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Are HCT/Ps a Dark Spot in the Sunshine Act Requirements?

On February 22, the Wall Street Journal published an article about the tissue graft manufacturer MiMedx Goup, Inc. and its failure to report payments to physicians under CMS’s Open Payments Program established by the Centers for Medicare & Medicaid Services under the Patient Protection and Affordable Care Act (P.L. 111-148, Sec. 6002, amending Social Security Act Sec. 1128G), also known as the Physician Payments Sunshine Act (PPSA).  MiMedx executives claim that such reporting is unnecessary because the company’s products are tissues, which are not explicitly included in the regulatory definition of “covered drug, device, biological, or medical supply” to which the Open Payments Program apply (42 C.F.R. 403.902). As a result of falling outside this definition, MiMedx argues that it is not an “applicable manufacturer” required to disclose payments to physicians and teaching hospitals.  MiMedx’s product-specific reasoning aside, the company’s argument brings up an interesting point about the evolution of FDA-regulated products and the enforcement of the Open Payments Program requirements: Does the PPSA, and its corresponding regulations, require manufacturers of tissue-based therapies to disclose payment information?

According to the PPSA, the obligation to report payments or transfers of equity to physicians or teaching hospitals falls on “applicable manufacturers” which manufacture “covered drugs, devices, biologicals, or medical supplies.”  So, if a human cell, tissue, or cellular and tissue-based product (HCT/P) can be classified as drugs, devices, biologics, or medical supplies, the manufacturer is an “applicable manufacturer” and must submit annual reports to CMS.

FDA has regulatory jurisdiction over HCT/Ps according to Section 361 of the Public Health Service Act (PHSA), and FDA defines an HCT/P as any product “containing or consisting of human cells or tissues that [is] intended for implantation, transplantation, infusion, or transfer into a human recipient” (21 C.F.R. 1271.3(d)).  Since January 2001, when FDA promulgated 21 C.F.R. Part 1271 (“Part 1271”) to regulate HCT/Ps, FDA has used its authority to establish a fairly complex regulatory structure to fit such products into the traditional drug, biological, and device categories.

Through Part 1271, FDA created a multi-tiered approach to HCT/Ps. On the one hand, an HCT/P is regulated solely under Section 361 of the PHSA and subject to FDA enforcement discretion if it meets certain criteria, including (1) minimal manipulation of the cells or tissue to create the HCT/P and (2) homologous use of the cells or tissue.  If the HCT/P fails to meet the criteria, it is regulated as a drug, biological, device, or combination product under Section 351 of the PHSA and the Food, Drug, and Cosmetic Act, without enforcement discretion.

Under this regulatory scheme, something interesting happens: an HCT/P regulated solely under Section 361 of the PHSA (a “Section 361 HCT/P”) is not considered a drug, biological, or device but a different type of article that stands apart from the traditional categories.  Neither Section 361 of the PHSA nor Part 1271 creates or defines a separate product category that encompasses this class of HCT/Ps.  FDA, specifically the Center for Biologics Evaluation and Research (CBER), still has jurisdiction over Section 361 HCT/Ps, but they are not labeled as drugs, biologics, or devices.

So, as long as the Part 1271 criteria are met, a Section 361 HCT/P is in a product class of its own, and apparently, would not qualify as a “covered drug, device, or biological” under the PPSA. However, it is far from clear that it was Congress’s intent to exclude such products from the PPSA’s disclosure requirements. It is possible that CMS will pursue enforcement action against HCT/P manufacturers who fail to disclose physician payments or will modify its interpretation of the PPSA requirements to include all HCT/Ps.

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Benjamin M. Zegarelli is a Mintz Associate who counsels clients on compliance and regulatory issues, with a focus on FDA regulations. Benjamin advises clients in the pharmaceutical, medical device, and biotech industries. He provides counsel on research approval, sales, and contract negotiations.