Amid an unprecedented public health crisis and global reaction, the US Congress deployed significant and extensive countermeasures in passing the CARES Act on 27 March 2020. Urgently signed into federal law that same day, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), consists of a sprawling USD 2 trillion package of measures - ranging widely from direct cash assistance payments to citizens to loan programs for a range of industries to a raft of new, augmented or streamlined regulatory requirements - intended to mitigate the impact of the novel coronavirus pandemic on the US economy. The Act amounts to the largest single economic relief package in US history. Central to this far-reaching relief effort is Title III of the Act, which is specifically intended to bolster the US healthcare system as it faces a rising tide of coronavirus cases and to facilitate better preparedness in the future. This client alert focuses on key elements of Title III relevant to biopharma and medical device companies. In particular, Title III includes (1) mitigation measures for addressing medical supply shortages arising from the pandemic, (2) measures supporting or bolstering coronavirus testing, preventive care and telehealth treatment and (3) measures lowering regulatory hurdles for drug development.

All together, these measures present biopharma and medical device companies significant incentive and support to join the mobilization effort against the coronavirus pandemic. We summarize key elements and implications for these measures below and would be pleased to advise further as you take action in this crisis.

1. Medical supply shortages

The Act contains several provisions that target mitigation of supply shortages of medical devices and drugs. These provisions aim to (1) broaden the national stockpile of key supplies, (2) increase knowledge and information flow regarding the supply chain for drugs and devices, and (3) facilitate action to address supply chain interruptions, as explained in more detail below:

a. Broadening the National Stockpile

  • The Act expands the types of equipment that can be part of the Strategic National Stockpile to include personal protective equipment, ancillary medical supplies, and other supplies required for the administration of drugs, vaccines and other biological products, medical devices, and diagnostic tests. Section 3102. Many of these items have been critical and in short supply during the COVID-19 crisis.

b. Increasing knowledge and information

  • The Department of Health and Human Services (HHS) is to engage the National Academies of Sciences, Engineering, and Medicine (National Academies) to assess and report on the US’s dependence on critical drugs and devices that are sourced from or manufactured in other countries. The National Academies is to provide recommendations to strengthen the supply chain for critical drugs and devices. Such recommendations may include encouraging domestic manufacturing and improving supply chain planning and information gaps. Section 3101. Such findings and recommendations ultimately may precipitate significant changes to global manufacturing platforms and supplies chains.

c. Mitigating emergency drug shortages

  • The Act now requires the Secretary to not only expedite but also prioritize (i) the review of drug applications or supplements to such drug applications that could help mitigate or prevent a shortage; or (ii) the inspection or reinspections of an establishment that could help mitigate or prevent a drug shortage. Section 3111. This may provide opportunities for pharmaceutical companies to introduce key new products to address a public health emergency. Pending applications and establishment inspections not responsive to a public health emergency may be delayed.

  • The Federal Food, Drug, and Cosmetic Act (FDCA) is amended to require that manufacturers provide the FDA with advanced notice of a shortage of any drug that is deemed critical to the public health during a public health emergency or any discontinuation or interruption in the supply of such drugs or its' active pharmaceutical ingredients. Section 3112.

d. Preventing medical device shortages

  • The FDCA is also amended to require that manufacturers of devices (i) deemed critical to the public health during a public health emergency, including devices that are life supporting, life sustaining, or intended for use in emergency medical care or during surgery; or (ii) for which it is determined that information on potential meaningful supply disruptions of such device is needed during or in advance of a public health emergency, provide notice of (i) permanent discontinuance in manufacture of the device, except for discontinuances as a result of an approved modification, or (ii) an interruption of the manufacture of the device that is likely to lead to a meaningful disruption in the supply of the device in the United States. Section 3121.

e. Facilitating action to address supply chain interruptions

  • The Act extends immunity from suit and liability to manufacturers of certain approved respiratory protective devices that are determined to be a priority for use during a public health emergency. Section 3103. This is intended to reduce the risk for medical device companies in furnishing respirators, which have been critical in supporting individuals with COVID-19, during a public health emergency.

  • Manufacturers of critical drugs or related active pharmaceutical ingredients or devices are now required to establish redundancy risk management plans that identify and evaluate risks to the supply of such drugs. Section 3112.

2. Testing, preventive care and telehealth treatment

The Act also seeks to facilitate the expansion of testing, prevention and telehealth services across multiple demographics, by creating incentives for the biopharma and medical device industry and healthcare providers and increasing accessibility for individuals. The relevant provisions (1) provide beneficial reimbursement rates for diagnostic testing providers, (2) incentivize the development of new testing and preventive measures, (3) expand coverage of testing and preventive measures by group health plans or health insurance issuers with no cost-sharing for the insureds and (4) increase accessibility of telehealth services for providers and insureds both during and after the COVID-19 emergency period. Specifically, the Act impacts testing, prevention and telehealth services in the following ways:

a. Testing and Preventive Measures

  • Establishes the reimbursement rate for diagnostic testing for COVID-19 at either the pre-public health emergency negotiated rate or the price listed by such provider on a public website where a previously negotiated rate did not already exist. Section 3202.

  • Expands coverage of in-vitro diagnostic testing covered by group health plans and insurance issuers, without cost sharing, to include tests where the developer has requested or intends to request emergency use authorization under the FDCA. Section 3201.

  • Requires that group health plans and insurance issuers cover any qualifying COVID-19 preventive service without cost-sharing, ''qualifying coronavirus preventive service' means an item, service, or immunization that is intended to prevent or mitigate coronavirus disease 2019.' Section 3203, including coverage of a future COVID-19 Vaccine and testing under Medicare Part B, without cost-sharing. Section 3713.

  • Appropriates USD 1.32 billion for health care providers in the fiscal year 2020 for the detection, prevention, diagnosis and treatment of COVID-19. Section 3211.

The additional support and expansion of the testing and preventive care market is likely to create greater utilization of, and demand for, applicable testing and treatment or preventive products on more predictable pricing.

b. Telehealth treatment

  • Increases funding provided for the development of telehealth for the years 2021 to 2025, with the goal of expanding healthcare access to rural populations. Section 3212, which is likely to impact and shape telehealth services and increase telehealth access in the post COVID-19 emergency period.

  • Expands telehealth services in the emergency period by: (i) eliminating the requirement that Medicare beneficiaries see a provider before qualifying for telehealth services from that provider, Section 3703; (ii) including coverage for telehealth services furnished by a Federally qualified health center or rural health clinic via payment by the Secretary of HHS under a special payment rule, Section 3704; and (iii) removing requirements for in person visits between telehealth visits for dialysis patients, Section 3705; (iv) allowing telehealth services to be used for conducting required face-to-face encounters for hospice care, Section 3706; and (v) encouraging use of telecommunication systems for providing home health services, Section 3707.

New modes of remote healthcare delivery might require new or alternate means of dispersed testing, which could present additional markets and opportunities for diagnostic testing companies.

Modification to OTC drug review

In mobilizing the US healthcare system to treat novel coronavirus cases, the Act (1) simplifies and bolsters companies' ability to develop and market novel over-the-counter (OTC) drugs under FDA approval, (2) uncaps and further funds HHS's Secretary's authority to use 'Other Transaction Authority' (OTA) agreements to foster drug development and (3) expedites FDA review of new animal drugs that could impact treatment of zoonotic diseases posing a risk of serious adverse health consequences for humans.

a. Simplified OTC process with 18-month exclusivity, Section 3851

In summary, and with some exceptions:

  • The FDA may now approve changes to OTC drug monographs, other than for homeopathic drugs, by administrative order, without going through a lengthy notice-and-comment rulemaking process. A 180-day comment period for administrative orders remains.
  • If a company obtains FDA approval for an OTC drug with a new active ingredient or conditions of use, the company is entitled to an 18-month marketing exclusivity period.

For biopharma companies, the modified OTC process is an opportunity to introduce and exclusively market new OTC products, though companies must nonetheless introduce prima facie evidence that the drug has a verifiable history of being safely used by U.S. consumers.

b. Uncapped and further-funded OTAs

  • The Act expands OTA for HHS's Biomedical Advanced Research and Development Authority (BARDA) by removing a USD 100 million cap on OTAs during a public health emergency. BARDA uses OTAs, a type of flexible, strategic partnership between the government and industry, to foster innovation and promote collaboration on efforts to develop and procure needed medical countermeasures, including vaccines, therapeutics, diagnostics, and non-pharmaceutical countermeasures, against a broad array of public health threats. Section 3301.

  • The Act also provides at least USD 3.5 billion of the USD 27 billion Public Health and Social Services Emergency Fund approved by the Act be available to BARDA for necessary expenses of manufacturing, production, and purchase of various supplies and services. Part B.

Generally, BARDA supports the transition of such medical countermeasures from research through advanced development towards consideration for approval by the FDA and inclusion into the Strategic National Stockpile. BARDA’s support includes funding, technical assistance and core services, ranging from a clinical research organization network to Centers for Innovation in Advanced Development and Manufacturing, and a fill-finish manufacturing network. To-date, BARDA has supported 42 FDA approvals for products addressing chemical, biological, radiological and nuclear defense, pandemic influenza, and emerging infectious disease threats.

The lifted OTA cap could present opportunities for both biopharma and medical device companies to enter into new, larger BARDA contracts with fewer administrative hurdles.

c. Expedited animal drug review for zoonotic disease

  • The Act expedites the development and review of new animal drugs when clinical evidence shows that the drug, “alone or in combination with 1 or more other animal drugs” could prevent or treat a zoonotic disease “including a vector borne-disease, that has the potential to cause serious adverse health consequences for, or serious or life-threatening diseases in, humans.” Section 3302.

For biopharma companies, such expedited animal drug review reduces existing administrative hurdles for such drugs and could lead to a friendlier environment in general towards these types of drugs.


CARES Act resources

We have tailored this alert to identify at a high level a discrete subset of the provisions of the CARES Act that we thought would be of particular interest to you. For information on other provisions of the CARES Act, please see the additional client alerts listed below:

Baker McKenzie Global Coronavirus Resource Center

Baker McKenzie has put together a global resource center for all key insights and upcoming webinars as a central repository to assist our clients understand, prepare and respond quickly to the significant legal and business challenges posed by COVID-19. Please use the following link to visit the Coronavirus Resource Center for additional resources. Baker McKenzie understands that these times are challenging for all our clients and we want to assure you we are here to assist.

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