Prescription drug prices are a top cause of increasing U.S. health care costs, with specialty drugs (such as Sovaldi) especially being the culprit for impacting cost trends. Even though specialty drugs constitute less than 1 percent of the total prescriptions, they account for 35 percent of the projected drug cost trend for 2017. This is a 10-percentage point increase from 2015, when specialty drugs accounted for 25 percent of the projected drug cost trends. In particular, patients, insurance companies, and providers have been closely scrutinizing orphan drugs (pharmaceuticals that target rare diseases and disorders) based on their soaring profitability and recent media exposure. According to EvaluatePharma’s 2015 drug report, 2014’s top selling orphan drug in the U.S. had sales of over $3.65 billion, amounting to $54,780 of average revenue per patient. The average orphan drug costs $111,820, which is over four times pricier than the mainstream drug cost of $23,331. This begs the question – how did orphan drugs become one of the fastest-growing products in the pharmaceutical industry?
The 1983 Orphan Drug Act incentivized pharmaceutical companies to invest and manufacture new drugs to treat rare or orphan diseases. Historically, pharmaceutical manufacturers did not produce drugs for small patient populations. Over forty years later, the Act has stimulated life-saving treatments for over 25-30 million Americans who suffer from an estimated 7,000 rare diseases, according to the National Institutes of Health.
The FDA established the Office of Orphan Products Development (OOPD) to facilitate the evaluation of developing orphan products through the Orphan Drug Designation program. This program grants special status (orphan designation) to orphan drugs and biologics, which are defined as those aiming to treat diseases/disorders that affect fewer than 200,000 people in the U.S. For a drug to achieve the orphan designation status, both the drug and the rare disease treated must meet certain requirements listed under 21 CFR §316.20 and 316.21. These rare diseases include genetic disorders such as Gaucher disease, cystic fibrosis, certain pediatric cancers, and follicular B-cell non-Hodgkin’s lymphoma.
The OOPD utilizes both “push” and “pull” incentives to promote product development. The “push” includes grants to subsidize clinical research costs, tax breaks on clinical research costs, and waivers of expensive marketing application fees. The “pull” incentives include market exclusivity for a seven-year period that is broader than for non-orphan drugs; during the exclusivity period, the FDA cannot approve a manufacturer’s application for the same orphan drug as a different manufacturer. However, if a competitor manufacturer demonstrates that their clinical uses of the same orphan drug is superior to that of the original version, the new version is not deemed as the “same drug,” in accordance with CFR 316.3(b)(13)(i),(ii). Orphan drug patent and market exclusivity adds up approximately 0.8 years more protection against pharmaceutical competition, compared to normal patent exclusivity protections. As such, the combination of broader exclusivity, small patient populations, and higher expected profits have played out favorably for orphan drug manufacturers because they can charge astronomical prices on their products.
These “push” and “pull” incentives, however, can often lead to manipulation by pharmaceutical companies in an effort to maximize profits and extend their monopolies. According to a recent six-month Kaiser Health News Investigation, a third of orphan drugs approved by the OOPD have been “either for repurposed mass market drugs or drugs that received multiple orphan approvals.” A 2015 commentary from the American Journal of Clinical Oncology reported that these loopholes have resulted in abuses of the patent system, where “[t]he industry has been gaming the system by slicing and dicing indications so that drugs qualify for lucrative orphan status benefits.” This so-called “salami slicing” technique occurs when mass market drugs, not deemed “true orphans,” are being repurposed towards treating small patient populations in an effort to attain additional FDA approval. As such, despite the many successes of the Orphan Drug Act, critics are calling for reforms to close loopholes and address escalating prices.
According to Martin Makary, the study’s author and Professor of Surgery at John Hopkins, funding support that was originally designed for rare disease drugs are now being funneled towards blockbuster drug developments. Off label uses result in drug price inflation that often leads to higher health insurance premiums. Take rituximab, for example, the top-seller orphan drug of 2014, which was originally approved for the treatment of follicular B-cell non-Hodgkin’s lymphoma. Although the disease affects about 14,000 patients per year, the drug was repurposed to additionally treat rheumatoid arthritis, a more prevalent disease that afflicts over 1.3 million patients. As such, the authors of the 2015 commentary proposed pricing negotiations and implementing clauses to reduce the exclusivity period. These could serve as checks on certain drug products that have exceeded past treating 200,000 people, the Orphan Drug Act’s threshold.
Former Rep. Henry Waxman, co-sponsor for the monumental Hatch-Waxman Act and proponent of the Orphan Drugs Act, had suggested amending the Act back in the 1990s, but those and subsequent efforts at reform have failed. According to Rep. Waxman, “Orphan drugs are orphans no more; they’re very popular. [But], there are pharmaceutical companies that handle their whole business plan to make sure their drug can be categorized as an orphan drug.” His statement sums up the ongoing dilemma and atmosphere of the drug market price gouging.
On February 3, 2017, however, Sen. Chuck Grassley, chairman of the Senate Judiciary Committee, wrote that he had opened an inquiry on the potential manipulation of the Orphan Drug Act. Sen. Grassley states that he has already contacted staff members of the Senate Health, Education, Labor and Pensions Committee to determine whether the Act’s incentives are truly benefiting the patients it intends to protect. In March 2017, Senators Orrin Hatch (R-Utah), Chuck Grassley (R-Iowa), and Tom Cotton (R-Ark) sent a letter to the U.S. Government Accountability Office, asking for an investigation into this matter. The Senators raised the possibility that regulatory or legislative changes might be needed “to preserve the intent of this vital law;” giving drug makers incentives to develop drugs for rare diseases.
Amidst federal regulation, several states have been pushing legislation on the monitoring and management of general prescription drug costs. For instance, Vermont recently enacted Act 165, Pharmaceutical Cost Transparency, which requires the state to annually identify up to 15 state purchased prescription drugs on which significant health care dollars have been spent, as well as require drug manufacturers to disclose wholesale acquisition costs. Other states, such as Louisiana, Massachusetts, Minnesota, and New York, have proposed bills with similar disclosure requirements. As such, the current trend towards drug price transparency legislation could provide potential solutions towards curtailing the escalating orphan drug pricings.
With the recent state legislative proposals and a potentially informative Senate inquiry, the spotlight remains on drug manufacturers to explain their salami-slicing, repurposing tactics on orphan designation.
On September 28th, 2016 Congress voted in favor of the first veto override during Obama’s presidency. The bill at issue was the Justice Against Sponsors of Terrorism Act (JASTA), a very controversial piece of legislation that received massive support in both the House and Senate but was adamantly opposed to by the Administration. Prior to JASTA becoming law, victims of terror attacks and their families could only bring suit against a foreign nation if the U.S. Department of State had designated that nation as a state sponsor of terrorism and the specific attack was aided by the government. Currently, there are only three nations subject to lawsuits as state sponsors of terrorism: Iran, Sudan, and Syria. JASTA severely limits the scope of sovereign immunity and expands the liability of foreign nations for terrorist attacks.
Under JASTA, United States federal courts will now have jurisdiction over civil matters that are brought by United States citizens against foreign nations for claims of injury to person or property that occur inside of the United States as a result of either (1) an intentional act of terrorism or (2) a tortious act by a foreign state, or any official of that foreign state while acting within the scope of his or her office regardless of where the act occurred. The bill also imposes liability on any person who conspires to commit or knowingly aids and abets an act of international terrorism committed by a designated terrorist organization. While JASTA does authorize the Department of Justice to grant a stay if the United States is engaged in good-faith discussions with the foreign nation to resolve the claims, former President Obama was concerned by the serious potential consequences of the bill.
The first of these concerns was that such a bill will reduce the effectiveness of a United States response to an indication that a foreign state has supported acts of terrorism. Litigation brought under this act will effectively remove the matter from the hands of national security and foreign policy professionals and place these consequential foreign affairs decisions in the hands of private litigants. In these matters, the President is meant to be the sole representative of the United States to give a strong unified voice for the nation. If a foreign state acted in a way so as to provide support to terrorist organizations which were harming United States citizens, then a unified response by the United States designating that nation as a state sponsor of terrorism would be warranted and would carry many more consequences than being sued under this new law.
The most obvious effect of JASTA, and the driving force behind the creation of this legislation, is to allow the victims of the September 11th attacks to bring suit against the government of Saudi Arabia, a country that some believe supported the terrorist organization responsible. The reason for this belief stems from the fact that fifteen of the nineteen September 11th hijackers were Saudi citizens, although neither the 9/11 Commission Report or the 2014 FBI Report on the Commission and new findings found any connection to the government of Saudi Arabia. The United States has an ongoing relationship with the Kingdom and the revocation of sovereign immunity will result in strained and potentially hostile relations in the future. Before the bill was passed, the foreign minister of Saudi Arabia, Adel al-Jubeir, warned that if JASTA was passed, the Kingdom would sell off approximately $750 billion held in United States treasury securities and other assets to avoid having it seized by American courts. Such an action could have drastic destabilizing effects in the global financial market but could also be equally as detrimental to Saudi Arabia. For this reason, it is unlikely that they will follow through with this threat since continued cooperation is needed by both nations. Some scholars believe that a more probable act of retaliation will come in the counterterrorism field, opening Americans up to greater physical danger.
The second concern raised by former President Obama was the high likelihood of reciprocal laws being enacted by other nations. The United States is the largest beneficiary of sovereign immunity since it has a greater international presence than any other nation. Revoking the sovereign immunity of other countries will undoubtedly lead to similar actions by foreign nations toward the United States, subjecting the nation to foreign court proceedings. The end of internationally recognized and respected sovereign immunity in these cases will result in suits against the United States which could lead to government assets being seized abroad, a particularly attractive idea for foreign nations given the United States’s financial backing. This concern was somewhat validated when French Parliament member, Pierre Lellouche, said that he would pursue legislation allowing French citizens to bring lawsuits against the United States for cause after the passage of JASTA.
The third concern raised was the potential for complicating the United States’ relationships with one of our closest of allies. Allowing litigation by United States citizens to be brought against our allied nations could enable wide-ranging discovery demands, which could lead to a breakdown in the amount of cooperation the United States receives in the future. A very possible response is the foreign nation limiting their cooperation on national security issues at a time when the United States needs to be building and strengthening alliances more than ever.
Just two days after JASTA became law, the first lawsuit was filed in Washington D.C. Stephanie Ross DeSimone alleged that the Saudi Arabian government provided material support to al Qaida and its leader, Osama bin Laden, resulting in the September 11th terrorist attack that killed her husband. In addition to Ms. DeSimone, the new law will allow approximately 9,000 potential plaintiffs to sue Saudi Arabia for injuries related to the terrorist attacks of September 11th, 2001.
While the House and Senate approved this bill with a large majority, a fact that former President Obama believed resulted from a desire not to vote against a 9/11 bill so soon before an election, several members of Congress have already begun to voice concern about the unintended consequences of the legislation. While no firm plans have been laid down, there has been talk in Congress of the need for further discussion on the matter and potential amendments to the new bill to address some of the newly recognized potential consequences. With the prevalence of terror attacks in today’s society and the speed with which lawsuits are being filed, there is no doubt that if Congress hopes to prevent any of the unintended consequences from being realized they must act quickly.
The unintended consequences of this bill began to arise almost immediately. Anti-Israel activists have already begun using JASTA to sue the Israeli government, claiming that it has committed war crimes, genocide, and ethnic cleansing against Arabs living in the West Bank. The complaint argues that “[b]y promoting, participating in, or funding international terrorism, all defendants have also violated the recently enacted statute known as Justice Against Sponsors of Terrorist Act.” Several individuals recently appointed to President Trump’s administration are singled out by these claims. The complaint alleges that David Friedman, a lawyer chosen by President Trump as U.S. ambassador to Israel, sends $2.2 million to settlers of Bet El every year and has funded Israeli settlements since 1977. Friedman is also president of American Friends of Bet El Institutions, a co-defendant in this action. The Kushner Family Foundation is yet another defendant with close ties to the Trump administration that is claimed to have violated federal law. This claim is merely the beginning of similar actions taken against foreign nations under the broad scope of JASTA.
There have been some reports that Saudi Arabia was using an intermediary named Qorvis to deceive United States veterans and convince them to lobby for an amendment to JASTA that would limit the scope of liability to those nations that “knowingly” support terrorist organizations. These claims have spread through many lesser known news sources but remain unsubstantiated and have gone unmentioned among mainstream media. It does not appear that Saudi Arabia has taken any action in response to the passing of JASTA at this point despite the numerous threats.
The Wall Street Journal reported last March that Saudi Arabia’s energy minister Khalid al-Falih said his government was “not happy” about the law, but believes that after “due consideration by the new Congress and the new administration, that corrective measures will be taken.” Whether the Trump Administration will have more influence over Congress than the Obama Administration on this issue is a significant foreign policy question.
Alexandra Raymond is from Vergennes, Vermont and graduated from New York University in 2014 with a B.A. in Sociology and Law & Society. She is expected to earn her Juris Doctor from Boston University School of Law in 2018. Alexandra will be working for an investment management firm in Boston during the summer of 2017 and will then spend her next semester studying international law at Leiden Law School in the Netherlands. Upon graduation, Alexandra hopes to pursue a career that allows her to explore her interests in business, social justice, and international law.
On December 13, 2016, President Barack Obama signed the 21st Century Cures Act into law. The Act passed the House and the Senate with considerable bipartisan support, a rarity in today’s political climate. The Act is a sprawling piece of legislation, covering many health care policy areas and appropriating billions of dollars for various causes, research, and organizations. The main focus of the legislation aims to fund three key initiatives: former Vice President Joe Biden’s “cancer moonshot,” the BRAIN Initiative (a project designed to learn how the brain works on a more complete level); and the Precision Medicine Initiative (a venture to increase the availability of genetic data and streamline its use). The 21st Century Cures Act devotes nearly $4.8 billion to these projects alone. Other appropriations include funding to help states combat the ongoing opioid epidemic and reinforcements for the Food and Drug Administration (“FDA”). The Act passed largely due to an incredible lobbying effort. More than 1,455 lobbyists representing over 400 organizations advocated for or against the law. The Pharmaceutical Researchers and Manufacturers of America (“PhRMA”), the pharmaceutical industry trade federation, spent more than $24 million on lobbying related to the legislation. The 21st Century Cures Act is a piece of omnibus legislation that has far-reaching implications in the health care field. Despite the Act’s noteworthy bipartisan support, there are a number of vocal opponents to the legislation. Most of the concerns stemming from the legislation focus on the provisions related to the Food and Drug Administration's approval of new drugs.
One notable provision (§3022, p.165) of the 21st Century Cures Act that has been the subject of some controversy involves the use of Real World Evidence (“RWE”). The Act defines RWE vaguely (§3022(b), p. 165), only providing the following: “data regarding the usage, or the potential benefits or risks, of a drug derived from sources other than randomized clinical trials.” The Act requires the Secretary of the Department of Health and Human Services to develop a program for evaluating the use of real world evidence (“RWE”). Per the Act (§3022(a)(1-2), p. 165), RWE will now be used to support new indications for drugs already on the market and to fulfill post-marketing study requirements. While many are optimistic that this provision will assist the FDA in improving the efficiency of the drug approval process, others are concerned about the impact RWE will have on the safety and efficacy of newly approved medications.
Over the past decade, the FDA has trended towards embracing post-market data. This trend is reflected by
the substantial increase in use of expedited approval pathways. The FDA employs four expedited approval pathways: Fast Track, Breakthrough Therapy, Accelerated Approval, and Priority Review. A pharmaceutical company must apply for each designation separately, but a single drug may qualify for multiple pathways. The pathways vary but all promote the same goal: “treating serious conditions” or “fill[ing] an unmet medical need.” Through expedited approval pathways, FDA effectively pushes drugs to market by shortening application review periods, allowing surrogate endpoint clinical trials, and increasing post-market data reliance. These “shortcuts” increase the number of available drugs with incomplete safety and efficacy profiles by reducing the amount of clinical trial-generated data needed for approval. Expedited pathways favor therapy availability over absolute safety. In 2015, the Government Accountability Office found (p. 21) that from 2006 to 2014, 49% of approved new molecular entities utilized at least 1 expedited pathway. The Report also concluded (p. 18) that FDA reviewed a drug using at least 1 expedited approval pathway in approximately 8.6 months, compared to approximately 12.1 months for drugs without a pathway. As such, expedited approval pathways, supposed to represent an exception for drugs, have practically become the norm.
Coinciding with this rise has been a rise in reported adverse drug reactions (“ADRs” or “adverse events”) from prescription drugs. The fact that the rise in reliance on these pathways mirrors the rise in ADR reports suggests a correlation. Mary K. Olson, a professor of economics at Tulane University, examined data on drug approvals from 1990-2001 to determine if there is a direct relationship between expedited approval pathways and adverse events. Olson determined (p.197) that a 2-month reduction in review time results in a 21-23% increase in serious adverse events and a 19-21% increase in adverse event-related deaths and concluded “there is a trade-off between review speed and drug safety.”
Despite the statistics showing a trend toward faster drug approval coinciding with a rise in pharmaceutical-related injuries, speeding up the FDA drug review process remains a focal point in the political landscape. Patient pressure constitutes the strongest driver of shorter review times. Patient advocacy groups publicly campaign for wider access to experimental drugs. These groups reason that patients will accept the risk of side effects in exchange for the hope provided by a new therapy. Public support also directly affects review times. A study (p. 59) determined that media coverage and the wealth of patient advocacy groups have a direct relationship with review times. According to the study, in a vacuum, a one standard deviation increase in Washington Post articles on a disease or patient advocacy groups reduces review by 4 to 8 months. Advocacy group wealth has a similar effect: “marginal differences” in resources translates to a 3.5 to 7 month reduction in review time. Accordingly, the 21st Century Cures Act constitutes a decisive victory for patient advocacy groups. The legislation intends to streamline the drug approval process, most notably with the introduction of Real World Evidence.
There are a number of clear issues with the use of Real World Evidence. Under the Act, RWE can come in the form of summary data, departing from the fully recorded and itemized clinical trial data currently used for drug approvals. The FDA admits that RWE may be useful for drug approval, but most sources of such data are not designed to meet regulatory requirements. Legislators and the FDA intend for RWE to encompass data such as FitBit readings, which produce data that do not meet the standards governing clinical trials. As such, despite the potential for beneficial use of RWE, the idea is fraught with complications.
Understandably, critics fear the incorporation and use of RWE poses a threat to the integrity of the drug approval process. This provision of the 21st Century Cures Act has the potential to lead to public policy built on misinformation. However, the use of real world evidence could greatly speed the drug approval process and deliver much-needed new medicines to sick and dying Americans. It remains to be seen what the long-term impact of this legislation will be, but it is an area worth monitoring.
Nicholaas Honig is from Collegeville, Pennsylvania and graduated cum laude from Hobart and William Smith Colleges, where he majored in Political Science. Nicholaas is expected to graduate with a concentration in health law from the Boston University School of Law in spring 2018. Post-graduation, Nicholaas hopes to work in the field of pharmaceutical regulatory law.
As I stepped off the plane and into the jet bridge, I already had my Uber app opened on my smartphone, and only a few short minutes after requesting a ride, the driver was calling me to tell say that he was outside baggage claim. This kind of convenience and ease that e-hailing companies like Uber and Lyft provide is what we have grown accustomed to as consumers.
E-hailing companies, or transportation network companies (TNCs), have made finding a ride very convenient for city dwellers and travelers alike. Whether it is one of the main players like Uber or Lyft, or one of the newer startups like Juno, Fasten, or Gett, TNCs have become an integral part of how we travel and for some of us, our everyday lives.
As convenient as TNCs are, legislatures across the country have made it clear that these companies will not be free from regulation. Rather, city and state legislatures have proposed legislation that will both allow TNC, but also protect riders.
In early February 2017, New Jersey Governor Chris Christie signed a new law making the Garden State the most recent of the 36 states to regulate TNCs. This new law, the Transportation Network Company Safety and Regulatory Act, which is similar to Massachusetts’s 2016 law, requires that TNC companies cover up to $1.5 million dollars in liability insurance and that drivers get background checks. However, TNC drivers are still not subject to the same fingerprinting background checks as taxi drivers. Additionally under the law, the public still does not have access to the safety records of drivers, a concession made by lawmakers in its negotiations with Uber. Municipalities are also prohibited from taxing TNC companies, promoting a more uniform single statewide regulation.
The New Jersey legislation did not come without a fight, however, with Uber demanding limits to regulations. In fact, Uber, throughout its many negotiations with city and state legislatures around the country, has consistently threatened to withdraw all of its business in the city or state at issue if the legislature does not adopt its preferred regulations. This is especially true when it comes to the fingerprinting requirement, which Uber particularly opposes. According to Uber, requiring drivers to get fingerprinted would make it harder to recruit drivers. Uber also claims that the requirement would be unfair to minority applicants, as fingerprint background checks only indicate arrests, not convictions, and false arrests are more frequent in minority neighborhoods.
Prior to the enactment of New Jersey’s statewide law, Uber had been in contentious negotiations with many New Jersey cities including Newark, the State’s largest city by population. In the end, Newark and Uber were able to come to an agreement, and Newark passed a now pre-empted ordinance where Uber would pay Newark $10 million in fees, and drivers would be required to get background checks by a nationally accredited third-party, but there would be no fingerprinting requirement.
Austin, Texas, however, had a different experience. Austin’s city council passed an ordinance requiring driver background checks with fingerprinting. Rivals Uber and Lyft joined forces and campaigned for Proposition 1, which would repeal the ordinance. The two companies spent $8 million dollars on advertising, or $200 per vote to get their message across. Yet, the campaign failed to sway voters, and Proposition 1 lost 44% to 56%. The day after the election, Uber and Lyft made good on their threat to withdraw their services from the area, leaving drivers and riders unable to use either app in the Austin area. Uber did the same to other Texas cities Midland, Corpus Christi, and Galveston, leaving because it did not agree with the local ordinances that had been passed.
Ending service so abruptly had a negative impact on riders who had become accustomed to this mode of transportation and drivers who relied on both companies for a source of income. Austin eventually set up a hotline and job fair for these suddenly out-of-work Uber and Lyft drivers. Luckily for Austin, riders and drivers were not left out in the lurch for too long, as entrepreneurs and new e-hailing companies quickly filled the void left by the two giants. Uber and Lyft left on May 9th and by the summer, there were ten companies who were set up and ready to compete. More than that, these new companies were able to get roughly 9,000 drivers to sign up and all of the companies met the August 1 deadline to have at least half of their drivers fingerprinted. All of the companies had to be in full compliance with the ordinance by February 1, 2017.
Ironically, these hard-fought battles between Uber and Lyft and America’s largest cities might all be for naught. Despite Austin’s city council’s win in keeping their city ordinance on the books, the state legislature passed, and on May 29th Governor Greg Abbott signed, a statute that pre-empted Austin’s ordinance. Since a local government only has the authority granted to it by the state, when state and local laws conflict, the local law will typically be pre-empted. Abbott stated, "In Texas we don't believe in heavy-handed, top-down, one-sided regulatory environm
ents that erect barriers for businesses, in Austin, Texas, we're going to override burdensome, wrongheaded regulatory barriers that disrupt the free-enterprise system upon which Texas has been based and upon which has elevated Texas to be the No. 1 state in the entire country for doing business." Texas joined other states, which have increasingly preempted local ordinances. The most recent and notable example is North Carolina’s HB2 law, which pre-empted Charlotte’s anti-discrimination ordinance.
Pre-emption in regards to TNC legislation may not be so terrible, however. There is a great benefit to both the state and companies to have one standard rather than multiple municipal ordinances. With a service such as ridesharing, it is not uncommon for someone to be picked up in one town and dropped off in another. Because of this reality, it may be preferable for the states to take the lead.
New Jersey's law shows the trend is certainly moving in the direction of state legislation, not municipal. However, now the question is will state legislatures remain strong in their positions or will they give in to what Uber and Lyft demand? As we have seen in Austin, there will always be a new company who is willing to comply with the new regulations if Uber and Lyft will not. Therefore, perhaps states should pass the ideal legislation that they feel best protects its citizens and let the market sort itself out. Uber and Lyft have a lot of negotiating power because they are the biggest players, but as we have seen, they do not have an impenetrable monopoly. As the city of Austin found out, the TNC market will not crash if Uber and Lyft leave. There are plenty of worthy “Davids” who would jump at the chance to fill the void of Goliaths Uber and Lyft, even if in the face of stricter regulation.
Merissa Pico is from Fort Lee, New Jersey and graduated summa cum laude from Boston University’s College of Communication in 2015 with a B.S. in Mass Communication Studies. She is expected to earn her J.D. from Boston University School of Law in 2018. Merissa will be working at Ropes & Gray in New York City in the summer of 2017 and is looking forward to continuing to explore her interests in entertainment and communications law.