Life Sciences Legal Update

Santa Delivered A 1:1 Ratio For Punitive Damages

lbaird@reedsmith.com (Lisa Baird) — Tue, 30 Dec 2008 13:36:25 -0500

The Third Circuit delivered a Christmas present Dec. 24, issuing an opinion - albeit "not precedential" - that reduced a 3.13:1 ratio for punitive damages down to a 1:1 ratio.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

Class II Special Controls Preemption

lbaird@reedsmith.com (Lisa Baird) — Mon, 29 Dec 2008 10:07:14 -0500

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.

New Postings on the Reed Smith Health Industry Washington Watch Blog

DMcCurdy@ReedSmith.com (Debra A. McCurdy) — Mon, 29 Dec 2008 09:20:42 -0500

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.

The New Consumer Product Safety Improvements Act -- Implications for Pharmaceutical Manufacturers

lbaird@reedsmith.com (Lisa Baird) — Tue, 23 Dec 2008 14:49:06 -0500

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.

California Update: New Laws on Patient Privacy, Billing Diagnostic Imaging Services, and Bacterial Infection Monitoring and Reporting

lbaird@reedsmith.com (Lisa Baird) — Tue, 23 Dec 2008 14:12:02 -0500

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.

AdvaMed Issues Revised Code of Ethics on Interactions

lbaird@reedsmith.com (Lisa Baird) — Thu, 18 Dec 2008 17:10:47 -0500

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

lbaird@reedsmith.com (Lisa Baird) — Thu, 18 Dec 2008 11:10:44 -0500

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.

Massachusetts Releases Proposed Restrictions on Drug and Device Marketing Activities, Annual Financial Disclosure Requirement

lbaird@reedsmith.com (Lisa Baird) — Tue, 16 Dec 2008 17:21:01 -0500

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.

Health Care Reform During the Obama Presidency: The Impact on Hospitals

lbaird@reedsmith.com (Lisa Baird) — Tue, 16 Dec 2008 11:36:04 -0500

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."

Gerald Masoudi at ACI

lbaird@reedsmith.com (Lisa Baird) — Wed, 10 Dec 2008 13:33:04 -0500

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.

FUTURE OF PREEMPTION

The Wyeth decision, of course.

But what about preemption in off-label cases? Sponsor can't change label without FDA approval. What if physician prescribes off-label because of some prompting by manufacturer? If plaintiff's tort suit says there should have been warnings for the off-label use, the defense is less strong as there is little federal interest in off-label promotion. This area of law needs more development to answer the question.

RIEGEL

There may be a legislative response, but again we will have to wait to see.

As to any exception for the manufacturer's alleged failure to disclose to the FDA, when the FDA has not found fraud, the preemption defense is stronger. It would create interference with the agency's decisions to allow courts to decide if the FDA was defrauded. Moreover, the FDA should decide what the punishment for it should be for manufacturer nondisclosure.

FDA WARNING LETTERS

FDA warning letters are a statement by the agency that someone is in violation of the law and legal action may be taken. For the past few years, the chief counsel's office has reviewed all of them.

Because they involve a legal determination, and are very serious for the recipients, they are appropriate for attorney review.

Even if counsel review leads to fewer letters, which is not clear, stronger letters with a stronger impact is a beneficial result of counsel review. It adds heft to both the letter and to the agency's decision to take an enforcement action, since recipients and the courts know the agency's counsel has decided that legal action will be appropriate (if the conduct is not remedied) when warning letter issued.

EPA Proposes Change in Regulations for Disposal of Unused Pharmaceuticals

lbaird@reedsmith.com (Lisa Baird) — Wed, 10 Dec 2008 13:01:23 -0500

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.

New Postings on the Reed Smith Health Industry Washington Watch Blog

DMcCurdy@ReedSmith.com (Debra A. McCurdy) — Wed, 10 Dec 2008 09:09:33 -0500

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.

European Commission warns Pharma sector on blocking generic entry

lbaird@reedsmith.com (Lisa Baird) — Mon, 08 Dec 2008 13:53:49 -0500

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.

The truth is that there is really nothing new in any of these allegations or practices, many of which have already been extensively litigated by competition authorities and industry players in the US. The debate turns on the tension between anti-trust legislation which is aimed at promoting competition, and other laws which safeguard intellectual property rights, which by their very nature confer an unchallengeable monopoly on the holder. Patents and other intellectual property rights are in the public interest because they incentivise innovation by allowing innovators the exclusive right to exploit the fruits of their work during a defined period. It is natural that powerful companies will wish to use the law in order to delay the entry of competitors and will vigorously defend any challenges to their intellectual property rights. European law recognises the importance of intellectual property rights, and also recognises that it is not a breach of competition law just to be big and powerful.

So the Commission will have its work cut out if it is going to mount legal challenges to the practices it has identified. Of course registration and vigorous defence of patents restricts competition. That is the whole point of having a patent. When does this activity go so far as to become something which the law should sanction?

In this connection, the Commission will take little comfort from the more recent developments across the Atlantic. Last month a US Federal Appeal Court upheld a decision in favour of drug companies Bayer, Hoechst and Barr in a challenge by a group of health plan providers that patent settlement agreements between the three companies had artificially kept up the price of the drug Cipro – exactly the same argument raised by the Commission in its report. Barr – a generic drug company – had claimed to be entitled to bring out its own generic version of Cipro on the ground that Bayer’s patents for Cipro were no longer valid. Bayer sued Barr for infringement, but subsequently settled the case on terms that Barr would remove its challenge to Bayer’s patents in consideration for Bayer supplying Cipro to Barr and also making a cash payment. The US court held that although this agreement did restrict competition, there was a recognised public benefit in settling litigation, rather than letting it drag on, and that such agreements would only infringe competition laws if the whole litigation was merely a sham. Not an easy thing for the plaintiffs in this case (or the European Commission) to prove.

So we will wait and see what enforcement action eventually results from this enquiry as it now goes to consultation. Consultation will finish at the end of January 2009, and the final report is expected next Spring.

In the meantime, the Commission is keeping busy having this week conducted another series of raids on the pharma sector. This, the Commission says, is unconnected with the current enquiry, and speculation is that these raids relate to distribution of drugs, rather than preventing or delaying generic entry. Neelie Kroes has picked a big fight with the pharma companies. It certainly promises to keep her busy.

New Postings on the Reed Smith Health Industry Washington Watch Blog

DMcCurdy@ReedSmith.com (Debra A. McCurdy) — Tue, 25 Nov 2008 13:12:56 -0500

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

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

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

Update on FTC's Identity Theft Red Flag Regulations: Address Discrepancy Rule and Identity Theft Prevention Rule as They Apply to Health Care Providers

lbaird@reedsmith.com (Lisa Baird) — Fri, 21 Nov 2008 10:25:07 -0500

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

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

Drug Company Disclosure Bill Introduced in Texas State Legislature

lbaird@reedsmith.com (Lisa Baird) — Thu, 20 Nov 2008 17:40:50 -0500

This post was written by Matt Wetzel and Katie Hurley.

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

The Texas bill—S.B. 151—specifically applies to “pharmaceutical manufacturing companies,” which is defined to include any entity that “produces, prepares, propagates, compounds, converts, or processes prescription drugs,” or that “packages, repackages, labels, relabels, or distributes prescription drugs.” Wholesale drug distributors and pharmacists are excluded from the reporting requirement.

Under the bill, the annual disclosure would include reporting the value, nature and purpose of any gift, fee, payment, subsidy or other economic benefit provided in connection with detailing, promotional, or marketing activities of the company to (1) physicians, (2) hospitals, (3) nursing homes, (4) pharmacists, (5) pharmacies, (6) health benefit plan administrators or (7) any other persons authorized to prescribe or dispense prescription drugs in Texas. (As drafted, the bill contains no minimum dollar thresholds for reporting as other state requirements do.) The report would also require disclosure of the name and address of each recipient. Similar to other state reporting laws, the Texas law would obligate companies to disclose annually the name and address of the individual responsible for the company’s compliance.

Information disclosed to the state under S.B. 151 as “trade secret information” would be kept confidential. Further, the state would keep confidential information relating to (1) free samples, (2) compensation and reimbursement in connection with clinical trials, (3) economic benefits, gifts, or other payments valued at less than $25, and (4) scholarship or support for a medical student, resident or fellow to attend a significant educational, scientific or policy-making conference. This latter provision differs from other state laws, which provide exemptions from reporting for these types of items. The Texas bill, in contrast, would not exempt these items from reporting; rather, it would simply keep disclosures related to these items confidential.

Penalties under S.B. 151 include a $10,000 fine for failure to file an annual report. If passed, the first annual report in Texas under the bill would be due June 30, 2010.

Pharmaceutical Parallel Trade Ruling in the European Court of Justice and Pharmaceutical Product Liability Rulings in France

lbaird@reedsmith.com (Lisa Baird) — Wed, 19 Nov 2008 14:07:10 -0500

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

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

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

Product liability case-laws in the pharmaceutical sector: The French Civil Supreme Court held important rulings on the causality issue

On 22 May 2008, the French Civil Supreme Court handed down a series of judgments relating to the liability of pharmaceutical companies for defective products once again focusing on the causal link, one of the legal prerequisites to a successful product liability claim.

According to both French Law and the European Directive 85/374/EEC on defective products, a claim for defective product requires three cumulative conditions: a defective product, an injury and a causal link between the two.

The five case-laws at stake relate to hepatitis B vaccines allegedly connected with multiple sclerosis[1] or ulcerative colitis[2].

Prior case-law

In light of the uncertainties concerning the etiology of multiple scleroses and the absence of clear-cut scientific conclusions, the Civil Supreme Court refused in two decisions dated 2003[3] to recognize any causal link between the hepatitis B vaccine and the occurrence of multiple scleroses.

Accordingly, said Court reversed the rulings of the appellate courts which had wrongly based their holdings on a series of presumptions. The Civil Supreme Court overruled the appellate decisions for "breach of the law" thus asserting that such a causal link is not even demonstrable.

In other words, such overruling did not condemn a failure to demonstrate the causal link in the specific case but was rather based on the theoretical observation that a causal link could not be established.

Hence, the Civil Supreme Court decided that the "judicial truth" should be aligned with the scientific standpoint.

It was unanimously understood from these 2003 precedents that in hepatitis B vaccines cases, the proof of the causal link through presumptions could not be successful.

The 2008 case-laws

The Civil Supreme Court acknowledges for the first time here that in hepatitis B vaccine cases, the causal link can be evidenced by means of presumptions provided that they are "serious, precise and convergent".

The presumptions must be supported by detailed elements which are appreciated on a case-by-case basis but not through general scientific studies, either statistic or probabilistic.

This new position is less favorable to the pharmaceutical companies since the existence of a causal link is no longer excluded from scratch.

In fact, however, it remains uneasy for the plaintiffs to succeed. Indeed, amongst the five analyzed case-laws:

the Civil Supreme Court overruled the appellate rulings only because the appellate courts neglected to assess the presumptions related the causal link[4].
the referral to the Civil Supreme Court was rejected in two cases as the appellate judges had rightly assessed the presumptions put forward and concluded to the absence of any causal link[5].

Comparative approach and the French dual legal system

As you may know, France has a dual legal system: the administrative judicial order, headed by the Administrative Supreme Court (« Conseil d’Etat »), dealing with the compliance with Public Law[6] and the civil judicial order, headed by the Civil Supreme Court (« Cour de Cassation »), dealing with the compliance with Private Law[7].

Claims for defective products are filed with civil or administrative courts depending on the factual context (e.g status of the hospitals or of healthcare professionals).

In this regard, still today, the competent civil and administrative courts do not have the same position on the causality issue in hepatitis B cases.

Indeed, in certain circumstances where the scientific experts do not exclude the possibility of a causal link between hepatitis B vaccines and multiple scleroses, the Administrative Supreme Court may conclude to the liability of the manufacturer[8]. The key issue in such a rationale is the acknowledgment, by the Administrative Supreme Court, of the reversal of the burden of proof hereby requiring the manufacturer to establish that its vaccine is harmless.

As for the Civil Supreme Court, it considers that "the absence of scientific certainty on the harmlessness of the vaccine does not lead to a presumption of defectiveness"[9]. Thus, in civil cases, the burden of proof still lies on the plaintiffs.

To summarize the situation as it now, if the latest civil case-law dealing with hepatitis B are less favorable to the pharmaceutical companies than before, they still remain less in favor of the claimants than the current administrative case-law.

[1] ^{Decisions of the 1 st Civil division of the Supreme Court dated May 22, 2008 n°05-20.317, n°06-10.967, n°06-14.952, n°06-18.848.}

[2] ^{Decision of the 1 st Civil division of the Supreme Court dated May 22, 2008 n°05-10.593.}

[3] ^{Decisions of the 1 st Civil division of the Supreme Court dated September 23, 2003 n°01-13.063 and n°01-13.64.}

[4] ^{Decision of the 1 st Civil division of the Supreme Court dated May 22, 2008 n° 06.10.967, n° 05-20.317, n° 06.14.952.}

[5] ^{Decision of the 1 st Civil division of the Supreme Court dated May 22, 2008 n° 06-18.848 and n° 05-10.953.}

[6] ^{Law governing relationships between individuals and the State.}

[7] ^{Law governing relationships between individuals.}

[8] ^{Decision of the Administrative Supreme Court dated March 9, 2007 n° 267635.}

[9] ^{Decision of the 1 st Civil division of the French Supreme Court dated May 22, 2008 n° 06-18.848.}

The Line Is Drawn - Buckman's Application To State Regulatory Compliance Statute Exceptions

mlyu@reedsmith.com (Michelle H. Lyu) — Mon, 17 Nov 2008 13:48:47 -0500

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

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

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

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

New Postings on the Reed Smith Health Industry Washington Watch Blog

lbaird@reedsmith.com (Lisa Baird) — Mon, 17 Nov 2008 10:48:39 -0500

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

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

Harvard Law Review Takes Notice of Riegel

mlyu@reedsmith.com (Michelle H. Lyu) — Fri, 14 Nov 2008 14:21:54 -0500

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

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

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