On Tuesday, May 2, Ropes & Gray hosted a teleconference, “Outlook 2017 Teleconference: Revisiting the Trump Administration’s Impact on Life Sciences and Health Care – the First 100 Days,” on the potential regulatory and compliance impact of the Trump Administration on life sciences and health care companies. The discussion featured the perspectives of life sciences partners Greg Levine, Kellie Combs, Paul Rubin, Al Cacozza, health care partner Tom Bulleit and government enforcement partner Colleen Conry. The call examined various issues, including:
- Impact of new leadership at HHS, CMS and FDA
- The Affordable Care Act – what’s next?
- 21st Century Cures Act implementation
- First Amendment and promotional issues
- Developments at FTC’s Bureau of Consumer Protection
- DOJ and enforcement update
To listen to the teleconference, please click here.
Al: Hello and thank you for joining our teleconference this afternoon. I’m Al Cacozza, a partner in the Washington D.C. office of Ropes & Gray and a member of the firm’s Life Sciences practice group. In January, we convened this group to discuss the regulatory compliance impact of the new Trump Administration on life sciences and health care companies. At that time, we promised to return 100 days into the new Administration to see how things have developed and to look ahead for the rest of the year. This teleconference marks our promised return and is part of our Capital Insights initiative. Please continue to visit Capital Insights at our website, ropesgray.com, as we populate it with our latest thinking about the various changes in store under the Trump Administration. Joining me again today are several of my partners in the D.C. office. Tom Bulleit from our Health Care practice group, Kellie Combs, Greg Levine and Paul Rubin from the Life Sciences practice group and Government Enforcement partner Colleen Conry. Welcome back everyone.
The 100-day milestone is a traditional but arbitrary benchmark in that we are trying to take stock of events after only 7% of the Trump Administration’s term has passed. In January, we made a number of predictions with mixed success, but one prediction has been borne out. While there is talk of great change, one hallmark of this Administration is its unpredictability. While that characteristic may foster interesting debate, it complicates business and strategic decision making in the highly-regulated health care and life sciences sectors. Over the next hour we will revisit and update some of the key issues we discussed in January and then look forward to give you insights into critical developments we see emerging over the next few months.
Today’s conversation will be informed by a combination of publicly-available statements, past behavior and general trends we’ve observed in the life sciences and health care industries and some element, of course, of educated speculation. As you can all appreciate, we still may be in largely unchartered waters. We plan to save time at the end of our call today to address questions from our listeners. If you have questions during the teleconference, please email them to email@example.com and we will try to get to as many as we can.
So let’s begin with Tom Bulleit from our Health Care group. Tom, almost since the day after the election you’ve been following closely the likely effects of the Trump presidency on the Obama Administration’s signature domestic achievement, the “Affordable Care Act” or “Obamacare”. President Trump conspicuously promised that under his Administration there would be a repeal and replacement of Obamacare. With his election and Republican control of both Houses of Congress, this seemed a possibility. Republicans have been promising the same thing almost since the day the law was enacted and last year Congress passed a straightforward repeal of all the budget-related provisions using the Senate budget reconciliation process which requires only 51 votes. The Republicans now hold 52 seats in the Senate. Yet a month ago, House leadership did not have the Republican votes to pass their proposed repeal and replacement measure the “American Health Care Act.” As of last week, there are rumors that an amended version incorporating the so-called MacArthur Amendment may be a possibility. To set the stage for what’s coming and it’s obviously up-to-the-minute news, can you explain to us what has happened so far with repeal and replacement efforts?
Tom: Sure, thanks Al. While what’s been going is complicated, I think you can really boil it down to one very prescient comment. As former Speaker John Boehner observed, “In the 25 years that I served in the United States Congress, Republicans never, ever one time agreed on what a health care proposal should look like. Not once.” And that is what continues to dog Republican efforts to repeal and replace. In essence, the conservatives represented in this Congress and the House by the so-called Freedom Caucus want a repeal and they don’t want a replace that continues federal involvement in the individual and small group markets, which means taking away federal requirements for essential health benefits, consumer protections like community rating and no pre-existing condition restrictions and federal taxpayers support for lower income premiums and cost-sharing and rollbacks of the expanded Medicaid federal match that was a part of the Affordable Care Act. On the other hand, the moderates in the Republican party, especially in states that have taken the enhanced federal matching funds to expand their Medicaid populations, don’t like the ACA’s mandates and the taxes, but they are wary of taking away some or all of the federal assistance and consumer protections that help people get health care coverage. In the first round of the American Health Care Act, the Freedom Caucus was the big impediment. They want everything right now, especially repeal of the essential health benefits which they think drive up premiums by making people pay for insurance they don’t want and don’t need. But in the current round, the Freedom Caucus has endorsed the MacArthur Amendment which states that the essential health benefits, pre-existing condition and community rating protections, are preserved but then allows the states to get waivers from the Department of Health and Human Services that would be pretty automatic. So now the big question is whether enough moderates can get on board in light of the possibility that the consumer protections could be eroded with these waivers and that nothing has really changed about the Medicaid changes from Round 1. As of today, that’s what we’re waiting on. A House bill that will allow everyone to say that they voted to repeal and replace, that allows the conservatives to say their plan will immediately reduce premiums and that allows the moderates to say we protected essential health benefits and Medicaid.
Al: Thanks, Tom, for that update. So do you think there’s a repeal and replace measure that could pass the House and yet still have a chance of passage in the Senate?
Tom: Well that is the $64,000 question. I’ve done a fair amount of thinking about it and I think the answer is no. But I don’t think that’s actually the goal anymore and there is a narrow path that would bring about something else. The political exigency here is that every Republican wants to vote for a bill that they can with a straight face tell their constituents was a vote to repeal Obamacare. I don’t want to be too cynical but this is in many ways a branding exercise. The House could pass a bill knowing it won’t get through the Senate but also knowing they would then be putting the onus on the Senate to act. The Senate could then pass its own bill which could be a 51 vote reconciliation bill or a revitalize and reinforce the ACA bill. This could attract some Democratic votes. It’s likely that neither bill would have a chance in the House Freedom Caucus, but then each set of Republicans would have voted for a bill they could claim was a repeal and they could move to a conference. And if the House leadership really wants to pass something the President could sign, they could use the Senate bill as the model, throw over the Freedom Caucus and attract House Democrats to this revitalize and reinforce effort. To make that happen, the bill first has to get out of the House, which at the moment means satisfying both the moderates and the conservatives. Since the Freedom Caucus is on board with the MacArthur Amendment, the goal is to capture enough moderates. My best guess is that that could be accomplished with three things. Protecting the Medicaid expansion for new enrollees after 2019 maybe with some additional funding for high-risk pools. If the states can get waivers for essential health benefits and community ratings, throwing more money at high-risk pools so the states can subsidize those who can no longer afford insurance and retain the cost-sharing reductions which are the additional subsidies paid to insurers to assist, not with premiums, but with co-payments and deductibles. The House of Representatives sued the Obama Administration in House v. Burwell, now House v. Price. They won but the Trump Administration has been postponing the appeal in that case so that the CSRs are still in place at the moment. And I think that they would have to stay in place in order to get something that includes the moderate votes.
Al: It sounds like in the end, Tom, the prospects of getting a bill that will satisfy enough people to get through the House and Senate will be exceedingly difficult. So, what’s the alternative if that doesn’t happen? Republican talking points say that Obamacare is in a “death spiral.” Though many health care policy experts consider that to be hyperbole, it’s clear that in some geographic areas premiums for individual market plans have gotten extremely expensive and many insurers, fearful of what might happen, are either leaving or threatening to leave the markets. If there’s no repeal or replace, what do you think is likely to happen?
Tom: Well let’s think about what that means. Despite the hyperbole, in most places Obamacare continues to function the way it’s supposed to and if there’s no repeal and replace, it will be business as usual. The exception, and it’s not a small one, is the one you mentioned, Al. In some markets, not enough healthy people are buying insurance so insurers are not seeing it as profitable to be in those markets and that in turn leads to decreased competition, so higher premiums and in some cases no insurers who are willing to participate at all. Ironically, that’s a problem that both Democrats and Republicans agree on but the politics get in the way of real solutions. There are those who think that doing nothing or even interfering with the Obamacare markets would cause the death spiral to become a reality and then the Democrats would have to bargain. Inside the beltway thinking is that that would end up hurting the Republicans because it would be happening on their watch. So they need to prevent people from losing insurance. So acknowledging the possibility that the Republicans might allow the existing Obamacare exchanges to go bad, if public policy prevails, the things that are likely to happen would be, first of all, continuing to pay the CSRs, which they can do by pursuing the appeal in House v. Price or Congress can pass an appropriation and there seems to be Republican support for doing that. If Congress doesn’t act, there are some state-specific fixes. A number of states have begun to enact legislation that provides high risk pools to subsidized insurers using a reinsurance-type mechanism. And there are things that HHS could do by regulation. The agency could act to narrow the essential health benefits package or issue more state waivers under the existing ACA 1132 waiver authority. In sum, it remains an unknown whether the Obamacare opponents are going to take the risk of blowing it up by refusing to fund the CSRs or taking other steps that cause more insurers to get nervous and get out. But if the CSRs keep getting paid and not a lot of change in the short term, danger to the markets longer term that could lead the states to act on reinsurance and that is an area where there could be, at some point, some bipartisan Congressional action.
Al: Thanks, Tom, for the very detailed discussion. Let’s turn now to how the new Administration may affect the FDA. Greg Levine and Kellie Combs will address these issues. First, Greg, during our last teleconference you correctly predicted that Dr. Scott Gottlieb would be nominated as the FDA Commissioner. Dr. Gottlieb previously worked at FDA under the George W. Bush Administration including as Deputy Commissioner for Medical and Scientific Affairs. What lessons should we draw from the nomination of Dr. Gottlieb from among the candidates who had been actively considered by the Trump Administration?
Greg: Well first of all, I don’t recall making that prediction but I thank you for the compliment. [Group laughter] What I do recall is at the time of our initial teleconference there had been several candidates who had been under consideration and, other than Dr. Gottlieb, none of those candidates had had prior FDA agency experience. A couple of those candidates had expressed some fairly far-reaching ideas about reforming the drug approval process, including by either eliminating or significantly changing the requirement that drugs be proven effective in addition to being shown safe before they may be marketed. Also at that time the appointments that the Administration had been making in a number of other agencies -- I think primarily non-defense or national security agencies -- seemed to be focused on deregulation and really shaking up the bureaucracy with less emphasis on agency experience or expertise. But for FDA regulated industry it appears that some of the rumored candidates may have alarmed influential industry players. There were several pharmaceutical executives who were quoted as being concerned that eliminating the requirement to prove effectiveness would be a step backwards, potentially undermining the FDA’s reputation as the gold standard for regulatory agencies globally, and it might jeopardize America’s primacy in drug discovery. There was a survey in February done by a bank, Mizuho Bank, they surveyed 53 drug company executives and found that more than 70% preferred Dr. Gottlieb to the other potential nominees under consideration. Dr. Gottlieb was much more of a known quantity. He had the medical background, traditional background for FDA commissioner candidates. He had served at the agency under past Republican Administrations and has been affiliated with the American Enterprise Institute, a conservative think tank. So he was therefore a much more straightforward pick for Commissioner for this Administration. He was generally considered somewhat industry friendly but someone whose views are within the main stream. As for his prospects for confirmation, which is probably something that will be on the Senate floor imminently, some Democrats have been critical of his past ties to industry. And others, like Senator Sherrod Brown from Ohio, have criticized his past work for a pharmaceutical company relating to opioid drugs for pain. But his nomination passed out of the Senate HELP Committee last Thursday on a 14 to 9 vote. That was all the Republicans voting for him and two Democrats. It is likely headed to the Senate floor soon and because that confirmation in the Senate can’t be filibustered, it seems you may have a partisan vote, but this is probably a done deal.
Al: Thanks, Greg. Assuming that Dr. Gottlieb is going to be confirmed fairly soon and I think people expect that to happen, what would you expect to be Dr. Gottlieb’s top priorities at the FDA?
Greg: Well Dr. Gottlieb’s testimony and his answers during the confirmation process don’t give us a lot of insight into his priorities but there are certain things that are just going to have to be priorities. First of all, he is going to have to look at the organization itself and consider whether the structure needs to be changed in any way. All commissioners do that typically. Unlike other Trump nominees for certain other departments, there is no sign that Dr. Gottlieb considers shrinking the FDA or reducing the scope of its legal authority to be a key goal in and of itself, but at a minimum there is an OMB directive that issued in April, directing each agency to begin taking actions to achieve near term work force reductions and cost savings, including planning for fiscal 2018 funding levels based on the President’s budget blueprint that has come out. And for FDA that budget blueprint would double industry user fees and dramatically cut back on the appropriated dollars for the agency. Interestingly Congress in the latest appropriations legislation, that appears to be poised to pass this week, has given FDA an increase in non-user fee budget authority which would then set a higher baseline for fiscal 2018 and doesn’t seem consistent with an agency that would be downsizing. So he is going to have to look at these issues. Also on the funding side of things is the user fee reauthorization and legislation and its going to have to be enacted in order for the FDA to continue doing its job. A good chunk of the agency’s budget is dependent on the user fees which expire at the end of September if not reauthorized. In fact, if not passed by the end of July, the agency has said it would need to start laying off personnel. So, Dr. Gottlieb has testified it would be a key priority of his to work to get that user fee legislation enacted as quickly as possible. And for that reason, he and others from the FDA who testified in front of Congress haven’t seemed particularly enthusiastic about, the Administration’s proposals to double user fees, which could potentially jeopardize the whole deal which has been in place for a while now. So there is debate going on now about are we going to have a clean bill or adjust the user fee reauthorization? Are there going to be legislative riders? There was a hearing yesterday in the House on certain amendments in the device area that potentially could be tacked on. On the drug side, there are folks pushing for the CREATES Act, which would deal with alleged abuse of REMS programs to deny generic drug manufacturers with samples that enable them to develop and seeks approvals for generic drugs. So it’s possible there will be certain amendments such as those whereas others are advocating for the cleaner bill.
Leaving the funding area, there are some other issues which, either due to priorities that Dr. Gottlieb has expressed himself, or things that are just going to have to be on FDA’s agenda, he is going to have to deal with. One is laboratory developed tests. The whole area has been in dispute for a number of years now as far as where that is going to head, whether it’s going to be FDA regulates the tests more, or more CMS regulation. So they are going to have to reengage on that. The generic drug approval process, there has been a lot of pressure on the pricing side. Is there a role for FDA pricing is in question. But there may be some pressure that I think Dr. Gottlieb might be receptive to working with on trying to speed the generic drug approval process. He has been an advocate for streamlining approvals, particularly for drugs for rare diseases, approvals based on surrogate endpoints and biomarkers, approval in some cases based on a single study, or on a more lenient statistical method than two randomized placebo controlled trials. And for devices he has talked about other ways to streamline approvals as well. Not having to do things like sham treatments and surgeries. So I think looking at some of the authorities in 21st Century Cures Act, which are focused on streamlining some of the approval processes, taking into account real world evidence, patient preference information, to try to streamline some of these rules, I think he will focus on that as well. And then there is the whole issue which I think Kellie will talk about more: manufacturers’ ability to talk about unapproved uses of approved medical products.
Al: Dr. Gottlieb also served at CMS as a senior adviser and has written voluminously about drug pricing and reimbursements since he left government. Do you expect the FDA will take a more active role in the drug pricing debate under his leadership?
Greg: Well he was pressured quite a bit on this issue during the hearings on his confirmation. He didn’t really take the bait from Bernie Sanders and others who were trying to get him to say it was an important role of the FDA to try to bring down drug prices. He didn’t seem supportive, for example, of this idea that we should be importing more foreign drugs to bring down the prices of drugs in the United States. So I think there are a couple of areas where he did say the FDA could have a contributing role on drug prices. I mentioned before trying to speed along approval of generic drugs, and he also mentioned trying to make more progress on the issue of having interchangeable biologics. Not just biosimilars that are approved under a somewhat more streamlined pathway but aren’t interchangeable, but actually interchangeable biosimilars.
Al: In January, you predicted that the FDA would likely not make any significant policy decisions during the interim period in which it was operating under an acting commissioner, but that the agency would not likely step back from enforcing current law. So have those predictions proven corrected, and how might things change once Dr. Gottlieb takes over at the FDA?
Greg: I think those were pretty good predictions, actually. I’ll congratulate myself. [Group laughter] The FDA is still doing its job. So we see the normal FDA enforcement activity, we’re seeing GMP inspections, import detentions, medical product recalls, food recalls, safety labeling changes, you know the normal day to day stuff of the agency. You know, drug and device applications being reviewed and approved or not approved and whatnot. So yeah, I mean the normal activity is continuing. Some steps by the agency to move forward with implementing some of the 21st Century Cures Act requirements and other statutory mandates. But compared them to the norm, the FDA as far as on the policy side, proposing new regulations and new guidances, there has been sort of a lack of activity there, a noticeable slowdown in activity. Not surprisingly, given that the Administration put out a regulatory freeze memo earlier in the year that directed agencies to withdraw regulations or significant guidances that had not yet been published and not issue new ones until an agency head appointed by the new Administration was in place. We don’t have that yet. So I think once we have Dr. Gottlieb confirmed and in place at the FDA, I think then on a lot of the priorities as we mentioned before, and others, we’ll start to see a lot more activity on those.
Al: That’s great, Greg. Thank you. Now to turn to Kellie Combs. During our last teleconference Kellie you spoke about how the Trump FDA might address the long-standing tension between FDA promotional rules and the First Amendment. Can you update us on how do you think that Dr. Scott Gottlieb is going to handle this issue.
Kellie: So for years now Gottlieb has been critical of rigid FDA restrictions on manufactured communication; he has in fact written pretty frequently on this topic. He has been particularly critical of agency policies that have the effect of limiting the extent to which manufacturers may communicate truthful and non-misleading scientific information, for example to payors or to health care professionals. Ensuring adequate communication of that information is critical in his view because, among other things, the process for FDA approval of supplemental indications can also be quite slow and because arming doctors with accurate and up-to-date information about off-label use can save lives. Interestingly enough, Dr. Gottlieb actually brings some personal experience to bear here. He survived cancer and was actually treated with an off-label combination therapy. His general support for increased flexibility in manufacturer communications has carried over in the confirmation process. So as an example, in his written answers to questions from Senator Patty Murray, he said that physicians were best equipped to make decisions when they have access to as much truthful, non-misleading, scientifically-based information as possible, and he also said that, if confirmed, he would commit to working with the FDA’s professional staff to provide some clarity to manufacturers, payors, and others about acceptable manufacturer communications that were related to good clinical data that wasn’t incorporated in the label. Now as a philosophical matter, he certainly seems committed to the notion that clarity and increased flexibility is needed, but it remains to be seen-- number 1--as Greg said, where this might fall in Dr. Gottlieb’s long list of priorities, and--number 2--what specific modifications to the regulatory framework he might support, such as issuing additional guidance or actually going and revising some of the regulations. As a result, I think we will wait to see for quite some time
Al: Since President Trump was inaugurated, the most significant FDA action with respect to off-label promotion was the agency’s decision to delay the effective date of the intended user. Can you elaborate on that action and take that action as a sign that the new FDA rule will in fact look more favorably upon off-label communication?
Kellie: Sure, let me start by providing a bit of background. In September 2015, the FDA proposed to revise the drug and device intended use regulations, and those are the regulations that govern how the FDA would determine whether a manufacturer promoted a new intended, or off-label, use to delete language that permitted the government to rely solely on the knowledge that a drug or device could be used off-label by the prescriber to demonstrate that the manufacturer actually intended the off-label use. However, when the agency came back and issued this final rule early this year, they took a radically different approach. Rather than just deleting the language in the regulation about knowledge, the agency actually revised the last sentence of the regulation to say now that the government could rely on the totality of the evidence--including knowledge of manufacturers’ internal documents and literally anything else.
Al: And that rule was issued literally in the last days of the Obama Administration.
Kellie: That’s right. It was issued in the last few days of the Obama Administration, and it was quite a surprise to most of us who follow these issues closely because it did seem to be quite a departure from what the agency initially proposed back in 2015. After the final rule was published in the Federal Register, but before it was set to take effect, three industry groups--PhRMA, BIO and the Medical Information Working Group, which is a coalition of drug and device companies we here at Ropes co-represent, filed an FDA petition to stay and reconsider the final rule. And in the petition the industry argued, one, it was unlawful for the agency to change course like that in issuing the final rule because industry and other stakeholders didn’t have the opportunity to provide comment on what the views were with respect to the totality of the evidence. Second, the petition argued that the standard itself was wrong because the case law interpreting intended use is generally focused on how a manufacturer positions a product in the marketplace--so in other words, affirmative, outward-facing acts such as advertising and labeling. The response from FDA was ultimately a bit of a mixed bag, so it doesn’t shed much light on how the agency might resolve the issue. The agency did delay the effective date so in that way it was a win for industry, and the rule now is not set to go into effect until March 2018. Interestingly, though, in delaying the effective date, FDA notably did not grant the industry’s petition. Nor did the agency give any indication in the Federal Register notice that it even agreed with industry’s position. To the contrary, the FDA came out pretty strong in the notice defending its decision to revise the regulation and then stating that the totality of the evidence standard was in fact similar to the approach that the government had been using for years and it was necessary to protect the public health against frivolous marketing claims. The agency then asked for some public comment on a wide variety of issues relevant to intended use, including First Amendment issues, which FDA is supposed to consider before they decide to move forward. Overall, the delayed effective date is certainly a win for industry, but it’s not clear FDA will adopt the position that appropriately limits the scope of evidence that the government can rely on.
Al: Thanks Kellie. I want to shift gears a bit. The last time we spoke you talked about the then newly enacted 21st Century Cures bill, which was passed into law in mid-December of 2016. That bill gave FDA significant discretion to address drug development and review issues through guidance documents. Are there any signs yet that FDA is moving to implement those provisions or any other provisions of the Cures Act?
Kellie: Yes, Al there are a few signs. On CDER’s guidance agenda, the agency lists a few guidance documents it plans to issue this year that are consistent with the obligations in Cures. For example, the agency plans to issue revised guidance on the use of adaptive clinical trial designs, which is specifically mentioned in Cures, as well as on the use of meta-analyses to evaluate the safety of drugs and biologics. Additionally, Cures requires the agency to develop a plan and issue guidance on the collection of patient experience data and to use that data in drug development, and Janet Woodcock has said that that charge from Cures will drive a significant portion of CDER’s work in 2017. In fact, just in March, the FDA announced a number of new objectives related to patient engagement and the development and approval process, such as gathering patient perspectives on the benefit-risk calculus and the tolerance of uncertainty and enhancing the process for integrating patients’ input into clinical trial design. FDA also said at the time that it was considering establishing an office of patient affairs at the agency to provide a single point of contact for patients interacting with FDA, to formalize knowledge sharing, and to help patients understand how the regulations work.
Al: Thank you Kellie. Now I’ll turn to Paul Rubin. Paul regularly advises our clients on the full range of FDA issues but we are asking Paul today to focus on the FTC, another area of his expertise. When we last spoke, Paul, Chairwoman Ramirez had not yet resigned from the FTC. Can you give us an update on the status of the current commissioners, the Trump Administration’s efforts to nominate new commissioners and the impact that you see of the Trump Administration on the FTC.
Paul: Great, thank you Al. Before addressing that issue I just want to touch on something that Greg said, because I think it helps draw a key distinction between the FDA and the FTC at the present time. FDA currently has an acting commissioner Steven Ostroff, but Dr. Ostroff knows that he is a placeholder and is therefore not pursing any policy initiatives until a permanent commissioner, presumably Scott Gottlieb, is in place. At the FTC on the other hand, the acting Chairman, Ohlhausen, is not a placeholder and will quite possibly be appointed permanent Chairman. Ohlhausen, is therefore not reluctant to implement policy changes at the commission and has in fact already done so.
Turning to the FTC commissioners, the FTC currently has only two commissioners, acting Chairman Ohlhausen, a Republican and commissioner McSweeny, a democrat. President Trump will therefore be responsible for nominating three commissioners to fill three vacant seats. Due to the fact that there are only two commissioners, each commissioner currently has veto power. An FTC action in essence requires bipartisan unanimity from the two commissioners. By law, President Trump can only nominate two more republicans and one more democrat or independent candidate. He will therefore presumably time future nominations to ensure the republicans always have a majority either 2:1 or 3:2. As has been widely reported, the Trump Administration has been comparatively slow in moving to fill hundreds of top tier regulatory agency posts. The number of confirmed appointments and proposed appointments are lower than any of the recent preceding Administrations at this time. The deliberative process employed by the Trump Administration has been attributed to a variety of potential causes including the absence of relationships with government officials due to the president’s outsider status, careful vetting by various factions within the Administration with potentially varying priorities, and focus on other issues deemed to be a priority. Consistent with this theme, the FTC commissioner appointment process is also moving deliberately. Utah Attorney General Sean Reyes continues to be rumored as a potential candidate. We are aware of other rumored candidates as well, but there is no evidence as of today that the Administration is narrowing its focus in any particular direction.
Separately, I also wanted to point out that there are a number of Trump Administration initiatives that are intended to restrict the number of new agency regulations and eliminate certain older regulations. Restrictions on new rulemaking can have a significant impact on FDA and other regulatory agencies but will have very little impact on the FTC. Congress enacted the Magnuson Moss rulemaking requirements for the FTC in 1975, which makes it challenging for the FTC to issue new rules due to the number of procedural safeguards required under the Act. Restrictions on new rulemaking are therefore not expected to have a significant impact on the FTC unlike FDA. Both agencies will be impacted by potential restrictions on guidance documents. The Office of Information and Regulatory Affairs, known as OIRA and the Office of Management and Budget, known as OMB, are authorized to review and improve new significant guidance, as significant guidance is a defined term that includes among other things, guidance documents that can lead to an annual effect on the economy of $100 million or more or create an inconsistency with other actions taken by the agency or raise novel legal or policy issues. So OIRA has the ability to review and vet these guidance documents and must sign off on them. So that function within the Trump Administration does have the potential to impede the issuance of certain types of guidance documents. In addition, it’s worth noting that there are bills pending in Congress, including a recent bill introduced by Senator Portman, known as the Regulatory Accountability Act of 2017, that would also result in greater scrutiny of agency guidance documents that can impact both FDA and the FTC.
Al: Thank you, Paul. You previously predicted that the FTC under the Trump Administration would focus its consumer protection efforts on core fraud and be less inclined to pursue new precedent setting initiatives. Has the FTC so far provided any signals yet regarding any potential change in enforcement priorities or reform initiatives?
Paul: Thanks Al, yes, on the margin the FTC seems to be moving in this direction and is certainly considering reform initiatives. Last month, the FTC announced a number of reform initiatives intended to streamline agency processes including identifying unnecessary regulations that are no longer in the public interest, closing older investigations, and streamlining information requests and FTC investigations to eliminate unnecessary burdens on regulated industry. It’s worth noting, when it comes to closing older investigations, that some people think the agency issues a closing letter whenever an investigation is closed but actually that’s not the case. There are many investigations that technically are open because the company being investigated does not go back to the FTC and ask for the status of their investigation and that’s why some investigations may technically remain open in perpetuity. So I think it would be very interesting if the FTC would go back and at least inform these companies with outstanding investigations that the investigations are complete even if there’s no public closing letter. I think it will be interesting to see if the FTC moves in that direction.
There also have been a number of complaints by industry members who have been investigated that the informational demands have been extreme and that’s something else the FTC is working on. Last month in Senate testimony, acting Chairman Ohlhausen indicated that she wants the FTC to focus on fraud cases, particularly when market forces and private rights of action are insufficient to protect consumers. In essence, when the FTC is the enforcer of last resort and there are no other enforcement options out there, the commission is presumably using its limited resources in the most efficient manner possible. Ohlhausen also mentioned in that testimony that she wants to focus on fraud targeting members of the military, the elderly, and small businesses. These are obviously not precedent-setting new priorities, implementing new interpretations of law, but instead reflect a focus on traditional FTC consumer protection priorities.
Similarly in the ABA consumer protection conference earlier this year, acting Chairman Ohlhausen expressly supported three reforms. First, she wants the FTC to focus on the agency’s bread and butter fraud enforcement mission, second she wants the FTC to make sure that enforcement actions address concrete consumer injury rather than speculative injury, and that’s particularly important in privacy and data security cases. And finally she wants the FTC to reduce unnecessary regulatory burdens and provide additional transparency to industry. This last topic is quite encouraging and consistent with an article I recently wrote where I argued that the FTC, at least in the context of data security and privacy enforcement actions, should provide industry with greater guidance regarding applicable legal standards in an effort to provide more comprehensive, legally relevant guidance to industry.
Al: Thank you, Paul. You also previously made a number of predictions regarding FTC actions in terms of advertising substantiation, consumer redress, transparency and data security and privacy. Have there been any developments in these particular areas?
Paul: Thanks, Al, I think we’re at the early stages and the next Commissioner or Commissioners, and the choice of permanent Chairman, could obviously impact the FTC’s ultimate course of action. But Acting Chairman Ohlhausen has signaled policy shifts. Notably, she dissented in the January 19 settlement with Uber, taking the position that the $20 million consumer redress settlement was inappropriate because it far exceeded the best estimate of actual consumer harm, instead reflecting a partial disgorgement of profits. Ohlhausen has also taken the position that substantiation standards often requiring randomized control trials should in certain situations be less strict, particularly in cases where the product provides a benefit to consumers such as certain mobile apps that offer convenience and screening opportunities to a potentially broad range of consumers. Finally, as I already noted, Acting Chairman Ohlhausen has expressed the desire for the FTC to be more transparent particularly in the context of data security. She recently acknowledged that the FTC closes around two-thirds of data security investigations because the FTC ultimately concludes that the company’s data security practices were actually reasonable, yet the public only knows about those cases that are settled or litigated, which provide examples of what not to do. Instead the FTC now wants to inform regulated industry of what they should do to hopefully avoid FTC scrutiny. So we expect continued developments at the FTC particularly as new commissioners are nominated and confirmed.
Al: Great, Paul. Thank you. Now let’s turn to Colleen Conry from our Government Enforcement practice. Colleen is going to update us on healthcare enforcement and false claims act cases that may or will occur under the Trump Administration. You served both in the civil and criminal divisions at Main Justice so you’ve handled a number of health care enforcement cases and so you’ve got a wealth of experience and knowledge about priorities and about how this Administration and Justice Department sets up to handle these cases. What have you seen during President Trump’s first 100 days in terms of healthcare enforcement?
Colleen: So when I spoke with you about healthcare enforcement back in January, I talked about the uncertainty surrounding what the DOJ might look like under an Attorney General Jeff Sessions. My view at the time was that we just didn’t expect to see major changes in healthcare enforcement space. From what we have seen in the first hundred days is that seems to have borne out.
Al: Okay. How about we talk a little bit more then about Senator Sessions as Attorney General? What signals is DOJ sending either from him or from his subordinates when it comes to healthcare enforcement?
Colleen: Well, we still don’t see any signs that DOJ has plans to roll back healthcare enforcement. DOJ continues to be really focused on life sciences companies, on issues like drug pricing and distribution relationships. We are seeing heavy scrutiny on patient assistance programs. This scrutiny is focusing more on direct co-pay assistance to patients as well as charitable donations to foundations.
Al: Let’s talk a little bit more about that. I know it is a very hot issue. A number of clients have been asking questions about it. Tell us a little bit more about the investigations into the patient assistance programs.
Colleen: It is an interesting and very hot issue particularly because these programs are fairly transparent historically. Right. They have been taking place for decades and DOJ just recently is really drilling down on them. They have known for a long time that the patient charitable organizations have been supported significantly by life sciences companies. It really seems like DOJ is turning up the heat now because of the campaign promises to reduce high drug prices and to reduce healthcare costs over all. So in February the DOJ subpoenaed Regeneron asking for documents which related to non-profit patient assistance programs. We understand that at least five other life sciences companies have publicly announced that they have received similar requests from DOJ. The DOJ is not the only agency involved here. The SEC is also active in this space. Mylan received a subpoena from the SEC seeking documents related to its Medicaid Drug Rebate Program in February of this year. So the bottom line is, I think we should continue to expect to see a lot of enforcement activity around patient assistance programs, drug rebate programs, and anything else related to drug costs.
Al: It is my understanding also, Colleen, that on the other side, the IRS is in fact raising questions of the non-profit associations. So, it seems to be fairly comprehensive, the government’s look at this particular activity.
Colleen: Absolutely. I think they are looking into some of the vendors who are related to this as well.
Al: Are there any other DOJ enforcement actions that a company should keep its eye on?
Colleen: You know, one thing that has been happening lately which is interesting because it is coming out of the antitrust division at DOJ, normally we all thought the Trump Administration would be a little softer and gentler and not quite as in the forefront, but they have recently been focusing on the saline industry, so a few major pharmaceutical manufacturers including Baxter have received subpoenas from DOJ’s antitrust division investigating shortages of saline solutions. The investigation originally came out of a civil litigation in Alabama where healthcare providers sued Baxter and Hospira claiming they allegedly conspired to inflate saline solution prices using a supply shortage in the U.S. as a pretext for raising prices. And the New York AG’s office is also involved in the matter.
Al: Let’s return to DOJ and talk about some of the personnel changes going on there. What about key spots in the DOJ below Attorney General Sessions? Have those been filled in yet?
Colleen: They are making progress at the very top. Right below Sessions is Deputy Attorney General and Rod Rosenstein was just confirmed last week as Deputy Attorney General. He is you know, not surprisingly, he is very, very well respected across both sides of the aisle. He was confirmed 94/6 when we see these drawn out battles in the Senate confirmation process. His was really an outlier in terms of how smoothly it went. He is a confident federal prosecutor with a long career at DOJ that spans Administrations from both parties so nothing in his history, though, really suggests that he’d be looking to make a radical change in healthcare enforcement. He really hasn’t weighed in on either side of those issues. But keep in mind when we talked back in January many of DOJs health care enforcements cases are driven by career attorneys, not presidential appointees. Many of these career attorneys stay in place from Administration to Administration. And we have not seen any sort of mass exodus at that line level so far. So, I think we just need to keep an eye on the healthcare prosecutors in the US attorney’s office across the country and most of those are still in their positions and are staying very active.
Al: Let’s talk about the US attorneys’ offices because as you pointed out they are the frontline prosecutors in many of these situations. There was a lot of buzz I guess is the word in March when President Trump asked 46 US attorneys to step down. All of those US attorneys were holdovers from the Obama Administration. Is that unusual and what is the progress in terms of replacing those officers?
Colleen: It is unusual in its abruptness. I mean, presidents have the right to appoint the US attorneys across the country. Usually there will be a notice, there will be some period of time where people can arrange for their families to move but it was just the abruptness with which Trump demanded that the existing US attorneys resign. But the end result of replacing people at the top in the office, that is very standard. Trump hasn’t named any replacements for these vacancies yet. I hear rumors in the field. I know for sure the ongoing vetting process is in full swing. I think they are very, very hopeful to be getting some candidates up and named and then at least in front of the Senate for confirmation but it takes a long time, there are a lot of offices, and there is a lot of vetting that has to go on. They don’t want to stub their toe on this one. So … it is in process. I wouldn’t expect to see any real change in the US attorneys and getting them through the Senate until early Fall.
Al: Okay, let’s shift gears a bit. President Trump has a goal at least to cut budgets and focus on the federal deficit, although recent events in Congress show that Congress is certainly going to fight back. So it is unclear if those budget cuts will actually happen in the future. But let’s assume that those budget cuts are eventually successful. How might this effect health care enforcement?
Colleen: Well, let’s focus for a minute on the false claims acts matters. These are enormous money makers for DOJ. So, in some ways, I wouldn’t say they are budget immune, but they are not quite as vulnerable to slashes in the budget as other areas of DOJ’s enforcement matters. For example in 2015, the government collected more than $3.5 billion from the false claims act cases. In 2016 that went up to $4.7 billion. That makes 2016 the fifth year in a row where DOJ has topped $3.5 billion. That brings the average yearly recovery since 2009 to over $4 billion. So I know that is a blizzard of numbers. It just proves the point, these are money makers. In the eyes of any Administration that is a good thing
Al: So your sense is that all these threatened budget cuts are not likely to translate into fewer false claims acts cases?
Colleen: I don’t think so. Another important factor in false claims acts cases is that most of them are filed in the first instance by private whistleblowers. And there are no signs that the whistleblowers are going away any time soon. Of the 448 healthcare false claims act matters in 2015, only 25 were originated by the government rather than a whistleblower. So that really puts a fine point to that.
Al: So let’s talk about whistleblowers. I mean, is there any thought that the Trump and Sessions Administration might put any limits on false claims acts whistleblowers? Some pundits out there are predicting that President Trump’s conservative judicial and administrative appointments might lead to cuts in whistleblower rewards and fewer employee-friendly decisions.
Conroy: You know, there hasn’t been much talk of that, of tamping down FCA whistleblowers in the Trump Administration. Though we look so closely for any quotes we can get from anybody involved, and AG Sessions himself has said whistleblowers can be a critical part in discovering fraud. And he thinks they are a legitimate part of the healthcare enforcement program. The reality is that some of the recent developments in the false claims act space may get more attractive for whistleblowers to bring suit. The minimum statutory penalty for the false claims act violations approximately doubled last summer, so that really increases the size of the threat regulators can impose even when there is not much loss to the government. So in short, the signs also suggest to me that we will see continued very active FCA enforcement. Back in January, Sessions himself said that fraud enforcement under the FCA will continue to be a priority because in his words the federal government can’t afford to lose a single dollar. Just so you should know, the state AGs are in on this as well. And are chasing every healthcare dollar they believe…
Al: Let’s turn to that. Because obviously, here in DC we focus on the federal government, but there are you know, state and local enforcement authorities. How do they fit into this mix?
Colleen: So, you know there are twenty-nine states in the District of Columbia, who each have their own false claims act statutes. In 2015, the state level of — that’s called Medicaid Fraud Control Units, or MFCUs — were responsible for 1,500 convictions, 700 civil settlements in judgments and 700 million dollars in criminal and civil recoveries. So again, we’ve talked about how this is a money maker for the federal government. States want to get some of that revenue too and are aggressively prosecuting fraud to provide good PR for their government agencies. In November for example, the New York State AG announced an $8 million settlement under the false claims act with a Long Island radiology practice. New York’s share of that settlement was $1.2 million.
Al: Great. This is the end of our discussion. As I mentioned at the outset, if folks on the call had questions, please submit them and we’ll try to answer them. We have about five or six minutes left and we’ll try and get to them. We do have several questions, so again, we’ll deal with those but if others have not submitted, please submit your questions and we’ll try and address them.
First of all Tom, you mentioned in our January call that you saw Secretary of HHS, Dr. Price, getting confirmed which in fact happened, and there was a question about what he would do under the Affordable Care Acts “value based healthcare initiatives.” Can you update us on Secretary Price’s activities related to value based healthcare?
Tom: Sure, Al. So, value based healthcare is the notion of payors like Medicare, conditioning the amount of payment for medical and treatment and diagnostics on the outcomes and a number of voluntary and mandatory initiatives were initiated by the ACA’s creation of the center Medicare and Medicaid innovation. The first one was related mostly to total joint replacements which are very expensive procedures and very widely used in the Medicare population. In the last year of the Obama Administration, several initiatives had been planned to be rolled out on a mandatory basis this year relating to cardiac implantable devices, cardiac rehabilitation and complications arising out of hip replacements. The Secretary has continued to postpone the effective date of those initiatives and he was quite negative in his confirmation hearings and in his past life as a Congressman about the negative effects on the doctor patient relationship of programs of this kind when they are mandatory. He wasn’t negative about voluntary programs or about pilot programs and the fact that none of these programs have been cancelled and that they’ve only been postponed has led a lot of people to speculate that we will see some of these programs take effect in 2018, possibly on a voluntary basis or possibly on a more limited scale than being applicable to a wide number of hospitals and doctors.
Al: Thank you, Tom. This a more general question for our FDA experts here, so chime in. Assuming that Dr. Scott Gottlieb is confirmed as FDA Commissioner, how easy do you think it will be for him to implement policy changes while the basically FDA career staff is unchanged.
Paul: So, this is Paul, I’ll start. I’m sure everyone will want to chime in. I think it will be somewhat of a challenge and it varies depending upon what in particular you are talking about. From a policy perspective, a new Commissioner certainly has the ability to impact things like regulations and priorities within the agency. But from an enforcement perspective, it can be more challenging. There are district offices. There are regional offices. Warning letters can be issued from a variety of places within the agency and it can be a challenge to implement changes in enforcement or changes in the review of applications. So those types of changes are much harder to implement. Under the Bush Administration, when Dan Troy was General Counsel, they instituted a policy whereby warning letters would be reviewed at the Center to try to ensure consistency with the agency’s new set of policies. So there are things that can be done, but I think it’s challenging and it’s not as if a new Commissioner can entirely transform an agency.
Al: Kellie or Greg do you have any insights about this?
Greg: I agree. I think even at the policy level there is a limit, right? Because the professional staff at the FDA can push back pretty hard if you try to go too far. I do think there will be turnover in the agency, even in the non-political staff. We’ve seen some of that already. People do that naturally in their careers, when there’s a change in party you might see an accelerated rate of departures or changes. And also the new Administration has the ability to move people around to jobs that may be more or less preferred. So I think there will be some change in staffing undoubtedly, in personnel, which will influence where the new Commissioner can take things. But I think there’s undoubtedly as well this kind of, large and very experienced bureaucracy of folks who have their own views. They’re not just going to just roll over if they think a policy is very undesirable.
Al: Greg, here’s a question on drug prices, which is an incredibly hot topic here in DC. The drug compounding industry has suggested that compounded drugs may have a role in bringing down drug prices. Where do you see that suggestion going?
Greg: Yeah, I’ve seen that suggestion lately. When Congress enacted the DQSA, the Drug Quality and Security Act in 2013, which followed from the whole New England Compounding Center tragedy and heightened concerns about the safety of compounded drugs, the FDA, excuse me, the Congress, created this new category of so called outsourcing facilities: these 503B entities that are allowed to do compounding on sort of a mass scale. They have a role that’s somewhere between kind of a manufacturer and a traditional compounder which would be doing very small quantities, patient specific. These folks don’t have to have patient specific prescriptions in advance. They can do large quantities for hospitals. One of the key limitations in that law is that they are not supposed to be making copies of commercially available drugs, but there are exceptions to that. One of which is that if a drug is on a drug shortage list established by the FDA, you can make a compounded copy of that drug. So, the suggestion has been that if the drug is extraordinarily highly priced, it is not commercially available and therefore FDA should put it on the shortage list. I think that FDA will not be inclined to go that way, most likely. But that is the suggestion that is being discussed.
Al: And our last question given the timing we have. I guess this one goes to you Tom. What would have to change under the law for Medicare to be in a position to be allowed to negotiate for drug prices and to establish a restrictive formulary, meaning allowing therapeutic substitution? So, it’s still another drug pricing question, but this is more focused on the Medicare role.
Tom: Well, I don’t know if I could tell you exactly what provisions of the law would have to change, but these would have to be legislative changes. The Affordable Care Act specifically prohibits Medicare from negotiating for drug prices. That was the deal that the Obama Administration cut with the drug industry when they were putting the Affordable Care Act together, so there would have to be a legislative change. And likewise Medicare currently requires that all medically necessary drugs get paid for, so if you are going to have a restrictive formulary those would also have to be legislative changes. I haven’t heard much to suggest that there’s any real appetite for that in Congress. You know, you hear noises out of the White House to that effect, but those would be big changes.
Paul: I hear sirens in the background suggesting there’s real concern over that issue.
Al: But, I think the point is, this has been a hotly debated topic in the press at least. And it’s not simply that you can allow Medicare to negotiate. You have to tie it to the restrictive formulary, which gives that negotiation teeth. And it’s unclear if that, just allowing for negotiation without the restrictive formulary aspect, is necessarily going to be successful. And again, I agree with you Tom that would be a significant change for Congress to act on that kind of dual element there. I mean, but that’s what would have to happen and we’ll see if there’s enough support for it.
That is the end of our time and I want to thank everyone for joining us today and sending in your questions and listening to us. I want to thank the Ropes & Gray partnership participators: Tom Bulleit, Kellie Combs, Colleen Conry, Greg Levine and Paul Rubin for your many insights. There are 1,360 days left in the first term of the Trump Administration. We will be tracking developments and sharing our updates with you all along the way. We thank you for listening to us today and we invite you to continue to visit us at the Capitol Insights page on the Ropes & Gray website. Thank you all and have a good day.
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