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Corporate Accounting Issues Will Influence Tax Reform Debate

Strategic Finance ...April 2012


     It has been a long time since financial accounting has been a topic of discussion in Congress. But suddenly it is in vogue as the House begins to consider a corporate tax reform bill. Rep. Dave Camp (R-MI), chairman of the House Ways and Means Committee, held a hearing in February on how accounting rules affect corporate evaluations of potential changes to tax policy. This discussion generally devolves into a comparison of the financial accounting effects of lower corporate income tax rates versus their effects with regard to retaining accelerated depreciation or expensing. Those accounting effects are important because Corporate America is going to have to chose between lower rates and tax incentives. They can't have both.
    Of course some tax incentives have stronger GAAP implications than others. "Like most companies, we are strongly influenced by tax incentives that improve our GAAP financial reporting metrics, such as our reported income, effective tax rate and earnings per share," states Mark Schichtel, senior vice president, chief tax officer, Time Warner Cable, Inc. He mentions the research credit and Section 199 domestic production incentive as examples.
     But he adds, "Given the capital intensity of our business, we rely even more on timing incentives that do not impact GAAP financial reporting, such as expensing and accelerated depreciation, which significantly enhance our actual cash flows and our ability to invest."
      Economists, however, cite financial accounting implications to dispute those who claim "timing incentives" such as accelerated depreciation should be valued above lower corporate tax rates. Thomas Neubig, national director of Ernst & Young LLP's Quantitative Economics and Statistics Practice, says a lower corporate tax rate would lower financial statement effective tax rates and increase book net income for most corporations. Accelerated depreciation offers only a timing benefit, and doesn't reduce corporations' financial statement effective tax rate or increase reported book profits. "Many corporate tax executives value permanent book-tax differences higher than temporary book-tax differences," Neubig emphasizes. "They also value the permanent benefit of a lower corporate tax rate more than a temporary cash-flow benefit. Reducing the corporate tax rate would immediately lower corporations' financial statement effective tax rates, thereby increasing their reported after-tax book profits."
      Michelle Hanlon, associate professor of accounting and taxation at the Sloan School of Management at the Massachusetts Institute of Technology, argues that tax incentives aren't all they are cranked up to be anyway. She mentions bonus depreciation and the Section 199 deduction. For example, she explains that companies respond less than predicted to bonus depreciation partly because the tax savings are not reflected on a firm’s accounting income statement.

FDA changes to drug bar code rule could have significant impact on packaging lines

Healthcare Packaging...February 23, 2012



     The discovery in February that counterfeit Avastin, the cancer infusion drug, found its way to physicians and hospitals in the U.S., makes it more likely that the U.S. Food and Drug Administration, either on its own or at the behest of Congress, will allow pharmaceutical manufacturers to change the way they print bar codes on unit-of-use drug packages. The FDA had already announced last October that it was reviewing its 2004 drug bar code rule, which requires drug companies to print a linear bar code containing the product's National Drug Code (NDC) on the package directly or on a label.
      The eight-year-old FDA rule was born of a concern that too many patients were receiving the wrong drug at hospital bedsides. The hope then was that hospitals would scan incoming drugs, eventually at a patient's bedside, to assure he or she was getting the correct medication. But since the rule went into effect in 2006, a second concern--counterfeit drugs--has gripped the FDA, as it has states like California and the countries of the European Union. The counterfeiting of Roche/Genentech's infusion drug Avastin ratchets that concern up another notch since counterfeits had been predominantly restricted to bogus pills. (Shown in the photo here is a carton of the counterfeit product.)
     California is way ahead of the FDA in erecting defenses, having enacted an e-Pedigree requirement that will force pharmaceutical companies starting in 2015 to include a unique serial number, lot number, and other information inside a bar code so that the individual container can be "tracked and traced" up and down the distribution chain using scanners, software, and databases. If that additional information were included inside a linear bar code (consisting of a series of parallel, vertical, adjacent bars separated by spaces), it would result in a package label of unwieldy size. So pharmaceutical manufacturers who want to comply with the California law--and nearly all will--will have to use a tiny, two-dimensional (2D) GS1 DataMatrix bar code on packages instead of, or in some instances, in addition to, a linear bar code.
Manufacturers have been particularly outspoken about the need for the FDA to update the 2004 bar code rule. "Abbott recommends that FDA not require one specific bar code type but instead select GS1’s approved data carriers," says Mark J. Goldberger MD, MPH, divisional vice president, regulatory policy & intelligence, Abbott Laboratories. "Using GS1 standards, manufacturers could choose the appropriate data carrier type for the package size and market."      GS1, the international standards organization, allows for serialization within its Global Trade Identification Number (GTIN), provides a 2D standard called GS1 DataMatrix and a stacked, linear bar code called GS1 DataBar. Very few American pharmaceutical manufacturers are printing GS1 DataMatrix labels today and even fewer are serializing them, as California will require. Some are printing GS1 DataBar, which is a small pyramid of stacked linear codes, referred to as a "composite" code. It is rarely serialized but could be.
     "The complicating factor is that e-Pedigree is the most technically onerous of the traceability modes that are being discussed worldwide, so California’s law sets the bar very high," explains Mark Davison, CEO, Blue Sphere Health Ltd. and author of Pharmaceutical Anti-Counterfeiting: Combating the Real Danger from Fake Drugs. "If some kind of compromise nearer to the European model could be reached then it might be easier to gets things done federally."
     Datamatrix (again, usually based on the global GS1 standard) is now required in Argentina, France, Turkey, Korea, and India, according to GS1. France, for example, requires only batch-level serialization. "I expect EU to specify pack-level serialization and 2D codes when they publish, in late 2013 is the best guess, the Delegated Act that will describe the implementing rules for the Falsified Medicines Directive," adds Davison.
     Given California's onerous, upcoming serialization requirements, which the EU will, more or less replicate even prior to 2015, the FDA could be excused for thinking it is doing the pharmaceutical industry a favor by imposing a national serialization requirement in the U.S. in the name of national and international harmonization. It is not clear whether the agency has the authority to make such a mandate on its own.       
     However, Congress this year must reauthorize the Prescription Drug User Fee Act (PDUFA). When it last reauthorized that law in 2007, Congress tacked on a number of drug track-and-trace requirements, including for the FDA to publish guidance on a Serialized Numerical Identifier (SNI) that manufacturers could use should they decide, voluntarily, to serialize their packages. The FDA published that guidance in 2010.
A year later, the FDA opened the door to vaccine manufacturers using 2D bar codes. That was because of a federal law requiring manufacturers and hospitals to track adverse events related to children's vaccines. Sanofi Pasteur is printing GS1 DataMatrix codes on pediatric diphtheria and tetanus toxoids adsorbed vaccine. Amy Ba, a Sanofi spokeswoman, says the packages are not serialized, however.
     Any serialization requirement in the U.S. would require major packaging line changes and investments. Serialization forces a company to print a unique serial number on the drug package as it moves down the packaging line, and then link that number to the carton and then link those individual and carton numbers to the pallet as it leaves the production facility on its way to the wholesaler. Depending on the speed that the company needs the packaging line to run at, serialization can force investments in new controllers, printers, scanners, and software up and down the line, including up to back office enterprise resource planning (ERP) systems.
     Robert Rack, president, RDG/BarCodeAmerica.com, says he has installed six RDG 7000XR Rewinder Label Print & Inspection Rewinder systems for three major U.S. pharmaceutical companies. The cost for implementation can range from $60,000 to $200,000 per packaging line, depending on how fast the user wants the line to run and how much of the label the user wants inspected. If the manufacturer wants speeds upwards of 500 ft/sec, then the system runs at the high end. At 200 ft/min, the system can be near the bottom dollar range. "If someone wants to print the full label in full color, and run at high speed, on demand, that pushes the cost to $200,000," explains Rack, whose company has been serializing packaging lines since 2000. "But we can meet most people's requirements in the mid-$60,000s."
     Of course, manufacturers aren't the only players in the pharmaceutical sector that would be affected in a serialized, 2D label world. Many but far from all hospitals today have linear laser-based scanners, some available for bedside nurses, which read NDC codes. However, hospitals would have to purchase camera-based scanners to read GS1 DataMatrix codes, whether serialized or not. The cost of that investment worries many hospitals, although some leading hospitals are already printing 2D bar codes--either on site or via contract packagers--on drugs coming into central pharmacies from drug wholesalers and group purchasing organizations. Hospitals do that because some small, unit of use packages such as ampules do not have linear bar codes at all. The hospital must use 2D to get the NDC number in a bar code, and in doing so, adds the lot number and expiration date, which normally is printed in ink outside the linear bar code. Having the lot number in the bar code makes it easier to find a drug involved in a recall, and reduces hospital costs.
     Bill Churchill MS, RPh, chief of service, Department of Pharmacy, Brigham and Women's Hospital (BWH) in Boston, says the hospital prints 2D bar codes in-house on about 500,000 intravenous admixtures a year and sends another 180,000 oral medication doses annually to either SafeCor Health or Shamrock Medical, two contract repackagers who are also able to provide 2D bar code symbology. Those 180,000 doses include medications in fluid cups, droppers, oral syringes, over bags, pouch packs, and other containers. The hospital dispenses about 7.5 million doses a year, the overwhelming majority of them still with only linear bar codes.
     Some argue the cost for hospitals to convert to camera scanners able to read 2D is overstated. "Besides dedicated data capture devices and mobile computers, many of your standard phones like the IPhone and Droids and others of that ilk can become bar-code readers for both1D and 2D codes by a simple software download," explains Rack.
     "Could I make the argument we could pay for the capital investment in 2D scanners with the savings from new staff efficiencies, reducing drug waste, better patient safety, and other improvements," asks BWH's Churchill? Yes, I believe that I could make the case."
Stephen Barlas has been a full-time freelance Washington journalist for more than 30 years, and covers the pharmaceutical industry for many publications.

Business Groups Argue FSOC Casts FISI Net Too Wide

Strategic Finance...February 2012


     Corporate pension funds are among the "nonbank" financial institutions which could run into heightened regulation by the Federal Reserve if deemed "Systematically Important Financial Institutions" by the Financial Stability Oversight Council (FSOC). The FSOC was established by Dodd-Frank, and the idea is to prevent the failure of nonbank companies who "pose a threat to the financial stability of the U.S." Companies who qualify will be designated "Systematically Important Financial Institutions," earning the newest, popular Washington acronym: SIFI. Potential targets include private equity and insurance companies, pension funds and money market mutual funds. Allowing the Fed to regulate money market mutual funds would create some anxiety for corporate financial executives given that those money market funds are a major source of funding to the $1.1 trillion commercial paper market. Moreover, Mary Schapiro, the chairman of the Securities and Exchange Commission, has already said she plans to propose new regulatory rules for money market funds. Those would be in addition to any regulation by the Fed of funds deemed SIFIs.
       The FSOC is now deciding whether to include money market funds, and corporate pension funds, as eligible to be designated an SIFI.  The FSOC plans to use a number of screens to "catch" SIFIs. Those would be yardsticks such as $50 billion global total assets, more than $30 billion of gross notional credit default swaps and more than $20 billion outstanding loans borrowed and bonds issued. But those proposed yardsticks are under fire. David Hirschmann, President and CEO of the U.S. Chamber of Commerce's Center for Capital Markets Competitiveness, says, "Fundamental questions remain unanswered and the re-proposal remains significantly deficient."
     Hal Scott, director of The Committee on Capital Markets Regulation, which has had a high profile in Washington with regard to financial reporting issues, says for example that money market and private equity funds should not be eligible to be designated as SIFI. He also argues that the FSOC should do a cost-benefit analysis of its standard. The FSOC says that the  Office of Information and Regulatory Affairs (OIRA) within White House Office of Management and Budget has determined that the proposed rules are not “economically significant” and thus OIRA has not performed any substantive review. "This determination by OIRA seems on its face somewhat implausible, given the consequence of SIFI designation to the regulation of important financial institutions," states Scott, whose full-time job is Nomura Professor and Director of the Program on International Financial Systems at Harvard Law School.

Pipeline VOC Emission Limits Will be Finalized By Feb. 28; EPA Makes Changes To Pipeline GHG Reporting Rule

Pipeline & Gas Journal...February 2012


     Natural gas transmission companies are very unhappy with the EPA's decision to tighten industry air emission limits. A consent decree signed by the EPA requires the agency to revise both New Source Performance Standards (NSPS) and national emission standards for hazardous air pollutants (NESHAP) for the natural gas industry, including for pipelines, by the end of February.
     Those are two separate EPA regulatory programs. The upcoming February NSPS rule will regulate transmission pipelines for the first time and require emission reductions from pneumatic controllers, centrifugal and reciprocating compressors. The transmission NESHAP, established in 1999, would be revised to include "small" glycol gas dehydrators. Both regulatory programs seek to reduce emissions of volatile organic chemicals (VOC) from numerous pipeline sources.
     Lisa Beal, vice president, Environment and Construction Policy, Interstate Natural Gas Association of America, says VOC emissions from pipelines are insignificant. She calls the EPA decision to subject transmission pipelines to NSPS standards "questionable and not adequately supported." She adds, "It appears that the proposed NSPS is a thinly veiled attempt to regulate transmission and storage greenhouse gas emissions."
     She argues that the EPA should not classify a pneumatic controller, which is a trivial VOC source and an equipment sub-component, as a “facility" under the NSPS. The NSPS would also require pipelines to equip centrifugal compressors with dry seal systems. But the EPA may allow a compliance option of wet seals combined with routing of emissions from the seal liquid through a closed vent system to a control device. Beal says only new centrifugal compressors should be regulated, and that wet seals should be allowed if the operator can demonstrate that VOC emissions are similar to dry seal mission
     There would be standards for reciprocating compressors, too. They would require replacement of the rod packing after hours of operation reached 26,000. However, to avoid unscheduled shutdowns when 26,000 hours is reached, owners and operators could track hours of operation such that packing replacement could be coordinated with planned maintenance shutdowns before hours of operation reached 26,000. With regard to reciprocating compressor rod packing requirements, Beal states those should be based on 35,000 operating hours and include an option to use condition-based maintenance to extend the operation of functional rod packing.
     With regard to the tightening of the existing NESHAP, the proposed MACT standard for the subcategory of small dehydrators - subject to limits for the first time - would require that existing affected sources meet a unit-specific BTEX emission limit of 6.42 x 10-\5\ grams BTEX/scm-ppmv and that new sources meet a BTEX limit of 1.10 x 10-\5\ grams BTEX/scm-ppmv.
INGAA isn't the only critic of EPA's intended actions. State regulators will have to issue many more permits to gas transmission facilities as a result of the regulatory expansion.
     “From a regulatory perspective these rules will significantly increase the permitting and enforcement workload for TCEQ as the delegated administrator," says Mark Vickery, executive director, Texas Commission on Environmental Quality.
Again, though they address some of the same pollutants, the NSPS and NESHAP programs use different thresholds to determine equipment subject to VOC limits. The NSPS program uses a performance standard which reflects the degree of emission limitation achievable through the application of the ``best system of emission reduction'' (BSER) which the EPA determines has been adequately demonstrated.
     NESHAPs apply only to "major sources'' defined as facilities that emit or have the potential to emit 10 tons per year (tpy) or more of a single HAP or 25 tpy or more of any combination of HAP. NESHAPs are based on a MACT floor, with MACT being an acronym for Maximum Achievable Control Technology. That floor is the average level of HAP emission control achieved by the top 12% of that industry group's currently operating sources.
     The EPA is required to finalize NSPS and NESHAP standards for gas transmission pipeline by Feb. 28 because of the terms of a consent decree the agency signed as the result of a lawsuit filed by two environmental groups, the WildEarth Guardians and the San Juan Citizens Alliance.


     EPA Makes Changes To Pipeline GHG Reporting Rule
The EPA also made some decisions about another pipeline emissions rule at the end of December. This is the rule that requires pipelines to report their greenhouse gas (GHG) emissions from 2011 to the EPA. There is no limit on those emissions, at least not yet; there is just a reporting requirement for emissions of CO-2, CH-4, and N2O.
      On Dec. 23, the agency announced its final changes to subpart W; that is the section of the overall GHG reporting rule which applies to petroleum and natural gas industry emissions. The agency made some definitional changes, which, depending on a company's operations, could be significant...or not. For example, the definition of what a transmission pipeline is was narrowed to mean a Federal Energy Regulatory Commission (FERC) rate-regulated interstate pipeline, a state rate-regulated intrastate pipeline, or a pipeline that falls under the ``Hinshaw Exemption'' as referenced in the Natural Gas Act.
     The agency made it clear that it includes within the onshore natural transmission compression facility segment not only those facilities that move natural gas from production fields or gas processing plants, but also those that move natural gas coming from other transmission compressors. In addition, the agency made it explicit that natural gas transmission compression facilities not only move natural gas into distribution pipelines, but also into liquefied natural gas storage or into underground storage.

Pharmacy Groups Want to Change the FDA’s REMS Authority

Pharmacy & Therapeutics Journal...January 2012

Battles Loom as Congress Aims to Pass a Major Bill by September 2012


     Congress's return to Washington in January starts the clock ticking on a 10-month deadline for updating the Food and Drug Administration's (FDA) new drug approval and post marketing authorities. Those were last tweaked in 2007, when Congress passed the FDA Amendments Act (FDAAA), a mélange of reforms wrapped around the fourth iteration of the Prescription Drug User Fee Act (PDUFA), the law first passed in 1992. The PDUFA specifies the fees drug companies must pay when submitting applications to the FDA for approval of a new drug or biologic. The fees supplement--in fact the user fees exceed--annual congressional appropriations and help underwrite the salaries for staff the FDA needs to comb through those applications, and help both speed up FDA approval times and prevent backlogs.
       Back in 2007, Democratic titans Rep. Henry Waxman (D-Calif.) and former Sen. Edward Kennedy (D-MA) were ascendant, and pushed a wheelbarrow of post-marketing safety reforms through Congress. Drug companies agreed to pay higher user fees for faster FDA approval times, and agreed, for the first time, that user fees--to the tune of $225 million over five years--could be used for the new safety programs.
       What a difference half a decade makes. Republicans now essentially dictate congressional action. The FDA, well aware of the GOP's anti-regulatory bent, has produced a PDUFA V proposal heavily weighted toward "process" improvements in assessing new drug applications and cautious commitments to consider taming some of the unruly aspects of some of the 2007 safety measures, such as Risk Evaluation and Mitigation Strategies (REMS) which the 2007 law allowed the FDA to require for drugs whose risks are higher than what the FDA might otherwise like to see in a new drug. A REMS might require just distribution of a MedGuide or can be much more complicated forcing physicians and pharmacists to follow numerous "elements to assure safe use (ETASU)."
    The REMS that drug companies have produced--the FDA has not established a standard format--have come in different sizes and colors, making life difficult for pharmacists. The drug companies haven't been much happier with the FDA's unfocused administration of its REMS authority, which the agency, in its PDUFA V proposal, admits needs to be clarified.
     That will be the big issue for the pharmacy community as Congress begins to fashion the 2012 version of FDAAA, which will be wrapped around PDUFA V, which will specify higher fees for drug companies. But revamping REMS won't be the only issue. Pharmacists are concerned about another FDAAA provision: the FDA creation of an active Sentinel adverse reaction alert system, meant to supplement its existing passive MedWatch system, which has been roundly criticized for its shortcomings. In fact, expect both Democrats and Republicans, often at the behest of interest groups, to toss all sorts of proposals in what will a stew pot of FDA reform, simmering all year on the congressional front burner.
     The FDA got the reform process started in late August when it published a draft commitment letter  which outlined the kinds of process changes it wants to make to improve the current drug approval and post-marketing programs. The agency aired those proposals at a public meeting at FDA headquarters on October 24. The guts of that initial effort are an increase in drug company user fees to $712 million in fiscal 2013, which starts October 1, 2012. The fees amounted to $672 million in fiscal 2012. In exchange, the FDA essentially retains the PDUFA IV timeframes of approving 90 percent of priority applications for new drugs and biologics within six months and 90 percent of standard applications within 10 months. There is no proposed change here, which isn't all that surprising, given the fact that the FDA, once it digested some of the FDAAA required reforms, has done a good job of approving new drug applications.
     The guts of this program is additional meetings the FDA promises to hold with an applicant prior to submission of a new drug application, and during the application process. In addition, with an eye to helping drug companies speed up clinical trials, the  FDA will develop a dedicated drug development communication and training staff focused on "enhancing communication" between FDA and sponsors during drug development. Other improvements are development of staff capacity to review submissions that contain complex issues involving pharmacogenomics and biomarkers and advancing development of patient-reported outcomes (PROs) and other endpoint assessment tools.
      With regard to REMS and Sentinel, the FDA made some vague commitments to hold workshops and listen to complaints.
     The FDA put together its PDUFA proposal after hearing ideas from all interested parties starting in early 2010. The agency winnowed that "wish list" down, dropping numerous proposals, and then submitted the ideas to the pharmaceutical industry, seeking its buy-in since the drug companies pay the user fees. 
     At the October 24 meeting, representatives of consumer and patient groups gave the PDUFA V proposals mostly lukewarm praise, but highlighted ideas that had not been included, criticized the fuzziness of the REMS and Sentinel enhancements and generally complained that the issue of drug "safety" was being made a handmaiden to the issue of easing the path to approval of new drugs. Celia Wexler, Washington Representative for the Union of Concerned Scientists, says she was surprised by the "tone" of the FDA's PDUFA V proposals. "I don't have any problems with improving the FDA's new drug review process, but this proposal is so wedded to timelines that it sends the message that promptness trumps all."
     Janet Woodcock, M.D., Director of the FDA Center for Drug Evaluation and Research (CDER), says she hopes that "PDUFA can go through Congress cleanly." By that she means she hopes there are no policy initiatives tacked on to the process improvements the FDA proposed in the draft commitment letter. The FDA will deliver a formal PDUFA V proposal to Congress in  January, and may make some changes to reflect some of the criticisms heard on October 24. Whatever its final shape, expect members of Congress to attempt to graft on policy initiatives in the areas of drug advertising, off-label use, conflicts of interest at FDA advisory committees, drug recall authority, inspection of foreign facilities and much more.
       There is a good reason why the FDA's PDUFA V "process improvement" proposals are so unambitious.  Jeff Allen, PhD, Executive Director, Friends of Cancer Research, says the FDA approval process is working fine as is. The FDA is approving new cancer drugs twice as fast as the European Union does. Of the 27 new cancer drugs that came on the market since 2003, all have been available in the U.S. before they were available in Europe. Allen says the "unsustainable crisis we are nearing" is the 15 years and $1 billion it takes to bring a new drug to market. "The FDA part of this is such a small component of the problem," he adds.
      "My hope is that as this discussion moves ahead that all stakeholders will acknowledge that there are challenges to new drug development that are much bigger than just FDA review," says Allen of the Friends of Cancer Research. "As other components of a resulting bill are mulled by Congress and others perhaps some attention can be given to elements that could go after addressing the 15year/$1B challenge drug development challenge."

     But the key objective for pharmacy groups is a revision of the REMS provisions of the 2007 FDAAA. "That is our key priority," says Marcie Bough, Senior Director, American Pharmacists Association (APhA).

    The good news here is that almost all stakeholders, including the drug companies, think that the 2007 REMS provisions have been troublesome. The pharmaceutical companies complain that the FDA has no black-and-white criteria for determining when a REMS is necessary, that the FDA requires them willy nilly. Pharmacy groups complain that the REMS  the FDA has approved have been all over the place, in terms of their provisions, complicating life for pharmacists, both in retail, hospital and nursing home settings. Not only have the REMS had workflow implications for pharmacists, they have, at least in the hospital setting, added to confusion and opened the door to potential medical mistakes.
     Kasey Thompson, Vice President, Office of Policy, Planning and Communications, American Society of Health-Systems Pharmacists, says, "It is not clear that REMS are being created for patient safety." He said some drug companies are creating REMS as marketing tools. REMS which include ETASU requirements have in some instances led to a problem the ASHP calls "brown bagging." That describes a situation where a patient has to obtain an injectable product from a specialty supplier and then bring that product with them for administration in the hospital.
     The FDAAA essentially substituted REMSs for the Risk Minimization Action Plans (RiskMAPs) the FDA had been requiring of some new drugs since PDUFA III. After 2007, those RiskMAPs were automatically converted into REMSs, and new first- time REMSs were issued. Many of these essentially required only that pharmacists provide a patient with a MedGuide when he or she picked up his or her prescription. In some other instances, REMSs include  ETASU which the FDA, in a Federal Register notice previewing the October 24 public meeting, admitted "can be challenging to implement and evaluate." The agency acknowledged: "Our experience with REMS to date suggests that the development of multiple individual programs has the potential to create burdens on the health care system and, in some cases, could limit appropriate patient access to important therapies."  REMS are designed from scratch by the pharmaceutical manufacturer and then subject to negotiations with the FDA during the new drug approval process. They can require such tools as prescriber training or certification, pharmacy training or certification, dispensing only in certain health care settings, documentation of safe use conditions, patient monitoring, and patient registries. Through March 2011, according to the APhA, the FDA had approved 177 drugs which included REMS, some of them converted from RiskMAPs. The majority of these, 123, were MedGuide-only. Of the remaining 54, 37 included a communications plan and 17 included ETASU (12 approved since passage of FDAAA, five being RiskMAPs converted to a REMS).
     In terms of impact on a pharmacy, a REMS can involved a number of administrative, training/education, registration, monitoring or other restricted distribution elements. that can strain workloads, and thus may encourage prescribers and dispensers to do such things as seek alternative drug products that may not be as effective or require a REMS, or limit patient access by not prescribing, distributing or dispensing the drug.
     FDAAA authorized the FDA to require a REMS when one was necessary to "ensure that the benefits of the drug outweigh the risks of the drug.” In making that decision, the FDA has to consider several factors, including: (1) the estimated size of the population likely to use the drug involved;” (2) the seriousness of the disease or condition that is to be treated with the drug; (3) the expected benefit of the drug with respect to such disease or condition;  (4) the expected or actual duration of treatment with the drug; (5) the seriousness of any known or potential adverse events that may be related to the drug and the background incidence of such events in the population likely to use the drug; and (6) whether the drug is a new molecular entity.”
     On the issue of standardizing REMS, the FDA has already taken a step in that direction by seeking to develop an industry-wide REMS with all brand-name and generic manufacturers of long-acting and extended-release opioids. An Industry Working Group submitted a proposed opioids REMS to the FDA in August. The agency has not approved it yet. The agency originally proposed an opioids REMS in 2009, but the industry balked, arguing it was too detailed, prescriptive and onerous, and would incent physicians to avoid prescribing the drugs. The FDA then loosened its terms, which formed the skeleton on which the industry put the meat in its August 2011 submission.
      The PDUFA V proposal does not mention all that spadework done on the opioids REMS as a basis for standardizing REMS going forward. The draft commitment letter simply includes a commitment to develop and issue guidance by the end of fiscal 2013 on how to apply the statutory criteria (i.e. in the FDAAA) to determine whether a REMS is necessary to ensure that the benefits of a drug outweigh the risks. The FDA also promises to explore strategies to standardize REMS, where appropriate, with the goal of reducing the burden of implementing REMS on practitioners, patients, and others in various healthcare settings. Wexler of the Union of Concerned Scientists says, "There is almost nothing there on how the FDA plans to accomplish its goals."
    Moreover, the intentions don't go nearly far enough, given various criticisms, such as those voiced by the American Society of Health System Pharmacists (ASHP). ASHP and the APhA, the latter of whom held a workshop on REMS in July 2010 and has produced two detailed White Papers, the latest in May of 2011. The APhA would like to see, for example, an improved FDA website on REMS and, perhaps more importantly, some mechanism for reimbursing pharmacists for the time they spend implementing their part of a REMS. The APhA's Bough suggests, for example, some part of the user fee pool could be used to reimburse pharmacists.
     Other than unspecified changes to REMS, the only other post-marketing safety change the FDA has talked about deals with its Sentinel system. That is the "supplement" adverse reaction system to MedWatch, which has, up until now, been the data repository for admittedly incomplete and sometimes unclear reports from physicians, pharmacists, patients and others on adverse reactions caused by drugs already on the market. The idea behind the Sentinel system is that the FDA, after getting some inkling of problems with a new drug just on the market, perhaps from initial results of a post-marketing survey, could "query" a data bank containing health records of millions of Americans to see whether that adverse reaction was frequent enough for the FDA to take remedial action. "It is very important to our membership," explains Marissa Schlaifer, Director, Pharmacy Affairs, Academy of Managed Care Pharmacy.
     The FDA's PDUFA V proposal on changes to Sentinel, as is the case with its approach to REMS improvements, sticks to vague process clarifications which would come out of public meetings in the fiscal 2013-2017 time period. Here is what the draft commitment letter published in September says: "FDA will use user fee funds to conduct a series of activities to determine the feasibility of using Sentinel to evaluate drug safety issues that may require regulatory action..."
    The FDA is now using a pilot "mini-Sentinel" system with data from 17 "data partners" who control health information for  25 million-plus individuals. The first real test was done last July when over a period of two days the FDA queried mini-Sentinel on myocardial infarctions suffered by individuals who were taking the smoking cessation drugs varenicline and bupropion. Varenicline is a new drug, and the FDA wanted to see whether it was causing more myocardial infarctions than the long-time drug used for that indication, bupropion. The answer was "no," there was no difference between the two. However, one academic who works on mini-Sentinel noted the query on varenicline was "quick and dirty" and "not a full epidemiological study." Asked what the FDA was going to do next, he said he did not know.
         Amy Allina, Program Director, National Women's Health Network, complains the FDA has no specific plans for pushing Sentinel forward. "The agency has only vague statements in its PDUFA V plan," she states. "Sentinel has been tested, and it is working in a limited way. It is time to move forward. At some point, the rubber has to meet the road. If the FDA only uses Sentinel to find risks it expects to see, instead of broader data on unexpected adverse reactions, it will have missed a huge opportunity."
     Talking about missed opportunities, every representative from every consumer and pharmacy group who spoke at the October 24 meeting advocated broader authority for the FDA so it could review drug ads on TV, in print and on the Internet more thoroughly than it does now, which is to say not thoroughly at all. The FDA draft commitment letter says nothing about drug advertising. Additional authority provided by Congress in 2012 would be the kind of "policy initiative" Janet Woodcock opposes. Sally Greenberg, Executive Director of the National Consumers League, says, "It is imperative that the FDA review ads for accuracy before they reach the consumer." Companies can now voluntarily submit their ads to the FDA for review. In some instances they wait to get a green light, in some instances they air the ads before hearing from the FDA. Greenberg and others think all ads should be reviewed before they are disseminated. She advocates a moratorium on ads for all new drugs where there are unanswered questions about the drug's safety, questions that could be answered via post-marketing surveys. "User fees should be allocated for advertising reviews so that the FDA can hire additional staff," she states.
     The FDA's failure to include any proposed drug advertising changes and the general timidity of its PDUFA V proposal probably are no accident. No federal agency in its right mind would have the temerity, in this anti-regulatory political climate, to suggest expansion of  its regulatory reach. Janet Woodcock and her FDA colleagues are not blind. They can read the tea party leaves.