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When does a federal agency have "inherent authority"? Not in this case, according to the D.C. Circuit Court in Ivy Sports Medicine v. Burwell.
ReGen Biologics made a device called a Collagen Scaffold for use in knee surgery. ReGen began the process of obtaining FDA approval for the device in 2004. In 2006, several members of Congress from New Jersey, where ReGen is based, expressed concern about the review process. In 2008, the FDA ultimately classified the Collagen Scaffold as a Class II device, which requires less regulation.
But months after getting the approval, a Wall Street Journal article alleged "political pressure" in the Collagen Scaffold approval process. Members of Congress expressed umbrage (no doubt in the most public ways possible) and the FDA investigated, finding that ReGen was a little too close to FDA officials, who didn't follow standard procedures when approving the Collagen Scaffold. The FDA summarily reclassified the device as a Class III device, which had the practical effect of making it unmarketable unless ReGen applied all over again.
So what's the problem? The FDA's summary reclassification didn't follow the established procedure for reclassifying a medical device, which requires notice and comment.
The case turns on Congress' intent. Yes, it's true that federal agencies do have some inherent authority to reconsider their decisions, but that inherent authority doesn't exist "in cases where Congress has spoken," and Congress can speak by providing a statutory method for fixing a mistake.
As you might expect, there is a statutory procedure in 21 USC § 360c(e) that allows for correcting FDA classification errors, and in fact, the FDA itself acknowledged that it could have used that procedure but also said it didn't have to. The D.C. Circuit found that fact pretty convincing, essentially saying that if it could have used a statute in lieu of inherent authority, then it was obligated to use the statute.
Nor was the FDA able to use the escape valve found in a footnote to American Methyl v. EPA, which mused that the statutory procedure might not be necessary for cases involving misconduct. In addition to probably being dictum, the D.C. Circuit said that the FDA's report didn't find "misconduct" to the degree that would be required to bypass the statute.
In a lengthy dissent, Judge Corneila Pillard argued that the statute in question applies only to explicit reclassifications, not the "the type of de facto reclassification to Class III that occurs upon revocation of an erroneous clearance into a lower class under the substantial equivalence determination." Nor did she believe it was clear Congress intended for the section 360c(e) method to be the only way in which the FDA could reclassify a device.
Further, Pillard pointed out that the statute governs reclassification when new evidence comes to light, not when the agency decides the classification was wrong ab initio.
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