USDA-FSIS’ “Test and Hold” Policy

By Jolyda O. Swaim

On February 8, 2013, the United States Department of Agriculture’s Food Safety and Inspection Service’s (FSIS) policy on “Test and Hold” will go into effect.  This policy requires “official establishments and importers of record to maintain control of product tested for adulterants by FSIS and not allow such products to enter commerce until negative results are received.”  The Federal Register publication outlining FSIS’ final policy may be viewed here.

In the past, while FSIS had encouraged establishments to hold product pending receipt of FSIS test results for adulterants, it had not required companies to hold product under their control until FSIS negative results were received.  Many establishments did not follow this guidance and subsequently had to initiate recalls of product shipped in commerce due to positive results.  FSIS adopted its new policy to prevent future recalls due to a company’s unwillingness or inability to hold product pending test results.

It is important to note, however, that FSIS’ new policy only applies to FSIS testing for adulterants and not to establishment testing for adulterants.  However, FSIS continues to advise all establishments to hold product pending their own testing for adulterants.

The FSIS has identified the following adulterants as covered by the policy:  (1) Salmonella, Listeria monocytogenes, E. coli O157:H7 and Non-O157:H7 STEC on ready-to-eat products, (2) E. coli O157:H7 and the six (6) Non-O157 STEC on raw non-intact beef products or products intended for such use, (3) Listeria monocytogenes on food contact surfaces or ready-to-eat products, (4) residues of veterinary drugs or carbadox in livestock and (5) economic adulterants.  If FSIS tests product for one of these adulterants, FSIS would expect the establishment to have documentation and support that the product is controlled pending the results.

However, this does not mean the establishment cannot move the product to another location pending the test results.  The establishment would have to show the product is still within its control as a result of measures such as company seals or “other adequate controls.”  The establishment would also have to demonstrate that it has not yet completed its pre-shipment review of the product represented by the test results, as FSIS will deem this to mean that the product is in commerce and no longer held.

If product is shipped pending FSIS adulterant testing without adequate controls, FSIS would take the position that the establishment shipped uninspected and possibly adulterated product and would likely take enforcement actions, including suspension of inspection or issuance of a Notice of Intended Enforcement – besides requesting a recall of the affected product.  So, come February 8th, it is important that establishments have written procedures and documentation in place to ensure that any product sampled by FSIS for an adulterant is held and that the pre-shipment reviews for these products are not completed until negative FSIS results are obtained.

Will the Pomegranate be the Bane or Savior of Food Advertisers?

By Bruce Silverglade, as published in Food Chemical News on January 25, 2013

POM Wonderful, LLC is treading where no food or beverage company has treaded before, at least not in recent memory.

Bets are on that the company will soon be asking a U.S. Court of Appeals (likely the D.C. Circuit) to stay, and eventually overturn, a Federal Trade Commission (FTC) decision directing the company to stop claiming that its pomegranate juice and supplement pills can treat, prevent, or reduce the risk of ailments ranging from heart disease to erectile dysfunction.  According to the FTC, such claims can’t be made until POM has conducted two, well-controlled, randomized, double-blind, statistically valid, clinical tests on human subjects demonstrating that the claims are true.

In its defense, POM states: “With this ruling, the FTC is taking the unprecedented step of holding food companies like POM Wonderful to the same standards as pharmaceuticals . . . By holding health food companies to pharmaceutical research standards and ‘implying’ disease treatment claims that are not being made, the FTC is going to stifle research across the entire food industry. Consumers will be denied access to emerging science on the potential health benefits of fruits and vegetables. This would be a giant step backward in the campaign to get Americans to eat healthier.”

POM ad 1

The FTC’s Final Order, while imposing a substantiation standard that is strict, is not unprecedented.  The Agency relies on prior federal court decisions upholding FTC orders, such as In re Thompson Med. Co., 104 F.T.C. 648, 788 (1984), aff’d, 791 F.2d 189 (D.C. Cir. 1986).  In that case, the Commission determined well-controlled clinical tests were required as a reasonable basis for efficacy claims regarding a topical analgesic. Thompson Med. Co., 104 F.T.C. at 826.

The Commission also emphasizes it is not applying a pharmaceutical standard to food claims (although Thompson Medical involved an OTC drug product).   FTC states that U.S. Food and Drug Administration (FDA) regulations for drugs “require multiple phases of clinical trials that collectively represent different – and considerably greater – substantiation” than the two studies required in this case.

While the FTC’s Final Order only applies to POM at this point, the company raised the stakes for all food and supplement advertisers by saying it will ask the U.S. Court of Appeals  to overrule the FTC on First Amendment and other grounds.  If the Court of Appeals hears the case, its decision may extend well beyond POM and set standards for all food and beverage advertisers.  Whether that is a good or a bad thing depends on how a food company markets its products, who it competes with, and whether its Board and CEO favor a playing field leveled by federal regulators, a free market resembling the Wild West, or something in between.

How did POM put the food industry in this position?  As noted, this is not the first time FTC demanded that claims be backed by two well-controlled clinical studies.  In 2010, Nestlé agreed to that requirement by entering into a cease and desist order with FTC regarding advertising for BOOST Kids Essentials Drink in the Matter of Nestlé HealthCare Nutrition, Inc.  The company agreed, inter alia, to stop claiming that BOOST would reduce children’s sick-day absences from school and the duration of acute diarrhea, unless it could back up those claims with two well-designed human clinical trials.

Nestlé, the largest food company in the world, made a decision that fighting the FTC was simply not worth it in terms of litigation costs and bad publicity.

POM ad 2POM, in contrast, is a privately owned company, run by its founders who are “true believers” in the health benefits of their products and who apparently thrive on taking on the Feds.  When it became publicly known the FTC was investigating POM advertising, the company first sued the Agency before the FTC filed its complaint against the company.  When POM lost at the trial level, the company ran ads in the New York Times and other publications claiming it won the case and quoted the administrative law judge’s findings out of context.

As a litigant, it takes tenacity, commitment, and perseverance to obtain a ground-breaking First Amendment decision to strike down regulatory restrictions on commercial speech.  Such was the case in Pearson v. Shalala, where the FDA attempted to ban various labeling statements for dietary supplements under its pre-market authority to authorize health claims.  The U.S. Court of Appeals for the D.C. Circuit found the Agency’s pre-market approval regulations for supplements to be unconstitutional and told FDA to consider permitting health claims for dietary supplements based on preliminary scientific evidence if prominent disclosures on the label would prevent consumers from being misled, id. at 659.

POM’s ads did not contain the type of disclosures that the Court in Pearson said could prevent deception, but the “let’s take on the Feds” approach of both POM and Pearson have similarities.  In Pearson, a principled commitment led to a Court of Appeals decision giving the dietary supplement industry, and eventually the food industry, unprecedented new freedom to make health claims.  That was 1999.

The FTC has now said enough is enough – POM’s claims are, inter alia, “actually misleading,” and therefore, under the Supreme Court’s decision in Cent. Hudson Gas & Elec. Corp. v. Pub. Serv. Comm’n, are not deserving of any First Amendment protection.  Moreover, the agency notes that unlike the FDA, the FTC has no regulations requiring pre-approval of health claims in food advertising  before they may be used in the marketplace.  Rather, the FTC challenged an ongoing ad campaign as false, and after a full trial on the merits, included a “fencing-in” provision in its Final Order prohibiting only POM, not other food advertisers, from making health claims, unless they are backed up by two well-controlled clinical studies.

By bringing the case to the U.S. Court of Appeals, POM will be putting all of its cards on the table.  But other food and supplement advertisers will have to live with the results — and right now the outcome is anyone’s guess.

OFW Law Attorneys Author Amicus Brief in Supreme Court Biotech Seeds Case

OFW Law attorneys Gary H. Baise, Stewart D. Fried and John G. Dillard have filed an amicus brief with the United States Supreme Court on behalf of the American Soybean Association, 15 state soybean associations, the National Corn Growers Association, National Association of Wheat Growers, American Sugarbeet Growers Association, and Growers for Biotechnology in a case of immense importance to America’s farmers.

In Bowman v. Monsanto, the Supreme Court will address whether Monsanto’s patent rights in Roundup Ready® soybean seeds extend to new soybeans grown by an Indiana farmer who purchased unlabeled soybeans from a grain elevator.  After paying Monsanto’s license fee for several years and knowing that almost all of the conventional soybeans grown in Indiana carried a genetically modified trait which make them glyphosate-resistant, Vernon Bowman purchased commodity soybeans for planting as a second crop.  After spraying his fields with Roundup®, thereby killing the soybeans (and weeds) that did not carry the trait and taking advantage of Monsanto’s technology, he cultivated several soybean crops and saved seeds for re-planting.

After Bowman continued this unorthodox license fee circumvention practice for more than six years, Monsanto brought suit for patent infringement.  An Indiana federal district court concluded Bowman infringed on several of Monsanto’s Roundup Ready® soybean patents.  The Federal Circuit affirmed and the Supreme Court decided to hear the case last fall.

OFW Law’s amicus brief on behalf America’s soybean, wheat, corn and sugar beet producers takes the position that if farmers can do an end-run around Monsanto’s license fees by purchasing grain from elevators for planting, a domino effect would ensue.  To remain competitive, more farmers would need to gamble on buying commodity grain for planting.  Of course, commodity soybeans sold by an elevator do not comply with federal or state seed laws regarding labeling or certification and therefore farmers know little about the germination rate, moisture content, weed percentage or other important planting-related information about the grain they are purchasing.  As sales and profits decline, Monsanto would likely divert R&D away from soybean biotech research and ultimately, there would be less agricultural, seed-related innovation.  This would likely have serious impacts on American farmers and society as a whole as the world’s population is rapidly increasing, ever-more food is needed and less land is available for agriculture.

Oral argument will take place before the Supreme Court on February 19th and a decision is expected during the late spring.


American Soybean Association, et al. amicus curiae brief

Monsanto’s brief

Petitioner Vernon Bowman’s brief

HHS’s Updated Medical Privacy Rules Under HIPAA Could Be Susceptible to First Amendment Challenge

By Richard L. Frank and Jonathan M. Weinrieb

On January 17, 2013, the U.S. Department of Health and Human Services (HHS) issued a long-awaited pre-publication copy of revisions to the federal medical privacy requirements commonly referred to as the HIPAA Privacy Rule.  The final rule, issued pursuant to the HITECH Act, will be published in the Federal Register on January 25, 2013.

Although the final rule expands the definition of “marketing” and, consequently, requires patient “authorization” (i.e., affirmative “opt in”), statutory and regulatory exceptions should leave most pharmacy-, physician-, and managed care-based sponsored educational programs unaffected.  HHS’s decision to reject its proposed notice/disclosure/opt-out procedure for “treatment” communications and to impose a mandatory opt-in process for such communications could, however, run afoul of the Supreme Court’s decision in Sorrell.

Exceptions to Requirement for Patient “Authorization”

  • Refill Reminders Exempt From “Authorization” (42 U.S.C. § 17936(a)(2)(A); 45 C.F.R. § 164.501)

The final rule codifies Congress’s statutory exception from “authorization” for “refill reminders” (i.e., currently prescribed therapy), making clear that “communications about the generic equivalent of a drug being prescribed to an individual as well as adherence communications encouraging individuals to take their prescribed medication as directed fall within the scope of this exception.”  Final Rule at 125.  The “refill reminder” exception is, however, subject to caveat – i.e., it is available only if compensation related by the covered entity is “reasonably related” to the covered entity’s costs of making the communication.  HHS clarified that:

we consider permissible costs for which a covered entity may receive remuneration under this exception are those which cover only the costs of labor, supplies, and postage to make the communication. . . .  Thus, under this final rule, if a pharmacy receives financial remuneration from a drug manufacturer to provide refill reminders to individuals taking a particular drug that covers only the pharmacy’s cost of drafting, printing, and mailing the refill reminders, the exception would apply and no authorization would be required.

Final Rule at 126.

  • “Face-To-Face” Delivery Of Sponsored Communication Exempt From “Authorization” (45 C.F.R. § 164.508(a)(3)(i)(A))

HHS did not curtail or otherwise amend the “face-to-face” exception so there continues to be no “authorization” required if the subsidized communication is made “face-to-face” by, or on behalf of, a covered entity to an individual.  Accordingly, as HHS observed, “a health care provider could, in a face to face conversation with the individual, recommend, verbally or by handing the individual written materials such as a pamphlet, that the individual take a specific alternative medication, even if the provider is otherwise paid by a third party to make such communications.”  Final Rule at 124 (emphasis added).  Thus, sponsored communications programs in the pharmacy or doctor’s office/clinic remain exempt from patient opt-in requirements.

  • Messages That Do Not Promote A Specific Product Not Considered “Marketing”

HHS clarified in the preamble to the final rule that “communications promoting health in general and that do not promote a product or service from a particular provider, such as communications promoting a healthy diet or encouraging individuals to get certain routine diagnostic tests, such as annual mammograms, do not constitute marketing and thus, do not require individual authorization.”  Final Rule at 127.  Many pharmaceutical and medical device company-sponsored communications address topics like those discussed by HHS.  Other communications may discuss a patient’s underlying disease or condition, without referencing a specific drug product.  Communications of these types are not regarded as “marketing” and thus do not require patient “authorization.”  Id.

Sponsored Messages Not Otherwise Exempt Require Authorization

In a significant reversal from its proposal, HHS concluded that the distinction between “treatment” and “health care operations” was sufficiently unclear such that all sponsored messages would be considered “marketing” requiring “authorization,” unless otherwise exempt.  HHS made this change despite limited support in the rulemaking record and only a conclusory explanation in the preamble to the final rule.

HHS’s final rule requiring “authorization” or “opt-in” likely will curtail the number of patients receiving sponsored, health-related, educational messages.  Such a ruling could run afoul of the Supreme Court decision in Sorrell v. IMS Health Inc., 131 S. Ct. 2653 (2011).  Sorrell analyzed a Vermont law that imposed a specific, content- and speaker-based burden on First Amendment-protected expression.  The Court applied a heightened standard of judicial scrutiny to Vermont’s statute that prohibited, absent the physician’s opt-in, the sale, disclosure, and use of pharmacy records that reveal the prescribing practices of that doctor.  The law failed that stringent test.  To sustain a targeted, content-based burden a state statute imposes on protected expression, the State must show at least that the statute directly advances a substantial governmental interest and that the measure is drawn to achieve that interest.  Sorrell, 131 S.Ct. at 2667-68.  The Court’s imposition of heightened scrutiny appears to raise the bar from the intermediate scrutiny traditionally applied to First Amendment issues of governmental restrictions on commercial speech under Central Hudson Gas & Elec. Corp. v. Public Serv. Comm’n of N.Y., 447 U.S. 557 (1980).

The final HIPAA privacy rule requires authorization for all treatment and health care operations communications where the covered entity receives financial remuneration for making the communications from a third party whose product or service is being marketed.  HHS’s distinction between sponsored and non-sponsored communications is suspect under Sorrell’s heightened scrutiny analysis.  Although Sorrell involved restrictions on prescriber-identifiable information as opposed to the use of patient-identifiable information, given the imposition of heightened scrutiny, there may be reasonable grounds for a Constitutional challenge.  That is, the decision to require “authorization” or “opt-in,” instead of the significantly less burdensome notice/disclosure/opt-out, may run afoul of this Supreme Court precedent given that HHS could have adopted a less-restrictive alternative curtailing speech that would still have accomplished the legitimate objective of protecting patient privacy.

Finally, it should be noted that the final HIPAA privacy rule may be suspect on administrative procedure grounds.  The proposal did not specifically seek comment on eliminating the distinction between “treatment” and “health care operations” in the context of “marketing” by requiring “authorization” for all such sponsored communications.  Combined with the fact that there was limited support in the record for such an alternative, it is possible that HHS could be compelled to re-propose its rule in order to provide adequate notice and opportunity for comment.  See, e.g., Natural Resources Defense Council v. United States Envtl. Prot. Agency, 279 F.3d 1180 (9th Cir. 2002).

All in all, though the final HIPAA medical privacy regulation should continue to allow most sponsored educational programs to continue without mandatory “authorization,” the new restrictions may also be vulnerable to a legal challenge.  Moreover, HHS has sacrificed the sponsored-delivery of high-quality medical and health education for, at most, negligible enhancement of patient privacy.

A Victory for Farmers

USDA’s National Appeals Division Upholds Farm Service Agency’s “Finality Rule”

By Kenneth D. Ackerman

Recently, we at OFW Law had the chance to help two Connecticut farmers win rulings from USDA’s National Appeals Division forcing the Farm Service Agency (FSA) to respect their rights under the Finality Rule, an important protection for farmers who participate in USDA programs.  Many farmers operate on thin financial margins and the Finality Rule gives them confidence that, if they receive a payment from USDA, they can invest the money into their farms without fear of a USDA mistake coming back to bite them.

In essence, the Rule says that any determination by FSA becomes final and binding after 90 days, so long as the farmer had clean hands and no “reason to know” of a mistake.

Vegetable Field

Vegetable Field

Both of the farmers in the recent Connecticut cases suffered severe crop loss from excess moisture in 2008 and received indemnity payments from FSA under its Non-Insured Crop Disaster Assistance Program, or NAP.  The FSA county office, however, had made several internal errors in calculating the payments, each of which covered over half a dozen different vegetable crops with different loss amounts for each.   The farmers were never provided or shown a breakdown of the math behind the payments, and the payments themselves did not show up in their bank accounts until long after the fact.  As a result, it literally was impossible for them to know that the payment amounts had been wrong.

In fact, not even the FSA county office caught the error until years later.  One of the farmers actually telephoned the FSA office to confirm that his amount was correct.  Still, three years after the fact – and long after these farmers had reinvested the NAP payments into their farms – FSA came forward and asked them to repay sums of money so large as to potentially cripple these farmers’ operations.

We helped these two farmers fight back by citing the Finality Rule.  To demonstrate they had no “reason to know” of the errors, we presented voluminous evidence, including testimony from the FSA county office staff plus copies of the farmers’ multiple NAP applications and certification documents, to demonstrate their good faith.  In the end, USDA’s National Appeals Division, after conducting five-hour hearings in each case, agreed with the farmers and held that the Finality Rule applied.

Here are links to the decisions.

Case 1:    — Hearing Officer Decision, upheld on National Director Review, unpublished.

Case 2:   — Hearing Officer Decision, not appealed by FSA.

FSMA Analysis, Webinar

OFW Law has prepared comprehensive memoranda on two major FDA proposed rules, which FDA has characterized as the cornerstones of the new food safety system created by the Food Safety Modernization Act:

In short, the first proposed rule wold require most food facilities to implement HAACP-like food safety plans.  The second would require most farms and “farm mixed-type facilities” that grow, harvest, pack, or hold produce to comply with the new safety standards.  Both proposed rules were published on January 16, 2013, and comments on both are due May 16, 2013.

The proposed rule on Preventive Controls for Human Food will be discussed in detail at the webinar OFW Law is presenting in conjunction with The Food Institute next Thursday, January 24.  Refer to the previous post for more information on the webinar.

FSMA Webinar 1

January 24, 2013 – 12pm ET

Hazard Analysis & Preventive Controls for Human Food

FSMA Webinar

Click ad to register for the webinar.

OFW Law and The Food Institute, the best “single source” for information about the food industry, will present a 90-minute webinar on Thursday, January 24, 2013, to explore the proposed rule, issued on January 4 by the Food & Drug Administration (FDA). This FDA proposed rule covers hazard analysis and preventive controls for human food, and would modernize the existing current Good Manufacturing Practice (cGMP) regulations for human food. Additionally, the proposed ruling would require each registered food facility, unless exempt, to perform a hazard analysis and develop a written food safety plan addressing any hazards reasonably likely to occur in its products. It would also expand the definition of “farm” in FDA’s registration regulations (thereby broadening the farm exemption from registration and the new preventive controls requirements).

OFW Law and The Food Institute will outline everything you could possibly need to know about this topic:

  • Proposed changes to the existing CGMP regulations
  • Who must comply with the new requirements
  • Who is exempt
  • What is not in the proposed rule (e.g., food defense)
  • What is not in the proposed rule but may be in the final rule (e.g., testing of raw meterials and ingredients, finished product testing, environmental monitoring, supplier approval and verification requirements)
  • Proposed new recordkeeping and records access requirements
  • The proposed dates for compliance

So, join us on January 24 for 90 minutes as we explore what has just been released, and evaluate the two year delay on the Food Safety Modernization Act.

HOW: Via your internet connected computer and telephone

DATE: January 24, 2103

LENGTH: 90 minutes from 12pm-1:30pm ET

EPA and Environmental Groups Float Into Stormy Waters

Stormwater Drainage

Stormwater Drainage

By Stewart D. Fried and John G. Dillard

In a pair of environmental cases involving stormwater, the Supreme Court and a federal district court have flushed away certain beliefs held by EPA and environmental groups regarding the regulation of pollutants under the Clean Water Act (CWA).

In Los Angeles County Flood Control District v. Natural Resources Defense Council, the U.S. Supreme Court held that the flow of water out of a concrete channel into an earthen channel within the same waterway was not a discharge of pollutants under the CWA.  The plaintiffs, two environmental associations, sued L.A. County’s flood control agency under the CWA’s citizen suit provision, alleging that it was violating the terms of its National Pollutant Discharge Elimination System (NPDES) permit.  Not surprisingly, the case turned on whether the District was improperly discharging pollutants.  NRDC argued that a discharge occurred when stormwater flowed out of a concrete-lined portion of a drainage channel into an unlined portion of the same drainage channel.  The Ninth Circuit Court of Appeals bought NRDC’s argument, but the victory was short-lived.  In a rare, unanimous opinion in an environmental case, the Supreme Court held that the flow of water within a body of water does not constitute a discharge of pollutants.  “No pollutants are ‘added’ to a water body when water is merely transferred between different portions of that body.”  The Court relied heavily upon its 2004 decision in South Florida Water Management District v. Miccosukee Tribe, which held that water transfers from one part of a water body to another part of the same water body do not constitute a discharge.   Based upon the need to reverse the entirely unsupportable decision of the frequently reversed 9th Circuit, the U.S. Supreme Court was required to resolve the seemingly settled issue of whether the flow of water within a single body of water can constitute an illegal discharge of pollutants under the CWA.

A few miles to the south, the federal district court in Alexandria, Virginia, was also faced with the question of whether stormwater is a “pollutant” in another CWA case.   In Virginia Department of Transportation v. EPA, the Eastern District of Virginia addressed whether stormwater could be used as a surrogate for an actual pollutant.  In this case, EPA established a Total Maximum Daily Load (TMDL) for sediment in Accotink Creek, a Potomac River tributary.  In recognition of the correlation between quantity of stormwater entering the creek and sediment levels, EPA established a TMDL that limited the flow of stormwater into Accotink Creek.  This solution seemed simple enough but for one problem – stormwater is not a pollutant under the CWA.

EPA attempted to defend its actions by arguing that it could regulate the flow of stormwater as a “surrogate” for other pollutants.  Although the use of surrogate pollutants is not unheard of, a surrogate pollutant must still be a “pollutant” under the CWA.  For example, most strains of E. coli or fecal coliform are benign and harmless.  However, E. coli is itself a pollutant and it signals the existence of harmful animal waste or sewage in a water body.  Thus, E. coli is proper surrogate for EPA to use in establishing a TMDL.  Because Congress, in enacting the CWA, did not authorize EPA to regulate stormwater and other non-pollutants, the district judge determined that EPA’s stormwater TMDL exceeding its authority under the Act and ordered EPA to head back to the drawing board.

While it seemed clear to most environmental practitioners that stormwater is not a pollutant, these decisions should help to clarify an area of the law that was not particularly open for debate.

The Ag/FDABlog will be monitoring any further developments in the VDOT v. EPA matter.

Former USDA Official Janie Hipp Joins OFW Law as Of Counsel

We are pleased to announce that Janie Hipp, Esq., formerly with the U.S. Department of Agriculture (“USDA”), will be joining OFW Law as Of Counsel.  Hipp is a nationally recognized expert on Indian Law, with a focus on agriculture and energy policy, who served as Senior Advisor to Secretary of Agriculture Tom Vilsack.

Please click the announcement, below, to enlarge it.
Janie Hipp Announcement

RMA Should Change the Rules on Its Ineligible List

By Kenneth D. Ackerman

The U.S. Department of Agriculture’s (USDA) National Appeals Division (NAD) is a great forum for farmers who have disputes with USDA agencies, and want to address them quickly and inexpensively. I often advise farmers that NAD is the best option to obtain a fair, neutral ruling on their situation from a hearing officer who specializes in USDA programs, is independent from program agencies, and is mandated to follow the rules.    But of all the cases where I’ve assisted farmers in front of the NAD — mostly involving crop insurance or farm programs — one single issue has proven the most frustrating for farmers and NAD hearing officers alike: the “ineligible list” maintained by USDA’s Risk Management Agency (RMA).

When it works right, RMA’s ineligible list is a good, well-managed system designed to protect the integrity of Federal crop insurance by insuring farmers pay their debts on time.  (Full Disclosure: I approved the original rules for the program myself when I was RMA Administrator back in the 1990s.)  If a farmer has a debt, usually a late or unpaid premium on an insurance policy, and fails to pay by the final deadline, he or she is placed on the list, and immediately deemed ineligible for insurance coverage and other USDA programs – even if the ruling comes in the middle of a growing season.

On paper, RMA rules seem to give farmers plenty of protections before declaring them ineligible.  Farmers must receive notice, a meaningful chance to pay or contest the debt, and a right to appeal to NAD.  But once these steps occur, the system is automatic.  Neither the agency, the insurance company, nor even NAD itself has discretion to reverse the process, no matter how sympathetic the case.  RMA’s basic crop insurance policy is explicit in saying that no excuses are allowed: “Failure to timely pay because of illness, bad weather, or other such extenuating circumstances is not grounds for reinstatement in the current year.”  See FCIC Basic Provisions, section 2(f)(2)(iii)

This is where the trouble has evolved.  Today, cases involving RMA’s “ineligible list” dominate RMA’s docket before NAD, representing 80 out of 83 decisions just between May and September 2012.  The farmer loses almost every time.  And increasingly, hearing officers despair their inability to avoid hardship, even in cases where nobody suggests any bad faith on the part of the farmer.  Farmers find themselves trapped on the list over minor problems such as clerical mistakes, a family illness, a problem at the post office, language barriers, a check mistakenly mailed a few days late, or a notice sent to a wrong address.  The impact — cutting off a farmer’s insurance mid-way through a loss year — can be devastating.

Not surprisingly, in not less than twenty of the posted NAD decisions on the “ineligible list” in 2012, the hearing officer felt obliged to express “sympathy” or “empathy” with the farmer’s dilemma before finding he or she had no basis to correct the harm.

Just among the recent cases, we have seen farmers lose coverage, for instance, because:

  • The farmer mailed his premium payment on time, but his rural post office had a practice of transferring its mail to a larger city before stamping the  postmark, resulting in the payment being postmarked as a few days late (NAD Case 2012E695);
  • A farmer had agreed to an installment plan to pay off his insurance premium and he mailed all four of his $1,000 payments on time, but accidentally left off the $145.90 in interest on the final check.  Quickly noticing the mistake, he paid the interest about two weeks later (NAD Case 2012E000715);
  • A farmer was mistakenly told by his insurance agent that he needed to pay his premium bill by December 30 rather than the actual deadline of November 30. The agent then went on vacation and was unable to correct himself.  The farmer paid his premium on December 8 (NAD Case 2012W000187);
  • A farmer had paid off more than 90 percent of the debt he owed to his insurance company, but then was in a car accident prior to the final payment date and, while he and his wife were in the hospital, their teenage daughter, who was helping out, mailed the final check four days late (NAD Case 2012E000483 – upheld on National Director Review);
  • A farmer had suffered crop losses and was owed indemnity payments easily large enough to off-set the premium he owed on the policy, but his insurance company was slow finalizing the claim resulting in missing the deadline.

These types of petty glitches are not what the “ineligible list” was designed to prevent, and should not be the reason for a hard-working, proven farmer with a good track record to face bankruptcy or lose his business.

There is a way to fix this problem.  I think RMA should change its rules to allow one person, the NAD National Director, to provide equitable relief in “ineligible list” cases, but only in cases that reach a National Director’s Review, only where the farmer affirmatively shows a good faith effort to pay the debt, and only where RMA agrees that providing relief would not weaken its oversight system.  Perhaps an appropriate “late fee” should be considered as well. Limiting discretion to cases on appeal would weed out the frivolous ones. It would mean that a hearing officer must first develop a factual record supporting the “good faith” finding, that RMA would have the chance to weigh in, and that RMA would not be placed in the position of seeming to “bend the rules” in sympathetic cases.

RMA would have to amend its regulations to make this change, but it seems well worth the effort. The ineligible list, a sound system for protecting program integrity, should not be allowed to become a “gotcha”-style trap for well meaning farmers.