Court of Justice of the European Union delivers rulings on market authorisation applications

The Court of Justice of the European Union (CJEU) upheld decisions by the European Medicines Agency in two identical rulings on January 22, 2020. In the cases of PT Therapeutics International v. EMA (C-175/18 P) and MSD Animal Health Innovation and Intervet International v EMA (C-178/18 P), the decision was upheld to grant access to documents containing information submitted as part of medicinal product marketing authorisations (MA) applications. This decision could be of concern to those in the biotech or pharmaceutical industries. Competitors may gain an advantage by having the right to access documents and critical information contained in the MA file, especially in patent litigation. Companies should consider this carefully when submitting future applications and decide whether it may benefit them to withhold some of the most confidential information contained in the MAs. For a more in-depth review, please visit

FDA announces information collection on “Endorser Status and Explicitness of Payment in Direct-to-Consumer Promotion”

On January 28, 2020, the Food and Drug Administration (FDA) announced that the Office of Prescription Drug Promotion (OPDP) will conduct two studies to examine how payment disclosure statements and the types of endorsers in drug advertisements affect consumers’ understanding of the information provided in the advertisements. Below is a summary of the studies. FDA invites comments on (1) whether studies like these are necessary for FDA to perform its duties, (2) the accuracy of the regulatory burden that FDA estimated, (3) how FDA’s information collection can be enhanced or improved, and (4) how the regulatory burden can be minimized through information technology.

The first study, involving a fictitious acne product, will recruit a total of 654 subjects (for the pretest and the main study) and will involve three different endorser types (celebrity, physician, and patient) and the presence of disclosure statements (for example, “[Endorser] has been paid to appear in this ad for Drug X”). The second study, for a fictitious endometriosis product, will involve 698 subjects (for the pretest and the main study) and will test the subjects’ reactions to endorsements by a social media network influencer and by a patient. This study would examine also how the different levels of explicitness in payment disclosure statements (for example, “paid advertisement” versus “#sp” for “sponsored”) used in the advertisements affect the subjects’ understanding of the content. FDA did not disclose the identity of the celebrity or the influencer who will be used in the trials.

Through these studies, FDA seeks to study information such as the audience’s retention of the presented risk/benefit information, recognition of the advertisement as promotion, and recognition of the endorser’s paid status, as well as behavioral intentions (for instance, asking a physician about the drug). The agency believes that these study will provide specific scientific evidence to assist in determining the agency’s policies regarding drug promotion. FDA will accept comments until March 30, 2020, and the authors would be pleased to discuss potential comments with those interested in submitting.

Health care and life sciences companies may gain clarity from proposed amendment to California Consumer Privacy Act (CCPA)

Proposed amendment AB 713, if passed, would hopefully provide clarity to businesses working with clinical research data. The amendment proposes matching CCPA de-identification standards to those set forth in the Health Insurance Portability and Accountability Act (HIPAA), in addition to equally important clarifications for life sciences companies, health care providers and medical researchers. In particular, AB 713 covers five major principles:

  1. HIPAA De-identification
  2. Privacy Disclosure
  3. Business Associates
  4. Medical Research
  5. Product and Medical Device Tracking

This proposed amendment will hopefully be a source of guidance for those seeking to comply with CCPA, and businesses in this space should watch the amendment process. For a more in-depth explanation of the above amendment, please visit our Technology Law Dispatch blog.

Please join us for an upcoming CLE Webinar, “Digital Health 101”

On Thursday, January 23, 2020 at 12:00 PM ET, Reed Smith will be hosting “Digital Health 101”, a CLE webinar covering:

  • Federal and state health care regulatory and reimbursement issues, including fraud and abuse implications and insurance coverage for digital health devices and services
  • Applicability of federal and state privacy laws, including the Health Insurance Portability and Accountability Act (HIPAA), Telephone Consumer Protection Act (TCPA), California Consumer Privacy Act (CCPA), biometric privacy laws, and Federal Trade Commission (FTC) and Office for Civil Rights (OCR) enforcement
  • U.S. Food & Drug Administration (FDA) regulation, enforcement discretion, and risk-based approach to software functions found in many of today’s mobile medical apps and other digital health technology
  • Global issues, including data, consumer protection, and the medical device regulatory framework in the European Union (EU) and other regions

Please click here to register for the webinar.

This program is presumptively approved for 1.0 general CLE credit in California, Illinois, New Jersey, Pennsylvania, Texas and West Virginia. For lawyers licensed in New York, this course is eligible for 1.0 credit under New York’s Approved Jurisdiction Policy. Please allow four weeks after the program to receive a certificate of attendance.

FDA’s Section 804 Prescription Drug Importation Program and 801(d)(1)(B) Guidance

On December 23, 2019, the U.S. Food and Drug Administration (FDA) published in the Federal Register a set of proposed rules covering the requirements and procedures for importing under Section 804 of the federal Food, Drug, and Cosmetic Act (FDCA) prescription drugs from Canada. It is these proposed rules under which prescription drugs intended for the Canadian market could be imported and distributed in the United States. Separately, FDA also published a draft guidance on December 18, 2019, explaining how manufacturers wishing to market a foreign version of a prescription drug (not limited to Canada) pursuant to Section 801(d)(1)(B) of the FDCA may obtain a new National Drug Code (NDC) for the imported drug, and how they may demonstrate to FDA that the foreign drug is the same as the version marketed in the United States. These proposals follow the two pathways contained in the HHS and FDA Safe Importation Action Plan, which was announced in July 2019 and is designed to lay the foundation for safe importation of certain drugs originally intended for foreign markets.

According to HHS Secretary Alex Azar “These are historic actions by HHS and the FDA, and they represent the bold nature of President Trump’s agenda for lowering drug costs. The President has recognized the opportunity to lower costs for American patients through safe importation, and we at HHS and FDA are delivering on that possibility through a safe, commonsense approach.”

As can be seen below, however, what may be considered “safe” and “commonsense” by FDA and HHS is definitely not simple, and may not be very practical or valuable in the long term. We have prepared a brief summary of the regulatory requirements below. FDA is currently accepting comments. Please let us know if you have any questions.

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Eleventh Circuit hears oral argument in key FCA materiality case

On Wednesday, November 20, a three-judge panel of the U.S. Court of Appeals for the Eleventh Circuit heard oral argument in the closely watched False Claims Act (FCA) case of United States ex rel. Ruckh v. Salus Rehabilitation, Inc.  The case involves questions regarding how to interpret and apply the FCA’s materiality standard set forth in the Supreme Court’s decision in Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016).

Factual and procedural history of the Ruckh case

The relator in the case, Angela Ruckh, filed an FCA case in the Middle District of Florida, alleging that a nursing home operator and its affiliates had submitted false claims to Medicare by (1) upcoding, which was defined as submitting a claim with a higher level of therapy coding than that which was actually provided to patients; and (2) ramping, which referred to a practice whereby the defendants would allegedly provide more therapy to patients during government assessment periods, which resulted in increased billing and violated agency guidance that ramping was an abusive practice.  With respect to the Medicaid claims, the relator had argued that the defendants had submitted false claims to the Florida Medicaid program by not creating or maintaining comprehensive care plans for patients, which was an express condition of payment in Florida’s Medicaid regulations.  After a month-long trial, a jury found that the defendants were liable under the FCA, and the district court entered a $347 million judgment of damages and penalties.

Months later, and in response to the defendants’ motion for judgment notwithstanding the verdict, the district court set aside the entire $347 million judgment.  In making this decision, the district court held that the relator had not proven that any of the alleged false claims submitted to Medicare or Medicaid were material based on the “rigorous” and “demanding” materiality standard espoused in the Supreme Court’s Escobar decision.  The district court further explained that the relator did not present any evidence that the government had refused or threatened to refuse to pay the defendants’ claims despite the lawsuit.  In addition, the district court held that the relator had not proven that the defendants knew that any alleged false claims submitted to the government were material.  The relator appealed.

Arguments raised during oral argument

During the oral argument, the Eleventh Circuit primarily focused on whether and how the FCA’s materiality standard should be applied to both factually false and legally false claims.  Specifically, the panel distinguished between the evidence present (and not present) in the record as to materiality for the Medicare claims and the Medicaid claims.

When specifically considering the evidence presented regarding materiality for the upcoding issue, the court questioned how one could even argue that coding for therapy not provided could be anything but material to the government’s reimbursement decision.  In supporting the relator’s appeal as an amicus curiae, the Department of Justice argued that the question of materiality in these types of factually false claims should be measured based on whether the false information was “important” to the transaction in question at the time the claim was submitted.  The DOJ argued that submitting a claim with a higher level of therapy coded than that actually provided was obviously “important” to the government and thus material to the government’s payment decision.  The panel seemed more likely than not to agree with this argument, going so far as to question whether Escobar even applies to these types of factually false claims given that the Supreme Court’s discussion of materiality in the Escobar opinion came after its holding that implied false certification is a viable theory of FCA liability.  Although other circuits have applied Escobar’s stringent materiality standard to other theories of FCA liability, how the Eleventh Circuit rules on this question could create complications for FCA defendants, who often face a combination of implied certification claims, express certification claims, and factually false claims in their FCA cases.

The panel seemed more skeptical, however, as to whether it was reasonable for a jury to conclude that the alleged false claims regarding ramping or the failure to maintain comprehensive care plans were material to the government’s decision to pay.  Specifically, the court repeatedly questioned both the relator’s counsel and the DOJ as to whether there was any evidence that the Florida Medicaid agency had ever initiated any enforcement or recoupment proceedings against a nursing home operator for failing to create or maintain a comprehensive care plan.  Despite the fact that the relator’s expert had opined that the Florida Medicaid agency would automatically deny a claim for payment if it was aware that a comprehensive care plan did not exist for a Medicaid beneficiary, one member of the panel noted that he could not see how the care plans were material to the fraud itself.

Importantly, the Eleventh Circuit panel discussed and considered additional arguments that could dispose of the appeal on procedural grounds without even addressing the district court’s interpretation of Escobar’s materiality standard.

  • First, the defendants had filed a motion to dismiss the relator’s appeal, arguing that the relator did not have standing because she had assigned 4 percent of any recovery obtained from the case to a third-party litigation funder. Although the FCA allows the government to assign its interest in the case to a relator, because the FCA does not expressly allow a relator to reassign the government’s interest, the defendants argued that the relator no longer had standing to bring the action by reassigning her interest.  This argument did not gain significant traction with the Eleventh Circuit panel, and it is unlikely that the panel will dispose of the case pursuant to this procedural argument.
  • Second, the relator had argued that the district court improperly considered the defendants’ arguments challenging the jury’s finding of materiality and knowledge as to the Medicare false claims because those issues had not been properly preserved for appeal pursuant to the Federal Rules of Civil Procedure. Although the relator’s counsel presented this argument to the panel, the panel did not challenge the defendants on the issue during the oral argument.

Interestingly, the panel also questioned the parties on the damages methodology used by the relator to calculate and extrapolate damages despite the fact that the district court did not rest its ruling on any damages calculation issue and the parties had not briefed the issue.  Although it is unlikely that the court will consider this issue directly in ruling on the appeal, the question of whether statistical sampling and extrapolation are an appropriate way to measure damages in FCA cases remains an important issue for FCA defendants.

Prediction as to what the court will decide

Based on the panel’s questions during oral argument, we believe that it is unlikely that the court will resolve the case based on procedural grounds.  As to the merits, it is more likely than not that the Eleventh Circuit will find that the relator’s allegations regarding the submission of false claims for upcoding the amount of therapy actually provided are either not subject to the heightened materiality standard set forth in Escobar or that the jury reasonably found that those false claims were material.  On the other hand, the panel challenged the relator and the DOJ as to whether sufficient evidence was presented as to materiality for the Medicare ramping claims and the Medicaid claims.

Even if the Eleventh Circuit finds that the district court erred in setting aside the jury’s $347 million verdict based on only one of the three theories of falsity, it is possible that the court could remand the case back to the district court for a new trial if the Eleventh Circuit finds that the original jury’s verdict cannot be parsed on a theory-by-theory basis as it relates to falsity.

Although it is unknown when the Eleventh Circuit will issue its opinion regarding the Ruckh case, it is likely that it could be many months until we see a ruling.  We will continue to keep an eye on this case and provide an update once the court issues its opinion.

FDA publishes new draft guidance on animal drug compounding

As 2019 comes to an end, the United States Food & Drug Administration’s (“FDA” or the “Agency”) Center for Veterinary Medicine has published a new draft Guidance for Industry #256, “Compounding Animal Drugs from Bulk Drug Substances” (the “Draft Guidance”).  The Draft Guidance addresses FDA’s regulatory approach to compounding animal drugs from bulk drug substances.  Many in the industry may recall that FDA previously published draft Guidance for Industry #230, similarly titled, “Compounding Animal Drugs from Bulk Drug Substances,” in 2015.  However, after receiving comments from more than 150 stakeholders, including from Rachael Pontikes on behalf of certain stakeholders, FDA withdrew this draft guidance in 2017.  FDA went back to the drawing board in an attempt to publish a more workable framework.  The Draft Guidance appears to be the result of those deliberations.

What does the Draft Guidance cover?

Like draft Guidance for Industry #230, FDA again asserts, in the absence of any governing statutory authority from Congress, that the Agency can regulate the compounding of animal drugs—specifically, that FDA has the authority to set forth parameters around compounding animal drugs from bulk substances.  In this new Draft Guidance, FDA proceeds to set out its thinking for compounding animal drugs from bulk drug substances under three different scenarios: (1) compounding pursuant to a patient-specific prescription for nonfood-producing animals; (2) compounding for office stock for nonfood-producing animals; and (3) compounding for use as antidotes for food-producing animals.

For example, if compounding with bulk substances pursuant to patient-specific prescriptions for nonfood-producing animals, FDA is stating that the drug should be compounded in accordance with applicable United States Pharmacopeia and National Formulary (“USP-NF”) Chapters and monographs and is asserting the drug cannot be a copy of an FDA-approved, conditionally approved, or indexed animal drug, or an FDA-approved human drug.  If compounding without patient-specific prescriptions (“office stock”) for nonfood-producing animals, FDA is creating via this Draft Guidance an Animal Bulks List.  That is, FDA is asserting, in order to compound animal drugs for office stock from bulk, the bulk drug substance must be listed on FDA’s List of Bulk Drug Substances for Compounding Office Stock Drugs for Use in Nonfood-Producing Animals.

FDA is accepting nominations for bulk drug substances to evaluate for inclusion on its Animal Bulks List

In conjunction with the publication of the Draft Guidance, FDA issued a notice to establish a public docket for the nominations of bulk drug substances for inclusion on the Animal Bulks List.  According to the Draft Guidance, FDA will include a nominated bulk drug substance on the Animal Bulks List only if the substance meets certain criteria.  The status of the previously nominated bulk substances is in flux.  Currently, FDA intends to include eight bulk drug substances on the Animal Bulks List that the Agency previously determined met its criteria that was set out in the now withdrawn 2015 draft guidance.  However, these substances will be included on the Animal Bulks List only to the extent they meet the approach of the final guidance.

What’s next?

The issuance of this Draft Guidance and the establishment of the public docket are further indications that FDA continues to take an active interest in the regulation and oversight of drug compounding.  FDA is accepting comments to the Draft Guidance, which must be submitted by February 18, 2020.  As stated above, FDA is also accepting nominations of bulk drug substances for FDA’s evaluation and inclusion on the Animal Bulks List.

Should you have any questions regarding the Draft Guidance or any of the issues raised in this alert, please do not hesitate to reach out to Rachael Pontikes, Emily Hussey, David Hartmann, or Kelly Kearney for further discussion.

Social Security Numbers available on public-facing website and lack of timely remedial efforts lead to $1.6 million civil monetary penalty against Texas state agency

The U.S. Department of Health and Human Services Office for Civil Rights’ (OCR) recent imposition of a civil monetary penalty (CMP) against a Health Insurance Portability and Accountability Act of 1996 (HIPAA) covered entity demonstrates the need to ensure that HIPAA compliance programs are in place, are audited regularly, and emphasize the importance of promptly responding to and remediating alleged non-compliance (especially in response to direct requests from OCR).

On November 7, 2019, OCR announced the imposition of a $1.6 million CMP against the Texas Health and Human Services Commission (HHSC) based on findings that it had, among other violations, impermissibly disclosed the electronic protected health information (ePHI) of over 6,000 individuals through a publicly accessible application. This penalty is significant because OCR and parties under investigation typically reach a settlement agreement following a series of negotiations. Of the eight HIPAA enforcement actions resolved in 2019, OCR imposed CMPs in only one other case.

HHSC, which is part of the Texas Health and Human Services system, is responsible for the administration of numerous state health benefits programs, and provides regulatory oversight of long-term care facilities.  The state Department of Aging and Disability Services (DADS), the regulatory body that administers long-term care services for elderly individuals and individuals with intellectual and physical disabilities, came under the purview of HHSC in 2017.

On April 21, 2015, DADS discovered a compromise in a public-facing web application used by one of its programs that provides home and community-based services to people who are deafblind and have multiple disabilities. The application was designed to collect information regarding utilization management and review activities and report the information to the Centers for Medicare and Medicaid Services, and typically contained the names, addresses, Social Security and Medicaid numbers, and treatment and diagnosis information for beneficiaries of the program. DADS learned of the issue after an unauthorized user reported that they were able to access ePHI through the application without first supplying credentials. DADS determined that the ePHI of 6,617 individuals was publicly accessible due to this access issue in the application.

Following this discovery, DADS filed a breach report with OCR. Through its investigation, OCR determined that HHSC failed to comply with numerous HIPAA Privacy and Security Rule requirements from 2013-2017, including the failure to implement access controls in relation to ePHI, the failure to implement audit controls on the application on an unsecured public server, and the failure to perform an accurate, thorough, and enterprise-wide HIPAA Security Rule risk analysis.

Following this review, OCR issued HHSC a Letter of Opportunity, which provided the covered entity the chance to submit written evidence of any mitigating factors or affirmative defenses that OCR should take into consideration when making a determination on CMPs. HHSC did not provide any written evidence of mitigating factors or affirmative defenses, or contest OCR’s proposed findings. Significantly, HHSC failed to remediate its access and audit control deficiencies, and did not perform an enterprise-wide risk analysis until two years after the breach. For these violations, OCR imposed a penalty of $1,000 per day per violation, but noted that it could have imposed a penalty of up to $50,000 per day. OCR emphasized that the penalty was imposed after its efforts to reach an informal resolution failed, noting in the Letter of Opportunity that “the matter had not been resolved by informal means despite OCR’s attempts to do so.” (Emphasis added.)

As stated in OCR’s press release, “No one should have to worry about their private health information being discoverable through a Google search.” This enforcement action demonstrates that it is crucial for covered entities to ensure HIPAA compliance efforts are ongoing and remain current, but also for covered entities to take steps to promptly remediate and respond to alleged non-compliance when under investigation by OCR.

Hear from Speakers from WebMD, CMS, PhRMA, AdvaMed, AHCA and More at Dec. 4 Washington Health Care Conference

Please join us for our 6th Annual Washington Health Care Conference, a program discussing the latest hot topics and anticipated trends impacting health care and life sciences organizations. This year’s program will be held on December 4, 2019 at The Almas Center in Washington, D.C. Sessions include:

A thought-provoking keynote. We are pleased to welcome Dr. John Whyte, Chief Medical Officer of WebMD, as our keynote this year. Dr. Whyte will be speaking on “Artificial Intelligence in Health Care: Disrupt but Don’t Be Disruptive.”

A panel on the proposed rules to modernize Stark Law and the Anti-Kickback Statute. Our presenters include:

  • Lisa Wilson, Senior Technical Advisor to the Centers for Medicare and Medicaid Services
  • David Gregory, Principal, Healthcare Practice, Baker Tilly Virchow Krause
  • Nancy Bonifant Halstead, Partner, Reed Smith
  • Nicole Aiken-Shaban, Senior Associate, Reed Smith (moderator)

A discussion with representatives from major associations on how the industry is preparing for the next major shift in the health delivery continuum. Our presenters include:

  • Terry Chang, MD, JD, Vice President, Assistant General Counsel, and Director, Legal & Medical Affairs, AdvaMed
  • Clif Porter, Senior Vice President, Government Relations, AHCA
  • Julie Wagner, Senior Assistant General Counsel, PhRMA
  • Katie Mahoney, Vice President, Health Policy at the U.S. Chamber of Commerce
  • Elizabeth Carder-Thompson, Senior Counsel, Reed Smith (moderator)

A panel on some key privacy and regulatory issues surrounding connected devices and other digital health products. Our presenters include:

  • Pearl Hsieh, Senior Counsel, U.S. Commercial, Smith & Nephew
  • Amy Westergren, Regulatory Counsel, Ro
  • Kim Gold, Partner, Reed Smith (moderator)

A discussion on current trends in False Claims Act enforcement. Our presenters include:

  • Rick Robinson, Partner, Reed Smith
  • Megan Engel, Senior Associate, Reed Smith
  • Sarah Cummings, Senior Associate, Reed Smith

A panel on top considerations in health care transactions. Our presenters include:

  • Jeremy Alexander, Partner, Reed Smith
  • Cori Annapolen Goldberg, Partner, Reed Smith
  • Ellie O’Brien-Fabeny, Partner, Reed Smith

Limited seating is available for this complimentary program. For more information or to register, please visit the event website.

New California law aims to expand telehealth coverage and payment

On October 13, 2019, California Governor Gavin Newsom signed into law Assembly Bill 744 (AB 744), marking the latest of many state legislative efforts to modernize health care by ensuring that telehealth services are paid and covered, similar to their face-to-face counterparts. Effective January 1, 2021, the statutory language added by AB 744 requires newly created, amended, or renewed commercial payer contracts to reimburse telehealth services at the same levels as when those services are delivered in-person.

Previously existing California law addressed commercial telehealth coverage, namely by prohibiting payors from requiring in-person contact between a provider and patient before reimbursing for telehealth. But until AB 744’s passing, California law did not require reimbursement “parity” between services delivered through telehealth and those furnished in-person.

States have demonstrated two general approaches to payment parity. Whereas some reserve the right for payors and providers to negotiate differences between telehealth and in-person services (for example, see Florida, Kentucky), California chose to follow the more restrictive path of other states (for example, see Delaware, Hawaii) that mandate payment parity. Specifically, the new California law amends the state’s Insurance and Health and Safety Codes to now require a commercial payor to reimburse health care services “on the same basis and to the same extent” that the payor reimburses in-person services. The law does not set or limit actual prices, aiming only to establish price consistency across in-person and telehealth services.

AB 744 also amends the California Welfare and Institutions Code to remove certain Medi-Cal (the state’s Medicaid program) beneficiary notification requirements for asynchronous “store-and-forward” technology, which is an alternative to real-time telehealth that involves the intake and storage of clinical information that is forwarded to another location for evaluation. The law also clarifies that face-to-face contact between a health care provider and patient is not required for any Medi-Cal services furnished using such store-and-forward technology.

With AB 744’s passing, California becomes the latest member of a growing chorus of states to enact “payment parity” laws aimed at expanding telehealth coverage through commercial insurance market regulation. Payment parity laws represent just one of many developing telehealth legislation categories, each of which may be viewed as a step toward bolstering telehealth’s status as a viable and accepted delivery model. As states continue to view telehealth as an opportunity to improve health care outcomes, to reduce costs, and to increase access, industry stakeholders should expect to see similar legislative activity elsewhere in the future.