Life Science Compliance Update

April 12, 2017

AHCA Failed…Now What?

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Moments before a scheduled vote on the bill, Republican House leaders announced that they were pulling the American Health Care Act (AHCA) from consideration. Such a move, made because of a shortage of votes needed to pass the bill, has thrown the political arena into disarray and uncertainty. As of right now, it looks like President Donald Trump is going to leave the Affordable Care Act (ACA) in place and move onto other priorities of his, such as tax reform. Even still, there are other options out there with respect to health care and what may happen next.

The Administration’s authority to make changes in the health arena is extremely broad. It includes: executive orders, rules, or other executive guidance based on the extensive body of statutes governing federal health care programs; pre-ACA demonstration and waiver authority; and demonstration authority given to the Center for Medicare & Medicaid Innovation (CMMI) under the ACA. The Trump Administration also has broad opportunities to aggressively interpret these authorities with minimal chance that its actions will be overridden by Congress.

Further, courts review executive actions with deference, thereby limiting actions subject to judicial modification.

Congress

For example, with respect to legislative possibilities, it is possible that key Senate leaders, such as Senator Lamar Alexander of Tennessee, could take a role in brokering an agreement that could pass the Senate with 60 votes. Under such a scenario, major changes would be likely to the House approach on Medicaid expansion, tax credits, and insurance reforms. Moreover, per-capita caps would be unlikely to pass bipartisan muster. Such efforts could be characterized as an attempt to “fix” the ACA, or could end up being a rebranding exercise altogether – even something to the tune of “Trumpcare,” perhaps. But significant challenges would exist in reconciling such a package with Republican promises to “repeal and replace” the ACA. It is also possible that Republicans could seek to pass a “clean” repeal of the ACA – something they have done before, which was vetoed by President Obama in Jan. 2016 – without any agreement on how to replace it.

Administrative Agencies

While the ACA remains in place, it is likely that Health and Human Services (HHS) Secretary Tom Price will look to his regulatory toolbox to provide “relief” from ACA regulations and reverse Obama administration regulations in general.

Additionally, the Trump administration has indicated they will seek to facilitate expedited approval of Medicaid waiver applications to reshape the program for the poor and disabled. Specifically, Secretary Price and CMS Administrator Seema Verma have suggested that states may consider policies imposing work requirements for able-bodies adults, “Health Savings Account-like features,” and various cost-sharing policies common in commercial insurance, like premium payments and emergency room copayments.

Executive Branch

Within hours of his inauguration, President Trump signed an Executive Order (EO) signaling his Administration’s policy of seeking “prompt repeal” of the ACA through wide-ranging executive action. The EO lays the groundwork for federal agencies’ efforts to take intermediate regulatory steps to unravel parts of the ACA, although no specific policies are implemented via the order itself.

The order says HHS and other ACA implementing agencies, such as the Internal Revenue Service (IRS) and Department of Labor (DOL), shall “exercise all authority and discretion available to them to waive, defer, grant exemptions from, or delay the implementation of any provision or requirement” of the ACA to the maximum extent permitted by law.”

The order identifies burdens on states and taxes and penalties on individuals, insurers, providers, or drug and device manufacturers and encourages flexibility for states as well as action to promote a “free and open market in interstate commerce,” including for health insurance.

March 23, 2017

Will Trump Repeal Medical Device Taxes?

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Part of President Obama’s landmark health care bill, the Affordable Care Act, imposed a federal tax on medical devices. That tax was temporarily suspended in January 2016, which allowed some medical device companies (i.e., OrthoPediatrics Corp. based in Northern Indiana) to hire more workers. The CEO of OrthoPediatrics is hoping that President Donald Trump, together with Congress, will turn the temporary suspension into a permanent repeal. 

OrthoPediatrics Instituted a Headcount Freeze

OrthoPediatrics, founded in 2006, develops and markets implantable orthopedic devices, such as metal plates that can be attached to bones, to treat deformities and traumatic injuries in children. It has 60 employees in its Warsaw, Indiana headquarters, and 94 sales representatives around the United States.

When the tax was in full effect, CEO Mark Throdahl said, OrthoPediatrics "had almost a headcount freeze during 2015" because of the revenue that was siphoned away by the tax. Since the tax's temporary suspension, he said, "We've resumed an aggressive pace of hiring and investment."

AdvaMed Quickly Started Lobbying

The medical device industry is seeking to frame the fight as a jobs issue. Immediately following Trump's election victory, industry lobbying group AdvaMed wrote to him and Vice President-elect Mike Pence asking for permanent repeal of the tax.

In the letter, AdvaMed President Scott Whitaker wrote, "The medical device tax has been a significant drag on medical innovation, and resulted in the loss or deferred creation of jobs, reduced research spending, and slowed capital expansion."

Industry complaints like these led Congress last year to temporarily suspend the 2.3 percent excise tax on the sale of non-retail medical devices, such as pacemakers, heart valves and artificial hips. It had been in effect for only three years.

J.C. Scott, head of government affairs at AdvaMed, said companies "feel a great sense of urgency in trying to get complete repeal done early next year, rather than later in the year, because companies need certainty."

There are about 9,000 U.S.-based medical device manufacturers. The industry accounts for about 520,000 U.S. jobs and has $150 billion in direct sales, AdvaMed spokesman Mark Brager said.

Indiana (Vice President Pence’s home state) is home to several device companies. So are Minnesota, California and Massachusetts. Lawmakers from these states helped push through the temporary suspension of the device tax.

Trump Executive Order

One of President Trump’s first orders of business was signing an Executive Order that allowed government agencies, "to the maximum extent permitted by law... to waive, defer, grant exemption from, or delay the implementation of any provision or requirement of the Act [Affordable Care Act] that would impose a fiscal burden on any State or a cast, fee, tax penalty, or regulatory burden on individuals, families, healthcare providers, health insurers, patients, recipients of healthcare services, purchasers of health insurance, or makers of medical devices, products, or medications."

Congressional “Repeal and Replace” Attempt

In early March 2017, House Republicans unveiled their plan to repeal and replace Obamacare, and the released legislation includes ending the medical device tax for good.

While that is a significant victory for medical device makers, there are still open questions as to how the rest of the Republican plan will affect the industry. Those questions could be just the tip of the iceberg, as an industry that is deeply affected by federal policy tries to game out what the new regime, headed by Donald Trump and his GOP allies, will mean for their businesses.

We look forward to continuing to provide updates as we continue working in what seem to be uncharted political waters.

February 28, 2017

Trump Executive Order Targets Regulations

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On one of his first few days on the job, President Donald Trump signed an executive order that would require all government agencies to eliminate two regulations for every one new regulation instituted.

The order was characterized by the Administration as a plan to help benefit small businesses. However, it is likely to have an impact on the United States Food and Drug Administration (FDA) as it applies to every agency (other than those related to military or national security), or any other agencies exempted by the Office of Management and Budget (OMB).

How this plan will work for an agency like the FDA is hard to comprehend: most of the regulations are intertwined with one another. As the EO is written, if the agency needed to put in place a new regulation, it would then have to presumably cut out two other, unrelated regulations that are linked to public health.

Another problem is that, according to the text of the EO, the directions apply to FDA guidance documents as well. This will be a large problem for pharmaceutical and medical device companies that rely on such guidances to understand FDA’s interpretations of the law. The EO defines the term ‘regulation’ or ‘rule’ to mean “an agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy or to describe the procedure or practice requirements of an agency.

The way this EO is implemented across the federal government is going to come largely from the OMB director, who will provide the heads of agencies with guidance addressing, among other things, “processes for standardizing the measurement and estimation of regulatory costs; standards for determining what qualifies as new and offsetting regulations; standards for determining the costs of existing regulations that are considered for elimination; processes for accounting for costs in different fiscal years; methods to oversee the issuance of rules with costs offset by savings at different times or different agencies; and emergencies and other circumstances that might justify individual waivers of the requirements.” 

Prior to releasing this EO, President Trump said, “This will be the biggest such act that our country has ever seen. There will be regulation. There will be control. But it will be normalized control where you can open your business and expand your business easily.”

"If you have a regulation you want, No. 1, we're not going to approve it because it's already been approved, probably, in 17 different forms," Trump said from the White House. "But if we do, the only way you have a chance is we have to knock out two regulations for every new regulation."

Although many of Trump's other executive orders have been met with criticism, this latest policy is not unfounded. Back in 2010, the United Kingdom adopted a similar policy, though its implementation did not apply to taxes, certain European Union legislation, non-business regulations and "regulation for civil emergencies," according to the U.K. government.

OMB Issues Guidance

On February 2, 2017, the OMB did issue guidance to the Agencies, highlighting what to expect and how to handle this executive order. The Q&A offers some clarity and boundaries for the EO signed last Monday, noting: “The EO’s requirements for Fiscal Year 2017 apply only to those significant regulatory actions, as defined in Section 3(f) of Executive Order 12866, an agency issues between noon on January 20 and September 30, 2017.”

But the OMB guidance does offer some wiggle room for FDA in terms of issuing draft or final guidance (2017 guidance plans for FDA's Center for Drug Evaluation and Research are here) noting that “significant guidance or interpretive documents will be addressed on a case-by-case basis.”

As far as what existing regulations if repealed would be considered part of the “two out” part of the EO, OMB notes, “Any existing regulatory action that imposes costs and the repeal or revision of which will produce verifiable savings may qualify.”

The guidance also offers FDA, which is an agency that deals with public health and safety, some ways to waive the “two out, one in” requirements of the EO. “Emergencies addressing critical health, safety, or financial matters, or for some other compelling reason, may qualify for a waiver from some or all of the requirements of Section 2,” the guidance notes.

But if a new regulation is implementing a new law from Congress (for instance, with FDA’s pending implementation of the 21st Century Cures Act), OMB clarifies that agencies should still “identify additional regulatory actions to be repealed in order to offset the cost of the new significant regulatory action, even if such action is required by law.”

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