Author: Charlotte Tsui

Proposed ordinance would require tobacco manufacturers to clean up its own street litter

See that cigarette butt on the street? Tobacco manufacturers could be cleaning up after their own cigarette litter in California under a model ordinance proposed by ChangeLab Solutions of Oakland, California.

The model ordinance is designed to help local counties and cities curb tobacco litter in their communities. Under the model ordinance, producers of filtered tobacco products, including cigarettes, are prohibited from selling their products unless they agree to one of the following two choices: 1) participate in a tobacco disposal program or 2) pay an annual in-lieu fee. Depending on which entity has the most control over the sale of tobacco in a respective community, “producers” can be defined to encompass manufacturers, importers, distributors, wholesalers and/or retailers.

Changelab Solutions released the model ordinance earlier this February 2016. The document spans twenty-two pages, and at its heart is the idea that tobacco producers can be incentivized to create a tobacco litter waste program. The model ordinance encourages counties and cities to set their own parameters for the litter program. One potential model would be a litter clean-up system jointly operated by a group of producers, and the producers could hire a third-party waste management company to conduct the actual waste control. The scope of the waste management could be as simple as situating ash trays or ash cans throughout the city. It may also be more extensive by providing a collection service of tobacco waste from residential areas, commercial areas, and public spaces. The model ordinance also requires participants to prepare an annual report summarizing the impact of the program.

Producers that decide against participating in the litter program can instead pay an optional in-lieu fee, which is collected annually to cover the reasonable costs of tobacco waste mitigation. Under the model ordinance, the in-lieu fee is calculated to reflect the amount of filtered tobacco products that are sold by the non-participating tobacco producer.

The model ordinance is the first of its kind in the country. Although intriguing, the ordinance rests upon interests that may not be as immediately compelling. The fight against tobacco litter may be subsumed in favor of other battles against the tobacco industry, such as federal cigarette taxes to mitigate overall smoking rates. That, compounded with the influential tobacco lobby, would likely stymie the momentum that the tobacco waste model ordinance would gain from the early stages of its adoption.

Supreme Court Denial of Stay Means Minimum Wage, Overtime Pay for Home Health Aides

For the first time since Congress passed FLSA in 1938, home health aides, also known as domestic service workers, are now eligible for minimum wage and overtime pay. Earlier this month, Chief Justice Roberts denied Home Care Association of America’s request for stay of issuance of mandate in the case Home Care Association of America v. Weil.

Home Care Association made waves across the labor law and health care industry this past August when the D.C. Circuit Court upheld Department of Labor (DOL) regulations that extend minimum wage and overtime protections to home health aides. Home Care Association may still appeal, but legal experts muse that even if the appeal is granted, it is unlikely to prevail.

Labor activists heralded the decision as a momentous occasion for the domestic work industry. The home health aide industry encompasses nearly two million domestic workers—and expanding. It is the fastest-growing occupation in the nation. Domestic workers typically operate behind closed doors in a highly unregulated economy with little workplace protections. As a result, labor trafficking and exploitation are consistent concerns in the industry.

In the decades since its inception in 1938, the Fair Labor Standards Act (FLSA) has left out home care aides and exempted them from wage-and-hour requirements. Some labor activities charge that the exemption is driven by racism against a class of workers largely composed of immigrants and women of color. The FLSA exemption meant that employers were not required to pay domestic workers minimum wage or compensate them for working overtime. The D.C. Circuit Court decision sweeps domestic workers under FLSA—and thereby formalizes the work of a sector that has been historically overlooked.

The Home Care Rule went back into effect on November 12, 2015. Between now and December 31, 2015, the DOL is adopting a relaxed enforcement policy. In a policy statement, the DOL said that it will “exercise prosecutorial discretion” during this period. When making decisions as to whether to bring enforcement actions, the DOL will consider the extent to which States and other entities have “made good faith efforts to bring their home care programs into compliance” with the Home Care ruling. DOL will commence more rigorous enforcement in 2016.

The ease-in period buys more time as home health organizations and hospitals make adjustments. A common source of complaint and frustration is funding. Institutions funded by payers like Medicare and Medicaid are still at a loss as to how they will accommodate the overtime pay mandates into their budgets. In the first industry-led report since the D.C. Circuit Court decision, several membership associations released a set of recommendations outlining potential next-steps for home health providers. The report cautioned states from reacting adversely, such as prohibiting all overtime hours. It also suggested that home health institutions work with state legislators to make more room in their state budgets for home health aide payments.

The D.C. Circuit Court decision is clearly a win for labor rights activities and domestic workers. But with budgetary challenges and a potential Supreme Court appeal on the line, whether and to what extent the Home Care rule will be enforced remain to be seen.

D.C. District Court Limits Discounts to Orphan Drugs

On October 14, 2015, Judge Rudolph Contreras of the District Court for the District Court of Columbia sided with drugmakers in a decision that narrowed the scope of 340B, a popular but controversial drug discount program. The decision effectively bars children’s hospitals, cancer hospitals, and rural hospitals from obtaining 340B discounts for so-called “orphan” drugs like Prozac.

The plaintiffs in the case, Pharmaceutical Research and Manufacturers of America (“PhRMA”), is a lobbying group comprised of 48 of the nation’s pharmaceutical heavyweights, including Novartis and Pfizer. PhRMA challenged an HHS Interpretive Rule, which would have expanded the scope of the drug discount program. PhRMA argued that the agency’s Interpretive Rule contravenes the plain language of 340B. Judge Contreras agreed.

Background to 340B and the Disputed Interpretive Rule

At the heart of this dispute are high-demand “orphan” drugs like Prozac. Orphan drugs are drugs developed to treat a rare disease or condition; the rare disease or condition is the “orphan” use. But, by and large, orphan drugs are more well-known for their non-orphan uses. In the case of Prozac, the drug’s designated orphan use is autism and certain types of body dysmorphic disorders. Yet most patients and providers use Prozac as a treatment for depression.

When the Affordable Care Act was passed, Congress significantly expanded the types of covered entities that would be eligible for 340B program discounts. The ACA added children’s hospitals, freestanding cancer hospitals, critical access hospitals, rural referral centers, and sole community hospitals to the 340B drug pricing program. The newly covered entities, however, are excluded from certain types of 340B program discounts.

Under 340B(e), newly covered entities do not have access to discounts for a “drug designated . . . for a rare disease or condition.” Pharmaceutical companies and providers disagreed over the scope of 340B(e). Pharmaceutical companies argued for a broader interpretation and insisted that the provision refers to all types orphan drugs.

To clarify the confusion, HHS issued an interpretive rule on July 23, 2014. Under the Interpretive Rule, drugmakers must offer orphan drugs at a discount to newly-covered entities when the covered entity purchases the drug for a non-orphan use. In the Prozac example, that means a covered entity like a rural hospital could get a discount on Prozac when purchasing the drug for depression (a non-orphan use), but not for autism (the designated orphan use). Drugmakers that fail to comply and refuse to offer the discount price must provide a refund to the covered entity for the overcharge.

D.C. District Court Applies Chevron Test, Vacates HHS Ruling

The court vacated HHS’s Interpretive Ruling, finding that it failed the Chevron test. Under the first prong of the Chevron test, the question is whether Congress has directly spoken on the precise question at issue. If so, the agency must follow the intent of Congress as clearly expressed in the statute. If the congressional intent is unclear, the court proceeds to the second step of the Chevron analysis to determine whether the agency’s ruling is “based on a permissible construction of the statute.”

In this case, Judge Contreras concluded Congress’s intent was clearly expressed in 340B(e) and its related statutory provisions, and that the second part of the Chevron analysis was unnecessary.

The court held in favor of the pharmaceutical company and rejected HHS’s Interpretive Rule.

After concluding that the Interpretive Rule failed the first prong of the Chevron analysis, the Court vacated the Interpretive Rule as “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” In effect, the D.C. District Court’s decision signals a victory for pharmaceutical companies who now do not have to provide orphan drugs at a discount for newly-covered entities like children’s hospitals and rural hospitals.

Experts Foresee Legal Attacks on Other Parts of Drug Discount Program

HHS can still appeal. In the meantime, legal experts weighed in on Law360 and predicted that the decision could encourage drugmakers to lodge additional lawsuits on other parts of the 340B program. In particular, the pharmaceutical industry has railed against the “mega-guidance” that HHS released in August 2015 for the drug pricing program. The omnibus guidance is still in the note and comment process, with the current 60-day comment period ending on October 27, 2015.

Lawyers speculate that this decision leaves the omnibus guidance vulnerable to legal attack. Based on this decision, pharmaceutical companies can challenge the mega-guidance in court as soon as it is finalized, before HHS even attempts any type of enforcement. As Kristi Kung of Pillsbury Winthrop Shaw Pittman stated, “The court here found that the agency didn’t actually have to take an enforcement action against a manufacturer for there to be [a lawsuit].”

Reactions from Providers Underscore Deep Disappointment, Concern Over Access

The District Court decision struck a deep nerve among hospitals and providers. Immediately after the decision was released, the American Hospital Association (AHA) released a statement expressing its deep disappointment.

“This decision comes at a steep cost for the vulnerable patients cared for by rural and cancer hospitals,” AHA stated. “[The decision] will reduce access to critical services and treatments for some of the most vulnerable patients in society. Sadly, the biggest beneficiary of this ruling is the pharmaceutical industry – it does nothing to help either patients or taxpayers.”

The American Society of Health System-Pharmacists (ASPH) similarly stepped out in opposition of the decision. In its own statement, ASPH pointed out the adverse effects of the decision on access to care. According to ASPH, “this ruling will limit access to critical medications for the sickest patients in our healthcare system. . . . Without access to these discounts, participating hospitals may not be able to absorb the cost of providing care to patients who otherwise would not be able to afford it.”

In an interview with Modern Healthcare, the National Rural Health Association agreed, adding that the decision might cause rural hospitals to pass some orphan drug costs onto patients and could lead to some hospitals not stocking certain medications.

The overwhelming reaction against the decision is clear: the D.C. District Court decision creates public policy implications which cut off access to affordable care. By rejecting HHS’s orphan drug discount rule, this decision strongly disadvantages the same patients from underserved areas which the Affordable Care Act meant to assist.