Hospitals Struggle With ACA Challenges

P&T Journal - September 2014 - for a PDF copy of the published version go HERE.

More Regulatory Changes Are in the Offing in 2015

The results released on July 10, 2014, by CareFirst of Maryland, a Blue Cross Blue Shield plan, probably had some Maryland hospitals shaking in their boots. It wouldn’t be surprising if hospitals around the country felt the vibrations.

CareFirst was reporting for the first time on the results of its patient-centered medical home (PCMH) program, which the insurer initiated three years ago. The Patient Protection and Affordable Care Act (ACA) established a formal PCMH pilot program within Medicare, and insurers in the commercial market who aren’t part of the pilot, such as CareFirst, have been experimenting with the concept too. A PCMH program pays physicians incentives to monitor the health of their patients more closely, with the objective of minimizing referrals to specialists and hospital admissions. Members seen by medical home physicians participating in the CareFirst program experienced 6% fewer hospital admissions, 11% fewer days in the hospital, and 11% fewer outpatient visits than other CareFirst clients last year.¹

The PCMH is just one of the ACA initiatives aimed at reducing hospital admissions and, by extension, hospital revenue. The ACA’s emphasis on primary care as a bulwark against hospitalization, and its endorsement of accountable care organizations (ACOs) and bundled payments, is having, and will continue to have, a major impact on hospital revenue—in some cases not in a good way, speeding hospital consolidations and closures. Stephen Schimpff, MD, retired Chief Executive Officer of the University of Maryland Medical Center, puts it this way:

It is a changing world for hospitals; it is harder to thrive in the way in which it was done in the past. We used to be in the business of disease and pestilence, the more disease and pestilence the better. Now we are in a totally different business, improving the health of your community.

But the ACA has been something of a double-edged sword. While its payment initiatives are staunching the flow of patients to hospitals, its insurance expansion has opened the spigot. The ACA’s Medicaid expansion has sent waves of people through hospital doors in some states. Many of them were previously “self pay”—with some percentage being “no pay”—and hospitals are suddenly being compensated for their care. The health insurance marketplaces have brought eight million customers, not all of them newcomers, to hospital doors. However, hospitals have had to contend with the pricing demands of qualified health plans (QHPs), which sell individual health plans and must comply with federal rules, some of which filter down to hospitals.

The Revolution Gathers Steam

Just as the application of steam power to manufacturing in Great Britain in the mid-1700s ignited the industrial revolution, the 2010 passage of the ACA has prompted an emerging upheaval in health care. Traditional hospital operations across a broad range of activities have been upended and are being refashioned.

Hospitals are merging at a pace previously unseen, buying insurance companies (and being bought by insurance companies), and piling into “clinically integrated networks” faster than high school seniors jumping into beach-bound cars on the last day of school. Health systems are also buying physician practices to establish PCMHs or ACOs, or simply to have a better footing to contend with insurance companies outside of Medicare that are requiring some form of risk-based “value,” “bundled,” or “capitated” purchasing contract—terms that are being tossed around with varying meanings.

“At the strategic level, the Affordable Care Act has certainly colored the internal dialog at Catholic Health Initiatives [CHI] around the positioning of our health system and our markets,” says Juan Serrano, Senior Vice President of Payer Strategy and Operations at CHI, which owns about 90 hospitals around the country. CHI has about 15 hospitals participating in the Shared Savings Program at the Centers for Medicare and Medicaid Services (CMS).

The Shared Savings Program is an ACO option, a companion to the smaller, more radical Pioneer ACO program. Both programs promote what has come to be called “value purchasing,” in which Medicare and Medicaid, and an increasing number of commercial insurers, pay hospitals for integrated clinical care. There were 32 Pioneer ACOs and about 350 hospitals in the Shared Savings Program. Only two organizations have terminated Medicare ACOs, while seven have shifted from the Pioneer program (in which they must assume “downside” risk for losses) to the more financially forgiving Shared Savings Program, which permits one-sided (bonus-only) financial arrangements.

About 100 hospitals participate in the Medicare bundled payments pilot program, which is another product of the ACA. Medicare has also begun testing PCMHs, although the CMS had been experimenting with the concept prior to ACA passage. The demonstration program kicked off in 2011. It pays a monthly care management fee for beneficiaries receiving primary care from a designated medical group. The care management fee is intended to cover care coordination, improved access, patient education, and other services to support chronically ill patients. The program is operating in select states, and like other ACA programs it has sent ripples into the commercial marketplace, where companies such as CareFirst have inaugurated their own programs. The idea is to keep patients from being referred to specialists at hospitals, where care is more expensive.

While “clinical integration” and “value purchasing” have become watchwords in the hospital industry thanks to the ACA, the law has also prompted some hospitals to look outward, beyond their normal operational borders, particularly in terms of capitalizing on the eight million entrants into the federal and state health insurance marketplaces. As a result, hospitals are slowly moving into the health insurance business. CHI recently purchased QualChoice, a health insurance company based in Arkansas. Serrano says the purchase may become a platform for CHI to offer plans in the state and federal marketplaces. “The purchase of QualChoice allows us to accelerate our value delivery to the market; it gives us a distribution channel for our products and new models of care: for example, new disease management programs and narrow networks,” he states.

Some hospitals participate in the ACO and bundled payment programs simultaneously. “We are working with both health systems that have bundles with CMS, and with health systems that have bundles with CMS while at the same time participating in the Medicare Shared Savings Program,” explains Morgan Bridges-Guthrie, a spokeswoman for Premier, Inc., which provides buying, data, and other services to hospitals. “So, ACOs instituting bundled payment programs is a natural fit.”
Hospital executives will need to be even more nimble next year as ACA programs continue to morph. The QHPs that sell individual policies in federal and state insurance marketplaces face new requirements in 2015, some of which affect hospitals. In addition, the CMS will rework its ACO program, both the narrow Pioneer and broader Shared Savings models.

Debate Over ACA Shifts to New Issues

The debate about the ACA seems to have morphed since spring 2014. Then, there were questions about whether the eight million people the Obama administration had forecast would enroll in federal and state marketplaces would actually show up. When they did, the question became whether all of the new entrants would pay their premiums and actually get coverage. Most did. Competing studies by national organizations have offered differing results about what percentage of that eight million (or whatever the final 2014 number turns out to be) were previously uninsured. That was the whole point of the ACA, to insure the uninsured. But even the fire over that question has died down.

Interestingly, no one seems too concerned that 90% of marketplace participants are receiving federal subsidies for their premiums and that those premiums average 75%. Maybe those federal costs are less than what taxpayers were paying for the portion of the eight million who were previously costing hospitals money in the form of uncompensated care. However, a report from the Department of Health and Human Services (HHS) inspector general in July said that at the end of 2013, the federal marketplace (13 states have their own marketplaces) had 2.9 million inconsistencies relating to an applicant’s income status and Social Security number.²

It is probably because of the federal subsidies that QHPs, having offered reasonable premiums for the four plan levels (bronze, silver, gold, and platinum) in 2014 while they got a feel for the costs of covering essential health benefits, now feel free to jack up 2015 premiums. Companies began filing 2015 premiums with HHS this summer; they take effect on January 1, 2015. The Wall Street Journal in June looked at potential 2015 premium increases in 10 states and found that the largest carriers were proposing increases of 8% to 22.8%.³ These proposed increases may not stick: Both the states and HHS have the power to negotiate lower rates. But it seems clear that a certain percentage of marketplace participants will switch to lower-priced plans using more constricted networks. This will put even more pressure on hospitals.

A New World for Hospitals

That uncertainty aside, some trends now seem immutable. In the name of clinical integration, some of the biggest hospital companies, such as CHI and Ascension Health, have been adding hospitals and considering buying insurance companies. The not-for-profit Denver-based CHI system, which provides health care services in 18 states, assumed control of several hospitals and a health system and purchased a majority interest in a physician-owned health plan last year.

In the reverse scenario, health insurers are buying hospitals. Highmark Inc., one of the biggest Blue Cross/Blue Shield plans in the country, in 2013 bought the West Penn Allegheny health system, which boasts eight hospitals in western Pennsylvania. Highmark offers marketplace and nonmarketplace policies in Pennsylvania, Delaware, and West Virginia, and is the only marketplace carrier in the third state. Spokesman Aaron Billger says Highmark’s acquisition of the West Penn hospitals was not done with marketplace leverage in mind. Rather, the hospitals provide Highmark with a platform to create an integrated delivery network—called the Allegheny Health Network—that serves as an ACO/PCMH-type destination for the 218,000 policyholders (marketplace and nonmarketplace) in western Pennsylvania.

Highmark’s ACO program is not a part of either Medicare model, so it illustrates how the commercial insurance marketplace is picking up the ACA ball and running with it. There were 147,000 Highmark-insured individuals whose physician practices were members of the Highmark Accountable Care Alliance between October 2012 and October 2013. In clinical quality performance measures, those practices showed a 26% improvement in quality scores and a reduction in medical costs, with total six-months savings of about $11.5 million.

ACA Impact on Hospital Financial Health Unclear

This scurrying by hospitals to capitalize on the new ACA programs has had an uneven financial impact on them. A June Modern Healthcare analysis of earnings reports for about 200 hospitals and health systems, both not-for-profit and investor-owned, found that hospital margins narrowed significantly last year despite an improving economy.⁴ The magazine wrote: “Despite a buoyant stock market streak by some publicly traded chains, health care providers as a group continue to operate with slim and shrinking margins. Overall, a smaller percentage of health care providers saw positive operating margins last year compared with the previous two years.”

The Modern Healthcare analysis found that the average operating margin in 2013 was 3.1%, down from 3.6% in 2012 based on data available for 179 health systems, which included acute-care, post-acute-care, rehabilitation, and specialty hospital groups and some stand-alone hospitals. A total of 61.3% of organizations in the Modern Healthcare analysis saw their operating margins deteriorate over the previous year.

Probably the best news for many hospital systems is the influx of Medicaid patients, via the ACA Medicaid expansion. For example, LifePoint Hospitals reported a 14% increase in net income in the first quarter of 2014. That is based on just seven of LifePoint’s 20 states expanding Medicaid, although 35% of its self-pay volume was generated in those states in 2013. About 22% of its self-pay patients during the first quarter had enrolled in Medicaid, and 3% had enrolled in an exchange plan—on the high end of previous expectations. Diane Huggins, Vice President of Communications at LifePoint, says not all of the gain in net income came from treating new Medicaid recipients. “Clearly, there were a confluence of factors that impacted our Q1 2014 results compared to the same quarter of the prior year in addition to Medicaid expansion,” she states.

There has been little analysis of how ACOs have specifically affected hospitals, which are just one member of an ACO team that depends heavily on physician practices as, for want of a better term, quarterbacks. However, hospitals are the key team member because they drive shared savings via better quality care that results in fewer hospital readmissions. The only financial results issued so far by the CMS were in July 2013 for the 32 Pioneer ACOs.⁵ Thirteen of the 32 produced shared savings with CMS, generating a gross savings of $87.6 million in 2012 and saving nearly $33 million for the Medicare Trust Funds. Overall, Pioneer ACOs performed better than published rates in fee-for-service Medicare for all 15 clinical quality measures for which comparable data are available. Medicare has not published any comparable results for the Pioneer programs in 2013 or for the much larger Shared Savings ACO program.

The Pioneer results are partly encouraging and partly not. Some hospitals earned substantial profits. Others turned themselves inside out to no avail. “We’ve spent a lot of money and haven’t shown much progress on the revenue side,” said Richard Barasch, Chairman and CEO of Universal American Corp., at an investor conference in June. “There’s a limit to our public service feelings about this. We are going to scale it back to some degree.” Universal has 34 ACOs and is one of the biggest players in the ACO world. Most of its ACOs participate in the Shared Savings Program.
The CMS has not published financial results or health outcomes from its Bundled Payments for Care Improvement (BPCI) initiative. Its four bundled payment models allow providers to bid as a team to provide a continuum of services for a predetermined target amount to include physician payment, nursing-home care, surgery, and other care, most commonly for treatments such as heart, colon, and spinal surgery, as well as hip and knee replacements.

The Premier, Inc., Bundled Payment Collaborative includes 17 health care provider systems with more than 45 hospitals across the nation. Members of the collaborative are committed to sharing best practices and data with each other. They focus on improving care and reducing costs across multiple episodes of care, including hip and knee joint replacements, lumbar spinal fusions, coronary artery bypass grafts, heart valve replacements, congestive heart failure, percutaneous coronary interventions, and colon resections.

“We haven’t charted the financial impact yet,” Premier’s Bridges-Guthrie explains when asked how the Premier bundled payments participants have fared so far. “Our Bundled Payment Collaborative members went live beginning of January, so it is a bit too early to tell real results versus estimates. At this time, we only have partial results. Unfortunately, it’s just too early to know performance.”

Changes in ACA Programs on the Way

Even as hospitals try to gain traction in current ACA programs, some of those programs will be changing. The CMS was supposed to publish a proposed rule in May 2014 detailing changes it wants to make in the Shared Savings Program. That proposal had not been issued as of mid-July. But just the prospect of the proposed rule forced the American Hospital Association (AHA) to launch a pre-emptive strike in the form of a long letter to Patrick Conway, MD, Acting Director of the CMS Innovation Center. In that letter, Linda E. Fishman, Senior Vice President of Public Policy Analysis and Development, said the AHA continues to have “significant concerns about the design of the current Pioneer ACO Model and the Medicare Shared Savings Program (MSSP).”⁶

The two programs are similar in many regards, although the Pioneer program offers greater potential rewards to participants for greater savings. Both the Pioneer and Shared Savings ACOs enroll Medicare recipients and accept “risk.” Payment is based on traditional fee-for-service (FFS) in the first two years, but Pioneer ACOs can transition to population-based payment after that if “results” warrant the transition. Population-based payment is per-beneficiary-per-month compensation intended to replace some or all of the ACO’s FFS payments. The CMS also requires that 50% of Pioneer revenue come from participating in “risk” contracts with other payers by the end of the second performance period.

The AHA wants a laundry list of changes, as does the American Medical Group Association (AMGA), whose members—larger physician group practices—typically drive the ACOs, which almost always include hospitals. Fishman’s letter to Dr. Conway complained that the Pioneer ACO and MSSP programs place too much risk and burden on providers with too little opportunity for reward in the form of shared savings. She made a number of suggestions for changes to improve the programs, all of them technical and all of them practically requiring a doctorate in statistics to understand for anyone not steeped in ACO terminology and methodology. Suffice it to say that the AMGA has some of the same concerns about requirements, for example, attached to the minimum savings rate (MSR) for ACOs. The MSR accounts for the potential random variation in savings that may not be linked to improvements in quality and efficiency.

The QHPs already have new rules to follow in 2015, those established by the so-called “2015 Letter to Issuers in the Federally-facilitated Marketplaces.” ⁷ One change drills down to hospitals and opens up new liability: the first-time imposition of civil money penalties (CMPs) for any breach of federal rules by any party, including consumer assistance entities such as hospitals. When the draft letter was published, the AHA argued that applying CMPs to individual and institutional assisters, especially voluntary certified application counselors (CACs), would have a chilling effect on some hospitals continuing to serve in that role. It wanted the CMS to reconsider the application of CMPs to voluntary assisters, and to limit CMPs in general to egregious violations of selected requirements in which there are no other enforcement mechanisms already in place. Otherwise, hospitals could be penalized for simple human errors of judgment or facts that are unintentional, nonmalicious, and consistent with the purpose of the ACA—to provide coverage to the uninsured.

The CMS seems to have ignored the AHA’s pleas, so hospitals may have to tiptoe around efforts to sign up federal marketplace customers. Some hospitals may trip over sign-ups or other impediments suddenly strewn in their path thanks to the ACA. But some hospitals will prosper, too, as they figure out how to make this revolution work for them.

Author bio: 

Mr. Barlas, a freelance writer based in Washington, D.C., covers topics inside the Beltway.

References

1. CareFirst BlueCross BlueShield. 2013;PCMH program performance report. July 102014;Available at: https://member.carefirst.com/carefirst-resources/pdf/pcmh-program-performance-report-2013.pdf. Accessed July 14, 2014
2. Department of Health and Human Services, Office of Inspector General Marketplaces faced early challenges resolving inconsistencies with applicant data. June 2014;Available at: http://oig.hhs.gov/oei/reports/oei-01-14-00180.pdf. Accessed July 14, 2014
3. Radnofsky L. Premiums rise at big insurers, fall at small rivals under health law. Wall Street Journal June 182014;Available at: http://online.wsj.com/articles/premiums-rise-at-big-insurers-fall-at-small-rivals-under-health-law-1403135040. Accessed July 14, 2014
4. Kutscher B. Fewer hospitals have positive margins as they face financial squeeze. Modern Healthcare June 232014;Available at: http://www.modernhealthcare.com/article/20140621/MAGAZINE/306219968/1135. Accessed July 14, 2014
5. Centers for Medicare and Medicaid Services. Pioneer accountable care organizations succeed in improving care, lowering costs. [Press release]. July 162013;Available at: http://www.cms.gov/Newsroom/MediaReleaseDatabase/Press-Releases/2013-Press-Releases-Items/2013-07-16.html. Accessed July 14, 2014
6. American Hospital Association Letter from Linda E Fishman, Senior Vice President, Public Policy Analysis and Development, to Patrick Conway, MD, Acting Director, Innovation Center, Centers for Medicare and Medicaid Services. April 172014;Available at: http://www.aha.org/advocacy-issues/letter/2014/140417-cl-aco.pdf. Accessed July 14, 2014
7. Centers for Medicare and Medicaid Services. 2015 letter to issuers in the federally-facilitated marketplaces. March 142014;Available at: http://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/2015-final-issuer-letter-3-14-2014.pdf. Accessed July 14, 2014

FDA Devotes New Resources To Upgrading Generic Drug Safety

P&T Journal
May 2014 - for a PDF copy of the published version go HERE.

But in Some Instances, the Industry Is Pushing Back

If one were looking for an example of why the Food and Drug Administration (FDA) appears increasingly concerned about the quality of generic drugs in the U.S., one need look no further than the Indian company Ranbaxy Laboratories. In the past few years, it has on its own and at the FDA’s insistence recalled bottles of atorvastatin calcium (generic Lipitor) and been barred from exporting to the U.S. products made at a plant in Toansa, India. In 2013, Ranbaxy, owned by the Japanese drug company Daiichi Sankyo, paid a $500 million fine and pled guilty to criminal charges of selling adulterated drugs and making false statements to the FDA.1

The FDA also banned sales in the U.S. from Indian facilities owned by a second Indian company, Wockhardt Ltd. In a long letter dated July 18, 2013, to Habil Khorakiwala, Wockhardt’s Chairman and Group Chief Executive Officer, Michael D. Smedley, Acting Director of the FDA’s Office of Manufacturing and Product Quality, wrote that FDA inspectors had found significant violations of current good manufacturing practice regulations at the Wockhardt plant in Aurangabad, India. The company “withheld truthful information, and delayed and limited the inspection,” Smedley added.2

Of course, Ranbaxy, Wockhardt, and other major generic manufacturers such as Teva Pharmaceutical Industries Ltd., Sandoz, Actavis PLC, Mylan Inc., Hospira Inc., Sanofi, Aspen Pharmacare Holdings Ltd., and STADA Arzneimittel AG are more often the good guys, selling important drugs at significant discounts to patented alternatives. Those lower prices ease the financial strain on millions of Americans every year. Generic pharmaceuticals fill 84 percent of the prescriptions dispensed in the U.S. but account for just 27 percent of the total drug spending, according to the Generic Pharmaceutical Association (GPhA).3

Despite their financial advantages to consumers, however, generics may have a greater chance than brand-name products of causing adverse reactions because so many are in use. When they do, they prompt headlines atop stories that often very quickly mention that the company making the offending drug is headquartered outside the U.S., along with most or all of its manufacturing plants. Questions about adequate FDA inspection of overseas facilities come up just as quickly thereafter. Eighty percent of active pharmaceutical ingredients are imported to the U.S., as are 40 percent of finished drugs, according to the FDA.4 There are no good statistics on what percentage of finished generic drugs are imported.

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Generic Firms Increase Foreign Manufacturing

Even U.S.-headquartered generics manufacturers are rushing to expand overseas manufacturing, especially in India. Of the major generics players listed above, only Mylan and Hospira are headquartered in the U.S. Three of Hospira’s six major manufacturing facilities are outside the U.S., including one in Irungattukottai, India. In 2012, Hospira acquired an “active pharmaceutical ingredient” manufacturing site and an associated research and development facility from Orchid Chemicals & Pharmaceuticals Ltd. Those Orchid facilities are located in Aurangabad, India. Hospira also has an unconsolidated joint venture with Cadila Healthcare Ltd., a pharmaceutical company in Ahmedabad, India. The joint venture operates a manufacturing facility outside of Ahmedabad.

Mylan has 18,000 employees worldwide, 8,500 of them in India. Lauren Kashtan, Mylan’s Senior Manager of Media Relations and External Communications, declines to say how much of Mylan’s manufacturing is done outside of the U.S. But clearly a significant portion is done in India, with that volume apparently on the upswing. Mylan has signed a marketing agreement with India’s Natco Pharma Ltd. for Natco’s glatiramer acetate pre-filled syringes. In December 2013 Mylan purchased the Agila Specialties division from Indian generics manufacturer Strides Arcolab.5 Just two months later, on February 19, 2014, Mylan announced that Agila Specialties was conducting a voluntary nationwide recall from hospitals of 10 lots of etomidate injection 2 mg/mL packaged in 10-mL and 20-mL volumes. The 10 lots were made by Agila Specialties Polska Sp.z.o.o in Warsaw, Poland. Some vials contained pieces of paper, identified as shipper labels.6

“With so many products coming from overseas, it is a big task to effectively monitor products manufactured overseas imported to the U.S.,” says Gregory Amidon, PhD, Research Professor of Pharmaceutical Sciences in the College of Pharmacy at the University of Michigan (UM), who worked for pharmaceutical companies for 28 years.

Aside from manufacturing quality, the bioequivalence of generics has also been a concern. Questions about generic bupropion were raised as early as 2007. In October 2012, the FDA announced that 300-mg Budeprion extended release (XL), manufactured by Impax Laboratories and distributed by Teva, was not therapeutically equivalent to the reference drug, Wellbutrin XL 300 mg. A year later, after four companies completed testing requested by the FDA, the agency announced that Watson Pharmaceuticals was voluntarily withdrawing its generic bupriopion HCl ER 300-mg tablet because it was not therapeutically equivalent to Wellbutrin. At the same time, the FDA said its testing had proven that generic bupropion formulations marketed by Actavis, Mylan, and Par were bioequivalent to Wellbutrin. (Activis and Watson had merged prior to the announcement.)7

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Hamburg Trip to India Yields Very Modest Results

Concerns about generic drug quality have been percolating at the FDA for years, of course. But new regulatory requirements, funding streams, and expanding generic use on private and public formularies have forced the FDA to step up the pressure it exerts on the industry. FDA Commissioner Margaret Hamburg, MD, took her first trip to India at the end of February. While there, she signed a statement of intent with her counterpart, the Drug Controller General of India, Gyanendra Singh, PhD.8 The statement is fairly general, and its import and impact have been somewhat diluted by comments Dr. Singh made after Dr. Hamburg’s visit. Dr. Singh said, according to a journalist participating in a conference call with Dr. Hamburg upon her return, that if he had to follow U.S. standards in inspecting facilities he “would have to shut almost all of those.”

Actually, there was no need for Dr. Singh to devalue Dr. Hamburg’s efforts. The statement of intent commits India to do very little of substance beyond information-sharing and scientific collaboration. There is no talk of hiring additional inspectors, improving quality standards, or anything of that nature. And the statement allows India to forego even potential softball actions when “taking into account the limitations of existing human and financial resources and within the parameter of domestic legal and administrative requirements. …” 8

Asked whether the FDA was perturbed by Dr. Singh’s comment, a spokesman says, “Within five years, we will be able to conduct biennial inspections for both domestic and foreign facilities, allowing us to identify any noncompliant players in the drug supply chain—wherever they are based—so we can focus on the generic drug industry worldwide.”

Five years is a long time when lives are at stake. Questions about the quality and safety of generics become more important by the day as formularies for Medicare, Medicaid, employer health plans, and Affordable Care Act plans for independents heavily weight their tier-one drug offerings with generics. The announcement by Eli Lilly & Company in late March that it was eliminating pay raises for most employees in 2014 reflects the growing dominance of generics. Lilly said the loss of patent protection for Cymbalta, its best-selling drug, and Evista opened the door to generic competition and an expected sales decline of 14 percent in 2014.

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GDUFA Fees Let FDA Expand Regulatory Reach

Congress was aware of the generic surge, as well as its potential for both health care savings and safety problems, when it passed the Generic Drug User Fee Act (GDUFA) in 2012.9 The law required generic manufacturers to pay fees to the FDA for the first time. The agency uses those fees (which came to $300 million in 2013) to finance critical and measurable enhancements in generic drug programs. Generic drug facilities, sites, and organizations around the world must provide identification information annually to the FDA.

The GDUFA dictated a number of FDA actions and indirectly led to others. In addition to a key proposed rule and a testing program farmed out to academic medical centers, the FDA has published a draft guidance explaining when the agency could “refuse to receive” an abbreviated new drug application (ANDA). Before marketing a new product, generic companies submit an ANDA, which must be approved by the FDA. The guidance, which has not been finalized, delves into important issues such as whether the agency will accept a claim that a generic is “bioequivalent” to its brand-name counterpart.10

A proposed rule issued last November by the FDA allowing generic companies to change their safety labeling before the reference brand-name product does so11 has been among the most controversial of the FDA’s recent actions. The reason for the proposed rule is that generic companies are as likely to be alerted to adverse reactions as brand-name companies. But under current law, only the brand-name company can submit a “changes being effected” (CBE-0) supplement to the FDA. That allows the company to make certain labeling changes without FDA approval: for example, to add or strengthen a contraindication, warning, or precaution, or to strengthen a statement about drug abuse or an instruction about dosage. Once the revised labeling goes into effect, all generic products on the market are required to make their labeling conform within 30 days. This policy dates back to 1982.

But because only the brand-name manufacturer can make CBE-0 labeling changes, only the brand-name company is liable in court for adverse reactions. Generic companies cannot be sued for failing to update labels. Under the FDA proposal, generic drug makers could be sued—a prospect that displeases them.

The generic industry is arguing that the change in labeling policy would create nightmares for pharmacists and others as generic companies selling the same active ingredient were freed to change the labels of their individual products in any way they wanted. Uniformity would not be required. A number of pharmacy groups, including the Academy of Managed Care Pharmacy, American Association of Colleges of Pharmacy, American Pharmacists Association, and American Society of Health-System Pharmacists, signed on to a letter that the GPhA originated in March to comment on the rule. They said they were most concerned about the dangerous confusion multiple labels would cause and about the increased costs of and reduced access to generic medicines for patients who need them most. The letter stated that pharmacists could be exposed to liability as well as the generic drug companies.12

Allison Zieve, Director of the Public Citizen Litigation Group, doubts the validity of the “labeling confusion” argument. “Numerous different newly discovered safety risks are unlikely to come to light for a single drug at the same time,” she states. To buttress the contention, she refers to classes of brand-name drugs where there are several competitors. Take the selective serotonin reuptake inhibitor class of anti-depressants, for example. Fluoxetine hydrochloride (Prozac, Eli Lilly), sertraline hydrochloride (Zoloft, Pfizer), and paroxetine hydrochloride (Paxil, GlaxoSmithKline) are sold by different manufacturers. “We do not see the manufacturers discovering a variety of new safety risks all at about the same time,” she explains. “If several manufacturers submit changes at or near the same time, the changes are likely to address the same risk—and it will hardly confuse physicians and patients if, for instance, one generic warns that its drug ‘has been associated with inflammatory bowel disease in patients without a prior history of intestinal disorders,’ while another warns that ‘long-term use is associated with serious intestinal problems, including ulcerative colitis and Crohn’s disease,’ and a third warns that ‘patients taking this product should be monitored closely for signs of inflammatory bowel disease.’ ” 13

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Guidance Would Turn Back Flawed ANDAs

Labeling also comes up in the context of the draft guidance on “refuse to receive” that the FDA issued last October.10 This guidance, which the FDA has yet to finalize, was issued as a result of a GDUFA provision. It describes what should be included in an ANDA and highlights serious deficiencies that may cause the FDA to refuse to receive an ANDA. A refuse-to-receive decision indicates that the FDA has determined the ANDA is incomplete on its face, usually because of omissions. The draft guidance covers labeling, chemistry, and bioequivalence issues. Guidance, however, is advisory; the FDA cannot penalize a company for violation of guidance, as it can for violation of rules.

Underlining concerns about generic quality and safety, the draft points out that the FDA office of generic drugs refused to receive 497 ANDAs between 2009 and 2012. “Recent data underscore the need for improvement in the quality of original ANDA submissions,” the draft states. In 2012, of the 100 ANDAs that the office of generic drugs refused to receive, 40 were refused because of serious bioequivalence deficiencies, 36 because of serious chemistry deficiencies, 13 because of format or organizational flaws, six because of clinical deficiencies, four because of inadequate microbiology (sterility assurance) information, and one because an incorrect reference drug was cited. Those 100 accounted for approximately 10 percent of the ANDAs the agency received in 2012.10

The draft makes some minor and potentially major changes in current FDA policy. “There are several new criteria presented in the guidance document that will require ANDA applicants time to revise product designs and development strategies,” says David R. Gaugh, RPh, the GPhA’s Senior Vice President for Sciences and Regulatory Affairs. He is concerned, for example, with new guidance for oral liquid product formulations. “It would be inappropriate to require ANDA applicants to reformulate products, repeat clinical studies, and potentially forfeit a first-to-file opportunity by imposing the new refuse-to-receive criterion without ample time to adjust to the new standard,” he emphasizes.

The guidance says the FDA would reject an ANDA if it contains 10 minor deficiencies or one major deficiency. The sponsor may decide to submit additional materials to correct the deficiencies, but the resulting amended ANDA will be considered a new ANDA submission, received as of the new date and requiring a new GDUFA fee.

The “10-or-more” standard perturbs a number of companies. “Apotex is of the opinion that assigning a specific requirement on the total number to the deficiencies in the ANDA submission creates variability,” says Kiran Krishnan, Vice President of U.S. Regulatory Affairs for Apotex Corp. “Apotex is of the opinion that the number and nature of the deficiencies should not be used as a threshold to refuse an ANDA without giving the firms an opportunity to justify.”

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Questions on Testing Requirements for Generics

Still, some industry experts believe the FDA needs to require more from generic companies before approving ANDAs. “The current standards, criteria, and regulations governing approval and monitoring of generic drugs are inadequate,” say pharmacologist Joe Graedon, MS, and medical anthropologist Teresa Graedon, PhD. The Graedons write a syndicated newspaper column, host a health-talk show syndicated on public radio, and are founders and directors of the website www.PeoplesPharmacy.com. Their June 2013 comment letter responded to an FDA request for input on the agency’s generics regulatory science initiatives.

The major challenge generic companies face in seeking FDA approval of their ANDAs is proving their products are bioequivalent to the reference product. That involves dissolution testing: The rate at which a drug dissolves from a dosage form is measured, typically in the same medium used by the reference company’s product in its dissolution testing. The results can be used to determine whether the generic will have the same potency in a patient’s body as the reference drug. At least that is the theory—that an in vitrotest can predict in vivo results. “But that translation doesn’t work reliably in all cases,” states Dr. Amidon, the Michigan professor who worked for major drug manufacturers for nearly three decades and now directs UM’s Pharmaceutical Engineering Program. His program has received money from the FDA to develop and check new dissolution test methods and computer modeling techniques that may prove more accurate for predicting in vivo results.

Better dissolution methods and computer modeling might allow the FDA to waive in vivo bioequivalence testing, which it already does for some generics. But even some generic companies oppose easing those requirements. For example, Teva submitted a petition to the FDA in December 2013 pleading with the agency to require immunogenicity testing for companies submitting ANDAs for its branded product Copaxone (glatiramer acetate injection), a drug for patients with relapsing– remitting multiple sclerosis. The Teva petition asked the FDA not to provide any waiver of in vivo bioequivalence testing because Copaxone is a colloidal suspension rather than a true solution. In January 2014, Teva published data in the online scientific journal PLOS ONE purporting to show significant differences in biological and immunological effects between Copaxone and a generic glatiramer acetate marketed in India by Natco Pharma Ltd. Teva argued the differences have potential clinical ramifications.14 Natco and Mylan have filed an ANDA for glatiramer acetate injections, as have Momenta Pharmaceuticals and Sandoz. There has been patent litigation between Teva and the other two teams for years. The Copaxone patent expires in 2015.

Sandoz has not started manufacturing generic glatiramer acetate injections, of course, and it is not clear when and where that manufacturing will take place. The company has manufacturing sites in India. But Sandoz has had plenty of trouble with the FDA over its U.S. manufacturing sites, proving that generics manufacturing quality is a worldwide issue. The FDA issued warning letters to Sandoz manufacturing sites in Colorado, North Carolina, and Canada in 2011.15 In 2013, Sandoz, the world’s second-largest generics manufacturer, announced that it was recalling injectibles manufactured in Austria because of particles in vials.

So even with its new GDUFA authorities and funds, the FDA has its hands full ensuring the safety and effectiveness of generic drugs. The manufacturers take their responsibilities seriously, no question about that. But can they ever be serious enough?

Author bio: 

Mr. Barlas, a freelance writer based in Washington, D.C., covers topics inside the Beltway.

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REFERENCES

1. FDA. Regulatory action against Ranbaxy. Available at: http://www.fda.gov/drugs/guidancecomplianceregulatoryinformation/enforce-mentactivitiesbyfda/ucm118411.htm. Accessed March 28, 2014.

2. FDA. Wockhardt Limited 7/18/13: warning letter. Available at: http://www.fda.gov/iceci/enforcementactions/warningletters/2013/ucm361928.htm. Accessed March 28, 2014.

3. Generic Pharmaceutical Association. Comments of the Generic Pharmaceutical Association for Docket No. FDA–2012-D-0880-0006, Draft Guidance for Industry Generic Drug User Fee Amendments of 2012: questions and answers. Available at: http://www.gphaonline.org/media/wysiwyg/cms/GPhA_GDUFA_Q_A_Response_2.pdf. Accessed March 28, 2014.

4. FDA. Global initiative. Available at:  http://www.fda.gov/AboutFDA/GlobalInitiative/default.htm?utm_source=fda&utm_medium=website&utm_term=GlobalizationReport&utm_content=f1&utm_campaign=HomePageSpotlight. Accessed March 28, 2014.

5. Mylan. Mylan completes acquisition of Agila to create leading global injectables platform. Available at: http://investor.mylan.com/releasedetail.cfm?ReleaseID=811637. Accessed March 28, 2014.

6. FDA. Agila Specialties Private Limited initiates voluntary nationwide recall of 10 lots of etomidate injection 2 mg/mL – 10 mL and 20 mL due to the presence of particulate matter and/or illegible and missing lot number and/or expiry date. Available at:  http://www.fda.gov/Safety/Recalls/ucm386547.htm. Accessed March 28, 2014.

7. FDA. Update: Bupropion hydrochloride extended-release 300 mg bioequivalence studies. Available at: http://www.fda.gov/drugs/drugsafety/postmarketdrugsafetyinformationforpatientsandproviders/ucm322161.htm. Accessed March 28, 2014.

8. FDA. Statement of intent between the Food and Drug Administration of the United States of America and the Ministry of Health and Family Welfare of the Republic of India on co-operation in the field of medical products. Available at: http://www.fda.gov/downloads/InternationalPrograms/Agreements/MemorandaofUnderstanding/UCM385494.pdf. Accessed March 28, 2014.

9. FDA. Generic Drug User Fee Amendments of 2012. Available at: http://www.gpo.gov/fdsys/pkg/BILLS-112s3187enr/pdf/BILLS-112s3187enr.pdf. Accessed March 28, 2014.

10. FDA. Guidance for industry: ANDA submissions—refuse-to-receive standards. Available at: http://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/UCM370352.pdf. Accessed March 28, 2014.

11. Supplemental applications proposing labeling changes for approved drugs and biological products. Federal Register. 2013;78(219):67985–67999. Accessed March 28, 2014.  [PubMed]

12. Generic Pharmaceutical Association. Comments on generic labeling rule by GPhA and other groups.Available at: http://www.gphaonline.org/media/cms/Supply_Chain_Sign_On_Letter_to_FDA_on_Labeling_FINAL.pdf. Accessed March 28, 2014.

13. Public Citizen. Comments on proposed rule: “Supplemental Applications Proposing Labeling Changes for Approved Drugs and Biological Products”. Available at: http://www.citizen.org/documents/Comments%20on%20NPRM%203-12-14.pdf. Accessed March 28, 2014.

14. Towfic F, Fund JM, Fowler KD, et al. Comparing the biological impact of glatiramer acetate with the biological impact of a generic. PLOS ONE. 2014 Jan 8; doi: 10.1371/journal.pone.008375. Available at: http://www.plosone.org/article/info%3Adoi%2F10.1371%2Fjournal.pone.0083757. Accessed March 28, 2014. [PMC free article]  [PubMed] [Cross Ref]

15. FDA. Sandoz Incorporated 11/18/11: warning letter. Available at: http://www.fda.gov/ICECI/EnforcementActions/WarningLetters/2011/ucm314931.htm. Accessed March 28, 2014.

Capitol Connection: The Financial Impact of the MU Stage 2 Extension

Healthcare Finance News
December 19, 2013 - for the online version go HERE.

The decision by the U.S. Department of Health and Human Services to push back by one year the deadline for compliance with meaningful use stage 2 is good news for hospitals and physician practices. Many providers have had trouble marshalling adequate financial resources toward meeting even the stage 1 deadline on implementation of electronic health records.

It has been slow going even for large hospital systems such as Catholic Health Initiatives (CHI), which established a $2.2 billion OneCare capital budget in 2011. Those funds go, in part, to reaching stage 1 meaningful use compliance by the July 1, 2014 deadline. About 20 of CHI’s 87 hospitals will not make that deadline, incurring millions of dollars in penalties.

About 15 of the company's 87 hospitals will be entering stage 2 in 2014, which began, for hospitals, on Oct. 1, 2013. The start date for physician practices is January 1, 2014. Hospitals initially had two years to complete stage 2. But in December, HHS officials announced a one-year extension to October 2016.

“The extension of the stage 2 deadline for us is great,” said Ann D. Shepard, RN-BC, MSN, Vice President and Chief Nursing Informatics Officer at CHI. Shepard pointed out that the extra breathing room is doubly important because CHI hospitals and every other hospital in the country has to switch over to the ICD-10 coding system by October 1, 2014. Hospitals may now be able to reallocate stage 2 “dollars” to ICD-10 efforts. The American Hospital Association told the Senate Finance Committee last July that a survey it completed found that the vast majority of hospitals are on track for the transition to ICD-10, but see meaningful use as the single most challenging competing priority.

But, said Russell Branzell, CEO of the College of Healthcare Information Management Executives, “We still believe there's going to be a pressure point in 2014 for ICD-10 and Stage 2.”

Given the extra year to certify all its hospitals to stage 2, Shepard stated that none of CHI's hospitals expect to be penalized for failing to meet stage 2 meaningful use standards in 2016. Most health systems hope they’ll be able to say the same thing.

Capitol Connection is a monthly column looking at the financial implications of healthcare policy.

Good Kindling Fires-Up M&A Activity: Verizon Deal Provides the Fuel

November 2013
Financial Executive Magazine - for the online version go HERE.

When Verizon Communications Inc. Chairman and CEO Lowell McAdams spoke with analysts via a conference call on Sept. 3, 2013, he said his company was acquiring Vodafone Group plc’s 45 percent interest in Verizon Wireless “after a decade of anticipating.”

It was paying Vodafone $130 billion, consisting primarily of cash and stock, with about $49 billion of that total coming from the sale of bonds, marking it the largest corporate sale ever. Sitting in a studio at Verizon’s operations center in Basking Ridge, N.J., McAdams explained, in general terms, why the anticipation could now end: “The timing of this transaction is right from both the strategic and financial perspective.”

The timing appears to be right for many companies. “Many corporations have trimmed all the fat they can from their businesses and are now realizing their cost of capital is likely to rise. That’s one of the reasons we have been witnessing more M&A activity,” says Kathleen Gaffney, vice president and co-director investment grade fixed income, Eaton Vance Investment Managers. “If companies are going to finance a deal, there may be no better time than the present with rates still close to record lows.”

Microsoft Corp. announced its $7.2 billion purchase of Nokia Corp.’s mobile phone business at about the same time Verizon scooped up Vodafone’s share in Verizon’s wireless business. The Verizon and Microsoft deals overshadowed Koch Industries Inc.’s $7.2 billion purchase of Molex Inc. one week later.

Though the Koch acquisition was the same size as Microsoft’s, mention of its significance disappeared in the press the day after it was announced. As if acquisitions in the billions had suddenly become de rigueur. Deals continued to roll off the assembly line throughout the fall. On Sept. 18, Packaging Corporation of America acquired Boise Inc. for $1.995 billion.

Recent acquisitions have been both sizeable and smaller in dollars but still stunning. Amazon.com Inc.’s CEO Jeff Bezos’s $250 million purchase of the The Washington Post Co. in August is a prominent member of the latter category, although Bezos is making the purchase with his personal fortune, and for cash, so interest rates aren’t an issue there. US Airways Group’s merger with bankrupt American Airlines (AMR Group), announced last December, was perhaps less of a surprise, but no less significant, as two of the top five U.S. airlines could dissolve into one.

Conditions Driving M&A

The soil has been fertile for these kinds of deals for the past year, according to Greg Lemkau, co-head, global mergers and acquisitions, investment banking division, Goldman Sachs Group. Speaking in a webcast in July, Lemkau said, “Conditions driving M&A are as good as they have been in a long time.” He was referring to historically low interest rates, record corporate cash balances and relatively low corporate organic growth opportunities.

Given the current climate, Lemkau said it was “fascinating” that there had not been, up to that point in July, no big recovery in M&A. He cited as the reason “risk aversion by CEOs,” who had become gun shy because of big macroeconomic shocks such as the fiscal cliff and the euro crisis. But he noticed a big sentiment change over the past year. “CEOs of the biggest companies are much more forward leaning and much more confident than they were six or 12 months ago,” he said.

“They are thinking about big industry-changing transactions. Conditions are too good and all that is needed is a period of sustainable stability in the market,” said Lemkau. The Verizon, Microsoft, Koch and PCA deals were announced a few months later.

The pickup in M&A pace seems likely to continue barring any major economic shocks in the U.S. or elsewhere. KPMG issues its M&A Predictor, which bases predictions on two measures: predicted forward price to earnings ratios (P/E),its measure of corporate appetite, and the capacity to transact, as measured by forecast net debt to EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization). The July issue of M&A Predictor included data on 362 large U.S. companies, which were among 1,000 corporations worldwide included in the survey.

The model concluded the U.S. continues to outperform the market, even when times are tough. Forward P/E ratios were 4 percent higher than six months ago — modest but positive in an uncertain market — and 14 percent up year-on-year. The U.S.’s capacity to transact is robust, with an expected improvement of 20 percent over the next year. The U.S. market for mergers and acquisitions is in better shape than most other world markets, though Japan scored well, too.

Companies involved in this recent surge of M&A activity do not appear to be concerned about the Obama administration’s attempt to block some recent mergers, nor intimidated by the U.S. Department of Justice’s (DoJ) publication of new merger guidelines in 2010. “The changes in the 2010 merger guidelines were pro-enforcement because they expanded the theories and the types of evidence that the government could use to challenge mergers raising substantial competition issues,” explains Spencer Weber Waller, professor and director of the Institute for Consumer Antitrust Studies at Loyola University Chicago School of Law.

Those new merger guidelines might have been one factor in persuading the DoJ and six state attorneys generals to federal district court in August to block the US Airways/ American merger. Justice stepped in to force changes to a couple of big proposed mergers since 2010, including AT&T Inc.’s takeover of T-Mobile USA, which AT&T then dropped, and Anheuser-Busch InBev N.V’s merger with Grupo Modelo, which Anheuser-Busch subsequently revised in order to gain the Justice department’s approval.

Just one month prior to Justice flashing a red light to US Airways and American, the Federal Trade Commission (FTC), which is bound by the DoJ merger enforcement guidelines issued in 2010, issued an administrative complaint challenging Ardagh Group S.A.’s proposed $1.7 billion acquisition of Saint-Gobain Containers Inc.

The proposed acquisition would combine the second-largest manufacturer of glass containers (Saint-Gobain) and the third-largest (Ardagh). Owens-Illinois Inc. is the largest. Together, the three companies dominate the approximately $5 billion U.S. glass container industry. The next step in both cases is scheduled for this fall. An administrative law judge will hear the Ardagh case in early December.

Legislative Roadblocks

Verizon, Microsoft, Koch, PCA and any other purchaser or merger instigator is subject to the Hart-Scott-Rodino (HSR) law, which requires the Federal Trade Commission (FTC) or DoJ to review details of any large, proposed merger to insure it will be pro-competitive.

A company such as Verizon submits a notification to both agencies, which decides which one of the two will conduct the review. That decision is made based on which agency has expertise in that particular industry area, on staff availability and other factors. Both agencies can go to federal court to obtain an injunction to prevent a merger from taking place.

The FTC has the additional option of forcing a company like Ardagh to submit to a hearing by an administrative law judge, who makes a decision. Going that route can be much faster than going to court and it also allows the FTC to build a factual case that judge rebuffs the commission.

FTC Chairwoman Edith Ramirez told the Senate Judiciary Committee last April that fiscal 2012 saw twice as many HSR filings as FY 2009. In fiscal 2013, the FTC stepped in to block 16 mergers, in the energy, manufacturing, pharmaceuticals, health care and automotive industries. In a number of those cases, the mergers or acquisitions were approved when the dominant partner agreed to divest some of the assets of the purchased or merged company.

The Justice Department attempt to ground the US Airways/American deal could be viewed as a little perplexing given that the George W. Bush and Barack Obama administrations allowed six major airline industry mergers since 2005: U.S. Airways/ America West in 2005; Delta/Northwest in 2008; Republic Airlines’ acquisitions of both Midwest and Frontier Airlines in 2009; United/Continental in 2010; and Southwest/ AirTran in 2010.

But when Justice and six attorneys general filed the US Airways lawsuit on Aug. 13, Bill Baer, assistant attorney general, said the US Airways/ American combination would lessen competition for commercial air travel throughout the United States. “Importantly, neither airline needs this merger to succeed,” he added. “We simply cannot approve a merger that would result in U.S. consumers paying higher fares, higher fees and receiving less service.”

The two airlines argue the merger is “pro-competitive.” In testimony before the House Judiciary Committee last February, Gary F. Kennedy, senior vice president, general counsel and chief compliance officer, American Airlines Inc., called the merger a combination of two complementary networks that will offer consumers more service at more times to more places.

“And because this will be a merger of complementary networks, these benefits come with virtually no loss of competition,” he explained. “Of the more than 900 domestic routes flown by the two carriers, there are only 12 overlaps. This is one reason we are convinced that this merger is consistent with good public policy.”

Clifford Winston, senior fellow, economic studies program, The Brookings Institution, has studied the U.S. airlines industry. “I don’t see the basis for DoJ opposition and they have not clearly and persuasively articulated it,” he says. He explains that carrier competition would continue to be intense and low-cost carriers would continue to put downward pressure on fares.

Entry and exit would continue to be fluid in airline markets as a merged American and US Airways would optimize its network by exiting some routes and entering others, while other carriers would adjust their networks by entering some of the routes that American exited and exiting some of the routes that they entered.

Of course, Justice’s attempt to scuttle the US Airways/American merger has raised concerns over whether it will do the same in the case of the Verizon merger with Vodafone.

Robert Doyle, Jr., a partner with Doyle, Barlow & Mazard PLC and former deputy assistant director in the FTC’s Bureau of Competition, says: “Given that Verizon Communications had a preexisting 55 percent controlling interest in Verizon Wireless, buying its remaining 45 percent from Vodafone doesn’t seem to change the competitive dynamics in the industry, since it won’t change the controlling interest in Verizon Wireless.”

Verizon Communications controlled Verizon Wireless before the Vodafone deal, he says, and will control it after the deal. Nothing changes, he says, “I don’t see any change post acquisition that should raise any DOJ antitrust concerns with the deal.”

A Justice challenge to Verizon would be a lot more surprising than its challenge to US Airways, which itself elicited some head scratching. Whatever the level of anti-trust enforcement from the Obama administration, it is not impeding the announcement of M&As, which continued to appear through the fall, including some big ones, such as Applied Materials Inc.’s merger with chip-equipment rival Tokyo Electron Ltd., a $10 billion deal.

Barring the U.S. falling off some fiscal cliff or Federal Reserve Chairman Ben Bernanke turning off the cheap money faucet, other blockbusters seem certain to follow.

Sidebar

U.S. Approval of Chinese Acquisition of Smithfield Sends ‘Open Door’ Message

The U.S. government’s approval of a Chinese acquisition of one of America’s leading food processors may have opened the door to a broader range of foreign buy-ups of U.S. companies. In September, The Committee on Foreign Investment in the United States (CFIUS) green lighted Shuanghui International Holdings Ltd.’s acquisition of Smithfield Foods Inc., the world’s largest pork producer and processor. The acquisition represents the largest-ever purchase of an American company by a Chinese company.

CFIUS reviews potential purchases of U.S. companies that could threaten national security. Its review of the Smithfield deal was the first time the committee had looked at a potential acquisition in the field of agriculture.

Some members of Congress questioned the thoroughness of the CFIUS review. Sen. Debbie Stabenow (D-Mich.), chairwoman of the U.S. Senate Committee on Agriculture, Nutrition and Forestry, was unsure, given CFIUS’s non-public process, whether issues such as the potential impact on American food security, the transfer of taxpayer-funded innovation to a foreign competitor or China’s protectionist trade barriers were considered.

“It’s troubling that taxpayers have received no assurances that these critical issues have been taken into account in transferring control of one of America’s largest food producers to a Chinese competitor with a spotty record on food safety,” she said.

Larry Ward, a partner at international law firm Dorsey & Whitney, notes that “Within the last year, at least two deals where the acquirer was ultimately owned by a Chinese state-owned entity were effectively prohibited by CFIUS and so clearance of this transaction may ease concerns so such entities may feel comfortable again in investing in  the United States.”

Read more: http://www.financialexecutives.org/KenticoCMS/Financial-Executive-Magazine/2013_11/Good-Kindling-Fires-Up-M-A-Activity--Verizon-Deal-.aspx#ixzz2k5JTpj31