Life Science Compliance Update

May 14, 2015

Update on the Medical Device Tax Repeal Efforts

Medical Device

The Medical Device Tax, instituted as part of the Affordable Care Act, is a tax of 2.3 percent on the sale price of medical device products. There has been considerable pushback against the tax—with members of Congress from both sides of the aisle arguing that it stifles innovation and costs jobs. While there has been a lot of talk about a repeal, the issue has seemed to stall until recently.  

In late April, the United States Senate Committee on Finance held a hearing entitled “A Fresh Look at the Impact of the Medical Device Tax on Jobs, Innovation and Patients.” In the lead-up to the hearing, Finance Committee Chairman Orrin Hatch (R-UT) stated that the Committee plans to mark up a bill to repeal the tax “soon,” notes Cooley Health Beat.  

The hearing itself is quite interesting. Senator Patrick J. Toomey (R-PA) started things off by holding up various medical devices—including a mechanical heart pump, a spinal implant, and a vagal nerve stimulator for epilepsy—all of which vastly improve patients’ lives but which took millions of dollars in losses to bring to market before ever showing a profit. The device tax only magnifies these losses. Toomey noted that at least one manufacturer, in order to offset the costs of the medical device tax, would be building its next factory outside the U.S. Further, the tax has cost jobs, as a number of speakers testified

Toomey also raised an important point when discussing how the tax works in practice:

My view is that the tax, the Medical Device Tax, is not only onerous on its scale, but it’s bad in its design. It is a tax on sales, not a tax on profits. And so these companies that I alluded to that spent large sums of money making these product and bringing them to market, they were losing money years, even when they started to have sales. The initial sales those years were not enough to be profitable. To impose a tax on those sales prior to there even being a profit, it just adds to the debt load that these companies have to carry. And there is only so much debt that can be financed. This is one of the concerns that I have. The design of this tax is very very unfortunate.

In the House: Protect Medical Innovation Act "prior to Memorial Day recess"

Even more recently, a group of 18 Democrats in the U.S. House of Representatives urged House leaders to pass H.R. 160, the "Protect Medical Innovation Act," that would repeal the device tax. The bill is sponsored by Rep. Erik Paulsen (R-Minn.) and Rep. Ron Kind (D-Wis). 

In a May 1 letter written by Rep. Scott Peters (D-Calif.) and co-signed by 17 other Democrats, the lawmakers said that the medical device tax is blocking new medical technology breakthroughs and ultimately harming patients. Furthermore, the tax is harming the employment outlook of a vibrant sector. “The medical technology industry directly employs over 400,000 Americans,” states the letter. “The industry is primarily comprised of small and medium-sized businesses and American companies representing 38% of the global market.” Importantly, “[o]f the 6,500 medical device manufacturers in the United States, 80% employ fewer than 50 employees," notes Peters. 

The letter was addressed to House Speaker John Boehner (R-Ohio), Minority Leader Nancy Pelosi (D-Calif.), Ways and Means Committee Chairman Paul Ryan (R-Wis.), and Committee Ranking Member Sander Levin (D-Mich.).He urged the House leaders to pass H.R. 160 by the Memorial Day recess. 

The sticking point in getting a medical device repeal has been the lack of a budget offset. Last year, the Joint Committee on Taxation estimated that the tax would raise about $28 billion over the next decade. H.R. 160 doesn’t include a way to offset that expected source of revenue. The White House has indicated that the President would veto a measure that doesn't account for the budget.

May 13, 2015

District Court Dismisses Chicago's Painkiller Marketing Lawsuit Against Four of Five Opioid Manufacturers; Purdue Pharma Still on the Hook

City of Chicago

District Court Judge Jorge Alonso of the Northern District of Illinois recently dismissed the City of Chicago’s lawsuit against four out of five pharmaceutical manufacturers that the city accused of marketing opioids in violation of Illinois’ consumer fraud laws and for causing doctors and pharmacies to submit, and the city to pay, claims that were false. Judge Alonso found the majority of allegations lacked the necessary specificity needed for a successful case. For example, while the City alleged fraudulent marketing schemes in fairly good detail, the complaint failed to mention the names of Chicago doctors or consumers who were specifically misled by the drug companies’ various promotional campaigns.

The city’s case against Purdue Pharma LP and their product Oxycontin will continue, and the city has thirty days to amend their claims against Teva (for their products, Actiq and Fentora), Janssen Pharmaceuticals (Duragesic, Nucyntam Ultracet, and Ultram), Endo (Opana, Percocet, and Percodan) and Actavis (Kadian and generic opioids).

Back in June of 2014, in announcing the lawsuit, Chicago Mayor Rahm Emanual stated:

For years, big pharma has deceived the public about the true risks and benefits of highly potent and highly addictive painkillers in order to expand their customer base and increase their bottom line. This has led to a dramatic rise in drug addiction, overdose and diversion in communities across the nation, and Chicago is not immune to this epidemic…Today, we’re saying enough is enough – it’s time for these companies to end these irresponsible practices and be held accountable for their deceptive actions.

The city stated that this deception has cause Chicago's health insurance plan to reimburse claims for approximately $9.5 million on these drugs since 2008. "The increase in misuse and abuse of these drugs is also generating additional health care costs," the city noted. "For example, estimates of visits to the emergency department in Chicago due to the misuse and abuse of prescription painkillers have been steadily increasing, with a significant increase of 65 percent between 2004 and 2011. It is estimated that in Chicago in 2009, opioid misuse and abuse resulted in 1,080 trips to the emergency room."

In its lawsuit (available for download here), Chicago laid out a number of allegations. In summary, they argued:

  • Before defendants' deceptive marketing campaign, opioids were rarely prescribed by physicians because of their serious side and risks of addiction. 
  • Defendants’ marketing of opioids for long-term use to treat chronic non-cancer pain was false, misleading, imbalanced, and unsupported by science

  • Defendants misrepresented the benefits of opioids for chronic non-cancer pain, downplayed the risks of addiction and abuse, and deliberately misrepresented of the risks of over-the-counter painkillers, like Advil, Motrin, and Aleve.

The City of Chicago argued that the opioid manufacturers “distorted scientific evidence for opioid use” and created misleadingly pro-opioid messaging through use of key opinion leaders, “co-opting” chronic pain advocacy and research groups, funding clinical practice guidelines that recommended opioids for “moderate to severe pain,” and influencing opioid-related education programs. 

In going through the City's allegations against each of the five drugmakers, however, the court found that the complaint failed to make any alleged misrepresentations to specific doctors or consumers, or when and how misrepresentations may have been made.

In dismissing claims against Actavis, for example, Judge Alonso stated: "What the City does not allege, however, is the name of any Chicago doctor or consumer to whom any Actavis entity made an alleged misrepresentation, when the misrepresentation was made, or how." Elsewhere in the opinion, the Judge noted that Endo's motion to dismiss should be granted as well:

Again, however, the City does not explain what editorial control, if any, the Endo entities had over materials they allegedly sponsored or funded. Further, it does not allege that the Endo entities distributed the educational materials or advertisements to Chicago doctors or consumers, that Chicago doctors attended the continuing medical education programs, that Chicago doctors or consumers visited the websites or otherwise indicate when, how, and to whom the alleged misrepresentations were made.

The court displayed a similar rationale for the other three drug makers, but found a few complaints against Purdue to be worthy of consideration: "Though most of these allegations suffer from the same flaws as those leveled against the other entities," the Judge argued, "the allegations that, starting in 2005 and continuing to the present, the Purdue entities made misstatements about opioids on their own websites with the intention that Chicago doctors and consumers rely on those misrepresentations are sufficient to state claims against the Purdue entities for violations..." 

This is an interesting case due to a couple of intersecting hot-topic issues in the pharmaceutical sector including opioid abuse and the boundaries of acceptable advertising and promotion. Further, this case is noteworthy in that a major city is suing numerous large pharmaceutical companies. It will be interesting to see whether other cities follow suit (two California counties actually sued the five drugmakers before Chicago did, notes Ed Silverman of the WSJ) and, to see whether plaintiffs pay heed to the specificity requirements that saved the drugmakers in Chicago. 


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