U.S. Senator Schumer Calls for Increased Regulation of Wearable Electronic Devices to Avoid Data Privacy Issues

Reed Smith’s Global Regulatory Enforcement Law Blog features a post on the recent phenomenon of wearable electronic devices and the legal issues that may arise from these gadgets. "Wearable Device Privacy - A Legislative Priority?," written by Reed Smith attorneys Frederick Lah and Khurram Gore, discusses a recent press release issued by U.S. Senator Chuck Schumer of New York expressing concern that personal health data collected by wearable devices and fitness apps, including medical conditions, sleep patterns, calories burned, GPS locations, blood pressure, weight, and more, will be provided to third parties without the user knowing it. Schumer, citing this as a threat to personal privacy, has urged the Federal Trade Commission to mandate that device and app companies provide users with an explicit “opt-out,” allowing them to block the distribution of this information to any third parties.

As the authors note, with the rising popularity of these types of devices, we expect regulators, legislators, and companies to start paying closer attention to the data security and privacy risks associated with their use.

Recent Data Breaches Serve as Warning for Companies to Assess Their Cybersecurity Insurance Coverage

Earlier this week, numerous media outlets reported on the Russian crime ring which had managed to steal more pieces of Internet data than any other group of hackers in history – a whopping collection of at least 1.2 billion user name and password combinations and over 500 million email addresses. The magnitude of data that this group has managed to accumulate, coupled with several other recent high-profile hacking incidents, is a wake-up call for businesses that cybersecurity has become a major contemporary concern. Data breaches are increasing in frequency, severity, and cost, and the potential consequences for an affected company can be devastating.

This trend and its insurance implications are discussed in a client alert by Reed Smith partners Doug Cameron, David Weiss, Andy Moss, and Cristina Shea, who point out that companies must start being proactive with their cybersecurity efforts. Businesses should take the time to assess their current cybersecurity insurance coverage as well as their coverage needs. Cyber-related insurance is an evolving area, so extensive research and consulting with counsel may be necessary before a company can select an insurance policy that maximizes its coverage.
 

Law360 Article - U.S. and French Sunshine Laws Present Compliance Challenges for Manufacturers

In “From Sea to Shining Sea: French and US Sunshine Laws,” (Law360 subscription required), Reed Smith attorneys Elizabeth Carder-Thompson and Daniel Kadar discuss recent legislation from both sides of the Atlantic designed to increase the transparency of relationships between drug and medical device manufacturers on one hand and physicians and teaching hospitals on the other. While both the U.S. and French Sunshine Acts are intended to address the same general issue, there are several key differences between the two resulting from the respective environments in which they were passed. In addition to providing an overview of the legislation and its immediate effects, the article also discusses some of the compliance issues that have resulted from these laws, including determination of the extent to which non-U.S. headquartered entities or non-U.S. based physicians are subject to U.S. Sunshine Act requirements, and regulation of the amount, organization, and frequency of data disclosure required under the French Sunshine Act.

Closing Time: Considerations and Hurdles in Completing Pennsylvania-Based Health Care Transactions

The health care industry has seen a recent shift towards consolidation, driven in part by legislation such as the Patient Protection and Affordable Care Act which encourages integration within the industry. As a result, health care entities are increasingly considering opportunities to merge with or acquire other companies. While this can be an exciting prospect for many organizations, the health care industry’s high level of both federal and state regulation has resulted in a myriad of potential legal issues that can stand in the way of a successful transaction. In particular, there are a number of regulatory hurdles that must be cleared in the state of Pennsylvania before a health care transaction can take place.

To address many of the potential issues that deal counsel must consider when involved in health care transactions in Pennsylvania, Reed Smith attorneys Karl Thallner and Zach Portin authored “Seal the Deal: Health Care Mergers and Acquisitions in Pennsylvania,” which was published in the April 2014 edition of the Pennsylvania Bar Association Quarterly. The article addresses a wide range of topics, including review by the state attorney general’s office and the Orphans’ Court; regulatory approvals at both the federal and state level; antitrust; the corporate practice of medicine doctrine; fiduciary duties; and other various matters for consideration.

Navigating the Complicated, Yet Rewarding, World of Social Media

The social media phenomenon has radically transformed the ways in which commercial businesses promote their services and products. However, as a result, companies must consider potential legal risks from an entirely new angle. To become a successful user of social media, a company must draft, review, disseminate and enforce a social media policy that addresses potential legal issues while at the same time emphasizing positive exposure for the business.

For more information on how your business can utilize social media to maximum effect while exercising compliance with legal guidelines, see Reed Smith’s newly published Third Edition of its white paper on social media, “Network Interference: A Legal Guide to the Commercial Risks and Rewards of the Social Media Phenomenon (3rd Edition).” This updated guide now covers practical, action-oriented guidelines as to the state of law in both the United States and Europe, and is an invaluable resources for companies navigating the social media world.

UK Government Addresses Lack of Regulation and Legislation in Cosmetics Industry

In April 2013, an independent review of the regulation of cosmetic interventions in the UK was published, highlighting an insufficient amount of regulation in this industry by the UK government, due in part to the rapid growth of cosmetic procedures in the United Kingdom. Cases such as unauthorized (and potentially defective) materials being used in procedures has forced the UK government to acknowledge that the level of regulation of cosmetic procedures must increase. The UK government responded to this review in February 2014 by unveiling a set of actions that will be taken to address the current dearth of cosmetic regulation and legislation, and ensure that the quality of care is improved. Among these actions are the introduction of a code of conduct, an ombudsman, and accredited qualification of practitioners. Some of these actions have already been initiated.

For more information on the government’s response and proposed changes, read the full alert written by Reed Smith lawyers John Wilkinson, Nicola Maguire, and Adam Lewington, and trainee Daryl Cue.

A Comparison of the U.S. and French Sunshine Reporting Requirements

This past year both the U.S. and France enacted substantial new reporting and disclosure requirements under their respective Sunshine Acts, which were designed to increase the transparency of the financial relationships between manufacturers and health care professionals and to allow patients to make more informed decisions regarding their health treatments. The U.S. and French Sunshine Acts are not identical, however, as indicated in this alert written by Reed Smith lawyers Elizabeth Carder-Thompson and Daniel Kadar. Their side-by-side review illustrates that the scope and focus of transparency differs between the U.S. and France. This alert includes a summary chart comparing and contrasting the differences in Sunshine Act reporting requirements in a number of areas including effective dates, who must report, what information must be reported, payment thresholds and categories of payments that must be reported as well as those that can be excluded. This information is especially relevant to global manufacturers working to comply with these provisions.

A copy of the full alert and comparison chart is available here.

Are Internal Compliance Investigations Privileged? D.C. District Court Rules No

We want to alert life sciences and health care entities to a recent decision out of the U.S. District Court for the District of Columbia.

  • U.S. District Court for the District of Columbia holds documents related to internal investigations of possible violations of corporate code of conduct not protected from disclosure under either attorney-client privilege or attorney work product doctrine
  • Ruling serves as timely reminder for companies in a wide variety of industries to review internal procedures relating to internal corporate compliance program or code of conduct investigations to maximize the likelihood that appropriate privileges will be honored

On March 6, 2014, the U.S. District Court for the District of Columbia granted a qui tam relator’s motion to compel the production of documents relating to the defendant Kellogg Brown & Root Services, Inc.’s (KBR’s) “Code of Business Conduct (COBC) investigations,” holding such documents were not protected from disclosure under either the attorney-client privilege (ACP) or the attorney work product doctrine (AWP). The court concluded that the company’s investigations were conducted pursuant to “regulatory law and corporate policy,” rather than for the purpose of obtaining legal advice. Accordingly, KBR was ordered to produce some 89 documents that it previously claimed as privileged under the ACP and/or AWP. U.S. ex rel Barko v. Halliburton Company, No. 1:05-CV-1276 (D.D.C., March 6, 2014). The court’s broader statements could have significant implications for companies in regulated industries where corporate compliance programs are commonplace, or even required.

For more information, read the full alert written by Reed Smith lawyers Lawrence Sher and Erin Atkins.

There are HOW many calories in that? FDA Proposes First Overhaul to Food Label in 20 Years - Comment Opportunity

 This post was written by John Feldman and Jillian Riley

Today FDA announced long-awaited changes to the iconic Nutrition Facts label for foods.  According to FDA, the goal of the proposed changes is not to tell consumers what they should or should not be eating, but to expand and highlight the information consumers need most to make a well-informed food choice.

Calories and Serving Size

The most notable changes involve the display. The proposed label emphasizes through font size and bold type the number of calories per serving size and the number of servings per container. In order to better capture how average Americans eat, FDA is also proposing changes to how serving sizes themselves are calculated. Gone will be the days where a pint of ice cream is four serving sizes; now FDA says it is two. FDA stresses that these proposed changes are based on current scientific thinking in the area of nutrition science and based on the most recent public health and nutrition surveys. The current nutrition Facts Panel, which has been in use for 20 years, relied on consumer consumption data from the 70s and 80s. American eating patterns have changed and FDA hopes these new labels will better reflect current consumption patterns.

Added Sugars

Another major change involves how the Nutrition Facts panel displays the amount of sugar contained in a food. The current label lists just “Sugars” which can refer to both naturally occurring and sugars added during the production process, the propose label requires “Added Sugars” to be a separately listed category which would include only those sugars added to the food during production.

Nutrient Content and % Daily Value Calculations

Other changes include updates for to how to calculate the Percent Daily Value for nutrients such as fiber and calcium, requirements to list nutrients such as Potassium and Vitamin D, and no longer requiring the label to include Vitamins A and C.

From a public health standpoint, the proposed changes raise three important and related questions:

  1. Will consumers read and understand the new information provided on the Nutrition Facts panel?
  2. Will the updated and highlighted information lead consumers to make better food choices? 
  3. Will those better food choices lead to better health outcomes?

The new Nutrition Facts panel has implications in the advertising world as well. Claims about nutrition content of foods are based on what the manufacturer is permitted to say in the Nutrition Facts panel. Changes to the panel necessarily mean changes to how food companies are permitted to advertise their products. We will certainly see a new wave of advertisers capitalize on foods with “No Added Sugars” but what other patterns should we expect?

The proposed rules are available here: Revision to the Nutrition and Supplement Facts Labels; and Serving Sizes of Foods That Can Reasonably Be Consumed At One-Eating Occasion, et. al

FDA will be accepting comments for 90 days.

EU Research Group Condemns EU Regulation for Restricting Growth in Life Sciences Sector; NHS Advocates Selling Confidential Patient Data For Secondary Purposes

Reed Smith’s Global Regulatory Enforcement Law blog features two posts of interest to those in the life sciences industry, both written by Reed Smith partner Cynthia O’Donoghue. “EU Research Group Condemns EU Regulation for Restricting Growth in Life Sciences Sector” discusses the opposition of a lobbying group, led by the Wellcome Trust, to amendments to the proposed General Data Protection Regulation – amendments that they believe could severely inhibit future growth of the life sciences sector in the European Union. “NHS Advocates Selling Confidential Patient Data For Secondary Purposes” discusses the criticism of the UK’s Health and Social Care Information Centre and NHS England’s new initiative known as ‘care.data,' which involves the extraction, anonymization, and aggregation of patient data from GP practices in a central database for sale to third parties such as drug and insurance companies.

Physician-Owned Distributor (POD) Update: Device Manufacturer's Challenge to OIG Fraud Alert Fails; OIG Finds PODs Increase Medicare Costs; and Hospitals Continue to Adopt Anti-POD Policies

This post was written by Elizabeth Carder-Thompson.

We have been reporting for some time on issues involving the Office of the Inspector General (OIG) scrutiny of physician-owned distributors (PODs).  In March 2013, we analyzed an OIG Special Fraud Alert on PODs and in October we reported on an interesting challenge to the Fraud Alert filed by a medical device manufacturer in the U.S. District Court for the Central District of California.  That suit argued that the Fraud Alert unfairly and unconstitutionally burdened the plaintiff’s First Amendment rights of free speech and due process. Below, we report on the disposition of that case, and several other related POD developments.

Reliance Medical Systems had described itself in its complaint as “a design company that collaborates with spine surgeons to design highly customized spinal implant devices and surgical tools.”  It stated that it had physician owners from its beginning in 2006, characterizing this as a business model that “maximizes and optimizes physician design input,” but it subsequently moved away from that model.  Among other things, the complaint argued that “Big Corporations” that had been forced to compete with small physician-owned entities undertook a multi-year lobbying crusade, resulting in the OIG’s issuance of Fraud Alert.  In a separate part of the complaint, Reliance allowed that “the OIG is currently investigating Reliance, and its physicians with whom Reliance previously communicated.”  It went on to explain that it now wished to return to a physician-owned business model, but that the Fraud Alert’s characterization of PODs as “inherently suspect” under the federal anti-kickback statute was chilling its ability to speak with prospective physician owners.  It also expressed concern about future OIG investigations, and about reluctance by hospitals and ambulatory surgical centers to enter contracts with it, for fear that they themselves may be “at risk” under the Fraud Alert for doing business with physician-owned entities.

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China Issues New Regulations Prohibiting Commercial Bribery in the Health Care Industry

This post was written by John Tan, Amy Yang, and Crystal Xu.

In late December, China’s National Health and Family Planning Commission (NHFPC), the successor organization to the Ministry of Health, issued two sets of anti-corruption regulations for the health care industry: the 2013 Regulations on the Establishment of a Commercial Bribery Blacklist for the Purchase and Sale of Medicines (关于建立医药购销领域商业贿赂不良记录的规定) (2013 Blacklist Regulations), and The 9 Prohibitions for Building a Healthy Medical Industry (加强医疗卫生行风建设"九不准) (The 9 Prohibitions). The 2013 Blacklist Regulations target pharmaceutical and medical device manufacturers and distributors. These regulations revise and update earlier blacklist regulations issued in 2007 (2007 Blacklist Regulations). In contrast, The 9 Prohibitions focus on health care providers and institutions, providing general principles for eliminating corruption in the Chinese health care industry.

These new regulations are part of the Chinese government’s ongoing focus on corruption in the health care industry, and significantly increase the risks faced by pharmaceutical and medical device manufacturers and distributors.

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FDA Issues Final Guidance on DHCP Letters

As mentioned on our Health Industry Washington Watch blog, the Food and Drug Administration issued a final guidance document on January 16, 2014 which provides specific recommendations on the content and format of Dear Health Care Provider (DHCP or “Dear Doctor”) letters. The recent guidance finalizes a draft guidance FDA published in November of 2010. To read the entire post, click here.

Launch of the New French State Portal Allows for Electronic Information Disclosure by Health Care Companies

Reed Smith’s Global Regulatory Enforcement Law blog features a post on the recent launch of the new state portal in France. "The implementation of the French transparency regulation: first good news?," written by Reed Smith partner Daniel Kadar, discusses how the portal will allow health care companies to more easily disclose transparency information to the French government as required by the French Sunshine Act. The portal is thought to be “more customer friendly” for health care companies in that it provides three possible methods for the disclosure and transfer of information.

Drug and Device Law Blog Once Again Named to ABA Journal's Annual Blawg 100

Congratulations to the Drug and Device Law Blog and its regular contributors, among them Reed Smith partners Jim Beck, Steven McConnell, Eric Alexander and Steven Boranian, for once again being named to the ABA Journal’s Blawg 100 ranking.

To vote for Drug and Device Law in the Torts category, click here. After registering, simply scroll down to the Torts section and cast a vote for the Drug and Device Law blog. Voting is open until December 20th.

Sorry Just Might Cut It...Pennsylvania Enacts Benevolent Gesture Law

This post was written by Karl A. Thallner, Jr. and Zachary A. Portin

Pennsylvania physicians, hospital executives and other providers may now apologize and offer other benevolent gestures to patients, their families and representatives without such statements becoming evidence against them in medical malpractice suits. On October 23, 2013, Governor Corbett signed Senate Bill 379 into law which renders “benevolent gestures” inadmissible as evidence of liability in a malpractice suit.

This evidentiary rule has been championed as a type of medical tort reform intended to encourage frank discussions with patients and residents as well as their relatives and representatives. Commentators are divided, however, as to whether the measure will actually reduce the number of medical malpractice suits filed in the state.

Who can offer a benevolent gesture under the statute? The statute extends to benevolent gestures made by physicians, hospitals, nursing homes, assisted living residences, primary health care centers, personal care homes, birth centers, certified nurse midwives and their officers, employees and agents.

To whom can a benevolent gesture be offered under the statute? The law covers benevolent gestures to a patient, a patient’s relative, or a patient’s representative designated to make medical decisions under a power of attorney over health care matters. It is unclear at this time whether benevolent gestures to a patient’s same-sex partner are covered. The statute defines a “relative” as a spouse, parent, stepparent, grandparent, child, stepchild, grandchild, brother, sister, half-brother, half-sister, spouse’s parent or any person who has a “family-type” relationship with the patient.

What constitutes a benevolent gesture under the statute? A benevolent gesture includes any action, conduct, statement or gesture that conveys a sense of apology, condolence, explanation, compassion or commiseration emanating from humane impulses. In addition, the benevolent gesture must pertain to the patient’s discomfort, pain, suffering, injury or death and result from any treatment, consultation, care or service provided by the provider or omission thereof. The statute does not apply to communications, including excited utterances, that also include a statement of negligence or fault pertaining to an accident or an event.

When are benevolent gestures covered under the statute? The law only shields benevolent gestures that are made prior to the commencement of a medical professional liability action, liability action, administrative action, mediation or arbitration from admissibility in a medical malpractice suit. Therefore, it is incumbent on providers to make benevolent gestures as close in time to the triggering event as possible to ensure that the statement is covered under the statute.

Conclusion. By affording malpractice liability protection, the new law encourages providers to apologize and make other benevolent gestures in response to patient injuries and other adverse events. Such expressions, if perceived to be meaningful and sincere rather than empty or self-serving, may well reduce the likelihood of some malpractice lawsuits. This law will create some challenges, however, as providers should exercise care to ensure that their communications fall within the scope of the statutory protections. Given the potential fine line between an apology and an admission of fault, the articulation of these statements will need to be carefully crafted to ensure that they do not backfire so as to increase potential liability.
 

China: Life Sciences Regulatory Crackdown Spreads to Medical Device Sector

This post was written by John Tan and Crystal Xu.

On August 15, 2013, the local Beijing office of the Ministry of Health (MOH) of the People's Republic of China announced (Chinese link) that it has started a three-month review of the use of high-value medical consumables and large-scale medical equipment in Beijing. In its announcement, the Beijing MOH noted that prior inspections of hospitals had found continuing problems with the misuse and overuse of medical devices to increase profits. The investigation is intended to strengthen hospitals’ management of the use of medical devices and to regulate the use of high value medical consumables.

In addition to this investigation, the Beijing MOH will also develop a database that will track the price and model of devices implanted in each patient, require hospitals to improve their purchasing management systems, and conduct periodic inspections of hospitals’ purchasing and management of medical consumables.

This latest investigation follows on increased regulatory enforcement actions throughout China's life sciences industry. In the last two months, there have been criminal and administrative enforcement actions targeting the pharmaceutical sector and a pricing investigation by the National Development and Reform Commission (NDRC) into the infant formula sector that culminated in the largest fine in the history of China's enforcement of its anti-monopoly law. The NDRC is also conducting an ongoing investigation of pharmaceutical industry pricing practices and considering systemic revisions to China's drug pricing system. Additionally, on August 14, 2013 the State Administration for Industry and Commerce (SAIC) announced a new three-month-long investigation into the pharmaceutical and medical services sectors, targeting bribery, fraud and anti-competitive practices.

The August 15th announcement by the Beijing MOH appears to signal the first recent enforcement action to specifically target the medical device sector.

In the run up to these enforcement actions, Chinese authorities issued a number of administrative regulations targeting the life sciences industry, including a new code of conduct for HCPs, and new guidance on strengthening anti-bribery controls in public medical institutions. Authorities also issued regulations on the centralized purchasing of medical consumables and large scale medical equipment containing provisions that would exclude companies found to have engaged in commercial bribery from participation in centralized purchasing.

At the end of 2012, China's Supreme People's Court, in conjunction with the Supreme People's Procuratorate, issued a new judicial interpretation of China's criminal law prohibiting bribery. This interpretation was widely viewed as signaling a new emphasis by Chinese authorities on prosecuting not just officials who accept bribes, but those who pay bribes as well.

Supreme Court Decision on Reverse Payments has Significant Implications for Pharmaceutical Manufacturers

Reed Smith’s Global Regulatory Enforcement Law Blog recently featured a detailed analysis of the Supreme Court’s decision in FTC v. Actavis, where the court ruled five-to-three that reverse payments, also called pay-for-delay settlements, can violate antitrust laws and are subject to antitrust review under the rule-of-reason. As reverse payments are commonly used by branded drug manufacturers to settle patent litigation related to generic drug manufacturers’ market entry, this decision will change the approaches courts, drug company litigants, and lawmakers take to the issue of generic entry into a patented brand drug’s market. To learn more about the implications for both branded and generic drug manufacturers, particularly in their approach to resolving patent litigation, read the full alert.

Supreme Court Decides Mutual Pharmaceutical Co. v. Bartlett

As reported on Drug and Device Law Blog, in a five-to-four decision by Justice Alito, the Supreme Court has decided Mutual Pharmaceutical Co. v. Bartlett, No. 12-142, slip op. (U.S. June 24, 2013), a generic drug preemption case out of the First Circuit where that court had permitted the plaintiffs to recover on a “design defect” claim alleging that the drug should not have been sold at all, despite its FDA approval.  The Supreme Court reversed.  To read more about the decision, see Jim Beck’s analysis in his “Bartlett – A Big Win For Preemption” blog post.

French Ministry of Health Publishes Application Decree for "French Sunshine Act"; Requires Disclosure of Agreements With and Payments to Health Care Practitioners Dating Back to January 1, 2012

Reed Smith’s Global Regulatory Enforcement Law blog features a post on the recent publication of the application decree to the “French Sunshine Act” by the French Ministry of Health.  “A Brave New World? The ‘French Sunshine Act’ imposes online disclosure of contracts with HCPs, as well as of payments of ‘advantages’ to HCPs, dating back to 01 January 2012,” written by Daniel Kadar, discusses the specific ways and means that health care companies must disclose agreements with and “advantages” (payment or hospitality, including payment of a contractual fee) provided to health care practitioners ("HCPs") in order to comply with the application decree.  Information to be disclosed dates back 18 months, to January 1, 2012, and the first disclosure requirement is set for June 1, 2013.  According to Mr. Kadar, this tight timeframe raises compliance issues and has industry calling for reconsideration.

CMS Releases List of Teaching Hospitals; Educational Efforts and Requests for Additional Clarification Regarding the Physician Payment Sunshine Final Rule Continue

This post was written by Elizabeth Carder-Thompson, Katie C. Pawlitz and Nancy E. Bonifant.

In preparation for data collection to begin under the Physician Payment Sunshine Act Final Rule on August 1, 2013, the Centers for Medicare & Medicaid Services (CMS) released yesterday the list of teaching hospital covered recipients to which payments and other transfers of value must be reported by applicable drug and device manufacturers.  The list, which will be updated annually by CMS at least 90-days before the beginning of a reporting year, can be found on CMS’ National Physician Payment Transparency Program: OPEN PAYMENTS website and includes approximately 1,100 legal business names that are organized by state and tax identification number.

CMS also announced this week that it will be holding a National Provider Call on Wednesday, May 22, 2013 at 2:30 PM EST, directed at physicians and teaching hospitals.  The agenda for the call includes an overview of the Final Rule, key dates, the role of covered recipients and resources available to covered recipients.

Meanwhile, stakeholders and their representatives, including the American Medical Association (AMA) and the Advanced Medical Technology Association (AdvaMed), have continued to seek additional clarification from CMS on a variety of outstanding questions.  These questions include whether journal reprints provided by a manufacturer to a physician or teaching hospital have a discernible economic value that triggers reporting requirements, what constitutes a payment or transfer of value to a teaching hospital as opposed to payments or transfers of value to an employee of the teaching hospital, and more.  Ideally, CMS will issue further guidance on these issues in sufficient time for applicable manufacturers to prepare for the data collection deadline this summer.

Loose Lips Sink... Providers?

This post was written by Zachary A. Portin and Nancy E. Bonifant.

Can a medical corporation be directly liable under New York law for breaching its common law fiduciary duty of confidentiality when a non-physician employee acted outside the scope of his or her employment by making an unauthorized disclosure of an individual’s confidential health information?  This is the question that the U.S. Court of Appeals for the Second Circuit posed to the New York State Court of Appeals last month when it requested an advisory opinion from the state’s highest court in order to resolve Doe v. Guthrie Clinic Ltd. 

Plaintiff Doe sued various Pennsylvania-based entities (the “Guthrie Defendants”) that owned and operated the Guthrie Clinic Steuben (the “Clinic”) located in New York after one of the Clinic’s nurses sent six text messages to Doe’s girlfriend informing her that Doe was being treated for sexually transmitted diseases.  Plaintiff Doe brought several tort claims against the Guthrie Defendants, including a novel claim that the common law cause of action for breach of the fiduciary duty to keep medical records confidential runs directly against medical corporations, even when the employee responsible for the breach is not a physician and acted outside the scope of her employment.

Although HIPAA does not create a private right of action under federal law, an aggrieved patient may avail himself or herself to state law causes of action.  For example, New York imposes a general duty to maintain the confidentiality of personal health information as well as a specific common law cause of action against a physician who improperly discloses confidential information.  In 2000, the Appellate Division of the New York State Supreme Court also held that a patient was permitted to sue a health insurer whose records clerk wrongfully disclosed treatment information.  Nevertheless, the Second Circuit elected to certify the question to the Court of Appeals with regard to the Guthrie Defendants after it concluded that no controlling precedent existed. 

A favorable ruling for Plaintiff Doe threatens to vastly expand the scope of liability faced by providers and other entities involved in the delivery of healthcare.  Perhaps most concerning from the perspective of providers is the prospect of such entities facing liability under New York law for unforeseeable misconduct committed by non-physician employees.  Regardless of the Second Circuit’s ultimate disposition of this legal question, the case underscores the importance of developing and maintaining a robust compliance program to combat such misconduct.

Seeing the Light With the Physician Payment Sunshine Act

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On February 1, 2013, the Centers for Medicare & Medicaid Services released the long-awaited final rule implementing the physician payment transparency provisions, commonly referred to as the Physician Payment Sunshine Act, in the Obama administration's 2010 health care reform legislation. The Sunshine Act joins the list of significant federal laws addressing potential conflicts of interest in health care, including the Anti-Kickback Statute and the Stark Law. With implementation of the Sunshine Act now in sight, stakeholders face the real challenge of complying with, and practicing under the shadow of, the Sunshine Act and its complex and detailed regulations.

To read the full article "Seeing the Light With the Physician Payment Sunshine Act," please visit law.com.

Sunshine Physician Payment Final Rule Overview and Analysis

This post was written by Elizabeth B. Carder-Thompson, Katie C. Pawlitz and Nancy E. Bonifant.

On February 1, 2013, the Centers for Medicare & Medicaid Services (CMS) of the Department of Health and Human Services (HHS) released the long-awaited Final Rule to implement the “Sunshine” provisions of the Affordable Care Act of 2010 (ACA). The Sunshine provisions - intended to provide increased transparency on the scope and nature of financial and other relationships among manufacturers, physicians, and teaching hospitals - require that certain manufacturers of drugs, devices, biologicals, and medical supplies covered by Medicare, Medicaid and CHIP report annually to HHS identified payments or transfers of value they have made to physicians and teaching hospitals. In addition, they require manufacturers and certain group purchasing organizations (GPOs) to report to HHS information on physician ownership and investment interests.

The Final Rule provides needed clarity on some troubling aspects of the proposal, however, it leaves a number of questions unanswered. Please click here to read our detailed analysis of the Sunshine provisions, including an overview and summary of the Rule as well as discussion of the important issues that stakeholders should be considering as they prepare for Sunshine implementation.

Medicare and Sequestration

Continuing budget gridlock in Washington has triggered sequestration and automatic budget cuts to a wide range of federal programs have gone into effect, including Medicare payments to providers and health plans. Reed Smith's Health Industry Washington Watch blog post answers some basic questions about sequestration, including what Medicare spending is impacted, when the Medicare cuts start, and how long sequestration will last.

New Development Regarding MSP Private Enforcement Provision

This post was written by Eric Buhr, Catherine Hurley and Michael Mandell.

A recent case out of a district court in Michigan suggests medical providers may have a new method to obtain payment for bills that were denied by an insurance company – Medicare Secondary Payer Act’s (MSP) private enforcement provision. Mich. Spine & Brain Surgeons, PLLC v. State Farm Mut. Auto. Ins. Co., No. 12cv11329, 2013 U.S. Dist. LEXIS 17721, *1 (E.D. Mich. Feb. 11, 2013).

In Michigan Spine, an insured covered by Medicare and State Farm automobile insurance was involved in a severe car accident. Id. at *2. Following the accident, the insured underwent extensive neurosurgery performed by Michigan Spine and Brain Surgeons, PLLC ("Michigan Spine"). Id. at *5. Michigan Spine submitted its charges to State Farm, but Sate Farm refused to cover the individual claiming that her injuries were from preexisting conditions and unrelated to the car accident. Id. at *5-*6. The insured then submitted her claim to Medicare which made a partial payment to Michigan Spine. Id. at *6.

Michigan Spine then sued State Farm under the MSPA’s private enforcement provision, 42 U.S.C. Section 1395y(b)(3)(A), which allows private actions, on Medicare’s behalf, for reimbursement from primary payers who wrongfully denied coverage. Id. at *6-*7. State Farm argued that Michigan Spine had no standing to sue under the provision because the claim had not yet "materialized" – i.e. no court had determined State Farm was liable for the insured’s medical treatment. Id. at *10.

The district court found otherwise. The court, reiterating a previously determined ruling by the Sixth Circuit, held that the showing of "materialization" or "demonstrated responsibility" only applies to a "lawsuit brought by Medicare for reimbursement for medical expenses caused by tortfeasors." Id. at *15 (quoting Bio-Medical Applications of Tenn., Inc. v. Cent. States Southeast & Southwest Areas Health & Welfare Fund, 656 F.3d 277, 279 (6th Cir. 2011)). In contrast, "a healthcare provider need not previously demonstrate a private insurer’s responsibility to pay before bringing a lawsuit under the Act’s private cause of action." Id. at *15 (quoting Bio-Medical, 656 F.3d at 279)). Thus, the district court denied State Farm’s motion to dismiss.

While Michigan Spine may relax the requirements for MSP private causes of action against primary insurance providers, the holding does not apply in the context of medical device and drug manufactures (even if self-insured); rather, that avenue remains restricted to a showing of "demonstrated responsibility."

"Illegal" Off-Label Promotion

Over at the Drug and Device Law Blog, there are several posts analyzing the meaning of the Second Circuit’s opinion in United States v. Caronia, 703 F.3d 149, 160 (2d Cir. 2012), including this one and this one.  Most Caronia commentary has focused on the court’s First Amendment holding, that the FDCA does not ban truthful off-label speech. But today’s Drug and Device Law Blog post zeroes in on the Second Circuit’s recognition that “[t]he FDCA and its accompanying regulations do not expressly prohibit the ‘promotion’ or ‘marketing’ of drugs for off-label use” (id. (emphasis added)), and what that may mean for regulation and for ancillary issues, like medical device preemption under 21 U.S.C. Section 360k(a).

OCR Continues to Use Breach Self-Reports as an Invitation to Audit General HIPAA Compliance

Massachusetts Provider Becomes Third Seven-Figure Settlement Since March

This post was written by Nancy E. Bonifant and Brad M. Rostolsky.

On September 17, 2012, the HHS Office of Civil Rights ("OCR") announced another settlement and corrective action plan following an entity’s breach self-report required by HITECH’s Breach Notification Rule. Massachusetts Eye and Ear Infirmary and Massachusetts Eye and Ear Associates, Inc. (collectively "MEEI") have agreed to pay $1.5 million to settle potential violations of the HIPAA Security Rule following the theft of a physician’s unencrypted, but protected, laptop, providing additional evidence that: (1) OCR will likely view any breach notification as an opportunity to conduct a de facto audit of an entity’s general HIPAA compliance; and (2) encryption of all portable devices containing electronic protected health information ("ePHI"), though not technically "required," is a critical compliance consideration.

The information contained on the laptop, which was stolen while the physician was lecturing in South Korea in 2010, included prescriptions and clinical information for approximately 3,600 patients and research subjects. According to MEEI, although unencrypted, the laptop was password protected and contained a tracking device commonly referred to as "LoJack." Using LoJack, MEEI determined that a new operating system was installed on the computer and that the software needed to access the ePHI was not reinstalled. After concluding that retrieval of the laptop was unlikely, MEEI remotely permanently disabled the hard drive and rendered any ePHI unreadable.

Although OCR’s subsequent investigation revealed no patient harm as a result of the breach, the agency did find that the breach indicated a long-term, organizational disregard for the requirements of the Security Rule. More specifically, over an extended period of time, MEEI failed to:

  • Conduct a thorough analysis of the risk to the confidentiality of ePHI maintained on portable devices;
  • Implement security measures sufficient to ensure the confidentiality of ePHI that MEEI created, maintained, and transmitted using portable devices;
  • Adopt and implement policies, and procedures to restrict access to ePHI to authorized users of portable devices; and
  • Adopt and implement policies and procedures to address security incident identification, reporting, and response.

Following on the heels of the Alaska Department of Health and Social Services’ $1.7 million settlement in June, which also followed a breach that affected a relatively small number of individuals, OCR’s recent enforcement actions suggest that its focus is on the lack of overall HIPAA compliance that may lead to a breach and not the breach itself. This settlement also reaffirms the practical necessity of encrypting all ePHI on portable devices. According to Leon Rodriguez, Director of OCR,  "[i]n an age when health information is stored and transported on portable devices such as laptops, tablets, and mobile phones, special attention must be paid to safeguarding the information held on these devices."

In addition to the $1.5 million settlement, the Resolution Agreement between MEEI and OCR included a corrective action plan, which requires MEEI to review, revise, and maintain policies and procedures to ensure compliance with the Security Rule, and retain an independent monitor who will conduct assessments of MEEI’s compliance with the corrective action plan and render semi-annual reports to HHS for a 3-year period. MEEI did not admit any liability in the agreement and OCR did not concede that MEEI was not liable for civil monetary penalties.

Additional information about OCR’s enforcement activities can be found at hhs.gov.

Lessons for Life Sciences Companies With Global Operations that include Countries Sanctioned by the U.S.

This post was written by Michael J. Lowell.

On July 10, 2012, the U.S. Department of the Treasury, Office of Foreign Assets Control (“OFAC”) announced that Great Western Malting Co. (“Great Western”), a U.S. company, had agreed to pay $1.35 million to settle apparent violations of the Cuban Assets Control Regulations, 31 C.F.R. Part 515 (“Cuba sanctions”).  The Cuba sanctions generally prohibit U.S. persons and companies (and their foreign subsidiaries) from engaging in any transaction in which Cuba or a Cuban national has any interest whatsoever, direct or indirect.  These sanctions also prohibit U.S. persons from aiding or facilitating a foreign person’s transactions in Cuba.  Criminal penalties for violating the Cuba sanctions range up to 10 years in prison, $1,000,000 in corporate fines, and $250,000 in individual fines, per violation, and civil penalties may also be imposed.

Great Western is a U.S.-based company producing malt for the brewing, distilling and food markets. OFAC’s settlement announcement indicates that Great Western’s U.S.-based personnel provided back-office support for a foreign affiliate’s sales of foreign-origin barley malt to Cuba.  This case is noteworthy because the liability appears to be based solely on Great Western’s facilitation of its foreign affiliate's sales of foreign products.

This case also demonstrates the real value of OFAC’s voluntary disclosure process and the risk of discovery for violations that are often perceived as difficult to detect.  OFAC imposed the $1.35 million penalty despite the fact that the goods involved were foreign-origin, the primary activity was by a foreign person, and OFAC licenses were available for this activity.  In many cases, similar violations have been closed with a warning only on the basis of a voluntary disclosure.  OFAC’s discovery of these violations, which would not typically be easily discovered, since it is back-office support, should cause some caution in future decision-making on whether or not to file a voluntary disclosure.  It should also be noted that the penalty reflects significant mitigation (total possible base penalty of $5.9 million) due at least in part to Great Western’s substantial cooperation with OFAC after discovery of the violation, including entering into a statute of limitations tolling agreement.   

This enforcement action is a warning to companies operating globally with business in the United States and in U.S.-sanctioned countries -- particularly U.S.-based companies whose foreign affiliates and subsidiaries conduct business in Cuba, Iran, Sudan or Syria.  Companies should consider whether they have sufficient internal controls in place to prevent inadvertent back-office support or other forms of facilitation of their related companies’ sales in sanctioned countries. 

Clients working in the health care industry, including pharmaceutical and medical device companies, can face the same challenge posed by Great Western:  how to ensure that support of a foreign affiliate’s operations does not implicate U.S. sanctions.  This issue comes up in a variety of contexts.  Some recent examples where we have seen this issue arise for our pharmaceutical clients include:

•    Global Product Launch and Registration – the involvement of U.S. citizens or U.S. subsidiaries (legal, marketing, product, manufacturing) in a European-based pharmaceutical company’s global launches of new medicines

•    Marketing – the reliance on U.S.-based marketing support for European-headquartered pharmaceutical companies’ sales in Cuba, Iran, and Syria

•    Conference Arrangement and Attendees – the involvement of U.S. personnel in organizing, managing, or supporting conferences in Iran and Cuba in addition to issues associated with assisting the attendance of Iranian and Cuban doctors at conferences outside the United States

•    R&D and Production
– U.S. citizen expertise being provided to support the operations of affiliated companies primarily supporting development or sales in sanctioned countries

•    Legal and Compliance – counseling in-house lawyers and compliance officers on the “fine line” between advising foreign affiliates on the legality of a chosen course of action and approving or facilitating the course of action (which would be prohibited)

•    Sales – U.S. back office support for a foreign affiliate’s sales in sanctioned countries 

Our recent experience with global clients with headquarters in Europe and operations in the United States and Iran has demonstrated the importance of minimizing risks with proactive OFAC licenses and implementing internal controls or, failing that, voluntary disclosure, which can allow for resolution of the matter with OFAC with no penalty.

There also can be myriad other sanctions issues different from those raised by the Great Western settlement, including export control requirements relating to exports of lab equipment, medical devices, chemicals, unfinished and finished goods, foreign national employee or visitor licensing requirements (so-called, deemed exports), and issues relating to the corresponding financial transactions.  Fortunately, OFAC provides exceptions (general licenses) and generally has a favorable licensing policy where a specific license is necessary for exports of medicines to sanctioned countries, so there are a number of possible solutions. 

Please contact Mike Lowell or your usual Reed Smith contact for further information.  You may also visit the Global Regulatory Enforcement blog for updates and information on OFAC sanctions.

Pennsylvania Federal Court Undercuts Attorney-Client Privilege To Force Disclosure of Information from Internal Company Investigation

Over on the Reed Smith Global Regulatory Enforcement Law Blog, there is an interesting post about a recent Third Circuit opinion concluding that there is no immediate avenue to challenge a court order invading the protections of the attorney-client privilege unless the subject first suffers a judicial contempt citation and risks fines and imprisonment.  In this article, Reed Smith attorneys Kyle Bahr and Efrem Grail highlight the difficult choices faced by clients in protecting their privileged materials from discovery by the Government in federal criminal investigations.

Massachusetts Attorney General Strikes: South Shore Hospital Settles Data Breach Allegations for $750,000

This post was written by Brad M. Rostolsky and Nancy E. Bonifant.

On May 24, 2012, the Attorney General of Massachusetts announced that South Shore Hospital of South Weymouth, Massachusetts (South Shore) agreed to settle allegations that it failed to protect the personal and protected health information of more than 800,000 individuals.  The settlement resulted from the hospital’s data breach report to the Attorney General in July 2010, which was also reported to the HHS Office of Civil Rights in accordance with the HIPAA Breach Notification Rule.  Although the Attorney General reported a $750,000 settlement, South Shore was credited $275,000 for new security measures taken after the breach, bringing the actual amount to $475,000, of which $250,000 is a civil penalty and $225,000 shall be paid to an education fund to be used by the Attorney General’s Office to promote education concerning the protection of personal and protected health information.  South Shore also agreed to undergo a review and audit of its security measures and report the results to the Attorney General.

In February 2010, South Shore contracted with Archive Data Solutions (Archive Data) to erase and re-sell 473 data tapes.  According to the Attorney General, South Shore did not inform Archive Data that the tapes contained personal and protected health information, including individuals’ names, Social Security numbers, financial account numbers, and medical diagnoses.  The tapes were then shipped to a Texas subcontractor, but in June 2010, South Shore learned that only one of the three boxes of tapes arrived.  The two missing boxes were never recovered and there have been no reports of unauthorized use of the information.

Following its investigation of South Shore’s breach report, the Attorney General filed a lawsuit under the Massachusetts Consumer Protection Act and HIPAA.  State Attorney Generals have the authority to bring civil actions on behalf of state residents for violations of the HIPAA Privacy and Security Rules, which includes obtaining damages and enjoining further violations, pursuant to HITECH, enacted as part of the American Recovery and Reinvestment Act of 2009.  In the lawsuit, the Attorney General alleged that South Shore failed to implement appropriate safeguards, policies, and procedures to protect the information, failed to have a Business Associate Agreement in place with Archive Data, and failed to properly train its workforce.

House Leaders Plan June Vote on ACA Medical Device Tax Repeal

This post was written by Debra A. McCurdyRuth N. Holzman, and Angelo Ciavarella

A vote on legislation to repeal the ACA’s medical device excise tax could come in June, House Majority Leader Eric Cantor announced today.  The ACA imposes a 2.3% excise tax on the sale price of medical devices sold by the manufacturer, producer, or importer of the device after December 31, 2012. Citing the negative impact of this “draconian tax” on jobs in the medical device industry, Cantor plans a vote on H.R. 436, which would repeal the medical device tax, as early as the week of June 4, 2012. The bill would then await Senate action.

Life Sciences Health Industry China Briefing - April 2012 (May 21, 2012)

Reed Smith’s Life Sciences Health Industry China Briefing provides a summary of the monthly news and legal developments relating to China's Pharmaceutical, Medical Device, and Life Sciences/ Health Care Industries.  Some developments during April include:

  • Chinese Government to Review Drug Pricing Differences Between Ex-factory and Bid Prices
  • Heightened Attention to Hospital Mark-ups of Drug Prices
  • State Council to Cancel Drug Price Addition and Raise Medical and Surgery Fees
  • Cessation Drugs to be Included in Medical Insurance: Multinational Pharmaceutical Companies Play a Large Role in Government Procurement
  • 13 Products of 9 Pharmaceutical Companies Using Capsules Suspected of Excessive Chromium Contamination
  • Growth in Home Care Medical Devices

To read the full briefing by Reed Smith China team members, click here.

OCR Announces First Enforcement Action Resulting From a Breach Self-Report

This post was written by Nancy E. Bonifant and Brad M. Rostolsky.

On March 13, 2012, the HHS Office of Civil Rights (OCR) announced the first enforcement action resulting from a breach self-report required by HITECH’s Breach Notification Rule. Blue Cross Blue Shield of Tennessee (BCBST) has agreed to pay HHS $1,500,000 to settle potential violations of the HIPAA Privacy and Security Rules and has entered into a corrective action plan to address gaps in its HIPAA compliance program.


The HIPAA/HITECH Breach Notification Rule requires covered entities to report a breach (e.g., an impermissible use or disclosure of protected health information that compromises the security or privacy of the protected health information) to the affected individual(s), HHS and, at times, the media. OCR’s investigation of BCBST followed a breach report submitted by BCBST informing HHS that 57 unencrypted computer hard drives were stolen from a leased facility in Tennessee. The hard drives contained the protected health information of more than 1 million individuals, including member names, social security numbers, diagnosis code, dates of birth, and health plan identification numbers.


According to OCR’s investigation, BCBST failed to implement appropriate administrative and physical safeguards as required by the HIPAA Security Rule. More specifically, BCBST failed to perform the required security evaluation in response to operational changes and did not have adequate facility access controls.


In addition to the $1,500,000 settlement, the Resolution Agreement between BCBST and OCR requires BCBST to revise its Privacy and Security policies, conduct robust trainings for all employees, and perform monitor reviews to ensure compliance with the corrective action plan. BCBST did not admit any liability in the agreement and OCR did not concede that BCBST was not liable for civil monetary penalties.

Additional information about OCR’s enforcement activities can be found at http://www.hhs.gov/ocr/privacy/hipaa/enforcement/examples/index.html.

Increased Scrutiny for the 510(k) Process

This post was written by Michelle Lyu Cheng.

On November 14, 2011, the Senate Health, Education, Labor and Pensions Committee held a hearing called "Medical Devices: Protecting Patients and Promoting Innovation." The hearing focused on the continued viability of a medical device clearance process that clears for market medical devices that are "substantially equivalent" devices to previously cleared devices (also known as the "510(k) process," in reference to the statutory provision governing this process). Class III medical devices not cleared through this process must undergo the more rigorous and time-consuming Premarket Approval process. Among the issues considered were whether the 510(k) process sufficiently evaluated the safety of devices when clinical data is not necessarily always considered or part of the submission; whether high-risk medical devices should always be considered for the 510(k) process; the user fees for medical device applications; strengthening post-approval monitoring requirements; and the resources and needs for the FDA and the Center of Devices and Radiological Health (CDRH) in reviewing, clearing and approving medical devices. 

Testifying witnesses before the panel were as follows: Jeffrey Shuren, Director of the CDRH of the Food and Drug Administration; Ralph Hall, Professor of Practice, University of Minnesota, Minneapolis; David R. Challoner, M.D., Vice President (emeritus) of Health Affairs, University of Florida, and Chair, IOM Committee on the Public Health Effectiveness of the FDA 510(k) Clearance Process, Gainesville, Fla.; and Gregory Curfman, M.D., Executive Editor, New England Journal of Medicine, Boston. 

The first discussion panel centered on Dr. Shuren and his work with CDRH. In late 2009, the CDRH initiated a review of the 510(k) process, among others, and in 2010, released two reports concluding that the FDA had not managed its premarket programs sufficiently, with the most dire problem being unpredictability in the 510(k) and other premarket processes. This led to other increases in costs to the industry and delays in bringing innovation to the market. The root causes were determined to be the lack of personnel resources in CDRH, as compared with the center for drugs and biologics, insufficient reviewer training, insufficient managers and frontline reviewers, rapidly growing workload caused by increased complexity of devices and number of admissions, insufficient guidance for FDA, and poorly drafted submissions by the industry. In 2011, Dr. Shuren testified that concrete steps for improving the transparency, predictability and consistency of the premarket programs were outlined and evaluated. The Committee members generally focused on the sufficiency of CDRH/FDA's resources and an increase in review times for both the 510(k) and the Premarket Approval processes. One suggestion from Sen. Harkin (D-Iowa) was that the user fees for these submissions should be increased, although later it was conceded that the optimal solution would be if the FDA was independently funded. 

The second discussion panel with Mr. Hall and Drs. Challoner and Curfman focused on the 510(k) process and the National Academies of Science, Institute of Medicine (IoM) report that heavily criticized the 510(k) process. Mr. Hall started first, outlining that the drug and medical device sectors are very different, including because medical device development is an iterative process that builds upon previously created devices, and clinical testing is not necessarily an optimal or feasible method of measuring safety and effectiveness for medical devices compared with drugs. In response to Sen. Harkin's question about 510(k) devices bearing little resemblance to each of its predicate devices that may compromise patient safety, Mr. Hall noted the FDA has resources and regulatory powers at its disposal to satisfy itself for any issues relating to safety and effectiveness. Mr. Hall also stated in response to Sen. Blumenthal's (D-Conn.) question that post-market surveillance should be improved but that currently, FDA does have controls and regulatory systems in place for monitoring. Mr. Hall also emphasized that the 510(k) process does control for safety and effectiveness.

The discussion with Dr. Challoner primarily focused on IoN's report, as he chaired the committee that drafted it. The IoN report concluded that the 510(k) process generally does not evaluate safety and effectiveness, but only evaluates whether it is substantively equivalent to prior devices previously cleared. He stated that the IoN committee concluded that overhauling the 510(k) process was an optimal scenario, but per Sen. Mikulski's (D-Md.) question, Dr. Challoner stated that he did not expect the 510(k) process be eliminated overnight. He considered the IoN report to be a conversation starter. Dr. Challoner also testified that since the 510(k) process will not be immediately overhauled, it may be necessary to evaluate and strengthen the post-market processes and improve quality control. Dr. Curfman provided testimony similar to Dr. Challoner, namely that post-market surveillance controls would be helpful in monitoring the safety and effectiveness of devices. One potential way of doing so would be to institute a uniform device identification system so that a device can be tracked over its lifetime.

Sen. Harkin, the Committee Chair, concluded that this hearing was helpful in illustrating the need to take a more intense look at the approval process and post-surveillance controls, especially for certain higher-risk devices. While Sen. Harkin conceded that user fees may not be the optimal solution to compensate for the FDA's lack of resources, he did not consider that any changes to this would be feasible in light of the current climate. Based on some of the discussion points raised during this hearing, the 510(k) process and the post-market surveillance requirements may see increased scrutiny.

A link to the videotaped hearing is here.

Supreme Court Holds State Law Failure to Warn Claims Against Generics Preempted

This post was written by Christopher C. Foster.

As many of you no doubt have heard, the United States Supreme Court last week decided that FDA regulations applicable to generic drug manufacturers preempt state law "failure to warn" claims in PLIVA, Inc. v. Mensing, Nos. 09–993, 09–1039, and 09–1501, 564 U.S. ___ (2011). Among other sites, SCOTUSblog, the FDA Law Blog and the PharmaExec blog all have had interesting discussions of the decision.

To recap, Justice Clarence Thomas authored the Supreme Court's majority opinion in PLIVA. The court concluded that federal law preempts state law  "failure to warn" claims asserted against generic drug manufacturers, because those manufacturers are required by federal law to use warnings that are identical to those used by brand name manufacturers. The case, which consolidated actions from Minnesota and Louisiana, involved plaintiffs who developed a condition called tardive diskinesia after taking metoclopramide--a generic of the brand name Reglan--for several years. Slip. op. at 3.

The Court's decision focused on the distinct requirements federal law places on generic drug manufacturers with respect to their labeling. The Court explained that while a brand name drug manufacturer is responsible for the adequacy and accuracy of its label, a generic drug manufacturer is responsible for making sure its warning label matches that of its brand name counterpart. Id. at 6. As the FDA explained in its amicus brief, the duty of generic drug manufacturers with respect to its labeling is one of "sameness." Id. The Court held plaintiffs' claims preempted, concluding it was impossible for the generic manufacturers to comply simultaneously with the federal requirement that their labeling be the same as the brand name drug, and to simultaneously adopt a stronger label to comply with state law. Id. at 10-11.

Further, the Court rejected plaintiffs' argument that generic drug manufacturers should not be permitted to raise preemption as a defense, unless they had discharged their duty to ask the FDA for help in convincing brand name manufacturers to strengthen labeling. Id. at 13. The Court found that such an exception would prove too much, because a scenario can often be imagined where federal law may have allowed a party to also follow state law. Id. at 13-14. Yet the Supremacy Clause does not demand that a court strain to find ways to reconcile federal and state law. Id. at 15. "When the 'ordinary meaning' of federal law blocks a private party from independently accomplishing what state law requires, that party has established preemption." Id. at 17.

The Court recognized the tension this decision created with Wyeth v. Levine, 555 U.S. 555 (2009), which rejected preemption for failure to warn claims against brand name manufacturers just two years ago. It noted that had the plaintiffs taken the brand name drug, Reglan, rather than the generic drug, their lawsuit would not have been preempted under Wyeth. Id. at 19. It nevertheless rejected that as a reason for allowing plaintiffs to pursue their claims, noting that it was not its task to decide whether a statutory scheme adopted by Congress creates bizarre results. Id. at 19.

Much of the discussion about the case so far has focused on this issue of the tension between PLIVA and Wyeth, including what it means for implied preemption and how the lower courts should analyze preemption questions in the future. The decision is all the more interesting because it was authored by Justice Thomas, who garnered a fair amount of attention for stating in his concurring opinion in Wyeth that he was "increasingly skeptical of . . . the Court routinely invalidat[ing] state laws based on perceived conflicts with broad federal policy objectives, legislative history, or generalized notions of congressional purposes that are not embodied within the text of federal law." PLIVA makes clear that Justice Thomas does not require all federal preemption to be express, it is just that he wants implied preemption to also be firmly grounded in text as well.

Looking ahead, it seems likely that the Court's rejection of the argument that the generic manufacturers could have sought FDA assistance in changing the label is likely to create some interesting issues. The Court recognized that, in theory, the generic manufacturers could have acted under federal law to seek a change in its warning labels, but it rejected the argument because, even had the generic manufacturers done so, a label change ultimately depended on subsequent actions of the FDA and the brand name manufacturers. The Court seemed to accept the premise, though, that preemption could be denied to a party that "can act sufficiently independently under federal law to do what state law requires . . ." Slip. op. at 17. Just what "sufficiently independently" means, and the circumstances in which it may arise, remains an open question.

Regardless, this decision gives generic manufacturers a good defense to use in product liability cases going forward.

U.S. Supreme Court Strikes Down Vermont Ban on Data Mining; Rules that State Law Interferes with Drug Makers' Right to Free Speech

Today, in a 6-3 decision, the U.S. Supreme Court handed down a verdict in Sorrell vs. IMS Health, striking, on free speech grounds, a 2007 Vermont law that that bans the practice of data mining unless a physician specifically gives his or her permission to use the information. Reed Smith filed an amicus brief in Sorrell supporting IMS Health's position in order to help explain to the Court the public health benefits arising from targeted commercial use of prescription-writing data. Reed Smith's Global Regulatory Enforcement Law Blog discusses the ruling in "Supreme Court Win for Free Speech About Medical Options" by Paul Bond and Joe Metro.

Federal Government Contractors and Grantees Should Take Steps To Protect Their Patent Rights After the U.S. Supreme Court Decision in Stanford v. Roche

The Supreme Court's new Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems, Inc., et al., 563 U.S. ___ (2011) decision has significant implications for federally-funded inventions and any patents that may result. As Christopher Rissetto, Louis DePaul, and Stephanie Giese explain in this new alert, each federal government contractor and grantee should take the following steps:

  • Establish agreements with employees that require each employee to make present assignments to the contractor or grantee for inventions made during his or her employment.
  • Establish agreements with third parties, including consultants, that protect each party’s rights in inventions developed during collaborative efforts consistent with the terms of the government contract.
  • Recognize that, as a federal contractor or grantee, it may be in breach of its federal contract or grant if it fails to obtain: (1) an assignment (preferably a present assignment) of a federally funded invention from an employee; or (2) an agreement on rights in a federally funded invention from a third-party collaborating organization or consultant.
  • Recognize that the federal government may propose new rulemaking in connection with patent rights that may include regulations that require contractors to obtain (and perhaps certify that they have obtained) the assignments from employees, as well as agreements with collaborating organizations and consultants discussed above.
  • Understand that patent rights are not implemented in federal contracts and grants uniformly across the federal agencies and, as such, a federal government contractor or grantee should carefully review its rights and responsibilities under the patent rights clauses in each of its contracts or grants.
  • Recognize that under certain circumstances, a federal contractor or grantee should negotiate patent rights with the federal government.
  • Recognize that, pursuant to the definition of “subject invention” in a federal government grant or contract, the federal government may obtain rights in inventions conceived at private expense, but first reduced to practice using federal funding, or alternatively, conceived using federal funding, but first reduced to practice at private expense. 
  • Recognize that, as a federal government contractor or grantee, it may need to review the federal government contract or grant, as well as agreements made in connection with the contract or grant, to determine rights to a federally funded invention.
  • Recognize that, to determine rights to a federally funded invention, third parties acquiring patent rights from a federal government contractor or grantee may need to review the federal government contract or grant, as well as agreements made in connection with the contract or grant. 
  • While not specifically addressed by the Supreme Court, recognize that the precedent set in the Stanford v. Roche decision is likely to apply to large, for-profit companies, as well as to small businesses and nonprofit organizations that are performing federal government contracts or grants. See Exec. Order No. 12,591, para. 1(b)(4), 52 Fed. Reg. 13,414 (Apr. 10, 1987) (citingPresident’s Memorandum to the Heads of the Executive Departments and Agencies, Government Patent Policy (Feb. 18, 1983)).

Please contact one of the authors for more information regarding intellectual property rights under federal government contracts and grants.

Tort Reform Heats Up with Hearing in the Senate Judiciary

The National Law Journal's article “Torts once again on the front burner in the House” discusses the March 24, 2011 U.S. House Judiciary subcommittee hearing on tort reform. The hearing, entitled, "Can We Sue Our Way to Prosperity?: Litigation's Effect on America's Global Competitiveness," once again opens the debate regarding the US tort system. Topics included a bill that would cap non-economic damages in cases of medical malpractice, and a hearing on the yet-to-be-introduced Lawsuit Abuse Reduction Act, a proposal to implement mandatory sanctions of attorneys who violate civil procedure's Rule 11 against filing frivolous claims.

Stark Law Developments Will Challenge Health Care Attorneys

Despite the many years since enactment, counseling health care clients on the broad and complex federal physician self-referral law, commonly called the Stark Law, will become increasingly difficult. Although originally enacted in 1989 to create "bright line" to demark improper physician self-referred laboratory services, and expanded in 1993 to cover a wide range of "designated health services" reimbursable under Medicare, the contours of the Stark Law continue to evolve and new uncertainties emerge.

The significant damages that can result from a Stark Law violation — most particularly the prospect under the False Claims Act for recovery of three times the Medicare reimbursement paid as a result of a prohibited referral — has caused the Stark Law to attract increasing attention from U.S. Attorneys offices and the private qui tam relator bar.

In his article "Stark Law Developments Will Challenge Health Care Attorneys," published in The Legal Intelligencer, Reed Smith Partner Karl Thallner discusses recent developments demonstrating the difficulties in counseling health care clients on the application of the Stark Law, as well as with selecting a course of action when a Stark Law violation has been discovered.

FDA Launches "Bad Ad Program" to Help Health Care Providers Detect, Report Misleading Drug Ads

This post was written by Areta Kupchyk and Kevin Madagan.

On May 11, 2010, the U.S. Food and Drug Administration (FDA) launched a new initiative – the “Bad Ad Program” – designed to educate health care practitioners about their role in ensuring that prescription drug advertising and promotion is truthful, and not misleading. With the launch of this program, FDA, through the Division of Drug Marketing, Advertising, and Communications (DDMAC), a division within FDA’s Center for Drug Evaluation and Research, is now actively seeking to “collaborate with health care professionals” to increase the effectiveness of the agency’s marketing and advertising surveillance program. DDMAC is responsible for assuring prescription drug information is truthful, balanced, and accurately communicated, and guarding against false and misleading advertising and promotion through comprehensive surveillance, enforcement, and educational programs.

FDA introduced the Bad Ad Program through a dedicated website, an educational brochure for practitioners (Truthful Prescription Drug Advertising and Promotion: The Prescriber’s Role), and a letter from FDA Commissioner, Dr. Margaret Hamburg, introducing practitioners to the program.

“I am asking you to help FDA in our efforts to stop misleading prescription drug promotion,” states the Commissioner in her letter. “The Bad Ad Program can only succeed with your collaboration. Your help in this effort will be most beneficial to FDA in helping to ensure that prescription drug promotional information is accurately communicated to the medical community.” 

The Bad Ad Program website encourages health care practitioners to “play an important role” for FDA by “recognizing and reporting” misleading advertising and promotion. FDA wants practitioners to be “aware of the many advertisements and promotions that [they] see every day,” and help FDA stop violations by “reporting activities and messages” that may be false or misleading. 

The Bad Ad Program will be rolled out in three phases. In Phase 1, DDMAC will engage health care practitioners at specifically-selected medical conventions in 2010 and partner with specific medical societies to distribute educational materials. At these conferences, DDMAC reviewers will be speaking with practitioners regarding how to recognize misleading prescription drug promotion and how to report any potential violations to FDA. Phases 2 and 3 will expand the FDA’s collaborative efforts and update the educational materials developed for Phase 1. 

Ninth Circuit Court of Appeals Holds that the FDCA Precludes Plaintiff's Claim Under the Lanham Act

This post was written by Christopher C. Foster.

The Ninth Circuit recently confronted an issue of first impression: whether a plaintiff could maintain an action under the false advertising prong of the Lanham Act, where a determination of the alleged falsity would require the court to impinge on the exclusive purview of the Food and Drug Administration (FDA) in deciding whether there has been a violation of the Food, Drug, and Cosmetic Act (FDCA). Although limited to the particular circumstances presented, the opinion reaffirmed the exclusive authority of the FDA to enforce the provisions of the FDCA, and indicates that a plaintiff may not maintain a lawsuit premised on the allegation of a violation of the FDCA, where the FDA itself has not acted. 

PhotoMedex v. Irwin

In PhotoMedex v. Irwin, No. 07-56672, 2010 U.S. App. LEXIS 7640 (9th Cir. Apr. 14, 2010), the Ninth Circuit held that the FDCA, which prohibits private enforcement of its provisions, bars a medical device manufacturer’s claim under the Lanham Act. PhotoMedex involved a Lanham Act claim based upon the allegation that plaintiff PhotoMedex, Inc’s (“PhotoMedex”) competitor made false and misleading statements regarding FDA approval of a medical device marketed by the competitor. The Ninth Circuit concluded that PhotoMedex could not maintain its Lanham Act claim, because resolution of the question of whether the defendant made false statements required litigation of an underlying FDCA violation, a determination reserved to the FDA. 

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New Tax Incentives for Small Biotech Companies

This post was written by Ruth N. Holzman, Arnie Grant, Paul J. Jaskot, Michael Sanders, Donald C. Reinke, Nanette W. Mantell and Richard Scudellari.

Small biotech companies will need to move quickly in order to take advantage of a new tax credit, known as the “qualifying therapeutic discovery project credit,” enacted as part of the Patient Protection and Affordable Care Act of 2010. The new credit, contained in section 48D of the Internal Revenue Code, is equal to 50 percent of eligible costs incurred by small biotech companies in developing new therapies to prevent, diagnose and treat acute and chronic diseases. Some taxpayers may be eligible to elect to receive a cash grant in lieu of the Credit (Cash Grant). The Credit/Cash Grant program is limited to $1 billion and is only available for taxable years beginning in 2009 and 2010.

The Secretary of the Treasury has until May 22, 2010 to establish a program to consider and award certifications to qualifying therapeutic discovery project sponsors. Because it will be a competitive application process, eligible biotech companies will need to move quickly and submit their applications promptly once the Treasury Department issues guidance on the program. Since the Credit/Cash Grant program includes eligible costs incurred in 2009, biotech companies should review their 2009 costs now so that they have the data to complete their applications as soon as program details are released.

To learn more about the qualifying therapeutic discovery project credit, read our full alert.

For more information, please contact one of the authors: Ruth N. Holzman, Arnie Grant, Paul J. Jaskot, Michael SandersDonald C. Reinke, Nanette W. Mantell and Richard Scudellari.

Health Care Reform: Whither Property Tax Exemptions for Hospitals?

This post was written by Michael J. Wynne.

Last week, in Provena Covenant Medical Center v. Department of Revenue, the Illinois Supreme Court issued a decision in which it denied a property tax exemption for a Catholic hospital. The Court denied the exemption, in part, because the amount of charity care provided by the hospital was insufficient. However, the chilling national repercussions some portend for the Provena Covenant decision, with its inquiry into how much charity is enough to justify a property tax exemption, may ultimately be dwarfed by the repercussions of the new federal health care legislation. By 2014, under the new federal legislation, the extended coverage offered under Medicaid and the insurance exchanges will displace much of the charitable patient care that hospitals have traditionally dispensed. As hospital charitable patient care ebbs, so too may ebb the state and local grants of exemption for hospital properties.

To learn more about property tax implications of the Provena Covenant decision and the new federal health care legislation, read our full alert.

Ten Data Security Questions Faced by Every Company

Privacy and data security are hot topics for everyone doing business in today's rapidly developing climate, and no less for those in life science and health-related industries. With new federal statutes, new regulations from HHS and FTC, and new state laws covering private health information, now is a good time for businesses to take stock of the applicable laws and take steps to ensure that their use, transfer, and storage of private data are secure and compliant. In this article, Reed Smith's Paul Bond gives his "Ten Data Security Questions Faced by Every Company," a one-stop survey of how every business should approach these issues.

White House Announces Funding for Medical Tort Reform Demonstration Projects

On September 17, 2009, the White House released a “Patient Safety and Medical Liability Reform Demonstration” Fact Sheet, which outlines a new $25 million Department of Health and Human Services initiative designed to help states and health care systems identify new models for managing medical liability claims. The three-pronged initiative will support competitive grants to states and health systems with a focus on the development, implementation and evaluation of alternatives to improve health care quality and patient safety while reducing medical liability.

The Funding Opportunity Announcement will be available within 30 days. The Agency for Healthcare Research and Quality will review applications and make award decisions in early 2010.

The evaluation of the initiative will be released publicly within 18 months of the end of the initiative. The evaluation will focus on short-term improvements in both patient safety and medical liability systems with an allowance for long-term assessment of improvements as well.

New Developments in Nanotechnology

A recent study suggests that exposure to nanoparticles may have caused the death of two female workers and the illnesses of five others in China. Life science health industry companies that manufacture, integrate, sell or buy products that contain nanomaterials may want to monitor reaction to this report, which may garner attention from media outlets, scientists, regulators and the plaintiffs' bar. For a full discussion of these issues, review the full Client Alert written by Reed Smith attorneys Antony Klapper, Jesse Ash and David Wagner.

AHLA Stark Reform Proposals

The American Health Lawyers Association released a white paper on August 10, 2009, which analyzes the problems and benefits of the Stark Law and challenges amidst pending health care reform. In light of these significant policy discussions, many are wondering whether Congress will take action. Reed Smith's Karl Thallner was quoted in BNA's Health Law Reporter article discussing difficulties of the Stark law and the proposed improvements suggested by AHLA Committee. The article, "AHLA Stark Reform Proposals Welcome, Have Little Chance of Success, Attorneys Say" is reproduced with permission from BNA's Health Law Reporter, 18 HLR 1105 (Aug. 20, 2009). Copyright 2009 by The Bureau of National Affairs,Inc. (800-372-1033).

China's Premier Wen Jiabao Confirms Major Healthcare Reform

This post was written by Sharon J. Mann, Hugh Scogin, Gordon B. Schatz and Amanda Yang.

At the 2nd Session of the 11th National People’s Congress (NPC) convened on March 5, 2009, China’ Premier Wen Jiabao confirmed the major contents of the healthcare reform in the 2009 Government Work Report. On January 21, 2009, the State Council approved the Opinions on Advancing Healthcare Reform and the Implementation Plan on Advancing Healthcare Reform 2009-2011 in principle. The opinions and the plan are expected to be published after the NPC session, with the Government Work Report representing the first government document that confirms work focuses in the coming healthcare reform program.

According to the Work Report, the Chinese government will spend US$124 billion (850 billion RMB) on healthcare reform between 2009 and 2011, including 331.8 billion RMB from the central government. The funds will be used in five primary areas 1) medical insurance, 2) essential medications, 3) basic healthcare service systems, 4) equal access to basic public health services, and 5) reform of public hospitals.

For additional information, please see Reed Smith’s full alert.

Midterm Supreme Court Media Briefing Webcast By The Washington Legal Foundation

Although the life sciences industry continues to await the Supreme Court's decision in the Wyeth v. Levine preemption case, the court already is half-way through this term.

The Washington Legal Foundation (WLF) will be holding its annual Midterm Supreme Court Media Briefing event on Wednesday, February 11 at 9:00 a.m. EST:

The program will be moderated by WLF’s Legal Policy Advisory Board Chairman, The Honorable Dick Thornburgh, and feature Akin Gump partner and SCOTUSblog creator and editor Thomas Goldstein, Gibson, Dunn & Crutcher partner and former Deputy Solicitor General Thomas Hungar, and WLF Chief Counsel Richard Samp. In addition to reviewing key Court rulings, previewing upcoming oral arguments, and assessing pending cert petitions, our speakers will discuss the impact a new Solicitor General will have on current cases and petitions, as well as positions taken by the Federal Government in future cases.

Those in D.C. can attend in person at 2009 Massachusetts Avenue, NW, and everyone else can watch the webcast online at www.wlf.org. WLF requests that RSVPs be sent to glammi@wlf.org.

AdvaMed Issues Revised Code of Ethics on Interactions

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.

PhRMA's Revised DTC Guidelines

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.

Nanotechnology - What the Life Sciences Industry Needs to Know about Managing its Risks

Reed Smith LLP, in conjunction with ChemRisk and the Center for Business Intelligence, is presenting a complimentary webinar, "Nanotechnology - What the Life Sciences Industry Needs to Know about Managing its Risks", October 22 at noon eastern.

The moderator for this event will be Reed Smith partner Antony B. Klapper. Speakers include:

  • Barr Weiner, Associate Director for Policy in the Food and Drug Administration's Office of Combination Products and the OCP representative on the FDA's agency-wide Nanotechnology Task Force
  • Leonard I. Sweet, Senior Health Scientist, ChemRisk, Inc.
  • Amy K. Madl, Senior Managing Health Scientist, ChemRisk, Inc.

The program will last one hour and will provide an overview of nanotechnology and its uses in the life sciences industry; actual and theoretical risks posed to humans by the use of engineered nanomaterials; the ways that life sciences companies can evaluate those potential risks and mitigate them through risk management practices and good product stewardship; and legal risks associated with engineered nanomaterials, and exploring next steps at the FDA and other regulatory bodies.

A link to register for this free program can be found at cbinet.com.

Moody's Down on Prospects for Pharmaceuticals

A post on in-pharmatechnologist.com summarizes a report by Moody's forecasting that pharmaceutical companies in the United States and Europe will face difficult times over the course of the next 12-18 months.

Some of the causes identifed by Moody's include:

  • patent expirations and challenges to existing patents;
  • difficult regulatory climate;
  • downward pricing pressures; and
  • unexpected problems related to product safety.