U.S. Life Sciences Outlook 2023 (Part II): Anticipated Agency Policy Developments

Join Ropes & Gray’s life sciences and health care attorneys on a four-part podcast series exploring regulatory, compliance and enforcement changes emanating from Washington, D.C. and the potential impact on life sciences companies in 2023. This second episode will focus on anticipated policy developments from FDA and CMS in 2023. Topics discussed include rulemaking implications of the Food and Drug Omnibus Reform Act (FDORA), accelerated approval reform, potential digital health device and cybersecurity guidance, the end of the public health emergency, the Inflation Reduction Act, Part D reforms, and CMMI and HRSA action around the 340B program.

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Transcript:

Greg Levine: Hello, and welcome to our 2023 U.S. life sciences regulatory outlook podcast series. I’m Greg Levine, head of the life sciences regulatory and compliance practice group at Ropes & Gray, based in Washington, D.C. Earlier this month, I sat down with several of my colleagues from our Washington, D.C. office to discuss our expectations for the coming year. I was joined by Kellie Combs, Josh Oyster, and Beth Weinman, from our life sciences regulatory and compliance practice group, and Margaux Hall, from our health care practice group. We had a robust discussion that we are releasing as a four-part podcast series. What you’ll be listening to today is part two of that conversation, in which we discussed what we expect from FDA and CMS as far as rulemaking and other policy making in 2023.

Looking ahead into 2023, why don't we talk about what we expect from the agency as far as rulemaking, guidance development, and just policy development? Josh, why don't we kick off with you on that?

Josh Oyster: Sure—happy to. I think, first and foremost, FDA has a lot of work to do in 2023, starting with FDORA and its implementation of the new law. FDORA includes a complete overhaul of FDA's regime for cosmetics. The cosmetics provisions of FDORA require, among other things, facility registration and product ingredient listing with FDA, serious adverse event reporting to FDA, compliance with certain labeling requirements, and the requirement to maintain records that adequately substantiate product safety. Those are all new requirements for cosmetics that go well above and beyond what was previously on the books. Also key is that the new law grants FDA mandatory recall authority for cosmetics under certain circumstances—that's something that FDA has never had for this product type. Importantly, the relevant provisions of FDORA that deal with cosmetics generally don't take effect until one year after enactment, so they won't take effect until, essentially, the end of 2023 for the most part. But in the meantime, there are a number of things that FDA needs to be working on, including figuring out how cosmetic facility registration and product listing is going to work, what are those systems, what are the processes that companies will need to follow for that. These things are never as simple as the law often makes it seem, and implementation of that will be important.

We also expect that FDA will be starting to work on some rulemakings related to cosmetics. It doesn't have to issue a proposed rule on GMP (Good Manufacturing Practice) requirements for cosmetics in 2023, but it does have to do it within the first two years after enactment of FDORA. And there also is a proposed rule that FDA needs to issue within 18 months of enactment on fragrance allergens being identified on cosmetic labels.

Elsewhere, we expect FDA to be working on the clinical trial diversity provisions of FDORA. There are a number of guidances that FDA has to put out, including guidance on diversity action plans for clinical studies and what those need to include from a content standpoint. FDA also needs to issue a revised draft guidance on decentralized clinical studies, as well as the use of seamless, concurrent, and other innovative clinical trial designs. And last but not least on that front, FDA is also directed to have at least one public workshop this year, soliciting input from stakeholders on increased enrollment of historically underrepresented populations in clinical studies and encouraging participation that reflects the prevalence of the disease or condition among demographic subgroups.

The other thing I'll be watching is FDA's recent announcement at the end of January that existing regulatory frameworks for foods and supplements are not appropriate for regulating CBD (or cannabidiol). That's really interesting because a number of years ago—back before the pandemic ever happened, which is probably a lifetime ago now—FDA was paying a lot of attention to CBD and the influx of these products to store shelves across the country, and there were a lot of public meetings and focus on: "How is FDA going to regulate CBD? What's the appropriate path here?" FDA has long taken the position that essentially, ingestible cannabidiol, meaning CBD in a food or supplement form, is unlawful unless it's an approved drug. There was a regulatory mechanism by which FDA could change that, if it were to issue a rulemaking to make cannabidiol an appropriate food additive or dietary supplement ingredient, and FDA's announcement at the end of January is effectively saying, "No, we don't think we're going to do that. We want to work with Congress on a new regulatory framework here for CBD." It'll be an interesting thing to watch over the coming months and years.

Greg Levine: Kellie, why don't we turn to you now? What are your thoughts on other FDA regulations, guidances, and things that will be developed in 2023?

Kellie Combs: Thanks, Greg. Josh kicked it off by talking about some activities that FDA has to undertake as a result of FDORA. One area in which FDA has a lot of work to do is respect to accelerated approval reform—so, lots of new authorities and provisions, and FDORA-related, to accelerated approval, including new FDA authority related to post-approval study, and new procedures for expedited withdrawal of accelerated approval. But there are certain provisions that will require some work on FDA's part. For one thing, FDORA requires increased reporting, frequency and transparency, especially with respect to completion of post-marketing studies and progress of confirmatory studies. There is also a requirement that FDA issue guidance, including on topics like intermediate and surrogate endpoints and novel clinical study designs. And one thing that I think is really interesting is that FDORA requires FDA to set up what's called an “accelerated approval council”—this is a council that's comprised of senior leaders within FDA across the agency. One of the primary objectives here is to ensure that these people are talking to each other so that there's consistency in accelerated approval practices across the agency and that they're sharing information and best practices about how to handle applications for accelerated approval and so on. Under FDORA, FDA is required to report out on the council's activities basically at the end of the year, so that'll be interesting to see.

Other areas that I think are worth watching this year, of course, digital health continues to be a really hot topic at FDA—lots of guidance expected, particularly on the device side. If you look at the CDRH guidance agenda for this year, we're anticipating guidance on cybersecurity; we're anticipating guidance on the content of pre-market submissions for device software functions; and I think most exciting, anticipating guidance on marketing submission recommendations for change control plans, and artificial intelligence and machine-learning-enabled devices. This guidance, if it actually comes out this year, will follow a lot of policy development from FDA. We saw the AI/ML Action Plan in 2021 and a proposed framework on AI/ML all the way back in 2019, as well as just a lot of activity in this area, generally, so it'll be interesting to see more refined recommendations and actual guidance from FDA.

On the drug side, an area that we're watching closely is a new pilot program that FDA committed to as part of PDUFA. This pilot is called the Advancing Real-World Evidence pilot, and it provides an optional pathway within CDER and CBER for sponsors who want to use real-world evidence. The goals of this program are to identify approaches for generating real-world evidence that meet regulatory requirements in support of labeling for effectiveness—so, thinking about new indications, new patient populations and so on, or for meeting post-approval study requirements. And here, another goal is to develop FDA processes that promote consistent decision-making with respect to real-world evidence, and something that I think will be particularly important and interesting to clients is to promote awareness of characteristics of real-world evidence that can actually support regulatory decisions. So, that's all going to be done in a public forum, and I'm excited to see what we learn this year through that process.

Greg Levine: Thank you, Kellie. I'm realizing, as you're talking about these topics, that we have great Client Alerts that go into more depth on a lot of these subjects, so we encourage our listeners or readers to go and visit our website and search for these topics. There is some really good content there.

Beth, let’s turn to you. What other topics are you following?

Beth Weinman: Well, have you heard, Greg? The pandemic's over. It doesn't feel over, but the Biden Administration has announced that it is going to allow the COVID public health emergency to expire on May 11, 2023, and I think that has a lot of people and a lot of our clients wondering, "What does that mean for me? What does that mean for my product's EUAs? What does that mean for my products that are being marketed pursuant to enforcement discretion policies? What does that mean for my exposure and potential protection under the PREP Act?" I'm going to take those issues in turn.

First, to start with EUAs: EUAs that FDA has issued are based on authorizing declarations that FDA issued, and they're not based directly on the public health emergency declaration—so, termination of the public health emergency declaration does not affect emergency use authorizations currently in place. To render those EUAs ineffective, FDA has to determine that the circumstances justifying the emergency no longer exists, has to revoke the underlying authorizing declarations, and must provide advanced notice before doing so. The only other way to affect an EUA—and that's not really the focus here—FDA can obviously revoke EUAs one by one, if there's a reason to do so. For FDA to render these EUAs ineffective en masse, not by revoking an individual EUA, it has to revoke the underlying authorizing declaration. For devices, FDA has promised that it would not do so for six months from finalization of transition guidance that it issued in December 2021. That guidance has not yet been finalized. FDA has not said anything at all about its intentions, with respect to non-device EUAs (so those governing vaccines and therapeutics), but advanced notice would also be required before those declarations would be allowed to expire to allow manufacturers of affected products to bring those products into compliance or to remove them from the market. My guess is that we won't see those underlying declarations revoked until we have full product approvals in place, at least for those vaccines that the agency expects will continue to be in use and those therapeutics into the future.

With respect to guidances, enforcement policies, and the like, at the outset of the pandemic, as FDA started issuing these enforcement policies, I think it was the expectation that upon the termination of the public health emergency, these guidances would expire, at least most of them. In connection with IVDs, I think FDA made it very clear in the face of those guidances that those wouldn't automatically terminate, but now, we have a big morass because it's not totally clear to anyone which guidances will survive the termination of the public health emergency, and which would expire automatically. So, FDA has made an announcement that it plans to issue a federal register notice providing further clarity on these questions. We understand, specifically, that the policies governing IVDs are tied to the declaration justifying those IVD EUAs in the first place, and they will terminate only when the declaration itself is terminated. FDA has indicated that it's going to provide an 180-day transition period for the other enforcement discretion policies—so, beginning on May 11th, we'll have six months before FDA withdraws those policies. There are some operational policies that are likely to terminate immediately, those having to do with flexibility in the context of clinical trials, inspection procedures, some that altered the requirements for drug and biologics manufacturing, and reporting requirements. There are a couple policies that we might see expire in May, but it looks like we have time, a lot of time, for most of them.

Then, with respect to PREP Act immunity, again, immunity is tied to the PREP Act declaration, not the PHE declaration, so expiration of the PHE will not impact PREP Act immunity. The expectation is that the PREP Act protections will be effective until either the PREP Act declaration is formally revoked or October 1, 2024, whichever is earlier.

Greg Levine: Thanks. I do wonder whether the expiration of PHE declaration will prompt HHS also to revoke the PREP Act declaration, but I guess we'll see. FDA really had its hands full during the pandemic, and now, FDA has its hands full trying to unwind the pandemic—this is a ton of work there.

Margaux, why don't we turn to you now? What do you see as the key developments, rulemaking, other policy developments for CMS for 2023?

Margaux Hall: FDA isn't the only agency that's going to be extremely busy—it will also be a very busy year for CMS and various other groups within HHS. There are four key areas I will be watching: the IRA, Part D reforms, CMMI, and HRSA action around the 340B program.

First and foremost, IRA implementation is going to be the theme of this year on the CMS front. The Department of Health and Human Services will be very busy this year implementing the IRA. There are some key deadlines coming up for the price-negotiation program, in particular. By September 1st of this year, CMS will publish the first Medicare Part D drugs that are selected for negotiation. The agency will then announce the negotiated maximum fair prices for those drugs by September 1, 2024, and those prices will go into effect starting January 1, 2026. That's going to be really interesting—to observe what market changes evolve between September 1, 2024, when that maximum fair price is made publicly available, and January 1, 2026, when those prices actually go into effect for the Medicare program. More generally, though, if you look at the timeline for various components of the drug pricing provisions, it's very ambitious—there is a lot for CMS to do. Even with the larger team the agency's bringing in, it does seem like the agency's going to be tripping over itself to implement the changes, and CMS seems to acknowledge this by indicating, in its recently issued memo, the deadlines that are and are not imposed by statute, and indicating that it may adjust at any time the non-statutory deadlines. Even for those deadlines that are imposed by the statute, CMS is not necessarily immediately implementing, and the inflation-based rebates are a key example of that. CMS, in a recent guidance memo, has said that it will invoice the part D and Part B inflation rebates that have recently gone into effect by December 31, 2025. In terms of how the agency is going to implement key components of the IRA, it appears, at least with the drug price negotiation program, that the agency will not be implementing through notice-and-comment rulemaking. The agency said, in its recently issued memo, it is “voluntarily” soliciting comments on key topics, like the negotiation process itself, how to apply the maximum fair price, and dispute resolution. There's one reference to rulemaking in that memo, and that discusses the possibility of rulemaking for price-applicability years of 2027 or beyond.

Second, there are major Part D changes afoot this year, given the upcoming Part D redesign. Apart from the IRA, Part D plans and pharmacies also need to account for the CMS final rule revising the way that Medicare determines a Part D drug's negotiated price. That change is scheduled to go into effect January 1, 2024. It's projected to result in more predictable cash flow for pharmacies, lower cost-sharing at the point of sale for beneficiaries, and higher premiums. We have an extended client alert on that topic, as well, that you can find on our drug pricing landing page.

Third, CMMI recently issued an eagerly awaited report regarding new models that the agency will be testing with regard to drug pricing. The Secretary has selected three models that will be tested by the Innovation Center—they address themes that were outlined in President Biden’s Executive Order last year, and are intended to test questions of whether the agency can lower drug costs and promote access to innovative drug therapies. The three models that the Center has put forth are:

1. A High-Value Drug List Model, which would establish maximum copayment amounts for a standard set of generic drugs with perceived high value in the Medicare program.
2. A Cell & Gene Therapy Access Model that would pilot a new approach to outcomes-based arrangements. Instead of state Medicaid agencies individually contracting with pharmaceutical manufacturers around outcomes-based agreements, state Medicaid agencies would have the option of assigning CMS the task of structuring and coordinating those multi-state outcome-based arrangements. So, CMS would take on the lion’s share of responsibility of implementing the arrangements, monitoring, evaluating the outcomes, etc. CMMI has said it will target illnesses like sickle cell and cancer for purposes of those outcomes-based arrangements.
3. There’s an Accelerating Clinical Evidence Model that would adjust Part B payment amounts for drugs subject to accelerated approval to give manufacturers an incentive to expedite and complete confirmatory clinical trials.

Certainly, a lot to watch there. The Center has said it will continue to develop and then work to begin to test the three models enumerated in the recently released report. The agency has said it will continue its engagement with different stakeholders for their feedback and input on the models.

Finally, HRSA has proposed a new administrative dispute resolution process that will revamp the process that was adopted through a 2020 final rule. HRSA said that, over the past two years, when manufacturers and others have been pursuing extensive litigation challenging the legal authority for contract pharmacies, and the lawfulness of the administrative dispute resolution process itself, the agency has identified “policy and operational challenges” with that 2020 final rule that necessitate revisions to the regulations. And so CMS proposed various changes, including to make the ADR process less formal by removing application of the Federal Rules of Civil Procedure and the Federal Rules of Evidence, and eliminating the $25,000 minimum dispute threshold, among other changes. Public comments on that proposal were due January 30th of this year.

So, on the whole, there are several areas to watch on the administrative front from a drug pricing standpoint.

Greg Levine: Thank you, Margaux, for your comments on what CMS is going to be working on in 2023. I concede that CMS is going to be extremely busy, as well, just like the FDA.

Thank you very much to our listeners for tuning in today. We will continue to provide additional news and analysis about regulatory developments and emerging issues from the federal government throughout 2023. You can access that information on our Capital Insights page, on our main Ropes & Gray web page, www.ropesgray.com, by listening to any of our RopesTalk podcasts—including the past episodes in this podcast series—in our podcast newsroom on our website, or by subscribing to RopesTalk wherever you listen to podcasts, including on Apple Google and Spotify. Be sure to check out parts three and four of this podcast series in the coming days. Thanks again for listening.