Health Law Advisor

On Tuesday, September 1, 2020, the Drug Enforcement Agency (“DEA”) proposed 2021 aggregate production quotas (APQs) for controlled substances in schedules I and II of the Controlled Substances Act (“CSA”) and an Assessment of Annual Needs (“AAN”) for the List I Chemicals pseudoephedrine, ephedrine, and phenylpropanolamine. This marks the second year that DEA has issued APQs pursuant to Congress’s changes to the CSA via the SUPPORT Act.  After assessing the diversion rates for the five covered controlled substances, DEA reduced the quotas for four: oxycodone, hydrocodone, hydromorphone and fentanyl.

DEA recently increased the APQ to allow for the additional manufacture of certain controlled substances in response to the COVID-19 pandemic and the need to provide greater access to these medications for patients on ventilator treatment.  According to DEA, that increased demand has been factored into the proposed APQs for 2021.

Comments are due by October 1, 2020.  Because DEA’s APQs determine the amount of quota DEA can allocate to individual manufacturers in 2021, adversely impacted parties should file comments soon.

Background on APQs

The CSA requires the establishment of aggregate production quotas for schedule I and II controlled substances, and an assessment of annual needs for the list I chemicals ephedrine, pseudoephedrine, and phenylpropanolamine.  These aggregate quotas limit the quantities of these substances to be manufactured – and with respect to the listed chemicals, imported –  in the United States in a calendar year, to provide for the estimated medical, scientific, research, and industrial needs of the United States, for lawful export requirements, and for the establishment and maintenance of reserve stocks.

Changes in Setting APQs Under The SUPPORT Act

The Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities Act (“SUPPORT Act”) signed into law October 24, 2018, provided significant changes to the process for setting APQs.  First, under the CSA, aggregate production quotas are established in terms of quantities of each basic class of controlled substance, and not in terms of individual pharmaceutical dosage forms prepared from or containing such a controlled substance.  However, the SUPPORT Act provides an exception to that general rule by giving the DEA the authority to establish quotas in terms of pharmaceutical dosage forms if the agency determines that doing so will assist in avoiding the overproduction, shortages, or diversion of a controlled substance.

Additionally, the SUPPORT Act changed the way the DEA establishes APQs with respect to five “covered controlled substances”: fentanyl, oxycodone, hydrocodone, oxymorphone, and hydromorphone.  Under the SUPPORT Act, when setting the APQ for any of the “covered controlled substances,” DEA must estimate the amount of diversion.  The SUPPORT Act requires DEA to make appropriate quota reductions “as determined by the [DEA] from the quota the [DEA] would have otherwise established had such diversion not been considered.”  Furthermore, when estimating the amount of diversion, the DEA must consider reliable “rates of overdose deaths and abuse and overall public health impact related to the covered controlled substance in the United States,” and may take into consideration other sources of information the DEA determines reliable.

Estimating Diversion  

In accordance with this mandate under the SUPPORT Act, in setting the proposed APQs for 2021 DEA requested information from various agencies within the Department of Health and Human Services (“HHS"), including the U.S. Food and Drug Administration (“FDA”), Centers for Disease Control and Prevention (“CDC”), and the Centers for Medicare and Medicaid Services (“CMS”), regarding overdose deaths, overprescribing, and the public health impact of covered controlled substances.  DEA also solicited information from each state’s Prescription Drug Monitoring Program (“PDMP”), and any additional analysis of prescription data that would assist DEA in estimating diversion of covered controlled substances.

After soliciting input from these sources, DEA extracted data on drug theft and loss from its internal databases and seizure data by law enforcement nationwide.  DEA then calculated the estimated amount of diversion by multiplying the strength of the active pharmaceutical ingredient (“API”) listed for each finished dosage form by the total amount of units reported to estimate the metric weight in kilograms of the controlled substance being diverted.

Earlier this summer, Ethan P. Davis, Principal Deputy Assistant Attorney General for the Civil Division of the U.S. Department of Justice (DOJ) delivered remarks addressing DOJ’s top priorities for enforcement actions related to COVID-19 and indicating that DOJ plans to “vigorously pursue fraud and other illegal activity.”[1] As discussed below, Davis’s remarks not only highlighted principles that will guide enforcement efforts of the Civil Fraud Section under the False Claims Act (FCA) and of the Consumer Protection Branch (CPB) under the Food, Drug, and Cosmetic Act (FDCA) and the Controlled Substances Act (CSA) in response to the COVID-19 public health emergency (PHE), they also provide an indication of how DOJ might approach enforcement over the next few years.

DOJ'S KEY CONSIDERATIONS & ENFORCEMENT STRATEGY FOR COVID-19

Davis highlighted two key principles that would drive DOJ’s COVID-related enforcement efforts: the energetic use of “every enforcement tool available to prevent wrongdoers from exploiting the COVID-19 crisis” and a respect of the private sector’s critical role in ending the pandemic and restarting the economy.[2] Under that framework, DOJ plans to pursue fraud and other illegal activity under the FCA, which Davis characterizes as “one of the most effective weapons in [DOJ’s] arsenal.”[3]

However, as DOJ pursues FCA cases, it will also seek to affirmatively dismiss qui tam claims that  DOJ finds meritless or that interfere with agency policy and programs.[4] DOJ also plans to collect certain information from qui tam relators regarding third-party litigation funders during relator interviews.[5] DOJ’s emphasis on qui tam cases—cases brought under the FCA by relators or whistleblowers—for COVID-related enforcement highlights the impact such matters have on DOJ’s enforcement agenda.[6]

1. DOJ will consider dismissing cases that involve regulatory overreach and are not otherwise in the interest of the United States.

Although Davis emphasized that the majority of qui tam cases would be allowed to proceed, in order to “weed out” cases that lack merit or that DOJ believes should not proceed, DOJ will consider dismissing cases that “involve regulatory overreach or are otherwise not in the interest of the United States.”[7] This is consistent with the principles reflected in the 2018 Granston Memo that instructed DOJ attorneys to consider “whether the government’s interests are served” when considering whether cases should proceed and listed considerations for seeking alternative grounds for dismissal of FCA cases.[8] Davis gave examples throughout his speech of actions DOJ might consider dismissing:

• Cases based on immaterial or inadvertent mistakes, such as technical mistakes with paperwork
• Cases based on honest misunderstandings of rules, terms, and conditions
• Cases based on alleged deviations from non-binding guidance documents
• Cases against entities that reasonably attempted to comply with guidance and “in good faith took advantage of the regulatory flexibilities granted by federal agencies in the time of crisis.”[9]

DOJ litigators have been advised to inform relators of the possibility of dismissal.[10] Additionally, qui tam suits based on behaviors temporarily permitted during the COVID-19 pandemic, particularly in circumstances in which agencies exercised discretion to waive or not enforce certain requirements, might
“fail as a matter of law for lack of materiality and knowledge.”[11]

2. DOJ will now include a series of questions during relator interviews to identify third-party litigation funders.

During each relator interview, DOJ has instructed line attorneys to ask a series of questions to identify whether the relator or their counsel has a third-party litigation funding agreement,[12] which is an agreement in which a third party—such as a commercial lender or a hedge fund—finances the cost of litigation in return for a portion of recoveries.[13] Under the new policy detailed in Davis’s speech, if a third-party funder is disclosed, DOJ will ask for the following:

• the identity of the third-party litigation funder,
• information regarding whether information of the allegations has been shared with the third party,
• whether the relator or their counsel has a written agreement with the third party, and
• whether the agreement between the relator or their counsel and the third party includes terms that entitles the third-party funder to exercise direct or indirect control over the relator’s litigation or settlement decisions.

Relators must inform DOJ of changes as the case proceeds through the course of litigation.[14] While Davis characterizes these changes as a “purely information-gathering exercise for the purpose of studying the issues,” the questions are in furtherance of DOJ’s ongoing efforts to uncover the potential negative impacts third-party litigation financing may have in qui tam actions. [15] The questions Davis referenced in his remarks reflect DOJ’s concerns with third-party litigation funding as expressed by Deputy Associate Attorney General Stephen Cox in a January 2020 speech.[16] Davis emphasized that DOJ particularly sought to evaluate the extent to which third-party litigation funders were behind qui tam cases DOJ investigates, litigates, and monitors; the extent of information sharing with third-party funders; and the amount of control third-party funders exercised over the litigation and settlement decisions.[17] While the Litigation Funding Transparency Act of 2019 has remained inactive since its introduction in February 2019 by Senator Grassley[18] and the 2018 proposal by the U.S. Court’s Advisory Committee on Civil Rights’ Multidistrict Litigation Subcommittee to require disclosure of third-party litigation funding remains under consideration,[19] DOJ’s plans to include this line of questioning potentially signals DOJ’s intention to take more concrete and significant steps to address third-party litigation funding in the future.

The regulations for the California Consumer Protection Act (“CCPA”) were approved by the California Office of Administrative Law on August 14, 2020 and went into effect immediately.   Earlier this year, the California Department of Justice proposed these regulations to govern the California Attorney General’s enforcement of CCPA. CCPA was signed into law on June 28, 2018 and went into effect on January 1, 2020.

Please see Epstein Becker Green’s earlier posts discussing CCPA for more information.

• California’s New Consumer Privacy Act: What Employers Need to Know
• Follow ...

As consumerism in healthcare increases, companies and the individuals they serve are increasingly sharing data with third-party application developers that provide innovative ways to manage health and wellness, among numerous other products that leverage individuals’ identifiable health data.  As the third-party application space continues to expand and data sharing becomes more prevalent, it is critical that such data sharing is done in a responsible manner and in accordance with applicable privacy and security standards. Yet, complying with applicable standards requires striking the right balance between rules promoting interoperability vis-à-vis prohibiting information blocking vs. ensuring patient privacy is protected. This is especially difficult when data is sent to third party applications that remain largely unregulated from a privacy and security perspective.  Navigating this policy ‘tug of war’ will be critical for organizations to comply with the rules, but also maintain consumer confidence.

On July 7, the Court of Justice of the European Union (ECJ) invalidated the EU-US Privacy Shield framework in its ruling in Data Protection Commissioner v. Facebook Ireland and Maximillian Schrems (Case C-311/18). More than 5,000 organizations in the United States have certified their adherence to this framework, and have relied on it to receive personal data from organizations in the EU in compliance with the General Data Protection Regulation (GDPR) since 2016. The framework was a joint effort between the US Department of Commerce and the European Commission and Swiss Administration to provide companies on both sides of the Atlantic with a mechanism to comply with data protection requirements when transferring personal data from the European Union and Switzerland to the United States in support of transatlantic commerce. The Department of Commerce released the following statement:

The United States shares the values of rule of law and protection of our democracies with our partners in the European Union (EU).  Therefore, we are deeply disappointed that the Court of Justice of the European Union (“ECJ”) has invalidated the EU-U.S. Privacy Shield framework.  The United States is reviewing this outcome and the consequences and implications for more than 5,300 European and U.S. companies, representing millions of transatlantic jobs and over $7.1 trillion in commercial transactions.

The United States and the EU have a shared interest in protecting individual privacy and ensuring the continuity of commercial data transfers.  Uninterrupted data flows are essential to economic growth and innovation, for companies of all sizes and in every sector, which is particularly crucial now as both our economies recover from the effects of the COVID-19 pandemic.  This decision directly impacts both European companies doing business in the United States as well as American companies, of which over 70 percent are small and medium enterprises.  The United States will continue to work closely with the EU to find a mechanism to enable the essential unimpeded commercial transfer of data from the EU to the United States.

FDA took two important steps last week to clarify the regulatory landscape for cannabis products, including CBD products.  First, FDA issued a draft guidance on Quality Considerations for Clinical Research Involving Cannabis and Cannabis Derived Compounds.  This guidance builds off of earlier guidance FDA has issued about the quality and regulatory considerations that govern the development and FDA approval of cannabis and/or cannabinoid drug products.  See e.g., here and here.  The draft guidance iterates a federal standard for calculating delta-9 THC content in cannabis finished products, which addresses a significant gap in federal policy regarding those products.  While the testing standard is neither final nor binding on FDA or DEA, when finalized it would iterate what FDA considers to be a scientifically valid method for making the determination of whether a cannabis product is a Schedule I controlled substance.  Therefore, it may be useful in many contexts, including federal and state cannabis enforcement actions.  We encourage affected parties to file comments on FDA’s Guidance, which they may do until September 21, 2020.

Second, FDA sent to the Office of Management and Budget for review a proposal on how FDA intends to exercise enforcement discretion over CBD consumer products.  See here.  While the contents of this guidance have not yet been made public, we forecast that it likely will align with FDA’s past enforcement actions and memorialize the agency’s intent to pursue enforcement actions against CBD consumer product companies that make egregious claims about their products treating or preventing serious diseases or conditions.

Guidance on Considerations for Cannabis Clinical Research

FDA’s guidance recognizes that Congress’s enactment of the Agricultural Improvement Act of 2018 (“2018 Farm Bill”) improved domestic access to pre-clinical and clinical cannabis research material that may be used in the research and development of novel therapies.   However, currently marijuana only may be obtained domestically from the University of Mississippi under contract with the National Institute on Drug Abuse.  While DEA issued a policy in 2016 to allow for the additional registration of marijuana cultivators for legitimate research and licit commercial purposes, the Office of Legal Counsel in June 2018 issued an opinion finding that such policy violates the United States’ obligations under applicable treaties.  However, in March of this year, DEA issued a proposed rule to allow for the registration of additional cultivators of cannabis for these licit purposes.  See here.

There is an alternative pathway to the procurement of Schedule I research material which FDA’s guidance does not mention: importation.  Researchers may obtain certain Schedule I material pursuant to a federal DEA Schedule I importer registration, and DEA has in the past issued such registrations.  See 21 CFR 1301.13(e)(1)(viii).

On July 20, 2020, the United States Food and Drug Administration (FDA) announced a six-month extension of its enforcement discretion policy for certain regenerative medicine products requiring pre-market review due to the COVID-19 pandemic. Included in a final guidance document entitled, “Regulatory Considerations for Human Cells, Tissues, and Cellular and Tissue-Based Products: Minimal Manipulation and Homologous Use,” this extension will give manufacturers additional time to determine whether they need to submit an investigational new drug (IND) or marketing ...

In an important win for healthcare providers, on July 17, 2020, the Third Circuit determined in a published opinion that an out-of-network provider’s direct claims against an insurer for breach of contract and promissory estoppel are not pre-empted by ERISA.  In Surgery Ctr., P.A. v. Aetna Life Ins. Co.^[1] In an issue of first impression, the Third Circuit addressed the question of what remedies are available to an out-of-network provider when an insurer initially agrees to pay for the provision of out-of-network services, and then breaches that agreement.

This case arose because two patients—identified as J.L. and D.W.—required medical procedures that were not available in-network through Aetna. J.L. needed bilateral breast reconstruction surgery following a double mastectomy and D.W. required “facial reanimation surgery,” which the Third Circuit describes as “a niche procedure performed by only a handful of surgeons in the United States.” Neither J.L. nor DW had out-of-network coverage for these procedures. D.W.’s plan also contained an “anti-assignment” clause, which would have prevented D.W. from assigning his or her rights under the plan to the Plastic Surgery Center, P.A.

On March 18, 2020, the United States Food and Drug Administration (FDA) announced the suspension of all domestic routine surveillance facility inspections until further notice. FDA took this measure to protect the health and well-being of its staff and those who conduct the inspections for the agency under contract at the state level, and due to industry concerns regarding visitors. During this interim period, the FDA conducted only a limited number of mission critical inspections using a risk-based approach. On July 10, 2020, FDA announced its plans to resume on-site inspections ...

The cannabidiol (“CBD”) consumer product marketplace is booming.  And, while FDA has maintained its position that CBD, even hemp-derived CBD, may not be included as an ingredient in conventional foods or dietary supplements, FDA has signaled its intent to create a lawful marketing pathway for these products.  Also, while FDA has issued Warning Letters to companies who made egregious claims about their products curing serious diseases and conditions like Alzheimer’s disease and cancer, FDA has also signaled a willingness to exercise enforcement discretion over CBD products that pose less serious safety concerns.  What has resulted is CBD manufacturers, retailers, and other businesses living in FDA regulatory purgatory.  Fortunately, several courts have recently held that CBD companies will not face consumer product liability, at least while their FDA regulatory fate is being decided.

A number of federal lawsuits were recently brought by consumers against manufacturers of various types of CBD products, ranging from ingestible foods and beverages, dietary supplements, topical oils and sprays, and vape products. The plaintiffs in these cases all bring similar claims, that the products purchased were misleading as to the amount of CBD in the product and/or that the products were mislabeled and falsely advertised as dietary supplements.  The plaintiffs’ claims are based, at least in part, on assertions that the defendants violated the federal Food, Drug, and Cosmetic Act (“FD&C Act”) by introducing adulterated and misbranded products into the U.S. market.

However, over the course of 2020, at least three judges have found that the outcome of these cases will have to wait until FDA completes its rulemaking on the regulation of CBD products. Citing the primary jurisdiction rule, the judges each issued a stay on their respective cases. The judges found that FDA has primary oversight over claims involving the illegal sale or marketing of CBD products, and that regulatory clarity is needed before a decision may be made on the matters brought by the plaintiffs. Thus, the fate of these cases now depend on when and whether FDA will issue regulations governing CBD products.