Life Sciences Legal Update : Life Sciences Lawyers & Attorneys : Reed Smith Law Firm : Healthcare, Food and Drug Law, Biotechnology, Privacy, Product Liability

The Reed Smith Health Industry Washington Watch blog has been updated to discuss a variety of legislative and regulatory developments, including the following:

• Regulatory Developments. HHS has published a final rule to implement certain aspects of the Patient Safety and Quality Improvement Act of 2005 (Patient Safety Act). In addition, HHS has published its semiannual regulatory agenda, outlining planned regulatory initiatives in a number of health policy areas. CMS has issued an interim final rule with comment period making technical changes to the methodology used to compute each state's preliminary and final allotments available to pay the Medicare Part B premiums for qualifying individuals, along with a separate final rule on Medicaid premiums and cost sharing requirements. The FDA has published draft guidance documents on “Contents of a Complete Submission for the Evaluation of Proprietary Names” and “Process Validation: General Principles and Practices.”
• Legislative Developments. Key lawmakers have released for public comment a discussion draft of legislation that would establish a value-based purchasing program for Medicare inpatient hospital care. In addition, the Senate Finance Committee has held a hearing on health care reform, and the Senate has approved technical corrections to the new mental health parity law.
• Other CMS & DOJ Developments. CMS is accepting comments on a preliminary set of outpatient imaging efficiency measures. CMS also has released a document entitled “Medicare’s Practical Guide to the E-Prescribing Incentive Program.” In addition, CMS has announced the improper payment rate for the Medicare, Medicaid and SCHIP for FY 2008. The U.S. Department of Justice also has released updated statistics on federal False Claims Act recoveries, including a discussion of significant health care fraud enforcement activities.
• Health Care Industry Events. CMS is holding forums on the Part B drug competitive acquisition program, value-based purchasing for physician and other professional services, hospital-acquired conditions, and IPPS new technology applications. The HHS Secretary's Advisory Committee on Genetics, Health, and Society is meeting to discuss whether gene patents and certain licensing practices are affecting patient access to genetic tests, and the Practicing Physicians Advisory Council is holding its quarterly meeting to discuss Medicare policy changes related to physicians’ services. AHRQ is hosting a meeting on kidney disease education.

For details on these and other health industry developments, please visit healthindustrywashingtonwatch.com.

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This Client Alert, written by Debra L. Hutchings, Paul J. Bond and Carol C. Loepere, updates information received from the Federal Trade Commission (“FTC”) concerning application of its Address Discrepancy and Red Flag rules aimed at combating identity theft as they apply to health care providers and suppliers. As reported previously these rules, collectively known as the Red Flag Regulations, 16 C.F.R. § 681.1 et seq. (“Red Flag Regulations”), apply to users of consumer reports and “creditors,” which may include many participants in the health care industry.

Past posts on this subject describe the FTC's decision to delay enforcement of a portion of the regulations and our initial discussion of the implications of the FTC's Red Flag Regulations for health care providers.

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This post was written by Matt Wetzel and Katie Hurley.

On Nov. 10, 2008, a bill was introduced in the Texas Senate that would require drug companies to provide annual disclosures of gifts, payments and other economic benefits to health care providers. If passed, Texas would join the ranks of other jurisdictions (the District of Columbia, Maine, Minnesota, Vermont, West Virginia, and, most recently, Massachusetts), to require such disclosure.

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Markets outside the United States are increasingly important for life sciences companies, and this post includes articles by Reed Smith lawyers regarding two developments in Europe. 

The first is by Edward Miller, entitled "Sidestepping the Issue", republished with permission from the International Clinical Trials e-book (registration required).  This article discusses a ruling by the European Court of Justice, holding that pharmaceutical companies can refuse to fill "unusual" orders from distributors who seek to profit by buying drugs for countries with low reimbursement prices, and shipping them for sale in countries with high prices - but falling short of the standard advocated by the pharmaceutical company defendant in that case. 

The second article is by Paule Drouault-Gardrat and Julie Gottenberg regarding French Supreme Court rulings earlier this year on causation in product liability cases.  First published in the August edition of Insights, the conference bleue newsletter, the article is reprinted with permission here:

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The gap that the Supreme Court's non-precedential decision, Warner-Lambert Co., LLC v. Kent, 128 S.Ct. 1168 (2008), left open earlier this year continues to force the lower courts to take sides, as was done in the latest case - Grange v. Mylan Labs., Inc., Case No. 1:07-CV-107 (N.D. Utah Oct. 31, 2008). Specifically, the controversy remains on whether fraud-on-the-FDA claims ruled preempted by the Supreme Court in Buckman Co. v. Plaintiffs' Steering Committee, 531 U.S. 341 (2000) will preempt exceptions that are put forth to overcome a statutory presumption that would otherwise bar recovery. So far, the Sixth Circuit in Garcia v. Wyeth-Ayerst Labs., 385 F.3d 961 (6th Cir. 2004) has held that such claims are preempted; the Second Circuit in Desiano v. Warner-Lambert & Co., 467 F.3d 85, 97 (2d Cir. 2006) has held that they are not. 

In this latest case, the District Court of Utah found the Sixth Circuit's reasoning more persuasive in deeming the exception to a statutory presumption for punitive damages preempted, because the exception was triggered where there was evidence that the manufacturer of a manufacturer's knowing withholding or misrepresentation of information required to submit to the FDA. The court in Grange stated:

"That said, the Sixth Circuit's decision in Garcia is more persuasive here. The chief problems that Buckman sought to counteract are present whenever a plaintiff, as a prerequisite to collecting damages, is required to put on evidence that there was what amounts to fraud on the FDA. When such evidence is considered, state courts are essentially second-guessing the FDA and drug companies, nervous about state litigation, will have an incentive to flood the FDA with information. The court accordingly agrees with Garcia, and holds that Utah Code Ann. § 78B-8-203(2) is, in part, preempted. Specifically, to the extent that Utah Code Ann. § 78B-8-203(2) allows for an exception in cases where a plaintiff puts on his or her own independent evidence of information being withheld from the FDA, this statute is preempted. There is no preemption, however, in a situation where a plaintiff invokes Utah Code Ann. § 78B-8-203(2) to seek punitive damages in cases where the FDA itself has found that there was fraud in the application process."

For more, see Drug and Device Law's post about this case from earlier this morning.

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The Reed Smith Health Industry Washington Watch blog has been updated to discuss a variety of legislative and regulatory developments, including the following: 

• Legislative Developments. Senate Finance Committee Chairman Max Baucus has released a white paper entitled "Call to Action: Health Reform 2009," which details Senator Baucus’ goals for health care reform in the broad areas of coverage, quality, and cost. The broad scope of the Baucus white paper suggests that Congress intends to focus beyond access to insurance or the immediate problem of fixing the Medicare physician fee schedule and examine fundamental policy questions concerning how to promote quality and value throughout the health system at a time of limited federal resources.
• Regulatory Developments.   CMS has published an interim final rule with comment period revising marketing requirements for Medicare Advantage plans and Medicare Part D prescription drug plans in order to limit incentives for brokers to switch beneficiaries between plans. CMS also has published a final rule clarifying the definition of outpatient hospital services under Medicaid to align it more closely with the Medicare definition of such services. The FDA has issued regulations to adjust for inflation the maximum civil money penalty amounts under certain FDA authorities, and it has published a notice regarding nonvoting industry representatives on Center for Biologics Evaluation and Research public advisory committees.  
• Other HHS Developments. CMS has announced the chronic conditions certain Medicare Advantage special needs plans must use to identify the beneficiary populations eligible for enrollment, beginning in 2010. CMS also has released the 2009 update of the Healthcare Common Procedure Coding System (HCPCS) code set, and has updated the Medicare Benefit Policy Manual to reflect CMS policy regarding medically-accepted indications of drugs and biologicals used off-label in an anti-cancer chemotherapeutic regimen. In addition, CMS has released information for state officials regarding the refunding of the federal share of state Medicaid recoveries under state False Claims Acts, and regarding the upcoming “Medicare Nursing Home Value-Based Purchasing" demonstration. Moreover, the HHS Secretary has submitted to Congress the Department's annual report on national Medicare coverage determinations.
• GAO & OIG Reports.  The HHS OIG has issued reports on CMS enforcement of the HIPAA security rule, and appeals of DME supplier revocations. Both the OIG and GAO also have issued reports regarding the Medicare Part D drug program. 
• Health Care Industry Events. CMS is holding forums on electronic prescribing, the Part B drug competitive acquisition program, value-based purchasing for physician and other professional services, and hospital-acquired conditions. The HHS Secretary's Advisory Committee on Genetics, Health, and Society is meeting to discuss whether gene patents and certain licensing practices are affecting patient access to genetic tests, and the Practicing Physicians Advisory Council is holding its quarterly meeting to discuss Medicare policy changes related to physicians’ services.

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In its November 2008 issue, the Harvard Law Review will publish "Preemption of State Common Law Claims," 122 Harv. L. Rev. 405, an article that discusses Riegel v. Medtronic, Inc., 128 S.Ct 999 (2008) and its impact on state law claims. 

Of note, the authors state: "Despite criticisms that it leaves tort victims uncompensated, preemption is necessary to ensure that federal regulatory agencies, like the Food and Drug Administration (FDA), are the only governmental actors able to impose requirements on manufacturers – thereby ensuring a nationally standardized system of safety regulations without myriad local variations."

The authors also tackle an issue Riegel left open: "How to treat preemptive force of FDA regulation if agency approval is obtained by fraud." The authors acknowledge Buckman Co. v. Plaintiffs' Steering Committee, 531 U.S. 341 (2001), noting that if a state fraud claim "interferes with FDA regulatory decisions, preemption is likely to be (correctly) found." The authors opine that such actions should go forward only in situations "that would not impede the FDA's ability to choose its own enforcement strategy." Id. 

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This post was written by Stephen P. Murphy, Antony B. Klapper, Mark A. Brand, and Barry J. Thompson.

Among other things, the Consumer Product Safety Improvement Act of 2008 ("CPSIA"), signed August 14, 2008, will impose new transparency and public disclosure requirements on every importer, retailer and distributor of consumer products, and give the Consumer Product Safety Commission ("CPSC") increased power to enforce existing laws, as detailed in this summary of the bill's major provisions.

The life sciences industry is taking note and taking action to comply. But the new law is not without its drawbacks. One appeared to be that the disclosure requirements designed to document the source and supply chain for consumer goods threatened closely-guarded confidential business information, such as the names of foreign manufacturers and suppliers.

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Areta Kupchyk opines about possible picks for the FDA Commissioner in today's Law360 article, "Obama's FDA Commissioner Pick Could Be Outsider."

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On October 28, 2008, the Food and Drug Administration (FDA) published a final rule requiring a statement to be included on certain human drug product labeling that provides a toll-free number for reporting side effects and specifies that the number is not intended to be used for medical advice. The rule, which confirms a January 3, 2008 interim final rule on this issue, implements provisions of the Best Pharmaceuticals for Children Act and the Food and Drug Administration Amendments Act of 2007. The compliance date for the final rule is July 1, 2009 (rather than the January 1, 2009 compliance date anticipated under the interim final rule). 

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In "Ex Parte Talks Allowed Under Georgia Law For Counsel, Doctors Preempted by HIPAA" (password required), the United States Law Week discusses in detail Moreland v. Austin, Georgia Sup. Ct. No. S08G0498, a November 3, 2008 decision holding that defense attorneys who wish to engage in ex parte communications with plaintiffs' treating physicians must comply with HIPAA privacy rules. Since HIPAA affords more patient privacy than a Georgia law that permitted ex parte contact once a plaintiff put his or her medical condition at issue, the Georgia law was preempted.

Preemption giveth, and preemption taketh away.

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On Friday, the Ninth Circuit took another run at determining due process limits on punitive damages in Southern Union v. Irvin. The court previously vacated a punitive award in excess of 153 times compensatory damages [see S. Union Co. v. Sw. Gas Corp., 415 F.3d 1001, 1009 (9th Cir. 2005)], but defendant appealed again after Southern Union accepted the trial court's remittitur to $4 million in punitive (just over ten times compensatory damages).

As Judge Noonan described the jury's findings in his dissent, "Irvin, the chairman of the Arizona Corporation Commission, worked determinedly for a period of four months to promote the merger of an Arizona utility company with another utility and to defeat a merger proposed by Southern Union over $100 million more beneficial to the Arizona company" in exchange for a "bribe" that was never paid, because Southern Union filed suit.

Using the Supreme Court's three touchstones from State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 416 (2003) - “(1) the degree of reprehensibility of the defendant’s misconduct; (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases” - the Ninth Circuit concluded that a three-to-one ratio was the constitutional maximum in the case before it.

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In Carter v. Novartis Consumer Health, Inc., --- F. Supp. 2d --- , No. EDCV08-0334 MRP (JCRx) (C.D. Cal. Aug. 5, 2008) and its companion cases, the Central District of California addressed the express preemption clause of Section 379r of the Food, Drug and Cosmetic Act governing OTC drugs. Here, the parents of children younger than age 6 filed a complaint against manufacturers alleging that the OTC cough and cold medicines "d[id] not work" and were dangerous to their children. There were no requests for damages based on injuries, but rather for the economic harm of purchasing these products. Plaintiffs also sought injunctive relief, pursuant to various state consumer fraud statutes, and each case sought to certify a class on behalf of all others similarly situated.

The court granted the defendants' motion to dismiss based on federal preemption for all of the claims (unjust enrichment, false and misleading advertising, fraudulent concealment, unfair and deceptive business practices, and breach of express and implied warranties), noting that OTC cough and cold medicines are regulated by the FDA pursuant to the OTC monograph, generally described within 21 CFR part 341. Such OTC monographs set forth approved indications for use and age-dependent dosage instructions that must comply with all FDA regulations, and are therefore generally recognized as safe and effective. Claims attacking these federal "requirements" therefore preempted the state "requirements" established by the state law claims. Of particular note was the court's understanding that the state requirements were not defined by its label, but "its ultimate outcome: would a finding of liability impose requirements that are different from or in addition to FDA requirements?" p. 13. Because the claims were premised on attacks based upon FDA-approved statements in product labeling and advertising, such claims were preempted.

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On Monday, the District Court of Massachusetts issued a notable attorney's fee award decision in a class action arising from a data privacy breach, In re TJX Companies Retail Securities Litig. Along with a class settlement, class counsel urged the court to approve a $6.5 million attorney's-fees award, arguing that hundreds of millions of dollars in potential value had been created for the class. However, the payout depended entirely on class members making claims, and only a small fraction of the supposed potential - $6 million - were made. The court quite reasonably rejected class counsel's suggestion that the potential (but unrealized) claims supported the requested fees. That said, the court still approved the fee request pursuant to the lodestar method ($3.3m in lodestar * 1.97 multiplier = $6.5m).

The court finished with a cautionary note, which is where the baby step comes in: "In the future . . . Plaintiff's counsel can expect that this court, when confronted with reversionary common fund or claims-made settlements, will award attorney's fees by reference to the value of benefits actually put in the hands of class members." (emphasis in original). In reality, however, it would have been entirely reasonable for the court to use this standard for attorney's fees now, without waiting for the next time.

UPDATE: Drug and Device Law also has a November 11, 2008 post about this TJX case.

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Data breaches can occur in any industry, but those that involve medical information create unique problems. Starting January 1, they also will carry unique penalties, at least in California. The new California laws, Senate Bill 541 (SB 541) and Assembly Bill 211 (AB 211).

Health care providers clearly need to take heed of the laws' directives that they take additional affirmative steps to prevent “unauthorized access” to patient information. But AB 211 is particularly broad in scope, covering “any person or entity" that "negligently discloses" or "knowingly or willfully obtains, discloses, or uses medical information," which mean other players in the life sciences industry probably should take note as well. A full discussion of SB 541 and AB 211, written by Janet H. Kwuon and Rachel A. Rubin, is here.
 

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