Category: Blog

As of October 24, 2018, a new regulation passed that affects the private sector of the health care industry potentially having lasting effects on clinics, laboratories and even marketing companies. Mirroring the federal Anti-Kickback Statute, the Eliminating Kickbacks in Recovery Act (“EKRA”) aims to fight the opioid epidemic. In particular, EKRA expanded the federal Anti-Kickback criminal statute by expanding it to cover payments by private insurance companies for claims submitted induced by a kickback, whereas the federal Anti-Kickback statute only covers payments made by the state or the federal government. Under EKRA, Congress applies health care fraud laws concerning improper remunerations for patient referrals to, or in exchange for an individual using the services of, a recovery home, clinical treatment facility or clinical laboratory. Absent a prescribed exception, the rule punishes any person or entity that knowingly and willingly offers, pays, solicits, or receives, directly or indirectly, anything of value to induce a referral of an individual, or in exchange for an individual using the services of a laboratory, clinical treatment facility, or recovery home.

EKRA provides several exceptions
to the referral prohibition, including but not limited to:

1. A discount
   or other reduction in price obtained by a provider of services or other entity
   under a health care benefit program if the reductions are properly disclosed
   and reflected in the costs claimed or charges made.
2. Payments to employees and independent
   contractors that are not determined by or do not vary by . . . 
   1. The number of individuals referred to a
      particular recovery home, clinical treatment facility, or laboratory;
   1. The number of tests or procedures performed; or
   1. The amount billed to or received from, in part
      or in whole, the health care benefit program from the individuals referred to a
      particular recovery home, clinical treatment facility, or laboratory;

Why was EKRA
implemented?

With the current opioid crisis affecting all parts of the
country, EKRA was created, in part, to help curb improper patient
brokering practices in all payor sectors of health care. Patient
brokering occurs when a drug rehab or similar facility pays a third party to
bring patients to their establishment. These unethical business practices
benefit from the vulnerability of substance abusers.

What does this mean
for private clinics, laboratories, treatment facilities and health care
providers in general?

Because EKRA’s broad language includes a wide array of
healthcare providers, many business relationships may fall under the purview of
the statutory language. Examples of improper business relationships that fall
within the statutory language may include serving as a medical director for a
laboratory to whom a provider makes patient referrals or a business
relationship with a marketing company whose job it is to steer patients to
certain health care providers, such as, a clinical home or treatment center. A
problem arising from EKRA is that the statute may make certain employment areas
subject to criminal prosecution, such as the marketing company example provided
above. However, unlike the Anti-Kickback Statute, EKRA levels the playing field
by making payments made by private insurance subject to criminal prosecution.

Under EKRA, the maximum penalty per offense of illegal
remunerations paid by recovery homes, clinical treatment facilities, or
clinical laboratories, can result in fines of $200,000 and 20 years of imprisonment
for each occurrence.

Overall, EKRA may cause companies to tread lightly in their
business relationships with medical companies because now companies are subject
to anti-kickback statues no matter who pays for the care (public or private
insurance). However, implementation of this statute has removed the financial
incentive from an all payor industry. As such, EKRA helps create a solution to
one aspect of the opioid crisis by subjecting care paid by both private and
public healthcare insurance to criminal prosecution for illegal remunerations.

The Food and Drug Administration (FDA) has had authority over cosmetics since the passing of the Food, Drug, and Cosmetic Act (FDCA) in 1938. However, this authority is based only in regulatory power, not approval power. The FDCA does not require cosmetics to acquire pre-market approval, except for cosmetics that have color additives like medical devices and drugs; instead, the FDA uses post-market regulation to bring formal or informal proceedings against a product.The FDA’s authority over the cosmetic industry, which generated approximately $84 billion in revenue in 2016, is substantially different than any other industry area the Agency regulates. 

The FDCA defines cosmetics as any product that is “intended to be rubbed, poured, sprinkled, or sprayed on, introduced into, or otherwise applied to the human body…for cleansing, beautifying, promoting attractiveness, or altering the appearance.” This includes the obvious, such as moisturizers and facial makeup, but also the nonobvious, such as deodorant and permanent hair waves.  Under this definition, the category of cosmetics encompasses things that both women and men use on a daily basis.  

So how does FDA regulate cosmetics? The FDCA prohibits the marketing of cosmetics that have been adulterated or misbranded. Adulteration address violations involving product composition whereas misbranding addresses improperly labeled or deceptively packaged products. However, the main issue with cosmetics is safety. The FDA states that “companies and individuals who manufacture or market cosmetics have a legal responsibility to ensure the safety of their products,” however “[no] FDA regulation require specific tests to demonstrate the safety of individual products or ingredients.” Companies can use “whatever testing necessary” to guarantee safety. Companies can rely upon already available test data on individual ingredients and similar product formulations or perform their own test for additional information. Even if companies conduct thorough safety testing, “the law also does not require cosmetic companies to share their safety information with FDA.” 

An optimistic approach to FDA regulation would require consumers to fully believe that cosmetic companies conduct thorough safety testing. Since a company’s reputation is on the line, testing for safety is, or should be, a company’s top priority. That is why some dermatologists believe that cosmetics are already safe and that more regulation would be unnecessary. Some also argue that stricter regulation could stifle innovation. Every year there is a new ingredient craze that rocks the cosmetic world.  With stricter regulations, these new ingredients would have to pass through extensive testing which could disincentivize innovation, lead to poorer products, and potentially increase costs. 

Since the industry self-polices, the FDA has to rely on direct reports and complaints from consumers before it can act. For example, in 2014 the FDA launched an investigation into Wen Hair Care after it received about 1,400 complaints about adverse side effects of the hair care products, like hair loss and balding. During its investigation, the FDA learned that Wen Hair Care actually received over 20,000 complaints from consumers before FDA was alerted. Under the FDCA, the FDA could only go after the Wen Hair Care if the products were determined to be adulterated or misbranded. However, if adulterations or misbranding is not the issue, then what can the FDA do? Short of seizing the products to keep them off the market, nothing. 

Current cosmetic regulation might be changing in the near future, though. There are more and more consumers that are looking for health-conscious and clean cosmetic products. Congress has also made a push toward increasing cosmetic safety. In 2017, Senators Dianne Feinstein and Susan Collins introduced a bipartisan proposal that included mandatory reporting and ingredient review of all cosmetics. Also, in 2018, Congresswoman Jan Schakowsky introduced a bill that “…calls for the full disclosure of all ingredients included in beauty and personal care products including fragrances.” While these bills are stirring around in Congress, major cosmetic brands like L’Oréal and Unilever, as well as celebrities like Kourtney Kardashian offer their support for stronger regulation.

 In 2018, Rep.Frank Pallone stated that “[w]hile all other product categories regulated by the [FDA] have been updated to keep pace with innovation and consumer expectations, the laws for cosmetics have been left untouched for nearly 80 years.” Maybe it is time for a change.  

On January 3^rd, Bristol-Myers Squibb
Co. agreed to purchase Celgene Corp. for approximately $74
billion. Once the deal closes, it will be the largest pharmaceutical
acquisition in history.
The acquisition is driven by Bristol-Myers’ expansion into immuno-oncology drug
manufacturing and the potential to leverage Celgene’s research pipeline to boost
Bristol-Myer’s pipeline in the future. It is expected with this deal that other
drug makers will begin looking at larger style acquisitions to remain
competitive in the evolving drug market.
Such business pickup, however, may draw increased government scrutiny, as
concerns about corporate consolidation and its impact on drug pricing may push
the government to intervene in some of these acquisitions.

With this acquisition, Bristol-Myers will acquire Revlimid, a drug that treats multiple myeloma. Revlimid currently accounts for a majority of Celgene’s profits, grossing approximately $5.8 billion in 2015. Although Revlimid continues to increase in sales each year, it has had to contend with a number of patent challenges. While Revlimid is set to expire in 2024 in Europe and 2027 in the United States, Celgene has agreed to allow India’s Natco Pharma Ltd. capped sales in the United States in 2022 and lifts that cap in 2026. Bristol-Myers’ acquisition of Celgene would make the new company less dependent on a single drug and would also enable Bristol-Myers to take advantage of Celgene’s immuno-oncology research. Bristol-Myers currently markets Opdivo, a drug used to treat metastatic melanoma and non-small cell lung cancer. Bristol-Myers has been working with smaller drug makers in several combination studies to expand Opdivo’s use, and the acquisition of Celgene could allow greater research opportunities.

The last five years have seen a great deal of consolidation within the pharmaceutical industry, as larger firms have been acquiring smaller firms to take advantage of certain “blockbuster” drugs these firms have created. For instance, in 2018, the French drug maker Sanofi purchased the hemophilia spinoff of Biogen Inc., Bioverativ Inc., for approximately $11 billion. With this deal, Sanofi attempted to improve its rare disease portfolio by acquiring a promising research pipeline. Larger scale acquisitions have been less popular than small scale acquisitions mostly due to Pfizer Inc.’s failure to acquire generic drug maker Allergan PLC in 2016.

In 2015, Pfizer announced a deal to merge with Allergan for approximately $160 billion. The deal would have allowed Pfizer to re-domicile for tax purposes in Ireland, commonly known as a tax inversion, and take advantage of Allergan’s generic drug pipeline to build synergies within Pfizer’s lagging production pipeline. Under the Obama Administration, the Department of the Treasury issued new guidance on structural requirements for tax inversions that were explicitly written to block the Pfizer-Allergan merger. Pfizer ultimately ended discussions with Allergan and has not made any new major acquisitions after both this, and the attempted acquisition of British drug maker AstraZeneca PLC in 2014, failed due to opposition by the British government. More recent large scale pharmaceutical consolidation has continued with primarily European firms taking the lead, such as Irish drug maker Actavis’ acquisition of Allergan in 2015 for $70.5 billion and Japan’s Takeda Pharmaceutical Co.’s acquisition of Irish drug maker Shire PLC for $62 billion in 2018.

If other pharmaceutical firms begin large scale acquisitions, as many pharmaceutical executives have spoken positively of, there is likely to be increased regulatory pressure on these deals. The Trump Administration has sought to lower the price of drugs on the market, specifically pointing to Celgene’s Revlimid, which currently costs $719.82 per dose. In 2017, Opdivo cost approximately $13,100 for a monthly dosage. There has already been some congressional scrutiny of the proposed deal, as many congressional representatives have petitioned the Federal Trade Commission and the Department of Justice to examine the acquisition, and whether the transaction will lead to higher drug prices. Neither agency has responded to the proposed deal as of yet, but either agency may intervene before the deal is expected to close later in 2019. Whether any potential antitrust concerns will be raised is still unknown as the Department of Justice declined to block CVS Health’s 2018 acquisition of the insurance company, Aetna. The government will likely look to the price increases that occur after the Celgene acquisition and whether further consolidation follows before they take a more definitive step in regulating pharmaceutical acquisitions.