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t fl0 H TON ~ _.,L FOUNDATION Legal Backgrounder 2009 MASSACHUSETTS AVENUE. NW • WASHINGTON, D.C. 20036 •(202) 588-0302 Vol. 9 No. 43 November 28, 1994 FDA'S LEGALLY SUSPECT ACTIONS INVITE CHALLENGE by Glenn G. Lammi The Food & Drug Administration (FDA) exercises significant and diverse regulatory and enforcement authority: Approximately 25 percent of all products measured in the nation's gross domestic product fall within its jurisdiction. FDA has been granted considerable power and discretion to carry out what the public views as a critical mission - ensuring the safety and effectiveness of the food supply, cosmetics, and health care products. FDA has fully applied this power, demanding from all within its broad jurisdiction full compliance with the law. As with most administrative agencies, however, the agency constantly attempts to expand its jurisdiction and power, straining against the limits the law places upon its actions. In pursuit of its defined mission and its expansion of power, FDA has been accused, sometimes publicly but more often privately, of not complying with law at the same strict level it requires of its regulatory and enforcement targets. This LEGAL BAOICGROUNDER reviews some instances where FDA has crossed or may be crossing the line. Statutory Deadlines. In the controversial area of drug and medical device approvals, most public attention has focused on the length of the process. The average review period for PMA applications as of July 1994 was 840 days. The Medical Device User Fee Act of 1994: Hearings on H.R. 4728 Before the Subcomm. on Health and the Environment of the House Comm. on Energy and Commerce, 103rd Cong., 2d Sess. (1994) (statement of Robert H. O'Holla, Vice President of Regulatory Affairs, Johnson & Johnson). The average time for action on a new drug application is two and one-half years. C. Lochhead, Deadly Overcaution; FDA Assailed For Slow Testing Of New Drugs, SAN FRAivcisco CHRONICLE, Oct. 26, 1992, at Al. The public and policy makers should focus not only on the excessiveness of delays but also on FDA's non-compliance with the law. Mindful of the importance of getting new drugs and devices onto the market quickly and the damaging costs delays impose on the applicants and the health care system, Congress placed strict timetables for the review process into FDA's governing statute, the Food, Drug, and Cosmetic Act (Act). 21 U.S.C. §301 et. seq. Under the Act, FDA must, unless an additional period is agreed upon by it and the applicant, approve or deny an application for a new drug, 21 U. S. C. § 355(c), or a request for premarket approval (PMA) of a breakthrough "Class III" medical device, 21 U.S.C. § 360e(d), within 180 days. Rather than strive to meet these deadlines in the past five years, the "drug lag" has increased - the PMA approval time has gone from an average 337 days in 1988 to 840 days ~ in 1993. BIOMEDICAL MARKET NEWSLETTER, July 1994. FDA, in making approval or denial in ~ excess of 180 days the norm, has, without legal authorization from Congress, essentially changed the ~ Act's mandatory deadline into a discretionary "goal." ~ CD Glenn G. Lammi is Chief Counsel of WLF's Legal Studies Division. C"D 0 _Q WLF publications are available on the Mead Data Central LExTS/NEXIS® online information service. GO The Washington Legal Foundation ("WLF") is a 501(C)(3) tax exempt organization and is America's largest pro-free enterprise public interest law & policy center. This Legal Backgrounder is one of a series of original papers written especially for and published by LVLF's Legal Studies Division.

, Arbitrariness and Bias. Much of FDA's regulatory activity, especially in the area of device and drug reviews, is outside public view. Even when the activity is more public, such as in the rulemaking process, many private decisions are made. Participants in the approval and rulemaking processes are afforded protections against arbitrariness and bias under the law, but, as one commentator has pointed out a company knows that it is likely to offend a number "[b]y complaining , , ~f parties who might, behind the veil of the approval process, become opponents." Phelps, Bad-Faith Reviews: The R S Medical Case, MEDICAL DEVICE & DIAGNOSTICS INDUSTRY, Sept. 1994, at 31. Two recent court decisions demonstrate, however, that the agency can be successfully challenged when it violates businesses' legal rights. The first case, Hanover Potato Products, Inc. v. Shalala, concerned FDA's issuance in 1990 of a final rule banning the use of sulfites to preserve pre-peeled, pre-cut potato products. A coalition of these products' producers, whose industry would likely be terminated by the rule, asked to review FDA's 83-volume administrative record. After FDA only provided 48 volumes, and after determining that nothing in those documents supported the agency's decision, the coalition sued to enjoin the regulation's application. During the pre-trial proceedings, FDA made a startling admission. The 83- volume record on which it had purportedly based its decision was in fact not the full record. The true and final record was still being assembled. On court order, FDA produced 42 more volumes. Of the total administrative record, FDA admitted that 63 % of the documents had not been placed on file for public review despite agency regulations requiring such a display. Plaintiff Hanover argued in U.S. district court that FDA's failure to make the entire record available for public inspection violated its own regulations and that the agency acted arbitrarily, capriciously, and prejudicially. FDA's denied that it had violated internal regulations, argued that Hanover had waived its objections by not raising them during the comment period, and asserted that since it did not examine the administrative record during that period, Hanover suffered no prejudice. The district court rejected FDA's arguments and held that the agency's actions were arbitrary, capricious, and prejudicial. Essentially reminding FDA of the importance of holding all facets of the rulemaking process in public, the court stated, "it is certainly possible that the agency's actions may have been different had the information relied upon by the FDA been available to interested parties during the notice and comment period." Hanover Potato Products, Inc. v. Sullivan, slip op. at 7, No. 1:CV-90-0746 (M.D. Pa. Aug. ~ 3, 1990). The court thus struck down the regulation and ordered FDA to repromulgate the rule in accordance with proper procedures. Compounding FDA's unusual court defeat and the need to issue a new rulemaking was the U.S. Court of Appeals for the Third Circuit's order that the government pay Equal Access to Justice Act (EAJA) fees to Hanover. Hanover Potato Products, Inc. v. Shalala, 989 F.2d 123 (3d Cir. 1993). To reach a decision on the fees, the court held that the government's position in litigation and in the actions that led to the lawsuit was not "substantially justified" (the legal test the government must prove under the EAJA). In its analysis of this issue, the court chided FDA for depriving the interested public of an opportunity to examine the record and for "promulgat[ing] a regulation with an insufficient public record, requiring at least one needless court challenge. " Id. at 130. A second court case, R S Medical v. Kessler, revealed internal agency arbitrary action and bias against a specific applicant and demonstrated how FDA treated at least one applicant that challenged its device review process. R S Medical, a small producer of muscle stimulators, had been marketing and distributing two such devices, the RS-1 and RS-2, from a plant in Texas for five years. The devices were minor alterations of a device for which the founder of R S Medical had received FDA approval under 21 U.S.C. § 360k (better known as "510(k)") because it was "substantially similar" to other muscle stimulators on the market. Shortly after the State of Texas began an attempt to remove the stimulators from the market, FDA rescinded its prior 510(k) approval. R S Medical then sued, which led to an agreement where FDA allowed the company to market the products, but required it to submit a new premarket notification for the RS-1 and RS-2. Understandably doubting FDA's good faith in reviewing its request in light of its legal challenge, R S Medical submitted two sets of identical data, one under its own name for the RS-1 and RS-2, and i one under the name of a consulting company it had hired. FDA approved without question the devices Copyright ° 1994 Washington Legal Foundation 2 ISSN 1056 3059 To receive information about previous Washington Legal Foundation publications contact Alan M. Slobodin, President, Legal Studies Division. Material conceming WLFs other legal activities may be obtained by contacting Daniel J. Popeo, Chairman.

supported by the "dummy" consulting company's data. It found deficiencies in the identical data ' submitted under R S Medical's own name, and requested more information. Seven and one-half months later, and only after an inquiry on the status of the application by the State of Texas, did R S ~ Medical learn that FDA had rejected its 510(k) submission for RS-1 and RS-2. The rejection made no mention of FDA's original problem with the devices. R S Medical sued to enjoin FDA's recision of the company's ability to market its products. In his ruling recommending that the federal district court grant the company's request for an injunction, the Magistrate Judge found that remarkable bias and arbitrariness had tainted FDA's decision-making on R S Medical's applications. The court pointed out that "the most glaring evidence of arbitrary action is the difference in treatment of the BTM-100/200 [the 'dummy submissions'] and the RS-1/2," even though the data were identical. R S Medical v. Kessler, slip op. at 23, No. SA-93-CA-0242 (W.D. Tex. June 28, 1993). R S Medical's submissions were rerouted within FDA from the branch that normally reviews muscle stimulators to those who wanted to rescind FDA's original approval. During the seven and one-half month delay, FDA conducted an unscheduled inspection of R S Medical, because, according to the court, "FDA hoped to uncover some deficiency which could affect the safety and effectiveness of the RS-1 and RS-2." Id. As to the strange timing between Texas asking FDA if it had decided on R S Medical's submissions and FDA's denial of approval, the court wryly noted, "The Court does not credit defendants' argument that this timing was simply a coincidence. " Id. Finally, the court pointed out that neither FDA nor Texas had received complaints that the product was not safe, and concluded based on statements of an expert witness, that FDA's "reasons given for denial [of approval] were a mere pretext. " Id. at 25. The district court in San Antonio entered a permanent injunction against FDA in December 1993 and awarded R S Medical nearly $400,000 in EAJA fees. Bowers, Entrepreneurs Find FDA Can Make or Break Them, WALL. ST. J., Apr. 12, 1994, at B2. Regulating Beyond Statutory Authority. As mentioned above, administrative agencies constantly seek to expand their power and jurisdiction. FDA is exceptionally aggressive in expanding its power, often straining the limits the law places on its authority. These attempts at expansion are worthy of attention not only because they may be outside the scope of FDA power, but also because they often ~ create more regulatory demands without clear justification, or even overlap other administrative agencies' jurisdiction. Pursuit of more regulatory targets distracts FDA attention, personnel, and funding away from meeting drug and device approval deadlines and performing other critical functions. FDA's requirement that device distributors must register with FDA and the agency's regulation of liquid chemical germicides as medical devices are two examples where FDA is expanding its power without strong statutory authority. Under Section 510(c) of the Act, 21 U.S.C. § 360(c), all those who "manufacture, prepar[e], propagat[e], compoundo, or processo" drugs and devices must register their establishments with the FDA. Those registered companies must provide FDA with lists of drugs or devices intended for marketing and are subject to Good Manufacturing Practices requirements and mandatory inspections by agency officials. Until 1991, Section 510(c) had never been construed to apply to device or drug distributors. That year, FDA issued a rulemaking proposing to expand the registration and listing requirement to device distributors. 56 Fed. Reg. 600024 (Nov. 26, 1991). On September 1, 1993, FDA issued a final rule adding device distributors to the list of establishments that must register and file lists. 58 Fed. Reg. 46514. According to.FDA, the power to expand its registration requirement to device distributors lies in the "plain language" of Section 510 of the Act. 58 Fed. Reg. 46514, 46517. An examination of the statutory language reveals that the word "distribution" is absent. FDA argues in the final rule, however, that its authority is clear because the statute's requirements apply to those who "propagate" ~ devices, and propagate means "the spreading of something abroad. " Id. FDA's justification for 4 considerably expanding its power in the area is quite weak. As FDA itself points out, "neither the ~ statute nor the legislative history define the term 'propagation.'" Id. When defining "propagate" in ~ the context of the terms "compound," "manufacture," and "process," it may be more logical to ~~ ~ consider it to mean "reproduce" or "multiply," words that may more obviously go together when G~ discussing the creation for sale of drugs or devices. Also, if Congress wanted distributors to register, p~ ~ i " t requires r as it did in other parts of the FDCA where why didn't it use the plain term "distribution, A •1 Copyright ® 1994 Washington Legal Foundation 3 ISSN 1056 3059

distributors to perform some action? Finally, what additional benefits FDA will achieve by extending ' registration requirements to distributors is unclear. The result of this regulation will be the collection of duplicative information FDA can more easily get from manufacturers, the need for more personnel ~ to process the information, and the additional expense of more investigations. A second example of FDA's questionable expansion of power is its regulation, since 1990, of liquid chemical germicides used to clean and sterilize, among other things, medical devices and other products in health care facilities. In that year, FDA issued a draft guidance document essentially announcing on its own initiative that these germicides would be categorized as medical devices under its jurisdiction. Many of these products either did or could also fall under Environmental Protection Agency (EPA) jurisdiction as pesticides. The draft document was never published for public comment. Considerable confusion ensued in the germicide industry in the early 1990s as FDA asserted its jurisdiction over some producers of these products. The confusion intensified in early 1993 when FDA began sending letters to companies that produced products over which the agency felt it may have jurisdiction, although a number of them clearly were under EPA's jurisdiction. The letters requested labeling and other promotional materials and information, requiring the targets to incur unnecessary paperwork and regulatory costs, costs which many had already assumed in complying with EPA regulations. Germicide producers were confused because FDA never carried out its duty under the Act to formally classify their products as a Class I, Class II, or Class III device through the review of national panels of experts. As stated upon enactment of the 1976 Medical Device Amendments, Congress intended that "all medical devices be classified into one of three categories depending on the extent of regulation necessary to assure safety and effectiveness." H.R. REP. No. 853, 94th Cong., 2d Sess., at 12 (1976). Formal classification through panel review also meets the goals of fairness and due process by "providing notice to the manufacturers and importers of such devices to enable them to prepare for the application of such requirements to devices manufactured or imported by them. " 21 U.S.C. § 360c(b)(1)(B). In reaction to FDA's refusal to comply with its statute and its continued actions against such producers, the Chemical Specialties Manufacturers Association (CSMA) filed a ~ citizen petition in 1993 requesting that the agency classify liquid chemical germicides. FDA has not yet acted on the petition. The negative ramifications of FDA's actions against germicide producers pointed out in CSMA's petition hold true for other situations where the agency acts without clear authorization, or acts arbitrarily or with bias. The petition states that FDA's "illegal regulatory action" is leading to: "needless duplication of federal resources; considerable confusion on the part of manufacturers and users; great and unnecessary increased costs to manufacturers and distributors; and, unnecessary increases in health care costs and delays in marketing needed and important health-related products. " Citizen Petition of Chemical Specialties Manufacturers Association, Apr. 27, 1993, at 9. FDA's arbitrary and biased actions also place jobs at risk. In the Hanover Potato Products case, an entire industry could have been shut down through a regulation promulgated without support of a complete record and without a fair chance for that industry or the public to make sure FDA's position was justified. In the R S Medical case, the Magistrate Judge himself noted that if FDA's biased removal of marketing permission had gone unchallenged, "plaintiff [would] go out of business, causing more than 40 employees to be without jobs." R S Medical v. Kessler, slip op. at 25, No. SA-93-CA-0242 (W.D. Tex. June 28, 1993). Finally, FDA's refusal to approve or deny applications for new drugs and advanced devices within the statutory deadlines deny important products to Americans available in other countries and often force American companies to move manufacturing offshore. One can only wonder whether these aforementioned examples show a trend of increasing legal ~ challenges to FDA when its actions have questionable legal support. Without more challenges, an C' already activist agency may be encouraged to-further expand its jurisdiction and its power to the 'A detriment of the liberties and legal rights of the regulated community and consumers' access to lower ~ cost, quality health care and life-enhancing medical products. AZ W Copyright ® 1994 Washington Legal Foundation 4 ISSN 1056 3059 l.,r