Monday Morning Recap: The Week (3.3.14-3.9.14) in Drug & Device Law & Policy

What follows is a weekly feature here at Health Reform Watch.  Each Monday, we provide a recap of the drug and device law and policy developments over the previous week that caught our eye and made us think.  Credit for the format goes to Seton Hall Law alum Jordan T. Cohen, who used it to great effect in his series of Reform Rodeo posts.

1. On Monday, March 3rd, the Supreme Court granted certiorari in a securities law case, Omnicare v. Laborers District Council Construction Industry Pension Fund, which turns on a statement that defendant Omnicare made in a securities registration statement indicating that the company was in compliance with state and federal billing requirements when, according to the plaintiffs: “Omnicare operated by paying and receiving illegal kickbacks, illegally promoting products such as Johnson & Johnson’s Risperdal for dangerous off-label uses, and submitting false claims to Medicaid and Medicare.”

2. Also on Monday, the FDA released a draft guidance for industry, Distributing Scientific and Medical Publications on Unapproved New Uses–Recommended Practices, which revises the agency’s 2009 Good Reprint Practices for the Distribution of Medical Journal Articles and Medical and Scientific Reference Publications on Unapproved New Uses of Approved Drugs and Approved or Cleared Medical Devices.  This Ropes & Gray summary provides background and context.

3. Kaiser Health News published a conversation between Mary Agnes Carey and Emily Ethridge of CQ Roll Call that very helpfully reviews the debate over the changes that the Centers for Medicare and Medicaid Services (CMS) has proposed making to Medicare Part D.  As Ethridge explains, CMS has proposed ending the “protected status” of anti-depressants and immunosuppressants, in the hope of spurring increased competition on price, and limiting the number of Part D plans from which beneficiaries can choose, with the goal of easing decision-making.  In addition, “[t]here is another area that is really important, which is about preferred pharmacy networks. The [proposed] rule says that a plan would have to allow any pharmacy that’s willing to meet its price to participate in its preferred network.”  As we noted here, Edward Lawrence at RxObserver is highly critical of this proposed change, writing that “[t]he new CMS rules are consistent with the independent pharmacy agenda, which is obviously designed to increase pharmacy profits. Since any increased pharmacy profits will mean increased costs for Medicare and beneficiaries, we fail to see the public interest in this CMS initiative.”

4.  The Centers for Disease Control and Prevention released its latest Vital Signs report, on antibiotic prescribing in hospitals, which highlights the fact that “[d]octors in some hospitals prescribed up to 3 times as many antibiotics as doctors in similar areas of other hospitals. This difference suggests the need to improve prescribing practices.”

5. Finally, at The Hill’s Congress Blog, Jennifer Nieto Carey and Julia Jenkins argue against a proposal “[b]uried within the draft tax reform proposal released last Wednesday by House Ways & Means Committee leadership … to eliminate incentives for drug manufacturers to develop therapies to treat and cure the more than 7,000 rare diseases afflicting more than 30 million Americans.”

No “Contracting Out” of Whistleblower Liability

The recent Supreme Court decision in Lawson v. FMR LLC,  which dramatically expanded the reach of the Sarbanes Oxley Act, is interesting in a number of respects – not least because it involved what my colleague Professor Timothy Glynn describes as “employeeless employers.” The decision has obvious implications for the publicly traded sector in the health care industry, and especially for firms who contract with such companies.

Apparently, the mutual fund industry is structured, as the court said, to have literally no employees. Each mutual fund contracts with other entities to provide all the services necessary for its operation. This means that most of the laws governing work in the United States – which are typically framed in terms of the obligations of “employers” to “employees” – simply don’t apply: an individual doing work on behalf of one of these funds is, technically not working for it but rather for some other entity.

Of course, the fact that, say, Title VII, doesn’t cover a mutual fund per se may not matter much – most of the firms through which it operates are themselves “employers” within the meaning of that statute, which means that the workers in these firms have the kinds of protections that Title VII offers.

But SOX, as the Sarbanes Oxley Act is known, is different. Passed in the wake of the Enron scandal, its whistleblower provision, 18 U.S.C. §1514A, bars any publicly traded company (and most subsidiaries and affiliates) from discriminating against “an employee” for providing information for what she reasonably believes to be a violation of the securities laws. If a mutual fund has no employees, it can scarcely discriminate against them.

Of course, since mutual funds operate through other firms, the aim of SOX – which was to encourage the reporting of violations both internally and to federal regulators and Congress by protecting those who blew the whistle – that reality would seem to mean that retaliation by the entities who actually do the work was not barred, which would mean that the goals of SOX in an industry like this would be largely frustrated.

That policy argument for reading §1414A broadly certainly featured in the Lawson decision, but the majority opinion had no need to reach its result just on policy grounds: SOX explicitly bars retaliation not only by a publicly traded company but also by “any officer, employee, contractor, subcontractor, or agent” of such a company. Since the firms that actually operate the business of mutual funds do so under contract, they are “contractors” and thus explicitly within the statutory language.

But hold it: while contractors are prohibited from retaliating against employees, are they barred from retaliating only against the publicly traded company’s workers (remember, there are none in the mutual fund industry) or against their own employees?

Either interpretation poses problems: contractors are rarely in the position to retaliate against the employees of the company with whom they contract, which would make the statutory language largely irrelevant. On the other hand, to hold that “any officer, employee, contractor, subcontractor, or agent” can’t retaliate against its own workers would lead to the absurdity, as the dissent argued, that, say, an officer of a publicly traded company couldn’t retaliate against someone who had no connection to the company at all – his babysitter or housekeeper.

The arguments on both sides were not uninteresting, with Justice Ginsburg’s plurality opinion and the dissent of Justices Sotomayor, Kennedy, and Alito (an unlikely alliance!) debating such esoteric issues as how much interpretive weight to give statutory headings, the effect of the subsequent enactment of Dodd Frank on the meaning of SOX, and what agency had authority to interpret SOX (the candidates being the Department of Labor, which processes administrative charges of violations, and the SEC, which is charged with enforcing the securities laws).

But the bottom line was clear: the plurality, joined by a concurrence of Justices Scalia and Thomas (who viewed the plurality as going too far “beyond the interpretive terra firm of text and context, into the swamps of legislative history”), held that contractors could not retaliate against their own employees for conduct that would be protected under 1514A. Although the plurality recognized the babysitter problem, but thought it “likely more theoretical than real. Few housekeepers or gardeners, we suspect, are likely to come upon and comprehend evidence of their employer’s complicity in fraud.”

In short, for a Court that has recently often rendered opinions cutting back employee rights under federal statutes, Lawson is a very unusual and expansionary opinion.

Clinical Trials of Primary Care Drugs: Could Smaller Be Better?

Cross-Posted at Bill of Health

Lately it seems that each passing day brings another article about the cost of orphan drugs.  Earlier this week at FiercePharma, Tracy Staton reported that the United Kingdom’s National Institute for Health and Clinical Excellence (NICE) has asked Alexion Pharmaceuticals to justify the price of its drug Soliris which is, per Staton, “the most expensive drug in the world” at around $569,000 a year.  Specifically, NICE seeks “‘clarification from the company on aspects of the manufacturing, research and development costs’” of the drug.  According to Staton, this latest development in a review process characterized by “halting progress” is “a departure from NICE’s usual calculations, which typically focus on quality-of-life years and the like.”

Pushback by NICE and other payers notwithstanding, the orphan drug market is growing.  As I blogged about here, in 2013 EvaluatePharma estimated that “the worldwide orphan drug market is set to grow to $127 [billion], a compound annual growth rate of +7.4% per year between 2012 and 2018[,]” which “is double that of the overall prescription drug market, excluding generics, which is set to grow at +3.7% per year.”  In a recent article in the New England Journal of Medicine, venture-capital investors Robert Kocher and Bryan Roberts note that “more than half of the 139 drugs approved by the FDA since 2009 are for orphan diseases” and suggest that there is a risk of “systematically underinvesting in other important areas of medicine.”

Kocher and Roberts’ explain that one reason that orphan drugs attract investment is that their development costs are low.  The problem or potential problem of underinvestment in diseases like depression and diabetes could therefore be addressed, they contend, by bringing the cost of developing treatments for these common conditions in line with the cost of developing treatments for rare diseases.  And, they argue, one promising approach to doing so is to reduce clinical trial costs by reducing the size of clinical trials.  In the report I cited above, EvaluatePharma estimated that for orphan drugs regulators require a median phase III trial size of 528 patients, at an estimated average cost of $85 million, whereas for non-orphan drugs they require 2,234 patients, at an estimated average cost of $186 million.

Kocher and Roberts believe that “most clinical development programs go far past the point of diminishing returns for frequent safety events, but they do not go far enough to permit detection of rare events.”  They therefore advocate for a package of reforms, including (1) “[r]edesigning trials to include fewer patients,” (2) “providing conditional approval of drugs,” and (3) “requiring postmarketing surveillance[.]”  The last two proposals are relatively uncontroversial; the first is much more so.  In a 2011 article in JAMA, for example, Aaron Kesselheim and colleagues found that “although both newly approved orphan and nonorphan cancer drugs in [their] sample were tested in relatively small numbers of patients prior to approval,” there was a higher rate of adverse events associated with the orphan drugs, suggesting safety concerns.  Kesselheim and colleagues argued that rather than extending the flexibility on clinical trial size that is currently afforded to orphan drugs, Congress should consider restricting it, to “first-in-class drugs or those that treat a condition for which no other treatments are available[.]”

Legislation or a change in the Food and Drug Administration’s position to allow for an across-the-board reduction in clinical trial size seems highly unlikely.  That said, both Congress and the FDA have demonstrated a willingness to work to reduce development costs, including by allowing for surrogate outcomes where appropriate and by speeding the agency’s approval process.  Moreover, in certain cases, governments have reduced sponsors’ development costs directly.  As Hester Plumridge reported in the Wall Street Journal in January, the “unfavorable economics” of antibiotics development are changing, in part because “[r]esearch funding is beginning to flow[.]”

Monday Morning Recap: The Week (2.24.14-3.2.14) in Drug & Device Law & Policy

What follows is a weekly feature here at Health Reform Watch.  Each Monday, we provide a recap of the drug and device law and policy developments over the previous week that caught our eye and made us think.  Credit for the format goes to Seton Hall Law alum Jordan T. Cohen, who used it to great effect in his series of Reform Rodeo posts.

 1.  First up is a news item that dates from February 21st (no one’s counting, I hope).  Richard Cassin at The FCPA Blog reports that pharmaceutical company Baxter International received a much-prized “double declination”, that is, notices from both the Department of Justice and the Securities and Exchange Commission that they have closed their investigations of alleged Foreign Corrupt Practices Act violations at Baxter and will take no further action.

2. At the FDA Law Blog, JP Ellison summarizes the Solicitor General’s brief in Nathan v. Takeda, a False Claims Act decision out of the Fourth Circuit which the Supreme Court is considering for review.  The relator in the case is a pharmaceutical sales representative who alleged that his employer engaged in a fraudulent scheme to promote one of its drugs off-label.  As Ellison explains, the legal issue in the case is whether a qui tam relator has to allege “‘that specific false claims actually were presented to the government for payment’ … Company sales representatives are typically quite familiar with company marketing practices, but usually have little or no knowledge regarding the submission of any actual claims for reimbursement submitted by healthcare providers so the stakes in this debate are significant.”

3. Another False Claims Act decision out of the Fourth Circuit that made the news this week and last is United States ex rel. Rostholder v. Omnicare, Inc.  As Reed Smith’s Larry Sher, who was part of the team representing Omnicare in the case, explains, “[t]he Rostholder court held that because compliance with the Food and Drug Administration’s (FDA) Current Good Manufacturing Practices (cGMP) regulations is not a precondition for reimbursement under Medicare and Medicaid, violations of the cGMP regulations by themselves cannot form the basis for False Claims FCA claims.”  Per Sher, in so doing, “the Fourth Circuit confirmed that the FCA is meant to combat fraud and is not a ‘sweeping’ catch-all mechanism to address all regulatory violations in the absence of actual fraud.”

4.  Those who have not been following the Trans Pacific Partnership negotiations over intellectual property rights to pharmaceuticals may find interesting these two opposing opinion pieces from last week and this week–Intellectual property is what drives biotech innovation and Getting the balance right on medical patents.

5. Finally, at Fierce Pharma, Tracy Staton reports that oral argument before the Arkansas Supreme Court was set for Thursday, February 27th in a closely-watched case in which a jury found “that [Johnson & Johnson] and its Janssen Pharmaceuticals unit soft-pedaled the risks of Risperdal, an antipsychotic drug, and misled doctors about its benefits” and “[a] judge fined the company a total of $1.2 billion.” According to Staton: “In appealing the Arkansas decision, J&J cited laws against excessive fines, and it’s apparently planning to use a free-speech argument before the state’s top court. Arkansas Attorney General Dustin McDaniel has pooh-poohed that argument. The AGs of 35 other states have thrown their weight behind the verdict, by filing a brief urging the court to uphold the verdict. Other friend-of-the-court briefs include those filed by AARP and former FDA Commissioner Donald Kennedy.”

Seton Hall Law Places First at UM Carey Law’s Health Law Regulatory and Compliance Competition

At Seton Hall Law’s website, Victoria Dorum reports that Seton Hall Law students Lindsey Borgeson, Joyce Crawford, and Phillip DeFedele (pictured above, from left), along with alternate Cynthia Frumanek, recently came in first at the University of Maryland Francis King Carey School of Law’s Health Law Regulatory and Compliance Competition.

Dorum writes:

Not only did the team members distinguish themselves among other top schools, they also made a profound impression on the judges. Virginia Rowthorn, Managing Director of the Law & Health Care Program at the University of Maryland School of Law, wrote a note to [Seton Hall Law Professor Tara Adams Ragone] to  commend the team and their teachers for the team’s excellent presentation. She wrote, “One of the judges who heard them told me they knocked it out of the ballpark with their knowledge, and also with the professional way they presented their ‘case’.”

Read Dorum’s full article on the Health Law Regulatory and Compliance Competition here; UM Carey Law’s coverage is here.

This has been a great academic year for Seton Hall Law, which also won the National Health Law Moot Court Competition in November.   Dorum covered that victory as well, here.

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