Impact of the CARES Act on the Medical Device Industry

On March 27, 2020, the President signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The purpose of the CARES Act is to provide emergency assistance and health care response for individuals, families, and businesses (primarily in specific large industries such as airlines, hotels, and restaurants) affected by the 2020 coronavirus pandemic.

The CARES Act incentivizes medical device manufacturers to produce and distribute medical devices by providing additional liability protection, and by awarding funds to hospitals in medically underserved areas for use in the prevention, diagnosis and treatment of COVID-19, but also adds a responsibility to give notice of potential or actual supply shortages. Further, the CARES Act provides funding to the federal government to aid the development, production, and purchase of medical supplies.

Specifically, the CARES Act applies to the medical device industry in four key ways:

1. creates a system to report and mitigate medical product supply shortages, including a reporting scheme for critical medical device shortages during a public health emergency that, in part, requires advance notice from medical device manufacturers to the FDA of any planned discontinuances or immediate notice of unexpected interruptions in the supply of medical devices (Section 3121);
2. incentivizes the production and distribution of medical devices such as by providing additional liability protection for device manufacturers (Section 3103);
3. provides emergency funding to government agencies, including to support the development and manufacturing of medical supplies by the private sector and the purchase of medical supplies by the federal government (Title III to Division B of the CARES Act, at pp. 743-44); and
4. allocates $1.32 billion in supplemental awards to hospitals in medically underserved areas for the detection of SARS-CoV-2 or the prevention, diagnosis and treatment of COVID-19 (Section 3211).

The availability of funding to support the development and manufacturing of medical supplies and purchase of medical supplies by the government is also contained in another recently enacted emergency assistance Act: the Coronavirus Preparedness and Response Supplement Appropriations Act, 2020 (March 6, 2020), which provides emergency funding to prepare for and respond to COVID-19, including the manufacture and purchase of necessary medical supplies. This funding is in addition to the funding in the CARES Act (Title III of the Coronavirus Preparedness and Response Supplement Appropriations Act, 2020, at pp. 4-5).

Overview of Provisions Relevant to Medical Device Manufacturers

Division A – Keeping Workers Paid and Employed, Health Care System Enhancements, and Economic Stabilization

Title III, Subtitle A addresses in part the prevention of, and reporting requirements for, any medical product supply shortages.

• Report on Drug and Device Supply Chain Security. The CARES Act directs the Department of Health and Human Services (HHS) to enter into an agreement with the National Academies of Sciences, Engineering, and Medicine to, in part, examine the security of the US supply chain including: (1) to determine which “critical drugs and devices” are sourced or manufactured outside the US; and (2) to provide recommendations to address any supply chain vulnerabilities that would pose a threat to public health, such as identifying strategies regarding supply chain redundancy/contingency planning, encouraging domestic manufacturing, and improving supply chain capacity. These National Academies are to consult pharmaceutical manufacturers and other industry stakeholders (Section 3101).
• Revision to the US strategic national stockpile. The Act amends the Public Health Service Act to add personal protective medical equipment, and other supplies required for the administration of drugs and vaccines to the Strategic National Stockpile (Section 3102).
• Liability protection for protective equipment. The Act modifies the Public Health Service Act to provide state and federal liability protection for manufacturers of personal respiratory protective equipment, such as masks and respirators, in the event of a public health emergency to incentivize production and distribution (Section 3103).
• Discontinuation or interruption in the production of medical devices. The Act adds a requirement that a medical device manufacturer of a device that is “critical to public health during a public health emergency,” or one for which the Secretary determines that information on a “potential meaningful disruption” is needed during or before a public health emergency, must submit information on device shortages or a device component shortage at the request of the FDA during or in advance of a public health emergency (Section 3121). A “meaningful shortage” is defined as one that is likely to lead to a “more than negligible” reduction in supply.
   
  • The notice must be submitted to the FDA at least six months prior to the date of the discontinuation or interruption or as soon as practicable (Section 3121 at p. 224).
  • If the manufacturers fail to provide the requested information, the Secretary shall (1) send a letter informing such failure, and (2) within 30 days, the manufacturer shall submit to the FDA a written response providing the required information, which will be made public unless the FDA determines that the letter to the manufacturer was made in error or there was a reasonable basis for the manufacturing not notifying the FDA (Section 3121 at pp. 225-26).
  • The FDA shall prioritize and expedite review of approval applications for devices that can help mitigate or prevent shortages (Section 3121 at pp. 226-27).
  • The FDA shall create a list of device shortages similar to that created for drug shortages (Section 3121 at pp. 227-28).
• The Act provides up to $1.32 billion to health centers serving medically underserved communities to fund expenditures for the prevention, diagnosis, and treatment of COVID-19 (Section 3211).

Division B – Emergency Appropriations for Coronavirus Health Response and Agency Operations provides for different categories of emergency funds to prepare for and respond to COVID-19, namely the Public Health and Social Services Emergency Fund.

Title I and Title VIII provide for different categories of emergency funds to prepare for and respond to COVID-19, including development, manufacture, and purchase of necessary medical products.

• $80 million in additional funding for FDA “to prevent, prepare for, and respond to coronavirus, domestically or internationally.” The Act provides funding for the “development of necessary medical countermeasures and vaccines, advanced manufacturing for medical products, the monitoring of medical product supply chains, and related administrative activities.” (Division B, Title I, Related Agencies and Food and Drug Administration, Salaries and Expenses, at pp. 616-17).
• $27 billion in additional funding to “Public Health and Social Services Emergency Fund” for development and purchase of products to “prevent and prepare for, and respond to the coronavirus domestically or internationally.”
  • The Act provides funding for activities including, but not limited to, the “development of necessary countermeasures and vaccines, prioritizing of platform-based technologies with US-based manufacturing capabilities, the purchase of vaccines, therapeutics, diagnostics, necessary medical supplies, as well as medical surge capacity,” and “initial advanced manufacturing, novel dispensing, enhancements to the US Commissioned Corps, and other preparedness and response activities.” The provision directs the Secretary of HHS to take steps “authorized under current law” to ensure that products developed from the funding “will be affordable in the commercial market,” but such steps “shall not” delay the development of such products. Products purchased by the Government will be purchased in accordance with the Federal Acquisition Regulation guidance on fair and reasonable pricing. (Division B, Title VIII, Office of the Secretary, Public Health and Social Services Emergency Fund (Including Transfer of Funds), at pp. 743-44).
  • The Act gives the Secretary of HHS the authority to use up to $16 billion of the funding at the Secretary’s discretion to purchase medical products for the Strategic National Stockpile. (Division B, Title VIII, Office of the Secretary, Public Health and Social Services Emergency Fund (Including Transfer of Funds), at p. 744).
  • The Coronavirus Preparedness and Response Supplemental Authority Act, 2020, enacted on March 6, 2020, provided $3.1 billion for similar categories of emergency funding as authorized in the CARES Act to prepare for and respond to COVID-19, that also includes the manufacture and purchase of vaccines and necessary medical supplies. This funding, already enacted into US law, is in addition to the authorized funding in the CARES Act. (Title III, Office of the Secretary Public Health and Social Services Fund (Including Transfer of Funds), at pp. 4-5).

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