In a groundbreaking development for the digital health world, Eli Lilly, one of the world’s largest pharmaceutical companies, has filed lawsuits against a growing number of telehealth companies over the sale of compounded drugs Mounjaro and Zepbound, two popular GLP-1 medications. Nawa Lodin, Associate, Wilson Sonsini Goodrich & Rosati, and Lauren Petrin, Associate, Wiley Rein, discuss the background of compounding and when it is allowed under FDA regulations; the legal and regulatory issues at play in Eli Lilly’s lawsuits, including issues related to the corporate practice of medicine and FDA regulations; and key compliance considerations.
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SPEAKER_00 (00:00):
This episode of AHLA Speaking of Health Law is
brought to you by AHLA membersand donors like you.
For more information, visitAmericanHealthLaw.org.
SPEAKER_02 (00:16):
Hello, everyone.
My name is Nala Loden.
I'm a member of Wilson Sonsini'sdigital health team, and I'm
excited to discuss what would bea groundbreaking lawsuit in the
digital health world.
Eli Lilly, one of the largestpharma companies, has filed
lawsuits against a growingnumber of telehealth companies.
At the heart of these disputesare the sale of compounded
(00:39):
drugs, Manjaro and Zephound,which are household names at
this point for GLP-1 medicationsand weight loss.
I'm going to be discussing someof the healthcare regulatory
issues and the corporatepractice of medicine in these
lawsuits, but I will turn itover to my colleague, Lauren
Petran, who will be discussingsome of the FDA issues.
SPEAKER_01 (01:03):
Thank you so much, Noah.
So my name is Lauren Petran.
I'm an associate with the FDApractice at Wiley Rhine.
I am gonna be kind of coveringsome of the background of what
compounding is and just some ofthe different FDA issues that
are at the heart of thislitigation.
(01:23):
So yeah, I will go ahead andjump right in for us.
I wanted to first start bytalking a little bit about what
compounding is and when it'sallowed.
under FDA regulations, just toprovide some background for this
case.
So compounding is a practicewhere a licensed pharmacist or
physician combines mixes oralters ingredients of a drug
(01:47):
product to create a medicationthat's tailored to the specific
need of a patient.
So compounding is often usedwhen a patient may be allergic
to an ingredient in an FDAapproved medication and a
pharmacist or physician canproduce a version of that
medication without the allergenin the product.
(02:07):
Compounding can also be used tomake liquid versions of
medications if a patient isunable to take a medication in
pill form.
However, pharmacists can onlycompound drug products in a
state licensed pharmacy orfederal facility.
Because of this, pharmacists andphysicians are exempt from
(02:28):
certain federal requirements inorder to compound drug products
for these specific purposes.
Namely, these pharmacists cancombine or mix ingredients of a
drug product without having toabide by current good
manufacturing practices orlabeling restrictions, and they
won't need to gain prior FDAapproval before creating the
(02:50):
product, which are all thingsthat a prescription drug
manufacturer would have to dowhen manufacturing drug
products.
So pharmacists and physicianscan't just compound any drug
that they want.
All of these drugs have to becompounded pursuant to a valid
patient-specific prescription.
(03:12):
So, you know, similarly, FDAallows larger scale facilities
called outsourcing facilities tocompound drugs as well.
These facilities do have tofollow current good
manufacturing practices andthey're also inspected by FDA.
The outsourcing facilities candistribute compounded drugs,
(03:33):
either pursuant to a patientspecific prescription or in
response to an order from ahealthcare provider, such as a
hospital.
So compounded drugs are not likegeneric drugs where similar to
prescription drugs, the productgoes through an FDA approval
process where a manufacturer hasto show that a drug meets all of
(03:56):
the same safety and efficacystandards as a prescription
drug.
Compounded drugs are not FDAapproved and FDA does not review
these drugs for the evaluationof safety, efficacy, or quality
performance.
So really compounded productsare meant to be used in cases
(04:18):
where there is a specificpatient need for the product
that can only be achievedthrough compounding.
In order to ensure compoundingis restricted to this purpose,
the Food, Drug, and Cosmetic Actalso restricts the use of
compounding for products thatare not made in regular
(04:39):
inordinate amounts of any drugproduct that are essentially
copies of a commerciallyavailable drug product.
And the term essentially a copyof a commercially available drug
product does not include a drugproduct in which there's a
change made for an individualpatient.
So really limiting and narrowingthe purpose of compounding just
for patient specific purposes sothat they're not just creating a
(05:02):
bunch of prescription drugs thatare already on the market for
compounding purposes.
This restriction makes sure thatthese compounders, like I said,
aren't distributing identicalcopies of prescription drugs
that are required to adhere tothe stricter manufacturing
processes that prescriptiondrugs have to go through in
(05:26):
order to be FDA approved forpatient access and
commercialization on the market.
So there's one very importantexception to this restriction,
and that is when a drug isplaced on FDA's drug shortage
list.
The drug shortages can usuallyoccur for a lot of different
reasons, including manufacturingquality problems, delays or
(05:49):
discontinuations of certainmedications that may have been
on the market before.
So in the context ofcompounding, When a drug is put
on FDA's drug shortage list, FDAno longer considers the product
to be commercially available.
So compounders are then allowedto compound drugs that are
essentially copies of approveddrugs for those purposes, but
(06:13):
they still have to be pursuantto a valid prescription.
So the public policy rationalebehind this is that if there's a
drug that's in shortage,patients and healthcare
practitioners still need accessto those medications.
So they'd rather take on some ofthose risks of having the drug
compounded rather than nothaving a drug that patients may
(06:33):
need at all on the market.
SPEAKER_02 (06:37):
Are there any rules, Lauren, about prescribing
compounded drugs for off-labelusage where you can compound
them pursuant to prescription?
SPEAKER_01 (06:46):
So they, because they, they're, they're only
being used in this case for the,for the patient specific
prescription, they should onlybe using it based on whichever
prescription that they havebeen, that's been received by
the pharmacy.
So unless a physician isprescribing it for an off-label
(07:09):
use, it should only be used inthe case of whatever the
physician has decided based onthe interaction.
with the patient in that case.
Yeah.
But this kind of takes us to theGLP-1 issues that are at the
heart of this litigation.
So in 2020, 22 in December,Trizepatide, which is the active
(07:32):
ingredient in both of EliLilly's products at Bound and
Manjaro, was placed on the FDAdrug shortage list.
The shortage was due to thishuge increase in demand for
these drug products during thattime, and it remained on the
drug shortage list for twoyears, and then was most
recently taken off the shortagelist in December of 2024.
(07:54):
At this time, FDA announced thatit would allow pharmacies and
outsourcing facilities totransition away from filling
patient prescriptions fortrisepatide during this set time
frame so that patient carewasn't disrupted.
And that gave state licensedfacilities access until February
(08:15):
18th to cease distributing anddispensing trisepatide and
outsourcing facilities had untilMarch 19th.
So now, you know, thislitigation was teed up right
after those cutoffs ended andthe litigation was filed in
April.
So Nala, I'm going to hand itover to you to kind of talk
(08:36):
about some of the more healthregulatory issues that came up
in this litigation and just kindof set the scene for us with
some of the big issues in thiscase.
SPEAKER_02 (08:45):
Thank you, Lauren.
And correct me if I'm wrong, Idon't think it's a novel thing
for large pharma companies tosue over compounding issues or
even pharmacies to counter sue.
But what really struck me withThe litigation here is that not
only is Eli Lilly making the FDAclaims that you discussed, but
(09:07):
also this idea of thesetelemedicine companies are also
violating the corporate practiceof medicine doctrine.
So a quick overview of thecorporate practice of medicine
or CPOM is that it's a legaldoctrine that's adopted in most
states in the United States,which essentially prohibits
corporations from practicingmedicine or employing licensed
(09:30):
healthcare providers fromproviding licensed services.
And the purpose really is toprotect patient care, ensuring
that medical decisions are madeonly by those with a valid
license in the state.
It prevents sort of privateequity or any sort of corporate
interest in controlling orinterfering with clinical
(09:50):
judgment.
So the kind of practice pointshere are that only a licensed
professional can own aprofessional corporation and
only licensed services can beprovided through the
professional corporation.
And so in a couple of theselawsuits that Eli Lilly filed,
(10:12):
they claim that thesetelemedicine companies are
violating California's CPOMlaws, which was fascinating.
So some of the things they sayis the lay entity.
So in the corporate practice ofmedicine, there's the
professional entity that's ownedby the licensed professional.
And then there's another entitythat's known as the management
(10:33):
services organization.
there's an agreement between thetwo.
And the claim that Eli Lilly ismaking is that the MSO or the
management services organizationis actually the one that's
making the clinical decisionsabout the care that the patients
were receiving.
So for example, in one of them,they said in the span of five
(10:56):
months, there were eight changesof the compounding pharmacy that
the telehealth provider wasusing to compound the GLP-1
drugs.
And the reason was essentiallyto reduce the bottom line.
It was not based on patientcare.
It was not based on the licensedprofessionals.
decision on what is the besttype of compounding drug to use.
(11:21):
It was just like, let's keepswitching between these
pharmacies to get the cheapestoption.
And those decisions were reallymade by the MSO rather than the
PC.
Another claim that the lawsuitmakes is that the PC
shareholder, the owner of the PCwas not even actually licensed
(11:42):
to as a physician.
So that seems like such a basicpoint, but it is really the crux
of the MSOPC arrangement,ensuring that the shareholder is
licensed in the states wherethey're providing medical
services.
And then another reallyinteresting take was, I think
(12:03):
there was some allegation thatthere was kind of a Reddit
conversation with complaintsabout the dosage of GLP-1s that
they were receiving.
And there were responses fromeither sales folks or lay entity
people from the telehealthcompany responding on Reddit on
(12:24):
how you can either increase ordecrease your dosage or just
essentially change what yourprescription should be.
And as we're discussing here,again, those decisions pursuant
to the corporate practice andmedicine doctrine can only be
made by licensed professionalsand licensed healthcare
providers.
So there are a lot of reallyinteresting allegations in these
(12:46):
few lawsuits.
Another thing that makes thisparticularly interesting is that
obviously telehealth companiesoperate in ideally all 50
states.
That's obviously their goal.
But Eli Lilly decided to filethese lawsuits in California,
which has some of the strictestCPOM rules and kind of the most
(13:07):
movement in terms of CPOM rules.
So for example, California, likemany other states, has enacted a
healthcare transactionnotification rule, which would
require certain healthcareentities to notify the state if
they're entering into any sortof transaction, a sale or
merger, change of control.
(13:28):
And right now there's a bill toinclude MSOs and then under
notification, there was a billlast year that passed
legislation, wasn't signed intolaw, but the state has actively
(13:49):
expressed concern with the waythe MSO PC model is structured.
So I think Eli Lilly verystrategically knew that if we go
to a court in California, whichis particularly strict and
sensitive to the patientposition and the healthcare
provider position on theseissues, we're more likely to get
(14:11):
you know, a positive outcomehere.
So I found that strategicdecision not to be shocking,
but, you know, made a lot ofsense.
So Lauren, maybe you want totake it away with some of the
specific FDA allegations thatwere in this lawsuit as well.
SPEAKER_01 (14:31):
Yeah.
So, you know, I felt like thesome of the biggest allegations
and complaints in the filingswere split into two.
So the CPOM allegations and thenall of these, you false and
deceptive business practicesthat were filed under the Lanham
Act and different statedeceptive consumer complaint
(14:54):
issues.
So a lot of the different FDAissues kind of fall into the
false advertising side.
And similar to, you know, theway all of these telehealth
complaints have been filed,there's a lot of, they all have
different specific allegations,but some of them share a lot of
common themes.
So one of them is that Thecomplaints allege that these
(15:19):
telehealth companies wereadvertising their compounded
products as more effective thanthe FDA approved triseptide
products.
And, you know, we know fromthese complaints that Eli Lilly
is alleging that the telehealthcompanies were including
different additives in theircompounded products that were
(15:40):
not initially included in theFDA approved drug product.
And And, you know, there haven'tbeen any studies that have been
conducted that include theseadditives with the compounded
products.
So Eli Lilly is alleging thatthese claims are therefore false
because there's no actualclinical studies out there that
(16:02):
have supported these claims thatthey're making.
They're also making allegationsin these complaints that the
telehealth companies wereadvertising their compounded
products.
that to treat unapprovedindications for the drug and to
treat pediatric patientpopulation.
So we kind of discussed this alittle bit before, you know,
(16:26):
under the compoundingregulations, the compounder
shouldn't be deciding or addingany kind of unapproved
indications on to the productsthat they're dispensing because
they're being issued pursuant toa patient specific prescription.
So generally prescription drugsare not supposed to be
advertised to to state or implythat a drug can treat a
(16:48):
condition that it's not beenapproved for.
So that's one of the big issuesthat UI Lilly takes with a lot
of the advertising that thesetelehealth companies were
allegedly engaging in.
They also note that some of thetelehealth companies were
advertising these products topediatric patients, so patients
(17:11):
that are under the age of 18when the FDA approved versions
were only approved for patientpopulations 18 plus.
So another one of the issuesthat came up in multiple
complaints against thesetelehealth companies were that
the products were marketed aspersonalized or tailored to
specific patients, which as wediscussed with our overview of
(17:36):
different compounding and kindof the purpose behind
compounding is that it istailored to certain specific
patients and to their needs, butwhat Eli Lilly is alleging in
these complaints is that thesetelehealth companies telehealth
companies were just massproducing these different
formulations of their FDAapproved product to giving them
(17:56):
to patients without having anykind of specific patient issue
that needed them to beprescribed this medication.
And they were all receiving thesame drugs.
So there was no tailoring orpersonalization involved.
And finally, the complaintsalleged that many of the
outsourcing facilities that werebeing used by the telehealth
(18:17):
companies had either been shutdown or had been issued warning
letters for significant andrepeated violations of FDA
compounding laws.
which generally were aboutviolations of different current
good manufacturing practices.
So yeah, I think there were alot of overarching themes in all
of the complaints.
(18:38):
And as you said, there may bemore to come.
So we'll be keeping an eye onthis litigation for different
healthcare and FDA regulatoryissues that come up.
But are there any kind ofpractical takeaways or
recommendations that you seefrom a CPOM perspective that
different clients andindividuals in the health
(19:01):
marketplace can be looking for?
SPEAKER_02 (19:02):
Definitely.
I think, you know, CPOM is alittle bit of my specialty.
I work on it day to day, bothfrom a counseling perspective
and from an M&A perspective.
And from the counseling side,obviously, I emphasize the
importance of complying withCPOM in the state and making
(19:22):
sure that we have formedeverything compliantly and we
have all the correct paperworkand the money's flowing the way
it should be flowing.
But obviously, from a duediligence perspective, I do see
time and time again where CPOMis just like this theoretical
you know, doctrine that existsin some states.
(19:43):
And yeah, we'll have an MSOPC,but we'll not actually be
following or complying with themanagement services agreement
that the target company may havewritten, but they may not
actually be doing the thingsthat they have written there.
So I think some of the practicaltakeaways here are that are you
(20:07):
actually following what youhave?
First, do you have all thewritten ancillary agreements
that are necessary to complywith CPOM?
And two, are you actuallyfollowing what you have written
in your management servicesagreement?
And have the management servicesagreements been reviewed?
Because again, CPOM is a stateby state issue.
Has it been reviewed by a stateby state perspective?
(20:28):
So in one of the complaints, aswe discussed, one of the
telehealth companies allegedlyswapped compounding pharmacies
and the actual formula of thecompounding over eight times in
the span of five months, butthat decision was made by the
MSO.
there could be a very goodreason for doing so, but the
reason needs to be clinical.
(20:49):
And there are some states wherethere is very explicitly under
CPOM rules there that any sortof purchase of medical device or
drugs have to be made by the PCor by the physician owner.
So if I were counseling thesetelehealth companies, I would,
yeah, of course there's going toalways be some sort of bottom
line issue, but the decisionneeds to be made together with
(21:11):
the licensed medicalprofessionals so that, you know,
they, are in the loop, they'remaking the best decision based
on patient care.
And I would also recommend thatany sort of changes to formula
or to the compounding pharmacyis communicated to patients.
And if a healthcare provider isaware of those changes based on
(21:32):
their ethics and their license,they're more likely than a
corporation who hasn't had themedical training to know that we
need to articulate this and makethis clear to our patients.
Obviously, again, with complyingwith CPOM, I would advise my
clients that any sort ofcommunications regarding medical
decision-making or likequestions about adjustments to
(21:55):
medications, that should alwaysbe answered by medical
professionals.
So I think it's really great andexciting and modern for these
telehealth companies to beresponding to questions on
Reddit or TikTok.
I think that's where healthcareshould be.
We should be where the patientsare and it's frankly, on those
platforms, but you should do socompliantly.
(22:17):
Your social media person canrespond and say, please reach
out to this email or to thisperson, because the question
you're asking is, you know, it'sa medical question and it
depends on your diagnoses andyour healthcare.
So it should not be the MSOsocial media person responding
saying, this is how you canincrease or decrease your
(22:39):
dosage.
And, you know, there's a lot ofother practical ways where where
we can ensure that the PC hasautonomy over patient care, but
there just wasn't enoughinformation in these complaints
to see if they exist.
It would include, you know, sortof regular meetings with your
(23:00):
clinical team, reviewing writtenpolicies and procedures about
how, you know, marketing orsalespeople can communicate with
either patients or providers andjust kind of making it, again,
this all goes back to the heartof CPOM, which is the Management
Services Agreement, making surethat's very clearly outlined on
(23:22):
which entity can do what, who'spermitted under state law to do
this, and there are specificnuances.
So there are some states thatmay allow the MSO to purchase
medical equipment versus otherstates wouldn't.
So of course, my practicalrecommendation is to loop in
healthcare counsel, but thoseare a few examples that I think
(23:45):
digital health companies shouldthink about and following this
litigation, which I think EliLilly sued a couple.
I don't think that's going toend because if you just Google
right now, there's dozens ofcompanies that are still
offering compounded GLP-1.
So there really is not an end insight right now.
And I think...
(24:07):
this litigation is so importantfor digital health because one,
it's really establishing aplaybook for any third party
that wants to sue a telehealthcompany for violating CPOM laws.
It also establishes precedentfor damages and awards.
So again, a big part of my jobis counseling digital health
clients on risk.
(24:28):
And a lot of time we're kind of,they'll say, hey, what is the
penalty or the fine if I don'tcomply?
Because I'm willing to take thathit so that I can get rolling on
my amazing idea and show proofof concept while I wait for the
regs to catch up to what I'mdoing, now there is going to
potentially be some precedentfor the damages and the awards
(24:49):
here.
And then obviously, this reallytriggers increased oversight
from the state, the AG, themedical board, which we already
know in California is super,super active.
So to close this off, Lauren,any other practical points you
would advise your clients onfrom an FDA perspective after
(25:10):
going in the weeds on thisissue?
SPEAKER_01 (25:12):
Yeah, definitely.
And you made some amazingpoints.
I definitely think we'll beseeing more of this in the
future and companies shouldreally be paying attention to
what's going on in thislitigation, just like you said,
because this is kind of aplaybook for some of the higher
risk activities and practicesthat people are competing with
(25:32):
in this space.
So, you know, on that note, Iwould say definitely making sure
that any telehealth companiesthat are using outsourced should
be making sure that thesefacilities are registered with
FDA's outsourcing facilities,that there's contractual
liability protection for you inany agreements that you have
(25:55):
with these pharmacies andoutsourcing facilities in case
there are any kind of violationsin their compounding practices.
And just really making sure thatyou're evaluating all of the
claims that are being put out onyour social media and through
any kind of promotion thatyou're doing for your website
(26:18):
about these products and makingsure that they conform to FDA
regulations and any kind ofclaims that have already been
approved for the drug product.
So making sure, you know, you'renot running afoul of any
advertising and promotionissues.
Yeah, but...
Yeah, this has been great.
And I really appreciate all ofyour insight into the CPOM
(26:42):
issues.
Thank you, Lauren.
SPEAKER_02 (26:44):
And I obviously, when people, when I mentioned
that I'm a healthcare lawyer,they will ask me FDA questions
and I'm like, oh, they're sodistinct.
I need an expert.
So I'm so glad you were able tojoin.
And thank you to all ourlisteners who joined us here.
And Lauren and I will certainlybe following this and hopefully
(27:05):
we'll have a follow-up podcastonce there's some resolution in
the coming months.
So thank you everyone.
Yeah.
Thank you guys.
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SPEAKER_02 (00:16):
Hello, everyone.
My name is Nala Loden.
I'm a member of Wilson Sonsini'sdigital health team, and I'm
excited to discuss what would bea groundbreaking lawsuit in the
digital health world.
Eli Lilly, one of the largestpharma companies, has filed
lawsuits against a growingnumber of telehealth companies.
At the heart of these disputesare the sale of compounded
(00:39):
drugs, Manjaro and Zephound,which are household names at
this point for GLP-1 medicationsand weight loss.
I'm going to be discussing someof the healthcare regulatory
issues and the corporatepractice of medicine in these
lawsuits, but I will turn itover to my colleague, Lauren
Petran, who will be discussingsome of the FDA issues.
SPEAKER_01 (01:03):
Thank you so much, Noah.
So my name is Lauren Petran.
I'm an associate with the FDApractice at Wiley Rhine.
I am gonna be kind of coveringsome of the background of what
compounding is and just some ofthe different FDA issues that
are at the heart of thislitigation.
(01:23):
So yeah, I will go ahead andjump right in for us.
I wanted to first start bytalking a little bit about what
compounding is and when it'sallowed.
under FDA regulations, just toprovide some background for this
case.
So compounding is a practicewhere a licensed pharmacist or
physician combines mixes oralters ingredients of a drug
(01:47):
product to create a medicationthat's tailored to the specific
need of a patient.
So compounding is often usedwhen a patient may be allergic
to an ingredient in an FDAapproved medication and a
pharmacist or physician canproduce a version of that
medication without the allergenin the product.
(02:07):
Compounding can also be used tomake liquid versions of
medications if a patient isunable to take a medication in
pill form.
However, pharmacists can onlycompound drug products in a
state licensed pharmacy orfederal facility.
Because of this, pharmacists andphysicians are exempt from
(02:28):
certain federal requirements inorder to compound drug products
for these specific purposes.
Namely, these pharmacists cancombine or mix ingredients of a
drug product without having toabide by current good
manufacturing practices orlabeling restrictions, and they
won't need to gain prior FDAapproval before creating the
(02:50):
product, which are all thingsthat a prescription drug
manufacturer would have to dowhen manufacturing drug
products.
So pharmacists and physicianscan't just compound any drug
that they want.
All of these drugs have to becompounded pursuant to a valid
patient-specific prescription.
(03:12):
So, you know, similarly, FDAallows larger scale facilities
called outsourcing facilities tocompound drugs as well.
These facilities do have tofollow current good
manufacturing practices andthey're also inspected by FDA.
The outsourcing facilities candistribute compounded drugs,
(03:33):
either pursuant to a patientspecific prescription or in
response to an order from ahealthcare provider, such as a
hospital.
So compounded drugs are not likegeneric drugs where similar to
prescription drugs, the productgoes through an FDA approval
process where a manufacturer hasto show that a drug meets all of
(03:56):
the same safety and efficacystandards as a prescription
drug.
Compounded drugs are not FDAapproved and FDA does not review
these drugs for the evaluationof safety, efficacy, or quality
performance.
So really compounded productsare meant to be used in cases
(04:18):
where there is a specificpatient need for the product
that can only be achievedthrough compounding.
In order to ensure compoundingis restricted to this purpose,
the Food, Drug, and Cosmetic Actalso restricts the use of
compounding for products thatare not made in regular
(04:39):
inordinate amounts of any drugproduct that are essentially
copies of a commerciallyavailable drug product.
And the term essentially a copyof a commercially available drug
product does not include a drugproduct in which there's a
change made for an individualpatient.
So really limiting and narrowingthe purpose of compounding just
for patient specific purposes sothat they're not just creating a
(05:02):
bunch of prescription drugs thatare already on the market for
compounding purposes.
This restriction makes sure thatthese compounders, like I said,
aren't distributing identicalcopies of prescription drugs
that are required to adhere tothe stricter manufacturing
processes that prescriptiondrugs have to go through in
(05:26):
order to be FDA approved forpatient access and
commercialization on the market.
So there's one very importantexception to this restriction,
and that is when a drug isplaced on FDA's drug shortage
list.
The drug shortages can usuallyoccur for a lot of different
reasons, including manufacturingquality problems, delays or
(05:49):
discontinuations of certainmedications that may have been
on the market before.
So in the context ofcompounding, When a drug is put
on FDA's drug shortage list, FDAno longer considers the product
to be commercially available.
So compounders are then allowedto compound drugs that are
essentially copies of approveddrugs for those purposes, but
(06:13):
they still have to be pursuantto a valid prescription.
So the public policy rationalebehind this is that if there's a
drug that's in shortage,patients and healthcare
practitioners still need accessto those medications.
So they'd rather take on some ofthose risks of having the drug
compounded rather than nothaving a drug that patients may
(06:33):
need at all on the market.
SPEAKER_02 (06:37):
Are there any rules, Lauren, about prescribing
compounded drugs for off-labelusage where you can compound
them pursuant to prescription?
SPEAKER_01 (06:46):
So they, because they, they're, they're only
being used in this case for the,for the patient specific
prescription, they should onlybe using it based on whichever
prescription that they havebeen, that's been received by
the pharmacy.
So unless a physician isprescribing it for an off-label
(07:09):
use, it should only be used inthe case of whatever the
physician has decided based onthe interaction.
with the patient in that case.
Yeah.
But this kind of takes us to theGLP-1 issues that are at the
heart of this litigation.
So in 2020, 22 in December,Trizepatide, which is the active
(07:32):
ingredient in both of EliLilly's products at Bound and
Manjaro, was placed on the FDAdrug shortage list.
The shortage was due to thishuge increase in demand for
these drug products during thattime, and it remained on the
drug shortage list for twoyears, and then was most
recently taken off the shortagelist in December of 2024.
(07:54):
At this time, FDA announced thatit would allow pharmacies and
outsourcing facilities totransition away from filling
patient prescriptions fortrisepatide during this set time
frame so that patient carewasn't disrupted.
And that gave state licensedfacilities access until February
(08:15):
18th to cease distributing anddispensing trisepatide and
outsourcing facilities had untilMarch 19th.
So now, you know, thislitigation was teed up right
after those cutoffs ended andthe litigation was filed in
April.
So Nala, I'm going to hand itover to you to kind of talk
(08:36):
about some of the more healthregulatory issues that came up
in this litigation and just kindof set the scene for us with
some of the big issues in thiscase.
SPEAKER_02 (08:45):
Thank you, Lauren.
And correct me if I'm wrong, Idon't think it's a novel thing
for large pharma companies tosue over compounding issues or
even pharmacies to counter sue.
But what really struck me withThe litigation here is that not
only is Eli Lilly making the FDAclaims that you discussed, but
(09:07):
also this idea of thesetelemedicine companies are also
violating the corporate practiceof medicine doctrine.
So a quick overview of thecorporate practice of medicine
or CPOM is that it's a legaldoctrine that's adopted in most
states in the United States,which essentially prohibits
corporations from practicingmedicine or employing licensed
(09:30):
healthcare providers fromproviding licensed services.
And the purpose really is toprotect patient care, ensuring
that medical decisions are madeonly by those with a valid
license in the state.
It prevents sort of privateequity or any sort of corporate
interest in controlling orinterfering with clinical
(09:50):
judgment.
So the kind of practice pointshere are that only a licensed
professional can own aprofessional corporation and
only licensed services can beprovided through the
professional corporation.
And so in a couple of theselawsuits that Eli Lilly filed,
(10:12):
they claim that thesetelemedicine companies are
violating California's CPOMlaws, which was fascinating.
So some of the things they sayis the lay entity.
So in the corporate practice ofmedicine, there's the
professional entity that's ownedby the licensed professional.
And then there's another entitythat's known as the management
(10:33):
services organization.
there's an agreement between thetwo.
And the claim that Eli Lilly ismaking is that the MSO or the
management services organizationis actually the one that's
making the clinical decisionsabout the care that the patients
were receiving.
So for example, in one of them,they said in the span of five
(10:56):
months, there were eight changesof the compounding pharmacy that
the telehealth provider wasusing to compound the GLP-1
drugs.
And the reason was essentiallyto reduce the bottom line.
It was not based on patientcare.
It was not based on the licensedprofessionals.
decision on what is the besttype of compounding drug to use.
(11:21):
It was just like, let's keepswitching between these
pharmacies to get the cheapestoption.
And those decisions were reallymade by the MSO rather than the
PC.
Another claim that the lawsuitmakes is that the PC
shareholder, the owner of the PCwas not even actually licensed
(11:42):
to as a physician.
So that seems like such a basicpoint, but it is really the crux
of the MSOPC arrangement,ensuring that the shareholder is
licensed in the states wherethey're providing medical
services.
And then another reallyinteresting take was, I think
(12:03):
there was some allegation thatthere was kind of a Reddit
conversation with complaintsabout the dosage of GLP-1s that
they were receiving.
And there were responses fromeither sales folks or lay entity
people from the telehealthcompany responding on Reddit on
(12:24):
how you can either increase ordecrease your dosage or just
essentially change what yourprescription should be.
And as we're discussing here,again, those decisions pursuant
to the corporate practice andmedicine doctrine can only be
made by licensed professionalsand licensed healthcare
providers.
So there are a lot of reallyinteresting allegations in these
(12:46):
few lawsuits.
Another thing that makes thisparticularly interesting is that
obviously telehealth companiesoperate in ideally all 50
states.
That's obviously their goal.
But Eli Lilly decided to filethese lawsuits in California,
which has some of the strictestCPOM rules and kind of the most
(13:07):
movement in terms of CPOM rules.
So for example, California, likemany other states, has enacted a
healthcare transactionnotification rule, which would
require certain healthcareentities to notify the state if
they're entering into any sortof transaction, a sale or
merger, change of control.
(13:28):
And right now there's a bill toinclude MSOs and then under
notification, there was a billlast year that passed
legislation, wasn't signed intolaw, but the state has actively
(13:49):
expressed concern with the waythe MSO PC model is structured.
So I think Eli Lilly verystrategically knew that if we go
to a court in California, whichis particularly strict and
sensitive to the patientposition and the healthcare
provider position on theseissues, we're more likely to get
(14:11):
you know, a positive outcomehere.
So I found that strategicdecision not to be shocking,
but, you know, made a lot ofsense.
So Lauren, maybe you want totake it away with some of the
specific FDA allegations thatwere in this lawsuit as well.
SPEAKER_01 (14:31):
Yeah.
So, you know, I felt like thesome of the biggest allegations
and complaints in the filingswere split into two.
So the CPOM allegations and thenall of these, you false and
deceptive business practicesthat were filed under the Lanham
Act and different statedeceptive consumer complaint
(14:54):
issues.
So a lot of the different FDAissues kind of fall into the
false advertising side.
And similar to, you know, theway all of these telehealth
complaints have been filed,there's a lot of, they all have
different specific allegations,but some of them share a lot of
common themes.
So one of them is that Thecomplaints allege that these
(15:19):
telehealth companies wereadvertising their compounded
products as more effective thanthe FDA approved triseptide
products.
And, you know, we know fromthese complaints that Eli Lilly
is alleging that the telehealthcompanies were including
different additives in theircompounded products that were
(15:40):
not initially included in theFDA approved drug product.
And And, you know, there haven'tbeen any studies that have been
conducted that include theseadditives with the compounded
products.
So Eli Lilly is alleging thatthese claims are therefore false
because there's no actualclinical studies out there that
(16:02):
have supported these claims thatthey're making.
They're also making allegationsin these complaints that the
telehealth companies wereadvertising their compounded
products.
that to treat unapprovedindications for the drug and to
treat pediatric patientpopulation.
So we kind of discussed this alittle bit before, you know,
(16:26):
under the compoundingregulations, the compounder
shouldn't be deciding or addingany kind of unapproved
indications on to the productsthat they're dispensing because
they're being issued pursuant toa patient specific prescription.
So generally prescription drugsare not supposed to be
advertised to to state or implythat a drug can treat a
(16:48):
condition that it's not beenapproved for.
So that's one of the big issuesthat UI Lilly takes with a lot
of the advertising that thesetelehealth companies were
allegedly engaging in.
They also note that some of thetelehealth companies were
advertising these products topediatric patients, so patients
(17:11):
that are under the age of 18when the FDA approved versions
were only approved for patientpopulations 18 plus.
So another one of the issuesthat came up in multiple
complaints against thesetelehealth companies were that
the products were marketed aspersonalized or tailored to
specific patients, which as wediscussed with our overview of
(17:36):
different compounding and kindof the purpose behind
compounding is that it istailored to certain specific
patients and to their needs, butwhat Eli Lilly is alleging in
these complaints is that thesetelehealth companies telehealth
companies were just massproducing these different
formulations of their FDAapproved product to giving them
(17:56):
to patients without having anykind of specific patient issue
that needed them to beprescribed this medication.
And they were all receiving thesame drugs.
So there was no tailoring orpersonalization involved.
And finally, the complaintsalleged that many of the
outsourcing facilities that werebeing used by the telehealth
(18:17):
companies had either been shutdown or had been issued warning
letters for significant andrepeated violations of FDA
compounding laws.
which generally were aboutviolations of different current
good manufacturing practices.
So yeah, I think there were alot of overarching themes in all
of the complaints.
(18:38):
And as you said, there may bemore to come.
So we'll be keeping an eye onthis litigation for different
healthcare and FDA regulatoryissues that come up.
But are there any kind ofpractical takeaways or
recommendations that you seefrom a CPOM perspective that
different clients andindividuals in the health
(19:01):
marketplace can be looking for?
SPEAKER_02 (19:02):
Definitely.
I think, you know, CPOM is alittle bit of my specialty.
I work on it day to day, bothfrom a counseling perspective
and from an M&A perspective.
And from the counseling side,obviously, I emphasize the
importance of complying withCPOM in the state and making
(19:22):
sure that we have formedeverything compliantly and we
have all the correct paperworkand the money's flowing the way
it should be flowing.
But obviously, from a duediligence perspective, I do see
time and time again where CPOMis just like this theoretical
you know, doctrine that existsin some states.
(19:43):
And yeah, we'll have an MSOPC,but we'll not actually be
following or complying with themanagement services agreement
that the target company may havewritten, but they may not
actually be doing the thingsthat they have written there.
So I think some of the practicaltakeaways here are that are you
(20:07):
actually following what youhave?
First, do you have all thewritten ancillary agreements
that are necessary to complywith CPOM?
And two, are you actuallyfollowing what you have written
in your management servicesagreement?
And have the management servicesagreements been reviewed?
Because again, CPOM is a stateby state issue.
Has it been reviewed by a stateby state perspective?
(20:28):
So in one of the complaints, aswe discussed, one of the
telehealth companies allegedlyswapped compounding pharmacies
and the actual formula of thecompounding over eight times in
the span of five months, butthat decision was made by the
MSO.
there could be a very goodreason for doing so, but the
reason needs to be clinical.
(20:49):
And there are some states wherethere is very explicitly under
CPOM rules there that any sortof purchase of medical device or
drugs have to be made by the PCor by the physician owner.
So if I were counseling thesetelehealth companies, I would,
yeah, of course there's going toalways be some sort of bottom
line issue, but the decisionneeds to be made together with
(21:11):
the licensed medicalprofessionals so that, you know,
they, are in the loop, they'remaking the best decision based
on patient care.
And I would also recommend thatany sort of changes to formula
or to the compounding pharmacyis communicated to patients.
And if a healthcare provider isaware of those changes based on
(21:32):
their ethics and their license,they're more likely than a
corporation who hasn't had themedical training to know that we
need to articulate this and makethis clear to our patients.
Obviously, again, with complyingwith CPOM, I would advise my
clients that any sort ofcommunications regarding medical
decision-making or likequestions about adjustments to
(21:55):
medications, that should alwaysbe answered by medical
professionals.
So I think it's really great andexciting and modern for these
telehealth companies to beresponding to questions on
Reddit or TikTok.
I think that's where healthcareshould be.
We should be where the patientsare and it's frankly, on those
platforms, but you should do socompliantly.
(22:17):
Your social media person canrespond and say, please reach
out to this email or to thisperson, because the question
you're asking is, you know, it'sa medical question and it
depends on your diagnoses andyour healthcare.
So it should not be the MSOsocial media person responding
saying, this is how you canincrease or decrease your
(22:39):
dosage.
And, you know, there's a lot ofother practical ways where where
we can ensure that the PC hasautonomy over patient care, but
there just wasn't enoughinformation in these complaints
to see if they exist.
It would include, you know, sortof regular meetings with your
(23:00):
clinical team, reviewing writtenpolicies and procedures about
how, you know, marketing orsalespeople can communicate with
either patients or providers andjust kind of making it, again,
this all goes back to the heartof CPOM, which is the Management
Services Agreement, making surethat's very clearly outlined on
(23:22):
which entity can do what, who'spermitted under state law to do
this, and there are specificnuances.
So there are some states thatmay allow the MSO to purchase
medical equipment versus otherstates wouldn't.
So of course, my practicalrecommendation is to loop in
healthcare counsel, but thoseare a few examples that I think
(23:45):
digital health companies shouldthink about and following this
litigation, which I think EliLilly sued a couple.
I don't think that's going toend because if you just Google
right now, there's dozens ofcompanies that are still
offering compounded GLP-1.
So there really is not an end insight right now.
And I think...
(24:07):
this litigation is so importantfor digital health because one,
it's really establishing aplaybook for any third party
that wants to sue a telehealthcompany for violating CPOM laws.
It also establishes precedentfor damages and awards.
So again, a big part of my jobis counseling digital health
clients on risk.
(24:28):
And a lot of time we're kind of,they'll say, hey, what is the
penalty or the fine if I don'tcomply?
Because I'm willing to take thathit so that I can get rolling on
my amazing idea and show proofof concept while I wait for the
regs to catch up to what I'mdoing, now there is going to
potentially be some precedentfor the damages and the awards
(24:49):
here.
And then obviously, this reallytriggers increased oversight
from the state, the AG, themedical board, which we already
know in California is super,super active.
So to close this off, Lauren,any other practical points you
would advise your clients onfrom an FDA perspective after
(25:10):
going in the weeds on thisissue?
SPEAKER_01 (25:12):
Yeah, definitely.
And you made some amazingpoints.
I definitely think we'll beseeing more of this in the
future and companies shouldreally be paying attention to
what's going on in thislitigation, just like you said,
because this is kind of aplaybook for some of the higher
risk activities and practicesthat people are competing with
(25:32):
in this space.
So, you know, on that note, Iwould say definitely making sure
that any telehealth companiesthat are using outsourced should
be making sure that thesefacilities are registered with
FDA's outsourcing facilities,that there's contractual
liability protection for you inany agreements that you have
(25:55):
with these pharmacies andoutsourcing facilities in case
there are any kind of violationsin their compounding practices.
And just really making sure thatyou're evaluating all of the
claims that are being put out onyour social media and through
any kind of promotion thatyou're doing for your website
(26:18):
about these products and makingsure that they conform to FDA
regulations and any kind ofclaims that have already been
approved for the drug product.
So making sure, you know, you'renot running afoul of any
advertising and promotionissues.
Yeah, but...
Yeah, this has been great.
And I really appreciate all ofyour insight into the CPOM
(26:42):
issues.
Thank you, Lauren.
SPEAKER_02 (26:44):
And I obviously, when people, when I mentioned
that I'm a healthcare lawyer,they will ask me FDA questions
and I'm like, oh, they're sodistinct.
I need an expert.
So I'm so glad you were able tojoin.
And thank you to all ourlisteners who joined us here.
And Lauren and I will certainlybe following this and hopefully
(27:05):
we'll have a follow-up podcastonce there's some resolution in
the coming months.
So thank you everyone.
Yeah.
Thank you guys.
SPEAKER_00 (27:17):
If you enjoyed this episode, be sure to subscribe to
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For more information about AHLAand the educational resources
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