Industry: FDA Staffing a Key User Fee Issue

Negotiations are underway between the FDA and industry regarding MDUFA V, the fifth medical device user fee agreement, but there are still some issues with the current agreement. One of those, according to industry representatives, is that the agency still has not hired all the staff it had committed to under MDUFA IV, an omission they say must be corrected expeditiously.

According to the transcript for the Oct. 27, 2020, meeting for MDUFA V, Janet Trunzo, senior vice president for regulatory affairs at the Advanced Medical Technology Association (AdvaMed), said user fees promote rather than distract the FDA from fulfilling its mission of protecting public health. Trunzo also said user fees have allowed the FDA’s Center for Devices and Radiological Health to hire hundreds of scientists, engineers and medical officers, and that interactive reviews have enabled a faster, leaner resolution of issues encountered in premarket submissions.

Nonetheless, Trunzo recommended that the agency complete the hiring of all staff that were agreed to and funded by MDUFA IV “as soon as possible.”

That perspective was echoed by Mark Leahey, president and CEO of the Medical Device Manufacturers Association. Leahey expressed some concern about the ever-rising volumes of user fees with each agreement, but added that the agency has yet to make approximately 50 hires agreed upon under MUFA IV.

Leahey also questions the FDA’s method for calculating the cost of each full-time equivalent (FTE) employee. He said the agency’s practice is to divide the total device review budget by the number of FTEs to arrive at the cost per FTE. Device makers are waiting for some information from the agency about this calculation, Leahey said, adding that industry seeks to arrive at a more appropriate approach for making such calculations.

Fees Supplemental, not Primary Revenue Sources

MDMA’s Leahey said the primary responsibility for FDA’s funding sources is congressional appropriations, and that user fees were always seen as supplemental to appropriations. That perspective should be maintained as the negotiations grind on, he said.

The first device user fee program yielded $144 million and jumped to $312 million under MFUFA II. The volume of fees doubled in each of the following iterations and will amount to more than $1 billion under MDUFA IV when all is said and done. Leahey said user fees amounted to more than $200 million in fiscal year 2019 alone.

Peter Weems, senior director of policy and strategy at the Medical Imaging & Technology Alliance, did not specifically call out the dollar figure for the next user fee program, but did state that MITA does not anticipate any need for major new programmatic initiatives or major new commitments. The association’s position is that all programs assembled with the help of user fees should be revisited to determine which should be sustained going forward, and which should be halted if there is a determination that the need is no longer there.

FDA commissioner Stephen Hahn had no reservations about another expansion of total user fees. Hahn stated that the device user fee program and the associated resources “are only a fraction of the size of the programs for prescription and generic drug user fees.” This fact makes the success of the device user fee programs “all the more remarkable,” he stated.

Hahn said he is concerned about the long-term health of the device user fee program, given the pace of innovation in the device industry. The next user fee agreement will give stakeholders a chance “to see what investments we can make in human resources and programs” that enhance communication between sponsors and the agency, he said, a statement he applied to registries as well. Hahn more or less reiterated that view toward the end of his remarks, stating that the negotiations will also provide an opportunity “to consider how we can provide technological, programmatic and other resources to the device team,” including human resources.

EU releases IVD Risk Classification Framework

The medical device regulatory office for the European Commission (EC) finalized a guidance for risk categorization of in vitro diagnostics (IVDs), but concerns about the related implementation date persist. Despite the fact that the original implementation deadline was suspended for a year, many of the affected parties are arguing that industry needs at least another year to implement the new regulations because of the impact of the COVID-19 pandemic on the IVD ecosystem in Europe.

The Nov. 13, 2020, risk classification document by the EC’s Medical Devices Coordination Group (MCDG) employs a four-tier risk scheme, with class D the highest risk category per the manufacturer’s statement of intended use. Any software used with an IVD would necessarily fall into the same risk category as the device with which the software is used.

Despite that the implementation date for the overall IVD regulation has already been suspended for a year, MedTech Europe preemptively argued in July that a number of crucial elements in the regulatory ecosystem are not yet in place. Among the missing building blocks cited by MedTech Europe is a body of guidance documents that are up to the task of explaining the regulations, but the association also noted that there is an insufficient number of notified bodies to handle the impending volume of test recertifications.

Serge Bernasconi, CEO of MedTech Europe, stated that the diagnostics industry is still committed to assisting in the effort to recover from the COVID-19 pandemic, but said the impact of the pandemic on the IVDR implementation “has been considerable, and this must be neither underestimated nor ignored.” In an attached position paper, MedTech Europe called for a delay beyond the existing implementation date of May 26, 2022, but offers no specifics regarding the term of any additional delay.

Ambiguity in Intended Use a Possible Problem

The document is divided into seven rules for risk classification, such rule 2, which covers devices intended for use in blood grouping. Product labeling should clearly spell out the intended use of the diagnostic and the related risk classification, and any ambiguity on this point may lead to a higher risk classification than that proposed by the test maker. There is also some variability within tests for a specific biological agent. The guidelines state, for instance, that a screening test for syphilis would likely fall into class D, but a test to diagnose syphilis in the individual is more likely to be deemed a C risk device.

The guidelines are intended to apply uniformly across technologies, although two tests using the same specimen type may or may not be deemed to fall into the same risk classification. Tests and any associated devices, including software as a medical device, that are used to detect exposure to or the presence of a transmissible agent in the blood, blood components or other organs would be class D devices when those tissue products are intended for transplant, transfusion or administration of cells for therapeutic uses. However, a class D designation might not attach to the same test for such pathogens when conducted for other purposes.

Also among the rules listed in the guidelines are those for devices for self-testing and tests for sexually transmitted diseases. Companion diagnostic tests would fall under class C, as are tests to determine the stage of the disease. Conversely pregnancy tests and tests for fertility are slotted into class B. The guidelines provide classification for instruments, reagents and calibrators as well. Test developers will be liable for annual surveillance assessments for class C and D tests, but not for class A and B tests.

HHS Announces Delayed HIT Compliance Deadlines

The Department of Health and Human Services has responded to concerns about compliance dates for healthcare IT with an interim final rule that relaxes those deadlines by nearly half a year. According to the Oct. 29 HHS press release, vendors of health IT systems have until April 5, 2021, to comply with information blocking provisions of the 21st Century Cures Act, a delay some saw as critical due to the COVID-19 public health emergency.

The Office of the National Coordinator (ONC) had released the final rule March 9, 2020, which in addition to the information blocking provisions included certification requirements for application programming interfaces (APIs). ONC director Don Rucker emphasized that this latest delay does not eliminate the rules requiring greater patient access to their health information, but is intended to allow developers to focus on the pandemic.

In April 2020, the ONC exercised enforcement discretion by adding three months to several of the compliance deadlines included in the March final rule, making the Oct. 29 delay the second such announcement this year. In addition to the delay until April 2021 for the Cures Act’s information blocking provisions, the ONC will allow developers until Dec. 31, 2022, to demonstrate that their software complies with the updated requirements for API functionality.

The Healthcare Information and Management Systems Society Inc., (HIMSS) of Chicago, said the announcement allows the health care sector to focus on the pandemic while sustaining a path forward toward greater patient access to their own information. HIMSS stated that the scope of the information blocking provisions will expand in October 2022, prior to which developers will have to demonstrate only that they are providing access to a limited number of elements initially included in the U.S. Core Data for Interoperability. This will allow developers to become more accustomed to these requirements prior to the compliance date of Oct. 6, 2022, when the full scope of a patient’s electronic health information becomes mandatorily accessible to patients.

The American Health Information Management Association (AHIMA), also headquartered in Chicago, applauded the delay in an Oct. 29 statement. AHIMA CEO Wylecia Wiggs Harris, said the additional delay “is a prudent decision, as the reallocation of resources due to the COVID-19 pandemic has made it challenging for many health information professionals to ensure their institutions are sufficiently in compliance.” Harris thanked ONC “for being cognizant of the realities health information professionals are encountering during the COVID-19 pandemic.”

CMS Resets Two DME Policies

The Centers for Medicare & Medicaid Services released two policy changes, one each for competitive bidding for durable medical equipment (DME), and the other for how items are categorized under the Medicare Part B DME benefit. Of the two, the more immediate impact on patients may be created by the Oct. 27 CMS proposal to classify all continuous glucose monitors (CGMs) as DME, providing broader coverage of CGMs than has been available up to now. At present, Medicare covers these devices only when approved by the FDA for use in making treatment decisions for those with diabetes, such as changes to insulin dosage or to diet.

The policy change would provide coverage for CGMs for more routine considerations, such as potentially hazardous overnight glucose excursions. CMS also made note of the fact that one in every three Medicare beneficiaries suffers from diabetes. The proposed rule would also expand the DME classification of external infusion pumps to permit more in-home use.

The second CMS announcement regarding DME for the week ending Oct. 30 stated that the competitive bidding program would be delayed again for most items. Two items, off-the-shelf (OTS) knee and back braces, will be subject to bidding in 2021, and CMS indicated that the bidding process may save $600 million over the three years of the bidding program for these two items.

The 2021 round of bidding had originally included non-invasive ventilators, a category the agency removed because of the COVID-19 pandemic. OTS back and knee braces were not included in previous bidding programs, but bidding for the other 13 categories was dropped because previous bidding rounds failed to deliver on the anticipated savings.

The American Association for Homecare lent its support to the changes to the bidding program, stating that the program has established a price floor for the 13 devices that will be exempt from bidding year. The statement also recommended that bidding for these products be permanently ended.

HHS Orders FDA to Stand Down on LDTs

The Department of Health and Human Services issued an Aug. 19 rescission order to the FDA directing the agency to cease requiring any premarket reviews for lab-developed tests (LDTs), a change the administration said is consistent with two executive orders (EOs). The order mentions the COVID-19 pandemic, but seems intended to endure beyond the existing declaration of public health emergency.

The question of the FDA’s statutory authority to regulate LDTs has dated back at least as far as the early 1990s. In 2006, the Washington Legal Foundation (WLF) resurrected the question in a citizen’s petition that makes reference to a similar petition filed in 1992. According to the 2006 petition, the FDA waited six years to respond to the earlier petition, and WLF cited “an urgent need for FDA to comply with the Administrative Procedures Act (APA). The APA is also a timely theme, given the Department of Justice’s recent public pronouncement about whether the underlying statute is in need of a legislative update.

The HHS announcement states that the FDA is not authorized to require premarket review of any sort for LDTs absent the use of the rulemaking process. This would supplant the FDA’s use of guidances, immediately-in-effect policy declarations, and any other informal mechanisms. The notice advises, however, that LDTs practiced for testing for the COVID-19 pandemic will not enjoy immunity from product liability under the Public Readiness and Emergency Preparedness (PREP) Act without an emergency use authorization or submission of a regulatory filing under a conventional premarket review path.

At present, there are two competing legislative responses to the impasse making the rounds on Capitol Hill, such as H.R. 6102, the Verifying Leading-edge IVCT Development (VALID) Act of 2020, which has a companion bill in the Senate. While previous iterations of the VALID Act included language directed toward a pre-certification program that seemed to parallel the precert program for software as a medical device, this latest version describes a technology certification process that would ease the demands ordinarily imposed by FDA premarket review. Neither the House nor the Senate version has come up for a vote in committee, however.

Conversely, the Verified Innovation Testing in American Laboratories (VITAL) Act of 2020, sponsored by Sen. Rand Paul (R-Ky.), would place sole authority for LDT regulation under the Centers for Medicare & Medicaid Services. S. 3512 keys on laboratory staffing qualifications to ensure that tests are appropriately developed and conducted, but also has provisions related to the pandemic, such as a requirement that CMS update the related CLIA regulations to address future pandemics. This bill, too, has failed to gain enough traction to merit a vote in the committee of jurisdiction.

PTO Revisiting IPR Rules of Practice

The U.S. Patent and Trademark Office is considering an amendment to the rules of practice for several patent procedures as indicated by an entry at the electronic dashboard for the Office of Information and Regulatory Affairs at OMB. The entry is titled to reflect an examination of the rules of practice in trials before the Patent Trial and Appeal Board, the entity charged with handling inter partes reviews (IPRs). There is little additional information as to the nature of the proposed changes, however.

The IPR process has come under fairly constant fire in the years since passage of the America Invents Act, including in a 2017 article describing the process as “a patent killing field.” The authors of the article claimed that despite the numbers posted by the PTO, the IPR process proved substantially more hostile toward claims than litigation conducted in Article III courts.

The docket for this proposal lists four meetings, the first of which took place Aug. 4 with members of the Computer & Communications Industry Association. Included in the documents for that Aug. 4 meeting is a file by PTO suggesting that IPR institution rates have dropped from 87% in fiscal year 2013 to 56% to date in fiscal 2020. However, the sheer volume of petitions for IPRs rose from 220 in that first year to more than 1,500 three fiscal years later. The current total for FY 2020 is 854 petitions, 478 of which have been instituted.

Churn at Justice as Drug Pricing Rule Falters Again

Bipartisan supporters of drug pricing transparency in the U.S. absorbed another blow when an appeals court rejected the Trump administration’s drug price transparency rule as lacking statutory support. This was not the only source of churn on the legal front as three top-level officers at the U.S. Department of Justice announced their resignations, putting the White House in a position of naming replacements in a process that may prove contentious in an already-contentious election year.

D.C. Circuit Court Backs District Court

In a June 16 decision, the U.S. Court of Appeals for the District of Columbia Circuit affirmed a lower court’s rejection of the Trump administration’s May 2019 final rule for disclosure of wholesale acquisition costs (WACs) for some pharmaceuticals and biologics. The rule did not apply to items that cost less than $35 per month, but otherwise covered products available via the Medicare or Medicaid programs. Some stakeholders had argued that disclosure of those WACs would be meaningless for most consumers, given that their health or prescription drug plans act as fiscal intermediaries.

The U.S. District Court for the District of Columbia imposed a stay on the rule a day before the rule was set to go into force in July 2019, and determined that makers of drugs and biotech therapies are not direct actors in the Medicare and Medicaid programs, thus nullifying the rule. The perceived absence of direct congressional intent regarding price disclosures was also noted in the district court ruling.

Attorneys for the Department of Health and Human Services had argued that the rule was a permissible regulatory mandate on the assumption that it led to more efficient administration of federal government programs. The D.C. Circuit Court declared that HHS had acted unreasonably in concluding that its authority allowed it to impose a “sweeping disclosure requirement that is largely untethered to the actual administration of the Medicare or Medicaid programs.” The district court demonstrated little interest in the government’s argument for deference per Chevron, although the circuit court conceded that federal government agencies enjoy at some deference from jurists. Still the court said the disclosure rule’s “blunderbuss operation falls beyond any reasonable exercise” of HHS’s statutory power.

The circuit court said also that the anticipated trickle-down effect of WAC price disclosures was insufficient to carry the government’s argument. The fact that the rule applied to all direct-to-consumer ads, not just those that directly address Medicare and/or Medicaid beneficiaries, also served to weaken the government’s case.

Francisco, Benczkowski and Hunt Resign

Solicitor General Noel Francisco has announced his resignation in a June 17 letter to President Trump, but Francisco’s news was virtually simultaneous with the news that Assistant Attorney General Jody Hunt would leave the department’s civil division. However, these were both preceded by roughly a week by the news that the department’s head of the criminal division, Brian Benczkowski, would also leave his post.

All three positions are critical for regulated industries as the SG enunciates the administration’s position on matters that appear before the Supreme Court, while the other two are responsible for federal enforcement prosecuted under the False Claims Act. Francisco’s letter said the resignation is effective July 3, bringing to an end a tenure that commenced in January 2017, when he was named the acting SG.

Francisco backed the failed effort to prod the U.S. Supreme Court to revisit the patent subject matter eligibility problem, while Hunt and Benczkowski were in their respective offices as the Brand and Granston memos made themselves felt in federal prosecutions of corporate entities. They were also charged with administering changes to the Justice Manual, which was substantially revised in December 2018. Benczkowski and Hunt, like Francisco, will leave their jobs July 3.

FDA Issues Pandemic Policy for Supplements

The FDA’s device center has put forth a number of policy documents to handle the effects of the COVID-19 pandemic, and one of the latest takes up the filing of supplements for PMA and humanitarian device exemption devices. As is the case with a number of other guidances for the pandemic, this guidance spells out the conditions under which sponsors need not file for changes to devices in some instances, but device makers must document all those changes nonetheless.

The policy for PMA and HDE devices allows the manufacturer to make changes to the device without a 30-day notice or a supplement if a design change was motivated by a need to address a lack of components caused by supply chain disruptions. Manufacturing site changes can be undertaken without a supplementary filing if that site change was necessary to provide employees with sufficient room to practice social distancing.

Manufacturers can make changes to the materials used in the device that are necessitated by changes in manufacturing, assuming that manufacturing change was brought on by the conditions imposed by the pandemic. This holds only if the change in material does not suggest an impact on device safety or performance, however.

Conversely, the manufacturer cannot make a change to a device’s intended use under this policy, and even the changes that qualify under this pandemic policy must be documented per routine record-keeping activities, such as device history records. The sponsor must also report all changes, exempt or not from supplementary flings, in the annual report due for that device. Interestingly, the FDA had just completed its revised guidance for PMA annual reports in December 2019.

PTO Says No to AI as Inventor

The U.S. Patent and Trademark Office announced last year that it was seeking feedback on whether artificial intelligence could be an inventor, but the agency ultimately declined to go along with the concept. Underlying the decision was the fact that the statute makes specific reference to entities that would qualify as a natural person or persons, but PTO was not the only patent office to pass on the proposal.

The PTO opened the proposal for public comment in August 2019 at the behest of the inventors of the DABUS algorithm, Stephen Thaler of Imagitron LLC. The algorithm, which Thaler described as a creativity machine, is a general-purpose algorithm that Thaler claimed was not trained for any specific invention or field of endeavor. When Thaler first filed for a patent in 2019, the examiner returned the application for failure to identify the inventor by a legal name.

The problem for Thaler, according to the PTO, is that Title 35 of the U.S. Code defines an inventor or inventors as “the individual or … individuals who invented or discovered the subject matter of the invention.” The agency said Section 101 of Title 35 states that “whoever invents or discovers” a useful article may obtain a patent, and that other portions of Title 35 make reference to pronouns such as “himself” and “herself.”

The PTO pointed to case law in support of its position as well, including a 2013 decision by the Court of Appeals for the Federal Circuit. The PTO observed that Thaler had himself acknowledged that an AI system enjoys no property rights under current law, which the agency said “further calls into question whether the submitted assignment document satisfies the requirements” spelled out in several portions of the Code of Federal Regulations.

Thaler had no better luck in other patent offices, including the U.K. Intellectual Property Office, which came to a similar conclusion in December 2019. The U.K. IPO’s handling of the matter largely mirrored that of the PTO’s approach, initially rejecting the application because “a person must be identified” on an application. The agency’s deputy director, Huw Jones, acknowledged that there is a legitimate question as to how such issues ought to be handled, but recommended that the debate be handled legislatively and “not shoehorned arbitrarily into existing legislation.”

PTO Eyes Prioritized Patents to Combat Covid-19

The FDA and other agencies at the U.S. Dept. of Health and Human Services have taken a number of measures to push back against the COVID-19 pandemic, but an agency at the Dept. of Commerce is also getting into the fight. The Patent and Trademark Office recently unveiled a prioritized patent examination pilot that will put COVID-fighting applications to the front of the queue, with a special emphasis on small and micro entities.

The May 8 PTO statement indicates that the agency will waive the fees ordinarily associated with priority patent applications, but also that these applications will be processed within six months, assuming the applicant responds to PTO queries promptly. PTO director Andrei Iancu said small businesses and independent inventors “are often the difference makers when it comes to cutting-edge technology,” but “are also in most need of assistance” as the pandemic wears on.

In the accompanying Federal Register notice, PTO said the scope of the program is limited to products that are subject to an FDA premarket review process, such as emergency use authorizations, premarket approvals and new drug applications. Biologics license applications are also within the scope of the program, but continuing original patent applications are apparently excluded. Filings must include no more than four independent claims and no more than 30 total claims. Multiple dependent claims are also out of consideration, and applicants that file for an extension for time to file a reply will lose their place in this expedited program.

FDA Resets Serology Test Policy for Pandemic

The FDA has maintained a steady pace of policy changes in connection with the COVID-19 pandemic, including a May 4 policy that calls on makers of some serological tests to file for an EUA for their tests. The change followed congressional criticism that many of these tests did not work as advertised, but also followed an extended period during which a large number of tests came to market and thus there was a less pressing need for a relaxed policy.

In an accompanying statement, the FDA said the original testing policy under the emergency use authorization program was borne of a need to provide sufficient regulatory flexibility to bring surveillance testing to the medical front lines. A number of serology tests have arrived with claims of FDA approval or authorization despite lacking such a regulatory acknowledgment, but other tests were shown to perform poorly despite otherwise avoiding the agency’s ire.

Consequently, commercial test developers have 10 days to file for authorization under the EUA program after notifying the agency of the results of test validation, or 10 days after the date of publication of the May 4 policy. High-complexity labs that develop their own tests must still forward validation data to the agency, although they are not required to seek authorization via the EUA program. The FDA recommends they do seek inclusion in the EUA listing, however.

The testing policy was updated again May 9 with the news that the first antigen test for the SARS-CoV-2 virus had gained a place in the EUA policy, and the FDA said more such tests will soon be thus authorized. The anticipation regarding antigen testing is that it will rapidly increase the total volume of tests made to the American public, a critical piece in the effort to bring the pandemic under control. However, the agency advised that antigen testing is even more prone to false negatives than molecular testing for viral RNA, and a negative result for an antigen test may have to be checked by a molecular test – usually a polymerase chain reaction (PCR) test – prior to any clinical decision-making.

Still, the FDA noted that antigen tests are less expensive to deploy than PCR tests and usually provide more rapid turn-around. Antigen tests may boost overall testing capacity by millions per day, but the FDA noted that these are intended as diagnostic tests even as the agency noted that they may also aid in the effort to “identify infection rates closer to real time.”

Pandemics and Force-Majeure Clauses

With the Coronavirus (COVID-19) pandemic, medical device companies are facing disruptions to their supply chains, vendors who simply stop providing services, and a denuded work force.  Who is responsible when the supply chain fails due to a pandemic?  What should a company do when its vendors stop all work because their employees must stay home?  And what can a company do when it can’t meet its supply obligations due to its own employees in quarantine?

Due to the current challenges presented by the COVID-19 pandemic, an oft-forgotten contract clause, usually found among the miscellaneous clauses at the end of a contract, has suddenly taken a front seat.  This is the “force-majeure” clause of a contract, also sometimes known as the “Act of God” clause.  A force-majeure clause addresses the allocation of risk between the contracting parties if the contract cannot be performed due to an unanticipated or uncontrollable event.

This blog provides a quick primer for attorneys and businesspeople on force-majeure clauses, which are not usually on the forefront of medical device companies’ minds.  A classic example of a force-majeure clause, as set forth in Corbin on Contracts, is as follows: “Neither party shall be liable for its failure to perform hereunder if said performance is made impracticable due to any occurrence beyond its reasonable control, including acts of God, fires, floods, wars, sabotage, accidents, labor disputes or shortages, governmental laws, ordinances, rules and regulations.”  14 Corbin on Contracts § 74.19 (2019) (further citations omitted).

There are several key components of a force-majeure clause, which are discussed next.

Mutual or One-Way Force-Majeure Clauses – Force-Majeure clauses can be drafted to benefit one party to a contract, or they can be drafted to benefit both sides of a contract.  The example from Corbin on Contracts, above, is a mutual force-majeure clause.  It can benefit either party when there is a force-majeure event (such as a pandemic).

However, not all force-majeure clauses are mutual.  Many are written excusing only one side from performance should a force-majeure event occur.  For example, the above clause could instead have been written “Party A shall not be liable for its failure to perform hereunder if said performance is made impracticable due to any occurrence beyond its reasonable control, including acts of God, fires, floods, wars, sabotage, accidents, labor disputes or shortages, governmental laws, ordinances, rules and regulations.”

Epidemic Language in Force-Majeure Clauses – Many force-majeure clauses specifically reference force-majeure events to include occurrences such as “epidemics” and “quarantine restrictions.”  Many other force-majeure clauses do not.

However, as long as the force-majeure events are written in a broad manner, there is a strong likelihood that courts will consider the COVID-19 pandemic to be a force-majeure event, regardless of whether the specific word “epidemic” is contained in the force-majeure clause.

Similarly, force-majeure clauses often require that the force-majeure event is something beyond the control of the performing party.  As an example, a component part supplier in China may well be able to invoke a force-majeure clause from the COVID-19 pandemic.  On the other hand, a supplier of services to a medical device company (such as an accounting firm) may be less able to invoke such a clause as suppliers of services can often continue to work from home.

Notice – Many force-majeure clauses have a notice requirement.  The notice requirement means that in order to invoke the clause, a party must provide notice to the other parties.  For example, hog shipments did not occur due to an outbreak of Porcine Reproductive and Respiratory Syndrome.  As most hog suppliers did not provide written notice of a force-majeure event, those suppliers could not invoke the force-majeure clause when sued for not delivering hogs per their contractual agreement, even though there was no dispute that the outbreak was a force majeure event.  SNB Farms, Inc. v. Swift & Co., 2003 U.S. Dist. LEXIS 2063, at *30-31 (N.D. Iowa Feb. 7, 2003).  Meeting notice requirements is critical.

Effect of Force-Majeure Clause – Force-majeure clauses can do more than simply excuse a party from performing under a contract.  A standard provision is that a force-majeure event does not excuse performance under the contract, but simply extends the obligation until after the event is over.  As such, a supplier may not be obligated to supply materials during the force-majeure event (e.g., the COVID-19 pandemic) if it is unable to obtain the materials.  Once the materials become available, however, it must resume shipment.

Lack of a Force-Majeure Clause – What happens when the contract does not contain a force-majeure clause?  The common law defense of impossibility of performance can still protect a non-performing party, when the non-performing party did not cause the event rendering performance impossible.  The term “impossibility” means not only strict impossibility but impracticability because of extreme and unreasonable difficulty, expense, injury or loss involved.  As such, the circumstances of what performance is, or is not, rendered impossible by the COVID-19 pandemic will likely revolve around the nature of the contract and the possibilities open to the parties.

Conclusion – As medical device companies address the supply chain and similar issues raised by COVID-19, prudence dictates that they and their attorneys focus on the details and ramifications of force-majeure clauses.

 

An Overview of Liability Immunity for Products Meant to Counter COVID-19 Under the PREP Act

Device manufacturers (as well as drug manufacturers, distributors, and health care providers) are struggling to answer many questions regarding their potential products liability in responding to the COVID-19 pandemic. Fortunately, as discussed below, the PREP Act and the recent declaration by the Secretary for the Department of Health and Human Services provides significant immunity from COVID-19 lawsuits.

In 2005, Congress passed the Public Readiness and Emergency Preparedness Act (“PREP Act”).[1] The PREP Act provides liability immunity to a large group of entities and individuals for the manufacture, distribution, prescription, and use of drugs, biological products, or devices meant to combat a pandemic.[2]

This liability immunity is written almost as broadly as an immunity provision can be written. The protected entities are called “covered persons.”[3] And, covered persons are “immune from suit and liability under Federal and State law with respect to all claims for loss caused by, arising out of, relating to, or resulting from the administration to or the use by an individual of” the drugs, biological products, or devices used to combat the pandemic.[4] The liability immunity covers all actions except for the “willful misconduct” of a covered person.[5]

This immunity extends, for two obvious examples, to (i) a negligence lawsuit against a manufacturer in creating a vaccine meant to treat a pandemic or (ii) a health care provider in prescribing the wrong dose of a drug meant to treat COVID-19.[6] However, the immunity extends much further than just these obvious cases. It would apply, for example, to a “slip-and-fall injury or vehicle collision by a recipient receiving a countermeasure [e.g., drug or device] at a retail store serving as an administration or dispensing location.”[7]

In order for the PREP Act immunity to apply, the Secretary for the Department of Health and Human Services (“Secretary”) must declare a public health emergency.[8] On March 10, 2020, the Secretary made such a declaration for COVID-19.[9] This declaration was effective as of February 4, 2020 and will continue through October 1, 2024.[10]

COVID-19 is not the first declaration of a public health emergency by the Secretary. For example, the Secretary declared a public health emergency in response to an outbreak of the H1N1 influenza virus.[11] Litigation involving that declaration is instructive.

Courts generally enforced the PREP Act during the H1N1 outbreak. For example, when a parent of a kindergartner who was inoculated for H1N1 flu without her parent’s consent filed a lawsuit in New York state court against the health department that administered the vaccine, the Appellate Division of the Supreme Court of New York held that the lawsuit was preempted by the PREP Act.[12] For another example, a plaintiff sued his physician and employer, who in turn sued the vaccine manufacturer, for being vaccinated without informed consent for the H1N1 influenza virus. The federal court in Missouri held that the PREP Act barred the claims against the vaccine manufacturer. This ruling divested the federal court of jurisdiction to decide the remaining claims.[13] These cases demonstrate the power of the PREP Act to protect companies and individuals from lawsuits involving countermeasures to COVID-19.

[1] 42 U.S.C. 247d-6d and 42 U.S.C. 247d-6e. For an overview of the PREP Act from the U.S. Department of Health & Human Services, seehttps://www.phe.gov/Preparedness/legal/prepact/Pages/default.aspx.

[2]Id.

[3] Covered persons include companies and individuals that manufacture, distribute, plan, prescribe, administer, or dispense the drug, biological product or device meant to combat the pandemic. 42 U.S.C. 247d-6d(i)(2).

[4] 42 U.S.C. 247d-6d(a)(1).

[5] 42 U.S.C. 274d-6d(d)(1). Willful misconduct is defined as conduct that is: “(i) intentionally to achieve a wrongful purpose; (ii) knowingly without legal or factual justification; and (iii) in disregard of a known or obvious risk that is so great as to make it highly probable that the harm will outweigh the benefit,” 42 U.S.C.S. § 247d-6d(c)(1)(A), and such conduct must proximately cause the death of serious physical injury. 42 U.S.C. 274d-6d(d)(1).

[6]See 85 FR 15198 at 15200.

[7] 85 FR 15198 at 15200.

[8] 42 U.S.C. 274d-6d(a)(1) and (b).

[9] 85 FR 15198.

[10] 85 FR 15198 at 15198, 15202.

[11] 74 FR 50968.

[12]Parker v. St. Lawrence Cty. Pub. Health Dep’t, 2012 NY Slip Op 7934, 102 A.D.3d 140, 954 N.Y.S.2d 259 (App. Div. 3rd Dept.).

[13]Kehler v. Hood, No. 4:11CV1416 FRB, 2012 U.S. Dist. LEXIS 74502, 2012 WL 1945952 (E.D. Mo. May 30, 2012).

 

Congress Sets Aside $8.3 Billion for Coronavirus

The U.S. federal government’s response to the COVID-19 outbreak has been criticized in some quarters as laggardly, but Congress sent a supplemental spending package to the White House in early March to address the disease. The package provides $8.3 billion to combat the coronavirus disease 2019 (COVID-19), which would expand telehealth and give the FDA $61 million to deal with the virus.

The bill, passed March 4 by the House of Representatives and signed March 6 by President Donald Trump, provides $7.8 in discretionary spending along with another $500 million in reallocated mandatory funds. A breakdown provided by the Congressional Budget Office confirms that the FDA would receive $61 million, an amount that comes with no expiration date. Some of the other funds are limited in term, although the spend-by date for most of these funds is Sept. 30, 2023, giving the related agencies ample time to make use of the monies.

Telehealth will receive a considerable boost under the terms of the House bill, with $490 million allocated over the current and next two fiscal years. The CBO document notes that this set of funds appears as authorizing legislation rather than appropriations legislation, although this spending would not be subject to the usual pay-go spending rules. CMS announced March 17 a set of guidelines for the use of telehealth under the newly expanded authorities.

The COVID-19 outbreak has prompted the FDA to issue an immediately-in-effect guidance for testing, which gives labs 15 days to notify the agency of the use of a test upon validation. In an accompanying statement, FDA commissioner Stephen Hahn said the policy “strikes the right balance,” given the urgency of the matter, and that the FDA will follow up with a “critical independent review” of any tests conducted under the emergency use authorization (EUA) program. That policy was updated March 16 to allow state governments to oversee labs in their states, and to allow for the use of serological tests despite concerns about elevated rates of false negative results.

The Centers for Medicare & Medicaid Services said it has approved a second code under the Healthcare Common Procedure Coding System (HCPCS) for the test for filing claims. The agency said in a March 5 statement that HCPCS code U0002 will handle tests conducted at non-CDC labs, while the previously announced code, U0001, is used for testing handled by CDC labs.

New LDT Regulation Bill Emerges

The FDA has made clear its interest in regulating lab-developed tests for decades, but that interest has not always translated into a practicable regulatory regime. That may all change sometime over the next two years thanks to a revised version of the Verifying Accurate, Leading Edge IVCT Development (VALID) Act, which Reps. Larry Bucshon (R-Ind.) and Diana DeGette recently unveiled.

The March 5 statement by Degette and Bucshon, the authors of the previous version of the VALID Act, states that the bill would enable precision medicine and give the FDA more leeway to make use of the EUA mechanism to speed test development in crises. A companion bill is also underway in the Senate, suggesting that passage is of both bicameral and bipartisan interest.

The legislation offers express preemption over state law, although it is not clear whether this would be similar to the preemption already in existence for non-diagnostic PMA devices where state liability law is concerned. One of the key questions for this legislation – as well as any legislation dealing with the FDA’s software precertification program – is the question of timing. Much of this type of legislation is typically handled via the legislation authorizing new FDA user fee agreements, but the next agreement will not need passage until 2022.

The common run of things for promulgation of new regulations is a minimum of six months for the posting of a draft regulation and the associated feedback, although an entirely new regulatory framework might consume a year. The process for development of enacting guidance would likely add to that.

Whether Congress can get past its institutional tensions and the suite of distractions long enough to pass the VALID Act before the end of CY 2020 is anyone’s guess, but the upcoming elections suggest that this bill will have to move to the Oval Office before the August congressional recess unless stakeholders are on board with the bill as is. However, the American Clinical Laboratory Association has made the demand that any legislation make a distinction between lab-developed tests and in vitro diagnostics, a position that is almost certain to be opposed by other trade associations and by the FDA, both of which have made the case for a level playing field between the two.