DOJ Presses for Reforms of APA

The U.S. Administrative Procedure Act (APA) came into being in 1946, but by some accounts hasn’t been subjected to a serious overhaul in the intervening 74 years. However, the Department of Justice has made the argument that the time has come to revisit the language in the APA, and has bipartisan Senate legislation to back the argument.

The Aug. 11, 2020, DOJ statement includes a link to a report that summarizes the findings of a December 2019 summit on the measures that might bring the APA more into line with modern circumstances. The report, titled “Modernizing the Administrative Procedure Act,” is largely a transcription of the discussions at the summit, but the report also cites previous efforts to amend the APA due to concerns that the statute has not worn well with the passage of time.

Among these was a push for reform by the Second Hoover Commission in 1955, but another pressing consideration is the sheer cost of regulation. Deputy Attorney General Jeffrey Rosen estimated that the aggregate annual cost of federal regulation is as much as $2 trillion a year, a sum one speaker said would represent the ninth largest economy in the world if that figure represented a nation’s gross domestic product.

Multiple Legislative Proposals, No Votes

The APA has not gone untouched in the 74 years since its passage, but many of the changes, such as the 1967 Freedom of Information Act, have been additive in nature rather than attempts to substantially overhaul the APA. Several bipartisan bills have emerged in Congress recently to address the drift of the APA toward functional senescence, including the Regulatory Accountability Act of 2017 (S. 951). Among its other provisions, S. 951 would have required federal agencies to conduct public hearings preparatory to development of rules with an anticipated economic impact of $100 million or more.

Another feature of the bill is a requirement that federal agencies must disclose all data and other sources of information used in rulemaking per the Portland Cement doctrine. The administrative requirement of a cost benefit analysis for rules would also become part of the statute via S. 951. That bill never came up for a vote, however.

There is also some interest in the Independent Agency Regulatory Analysis Act (S. 869), which would subject independent federal agencies to the same requirements as other agencies. This includes the economic impact analysis requirement for rules that are estimated to impose an economic cost of $100 million, but this bill was never put to a vote in the Senate Homeland Security and Government Affairs Committee.

Despite the absence of legislation, the Trump administration has taken measures, including Executive Order 13,771, which is said to have led to a reduction in the volume of new federal rules from the average of 279 rules between 2000 and 2016 to 61 in 2017 and 2018. According to the related entry at the Office of Information and Regulatory Affairs, this executive order has eliminated more than $13 billion in costs across government in 2019 and an overall total of nearly $51 billion since 2017.

As might be expected, the Brand memo receives some attention in connection with administrative activities, given that it bans the use of federal agency guidance as an indicator of violations in civil and criminal matters pursued by the DOJ. Rosen said in his presentation that federal agencies are sometimes inclined to issue guidances in lieu of rulemaking in an attempt to avoid the relatively cumbersome rulemaking process, but as a result, private sector entities may find themselves unavoidably in conflict with one or more guidances that may be difficult to locate.

While the summit took place prior to the onset of the COVID-19 pandemic and thus might be counted as a casualty of the pandemic, DOJ’s revival of the question signals an interest in renewing the push for reform of the APA. The impending election suggests, however, that any related legislation will not emerge until December at the earliest, with calendar year 2021 perhaps a more likely target date.

FDA Inks Combo Product Feedback Guidance

The FDA and industry have been at loggerheads over various issues surrounding combination products, but a new draft guidance may help resolve some of those conflicts. The draft deals with industry requests for feedback on combination product applications, but does not take up the product jurisdiction question, which is again the subject of litigation.

The draft guidance introduces the phrase “combination product agreement meeting,” or CPAM, one of several types of meetings sponsors can invoke in obtaining feedback from the agency on scientific and regulatory questions. Center-specific interactions are also mentioned in the draft, and the agency said that CPAMs should complement rather than replace application-based mechanisms for each center. CPAMs also are not appropriate for resolving any disputes that are usually taken up by the lead center’s dispute resolution or appeals processes.

The guidance further states that sponsors should channel all communications to the designated point of contact, or POC, even if the sponsor’s query takes up a question that is better addressed by a center other than the lead center. The draft is a response to Section 3038 of the 21st Century Cures Act, which covers a number of elements of the combination product review question.

In addition to defining the term “primary mode of action” and mandating that the FDA not use the mere presence of chemical action to justify designating the product a drug, Section 3038 of the Cures Act calls on the agency to issue guidance that characterizes a “structured process for managing presubmission interactions with sponsors.” That guidance is due within four years of enactment of the Cures Act and limits the comment period to 60 days. President Barack Obama signed the legislation in December 2016.

Meanwhile, another product jurisdiction case is in play in the courts, suggesting the agency still has its hands full persuading industry of its interpretation of the primary mode of action question.

DOJ Recovered $3 Billion in FCA Cases in 2019

The Department of Justice has enacted several changes to its approach to False Claims Act litigation over the past few years, but federal attorneys nonetheless managed to claw back more than $3 billion in settlements and judgments in 2019, according to a recent statement. As might be expected, the bulk of that sum was obtained in actions related to industries in healthcare, and 2019 marked the tenth consecutive year in which at least $2 billion was reclaimed in such settlements.

Assistant Attorney General Jody Hunt said $2.6 billion of the amount reclaimed in 2019 involved hospitals, doctors, and makers of drugs and devices, adding that the volume of activity reflects the Trump administration’s emphasis on deterring fraud and abuse. A large portion of the recoveries revolved around opioid analgesics, although even the nursing home industry did not escape scrutiny. The statement indicated that 633 whistleblower lawsuits were filed in 2019, averaging to roughly a dozen new cases each week.

Despite the DOJ’s praise for the volume of recoveries, the amount in 2019 falls far short of the $4.7 billion recovered in 2016. That amount was reportedly the third highest amount in history at the time, and only slightly more than half ($2.5 billion) came from healthcare prosecutions, approximately the same amount recovered from these industries in 2019.

Supreme Court, DOJ Revisit False Claims Act

The False Claims Act might be the most widely known tool in the Department of Justice’s enforcement toolkit, and the FCA was in the news twice in the month of May. As the saying goes, there is some good news and some bad news, but these are both developments to which those in the life sciences should pay close attention.

Statute of Limitations Expanded

Starting with the bad news, the U.S. Supreme Court handed down a 9-0 decision in Cochise Consultancy Inc. v. United States, ex rel. Hunt, the net effect of which was to give relators an additional three years to file a qui tam action before the statute of limitations closes the door. Cochise revolved around a contract with the U.S. Department of Defense, and the interpretation of the statute of limitations had varied among the U.S. circuit courts, thus the Supreme Court’s interest in the case.

The statute was generally interpreted as giving relators six years to file a whistleblower lawsuit, or within three years of the time that a federal government official knew or should have known about the alleged wrongdoing. That additional three-year window for relators was widely assumed to be predicated on the federal government’s intervention in the case, however. A district court dismissed the relator’s case, but the Eleventh Circuit reversed the lower court’s findings. The relator, Billy Joe Hunt, filed his action more than six years after the alleged wrongdoing, but within three years of his disclosure of the events in question to the FBI, although the U.S. federal government never intervened.

The U.S. Solicitor General supported the relator with an amicus brief stating that the text of the statute makes no distinction between qui tam suits in which the federal government does or does not intervene, a view affirmed by Justice Clarence Thomas, who penned the May 13 opinion. There are some potentially far-reaching implications for the life sciences, given that some FCA actions involve recurring claims filed with Medicare. A question Justice Thomas did not answer hinges on the statute’s language pointing to the scope of the FCA, which cites federal officials who are “charged with responsibility to act in the circumstances.” This would seem to be a pertinent question for Cochise, given that the relator in this case, Billy Joe Hunt, had discussed his findings with the FBI, not the Department of Defense, which presumably would have had oversight of defense contracts. These and other questions have been left for another day.

New DOJ policy Overwrites Yates Memo

Earlier in the month of May, DOJ announced a new policy regarding credit for cooperation for corporate defendants in FCA cases, a question that has been very topical for the department at least since 2003, the year of the Thompson memo. The tone of this latest announcement is much less stringent than might have been issued in connection with the now-famed Yates memo, but one of the more interesting passages suggests the department might be willing to eliminate a relator lawsuit in order to clear out an FCA case.

The new policy, credited to assistant attorney general Jody Hunt, provides corporate defendants with partial credit for any of three actions, including the implementation of remedial measures designed to prevent illicit conduct in the future. Hunt also said defendants can earn cooperation credit by preserving relevant documents beyond that which would be required by conventional business practices or legal requirements, which suggests companies in the life sciences may already be revisiting their record retention policies.

Beyond all this, the DOJ statement indicates that cooperation credit will “most frequently” be expressed as reduction in civil penalties and damages multipliers. However, the most interesting part of this development is seen only in the amended version of the Justice Manual, which now includes the statement that cooperation credit might avail the defendant of the DOJ’s assistance “in resolving qui tam litigation with a relator or relators.”

As is widely known, the Granston memo suggested the DOJ would be more likely to dismiss relator litigation when that litigation would interfere with other federal agencies’ efforts to fulfill their policies, but this change to the Justice Manual seems to take the Granston memo a step further in an effort to reward certain behaviors. How frequently the department would see fit to dismiss a qui tam in order to create inducements for other defendants to be more forthcoming is impossible to predict, but the frequency with which the FCA is invoked suggests observers might not have to wait very long at all to see this policy in action.