 200 results using a proprietary algorithm.  The algorithm does not filter or prioritize providers based on the amount they pay the company or any other non-user selected criteria.  Users are not charged a fee to use the Platform, and federal healthcare program beneficiaries are not offered anything of value through the Platform, other than convenience.

The company charges fees to providers who wish to be included in the directory using several different fee structures, including flat monthly subscription fees, and lower annual subscription fees combined with per-booking fees or per-click fees charged when users book an appointment through, or click on a result generated by, the Platform.  The per-booking fees would apply regardless of a user’s insurance status, and only with respect to users who identify themselves as new patients.  Previously, Platform results were made visible to users who indicated they were federal healthcare program beneficiaries only when the beneficiaries were located in locations where the providers paid flat monthly subscription fees.  Under the proposed arrangement, the company would make Platform results visible to federal healthcare program beneficiaries under each of its payment structures.

In addition to paying to be included in the Platform results, healthcare providers also may purchase sponsored results, which are displayed prominently within the Platform results when they match users’ search criteria as well as on third-party websites.  Sponsored results would be clearly labeled as advertisements and would not promote any particular item or service.  Under the proposed arrangement, the company would make sponsored results visible to federal healthcare program beneficiaries.  The company’s advertising activities, including the display of sponsored results, would not specifically target federal healthcare program beneficiaries.  The company charges healthcare providers for sponsored results through per-impression and per-click fees that it establishes through a bidding process and that the company certified do not exceed fair market value.

OIG Analysis

OIG first addressed the civil monetary penalty provision prohibiting inducements to beneficiaries, which imposes penalties against any person who offers or transfers remuneration to certain beneficiaries that the offeror knows or should know is likely to influence the beneficiary’s selection of a particular provider, practitioner, or supplier.  OIG concluded that the proposed arrangement would not implicate this prohibition, as access to the Platform’s functionality, alone, would be unlikely to influence a beneficiary to select a particular provider, practitioner, or supplier.

OIG then noted that the proposed arrangement would implicate the anti-kickback statute,[1] because the company would be arranging for the furnishing of federally reimbursable items and services through the Platform results, and would be recommending the purchase of particular items and services through the sponsored results, in exchange for the fees it charges to participating healthcare providers.  However, OIG found that the proposed arrangement presented a low risk of fraud and abuse under the anti-kickback statute for a number of reasons, including:

  • Although the per-booking and per-click fees the company would charge would vary, the company sets the fees in advance and certified that they would not exceed fair market value. Whether a provider appears in the Platform results depends on user-selected criteria, so the fees the providers would pay would not determine the frequency with which they would appear in the results.  Moreover, the per-booking fees would apply regardless of a user’s insurance status, and only with respect to users who identify themselves as new patients.
  • The company is not a provider or supplier and is not in a position of trust vis-à-vis the users.
  • The company’s advertising activities are passive in nature, and the advertisements are clearly labeled as such and would not specifically target federal healthcare program beneficiaries.
  • The Platform results would not prioritize providers based on the amount they pay or any other non-user criteria, and the sponsored results would not promote any particular item or service.
  • Any member of the public may use the Platform, regardless of insurance status, and the company would not use insurance information to target federal healthcare program beneficiaries or otherwise influence their decision-making.
  • The company would not provide anything of value to federal healthcare program beneficiaries, other than the inherent convenience associated with use of the Platform.

Notes and Comments

Although advisory opinions cannot be relied upon by any entity other than the requestor, they provide insight as to how OIG would analyze similar arrangements.  Over the past several years, OIG has demonstrated an increasing willingness to approve arrangements in which technology is used to improve or enhance beneficiaries’ healthcare or even, as in this case, user experience.  For example, in Advisory Opinion 19-02, OIG approved a pharmaceutical manufacturer’s proposal to loan a limited-functionality smartphone to financially needy patients who do not have the technology necessary to receive adherence data from a sensor embedded in their prescribed antipsychotic medication, and in Advisory Opinion 18-03, OIG approved a proposal under which a FQHC look-alike would provide free technology items and services to facilitate telemedicine encounters related to HIV prevention.  As federal healthcare program beneficiaries become more comfortable with, and reliant upon, technology, OIG will be forced to continue to grapple with the fraud and abuse risks such technologies pose.

[1] The anti-kickback statute which makes it a criminal offense to knowingly and willfully offer or receive remuneration to induce or reward the referral of items or services reimbursable by a federal healthcare program.  42 U.S.C. 1320a-7b(b).

In an effort to address the challenge of increasing drug prices for patients and families, the U.S. Food and Drug Administration (“FDA”) and the U.S. Department of Health and Human Services (“HHS”) recently outlined a proposal for facilitating the importation of pharmaceuticals originally intended for foreign markets.  The Safe Importation Action Plan (the “Action Plan”), jointly announced on July 31, 2019, describes two different potential pathways for importing certain drugs. The Action Plan offers only a limited overview of the proposed pathways and does not provide much detail on how these pathways would be implemented.

The Action Plan, which would advance the general goals set forth in the Trump Administration’s Blueprint to Lower Prescription Drug Prices, also appears to be motivated by pressure from state legislatures; Vermont, Colorado, and Florida have recently passed legislation that would, if certified by HHS, permit the importation of foreign drugs into these jurisdictions.

Below, we summarize the Action Plan’s two proposed pathways for the importation of certain drugs intended for foreign markets.

Pathway 1: Importation of Canadian Drugs by States, Wholesalers and Pharmacists Pursuant to Demonstration Projects

Under this pathway, HHS and FDA would publish a Notice of Proposed Rulemaking (“NPRM”) under the authority granted in Section 804 of the Federal Food, Drug and Cosmetic (“FDCA”). Section 804 of the FDCA authorizes the importation of certain prescription drugs from Canada upon the condition that the Secretary of HHS certifies that importation would “pose no additional risk” to U.S. consumers, and that such importation would “result in a significant reduction in the cost” of those prescription drugs. Since its enactment in 2003, no HHS Secretary has provided the certification required to import drugs under Section 804.

The NPRM would establish a framework allowing states, pharmacists, and wholesalers to import certain prescription drugs from Canada. Specifically, the drugs eligible for importation would need to: (a)  be approved for sale in Canada; (b) contain essentially the same active pharmaceutical ingredient (“API”) used in the FDA-approved prescription drug (i.e., the same API manufacturing facility must produce the API used in both the Canadian-approved and FDA-approved drug and manufacture the API under FDA’s current Good Manufacturing Practices (“cGMPs”)  listed in FDA’s drug approval); and (c) be labeled to indicate they were originally intended for distribution in Canada. Importers would be required to provide an attestation and supporting documentation regarding the authenticity and eligibility of the drug.  The following categories of drugs are specifically excluded from eligibility under Pathway 1: controlled substances, biological products, infused drugs, intravenously injected drugs, drugs inhaled during surgery, certain parenteral drugs, and any drug subject to a Risk Evaluation and Mitigation Strategy.

To import products into the United States, states, wholesalers and pharmacists would need to submit a demonstration application to HHS explaining how they would comply with applicable safety, and other regulatory requirements (e.g., drug tracking and tracing from manufacturer to pharmacy, labeling, distributor registration, adverse event reporting, recalls, and cGMP compliance). Additionally, importers would be required to prove that that the importation of drugs under this pathway would result in a significant reduction in the cost of covered drugs to the American consumer. A demonstration application, if granted, would be time-limited and subject to revocation if the importer does not comply with specified requirements or a risk to public health or safety is identified.

Pathway 2: Importation of Foreign-Marketed Versions of U.S.-Approved Drugs by Manufacturers

Unlike Pathway 1, which is restricted to drugs approved by Health Canada, Pathway 2 would allow manufacturers to import versions of their FDA-approved drugs that are sold in foreign countries. To import drugs under this pathway, manufacturers (or their authorized representatives) would be required to establish that the version of the drug sold in a foreign country is the same as the U.S. version approved by FDA (e.g., through manufacturing records). If this condition is met, FDA would allow the drug to be labeled for sale in the United States and imported pursuant to section 801(d) of the FDCA under the existing approval for the U.S. version. Manufacturers who qualify to import drugs under this pathway would be permitted to market the imported drug under a different National Drug Code than the U.S. version. According to the Action Plan, this pathway “would highlight an opportunity for manufacturers to use importation to offer lower-cost versions of their drugs.” HHS is evaluating whether additional safeguards would be needed to ensure that the imported drug is a bona fide foreign version of an FDA-approved drug. FDA plans to publish a draft guidance document that will outline detailed recommendations on the requirements for importing products under Pathway 2.

Industry stakeholders have expressed concern that these new pathways would enable the entry of drugs outside the “gold standard” U.S. supply chain and thereby pose risk to U.S. patients. Concerns have also been raised internationally that the Action Plan may trigger drug shortages in Canada.  It remains to be seen how HHS and FDA will address these concerns, as the Action Plan does not specify a timeline for publishing the proposed rule or the guidance document. Their publication will provide an opportunity for stakeholders to submit comments in response to the specific details of the proposed pathways. Stakeholders should continue to monitor any developments to the Action Plan and to submit comments on the proposals as they become available. Stakeholders should also evaluate the potential impact of these importation proposals on their current distribution and supply chains.

Federal lawmakers are debating legislation to address surprise medical bills that, if passed in its current form, would significantly impact how hospitals, physicians and insurers negotiate payment for the provision of certain out-of-network services. A bipartisan coalition led by Senator Lamar Alexander (R-Tennessee), Chairman of the Senate Health, Education, Labor and Pension Committee, and Senator Patty Murray (D-Washington) aims to present to the President for signature a bill to curb surprise billing practices by the end of the year.

Instances of surprise medical billing frequently arise in emergency care situations, where patients often lack the capacity to select the emergency room, their treating physician, or their ambulance provider. Surprise medical billing also occurs in scheduled-care settings, where a patient receives planned services from an in-network provider, but other out-of-network ancillary physicians and providers participate in the course of care.  In the absence of governing state or federal law, when an insured individual receives care from an out-of-network provider, the insurer pays the lower contracted in-network rate and the out-of-network provider then bills the patient for the remaining balance, resulting in a practice known as surprise medical billing or balance billing.

Currently, twenty-five states have enacted laws to address surprise billing. However, in the absence of federal legislation, a substantial number of patients covered under health plans regulated by the federal Employee Retirement Income Security Act of 1974 (ERISA) are not subject to state regulation of surprise bills , thus prompting Congress to look into the issue.

There is a clear appetite on Capitol Hill to address surprise billing, with one policy gaining unanimous support among lawmakers — holding patients harmless from surprise medical bills. Legislators appear to agree that surprise billing should be prohibited even in instances where the patient received scheduled rather than emergency care, and therefore had greater opportunities to discover that a provider from whom they were to receive care was out-of-network.  Despite this broad consensus, however, lawmakers disagree over the proper payment dispute resolution mechanism for non-contracted providers, leaving a legislative solution very much in-flux.

At issue is a choice between three payment dispute resolution models.

One proposal, modeled after the “baseball-style arbitration” approach currently in effect for surprise bills in New York, would require an insurer and a provider — if the parties are unable to reach an agreement — to enter into a formal dispute resolution process wherein each would present to an independent arbitrator their best offer for how much an out-of-network service should cost. The arbitrator would then choose between the two proposals. A recent report by the New York State Health Foundation indicates that the policy has had at least some effect in lowering out-of-network billing for emergency care.  However, it is unclear whether a federal legislative fix will ultimately follow New York’s lead.

A second legislative proposal, referred to as network matching or an in-network guarantee, would require a facility-based provider to either contract with every insurer that the facility accepts or secure alternative payment from the hospital rather than the insurer. In fact, Senator Alexander had expressed an early preference for this approach and had included the policy in the initial Committee draft of the bill. However, in response to vocal opposition from hospitals and providers, he and Senator Murray ultimately eschewed the in-network guarantee in favor of a third alternative, known as benchmarking.

Benchmarking would require insurers to pay out-of-network providers the median in-network negotiated rate for the service in the geographic area where that service was delivered. This alternative to resolving payment largely mirrors the original proposal offered by Chairman Frank Pallone (D-New Jersey) and Ranking Member Greg Walden (R-Oregon) of the House Energy and Commerce Committee, who have crafted their own version of the bill. However, the House bill includes an arbitration backstop: providers and insurers would be allowed to appeal to a neutral arbiter the median in-network rate in cases where it exceeds $1,250. Moreover, the current Senate version of the bill also extends the benchmarking policy to air ambulances, with Sen. Alexander noting that nearly 70% of transports by air ambulances were out-of-network in 2017, according to the Government Accountability Office.

Stakeholders should also take specific note of the preemption provisions in the proposed legislation. Notwithstanding ERISA, except with respect to self-insured group health plans, the Senate bill would not interfere with or pre-empt state solutions for out-of-network payment dispute resolution mechanisms. Rather, the provisions of the Senate bill would only apply to group health plans or health insurance coverage in an individual or group market offered in a state that has not enacted a dispute resolution process for non-contracted provider payment. The provisions would also be limited to self-insured group health plans that are not subject to state insurance regulation.

Similarly, the House bill provides that federal law shall not supersede any existing state laws that set a benchmark or provide for an arbitration process for the fully insured plans that the state may regulate.  As a result, one criticism of the initial draft legislation was that it would allow state laws that have less robust protections than federal law to preempt federal law. Certain stakeholders recommended clarification that federal law applies unless state law is equally or more robust. Despite those concerns, however, the preemption provisions were not amended in the version of the bill that was voted out of Committee. An amendment to clarify federal preemption could still be offered on the floor; however, as of now those criticisms remain intact.

Looking forward, while a broad coalition of health payers and employer benefit groups successfully lobbied Senators to include the benchmarking proposal, an equally broad coalition of hospital and provider groups, were able to amend the House bill to include the arbitration backstop. While at this writing there is legislative momentum for a pathway that allows payors and providers to arbitrate at least some claims, the House and Senate are not yet in sync over the issue and so the shape of a final legislative solution is presently unclear. EBG will continue to monitor the progress of federal legislation and will provide further updates as they are known.

Christopher Taylor, a 2019 Summer Associate (not admitted to the practice of law) in the firm’s Washington, DC, office, contributed significantly to the preparation of this post.

We recently outlined key provisions of the Environmental Protection Agency’s (EPA’s) Final Rule modifying the standards governing industry management of hazardous waste pharmaceuticals, which become effective August 21, 2019. Client Alert

Impacted industries must immediately comply with the nationwide ban on the sewering of hazardous waste pharmaceuticals as of the August 21st effective date.  The ban applies to a wide range of stakeholders, including, but not limited to reverse distributors, pharmacies, hospitals, and wholesalers.

Additional regulatory changes under the Final Rule involving the management of FDA-approved over-the-counter nicotine replacement therapies (“NRT”) and hazardous waste prescription pharmaceuticals destined for reverse distribution also become effective on August 21st in Alaska and Iowa.  All other states will have the option to adopt the NRT changes at the state level before they become effective.  As for the changes to management of hazardous waste prescription pharmaceuticals, all other states must adopt the EPA’s regulatory changes by July 1, 2022 if enacted through legislation, or by July 1, 2021, if enacted through state regulation.  The other 48 states may also adopt more stringent changes to the handling of hazardous waste prescription pharmaceuticals than envisioned by the EPA—in other words, for these states, the EPA regulation serves a regulatory floor, not a ceiling.

August 21, 2019 marks the start of the battle at the state level for regulatory consistency regarding the management of NRT waste and hazardous waste prescription pharmaceuticals.  Many impacted stakeholders will be subject to multiple states’ hazardous waste regulations, either through multi-state stakeholder business locations or through waste that is transported across multiple state lines.  Without some measure of state law consistency, entities who manage NRT waste or hazardous waste prescription pharmaceuticals may see their compliance costs rise as they struggle to comport with variable and possibly conflicting state requirements.

There is little question that youth e-cigarette use has been on the rise. In 2018, an estimated 3.6 million kids reported “current use” of e-cigarettes (defined as use on at least one day in the past 30 days), up from just 220,000 kids reporting such use in 2011 (See National Youth Tobacco Survey findings). Although youth e-cigarette use raises public health concerns, there’s also a public health upside to e-cigarettes, as they have been shown to be an effective tool in helping current adult cigarette smokers kick the habit and are a safer option for current smokers than combustible tobacco products (e.g., cigarettes).  Therefore, it seems that broad restrictions on everyone’s access to these products is probably not the solution here. So what is the answer? How do we keep e-cigarettes out of the hands of children, but maintain their availability for adult cigarette smokers? Let’s track what’s recently been done on the federal and state/local levels to address the issue.

On the federal level, per FDA’s May 2016 “Deeming Rule,” e-cigarettes became subject to FDA’s tobacco product authorities, including, most notably, the requirement that e-cigarettes obtain FDA premarket authorization. For most products, such authorization requires submission of a Premarket Tobacco Product Application (“PMTA”). In their PMTAs, e-cigarette manufacturers must demonstrate that their proposed e-cigarette product is “appropriate for the protection of the public health.” Although FDA released guidance in June 2019 related to the PMTA process, there is still a considerable lack of clarity with regard to how manufacturers can show this broad review standard is satisfied.

The deadline for PMTA submission was initially set for August 2018, but in 2017, FDA pushed back the deadline to August 2022, prompting a lawsuit against the Agency (AAP et al. v. FDA (S.D. MD)). In a July 2019 ruling, the federal judge in this case ordered FDA to impose a 10-month deadline for the submission of PMTAs. As FDA gears up to accommodate PMTA reviews under this accelerated time frame, the Agency noted that it will also continue utilizing other regulatory tools to combat youth e-cigarette use, including enforcement against retailers selling to minors and youth educational and advertising campaigns.

It remains to be seen how exactly implementation of the PMTA process will impact access to e-cigarettes. However, it’s likely that only large, well-funded manufacturers will be able to jump through the regulatory hurdles needed to obtain authorization for their products, which will in turn limit access, at least to some extent (as many small and mid-size companies who can’t jump through the hurdles will be forced to withdraw their products from the market). Also, we may see FDA use the PMTA process to eliminate access to certain types of e-cigarette products with broad youth appeal (e.g., fruity and candy-like flavors), limit the claims manufacturers can make about these products, require additional warnings, and/or place restrictions on distribution.

There have also been efforts to pass federal legislation aimed at restricting youth access to e-cigarettes.  For example, in May 2019, Senator Mitch McConnell introduced a bill (the Tobacco-Free Youth Act) that would set a minimum tobacco purchasing age of 21 (which would apply to all tobacco products, including e-cigarettes).  This seems to demonstrate the perceived importance of the youth access issue given that McConnell represents Kentucky, a major tobacco-growing state.

On the state and local levels, there have been a wide range of efforts aimed at restricting access to e-cigarettes, from increasing the minimum purchase age for e-cigarettes to 21, to taxes, to outright bans on these products.  Below are some examples of these efforts:

  • San Francisco: In June 2019, an ordinance was passed (and later signed by the mayor) that will prohibit businesses in the city from selling e-cigarettes that have not received FDA marketing authorization (which none have yet). The ordinance will also ban all e-cigarettes that have not received FDA marketing authorization from being sold and distributed to consumers in the city (ordinance scheduled to take effect in early 2020).
  • Vermont: As of July 2019, state law prohibits anyone from causing e-cigarettes or substances containing nicotine (or intended for use with e-cigarettes) that are ordered or bought by mail, phone, or over the Internet to be shipped to anyone in Vermont other than a licensed wholesale dealer or retailer; a 92% tax on e-cigarettes will also go into effect.
  • Minnesota: As of August 2019, use of e-cigarettes in most indoor spaces is banned.
  • Beverly Hills: As of January 2021, an ordinance will take effect that prohibits gas stations, pharmacies, and convenience stores from selling tobacco products, including e-cigarettes.

Preventing youth use of e-cigarettes while maintaining availability of these products for current adult cigarette smokers is a complicated charge for legislators and regulators. While it will take some time to evaluate the impact of recent (and soon-to-be implemented) federal and state efforts, as next steps are considered, the need for balance should be kept at the forefront.

On July 11, 2019, a Federal judge for the U.S. District Court for Maryland ruled that manufacturers and importers of products such as e-cigarettes and other electronic nicotine delivery systems (“ENDS”) have ten months to submit applications for marketing to the U.S. Food and Drug Administration (“FDA”). The ten-month deadline is applicable to new tobacco products on the market as of the August 8, 2016 deeming rule that extended FDA’s regulatory jurisdiction to include all tobacco products. Accordingly, manufacturers of e-cigarettes now have until May 2020 to submit applications for market approval in order to continue selling their products.

E-cigarette manufacturers have thus far been able to sell products without FDA approval. In 2016, FDA announced its deeming rule that extended its regulatory jurisdiction over these products. Initially, FDA established a 2022 deadline for existing companies to submit applications for FDA approval. FDA requested in the application information about why the applicant companies should be permitted to keep selling these products. FDA decreased the deadline by one year, to 2021, after numerous studies found a sharp increase in the number of teenagers vaping. Unsatisfied with the one year difference, anti-tobacco groups filed a lawsuit[1] against FDA claiming the agency’s lack of urgency threatened public health. During the course of this lawsuit, FDA proposed the ten-month deadline for application submissions and a one-year deadline for approval. The judge noted that the four-month submission deadline for which the plaintiffs advocated was less reasonable and provided less time for applicants to present sufficient information to FDA. The judge’s ruling removed any agency discretion in regards to these deadlines.

In a response to the court order, Acting Commissioner of FDA Norman E. “Ned” Sharpless stated that “FDA stands ready to accelerate the review of e-cigarettes and other new tobacco products. . . .” and “remain[s] committed to tackling the epidemic of youth vaping using all available regulatory tools at our disposal.” Despite the impending deadline, the judge acknowledged that these companies “have large purses and the resources to complete promptly the applications that they have had before them for years.” However, in a brief filed last month FDA noted that by the end of April 2019 it had received over 400 premarket applications, ninety-nine percent of which did not meet the basic requirements. Clearly, it will require more than simply “large purses” to get these products approved.

Companies can look to FDA’s final guidance published in June 2019 for premarket tobacco product applications (“PMTAs”) for ENDS, which include, e-cigarettes, vape pens, and e-liquids. According to Commissioner Sharpless, the guidance provides companies seeking to market e-cigarette and ENDS products with “recommendations to consider as they prepare a premarket tobacco product application to help the FDA evaluate the public health benefits and harms of a product.” The guidance contains, among other things, the following components: (1) Background regarding FDA’s regulation of ENDS; (2) Products to which the Guidance applies; (3) General procedures for ENDS PMTA review; and (4) Content required in an ENDS PMTA and recommendations for demonstrating appropriateness for the protection of the public health (“APPH”).

ENDS are regulated under the federal Food, Drug, and Cosmetic Act (“FD&C Act” or the “Act”). Under section 910 of this Act, companies and/or persons wanting to market a new[2] tobacco product are required to follow the 905(j) pathway and submit either (1) a report to obtain a substantial equivalence determination or (2) a report notifying FDA of the product’s exemption under the FD&C Act. If the new product is not found to be substantially equivalent to an appropriately identified predicate product, companies must then submit a PMTA and seek a marketing order before marketing the product.

Applicable Products and When a PMTA Is Required

The Guidance applies to three subcategories of ENDS products: e-cigarettes, e-liquids, and “ENDS products that package e-liquids and e-cigarettes together” when they are sold or distributed for consumer use. For example, an e-liquid in a sealed and final package to be sold or distributed for consumer use would fall under FDA’s enforcement scope and be subject to the PMTA requirements.

ENDS PMTA Review

After the company submits its ENDS PMTA, FDA will conduct a preliminary review to determine whether the application appears to be complete on its face.[3] If initially accepted, FDA will then process a filing review, where it determines whether the ENDS PMTA is sufficiently complete to be filed and warrant a substantive review. Under the FD&C Act, once the FDA receives a complete ENDS PMTA and is filed, FDA has a 180-day period to conduct its substantive review and approve or deny the ENDS PMTA. During this substantive review, FDA may request clarification of deficiencies or additional information to supplement the ENDS PMTA.[4] FDA may also inspect manufacturing, clinical research, and/or nonclinical research sites to assess the accuracy and validity of information provided in the ENDS PMTA and confirm that the product and manufacturing process meets applicable standards. In the Guidance, FDA stated that it intends to issue regulations that will contain requirements for tobacco product manufacturing practices.

Contents of an ENDS PMTA

A complete ENDS PMTA must contain the required information under section 910(b)(1) of the Act. In the Guidance, FDA provides a recommended organization of this information, which should have, at a minimum: (1) general information with a cover letter that details any prior FDA submissions for the new product; (2) a table of contents; (3) “Descriptive Information” that describes major aspects of the new product, including an overview of its formulation and design, the nicotine strength, instructions for its use, any restrictions on sale and distribution that would support a showing that its marketing would be APPH, and specific e-cigarette and e-liquid recommendations like battery capacity/wattage and package quantity/type; (4) product samples; (5) proposed labeling that would minimize risk associated with product use (e.g., an e-cigarette’s battery failure warning based on storage conditions); (6) an environmental assessment[5]; and (7) detailed scientific studies and analyses of research findings.

FDA recommended that companies make sure to provide information on how to minimize risks associated with ENDS batteries and to address the likelihood of use and misuse leading to overheating, fire, and explosion. FDA also appeared especially concerned with these ENDS products’ appeal to youth and young adults (e.g., certain e-liquid flavors being more desirable to young adults). In fact, in FDA’s press release for the Guidance, FDA assured it would “explore clear and meaningful measures to make tobacco products less toxic, appealing and addictive with an intense focus on youth.” Recently, FDA appears to be adhering to this pledge with its first launch of youth e-cigarette advertisements.

Commissioner Sharpless encouraged companies to “use this valuable document now as a guide to submit applications,” especially since there are no authorized e-cigarettes on the market.

[1] American Academy of Pediatrics v. Food & Drug Admin., No. 8:18-cv-00883 (D.C. Md. 2019).

[2] FDA defines a “new” tobacco product as one that “was not commercially marketed in the United States as of (i.e., on) February 15, 2007, or any modified tobacco product that was commercially marketed after February 15, 2007.”

[3] FDA’s criteria for acceptance of a premarket submission for tobacco can be found in 21 C.F.R. 1105.10.

[4] As a note, FDA stated that “ENDS product[s] with a differing flavoring variant and/or nicotine strength” are considered different products and therefore must clearly indicate which information pertains to which product when submitting the PMTA for the group of products.

[5] More information on environmental assessments for PMTAs can be found in 21 C.F.R. Part 25.