Posted on October 29, 2009 by Lisa Baird

Sebelius Issues Section 1135 Waiver

This post was written by Kevin Madagan and Paul Sheives.

On October 24, 2009, President Obama signed a proclamation declaring the 2009 H1N1 influenza pandemic a National Emergency to facilitate the nations ability to respond to the H1N1 pandemic by enabling – if warranted – the waiver of certain statutory federal requirements for medical treatment facilities.  

This proclamation provided Kathleen Sebelius, the Secretary of the U.S. Department of Health & Human Services, the ability under section 1135 of the Social Security Act [42 U.S.C. § 1320b–5] to waive certain legal requirements that could otherwise limit the ability of the nation’s healthcare system to respond to the surge of patients with the 2009 H1N1 influenza virus. 

Secretary Sebelius recently issued a Section 1135 waiver that becomes effective at 5:00 p.m. today but is retroactive to October 23, 2009.  

Accordingly, healthcare facilities may now petition the Department for 1135 waivers to ensure that sufficient healthcare items and services are available to meet the needs of Medicare, Medicaid, and CHIP beneficiaries. Listed below are a few examples of when 1135 waivers may be necessary:

  • Hospitals request to set up an alternative screening location for patients away from the hospital’s main campus (requiring waiver of sanctions for certain directions, relocations or transfers under EMTALA).
  • Hospitals request to facilitate transfer of patients from ERs and inpatient wards between hospitals (requiring waiver of sanctions under EMTALA regulations).
  • Critical Access Hospitals requesting waiver of 42 C.F.R. § 485.620, which requires a 25-bed limit and average patient stays less than 96 hours.
  • Skilled Nursing Facilities requesting a waiver of 42 C.F.R. § 483.5, which requires CMS approval prior to increasing the number of the facility’s certified beds.
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Posted on August 6, 2009 by Lisa Baird

FDA Commissioner Announces Aggressive New Enforcement Policy

This post was written by Frederick H. Branding, R.Ph., JD, Areta L. Kupchyk and Kevin M. Madagan.

After just passing her eighth week as FDA Commissioner, Dr. Margaret Hamburg announced on August 6, 2009, six new enforcement procedures to a group of industry representatives, attorneys, consumers, and others attending a speech sponsored by the Food and Drug Law Institute in Washington, D.C.

“The FDA must be vigilant, the FDA must be strategic, the FDA must be quick, and the FDA must be visible,” according to Commissioner Hamburg. She stated that vigilance means regular inspections and follow-up to ensure problems are resolved; identifying and resolving problems early; a “greater emphasis on significant risk and violations”; rapidly responding to egregious violations or violations that jeopardize public health; and using “meaningful penalties to send a strong message” to discourage future offenses. The Commissioner also said that the agency must be visible and publicize its enforcement actions (and the rationale for those actions) widely and effectively. Commissioner Hamburg described six new policy changes to meet these goals.

 

1. 15 Day Post-Inspection Deadline

FDA will now set post-inspection deadlines. When FDA finds that a firm is significantly out of compliance and issues inspectional observations on Form FDA-483, it will expect a prompt response, generally no more than 15 days. Failing to respond in 15 days will trigger FDA to move forward with a warning letter or enforcement action.

2. Streamlined Warning Letter Process – Chief Counsel Pre-Review Policy Abandoned

Abandoning a policy implemented in 2002, FDA’s Chief Counsel Office will no longer review every warning letter issued by the agency. The Chief Counsel will limit warning letter review to significant legal issues only. In other words regional offices will now be permitted to issue warning letters.

3. Closer Collaboration with Regional Partners

FDA will continue to seek to work more closely with regulatory partners (e.g., state, local, and international officials) to develop risk control and enforcement strategies, as these entities have more authority to take action quickly than FDA. “When the public health is at risk, the FDA will reach out to our partners to take rapid action while we alert the public and prepare longer-term responses.”

4. Prioritize Enforcement Follow-Up

FDA will prioritize its follow-up with non-compliant firms. After a warning letter is issued or a product recall occurs, FDA will “make it a priority to follow up promptly with appropriate action.” This may include an inspection or investigation to ensure the problem has been resolved.

5. Swift and Aggressive Action Without a Warning Letter

FDA is prepared to take swift aggressive action to protect the public. The agency will no longer issue multiple warning letters. In addition, FDA will consider immediate action, such as action before it issues a warning letter, to address significant health concerns or egregious violations. Although FDA has had the authority to take enforcement action without issuing a warning letter, the agency generally reserves use of enforcement actions such as seizure or injunction for serious public safety situations requiring immediate action to stop manufacturing or distribution to prevent harm. 

6. Warning Letter “Close-Out” Process

FDA is developing a formal warning letter close-out process. For example, after FDA reinspects a facility to ensure that a firm has fully corrected violations identified in a warning letter, FDA may provide to the firm a formal “close-out” letter, indicating that the issues have been successfully addressed. This letter will then be posted on FDA’s website. However, not every warning letter will be eligible for a formal close-out letter. Such letters will likely be sent to companies with a history of ongoing violations. 

Commissioner Hamburg expects these new policies will ensure violative inspection results are taken seriously, warning letters and enforcement actions occur in a timely manner, and steps are taken promptly to protect consumers.
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Posted on July 9, 2009 by Karl A. Thallner

CMS Proposes to Relax Controversial Physician Supervision Requirements for Hospital Outpatient Services

On July 1, 2009, the Centers for Medicare & Medicaid Services (“CMS”) proposed to relax its controversial position concerning physician supervision of hospital outpatient services. The hospital industry had recently been vocal in its objection to CMS’s position, and the latest proposal signifies a potential important win for hospitals. If adopted, hospitals will be able to meet Medicare supervision requirements for outpatient services, without incurring some of the high costs necessary to ensure physician presence while those services are furnished. 

The July 1 proposal is contained in CMS’s hospital outpatient prospective payment system (“HOPPS”) rule for 2010. The controversy arose a year earlier in CMS’s HOPPS rule for 2009. In the 2009 HOPPS rule, CMS “clarified” that direct supervision by a physician is required for outpatient hospital therapeutic services furnished “incident to” a physician’s services – not only in an off-campus hospital-based location, but also in the main hospital building or an on-campus department. This means that a physician must be present in each provider-based department when these services are furnished. While styled as a clarification, most hospitals saw CMS’s position in the 2009 HOPPS rule as a significant change from prior CMS guidance. Specifically, in the original HOPPS regulations from 2000, while CMS required that services furnished at a location designated as a department of a provider under the Medicare “provider-based” rules must be furnished under the direct supervision of a physician, CMS also stated that it “assumed” that the direct supervision requirement would be met when the services are furnished on a hospital’s campus. 

In the latest proposal, CMS articulated three new proposed policies for physician supervision for hospital outpatient services that would go into effect Jan. 1, 2010. 

  • First, nonphysician practitioners (physician assistants, nurse practitioners, clinical nurse specialists, and certified nurse-midwives) would be permitted to directly supervise all hospital outpatient therapeutic services that they may perform themselves in accordance with state law, and scope of practice, hospital-granted privileges, and other Medicare requirements. 
  • Second, for outpatient services furnished in the hospital or in an on-campus outpatient department of the hospital, the “direct supervision” requirement would be met if the physician or nonphysician practitioner is present on the same campus, in the hospital or on-campus provider-based department, and is immediately available to furnish assistance and direction throughout the performance of the procedure.
  • Third, for hospital outpatient diagnostic services, the physician supervision requirements attributable to each particular test under the Medicare physician fee schedule would have to be satisfied, whether the test is performed directly or under arrangements. While the same definition of “direct supervision” applicable to therapeutic services would also apply to diagnostic tests, nonphysician practitioners would not be permitted to supervise diagnostic tests.

These changes would allow hospitals significantly more flexibility in meeting the supervision requirements, and would represent a relaxation not only from CMS’s policy articulated in the 2009 HOPPS rule, but in some respects also from CMS’s policy prior to 2009. In particular, for example, nonphysician practitioners will be able to supervise therapeutic services furnished in off-campus provider-based departments.

An advance copy of the proposed 2010 HOPPS rule, which is scheduled to be published in the Federal Register July 20, 2009, is available here. Hospitals desiring to comment on the proposal must do so by Aug. 31, 2009. The final HOPPS rule is likely to be released in December 2009. Hospitals should monitor regulatory developments in this area in order to be able to adjust physician and nonphysician staffing and scheduling of services accordingly.

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Posted on October 15, 2008 by Lisa Baird

DDMAC's Increased Scrutiny of Promotional Materials

This post was written by Kevin M. Madagan.

FDA has repeatedly stated over the past year that more enforcement activity in the promotional arena is likely. It appears that time has arrived. Half of FDA’s Division for Drug Marketing, Advertising, and Communications’ (“DDMAC”) citations for misleading advertisements in 2008 were sent in September and October. The citations address typical misbranding issues such as failing to adequately disclose risks, overstating efficacy, broadening indications, and asserting unsubstantiated superiority claims. Whether these citations are the result of DDMAC’s increased budget and new hires, or a continued interest by Congress and the Department of Justice over drug industry promotional issues, one thing appears clear: a new era of increased scrutiny is likely here. 

A particularly interesting position that DDMAC has taken in a few of the September and October letters concerns descriptions of disorders and the consequences of failing to obtain treatment. For example, in five letters targeting drugs indicated to treat attention deficit hyperactivity disorder (“ADHD”), DDMAC cites marketing materials that list the difficulties and consequences of untreated ADHD (e.g., poor social-emotional development and job success, inability to complete schooling, illegal behaviors, contraction of sexually transmitted diseases, motor vehicle accidents, and physical injury). In each letter, DDMAC takes the position that listing such difficulties and consequences in association with an ADHD drug constitutes an implied claim that the drug will have a positive impact on these issues. If deemed an implied claim, DDMAC requires studies with endpoints that support each claim. 

This is similar to DDMAC’s position on quality-of-life (“QOL”) claims, with health-related QOL claims requiring substantial supporting evidence in the form of adequate and well-controlled studies designed to specifically assess these outcomes. 

While the need to have adequate studies to support claims is nothing new, drug manufacturers should remain cognizant of everything listed in marketing materials, including statements concerning the difficulties and consequences of untreated disorders, diseases, or conditions. Drug manufacturers wishing to include such statements must ensure that all implied claims arising from these general statements are supported by substantial evidence (i.e., adequate and well-controlled studies with endpoints targeting each implied claim/impact). Stated otherwise, drug manufacturers must design specific study endpoints to support a disease state description, or must carefully tailor disease state descriptions to pre-existing specific study endpoints.

The Oct. 13, 2008, Pink Sheet provides further detail about DDMAC’s increased activity. DDMAC’s 2008 warning letters can be accessed at fda.gov.

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Posted on March 25, 2008 by Lisa Baird

FDA to Open Offices in the People's Republic of China

On March 14, 2008, the U.S. Food and Drug Administration (“FDA”) received approval from the U.S. State Department to place eight full-time, permanent FDA employees at U.S. diplomatic posts in the People’s Republic of China, pending authorization from the Chinese government. The FDA will also be hiring five local Chinese nationals to work with the new FDA staff at the U.S. Embassy in Beijing and the U.S. Consulates General in Shanghai and Guangzhou. The FDA expects to be fully staffed in China within 18 months.

In China, the proposed permanent offices are intended to allow the FDA greater access for inspections and increased interactions with manufacturers to help assure products shipped to the United States meet U.S. standards for safety and manufacturing quality. With the opening of an FDA China Office, the FDA’s enforcement arm will more easily extend across the globe and bring some benefits as well as greater challenges for global life sciences companies. The FDA is clearly positioning itself for the demands of the current economy. According to a statement from FDA’s deputy commissioner for International and Special Programs, Murray M. Lumpkin, M.D.:

In an age when a border is not a barrier, the globalized economy demands nothing less than heightened regulatory interoperability, information exchange, and cooperation, especially on product quality and enforcement matters.

The FDA’s “Beyond the Borders” initiative is intended to facilitate the building of stronger cooperative relationships with the FDA’s counterpart agencies around the world, and to enhance technical cooperation with foreign regulators.

Private Sector Responsibility for Import Safety

Although the FDA’s announcement of a permanent presence in China is the latest indication of significant U.S. administrative activity on import safety, ultimate responsibility for product safety and regulatory compliance still generally rests with the private sector manufacturers, importers, distributors, and retailers. The private sector may look to government initiatives for guidance, but must simultaneously employ corporate best practices to contract safely with Chinese manufacturers and suppliers. Such best practices include an appropriate level of due diligence, contract terms that highlight product safety and protect the company, implementation of import compliance procedures, enhanced safety through independent testing, and development of a recall strategy in the event imported products are determined to be unsafe or fail to meet quality standards.

Due Diligence

Proper due diligence must be undertaken with respect to the overseas suppliers or manufacturers. Begin with the basics—know the manufacturer’s name, address, telephone number, fax number and e-mail address. Understand how the manufacturer is incorporated, organized, and registered to do business. Know how the manufacturer is owned—whether it is government-owned, owned by government officials, or otherwise. Understand who owns the manufacturer’s parent company, and the citizenship of any individual owners. Have a handle on the manufacturer’s profile—does it have the expertise and capacity to undertake the work required? Where does the manufacturer bank? Has the manufacturer been involved with any criminal charges, convictions, bankruptcies, or cases of civil litigation in which the company has been a defendant?

Other questions to ask include: What is the manufacturer’s record of and reputation for product safety, plant safety, workers’ rights, and environmental protection? What can be discovered through business references, personal references, and financial references? What information can you obtain from public sources, the local chamber of commerce, the diplomatic corps, from a media search of local and international press accounts, or from lawyers and consultants who are knowledgeable about Chinese manufacturers?

Contracting. As a threshold matter, importers should include clear specifications and safety or quality standards that are to be met by the supplier. The supplier should warrant and certify that it understands and will comply with the applicable specifications or standards. Contracts should include testing procedures and an agreement as to how testing will be accomplished. The contract should include terms about the rejection of non-conforming goods and resulting remedies.

The contact should provide the purchaser with visibility into the supplier’s own supply chain. Importers may insist that the supplier certify facts or make warranties regarding the source of raw materials, manufacturing techniques, or the chain of custody of particular products, such that the manufacturer assumes liability in the event that any of this information is false and the products cause harm.

If intellectual property or know-how is to be exchanged, then the contract should account for and protect those assets. The contract should specify the supplier’s duty to complete the paperwork and assign liability for any failure. The contract may require the inclusion of information required by customs on invoices, such as the date of sale, the identity of the seller, Harmonized Tariff Schedule (“HTS”) classification and valuation of the items, and the port of entry. The contract should require the provision of country-of-origin markings as required.

Child or prisoner labor issues should be verified along with the conditions of general workers’ rights. Environmental degradation possibilities should also be investigated and addressed in contracts. The contract may rightly address local anti-corruption compliance in addition to these other “social” concerns.

An importer should be sure that the Chinese supplier has indemnified it for any harm that may be caused by the products being supplied. This warranty may require the supplier to submit to jurisdiction in the United States for disputes arising under the contract, particularly if the supplier has U.S.-based fixed assets. If the supplier has no fixed assets anywhere other than China, international arbitration is probably preferable to attempting to collect a foreign judgment in China itself.

Import Compliance. In general, it is advisable to have an import compliance program. Such a program should cover overall importation requirements such as shipping, entry, inspection, and related business aspects. An import program should include classification (what is the unique HTS number the product falls under?), appraisal (how much in import duties must be paid based on the tariff rate and value of the imported product?), and country of origin (where does it come from and does it need to be marked “Made in China”?). An import compliance program should address all customer recordkeeping requirements (essentially five years for key documents supporting the entry process). The compliance program should also address what to do in the case of an audit or enforcement action involving customs issues.

 

Inspections/Audits. An important provision of the written agreement between the parties should allow the importer to have access to the supplier’s or manufacturer’s facility and records for purposes of inspecting the manufacturing operations and evaluating the level of regulatory compliance. Regulatory agencies such as EPA, FDA OSHA, USDA, etc. have broad inspectional authority in the United States. Through memoranda of understandings, certain agencies such as the FDA are allowed to inspect foreign manufacturing sites that produce products or ingredients destined for import into the United States. The reach of these ex-U.S. inspections, although greater with the opening of the FDA office in China, remains much less than in the United States. Allowing a firm’s own employee auditors or third-party auditors retained by a firm to be on-site to observe manufacturing operations and review production records can provide an “early warning” of potential issues to be addressed or avoided.

Product Testing and Systems Evaluation. Product safety and product testing must be an integral part of any supplier or manufacturing contract. This product testing procedure should set forth who will conduct the testing, whether opposite party verification will be available, what party or non-party entity will conduct the testing, and which party will be responsible for payment of testing costs. Parties will need to understand which regulatory industry standards apply, how those standards will be monitored, and how those standards will be extended and enforced though the supplier-sub-prime supplier supply chain—think lead paint on children’s toys.

Importers should consider utilizing “pre-approved” testing facilities such as those identified by National Oceanic Atmospheric Administration and the Consumer Product Safety Commission as identified above. Importers should also consider separate independent testing to be utilized should a level of doubt be raised as to the safety of a particular product or line of products.

In addition to product testing, mechanisms should be put in place, through contract, that allow for the evaluation of the quality control processes extant at the supplier’s operations. This access affords an opportunity to identify potential deficiencies in production, quality control, inspection, and quality assurance/tracking. These mechanisms can be included as part of the provisions allowing for inspections or audits of manufacturers’ facilities.

Recall Strategies. Prudent importers should have a plan in place to minimize the impact of shortcomings in their import safety measurers. That plan should include a recall strategy that addresses the products at issue and the relevant government agencies, such as the CPSC, USDA, and NHTSA, or the FDA. Likewise, the plan should include a tailored approach to address the particular safety risks at issue. The FDA has several levels of recalls that should be addressed—Class I for the recall of products that could cause serious health problems or death, Class II for recall of product that may cause a temporary health problem, and Class III for those recalls involving minor labeling violations. Devising tailored recall plans requires an understanding not only of the company’s supply chain, but also of its distribution chain, and might rightly even include discussions with cognizant governmental recall officials prior to any recall event occurring.

Reed Smith’s Life Sciences Practice In China

Through its offices in Hong Kong and Beijing, Reed Smith represents many life sciences clients regarding their activities in China. From pharmaceutical and medical device companies to distributors, hospitals and physicians, Reed Smith’s lawyers in China advise on foreign direct investment, corporate organization, business operations, securities, protection of intellectual property, technology transfer, mergers and acquisitions, drug registration, product registration, distribution, clinical testing, regulatory compliance, regulatory approval, employment, and dispute resolution. Two members of Reed Smith’s life sciences team in China are dual-qualified physicians and lawyers.

Chris Howse heads up Reed Smith’s leading medical/product liability practice in Hong Kong, advising doctors, hospitals, device and pharmaceutical companies in matters involving the Medical Council, and in civil and criminal litigation disputes.

Hugh Scogin has been based in Beijing for 20 years and is recognized as one of the foremost authorities on Chinese law in the United States, having taught at leading law schools including Yale Law School and New York University School of Law. Hugh’s clients include medical device and diagnostic product manufacturers, and he advises on numerous China-related medical device issues, mergers & acquisitions, foreign direct investment, technology transfer, business operations, securities, and employment and dispute resolution.
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