Author: Sydney Myers-Obrien

At the beginning of the new administration, there have been threats of tariffs on a wide variety of imported goods and against multiple nations. One such suggested tariff is that on imported pharmaceuticals. In February, the new administration suggested a 25% tariff could be imposed on imported pharmaceuticals. The impact on the healthcare industry will be far-reaching if the tariffs go into effect, as 61% of adults and 20% of children in the United States fill at least one prescription each year. Tariffs are expected to affect both drug pricing and availability, creating higher prices, increasing drug shortages, and affecting health outcomes.

Tariffs on pharmaceuticals are expected to increase drug pricing for consumers. Insurance companies are not designed to handle a twenty-five percent increase in the cost of medications, due to restrictions on pricing from programs like Medicaid, and that will result in a downstream effect on their patients. This could result in reductions in coverage or the removal of certain drugs from insurance coverage. The resulting changes in coverage and costs will fall to patients.

In part, drug pricing would also go up because it could take years and be more costly to create domestic productions for medicines that are currently being produced abroad. Drug pricing is a complex system because drug production involves multiple layers of manufacturing and steps. Some pharmaceutical companies may be better equipped to handle a pharmaceutical tariff because of existing manufacturing facilities responsible for producing active ingredients while others will struggle more because of a high proportion of active ingredients produced internationally. Those that do not have domestic facilities encounter the additional barrier of FDA regulatory requirements in creating new domestic manufacturing plants.

Drug availability is also in question under the proposed tariffs. In response to the tariff threats, some companies have already expedited shipment to the United States for certain drugs. Coupled with chronic shortages of some generic drugs in recent years, tariffs would put pressure on an already fragile industry. Tariffs could result in supply chain disruption. It is also predicted that fragile generic injectables will go into shortage.

The efficacy of tariffs is as yet unclear, but research is being compiled on possible implications. The Brookings Institution compiled research on pharmaceuticals and found tariffs will provide an incentive to increase domestic manufacturing for brand-name drugs only. This would not affect off-patent generic drugs which make up 90% of the volume of drugs and only a fraction of the costs. The study anticipates that a cut into the already small profit margins will lead to products being discontinued and a loss of some quality standards.

It is unclear precisely what tariffs will do to the pharmaceutical and patient care industries, but it is widely expected that changes will come. At a White House event on April 2, reciprocal tariffs were announced, which would have an impact on the pharmaceutical industry. The White House stated there would be “no exemptions.”  On April 9, a 90-day pause on the tariffs was instituted against most foreign countries except China. This pause is a lower reciprocal tariff, at 10%, except in industries with 25% tariffs, like aluminum and steel. Tariffs are expected to impact the pharmaceutical supply on a global level, which may result in “an extreme burden on the patient.”

In July 2021, President Biden issued an Executive Order directed at promoting competition in the American economy. A portion of that order directed changes to address drug pricing, and some provisions directed the Food and Drug Administration (“FDA”) and the United States Patent and Trademark Office (“USPTO”) to communicate regarding drug pricing. The USPTO is the government entity that grants patent applications, including those on pharmaceuticals and medical devices, while the FDA reviews and approves drug, biologic, and medical device applications for use and sale in the United States. The FDA additionally grants exclusivities which prevents the agency from reviewing any applications of competitor products for a period defined by statute.

The landscape of pharmaceutical patents and drug approvals has led to some negative effects including anti-competitive promotion of patented drugs and unbalanced research and development. This problem can occur when manufacturers report statements to the FDA during the drug approval process that conflict with those made to the USPTO during the process of obtaining a patent (“patent prosecution”). Because most of the information going to the FDA is confidential, it is usually not available to the USPTO during patent prosecution, and most patent examiners are untrained on using the FDA’s information to determine patentability.

The Executive Order was issued to address these issues between patents and other laws being misused to delay or prohibit competition between generic drugs and branded pharmaceuticals. In addition to the Executive Order, Senators Leahy and Tillis have asked the USPTO to take action. As the system currently stands, the solution to these conflicting statements has been to invalidate patents using the inequitable conduct doctrine, but the confidential nature of the FDA information makes the doctrine difficult to apply. The inequitable conduct finding renders all claims on a patent unpatentable or invalid under a USPTO statute.

In response to the order and the ongoing problems, the FDA and the USPTO began communications. They have held various seminars, including cross-training on patents and drug approval pathways in March and July 2023. In addition, the USPTO held a virtual panel on the duty of disclosure and reasonable inquiry in relation to patent prosecution as well as a joint virtual and in-person collaborative listening session with the FDA in 2023 for the public to weigh in.

One of the more recent developments was in June 2024, when the USPTO published results from a drug patent and exclusivity study. The study was designed to investigate the current timeline from the initiation of a New Drug Application (“NDA”) to the entrance in the market of a generic drug. The study found that in some cases, the generic launch was not impacted by patent and exclusivity calculations but by other factors, although the time period from filing an NDA to a generic launch is influenced by the relations between patents and FDA regulations.

In a landmark 1984 case before the Supreme Court, Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. set forth a doctrine of judicial deference for administrative actions. The doctrine determined that a court should defer to an agency’s decision regarding an ambiguous statute whenever the agency’s action was reasonable, so long as it does not conflict with Congress. If the statute enabling the agency’s authority has a clear intent from Congress, that intent governs. If the intent of Congress is ambiguous, then the agency’s decision must be reasonable. If it is unreasonable, then the court may step in, but, otherwise, deference is given to the agency tasked with interpreting the ambiguous statute. The Chevron doctrine applies when agencies exert their discretionary authority in interpreting statutes. Chevron has had important implications across the legal field, being cited in nearly 1,000 judicial decisions yearly. The doctrine has also had a substantial impact on agency decisions in the healthcare field. The Food and Drug Administration (FDA) has used the doctrine for its decisions regarding new drug approvals. The Centers for Medicare and Medicaid Services (CMS) has relied on the doctrine in interpreting the Medicare Act daily, including reimbursement actions.

The Supreme Court is currently considering two cases that examine the Chevron doctrine: Loper Bright Enterprises v. Raimondo and Relentless, Inc. v. Department of Commerce. Both cases consider the overruling of the Chevron doctrine. It is anticipated that the Supreme Court will abolish or severely limit the doctrine as currently established, given the previous decisions weakening deference to federal bodies. The Court has already made a ruling in the healthcare field conspicuously rejecting the use of the Chevron doctrine despite its prevalence during oral arguments.

The abolition of the Chevron doctrine would make it easier for healthcare companies to bring litigation against an agency’s actions because the agency would no longer be afforded discretion. Abolishing Chevron would also bring large scale change to American healthcare, including the administration of Medicare and Medicaid, an insurance program for nearly half of Americans. Congress would be unable to practically draft and update statutes for Medicare and Medicaid administration post-Chevron, leaving a gap in the healthcare system’s ability to function.

The decision would also have a negative impact on science and technology. Courts lack the expert knowledge needed to understand some complex regulations, and pauses required to elaborate on statutes would represent a public health and environmental impracticality. Agencies that administer and regulate healthcare and health programs will need to change how they justify their proposed rules. However, all previous decisions on final rules for agencies like FDA and CMS will remain until challenged if Chevron is overruled.

In addition, a change from Chevron would result in a disruption of the financial stability these programs have afforded the healthcare system. With the overruling of Chevron, the first FDA new drug application approval may be overturned. Health agencies and industry are preparing for the possibility of Chevron upheaval and determining the impacts the change may bring.

Of note, Congress has the ability to alter or remove the Chevron doctrine by changing the Administrative Procedure Act (APA) to select a new standard of review in agency decision-making. A Congressional statute explicitly stating the standard of review for agency decision-making would establish a clear review regime and ensure that future judicial decisions were less likely to threaten well established agency decisions. The threat to all federal agencies of Chevron upheaval is looming, but it has farther reaching effects than federal agencies. The healthcare industry is trying to determine how to respond to the looming possibility of change, but it could result in an effect on patients, both financially and technically.

            The coronavirus pandemic has had far-reaching effects in various sectors of health law, including medical malpractice. Within the malpractice sector, there have been changes to how claims are litigated because ofemergency statutes changing liability, and there will likely be an increase in claims due to an increase in hospital-acquired infections. As a result, hospital systems are being forced to respond with higher-than-expected costs of litigating these malpractice claims and are passing on these cost issues to future patients through decreased available capital.

            The U.S. has mirrored an international model limiting liability in response to the pandemic. Italy, after seeing its first wave of COVID-19 cases, limited the legal responsibility of hospital professionals to gross negligence. An Italian study of medical malpractice in a COVID-19 setting identified two critical points that were subsequently addressed with U.S. liability statutes: the pandemic had a heavy burden on healthcare resources, and because of limited understanding, treatment and preventative measures were limited.

Statutes enacted during the pandemic limited the ability of some patients to seek out medical malpractice claims surrounding COVID-19 care and hospitalizations. The federal government responded with §3215 of The Coronavirus Aid, Relief, and Economic Security (CARES) Act, which immunized volunteer healthcare workers from liability when providing COVID-19 services during the emergency response.

States also responded with liability limitations protecting healthcare workers which are now starting to see claims being brought. New York, for example, enacted the Emergency Disaster Treatment Protection Act (EDTPA) which immunized hospitals from liability for COVID-19 related services with the exceptions of “willful or intentional criminal misconduct, gross negligence, recklessness, or intentional infliction of harm.” The act has since been repealed, but it was enacted at the time of a patient’s 2020 death. In the subsequent lawsuit, the healthcare workers were found to not be liable since they were not grossly negligent. Similar cases are likely to follow, but the costs of litigating these claims will remain for both parties.

            Despite liability limits, malpractice claims may continue to rise in the ongoing fight against COVID-19. As hospitals faced workforce shortages and health worker burnout and trauma, many had to restructure their floors and create new COVID units with ever-limited staff. As a result, the number of hospital-associated infections (HAIs) understandably increased. During 2020 and 2021, following the initial start of the U.S. based pandemic response, central line-associated bloodstream infections (CLABSIs), catheter-associated urinary tract infections (CAUTIs), and methicillin-resistant Staphylococcus aureus (MRSA) bacteremia all increased over 2019 data. From 2019 to the third quarter of 2021, ventilator-associated events increased by 60%. These numbers suggest even more claims will arise out of the pandemic as patients recover and seek out remedies for their unnecessarily long and traumatic hospital stays resulting from their HAIs.

            These changes are resulting in higher than anticipated litigation costs to hospitals. This is impacting their ability to budget on top of a decrease in operating margins from the pandemic. Together, these limits on projected income and increased output for litigation costs are negatively impacting patients further; break-even margins force hospitals to restrict spending and limit investments in patient futures. As the number of HAIs has increased, so have claims, and therefore the cost of litigating has increased. This cost is being passed off to patients in the form of decreased future health expenditures and may create even more malpractice claims in the future as hospitals struggle to keep up.