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

The Third Circuit delivered a Christmas present Dec. 24, issuing an opinion - albeit "not precedential" - that reduced a 3.13:1 ratio for punitive damages down to a 1:1 ratio. Hat tip to law.com for catching the decision.

Jurinko v. Medical Protective Co. involved a bad faith insurance lawsuit arising out of a medical malpractice policy. The physician plaintiff was awarded more than $1.6 million in compensatory damages against his insurer, as well as $6.25 million in punitive damages, for the insurer's "bad faith failure to settle" for the policy limits before trial.

Although the Third Circuit found sufficient evidence to support the punitive judgment, its analysis of the constitutional limits on the amount of the punitive-damage award led it to reduce the judgment. The court employed a 1:1 ratio as its starting "guidepost," and analyzed the punitive-damage award using the factors from State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 416 (2003).

With regard to the reprehensibility of the insurance company's conduct, the court noted that there was no evidence of physical harm to the insured, no evidence of recidivism, nor any reckless disregard of health or safety. In addition, "the compensatory damages [were] substantial, [the insured] suffered only economic harm, and the harm was easily measured" because it was the amount of the judgment that exceeded the policy limits. The amount of punitive damages also far exceeded the civil penalties and sanctions possible for the insurer's conduct. On the other hand, the Third Circuit recognized that the insurer's conduct was intentional, and the insured was financially vulnerable. 

In finding a 3:13:1 ratio of punitive damages to compensatory to be excessive, the Third Circuit noted that many courts start with a 1:1 guidepost (although the Ninth Circuit is not necessarily one of them). In addition, while the Supreme Court has declined to explicitly set a 1:1 ratio as a constitutional limit, it has employed that ratio in Exxon Shipping Co. v. Baker, ___ U.S. ___, ___, 128 S. Ct. 2605, 2633 (2008), this year's maritime decision (discussed in this prior post). The court concluded that "[i]n light of the substantial compensatory award and the harm being exclusively economic, this guidepost advises a reduced award."

While it is not entirely clear why the decision is marked "not precedential," footnote 1 may suggest an answer. It states: "The Honorable Maryanne Trump Barry participated in the oral argument but discovered facts causing her to recuse from this matter prior to filing of the Opinion. The remaining judges are unanimous in this decision, and this Opinion and Judgment are therefore being filed by a quorum of the panel."

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The FDA last Monday issued a proposed rule to classify "tissue expanders" as Class II (special controls) medical devices. These devices are "intended for temporary (less than 6 months) subdermal implantation to stretch the skin for surgical applications."

What makes this notice interesting is preemption. In Riegel v. Medtronic, 128 S.Ct. 999 (2008), the Supreme Court upheld preemption in part because it concluded that the premarket approval (or PMA) process for Class III medical devices results in "federal requirements" specific to the approved device. In the tissue expander proposed rule, the FDA explains its view that these special controls also amount to federal requirements that should result in preemption. It states:

"In this proposed rulemaking, FDA has tentatively determined that general controls by themselves are insufficient to provide reasonable assurance of the safety and effectiveness of the device, and that there is sufficient information to establish special controls to provide such assurance. FDA therefore proposes to establish special controls to address the issues of safety or effectiveness identified in the special controls draft guidance document. If this proposed rule is made final, these special controls would create 'requirements' for specific medical devices under 21 U.S.C. 360k, even though product sponsors would have some flexibility in how they meet those requirements (Papike v. Tambrands, Inc., 107 F.3d 737, 740-42 (9th Cir. 1997)). In addition, if this rule becomes final, as with any Federal requirement, if a State law requirement makes compliance with both Federal law and State law impossible, or would frustrate Federal objectives, the State requirement would be preempted. (See Geier v. American Honda Co., 529 U.S. 861 (2000); English v. General Electric Co., 496 U.S. 72, 79 (1990); Florida Lime & Avocado Growers, Inc., 373 U.S. 132, 142-43 (1963); Hines v. Davidowitz, 312 U.S. 52, 67 (1941).)"

Although this is the first reference we have seen to Riegel in a proposed rule to establish Class II special rules, the FDA is actually not breaking new ground. In 1997, the Papike upheld preemption in a case involving tampons (a Class II device) and an alleged failure to adequately warn of toxic shock syndrome since the FDA had issued regulations specifying the toxic shock syndrome required for tampon packaging. Other tampon cases have followed Papike, and there have been a few latex glove cases, too. See, e.g., Whitson v. Safeskin Corp., 313 F.Supp.2d 473, 479 (M.D. Pa. 2004); Busch v. Ansell Perry, Inc., 2005 WL 877805 (W.D. Ky. Mar. 8, 2005).

UPDATE: Mark Hermann and Jim Beck at druganddevicelaw.blogspot.com have posted some interesting commentary on this proposed rule, noting - among other things - that even without reference to preemption, "both a 1998 regulation applicable to latex gloves, and a 1997 regulation applicable to contact lens care products, have likewise been accorded preemptive effect due to their specificity. See Morgan v. Abco Dealers, Inc., 2007 WL 4358392 (S.D.N.Y. Dec. 11, 2007) (latex gloves); Tuttle v. Ciba Vision Corp., 2007 WL 677134 (D. Utah Mar. 1, 2007) (contact lens care products)."

Their Top 10 lists of the good and bad drug and device cases from 2008 also are not to be missed.

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

• Regulatory Developments -- CMS has published regulations regarding Medicaid disproportionate share hospital payments, Medicaid non-emergency medical transportation services, and Medicare home health agency rates. HHS has published a final rule designed to protect the conscience rights of health care providers. The OIG has published its annual solicitation of ideas for new anti-kickback safe harbor provisions. The FDA is seeking comments on a planned study regarding coupons used in direct-to-consumer prescription drug print advertisements, and it has announced grants to support the clinical development of “orphan products.” Finally, and IRS proposed rule would require government entities to withhold income tax when making certain payments, including certain Medicare payments.
• Other CMS Developments -- CMS has posted first quarter 2009 Medicare Part B drug and biological average sales price amounts; released details on the 2009 Physician Quality Reporting Initiative; posted nursing home quality ratings; and announced medical necessity reviews of long term care hospital stays. CMS also has provided guidance on accreditation of durable medical equipment suppliers, requirements for entities providing mobile diagnostic testing services; and how the HIPAA Privacy Rule can facilitate electronic health information exchange in a networked environment.
• FDA Guidance Documents -- The FDA has issued a number of guidance documents dealing with such issues as labeling of nonprescription human drug products and dietary supplements, genotoxic and carcinogenic impurities in drugs, modification of devices subject to premarket approval, and orally disintegrating tablets.
• Obama Transition -- President-elect Barack Obama has nominated former Senator Tom Daschle as HHS Secretary and Director of a new White House Office on Health Care Reform. Obama’s transition team also is calling on individuals to hold “Health Care Community Discussions” this month to make recommendations on health care policy. In addition, President-elect Obama has named Eric Holder as his Attorney General.
• OIG & GAO Reports -- The HHS OIG has issued reports on adverse events in hospitals, Medicare drug prices, and special needs plans. The GAO has reported on Medicare Part D enrollment issues, Medicare Advantage plan profits and expenses, and characteristics of private fee-for-service plans.
• Odds & Ends -- The Congressional Budget Office has released major reports on health care system reform and insurance reform. Congress has approved technical corrections to the new mental health parity law. The Agency for Healthcare Research and Quality (AHRQ) is seeking participation in a symposium on clinical and comparative effectiveness research methods.
• Looking Ahead -- CMS is hosting meetings in February on applications for Medicare inpatient prospective payment system new technology add-on payments, hospital outpatient ambulatory payment classification groups, and genomic testing.

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

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This post was written by Stephen P. Murphy.

On Aug. 14, 2008, the President signed the Consumer Product Safety Improvements Act (the Act) into law. By an unfortunate and possibly unintended consequence of poor drafting by the Congress, all of the statutes enforced by the U.S. Consumer Products Safety Commission were brought within the coverage of the new Act. One of those statutes is the Poison Prevention Packaging Act, which requires a wide range of pharmaceuticals to be packaged in child-resistant packaging. Under the new Act, all such pharmaceuticals manufactured after Nov. 12, 2008 are now required to have general conformity certificates by which either the importer or the domestic manufacturer, on the basis of a reasonable testing program, attests that the products comply with the PPPA. These certificates are required to "accompany" each lot or batch of products manufactured. The CPSC has construed that an electronic certificate readily available to the CPSC or to the Customs and Border Patrol complies with the new Act. But the products must have on the shipping documents or the shipping package, a unique identifier and a URL to the website in order to facilitate review. The certificates are intended to be available through the chain of distribution, but not to patients. There are some exceptions to this statute. These rules become effective Feb. 19, 2009.

The CPSC has publicly stated that it does not have the resources to specifically enforce the new Act now, but will do so in the ordinary course of its regular activity. The CPSC expects to get supplemental funding for enforcement and other activities toward the middle of the second quarter of 2009. However, Customs is authorized by the Act to detain and destroy products that do not have the required general conformity certificate. Along with this new authority, the Act has increased the fines that CPSC can impose from $5,000 per violation to $1.25 million, and for a series of violations from $1.825 million to $15 million. In addition, the new Act introduces criminal penalties for knowing violations of the new Act and of the other statutes enforced by the CPSC.

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This post was written by Daniel A. Cody, Paul W. Pitts, and Rachel M. Golick.

During 2008, the California legislature passed numerous bills impacting health care providers and debated several high-profile bills touting universal health insurance. In this memorandum, we bring to your attention four new laws (each becoming effective Jan. 1, 2009) impacting hospitals and other licensed health care facilities. These laws address patient privacy, diagnostic imaging services, infection control and health care reporting.

Click here to read the full Client Alert.

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This post was written by Elizabeth Carder-Thompson, Gina M. Cavalier, Matthew E. Wetzel.

On December 18, 2008, the Advanced Medical Technology Association (“AdvaMed”), the national trade association of medical technology manufacturers, issued a revised Code of Ethics on Interactions with Health Care Professionals (the “AdvaMed Code” or “Code”). The revised AdvaMed Code, which becomes effective July 1, 2009, contains several changes that will significantly impact the medical device industry. These include:

• The addition of guidelines for the payment of royalties to health care professionals;
• The inclusion of a new section on the provision of evaluation and demonstration products to customers at no charge;
• More comprehensive guidelines for furnishing reimbursement and health economics information to health care professionals;
• A prohibition on the provision of entertainment and recreation;
• A prohibition on the provision of non-educational branded promotional items such as pens, notepads, mugs and similar items; and
• Increased restrictions on the provision of restaurant meals or meals at other off-site venues.

The Client Alert discusses the principal changes to the AdvaMed Code, highlights several compliance considerations that medical device companies should consider when implementing the revised Code and includes a chart detailing the original and revised AdvaMed Codes and highlighting the new provisions that will become effective in July 2009.

Reed Smith was honored to serve as outside counsel to AdvaMed in connection with drafting both the current and the revised Code and would be pleased to answer any questions or provide additional information.

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This post was written by Jamie Schreiber.

On Dec. 10, 2008, the Pharmaceutical Research and Manufacturers of America (“PhRMA”) released revised guidelines on direct-to-consumer (“DTC”) advertising that offer further direction to pharmaceutical research and biotechnology companies on providing accurate, accessible and useful information to consumers. The revised “PhRMA Guiding Principles on Direct to Consumer Advertisements about Prescription Medicines” includes new guiding principles that address the use of actors or celebrities in DTC ads, recommending that ads should: identify when actors are playing the roles of health care professionals, acknowledge any compensation paid to actual health care professionals, and accurately reflect the opinions or experiences of celebrity endorsers. In addition, a new PhRMA principle states that print ads should include FDA’s MedWatch number, and TV ads should include a company’s toll-free number or refer patients to a print ad. There is also guidance on the content and placement of DTC ads with adult-oriented content; the presentation of risks and safety information in DTC ads; and strengthened language asking companies to include in their DTC ads information about help for the uninsured and underinsured.

The revised guidelines will take effect March 2, 2009. Company CEOs and Compliance Officers will certify each year that they have processes in place to comply with the guidelines, and PhRMA will post a list on its website of all companies that make such certifications.

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This post was written by Matthew E. Wetzel.

On Dec. 10, 2008, the Massachusetts Department of Public Health released proposed regulations that would impose aggressive restrictions on pharmaceutical and medical device manufacturers’ sales and marketing activities that exceed similar restrictions in other jurisdictions. The proposed regulations—intended to implement section 14 of the Massachusetts Act to Promote Cost Containment, Transparency and Efficiency in the Delivery of Quality Health Care—would also require companies to file annual disclosures of all fees, payments and economic benefits paid to health care professionals that total $50 or more. If the Department finalizes these regulations as proposed, Massachusetts will join the ranks of seven other jurisdictions that have issued similar requirements.

Click here to read the full Client Alert.

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Reed Smith partner Karl Thallner just published "Health Care Reform During the Obama Presidency: The Impact on Hospitals" in BNA's Health Care Policy. Karl discusses several aspects of the Obama plan, including access to coverage, individual mandates, delivery and payment, and transparency. As the article notes, "[t]o the extent that health care reform reduces the uninsured population, hospitals could benefit through a reduction in uncompensated care and bad debts. In addition, hospitals may see increases in patient volumes with the reduction in the uninsured."

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This article, written by Reed Smith attorneys Paule Drouault-Gardrat and Juliette Peterka, was first published in Insights, the conference bleue newsletter.  Reprinted with permission.

Article 21 of the Regulation No. 1924/2006 on nutrition and health claims made on foods of 20 December 2006 provides data protection for applicants who wish to register a nutritional or health claim not included in the Community list. The Community list of authorized health or nutrition claims will be established on the basis of proposals made by Member States with the assent of the Commission before 31 January 2010.

The difficulty is that if a manufacturer wants to use a claim which is not listed, it will have to proceed to a scientific evaluation of the claim. This raises two types of issues. Firstly, this is quite expensive. Consequently, this will cause small and middle sized companies to increase their costs every time they consider using a new claim. The second issue relates to the protection of the company’s private data. The Commission thus decides to provide data protection to new applicants, under Article 21 of the Regulation No. 1924/2006.

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Below are some notes regarding the presentation by the FDA's Gerald Masoudi today at the ACI Drug and Device Conference. Every effort was made to capture his comments accurately, but please excuse any errors created by capturing these comments on a BlackBerry:

PREEMPTION

FDCA gives FDA role of determining safety and efficacy and warnings, considering factors including patient profile and public health considerations.

Labeling is key method by which FDA communicates risks and benefits. FDA decides for populations, not individuals, and requiring safety and efficacy for every individual would lead to the absence of treatments.

Even with proper risk benefit judgment and prescribing, injuries can occur.

Products should neither under- nor over-warn.

State tort lawsuits decrease patient access, limit treatment options and interfere with the agency's judgments.

Preemption does not reach manufacturers' failure to comply with federal requirements (such as contamination with toxic substance) since there would be no interference with the FDA's judgment.

FDA will make mistakes, but allowing juries to make failure-to-warn determinations would not be superior to the current system and the current role of FDA.

In Wyeth v. Levine, the court may issue a narrow decision--we all will have to wait to see. But it is not new for FDA to support preemption. It has been the agency position in litigation, testimony, and preambles to rules. FDA reiterated its support recently in a pregnancy labeling proposed rule and CBE rule from earlier this year. This readoption should answer any question that the agency's Final Rule on drug labeling, which also had preemption in a preamble, was improperly promulgated.

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This post was written by Louis A. Naugle and Mark A. Mustian.

On Aug. 12, 2008, EPA began a process toward possible regulation of the disposal of unused pharmaceuticals into sanitary sewer systems, by publishing notice of its intent to submit an Information Collection Request in order to better understand and document the current handling and disposal practices of unused pharmaceuticals. See, 73 FR 46903. Just last week, EPA announced a separate but related proposed rulemaking, in which EPA is proposing changes to the handling and disposal of unused pharmaceuticals that are currently classified and handled as hazardous waste (the “Unused Pharmaceuticals Rulemaking”). In this proposed Unused Pharmaceuticals Rulemaking, EPA plans to add pharmaceutical wastes that are RCRA hazardous waste to the list of materials that are classified as universal wastes. See, 73 FR 73519. This proposed change will potentially reduce costs for facilities that currently dispose of their unused pharmaceuticals as RCRA hazardous waste. The impact of EPA’s overall efforts to regulate the large and unknown volume of pharmaceutical waste not currently handled as hazardous waste is unclear.

For facilities that generate pharmaceutical waste that is currently handled and disposed of as hazardous waste, this Unused Pharmaceuticals Rulemaking could have significant advantages. The changes will likely result in reduced costs and requirements for storage, labeling, shipment off site, employee training, responses to releases, and notification. The changes would allow for (1) an increased accumulation threshold; (2) an increased on-site accumulation limit; (3) an increased storage time limit; and (4) no manifest requirement.

While this Unused Pharmaceuticals Rulemaking has no immediate adverse regulatory and economic impact, it should be considered in light of EPA’s ongoing efforts to reduce the impact of disposal of unused pharmaceuticals. EPA estimates that more than 600,000 individual facilities in the United States may be generators of hazardous pharmaceutical wastes. This number includes 40,000 retail pharmacies, more than 7,000 hospitals, and more than 300,000 physicians and dental offices. However, only 94 hospitals and 19 pharmacies report themselves to be Large Quantity Generators (“LQGs”) of hazardous waste. While EPA believes that the vast majority of pharmaceutical waste generators are Small Quantity Generators (“SMQs”) or Conditionally Exempt Small Quantity Generators (“CESQGs”), they admit that their information about pharmaceutical waste management is limited. Based upon their communications with pharmaceutical waste generators, EPA believes that numerous health care facilities are unaware of how the hazardous waste regulations apply to pharmaceutical wastes, and that much of the waste is being disposed of either in medical waste incinerators, or discharged into the municipal sanitary sewer.

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

• Regulatory Developments. CMS has issued rules providing states with increased flexibility to define the scope of covered Medicaid services and revising Medicare hospital wage indices. HHS has published the federal medical assistance percentages and enhanced federal medical assistance percentages for FY 2010. In addition, HHS is requesting public comments on its draft “Guidance on Important Considerations for When Participation of Human Subjects in Research is Discontinued,” and the FDA has issued related guidance on “Data Retention When Subjects Withdraw from FDA-Regulated Clinical Trials.” The FDA also is accepting comments on a planned FDA study examining consumer comprehension of inclusion of a toll-free number to report side effects in direct-to-consumer prescription drug television advertisements.
• Other CMS Developments. CMS has released an “Issues Paper” on its Medicare value-based purchasing program for physician and other professional services; proposed three national coverage determinations to ensure that Medicare does not cover certain types of preventable surgical errors; announced the technical specifications for a new incentive program to promote electronic prescribing; updated physicians on the suspension of the Medicare Part B drug competitive acquisition program for 2009; and released the 2009 Medicare durable medical equipment, prosthetics, orthotics, and supplies fee schedule.
• Other FDA Developments. The FDA has released guidance documents on “Cooperative Manufacturing Arrangements for Licensed Biologics” and “Submission of Patent Information for Certain Old Antibiotics.” In addition, the FDA has announced that it is teaming with WebMD to expand consumer access to FDA safety alerts and other public health information.
• OIG Developments. The HHS OIG has released the Health Care Fraud and Abuse Control (HCFAC) Program Annual Report for FY 2007 and its Semiannual Report to Congress for the second half of FY 2008. The OIG also has issued an “early alert memo” on “Payments to Medicare Suppliers and Home Health Agencies Associated With ‘Currently Not Collectible’ Overpayments.”
• Health Industry Events. CMS is hosting listening sessions on electronic prescribing, the Physician Quality Reporting Initiative, hospital-acquired conditions, and Medicare inpatient PPS add-on payments for new medical services and technologies. 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 post was written by Edward S. Miller, Gérard Sicsic and John Wilkinson.

In January 2008 the EC Commission spectacularly launched an investigation into the pharma sector by carrying out dawn raids on Europe’s major pharma groups. This was the first time a sector enquiry had been commenced by unannounced inspections.

The Commission has now published its 400 page preliminary report on its investigation which was launched at a press conference given by EU Competition Commissioner Neelie Kroes in Brussels on 28th November 2008.

The Commission’s preliminary view, on which it will now consult, is that competition in the European pharma industry is not working as well as it should. The Commission cites three practices of the large pharma groups which the Commission believes restrict competition and artificially keep the price of drugs high.

The practices which concern the Commission are: registering lots of patents – apparently 1300 in one case – for the same drug (patent clusters) in order to make it more difficult for other companies to produce competing (generic) versions of the same drug; a policy of initiating litigation to keep the generic companies out of the market or delay their entry; settling this litigation by agreements which typically keep the generic competitor out of the market for a time, give the generic competitor a licence of the patent holder’s drug or the right to sell it, so removing the possibility of a new generic drug entering the market, and/or include a so called “reverse payment” to the generic company.

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