When Export “Classification Determinations” do not Determine Anything At All

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In the August 2, 2010 edition of the Federal Register, the Bureau of Industry and Security (BIS) “ the Department of Commerces group in charge of export regulation in that department “ issued an interim final rule in which it says that exporters cannot rely on BISs classification determinations as “U.S. Government determinations.”

This seemingly convoluted bit of government semantics is designed to more effectively communicate to exporters what BIS has been saying for years:  Commerce isnt the only federal department or agency enforcing regulations.  In fact, BIS only has jurisdiction over those items and activities that are subject to the Export Administration Regulations (EAR).”  Therefore, when merchandise being exported falls clearly and solely under BIS jurisdiction, then its classification determinations are as good as gold.

But what happens when merchandise being exported falls under the jurisdiction of State Department’s Directorate of Defense Trade Controls (DDTC), or Treasurys Office of Foreign Assets Controls, or the Department of Energy or Nuclear Regulatory Commission?  Too often in the past, exporters have turned to BIS to pass judgment on products that arent “subject to the EAR.”  In those instances, exporters must comply with the regulations administered by the applicable agency, and exporters dont have to consider the provisions of the EAR.

So what are exporters supposed to do?  Government regulations state that an exporter should review relevant government regulations and make “jurisdictional determinations” as to which department or agency has primacy with respect to regulating a product.  In practice “ and when in doubt “ we encourage exporters to seek advisory opinions from BIS and the State Department as to the proper classification of merchandise.  When contacting the DDTC, exporters should request a “commodity jurisdiction” determination to ascertain an item is subject to the International Traffic in Arms Regulations (ITAR).

Armed with this self-determination of which agency or department has possible jurisdiction over a product, and (potentially) an ITAR determination and a BIS determination as to a commoditys possible Export Control Classification Number (ECCN), an exporter can move forward with reasonable certainty.

But what about that BIS classification in light of the interim final rule?  Exporters need only remember that because BIS does not have authority to issue determinations that would bind other agencies, a BIS commodity classification only identifies whether the merchandise being exported is described in the Commerce Control List (based on the ECCN).  Exporters still need to do their due diligence with other agencies to ensure export compliance.

FDA Clears First Embryonic Stem Cell Trial Using Patients to Begin

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The U.S. Food and Drug Administration (FDA) has given the “go ahead” to the worlds first authorized human trial of a treatment derived from human embryonic stem cells.  This trial will test cells developed by the University of California, Irvine and the Geron Corporation.  The cells will be used on patients with recent spinal cord injuries.

This trial was originally cleared by the FDA to begin in January of last year.  However, before the study could begin, the FDA put a hold on the Investigational New Drug (IND) application because cysts were found in some of the mice injected with the cells during pre-clinical animal trials.  Another animal study had to be conducted and the testing of cell purity had to be improved before the trial could proceed.

On July 30, Geron announced that FDA had lifted the hold on the study and that it would move forward with the worlds first clinical trial of a human embryonic stem cell (hESC)-based therapy in humans.  This Phase I trial is designed to establish the safety of GRNOPC1 in patients with spinal cord injuries.  GRONPC1 is Gerons lead hESC-based therapeutic candidate.

Embryonic stem cells have the ability to turn into any type of cell in the human body.  In this clinical trial, embryonic stem cells are turned into precursors of neural support cells called oligodendrocytes, which are injected into the spinal cord at the site of the injury.  The goal is for the injected cells to repair the insulation around nerve cells which would restore the ability of some of the nerves to carry signals.  The initial trial will focus on a very small number of clinical subjects to establish the safety of the treatment. 

Geron plans to seek FDA approval, once safety is established, to extend the study to an increased dosage of GRONPC1, enroll subjects with complete cervical injuries, and expand the trial to include patients with severe injuries to enable access to the therapy for a broader population of patients.  The biopharmaceutical company believes that there could be other potential indications for GRONPC1 such as treatment for Alzheimers Disease, Multiple Sclerosis, and Canavan Disease.

The FDA clearance of this clinical trial is a major milestone for the field of stem cell research and medicine.

For more information on Fuerst Ittlemans experience handling the FDA regulatory framework of stem cells, drugs, and biologics, please contact us at contact@fidjlaw.com.

HSBC is New Target of DOJ Investigation into International Banks and Tax Evasion

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The next bank to draw the attention of the Internal Revenue Service (IRS) after the UBS investigation, on which we previously reported, is London-based HSBC. 

The Department of Justice (DOJ) has begun a criminal investigation of U.S. taxpayers using HSBC Holdings PLC accounts in India and Singapore to evade domestic taxes.  The DOJ is investigating whether the taxpayers have violated federal law by failing to report financial interests in accounts held in foreign countries.

Over the past two months, at least 15 or more HSBC clients have received correspondence from the U.S. government indicating that they will be investigated for tax evasion.  Two HSBC customers will be in front of a federal court in Fort Lauderdale on tax evasions charges on September 7.

It has been estimated that there is approximately $700 billion in untaxed wealth in Asia where HSBC maintains a prominent presence.  HSBC was founded in Hong Kong in 1865.  The Internal Revenue Service (IRS) will be placing 800 new agents overseas to strengthen its international operations due to President Obamas goal to crack down on tax evasion.  Many of those agents will be heading to Asia.

HSBC is cooperating with authorities, unlike UBS which initially refused to release the names of its U.S. customers to authorities.  HSBC has already turned over names and customer service audio tapes to U.S. officials.

The IRS and DOJ have been investigating U.S. taxpayers using accounts with UBS in Switzerland to evade taxes by not reporting income on the assets in the accounts.  (See IRS announcement here and DOJ announcement here.)  UBS was recently hit with $780 million fine for hiding U.S. taxpayer assets.  It appears as if the IRS and DOJ interest in international banks will continue to spread and that the agencies will continue to take on tax evaders internationally.

For more information on international tax issues, please contact our tax attorneys at contact@fidjlaw.com.

FDA approves generic Lovenox® (enoxaparin) representing a major policy advancement for naturally-sourced generic drugs and possibly biosimilars.

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On July 23, 2010 the FDA approved the first generic enoxaparin product in a major policy advancement that will likely impact a number of other naturally sourced generic drugs and possibly biosimilars.  Enoxaparin is the generic name for Lovenox® which is manufactured by Sanofi Aventis.  The drug is a low molecular weight heparin, derived from cleavage of large heparin strands. It is an injectable anticoagulant (blood thinner) indicated for the prevention and treatment of deep vein thromboses (blood clots).  The drug was approved under an Abbreviated New Drug Application (ANDA) submitted by Sandoz Inc.  Lovenox® was originally approved in March 1993 under a New Drug Application (NDA) by Sanofi Aventis.

What makes this matter so important is enoxaparin is a naturally-derived product, more closely related to biologic drugs such as monoclonal antibodies than conventional drugs like aspirin and Lipitor.®   These products pose a number of important challenges in the generic review and approval process, unlike conventional drugs.  For example the characterization of these products is often difficult and generic versions pose important immunogenicity concerns and greater batch-to-batch variability. 

In 2003 counsel for Sanofi Aventis submitted a citizens petition to the FDA urging the agency to not approve a generic version of the drug until a number of requirements were met, in attempts to exclude competition.  Specifically, they expressed concerns with characterization of the drug and how the FDA would ensure equivalency. They requested the FDA require the generic to follow the same manufacturing practices as Sanofi Aventis or else require full-scale clinical testing to demonstrate equivalent safety and efficacy.  Moreover, Sanofi Aventis requested the FDA require the generic be a specific chemical profile, that is to contain a 1,6 anhydro ring structure at the reducing ends of between 15 percent and 25 percent of its poly(oligo)saccharide chains.

Simultaneous with the approval, on July 23, 2010 the FDA released their response to the petition.  The agency granted the petition insofar as requiring the generic to meet the chemical profile type, but denied the petition insofar as requiring the manufacturing practice to be equivalent or else require full-scale clinical investigation.  Instead the FDA established that enoxaparin has been adequately characterized and sameness of the generic to the brand would be met based on the following five criteria.   

  1. Equivalence of heparin source material and mode of depolymerization
  2. Equivalence of physiochemical properties 
  3. Equivalence in disaccharide building blocks, fragment mapping, and sequence of oligosaccharide species
  4. Equivalence in biological and biochemical assays
  5. Equivalence of in vivo pharmacodynamic profile

Essentially, by demonstrating compliance with the above standards of identity, a generic drug could prove equivalent to the brand drug without the need for full-scale clinical investigation, complete characterization, and with variances in the manufacturing process. 

The approval now means that pharmacists may substitute the generic drug for the brand, providing cost-savings to the patient and the healthcare system as a whole.  More importantly, the approval represents an important policy development by the FDA.  The FDAs establishment of criteria for sameness suggests the FDA is prepared to move on additional naturally-derived generic applications.  Furthermore, the approval suggests that the FDA will not require full-scale clinical trials for biosimilars and may approve them, even with notable differences in the manufacturing process if certain criteria are met.  Biosimilars are follow-on versions of complex naturally-derived products.  The 2010 health reform bill, the Patient Protection and Affordable Care Act, for the first time authorizes the FDA to approve biosimilar drugs in the United States under Title VII-Biologics Price Competition and Innovcation Act.  Prior to this enactment there was no real mechanism to approve biosimilar products for drugs approved under a Biologic License Application (BLA), as authorized by section 351 of the Public Health Service Act (PHS).

For information on Fuerst Ittlemans services with navigating the FDA drug approval process, please contact us at contact@fidjlaw.com.

FDA Issues Notice for Voluntary Registration for Non-Covered Retail Food Establishments and Vending Machine Operators Electing to Opt-In to Coverage of the Nutritional Disclosure Requirements of the Patient Protection and Affordable Care Act of 2010

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As we previously reported, the Patient Protection and Affordable Care Act of 2010 (“PPACA”) contains a section requiring nutritional disclosure requirements for certain retail food establishments and vending machine operators. Pursuant to section 4205 of the PPACA, restaurants and similar retail food establishments with 20 or more locations doing business under the same name and offering for sale substantially the same menu items (“chain restaurants”) and for vending machine owners operating 20 or more vending machines (“chain vending machine operators”) are required to disclosure certain nutritional information on the foods and beverages that they sell.

On July 23, 2010, the U.S. Food and Drug Administration (FDA) issued a Federal Register Notice providing registration guidance to retail food establishments and vending machine operators who are not covered by the nutritional disclosure requirements of section 4205 but would like to elect to become subject to the requirements by registering biannually with the FDA. Retail food establishments that are not covered by section 4205 may still be subject to State and local nutritional labeling laws that are not “identical to” the Federal requirements. By voluntarily registering under section 4205, these retail food establishments will no longer be subject to State or local nutritional labeling requirements unless those requirements are identical to the Federal requirements. It is different for vending machine operators. Vending machine operators cannot be subject to State or local nutritional labeling requirements that are not identical to the Federal requirements, but may still elect to be subject to the requirements in section 4205 by registering with the FDA.

The FDA will begin accepting registrations on July 21, 2010, on a continuous basis. The registration must be renewed every other year or it will automatically expire. Restaurants, similar retail food establishments, and vending machine owners must use the FDA form at http://www.fda.gov/menulabeling  to register. For registration of restaurants or similar retail food establishments, the following information must be provided to the FDA:

  • The name, address, phone number, e-mail address, and contact information for the authorized official;
  • The name, address, and e-mail address of each restaurant or similar retail food establishment being registered, as well as the name and contact information for an official onsite, such as the owner or manager for each specific restaurant or retail food establishment;
  • All trade names the restaurant or similar retail food establishment uses;
  • Preferred mailing address for correspondence; and
  • Certification that the information is true and accurate, submitted by someone authorized to do so, and that each registered facility will be subject to the requirements of section 4205.

For the registration of vending machine operators, the following information must be provided to the FDA:

  • The name, address, phone number, e-mail address, and contact information for the vending machine operator;
  • The address of each vending machine owned or operated by the vending machine operator, and the name and contact information of the location in which each vending machine is located;
  • Preferred mailing address for correspondence; and
  • Certification that the information is true and accurate, submitted by someone authorized to do so, and that each registered facility will be subject to the requirements of section 4205.

The FDA prefers that all required registration information be sent via e-mail on the FDA form to http://menulawregistration@fda.hhs.gov.

For more information on the benefits of voluntary registration or assistance with other regulatory compliance issues for your restaurant, retail food establishment, or vending machine operations, please contact us at 305-350-5690 or contact@fidjlaw.com.

New Physician Gift and Disclosure Reporting Rules that Drug and Medical Device Manufacturers Should Know

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Drug and medical device manufacturers need to be aware and comply with state and federal gift disclosure rules because a failure to comply, even if inadvertent, could mean hefty monetary penalties.

Several states have adopted compliance and disclosure requirements for gifts and other value transfers to physicians by drug and medical device manufacturers. Some states have gone so far as to impose “gift bans,” providing narrow exceptions for permissible physician payments. For example, Vermont previously had a “gift ban” and on May 27, 2010 enacted new legislation, which amended the existing legislation related to physician relationships with medical device and drug manufacturers. Vermont is not alone. Minnesota and Massachusetts also have “gift ban” laws and several other states have proposed or have similar pending “gift ban” legislation. Some states, such as Colorado and Connecticut, have their own payment and gift disclosure laws.

In addition to the different state laws, drug and device manufacturers should be aware of a provision of the federal Patient Protection and Affordable Care Act (“PPACA”), which provides for transparency reports of industry payments to physicians to be publicly disclosed. This provision, Section 6002 of the PPACA is also known as the Physician Payment Sunshine Provision because it is based on the previously proposed, but never enacted, Physician Payment Sunshine Act. The PPACA requires that drug and medical device manufacturers report payments made to physicians to the Secretary of the Department of Health and Human Services (“Secretary”), but also requires the Secretary, in turn, provide these required payment disclosure reports to the public through an “Internet website” that is “searchable and in a format that is clear and understandable.”

The contents of the payment disclosure reports is contained in Section 6002 of the PPACA, which requires drug and medical device manufacturers to report in “electronic form” to the Secretary the following:

  • name,
  • business address,
  • physician specialty, if applicable,
  • National Provider Identifier,
  • the amount of the payment or transfer of value,
  • a description of the form of payment or other transfer of value (i.e. cash, in-kind items or services, stock, etc.), and
  • a description of the nature of the payment or other transfer of value (i.e. consulting fees, gift, food, travel, entertainment, etc.).

The PPACA defines “payment or other transfer of value” very broadly to mean “a transfer of anything of value.” However, the following payments or transfers of value are exempt from disclosure:

  • Payments or transfer of anything of value made indirectly to a physician through a third party, where the manufacturer is unaware of the identity of the physician;
  • Payments less than $10, unless the total amount paid to a physician during a calendar year exceeds $100;
  • Product samples that are not intended to be sold and are intended for patient use;
  • Educational materials that directly benefit patients or are intended for patient use;
  • The loan of a medical device for a short-term trial period that does not exceed 90 days;
  • Items or services provided under a contractual warranty, including the replacement of a medical device, where the terms of the warranty are set forth in the purchase or lease agreement for the medical device;
  • A transfer of anything of value to a physician when the physician is a patient and not acting in a professional capacity;
  • Discounts and rebates;
  • In-kind items used for charity; and
  • A dividend or other profit distribution from ownership or investment interest in, a publicly traded security or mutual fund.

While the PPACA requires information to be made public, it treats payments to physicians assisting in the research and development of new drugs and devices differently. The Secretary will not publish payment information on the website until after the earlier of the following: (1) the date the U.S. Food and Drug Administration approves or clears the drug, device, biological, or medical supply or (2) four years after the date of the payment to the doctor.

Drug and device manufacturers may face significant penalties for noncompliance with the reporting requirements, even if inadvertent. Under the PPACA, a manufacturer that fails to submit the required information in a timely manner “shall be subject to a civil money penalty of not less than $1,000, but not more than $10,000.” If a manufacturer “knowingly fails” to submit the required information in a timely manner, the manufacturer “shall be subject to a civil money penalty of not less than $10,000, but not more than $100,000” for each payment not reported.

Many in the industry had hopes that the federal PPACA would preempt the various state laws on this subject. However, the PPACAs preemption clause does not preempt any state statute or regulation that requires disclosure or reporting of information that is “not of the type required to be disclosed or reported” under the PPACA. It only preempts those state laws that are similar or weaker. As a result, drug and device manufacturers will not only have to comply with the federal reporting and disclosure requirements imposed under the PPACA, but also with the various and additional requirements of the States.

Drug and device manufacturers have time to prepare for the new federal disclosure requirements while also complying with the state laws. Under the PPACA, the Secretary is required to establish regulations and procedures for the submission of the payment information by October 1, 2011. Drug and device manufacturers must begin collecting and recording payment information on January 1, 2012 and the first disclosure of payments to physicians made during the preceding year must be submitted to the Secretary on or about March 31, 2013.

For more information on the payment disclosure and reporting requirements under the PPACA and the various state statutes and regulations, please contact us at contact@fidjlaw.com or (305) 350-5690.

Tax Dodgers Beware: New Foreign Account Tax Compliance Legislation

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The Foreign Account Tax Compliance ACT (FATCA) is Congresss newest attempt to tackle tax evasion, specifically that which occurs through the utilization of offshore accounts.  Nearly all provisions of the FATCA were incorporated into law with the enactment of the Hiring Incentives to Restore Employment Act (HIRE Act) in March of this year. The enacted FATCA provisions will become effective in 2013.

Douglas H. Schulman, Commissioner of the Internal Revenue Service, spoke about the newly enacted FATCA before the Organization for Economic Cooperation and Development (OECD).  During his speech, Commissioner Schulman described offshore tax evasion as “an issue of fundamental fairness.” “Wealthy people who unlawfully hide their money offshore arent paying the taxes they owe, while schoolteachers, firefighters and other ordinary citizens who play by the rules are forced to pick up the slack.” 

Commissioner Schulman attributed offshore tax evasion to bank secrecy jurisdictions, in which financial institutions essentially allow U.S. taxpayers to hide their money free of any possibility of disclosure to the IRS.  Many strategies have been employed to address bank secrecy, including international tax standards on information exchanges developed by the OECD and agreements with foreign governments regarding the release of information pertaining to U.S. account holders.  The IRS also developed a special voluntary disclosure program which provided incentives for U.S. persons who voluntarily disclosed their non-U.S. bank accounts through a temporary penalty framework.

Unlike the voluntary disclosure program, the FATCA is not based on an incentive system. The FATCA created new code sections to the Internal Revenue Code (I.R.C) which impose a 30 percent withholding tax to foreign financial institutions which do not take the appropriate measures to “avoid” the withholding tax.  These avoidance measures are included in 26 I.R.C. § 1471(b), which provides as follows:

(1) The requirements of this subsection are met with respect to any foreign financial institution if an agreement is in effect between such institution and the Secretary under which such institution agrees–
(A) to obtain such information regarding each holder of each account maintained by such institution as is necessary to determine which (if any) of such accounts are United States accounts,
(B) to comply with such verification and due diligence procedures as the Secretary may require with respect to the identification of United States accounts,
(C) in the case of any United States account maintained by such institution, to report on an annual basis the information described in subsection (c) with respect to such account,
(D) to deduct and withhold a tax equal to 30 percent of–
(i) any passthru payment which is made by such institution to a recalcitrant account holder or another foreign financial institution which does not meet the requirements of this subsection, and
(ii) in the case of any passthru payment which is made by such institution to a foreign financial institution which has in effect an election under paragraph (3) with respect to such payment, so much of such payment as is allocable to accounts held by recalcitrant account holders or foreign financial institutions which do not meet the requirements of this subsection,
(E) to comply with requests by the Secretary for additional information with respect to any United States account maintained by such institution, and
(F) in any case in which any foreign law would (but for a waiver described in clause (i)) prevent the reporting of any information referred to in this subsection or subsection (c) with respect to any united states account maintained by such institution”
(i) to attempt to obtain a valid and effective waiver of such law from each holder of such account, and
(ii) if a waiver described in clause (i) is not obtained from each such holder within a reasonable period of time, to close such account. 

The FATCA further requires all foreign entities to choose between a 30 percent withholding tax or compliance with reporting requirements. I.R.C. §1472 provides a withholding tax of 30 percent on the amount of any withholdable payment to a nonfinancial foreign entity.  In order to “avoid” this tax, the beneficial owner must comply with the requirements in subsection (b) which states:

(1) Such beneficial owner or the payee provides the withholding agent with either-
(A) a certification that such beneficial owner does not have any substantial United States owners, or
(B) the name, address, and TIN of each substantial United States owner of such beneficial owner,
(2) The withholding agent does not know, or have reason to know, that any information provided under paragraph (1) is incorrect, and
(3) The withholding agent reports the information provided under paragraph (1)(B) to the Secretary in such manner as the Secretary may provide.

The FATCA includes additional reporting requirements for passive foreign investment companies and foreign trusts, and also adds increased penalties for individuals who fail to furnish information regarding foreign assets.  

The FATCA does not waive or replace any reporting requirements already in place. Taxpayers are still required to comply with the requirements of Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR).  The FATCAs reporting requirements supplement the FBAR, and often impose reporting requirements where the FBAR does not.  Individuals and entities that were not in the scope of the FBAR may still be within the scope of the FATCA.

The drastic measures of the FATCA may result in foreign financial institutions deciding not to manage U.S. account holders.  Many Swiss banks have “thrown out” their American clients.  Other Swiss banks, such as Vontobel and Franck, have seen the legislation as a business opportunity and have launched separate banks dedicated to wealth management for U.S clients.  These banks are aimed at the “sine qua non” of being in perfect order with the IRS.

Other possible consequences include foreign financial institutions becoming reluctant to invest in U.S. stocks and bonds.  Also, foreign jurisdictions may pass reciprocal legislation requesting U.S. financial institutions to make a choice between paying a hefty withholding tax or incurring expenses associated with compliance with the reporting requirements. 

The FATCA is a significant effort to monitor offshore transactions.   Although the legislation may have some unintended consequences, it is very likely to achieve the goals of reducing tax evasion resulting from offshore accounts.   As stated by Stephanie Jarret, the head of the Wealth Management Practice Group at Baker & McKenzie in Geneva, “[m]anaging U.S. clients is complicated. . . [b]ut isnt the trend toward complexity inevitable?”

If you have any questions regarding the FATCA or any other tax provision, please contact Fuerst Ittleman, PL at contact@fidjlaw.com

DC Circuit Court Allows “Rivals” in Research who are Competing for Federal Grants to Challenge Agency Actions that Benefit Their Opposition

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On June 25, 2010, the United States Court of Appeals for the District of Columbia Circuit issued an opinion holding that two doctors who were applying to the National Institute of Health (NIH) for funding of projects involving human adult stem cells (hASCs) had standing to challenge newly promulgated guidelines of the NIH permitting the funding of human embryonic stem cell research (hESC).

The National Institute of Health (NIH) has provided funding for hASCs for about 50 years; however, research of hESCs has only been done since 1998. Both plaintiffs, Dr. James Sherley and Dr. Theresa Deisher, conduct research on hASCs and have never conducted research on hESCs. The NIH did not provide any funding for hESCs research until 2001, when President Bush authorized some funding subject to the limitation that only hESCs derived from then-extent stem cells could be used.  In Executive Order 13,505, President Obama expanded hESCs research and directed the Secretary of Health and Human Services, through the Director of NIH to “support and conduct responsible scientifically worthy human stem cell research, including human embryonic stem cell research, to the extent permitted by law” and to “issue new NIH guidance on such research that is consistent with this order.  These Guidelines permitted the NIH to fund more projects involving hESCs.

Plaintiffs, Dr. Sherley and Dr. Deisher, along with Christian Adoption Groups opposed to hESC research, filed a lawsuit in the United States District Court for the District of Columbia, requesting an injunction to block federal funding of hESCs research and a declaration stating the NIH Guidelines are invalid. The plaintiffs argued in their complaint that the NIH did not promulgate the Guidelines in accordance with law, specifically the “Dickey-Wicker Amendment”, which has been a provision of the Omnibus Appropriations Act for over a decade.  The pertinent part of the Act is Section 509:

(a) None of the funds made available in this Act may be used for–
(1) the creation of a human embryo or embryos for research purposes; or
(2) research in which a human embryo or embryos are destroyed, discarded, or knowingly subjected to risk of injury or death greater than that allowed for research on fetuses in utero under 45 CFR 46.204(b) and section 498(b) of the Public Health Service Act ( 42 U.S.C. 289g(b)).

The United States District Court for the District of Columbia dismissed the complaint, holding the plaintiffs did not have standing to challenge the NIH Guidelines.  Drs. Sherley and Deisher argued they had standing under the competitive standing doctrine, as “the new guidelines will result in increased competition for limited federal funding and will injure their ability to successfully compete for NIH stem cell research funds.” The District Court rejected this argument, finding Drs. Sherley and Deisher were “not participants in strictly regulated economic markets, but are applicants for research grants, where unlike an economic market, an increase in competition for funding does not mean that all other applicants are harmed.” The District Court further described the competitive process to receive NIH funding, and stated that even if the regulations did not exist, the doctors were not assured of receiving funding for adult stem cell research.  It also emphasized in its opinion that only about 22 percent of applications to NIH actually received funding.  The District Court found that the Guidelines neither prevented nor hindered either doctors opportunity to compete for funding. Their respective proposals would still receive funding if they survived the two-tier review process that all applications undergo.

The United States Court of Appeals for the District of Columbia reversed, noting in its opinion that it could see “no reason a person competing for a government benefit should not be able to assert competitor standing when the Government takes a step that benefits his rival and therefore injures him economically.”

The specific rivalry between the hASC research and hESC research is acknowledged by the NIH on its website under the “Frequently Asked Questions”:

Question: Why not use adult stem cells instead of using human embryonic stem cells in research?
Answer: Human embryonic stem cells are thought to have much greater developmental potential than adult stem cells. This means that embryonic stem cells may be pluripotent”that is, able to give rise to cells found in all tissues of the embryo except for germ cells rather than being merely multipotent”restricted to specific subpopulations of cell types, as adult stem cells are thought to be.

The Court of Appeals found there was “no doubt that the Guidelines will elicit an increase in the number of grant applications involving hESCs.” It also noted that the Guidelines “intensified the competition for a fixed share of money” and will force the plaintiffs to “invest more time and resources to craft a successful grant application.”  The injury in fact to researchers of hASCs applying for NIH grants was more “imminent” and “traceable to the challenged guidelines” than the injury to all researchers applying for NIH grants because hESCs and hASCs could often be used as substitutes for each other. The Court of Appeals acknowledged that the actual loss of funding by researchers of hASCs could not be determined, but the substantial possibility of the imminent injury was sufficient for purposes of the competitor standing doctrine.

The holding of the Court of Appeals is narrow. It merely has the effect of permitting obvious rivals in an area of research to have standing to bring suit when a government action eases their oppositions entry into the competition for federal grants. Whether the new NIH guidelines are in conflict with the Dickey-Wicker Amendment, and are thus unenforceable, are still questions to be decided by the District Court on remand.

If you have any questions pertaining to new NIH guidelines, or the application process for receiving NIH grants, contact Fuerst Ittleman PL at contact@fidjlaw.com.

Medicare Fraud of $251 Million, 94 Suspects Indicted

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On Friday, July 16, the Department of Justice (DOJ) and Department of Health and Human Services (HHS) announced that the joint DOJ-HHS Medicare Fraud Strike Force has charged 94 people for alleged participation in Medicare schemes.  The suspects, collectively, submitted more than $251 million in false claims to the Medicare program. 

More than 360 law enforcement agents from federal and state agencies participated in the operation.  According to the DOJ and HHS, the operation is the largest federal health care fraud takedown since the inception of the Strike Force in 2007.  Last Friday, 36 of the 94 individuals were arrested in Miami, New York, Baton Rouge, and Detroit.  The individuals charged are doctors, nurses, health care company owners, and executives.

The 94 individuals involved in this takedown have been accused of various Medicare fraud-related offenses, including conspiracy to defraud the Medicare program, criminal false claims, violations of the anti-kickback statutes and money laundering.  The alleged schemes involve physical and occupational therapy schemes, home health care schemes, HIV infusion fraud schemes, and durable medical equipment (DME) schemes. 

In Miami, 25 defendants have been charged for allegedly participating in fraud schemes leading to approximately $103 million in false billings.  The defendants include a medical biller who allegedly billed approximately $49 million for fraudulent services. 

The Strike Force in Miami, and other cities across the country, is part of the Health Care Fraud Prevention & Enforcement Action Team (HEAT).  HEAT is part of the joint DOJ-HHS initiative to fight fraud and enforce anti-fraud laws around the country.  Phase 1 of the initiative began in South Florida in March 2007 and has expanded north to Tampa, Florida.  Since March 2007 the Strike Force has obtained indictments of more than 810 individuals and organizations that have billed the Medicare program, collectively, for more than $1.85 billion.

For information about Fuerst Ittlemans experience litigating white collar criminal cases, including health care fraud cases, please contact us at contact@fidjlaw.com.

Safe Cosmetics Act of 2010: New Bill Would Increase Cosmetics Regulations

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The U.S. Food and Drug Administrations (FDA) current regulation of cosmetics is relatively lax compared to the way the Agency regulates drugs, biologics, medical devices, and other FDA-regulated industries.  However, that all may change if the Safe Cosmetics Act of 2010 becomes law. 

The bill (H.R. 5786), introduced this week, would alter the regulatory scheme of cosmetics in the U.S. to more closely reflect the way that FDA regulates the other industries under its purview.  The Safe Cosmetics Act of 2010 would maintain the current Food, Drug, and Cosmetic Act sections 601-603 concerning adulterated and misbranded cosmetics but would add a new subchapter that would include, among other provisions:

  • A requirement that domestic and foreign establishments that manufacture, package, or distribute cosmetics to register FDA annually; 
  • Establishments would be required to provide FDA with specific information about their products and provide FDA with a description of the establishments activities and gross receipts.  Manufacturers would have to supply FDA with contact information for each of its ingredient suppliers;
  • A requirement that FDA establish a “schedule of feesto provide for oversight and enforcement” of the new cosmetics regulation.  Such fees would only be assessed to companies with gross receipts or sales of more than $1 million;
  • The requirement that all cosmetics labels, both for retail sales and professional use, “bear a declaration of the name of each ingredient in such cosmetic in descending order of predominance;”
  • A requirement that cosmetics manufacturers and distributors submit to FDA all information about “the physical, chemical, and toxicological properties of single or multiple chemicals listed on the cosmetic labels.”  The information to be submitted would include function and uses, tests of cosmetics, and exposure and fate information;
  • A prohibition on companies from manufacturing, importing, distributing, or marketing a cosmetic or cosmetic ingredient if the company has not provided FDA with the information required under the regulations.  Also, the bill contains a prohibition on companies from manufacturing, importing, distributing, or marketing if the companys product contains any non-permitted ingredients;
  • A mandate that adverse health effects associated with the use of a cosmetic be reported;
  • The requirement that responsible parties notify FDA if a marketed cosmetic is adulterated or misbranded is a way that the use of or exposure to the cosmetic (or any ingredient or component of the cosmetic) would likely cause serious health consequences or death.  FDA may request a voluntary recall of the affected products, issue a cease and desist order to stop the company from distributing, and/or require a recall or issue an emergency recall order;
  • A requirement that FDA issue regulations that includes lists of ingredients the FDA classifies as “prohibited ingredients,” “restricted ingredients,” or “safe without limits” for use in cosmetics.  These regulations must be issued within two years of enactment of the Safe Cosmetics Act of 2010.
  • A requirement that FDA develop a “priority assessment list of not less than 300 ingredients” that cannot be included on the three lists mentioned above “because of a lack of authoritative information on the safety of the ingredient.”  FDA must determine the safety of these ingredients.
  • A requirement that FDA publish a list of “alternative testing methods” that do not involve using animals to test chemical substances; and
  • FDA authorization to require cosmetics containing “nano-scale” materials be labeled as such.

Currently, cosmetic establishments do not have to register with FDA.  Additionally, there is no regulation requiring that a cosmetic ingredient be approved by, or listed with, FDA prior to use.  The FDA, under 21 C.F.R. parts 710 and 720, has established the voluntary cosmetic registration program which allow firms to voluntarily register their facilities and list their products and ingredients.  FDA does regulate color additives more strictly with some requiring certification prior to use.  FDA regulations also prohibit or restrict certain ingredients for cosmetic use.  However, the provisions of the Safe Cosmetics Act of 2010 would greatly alter the current structure of the regulation and allow the FDA a much more invasive approach to the regulation of cosmetic firms. 

Rep. Jan Schakowsky (D-IL), with Reps. Ed Markey (D-MA) and Tammy Baldwin (D-WI), introduced the bill just five days after the Personal Care Products Counsel (PCPC) announced that the organization had sent a letter to health policy leaders in Congress calling for changes in FDA regulations.  Many of the PCPC proposals are included in the Safe Cosmetics Act of 2010. 

The provisions of this new bill could significantly transform the way that the cosmetic industry does business.  Heightened scrutiny and regulation by the FDA would lead to greater cost for cosmetics manufacturers, distributors, and importers. 

For more information on FDA regulation of the cosmetic industry or how this new bill could affect your business, please contact us at contact@fidjlaw.com.