Over the past week, the White House administration (the “Administration”) has issued two documents addressing drug pricing. First, on February 9, 2018, the White House’s Council of Economic Advisers released a white paper titled “Reforming Biopharmaceutical Pricing at Home and Abroad” (the “White Paper”).  Second, on February 12, 2018, the Administration issued its 2019 Budget Proposal (“2019 Budget”).

Whereas the recommendations set forth in the White Paper are more conceptual or exploratory, the 2019 Budget purportedly reflects the Administration’s more specific priorities for 2019. The developments are significant because, after outspoken pledges to reduce drug prices over a year ago, the White Paper and the 2019 Budget, taken together, are the Administration’s first attempt to set forth its drug pricing policy framework.

FY 2019 Budget Proposal Outline

The Administration’s 2019 Budget proposes strategies to address drug pricing reform in several areas.

  • Medicaid: The 2019 Budget proposes for new Medicaid demonstration authority to allow five states to test drug coverage and financing reform. Under this demonstration, instead of participating in the Medicaid Drug Rebate Program, these states would determine their own drug formularies and negotiate drug prices directly with manufacturers, with the resulting negotiated prices being exempt from Best Price.
  • Medicare Part B: With respect to the Medicare program, the 2019 Budget provides several proposals. First, the 2019 Budget would require all manufacturers of Part B drugs to report average sales price (“ASP”) data, and to penalize those who do not report ASP data. Additionally, the 2019 Budget proposes to limit the increase in ASP-based drug payment to the annual rate of inflation. For drugs reimbursed based on wholesale acquisition cost (“WAC”) rather than ASP, the 2019 Budget proposes to reduce this payment rate from 106% of WAC down to 103% of WAC. The 2019 Budget also proposes to modify reimbursement to hospitals for drugs acquired at 340B discounts by rewarding hospitals that provide charity care, and reducing payments to hospitals that provide little to no charity care. The 2019 Budget proposes to consolidate certain drugs covered under Part B into Part D coverage.
  • Medicare Part D: For beneficiaries enrolled in Part D plans, the 2019 Budget proposes to establish an out-of-pocket maximum in the catastrophic coverage phase, eliminate cost-sharing for generic drugs for low-income seniors, and permanently authorize a Part D demonstration that provides retroactive and point-of-sale coverage to certain low-income patients.
  • FDA: The 2019 Budget proposes to give the FDA greater ability to bring generics to market more quickly. If a first-to-file generic application is not yet approved due to deficiencies, the 2019 Budget proposes to allow the FDA to tentatively approve a subsequent generic application rather than waiting for the first-to-file application to amend its application deficiencies.

Council of Economic Advisers White Paper

The White Paper discusses options for drug pricing reforms that would impact Medicaid, Medicare, the 340B drug discount program, and FDA. The following provides a summary of the major ideas proposed in the White Paper:

  • Medicaid: The White Paper contends that the determination of Best Price on a single unit of drug under the Medicaid Drug Rebate Program operates as an inducement to manufacturers to inflate commercial prices. The White Paper posits that CMS could revise the applicable rules for Best Price without conflicting with the statutory language, such that Best Price could be determined post-sale based on “the patient’s recovery”, i.e., the health outcome or effectiveness of the drug. The White Paper suggests that more clarity from CMS on value-based contracting would encourage drug purchasers to negotiate for lower prices.
  • Medicare Part B: With respect to drugs reimbursable under Medicare Part B, the White Paper focuses on expensive specialty drugs and biologics administered by physicians. The White Paper contends that due to the cost-plus reimbursement methodology under Medicare Part B (ASP plus 6 per cent), physicians do not have incentives to prescribe cheaper medications to control costs. The White Paper cites solutions proposed by MedPAC and other government agencies to realign incentives including: (i) introducing physician reimbursement that is not tied to drug prices, (ii) moving Medicare Part B drug coverage into Medicare Part D, where price-competition over drug prices is better structured, and (iii) changing how pricing data is reported to increase transparency.
  • Medicare Part D: The White Paper scrutinizes the Part D program as being structured in a manner that prevents pricing competition and causes “perverse incentives.” Specifically, the White Paper suggests that Part D’s requirement to cover at least two non-therapeutically equivalent products within each class and category prevents Part D sponsors from competitively negotiating lower prices and that the prohibition of formulary tier-based cost-sharing for low income beneficiaries creates a disincentive to use “high value” rather than high cost drugs. In addition, the White Paper states that since the 50% discount drug manufacturers are required to provide during the coverage gap is applied to the patient’s true out-of-pocket costs, enrollees have an incentive to use high cost drugs while in the coverage gap.In addition to making the specific observations above, the White Paper cites more general options proposed by MedPAC, OIG and other government agencies to address “misaligned incentives”: (i) requiring plans to share drug manufacturer discounts with patients, (ii) allowing plans to manage formularies to negotiate better prices for patients, (iii) lowering co-pays for generic drugs for patients; and (iv) discouraging plan formulary design that speeds patients to the catastrophic coverage phase of benefit and increases overall spending.
  • 340B Drug Discount Program: The White Paper posits that there are two significant issues with the 340B Program. The first is “imprecise eligibility criteria has allowed for significant program growth beyond the intended purpose of the program.” The second is the use of program revenue for purposes other than providing care for low-income patients, which is what the Administration believes was originally intended. While not providing specifics, the White Paper suggests establishing “more precise” eligibility criteria as an alternative to the DSH percentage currently used to establish hospital eligibility, and requiring that the 340B discount more directly benefit poor patient populations.
  • FDA: The White Paper suggests modifying the existing FDA criteria for expedited review to include new molecular entities that are second or third in a class, or second or third for a given indication for which there are no generic competitors. The White Paper states that this would reduce the time period a particular drug would be able to benefit from a higher price before facing generic competition. The White Paper also suggests policies aimed at reducing the cost of innovation, including having the FDA continue to facilitate the validation and qualification of new drug development tools that allow manufacturers to demonstrate safety and efficacy more efficiently and earlier, and speeding up the issuance of FDA final guidelines to add certainty and attract additional biosimilar applicants to the marketplace.
  • Pharmacy Benefit Managers: The White Paper scrutinizes the PBM industry as having “outsized profits” due to the high concentration of the PBM market (3 PBMs account for 85% of the market) and criticizes the lack of transparency with respect to the rebates that PBMs receive. The White Paper states that the “undue market power” causes manufacturers to set artificially high list prices, which are reduced via rebates to PBMs without reducing the costs to consumers. The White Paper suggests that policies to decrease concentration in the PBM market could reduce the price of drugs paid by consumers.
  • Drug Pricing in Foreign Countries: The White Paper discusses in detail how the United States bears a disproportionate share of the burden of the cost of innovation, since foreign governments, in exercising price control, are able to set drug prices lower than that in the United States. The White Paper suggests drug pricing reform abroad with the United States changing the incentives of foreign governments to price drugs at levels that reward innovation. The White Paper broadly suggests achieving this goal through enhanced trade policy or policies tying reimbursement levels in the United States to prices paid by foreign governments that set lower prices or other methods.

EBG Considerations

The combined result of the 2019 Budget and the White Paper is a hodgepodge of policy ideas that could impact a wide range of government programs and industry stakeholders throughout the drug distribution and reimbursement channel. While the proposals set forth in the 2019 Budget are more specific, the ideas in the White Paper are more conceptual and less developed.  For example, policies to address the high concentration of the PBM market and foreign government drug price control appear more aspirational and lack detail on what such policies would entail or how they would be accomplished.  This suggests that, while the 2019 Budget and White Paper are indicative of the Administration’s direction with respect to drug pricing policy, the policy is likely still a “work in progress” and subject to further development.

We will continue to report on how these ideas take shape in this Administration.

At this point, it’s not really ground-breaking news that America has a problem with opioid drugs. By way of anecdote, when I became a federal prosecutor in 2011, the last heroin case that had been prosecuted in the Nashville U.S. Attorney’s office was in the early-1990s; although, to be fair, there were then lots of what we called “pill” cases involving opioids. When I left the office in 2017, at least half of the office’s major investigations were directly related to opioids–some pills, but mostly outright heroin or fentanyl/carfentanyl . In Nashville, Tennessee, OxyContin (which is an opioid-based painkiller) can be worth up to $1.25/milligram (mg). That means that just one 80mg OxyContin has a street value of $100. Price, is of course, a reflection of demand and demand, in this case, is driven by addiction.

That addiction is costing Americans a lot of money. The White House estimates that in 2015, over 33,000 Americans died from opioid related overdoses and that the economic cost of the opioid crisis was $504.0 billion, or 2.8% of GDP. To put that in some perspective, 2015 U.S. healthcare spending accounted for 17.7% of GDP, which means that Americans spent ~1/6 as much on opioids as they did on healthcare. State governments, often stuck footing the bill for indigent addicts because of increased law-enforcement activity and drug/medical treatment, are looking at the opioid manufacturers and distributors to help pay some of this cost.

In September, 41 state attorneys general announced serving subpoenas on 6 opioid manufacturers as part of a multi-state investigation into whether the companies engaged in any unlawful practices in the marketing and distribution of prescription opioids. The attorneys general are also looking into the distribution practices of 3 pharmaceutical distributors that account for the distribution of roughly 90% of the U.S. opioid supply. According the N.Y. State AG, opioid distributors alone make nearly $500 billion a year in revenue, but those numbers (perhaps as a result of the market response to the negative publicity generated by all of this) might not be as robust as they once were. Stock prices (many of these companies are privately held) for two of the manufacturers subject to the AG subpoenas have seen stocks nose dive by ~90% and ~75% respectively after both achieving all-time highs in 2015. Of course, the reason for those drops is likely non-singular, but the timing does perhaps signal the market’s appetite for risk.

So, obviously, if you are an AG looking to combat a public health disaster, going after the manufacturers of opioids (who, at least in 2015, had lots of money), much like the manufacturers of tobacco is pretty appealing. That said, there are some considerations that are likely to be major impediments in the effort to make this into a big tobacco settlement:

  1. Prescription pills are prescribed by a medical doctor. Unlike the pack of cigarettes bought at the gas station from a clerk whose only responsibility is to verify age, opioids are, ostensibly, ordered by someone with years of advanced medical training. Pinning all the responsibility (or even just “most of it”) on manufacturers and distributors alone will be a challenge.
  2. The success of the tobacco litigation was driven in no small part by the efforts of Richard “Dickie” Scruggs, the exceptionally well-connected Mississippi lawyer who spearheaded the class-action effort and coalesced all the states into letting him be the point-man for all negotiations. Much of what made Scruggs successful in that effort–1) the self-proclaimed advantage of home cookin‘; 2) the ability to wheel and deal in the Capital thanks to his access to then Senate Majority Leader, and brother-in-law, Trent Lott; 3) the close relationship with then Mississippi Attorney General Mike Moore (who, coincidentally, is advocating for the opioid suit, this time as a plaintiff’s attorney)–is unlikely to fly in today’s world given the guttural uneasiness associated with any of the tactics utilized by Scruggs, now a convicted felon for attempting to bribe a judge in a post-Katrina litigation, and overall discomfort with anything that smacks of nepotism.
  3. The stated goal of many of the proponents of the tobacco litigation was to put cigarette manufacturers out of business–this, of course, is a sentiment still voiced by some. But, no one is realistically seeking to litigate these pharmaceutical companies into the ground. While these companies manufacture opioids, they also research and manufacture drugs that help treat pediatric Crohn’s disease, multiple sclerosis and Parkinson’s disease, among others. Simply, even if there is a settlement in all of this, the reality is that the settlement is likely to contemplate the ability of these companies to continue to research and manufacture the next wave of pharmaceutical improvements.

In an Advisory Opinion dated October 20, 2017, to Crouse Health Hospital (“Crouse Hospital”), the Federal Trade Commission (“FTC”) agreed that the Non-Profit Institutions Act (“NPIA”) would protect the sale of discounted drugs from Crouse Hospital to the employees, retirees, and their dependents of an affiliated medical practice (Crouse Medical Practice, PLLC) (“Medical Practice”) from antitrust liability under the Robinson-Patman Act.  Significantly, the FTC provided this advice despite the fact that the Medical Practice is a for-profit entity, and is not owned by Crouse Hospital.

The Robinson-Patman Act is primarily a consumer protection statute that prohibits, among other things, discrimination in the sale of like kind products, including pharmaceuticals, to different buyers.  As a result, and absent some exemption, the resale of discounted drugs purchased by a not-for-profit hospital to its patients would be subject to challenge.

The NPIA, however, exempts from the reach of the Robinson-Patman Act the sale of discounted drugs to “schools, colleges, universities, public libraries, churches, hospitals, and charitable institutions not operated for profit,” provided those drugs are purchased for that entity’s “own use”.  15 U.S.C.A. § 13(f). The Supreme Court, in Abbott Laboratories v. Portland Retail Druggists Ass’n, 425 U.S. 1 (1976), defined “own use” to mean “what reasonably may be regarded as use by the hospital in the sense that such use is a part of and promotes the hospital’s intended institutional operation in the care of persons who are its patients.”  Id. at 14.  The Supreme Court went on to conclude, among other things,  that the resale of discounted drugs to a hospital’s employees and their dependents would qualify as the hospital’s “own use.”  The FTC, in a number of prior Advisory Opinions, further extended the application of the NPIA to the sale of discounted drugs to employees of hospital affiliates, and other similar entities.  However, those entities were generally not-for-profit entities, likely eligible for protection under the NPIA on their own, and owned and/or controlled by the hospital.

The Advisory Opinion to Crouse Hospital is unique in that the Medical Practice is a for profit entity and clearly would not be eligible for protection on its own under the NPIA.  Furthermore, the Medical Practice is not directly owned by Crouse Hospital calling into question whether the resale could qualify as the hospital’s “own use” as required by the NPIA.

Despite these facts, the FTC concluded that NPIA should apply to the resale of discounted drugs to the employees, retirees, and their dependents of the Medical Group because: 1) Crouse Hospital was responsible for the formation of the Medical Practice and did so “to develop an integrated medical service system to encourage both organizations to work together to improve care and promote the charitable purposes of Course Hospital”; 2) Crouse Hospital, despite not owning the Medical Practice, still had ultimate decision-making control and authority over the Medical Practice; and, 3) all profits earned by the Medical Practice were assigned to Crouse Hospital.  Based on these factors, the FTC determined that “Crouse Medical Practice is an integral part of Crouse Hospital’s ability to fulfill its intended institutional function of providing care and promoting community health,” and, therefore, the resale was for Crouse Hospital’s own use.

Hospitals and health systems should take note that simply because an affiliate is a for profit entity does not automatically mean NPIA protection does not apply. A deeper look into the relationship between the hospital and affiliate, and consideration of the affiliate’s mission may support an extension of the NPIA.

On November 1, 2017, the Centers for Medicare & Medicaid Service (“CMS”) released the Medicare Hospital Outpatient Prospective Payment System (“OPPS”) final rule (“Final Rule”), finalizing a Medicare payment reduction from Average Sales Price (“ASP”) + 6% to ASP – 22.5%, for 340B discounted drugs in the hospital outpatient setting, as was proposed in the OPPS proposed rule earlier this year. This payment reduction is effective January 1, 2018, and would primarily impact disproportionate share hospitals, rural referral centers, and non-rural sole community hospitals.

340B Program Generally

The 340B program, established by section 340B of the Public Health Service Act by the Veterans Health Care Act of 1992, generally allows for certain eligible health care providers (“Covered Entities”) to purchase outpatient drugs at discounted prices. The 340B program is administered by Health Resources and Services Administration (“HRSA”).

CMS Policy Background for the Final Rule

In response to reports of the growth of 340B drug utilization by hospital providers, as well as the recent trends in high and growing prices of several separately payable drugs administered under Part B, CMS reexamined the appropriateness of the ASP +6% payment methodology to 340B drugs. This policy change as finalized would allow the Medicare program and beneficiaries to pay less for outpatient drugs, in a way that more closely aligns Medicare payment for 340B drugs to the resources expended by hospitals in acquiring such drugs. Additionally, CMS did not believe that beneficiaries should be responsible for a copayment rate tied to ASP + 6% when the actual cost to acquire the drug under the 340B program is much lower than the ASP for the drug.

340B Drug Payment Reduction

Under the Medicare program, CMS generally reimburses separately payable outpatient drugs and biologics based upon a drug’s ASP as reported by its manufacturer, plus a 6% markup, regardless of whether the drug is purchased at a 340B discount price. Drugs that are not separately payable are packaged into the payment for the associated procedure and no separate payment is made for them.

Effective January 1, 2018, CMS will reduce this payment rate to ASP – 22.5% for non-pass-through separately payable drugs and biologics acquired with a 340B discount. Excluded from this payment reduction are drugs or biologics that have pass-through payment status (which are required to be paid under the ASP + 6% methodology), or vaccines (which are excluded from the 340B program). In the proposed rule, CMS contemplated excluding blood clotting factors and radiopharmaceuticals from this payment reduction, however, CMS has decided to subject these two product types to the new policy. CMS noted that this ASP – 22.5% payment rate is based upon a 2015 MedPAC report in which MedPAC estimated that, on average, hospitals in the 340B Program “receive a minimum discount of 22.5 percent of the [ASP] for drugs paid under the [OPPS].”

Certain types of hospitals will not be affected by the change. CMS has exempted Covered Entities that are rural sole community hospitals, children’s hospitals, and cancer hospitals from this 340B drug payment reduction policy. Additionally, critical access hospitals are not affected by this policy because they are not paid under the OPPS. CMS has stated this payment reduction does not apply to 340B drugs furnished at non-excepted off-campus provider based departments.

To implement this payment reduction, CMS will be utilizing a claims modifier to track whether a drug is a 340B-acquired drug, and another claims modifier for whether the Covered Entity is exempt from this payment reduction policy. Hospitals will be required to report modifier “JG” with the associated nonpass-through separately payable drug’s HCPCS code to identify whether the drug was acquired with a 340B discount. The rural sole community hospitals, children’s hospitals, and cancer hospitals exempt from this payment reduction policy will be required to report the modifier “TB” with the associated HCPCS code of the 340B-acquired drug.

Additional Considerations

It is important to note that this new payment reduction policy generally does not apply to 340B drugs dispensed at contract pharmacies. Drugs reimbursed under the Medicare OPPS are generally physician administered drugs, whereas drugs dispensed at a contract pharmacy are generally self-administered retail drugs. Furthermore, this payment reduction policy does not affect 340B drug reimbursement for non-hospital Covered Entities, such as Federally Qualified Health Centers and Ryan White Grantees.

While HRSA manages the 340B program, this payment reduction is specifically for drugs reimbursed under the Medicare program. Accordingly, this policy does not affect reimbursement of 340B drugs by other government or private payers. However, it is possible that the Final Rule may embolden other payers to follow suit by adopting 340B payment reductions similar to CMS.

Organizations representing hospitals already have announced intent to take legal action against this 340B drug payment reduction. This legal action will likely focus on arguments that CMS exceeded its statutory authority in its ability to calculate and adjust 340B acquired drug payment rates, and doing so in a manner that discriminates against safety net hospitals violates the Medicare statutes.

The OPPS Final Rule will be published in the Federal Register on November 13, 2017 and available online at https://federalregister.gov/d/2017-23932. Epstein Becker & Green is available to provide guidance on how this new policy affects you.

The Federal Trade Commission (“FTC”) and the Antitrust Division of the Department of Justice (“Antitrust Division”) released their respective year-end reviews highlighted by aggressive enforcement in the health care industry. The FTC, in particular, indicated that 47% of its enforcement actions during calendar year 2016 took place in the health care industry (including pharmaceuticals and medical devices). Of note were successful challenges to hospital mergers in Pennsylvania (Penn State Hershey Medical Center and Pinnacle Health System), and Illinois (Advocate Health Care Network and North Shore University Health System). In both actions, the FTC was able to convince the court that the merger would likely substantially lessen competition for the provision of general acute-care hospital services in relevant areas in violation of section 7 of the Clayton Act. See FTC v. Penn State Hershey Med. Center, 838 F. 3d 327 (3d Cir. 2016); and FTC v. Advocate Health Care Network et al No. 1:15-cv-11473, 2017 U. S. Dist. LEXIS 37707 (N.D. Ill.Mar. 16, 2017)

The Antitrust Division, in similar fashion, touted its actions to block the mergers of Aetna and Humana, and Anthem and Cigna. Complaints against both mergers were filed simultaneously in July of 2016, and tried before different judges in the Federal District Court for the District of Columbia. After extensive trials, Judge Bates blocked the Aetna/Humana deal, and Judge Amy Berman Jackson blocked the Anthem/Cigna transaction. United States v. Aetna Inc., No. 1:16-cv-1494, 2017 U.S. Dist. LEXIS 8490 (D.D.C. Jan 23, 2017) and United States v. Anthem Inc., No. 1:16-cv-01493, 2017 U.S. Dist. LEXIS 23614 (D.D.C. Feb8, 2017).

In addition to their enforcement activities, the agencies promoted jointly issued policy guidelines, including their “Antitrust Guidance for Human Resources Professionals.” Although not specific to any industry, this guidance has particular relevance to the health care industry. Among other things, this guidance makes clear that naked wage-fixing (such as the wave of wage fixing claims relating to nurses) and no-poaching agreements (that would include agreements not to hire competing physicians) are not only per se illegal, but also subject to criminal prosecution.

While a marginal enforcement shift may be in store as a result of the change in administration, most signs point to a continued focus on the health care industry. Maureen K. Ohlhausen, appointed by President Trump as acting Chair of the FTC, reiterated in a speech recently delivered at the spring meeting of the American Bar Association’s antitrust section, that “[i]t’s extremely important we continue our enforcement in the health care space.” Likewise the Acting Director of the FTC’s Bureau of Competition – Abbott (Tad) Lipsky, appointed by Chairman Ohlhausen, applauded the FTC’s success in challenging the Advocate/Northshore Hospital merger noting, in a related FTC press release, that the “merger would likely have reduced the quality, and increased the cost, of health care for residents of the North Shore area of Chicago.”

Makan Delrahim, President Trump’s selection (awaiting confirmation) to head the Antitrust Division, recently lobbied on behalf of Anthem and its efforts to acquire Cigna, and has openly stated with respect to certain announced mergers, that size alone does not create an antitrust problem. Nevertheless, given the political climate and overall impact the health care industry has on the U.S. economy, the Antitrust Division’s efforts to open markets in the health care sector, particularly to generics and new medical technologies by challenging pay for delay deals and scrutinizing unnecessarily restrictive agreements among medical device manufacturers is likely to continue.

A wild card affecting future antitrust enforcement is increasing possibility of passage of the Standard Merger and Acquisitions Review Through Equal Rights Act of 2017 (H.R. 659 a/k/a the “SMARTER ACT”). This bill, recently approved by the House Judiciary Committee, would eliminate the FTC’s administrative adjudication process as it relates to merger enforcement, forcing the FTC to bring all such actions in court. In addition, it would align current preliminary injunction standards such that both the FTC and DOJ would face the same thresholds required of the Clayton Act rather than the more lenient standard under the FTC Act. A similar bill passed the House in 2016, but was not taken up by the Senate.

In a previous blog post, we discussed a City of Chicago Ordinance, set to take effect on July 1, 2017, that will require pharmaceutical sales representatives to obtain a license before being able to operate within city limits. The draft rules for this ordinance were released on March 17, 2017.

These rules provide additional detail regarding the licensure requirements as well as other associated education and disclosure requirements with which pharmaceutical representatives will be expected to comply beginning in July of this year. In order to obtain initial licensure as a pharmaceutical representative, applicants must complete an online course that will provide an overview of these requirements.  Proof of course completion must be submitted along with the license application, which will cost $750.  To maintain the license, representatives must complete a minimum of 5 hours of continuing professional education every year thereafter.  Approved providers will be listed at www.cityofchicago.org/health.  Notably, continuing education provided by pharmaceutical manufacturers to their employees will not be accepted to fulfill the requirement. A licensed representative who does not meet these continuing education requirements may face substantial penalties, including suspension or revocation of the license, inclusion in a public list of representatives whose licenses have been revoked, and/or a fine between $1,000 and $3,000 per day of violation.

In addition to the professional education requirement, pharmaceutical representatives will also be required to track and report certain sales information on an annual basis or upon request by the Commissioner of Public Health. This information must include: a list of the health care professionals who were contacted, the location and duration of each contact, the pharmaceuticals that were promoted, and whether product samples or any other compensation was offered in exchange for the contact.[1]  For applicants who receive initial licensure, the time period for the data that must be collected and reported shall cover an 11-month period, starting on the day of licensure and ending one month before its expiration.  For representatives with a renewed license, the data shall cover a 12-month period that will begin one month before the license renewal and will end one more before its expiration.  If the Commissioner of Public Health requests the information at any other time, the request will designate the time period the submission must cover, and it will be due within 30 days of the request.

A pharmaceutical representative who is found to have violated any provision of the Ordinance or these rules will be subject to suspension or revocation of licensure and/or a fine of $1,000 to $3,000 per day of violation. Once a license is revoked, it cannot be reinstated for a period of two years from the date of revocation.[2]

These new requirements will undoubtedly place a significant burden on pharmaceutical manufacturers and their sales representatives who work in Chicago.[3]  The public is invited to submit any comments it may have on the proposed rules by April 2, 2017.

____

[1] Section 4-6-310(g)(1)

[2] Section 4-6-310(j)

[3] The requirements have already drawn considerable criticism from affected members of the pharmaceutical industry, who state that they will impose an unnecessary and harmful tax on one of the most important sectors of the city’s economy.

In 2016, the populist trend in American politics was an undeniable factor behind Trump’s election victory as well as the ascendancy of Bernie Sanders and Elizabeth Warren within the Democratic Party.  During upcoming months, industry observers will be looking for signs as to whether drug pricing is an area in which both parties can agree on instituting significant legislative action at the state and federal levels.  The nature and shape of any such reforms will be highly consequential for the U.S. pharmaceutical industry, which has served as a prime source of innovation in medicine.  The question going forward is whether cool-headed reform that facilitates patient access to drugs without stymying pharmaceutical R&D investment can be achieved in an era of fervent populism and discontent over rising healthcare costs.

For more, see Politics, Populism, and the Future of Prescription Drug Pricing Reform in PharmaExec.com.

On November 16, the City of Chicago passed an ordinance that will require pharmaceutical sales representatives to become licensed in order to promote prescription drugs to health care providers within city limits.  The ordinance was passed unanimously, despite ardent objections from pharmaceutical manufacturers and industry organizations.  While Mayor Rahm Emanuel states that the new licensing requirement is part of a larger series of efforts by the city to combat heroin and opioid addiction, industry representatives characterize the license as a harmful tax increase that does not effectively address the problem. This law will impose significant new burdens on any pharmaceutical manufacturer with sales representatives who call on health care providers in Chicago.

The ordinance, which will take effect on July 1, 2017, imposes a litany of new requirements on pharmaceutical representatives working in the city. Medical device representatives and distributors are not required to be licensed under the ordinance. In order to become initially licensed, applicants must complete a professional education course to be established by the Commissioner of Public Health.  The fee for the initial application and each annual renewal will be $750.  Then, to maintain the license, representatives must complete a minimum of five hours of continuing education every year.

In addition to the licensing requirement, pharmaceutical representatives will also be required to periodically report marketing data to city officials. Upon request or at given time intervals to be established by the Commissioner, representatives will have to disclose a list of the health care professionals that they contacted, along with:

  • The location and duration of the contact,
  • The pharmaceuticals that were promoted,
  • Whether they provided product samples, materials, or gifts to the health care professional, and the value of those items, and
  • Whether and how the health care professional was compensated in exchange for the contact with the pharmaceutical representative.[1]

Pharmaceutical representatives also are expressly prohibited from any deceptive or misleading promotion of a prescription drug, the use of any professional designation suggesting that the representative holds a license to practice medicine or other profession that he or she does not hold, and being present for any patient examination without the patient’s consent.

Any representative found in violation of the ordinance faces a fine between $1,000 and $3,000 per violation, with each day on which a violations persists constituting a separate offense.

When the ordinance takes effect, Chicago will become one of only two cities in the country – the other being the District of Columbia – to impose such requirements on pharmaceutical representatives.  Moreover, the D.C. regulations are not as burdensome as Chicago’s. For example, the D.C. license does not require completion of a professional education course nor does it require reporting of marketing data to city officials.  Additionally, the fee for the D.C. application is $175 compared to Chicago’s $750.

According to local press reports, a coalition of sixteen pharmaceutical companies, and organizations such as the Illinois Chamber of Commerce, the Illinois Manufacturer’s Association, the Epilepsy Foundation of Greater Chicago, and the Pharmaceutical Research and Manufacturers of America, wrote a letter to the City Council of Chicago expressing its concerns. The group stated that, “[t]hese proposed reporting requirements are unnecessary and duplicating, creating an unnecessary tax on one of the most important sectors of our economy.”

Whether the new license requirement will successfully aid in fighting opioid addiction in Chicago is uncertain; but, what is certain is that the requirement will place a significant burden on pharmaceutical manufacturers who should begin to take steps now in order to prepare themselves and their representatives for these new obligations.  We will continue to monitor and report on implementing rules established by the Commissioner of Public Health and any other new developments leading up to the ordinance’s effective date.

[1] Section 4-6-310(g)(1)

On August 31, 2016, FDA issued a notification of public hearing and request for comments on manufacturer communications regarding unapproved uses of approved or cleared medical products. The hearing will be held on November 9-10, 2016, and individuals wishing to present information at the hearing must register by October 19, 2016. The deadline for written comments is January 9, 2017.

In the notice, FDA posed a series of questions on which it is seeking input from a broad group of stakeholders, including manufacturers, health care providers, patient advocates, payors, academics and public interest groups. The topics on which FDA is seeking feedback are broad, but generally include:

  • The impact of off-label communications on public health,
  • The impact of changes in the health care system on the development of high-quality data on new uses of cleared or approved products,
  • Preserving incentives for manufacturers to seek approval for new uses, standards for truthful and non-misleading information,
  • Factors FDA should consider in monitoring and bringing enforcement actions based on off-label communications by manufacturers,
  • The extent to which data on which off-label communications are based should be publicly available, and
  • The changes FDA should consider to existing regulations governing manufacturers’ communications regarding their products.

This announcement comes in the wake of increased pressure from lawmakers, public interest groups, and regulated industry for FDA to issue guidance or propose regulatory changes to address recent litigation clarifying commercial speech protections for pharmaceutical and medical devices manufacturers under the First Amendment. On May 26, 2016, the House Committee on Energy and Commerce sent a letter to HHS Secretary Sylvia Burwell expressing concern that FDA had failed to clarify its current thinking on permissible manufacturer communications about uses of cleared and approved drugs and devices beyond the scope of their approved labeling. In the letter, the committee noted that FDA had neither issued guidance, including guidance on the permissible scope of “scientific exchange” that has been on FDA’s Guidance Agenda since 2014, nor conducted the public hearing it announced in May 2015 in connection with negotiations on the proposed 21st Century Cures bill.  The committee expressed concern that HHS was preventing FDA from issuing guidance or proposing new regulations to address a string of recent court victories for companies and individuals prosecuted for off-label communications about drug and medical devices.

In light of the current state of First Amendment commercial speech protections, which makes it clear that manufacturers’ truthful and non-misleading speech regarding their products is not unlawful even if that speech includes uses of their products that have not been approved or cleared by FDA, other stakeholders have actively encouraged FDA to issue guidance or modify its regulations to conform its regulatory oversight and enforcement activities to this reality. While stakeholder groups have been actively engaged on these issues for several years, recent examples include the February 2016 white paper issued by the Duke-Margolis Center for Health Policy outlining policy options for off-label communications, and the joint release by BIO and PhRMA of the Principles on Responsible Sharing of Truthful and Non-Misleading Information about Medicines with Health Care Professionals and Payers on July 27, 2016.

Despite pressure from interested stakeholders, FDA has yet to propose changes to its regulations or issue long-awaited guidance on a number of topics related to manufacturers’ communications regarding off-label uses of their cleared or approved products. While FDA’s 2016 Guidance Agenda, updated most recently on August 6, 2016, continues to promise guidance on manufacturer communications regarding unapproved, unlicensed, or uncleared uses of approved, licensed, or cleared human drugs, biologics, animal drugs and medical devices and the inclusion of health care economic information in promotional labeling and advertising for prescription drugs, among others, the post-election timeline for the public hearing and FDA’s ongoing collection of feedback announced in the August 31st notice may suggest that FDA is going back to the drawing board. In particular, the focus in the notice’s background discussion and in FDA’s questions on the public health impact of off-label communications may suggest that FDA is re-evaluating its position in response to the HHS concerns about broader dissemination of off-label by manufacturers that were highlighted in the Energy and Commerce committee letter.  While FDA’s notice and request for comments is a step in the right direction, it likely signals a further delay in the issuance of guidance that is needed to bring greater clarity to the currently unsettled regulatory framework for FDA’s oversight of manufacturers’ off-label communications, and a punting of these important decisions to the next administration.

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.