Healthcare Litigation

The Dorsey Health Law blog team keeps readers up-to-date on relevant topics in the health care industry. In order to do so, the members of the blog team communicate regularly with other practice groups within the firm for applicable updates from client publications. For this post, we would like to thank Dorsey’s Jamie Nafziger and Divya Gupta for the following e-newsletter update: Businesses may receive a bit of breathing room as a result of two amendments to the California Consumer Privacy Act (CCPA) passed on Friday, September 13, 2019, by the California Legislature.  The Legislature gave businesses a one-year moratorium on two significant aspects of the law:  its application to employees, job applicants, owners, officers, directors, medical staff members, and contractors; and its application to business-to-business transactions.  The Governor has until October 13, 2019, to sign or reject the amendments.  Although the amendments provide some of the needed clarifications and error corrections and a significant break from needing to respond to certain data subject requests from employees and B2B contacts, businesses will still need to complete their data mapping (even for these categories of consumers) and will still need to be prepared to offer the rights not exempted on January 1, 2020, even if these amendments are signed by the Governor. For those following the process, five bills passed the Legislature: AB 25, AB 874, AB 1146, AB 1355, and AB 1564.  Proposed amendment AB 846 on loyalty programs was shelved.  In addition to the two widely applicable amendments about employees and business-to-business transactions discussed in detail below, the Legislature also passed a number of minor or narrowly applicable amendments.  The amendments amount to 98 pages of printed material.  We will cover only the more significant of them in this article. The employment-related amendments in AB 25 exempt businesses from many of the CCPA’s requirements for one year when applied to employees, job applicants, owners, officers, directors, medical staff members, and contractors “to the extent that the natural person’s personal information is collected and used by the business solely within the context of the natural person’s role or former role as a job applicant to, an employee of, owner of, director of, officer of, medical staff member of, or a contractor of that business” (emphasis added).  The amendment also covers certain use of personal information in the context of emergency contact information and benefits administration. If AB 25 is signed by the Governor, two CCPA requirements will still apply to these types of individuals when collected and used in this context:  (1) the requirements to inform them about the categories of personal information collected and the purposes for which the personal information will be used in 1798.100(b) and (2) the right to sue in a private right of action after a data breach in 1798.150.  This would mean the other consumer rights to deletion, access, opt-out of selling, and no price discrimination would not apply in this context for one year (until January 1, 2021).  This will be a welcome change to most businesses, to the extent it gives them a break from the experience EU businesses have had responding to data subject requests from employees, ex-employees and job applicants in Europe since the General Data Protection Regulation (GDPR) became effective. Unfortunately, even if this amendment becomes law, businesses will still need to complete their data mapping and draft disclosures in connection with the information of employees, job applicants, owners, officers, directors, medical staff members, and contractors. The business-to-business (B2B) moratorium in AB 1355 would exempt businesses from many of the CCPA’s requirements for one year when applied to “personal information reflecting a written or verbal communication or a transaction between the business and the consumer, where the consumer is a natural person who is acting as an employee, owner, director, officer, or contractor of a company, partnership, sole proprietorship, nonprofit, or government agency and whose communications or transaction with the business occur solely within the context of the business conducting due diligence regarding, or providing or receiving a product or service to or from such company, partnership, sole proprietorship, nonprofit or government agency” (emphasis added). The B2B moratorium would not apply to collection or use of personal information outside of the context described in this amendment, to the right to opt-out of “selling” in 1798.120, to the price discrimination provisions of 1798.125, or to the right to sue in a private right of action after a data breach in 1798.150.  If this amendment is signed into law, businesses will have a break until January 1, 2021, in the requirements of notice, deletion, access, information about onward disclosures, the opt-out link and the means for exercising consumer rights when it comes to B2B diligence or product/service provision or receipt.  This means businesses would still need to complete their data inventories of information received in a B2B context, be prepared to respond to opt-out requests, and apply all other sections of the CCPA to uses of B2B personal information outside of the diligence or transaction itself (such as marketing uses). Other important amendments include: Clarifications regarding authentication of data subject requests in AB 25; Changes to language regarding methods for submitting data subject requests in AB 1564; Changes to exempt certain vehicle-related information from the right to opt-out from selling in AB 1146; Changes to exempt certain warranty and product recall information from the right to deletion in AB 1146; Changes to the definition of “personal information” in connection with the reasonability of associating information with a particular consumer or household, with the definition of “publicly available,” and with the applicability to deidentified or aggregate consumer information in AB 874; Correction of errors in the price discrimination section 1798.120 about “value provided to the consumer” versus “value provided to the business” in AB 1355; Clarification regarding impact of encrypting and redacting personal information on civil right of action in AB 1355; Changes to the exemption regarding consumer credit and related information in AB 1355; and Error corrections in 1798.110(c) regarding privacy notice requirements and in 1798.115(a)(2) regarding right to know in AB 1355. If these amendments are signed by Governor Newsom by October 13, 2019, they will provide a one-year extension in connection with some provisions of the CCPA.  However, the majority of the provisions related to consumer privacy will still be in effect.  No fundamental rights have been removed from the CCPA.  Businesses will need to continue their compliance efforts with focused intensity over the next several months.  We will provide updates regarding the Governor’s actions and the California Attorney General’s regulatory guidance as they become available. The completed legislative session gives businesses a clearer understanding of the CCPA’s obligations (subject of course to signature by Governor Newsom).  For those companies not previously required to comply with the European Union’s GDPR, this may pose significant operational and technical challenges.  Dorsey has developed fixed fee packages to help clients on their CCPA compliance journey, a simple screening tool which is publicly available to help companies understand whether the CCPA affects them, and a more comprehensive online self-assessment tool for our clients, which can be requested by emailing Dorsey at CCPA.Assessment@dorsey.com.

As reported here in February, the Department of Health and Human Services (HHS) Office of Inspector General (OIG) released two new significant proposed regulations that would have had a transformative effect on the drug discount and rebate arrangements that are commonplace between pharmaceutical manufacturers and Medicare Part D Plans and Medicaid Managed Care Organizations (and the pharmacy benefit managers (PBMs) acting on their behalf). The Administration’s goal with these proposed regulations was to reduce prescription drug prices.  However, in July, the Administration abandoned these proposed regulations (as shown on the Office of Management and Budget website) out of concern that they would actually have the opposite effect and result in increased drug prices.  President Trump reportedly became concerned after the proposals received significant support from the pharmaceutical companies. The proposals would have eliminated the current federal anti-kickback statute (AKS) safe harbor protection relied upon by manufacturers and PBMs for the rebates paid by manufacturers to PBMs for certain drugs.  In its place, the OIG proposed a much more narrow safe harbor that would have only applied if the reduced price from the manufacturer was fixed in advance and disclosed to the plan, the full value of the price reduction was disclosed to the pharmacy through a chargeback to ensure that the total payment to the pharmacy for the drug was no less than what the health plan (or PBM on its behalf) paid to the manufacturer for the drug, and the reduction in the drug’s price was completely applied to the price charged to the patient at the point of sale. At the same time, the OIG also proposed a new PBM service fee AKS safe harbor that would have protected payments by manufacturers to PBMs for certain services provided by PBMs, but with strict requirements for the manufacturer and PBM to have a written agreement for the services which set the compensation for the services in advance at a rate that is consistent with fair market value and not based on the volume or value of any referrals or other business generated between the parties or the health plan.  The proposed service fee safe harbor would have also required the PBM to annually disclose such arrangements, services and compensation to the health plans and to the Secretary of HHS upon request. The Administration has been vocal about its goal of reducing drug prices for patients.  So, we expect alternative action in the future which could take the form of legislation rather than the rule-making process. We are continuing to closely monitor changes in the area.

The Eliminating Kickbacks in Recovery Act of 2018 (EKRA) became law on October 24, 2018, and is codified at 18 U.S.C. § 220.  As part of the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment (SUPPORT) for Patients and Communities Act, EKRA was enacted in response to a concern that the federal Anti-Kickback Statute (AKS) was not broad enough to cover certain abusive payment arrangements related to opioid addiction treatment centers, since the AKS only applies to federal health care programs.  EKRA has considerable similarities to the AKS, but is notably distinct from the AKS in that it applies to all payors rather than just federal health care programs and has an exception for employment compensation that is much narrower than the AKS’s employment safe harbor.  Further, EKRA relates to arrangements with recovery homes, clinical treatment facilities, and laboratories (the “Subject Entities”).  With respect to laboratories, even though EKRA was enacted in response to the opioid crisis, it applies to all laboratories, not just laboratories that perform testing related to substance abuse (e.g., toxicology screening). We set forth below an overview of EKRA, exceptions to the law’s prohibitions, and recommendations to ensure compliance. Overview EKRA subjects to criminal penalties anyone who, with respect to services covered by any health care benefit program (whether federal or private), knowingly and willfully: solicits or receives any remuneration in return for referring a patient or patronage to a Subject Entity; or pays or offers any remuneration: to induce a referral of an individual to a Subject Entity; or in exchange for an individual using the services of that Subject Entity. Penalties for each occurrence of violating the law are a fine of not more than $200,000 (which is double the possible fine per violation of the AKS), imprisonment for not more than 10 years, or both. EKRA defines the Subject Entities as follows: Recovery home: “a shared living environment that is, or purports to be, free from alcohol and illicit drug use and centered on peer support and connection to services that promote sustained recovery from substance use disorders.” Clinical treatment facility: “a medical setting, other than a hospital, that provides detoxification, risk reduction, outpatient treatment and care, residential treatment, or rehabilitation for substance use, pursuant to licensure or certification under State law.” Laboratories: defined by reference to CLIA, which means that all laboratories are subject to EKRA. EKRA does not apply to conduct that is prohibited by the AKS, and EKRA does not “occupy the field” in which any state law may be more stringent related to the same subject matter. Exceptions Similar to AKS statutory exceptions and regulatory safe harbors, EKRA provides a number of exceptions to its prohibitions, including exceptions for payments made under employment arrangements, personal services and management contracts, waivers or discounts of any coinsurance or copayment, and certain other exceptions that meet specified parameters (some of which are similar to and some of which are different from the parameters under the parallel AKS exceptions/safe harbors).  EKRA also has an exception for remuneration made pursuant to certain alternative payment models, a parallel of which is not present in AKS exceptions/safe harbors. Of note, the EKRA exception for payments made by an employer is much narrower than the AKS safe harbor for employment.  Specifically, while the AKS safe harbor permits any payments to an employee as long as there is a bona fide employment relationship, the EKRA exception requires that the payment not vary based on the number of individuals referred, tests or procedures performed, or amounts billed to or received from the health care benefit program from the individuals referred.  This means that employment arrangements that would not be prohibited under the AKS, such as those with sales and marketing personnel that include commission-based compensation, appear to be prohibited under EKRA and thus need to be carefully evaluated for compliance with this new law.  (The EKRA employment exception applies to payments made by an employer both to employees and independent contractors (rather than just to employees), even though EKRA has a separate exception for personal services and management contracts.) EKRA provides that the Attorney General, in consultation with the Secretary of Health and Human Services, may promulgate regulations to clarify the exceptions described in the statute. Recommendations for Complying with EKRA The Subject Entities need to: Ensure existing and future compensation arrangements fit within EKRA exceptions, particularly for employment compensation due to the narrower parameters of the EKRA employment exception as compared to the AKS employment safe harbor, and to the extent certain of such arrangements would not otherwise be analyzed for compliance with the AKS because they do not involve payment under any federal health care program. Update policies and procedures related to financial arrangements with referral sources and related to patient copay and coinsurance waivers to address compliance with EKRA. Further, entities that are not themselves a Subject Entity but that do business with a Subject Entity should evaluate their relationships with Subject Entities to ensure that such relationships are in compliance with EKRA, since the law applies to parties on both sides of the prohibited arrangement (i.e., the law prohibits both the payment or offering of referral/inducement fees, but also the soliciting or receiving of such remuneration).  Policies and procedures of non-Subject Entities who have such business relationships should also be updated to address EKRA compliance. We will continue to closely monitor the state of EKRA for guidance, revisions to the law and enforcement. Further, it is important to also understand that several states, such as Florida, Utah and California, have passed their own state level “patient brokering” laws which prohibit similar conduct and arrangements as addressed by EKRA.  These laws can also be implicated and we are monitoring their development as well.   Summer Associate Monica Delgado provided substantial assistance researching and drafting this blog post.

Any casual reader of healthcare news in recent years has taken note of the upheaval and financial uncertainty facing healthcare providers. Take for example a recent Bloomberg story detailing the closure of Hahnemann University Hospital in Philadelphia – “Philadelphia Hospital Collapse Highlights Healthcare ‘Anarchy’”. Anarchy or not, closures, consolidations, and financial restructuring are all too common for healthcare providers across the care continuum. To get a better sense of how financial restructuring is impacting healthcare providers and what options a provider facing a restructuring may have, Kristen Barlow, a Dorsey Health Strategies consultant, recently spoke to Annette Jarvis, a Partner with Dorsey’s Finance & Restructuring Group. Annette is a national expert in insolvency and one of the nation’s leading bankruptcy and restructuring lawyers. Kristen: Annette, are there particular segments of the healthcare industry that you think are especially vulnerable to financial restructuring – and if so, why? Annette: While all healthcare providers face financial challenges, some providers face particular challenges. For example, hospitals in rural areas have lower profit margins and may serve more uninsured patients than their urban counterparts. These rural hospitals are more at risk for closure – the Government Accountability Office recently reported that in the five years through 2017, 64 rural hospitals closed compared to 49 hospitals located in urban areas. Another segment of the healthcare industry particularly vulnerable to financial restructuring is post-acute and long-term care providers. Recent years have seen the bankruptcies of a number of large skilled nursing facility providers and many long-term acute care hospitals. Expensive overhead, reductions in Medicare reimbursement rates, and pressure to invest in care quality improvements all help create an environment that puts post-acute and long-term care providers at particular risk for financial restructuring. Annette: Kristen, from your perspective, how have you seen providers change and adapt their strategic plans to respond to these financial pressures? Kristen: Annette, providers are absolutely trying to change and adapt their strategic plans to succeed in a more financially constrained environment. One strategic response providers may pursue is to find financial security through increased scale. The rise of M&A activity for healthcare providers is well documented – a recent Commonwealth Fund report found that the vast majority of provider markets (~90%) are either highly concentrated or super concentrated. Providers may find that consolidation permits them to gain negotiating leverage with insurers and realize efficiencies through economies of scale – all considerations that make consolidation an attractive strategy in the face of a financially worrisome outlook. Kristen: Annette, consolidation is just one strategic response providers may have to financial pressures – what other strategies have you seen providers pursue? Annette: Other strategies I have seen implemented include the reduction of services in rural hospitals or the roll up of certain services into larger hospital systems.  This can occur through distressed acquisitions in or out of receiverships or bankruptcies or through less traditional combinations allowing sharing of services and patient care. Kristen: Annette, how would you advise a company that may be worried about their financial outlook to think about their options? Annette: Providers may want to remember that hospitals and other facilities are, by their nature, capital intensive. Often, by deferring capital investments (and unless their loan documents have covenants that are tripped by early substandard performance), the company can put off facing financial problems by deferring capital investments until a cash crisis hits.  Then the options for saving the business are more limited.  Facing financial problems early and getting professional help are essential for restructuring. Kristen: Annette, are there common mistakes that companies facing a financial restructuring should avoid? Annette: Facing financial problems early means providers must often come to terms with a scary and uncertain future. The most common mistake I see is avoiding facing problems, including changes that are necessary for long term financial viability, as soon as they arise. Early intervention is important for maximizing all potential solutions. By working with counsel and financial advisors experienced in restructuring, the company may be able to take care of a number of problematic issues outside of bankruptcy. The company will quite frankly be better off for approaching financial issues early with a proactive mindset and the appropriate legal and financial advice.   If you would like additional information on how Dorsey can assist healthcare organizations facing financial restructuring, please contact the authors directly at jarvis.annette@dorsey.com or barlow.kristen@dorsey.com or your regular attorney at Dorsey & Whitney.  

In a much anticipated decision, a federal judge ruled this week that the Trump Administration’s rule requiring drug manufacturers to list drug prices in television advertisements exceeds the agency’s authority. Back in May 2018, the Trump administration spoke on drug pricing and published its “Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs”. One of the specific strategies outlined in the President’s speech at the time included requiring drug manufacturers to state the drug list price in television advertisements (read our previous article on this topic here). Since the President’s speech in 2018, the U.S. Department of Health and Human Services (“HHS”) published a final rule that required drug manufacturers to disclose, in any television advertisement, the list price of a thirty day supply (or a typical course of treatment) of prescription drugs and biological products (excluding prescription drugs or biological products that have a list price of less than $35 per month for a thirty day supply or typical course of treatment). See 84 Fed. Reg. 20,732 (May 10, 2019) (“Final Rule”). Commenters to the Final Rule raised concern that the proposal was “beyond the authority of CMS to promulgate these regulations under a reasonable interpretation of sections 1102 and 1871 of the Social Security Act.” 84 Fed. Reg. 20,735-36 (May 10, 2019). HHS stated that it disagreed with the commenters because these two provisions “confer broad discretion upon the Secretary to determine the regulations that are necessary to the efficient administration of the functions with which he or she is charged under the Social Security Act (in the case of section 1102), and the administration of Medicare (in the case of section 1871”. Shortly thereafter, a lawsuit was brought by three pharmaceutical companies and a marketing association. In the lawsuit, the industry not only opposed CMS’ authority to promulgate the Final Rule, but also argued that it violated the First Amendment, as the disclosure of the list price was compelled speech that did not pass the intermediate scrutiny standard outlined in various U.S. Supreme Court Cases. See Merck & Co, Inc v. United States Department of Health and Human Services, Case No. 19-cv-01738 (AMP) (U.S. Dist. Columbia, July 8, 2019) (available here). In its decision published on July 8, 2019, U.S. District Judge Amit Mehta ruled that the Final Rule exceeds the rulemaking authority Congress granted HHS under the Social Security Act. Id. at 12. The Court found that “the basic power that Congress gave to the Secretary was to establish the rules and regulations for ‘running’ or ‘managing’ the federal public health insurance programs through CMS [, but that] HHS seeks to do more than that here. It has adopted a rule that regulates the conduct of market actors that are not direct participants in the Medicare or Medicaid program.” Id. at 13. Given that the Court found HHS’ rulemaking authority was exceeded, it did not decide the Plaintiff’s First Amendment challenge. Id. at 2. The New York Times reported that Caitlin Oakley, a spokeswomen for HHS said that “the administration was disappointed and consulting with the Justice Department on what to do next.” Katie Thomas and Katie Rogers, Judge Blocks Trump Rule Requiring Drug Companies to List Prices in TV Ads, N.Y. Times, July 8, 2019, available at https://www.nytimes.com/2019/07/08/health/drug-prices-tv-ads-trump.html. Given the Trump Administration’s continued focus and action on drug pricing, including news last week that the Administration was preparing an executive order that would declare a “favored nations clause” for drug prices, it is safe to expect many more legal challenges and appeals with respect to these issues in the near future, although the long-term impact to the industry is still questionable. Stephanie Armour, Trump Plans Order to Tie Drug Prices to Other Nations’ Cost, Wall St. J., July 5, 2019, available at https://www.wsj.com/articles/trump-plans-order-to-tie-drug-prices-to-other-nations-costs-11562348629.

On May 22, 2019, Minnesota Governor Tim Walz signed a significant new assisted living licensure bill into law. Previously in Minnesota, assisted living facilities were required to register with the Minnesota Department of Health (the “Department”) but were not subject to facility licensure. The new law requires assisted living facilities to be licensed, with special licensing requirements for assisted living facilities with dementia care. The new law also provides broader consumer protections to the residents of assisted living facilities. The licensing requirements go into effect on August 1, 2021. Some of the consumer protections go into effect on August 1, 2019 and others go into effect on January 1, 2020. Below is a highlight of some of the requirements from the new law. I.    Licensing Requirements       A.   Assisted Living Facilities Under the new law, assisted living facilities must be licensed by August 1, 2021 and must pay a licensing fee of $2000 plus $75 per resident for initial license application and each annual renewal, subject to potential adjustments of up to 10% based on the proportion of residents receiving certain home and community-based waiver services in the prior year. In addition to providing information regarding the operations of the facility, in order to be granted a license, managerial officials and owners of assisted living facilities must successfully undergo a background study. New applicants must first apply for a provisional license that lasts one year. During that time, the Department will complete a survey of the facility. If the facility is in substantial compliance with the survey requirements, then the Department will issue a license to the facility. The license must be renewed every year. In addition to the requirements under the old law to be registered as an assisted living facility, the new minimum requirements for assisted living facilities include: Distributing to residents the assisted living bill of rights Using person-centered planning and service delivery Giving residents the ability to furnish and decorate their unit Permitting residents access to food at any time, with meals and snacks meeting certain minimum nutritional requirements Giving residents the right to choose their visitors and the times of visits Giving residents the right to choose their roommate if sharing a unit Giving residents the right to have and use a lockable door to the resident’s unit Some of these and other requirements may be restricted in certain circumstances if appropriate for the particular resident and documented in their service plan. Assisted living facilities must at least have a temporary service plan for each resident in place prior to a resident moving in, must assess and implement a service plan within fourteen days of beginning to provide services to a resident, and must regularly reassess and revise the service plan thereafter. Assisted living facilities must also have assisted living contracts in place with residents that meet certain requirements, must retain records for each resident who is receiving services, and must provide orientation and training to all staff on the licensing requirements and regulations. Both licensed and unlicensed staff are required to meet certain minimum requirements, and the assisted living facilities must ensure that minimum supervision and availability requirements are met. If an assisted living facility is offering medication management services or treatment and therapy management services, additional requirements apply. These are just highlights of some of the requirements, of which there are many specified in the new law.       B.   Assisted Living Facilities with Dementia Care All assisted living facilities with dementia care must be licensed by August 1, 2021. The licensing fee for an assisted living facility with dementia care is $3000 plus $100 per resident for initial license application and each annual renewal, subject to potential adjustments of up to 10% based on the proportion of residents receiving certain home and community-based waiver services in the prior year. Assisted living facilities with dementia care must comply with the previously mentioned requirements of assisted living facilities in addition to other requirements. Each facility must demonstrate that it has the ability to provide services to residents with dementia either by showing the facility has experience managing residents with dementia or showing its compliance history in operating a care facility that is licensed or registered under federal or state law. If the facility does not have the necessary experience, they must employ a consultant with expertise in providing care for residents with dementia for the first six months of operation. The director of an assisted living facility with dementia care must complete at least ten hours of continuing education per year related to the care of individuals with dementia. Additionally, special requirements related to staffing, training, policies, and resident services must all be met for assisted living facilities with dementia care. II.   Consumer Protections The new assisted living law in Minnesota offers broad consumer protections to the residents of assisted living facilities. Beginning on August 1, 2021, all residents must receive a copy of the assisted living bill of rights. These rights include a right to: Appropriate care and services Refuse care and services Participate in care and service planning Courteous treatment Freedom from maltreatment Individual autonomy Confidentiality of records Furnish and decorate Choose roommate Access food Access counsel and advocacy services The new law allows residents or their representatives to place an electronic monitoring device in a resident’s unit. Residents must notify the facility and receive the consent of their roommate (if they have one) before placing an electronic monitoring device. However, a resident may place an electronic monitoring device without notifying the facility for up to fourteen days. This provision goes into effect on January 1, 2020.   Additionally, the new law prohibits assisted living facilities from retaliating against a resident or an employee for filing a complaint, making an inquiry, or asserting a right. The retaliation provision goes into effect on August 1, 2019. The new assisted living facility law marks a new era of regulation for assisted living facilities in Minnesota, bound to have significant effects on entities and individuals operating assisted living facilities as well as residents living in them. If you have further questions about his new law, please contact the authors or your regular Dorsey attorney. The text of the new assisted living licensure law can be found on the website of the Minnesota Office of the Revisor of Statutes here.   Summer Associate Laura Kvasnicka provided substantial assistance researching and drafting this blog post.  

The United States Department of Justice this month released a revised and consolidated set of guidelines for determining cooperation credit for organizations facing exposure under the False Claims Act.  The consolidated guidelines identify the main factors that the DOJ will consider when assessing the maximum “credit” parties will get for (1) voluntarily self-disclosing misconduct; (2) proactively cooperating with FCA investigations; and (3) taking effective remedial measures. The guidelines define “credit” as, typically, “reducing the penalties or damages multiple sought by the Department.”  The guidance aims to consolidate and add uniformity to how these issues will be addressed—something that historically could vary considerably.  And while much of the guidance is common knowledge among experienced FCA practitioners, it is nonetheless DOJ’s most concise statement of how cooperation credit plays out in the specific context of the False Claims Act. 1. Voluntary Self Disclosure DOJ continues to focus on the importance of voluntary disclosures.  Companies and individuals that discover false claims and make a “proactive, timely, and voluntary self-disclosure” to the DOJ will receive credit. Such parties will also qualify for credit for disclosing “additional misconduct going beyond the scope of the known concerns” uncovered during an internal investigation. Partial credit is available to defendants who “meaningfully assist” the DOJ’s investigations after failing to self-disclose the underlying conduct. And the DOJ will not give credit to any entity or individual that “conceals involvement in the misconduct by members of senior management or the board of directors, or to an entity or individual that otherwise demonstrates a lack of good faith to the government during the course of its investigation.” Voluntary disclosure, the DOJ guidelines caution, does not include disclosure of information required by law or in responding to a subpoena, investigative demand, or other compulsory process.  Nor does it include the disclosure of information under an imminent threat of discovery or investigation. 2. Proactive Cooperation Individuals and entities under investigation can also receive credit for taking steps to cooperate with the DOJ. Steps that would qualify for credit include: identifying individuals substantially involved in or responsible for the misconduct; disclosing relevant facts and identifying opportunities for the DOJ to obtain evidence not in the possession of the entity or individual or not otherwise known to the government; preserving, collecting, and disclosing relevant documents and information beyond existing business practices or legal requirements; identifying individuals who are aware of relevant information or conduct, including an entity’s operations, policies, and procedures; making company employees with relevant information available for meetings, interviews, examinations, or depositions; disclosing relevant facts gathered during the entity’s independent investigation (not to include information subject to attorney-client privilege or work product protection), including attribution of facts to specific sources rather than a general narrative of facts, and providing timely updates on the organization’s internal investigation into the government’s concerns, including rolling disclosures of relevant information; providing facts relevant to potential misconduct by third-parties; providing technological expertise and assistance to the government in their review of relevant information; admitting liability or accepting responsibility for the wrongdoing or relevant conduct; and assisting in the determination or recovery of the losses caused by the organization’s misconduct. DOJ will determine the value of any self-disclosure and cooperation by considering the following factors: the timeliness and voluntariness of the assistance; the trustfulness, completeness and reliability of information provided; the nature and extent of the assistance; and the significance and usefulness of the cooperation. 3. Effective Remedial Measures Remedial actions taken by an entity in response to an FCA violation that would receive credit include: analyzing the root cause of the underlying misconduct and how to address it; implementing or improving an effective compliance program designed to ensure the misconduct does not reoccur; disciplining or replacing those responsible for the misconduct (including supervisors) either through direct participation or failure in oversight; and any additional steps that demonstrate that the entity recognizes how serious the misconduct is, accepts responsibility for it, and will implement preventative measures to make sure it doesn’t reoccur. Although the guidelines do not significantly alter existing DOJ policy, they provide a clearer and concise set of guidelines to the AUSAs and Civil Frauds trial attorneys who will evaluate an organization’s cooperation and self-disclosure.  For organizations seeking to understand their own obligations and potential options, understanding the Government’s playbook has never been more important.  

For years, CMS has informally applied restrictions for hospitals which share space, equipment, staff or services in the same physical location (i.e., “co-locate”) with other hospitals or health care entities.  Although these sub-regulatory interpretations by CMS were not formal guidance, the penalties were so severe that many hospitals unwound the co-location or shared services arrangements they had in place with physician groups or other health care providers.  The American Hospital Association and others have urged CMS to develop and publish its co-location policy in order to provide clarity for hospitals- in particular out of concern for increasing access to care and improving care coordination in rural parts of the country. On May 3, 2019, CMS finally issued draft guidance to State Survey Agency Directors to use when evaluating hospital co-location arrangements.  CMS is seeking comments from stakeholders on the draft guidance by no later than July 2, 2019. In the draft guidance, CMS emphasizes that co-location of public areas and pathways is permitted as long as each entity demonstrates separate, independent compliance with the Medicare Conditions of Participation.  For a hospital, this means that the hospital must have distinct spaces (including clinical spaces) and maintain control over those spaces at all times.  The parties to the co-location arrangement can share public lobbies, waiting rooms, reception areas, restrooms, staff lounges, elevators, main entrances to a building, and main corridors through non-clinical spaces.  CMS has, however, outlined restrictions regarding the sharing of physical space, contractual arrangements with entities that are co-located with a hospital, the sharing of staffing and staff contracts, and the provision of emergency services in spaces that are co-located with hospitals. We are monitoring the developments of this draft guidance closely and will provide updates as they are published from CMS. If you have any questions about how the draft co-location guidance could impact your organization, please contact the author or your regular Dorsey & Whitney attorney.  

On April 22, 2019, the Centers for Medicare and Medicaid Services (CMS) announced two sweeping new payment innovation models under the Primary Cares Initiatives. The models will seek to incentivize primary care and other providers to take on greater responsibility and risk for the lives of covered beneficiaries. Both new models are scheduled to be effective for a first performance year of 2020. Read on for key details of the models, projected impact on the Medicare patient population, and our key takeaways for providers. Primary Care First Model provides simplified payments with performance-based adjustments The first model is Primary Care First (PCF), and include two options: PCF – General. Participating practices will assume financial risk for aligned beneficiaries and, in exchange, the practices will have reduced administrative burdens and will be eligible for performance-based payments or downside risk. PCF - High Needs Populations. Participating practices will assume financial responsibility for high-need, seriously ill beneficiaries who lack a primary care provider or effective care coordination, and, in exchange, the practices will have higher payment amounts as well as eligibility for performance-based payments or downside risk. PCF – General will provide payment to practices through a simplified payment structure that will provide a population-based payment along with a flat primary care visit fee and a performance-based adjustment providing an upside of up to 50% of revenue as well as a small downside (10% of revenue) incentive to reduce costs and improve quality. The performance-based adjustment will be assessed and paid on a quarterly basis. PCF – High Needs Population will set higher payment amounts to reflect the high-need, high-risk nature of the population as well as a yet-to-be-specified increase or decrease in payment based on quality measures. PCF is open to a range of eligible applicants, including primary care practitioners certified in internal medicine, general medicine, geriatric medicine, family medicine, and hospice and palliative care medicine. Applications for both PCF options will open soon- in Spring 2019, and the model will launch in 26 regions in the U.S. beginning in 2020 and will continue for five years. Direct Contracting Model permits providers to take on greater shared savings/shared losses up to full risk The second model is Direct Contracting (DC), and includes three options: DC – Professional. Providers will bear risk for 50% of shared savings/shared losses on the total cost of care (all Part A and B services) for aligned beneficiaries. Participants will receive Primary Care Capitation, a capitated, risk-adjusted monthly payment for enhanced primary care services equal to seven percent of the total cost of care for enhanced primary care services. DC – Global. Participating entities will bear risk for 100% of shared savings/shared losses on the total cost of care (all Part A and B services) for aligned beneficiaries. Participants may receive Primary Care Capitation as described above or may choose to receive Total Care Capitation, a capitated, risk-adjusted monthly payment for all services provided by participants and preferred providers with whom the participant has an agreement. DC – Geographic. Participating entities will bear risk for 100% of shared savings/shared losses on the total cost of care (all Part A and B services) for aligned beneficiaries in a target region. Participants will be selected as part of a competitive application process and commit to providing CMS a specified discount amount off of the total cost of care for the defined target region. This option will offer a Total Care Capitation payment as well, where CMS will continue to pay claims for services furnished by providers outside of the participants, including outside the target regions. Alternatively, participants can assume full financial risk while having CMS continue to make fee-for-service claims payments to all providers in the target region. The DC model is open to a broad range of entities, including health plans, health care technology companies, ACOs, and others operating under a common governance structure. The DC model will start in January 2020 with an initial alignment year for organizations that want to align beneficiaries to meet the minimum beneficiary requirements. Performance periods will begin in 2021 and continue for five years. CMS has issued a request for information (RFI seeking public comment on the DC-Geographic model, but nonetheless plans to launch the model in 2021. CMS anticipates shifting a quarter of beneficiaries out of fee-for-service (FFS) under the new models CMS anticipates that together, PCF and DC will: Shift over 25% of all Medicare FFS beneficiaries out of FFS and into value-based care arrangements; Offer new participation and payment options and opportunities for 25% of primary care practitioners and other providers; and Create new coordinated care opportunities for a large portion of the 11-12 million dual eligible beneficiaries in the U.S., specifically those in Medicaid managed care and Medicare FFS. Key Takeaways As we wait for additional details from CMS about the structure and payment mechanisms under both PCF and DC models, the following are a few key takeaways to keep in mind: CMS is committed to voluntary risk-based payment models. After experimenting with mandatory risk-based payment under the Comprehensive Care for Joint Replacement (CJR) bundled payment model and the proposed, but ultimately cancelled, Episode Payment Models (EPMs) for cardiac and orthopedic bundles, CMS has moved away (for now) from mandatory risk for providers. However, it appears that voluntary risk-based programs are here to stay. As these voluntary payment models are introduced, participants have opportunities to receive substantial gains (the full risk models of DC – Global and DC-Geographic, for example) if they have the appetite to bear the concurrent substantial downside risk. CMS’s pace indicates more reform likely to come. The Primary Cares Initiative announcement comes on the heels of the Pathways to Success model, an overhaul of the ACO program which was finalized in December 2018, and the BPCI Advanced bundled payment program, which launched in October 2018. In short, CMS is evaluating its existing models, creating new models, and the pace of change is faster than it has been since the slate of mandatory bundled payment programs were announced in 2016 through 2017. Going forward, the industry should expect this pace of new and revised payment models to continue, not lessen. In fact, Adam Boehler, the director of Centers for Medicare and Medicaid Innovation (CMMI), the part of Medicare that develops and administers payment reform programs, gave a speech in early April 2019 that raised the prospect of a new bundled payment program focused on post-acute care providers, which would be a first of its kind and one that those in the post-acute industry are anxiously awaiting. Physicians are increasingly the “owners” of the transition to value. For many, there’s long been a debate about who should “own” the transition away from fee-for-service toward value-based care. While CMS certainly has targeted acute-care providers for this ownership under ACOs and bundled payment models, physicians have of course been a crucial participant in those programs. Notably, the Primary Care Initiatives place the physician front and center of owning responsibility for the cost and quality of their patients’ care – an acknowledgement from CMS that primary care providers and close patient interaction are linchpins for sustained success in transitioning toward better outcomes for the health of a population. The focus on chronic and serious illness highlights a persistent problem for Medicare in controlling spending. As the population ages, success in controlling spending overall may ultimately come down to targeted efforts to better support and manage the chronically and seriously ill patient populations. While just 17% of Medicare patients live with six or more chronic conditions, they account for half of all spending on Medicare beneficiaries with chronic disease. Moreover, a full quarter of all Medicare spending is spent on Medicare beneficiaries in their last year of life. Including hospice and palliative care physicians in the PCF model, and having an entire model option dedicated to the seriously ill patient population, are clear signs from Medicare that they want to focus on programs and models that may move the dial on this patient population whose health care is notoriously difficult to manage. To learn more about this model, or to discuss how it may impact your organization, please contact the authors directly at barlow.kristen@dorsey.com or smith.alissa@dorsey.com or your regular attorney at Dorsey &Whitney.

Today, the Federal Government announced enforcement actions against 60 defendants in eleven federal districts, including 31 doctors, seven pharmacists, eight nurse practitioners, and seven other licensed medical professional for allegedly prescribing and distribution opioids and other dangerous narcotics and for health care fraud schemes. (DOJ Press Release, April 17, 2019). The charges involve over 350,000 controlled substances prescriptions and over 32 million pills. The unsealed indictments against the defendants can be found here. The enforcement action was led by the Appalachian Regional Prescription Opioid (ARPO) Strike Force. The ARPO Strike Force was formed in December and includes a team of federal agents and prosecutors to combat the opioid epidemic in the worst hit area of the country. The Strike Force analyzed a variety of databases to identify suspicious prescribing activity; investigators then used confidential and undercover agents to document medical professionals’ prescribing and dispensing of opioids in exchange for sex and cash. Sari Horwitz & Scott Higham, Doctors in seven states charged with prescribing pain killers for cash, sex, Wall St. J. (Apr. 17, 2019, 1:36 PM), https://www.washingtonpost.com/world/national-security/doctors-in-five-states-charged-with-prescribing-pain-killers-for-cash-sex/2019/04/17/7670d20e-607e-11e9-9ff2-abc984dc9eec_story.html?utm_term=.7ae448f3b507. In one case, a doctor allegedly prescribed combinations of opioids and benzodiazepine, sometimes in exchange for sexual favors; in total, the doctor is alleged to have prescribed approximately 500,000 hydrocodone pills, 300,000 oxycodone pills, 1,500 fentanyl patches and more than 600,000 benzodiazepine pills. In another case, a pharmacist was charged with allegedly dispensing large amounts of opioids outside the usual scope of professional practice and for no legitimate medical purpose. A dentist was also charged for alleged conduct that included writing prescriptions for opioids that had no legitimate medical purpose, removing teeth unnecessarily, scheduling unnecessary follow-up appointments and incorrect billing practices. While there has been an intense focus through litigation across the country on the role of manufacturers and distributors in the opioid crisis, recent initiatives have focused on prescribers and dispensers. Since June 2018, over 650 individuals have been excluded from participation in Medicare, Medicaid and all other Federal health care programs for conduct related to opioid diversion and abuse. For law-abiding prescribers and dispensers, it may be easy to dismiss today’s headline news as “not applicable”. However, all prescribers and dispensers should take notice of the increased number of investigations against their fellow licensees. The increased scrutiny of providers’ opioid prescribing and dispensing across the country could mean that even innocent providers are caught up in an investigation. Federal and state resources are being devoted in record numbers to investigations of prescribers and dispensers. There are regional DEA and DOJ task forces in place, dedicated funding streams for U.S. Attorneys, focused attention by state Medicaid agencies and Medicaid Fraud Control Units, and enforcement actions by state Boards of Medicine and Pharmacy. Cases against prescribers and dispensers are more likely today than in the past to include both civil and criminal penalties related to opioid prescribing and dispensing. As evidenced by today’s announcement, the government has become sophisticated in the use of data mining to identify outliers who will be the next targets of government investigations. Outliers in the number and dosages of prescriptions, the numbers of pain patients, the combinations of drugs prescribed, and failure to check and report to state prescription drug monitoring programs or report significant loss or theft to the DEA, can all trigger an investigation. In order to reduce risk of becoming the target of an investigation, prescribers and dispensers of opioids should ensure that they stay abreast of all State specific guidelines and standards of care for prescribing and dispensing opioids; review CMS guidance on opioid prescribing; review CDC Guidelines for prescribing opioids for chronic pain; and utilize their state’s prescription drug monitoring programs. Prescribers and dispensers should also focus on appropriate recordkeeping and documentation and inventory counts to reduce theft and unexplained inventory shortages. Dispensers should also ensure they know and verify the prescribers of prescriptions and document how any red flags in opioid prescriptions are resolved.   If you have any questions about these topics, please contact the authors or your regular attorney at Dorsey & Whitney.

Last week, the Centers for Medicare and Medicaid Services (“CMS”) announced increased flexibility for Medicare Advantage health insurance plans to offer supplemental benefits (those benefits not covered under Medicare Parts A or B). Beginning in 2020, Medicare Advantage plans may offer chronically ill enrollees supplemental benefits that are not necessarily health-related but are reasonably expected to improve or maintain health or overall function. These changes are incorporated into the 2020 Medicare Advantage and Part D Rate Announcement and Final Call Letter. New Explanation of Previously Expanded Health-Related Supplemental Benefits Last year, CMS expanded what Medicare Advantage plans may cover as supplemental health care benefits. We previously addressed the expansion of health-related supplemental benefits here. The move redefined “primarily health related” supplemental benefits to include items or services with a primary purpose to “diagnose, prevent, or treat an illness or injury, compensate for physical impairments, act to ameliorate the functional/psychological impact of injuries or health conditions, or reduce avoidable emergency and healthcare utilization.” A supplemental benefit is not primarily health related if it is solely or primarily used for cosmetic, comfort, or general use purposes. This week, while responding to requests for clarification, CMS provided the following examples of supplemental benefits that would qualify as primarily health related: Compression garments as part of an over-the-counter benefit Cooking classes as part of a nutritional/dietary or health education benefit Fall prevention kits as part of home & bathroom safety devices Implantable hearing aids, such as middle ear implants as part of a hearing benefit CMS noted that such primarily health related supplemental benefits should be entered and briefly described in the plan benefit package. New Supplemental Benefits for the Chronically Ill The Bipartisan Budget Act of 2018 introduced new categories of supplemental benefits for the chronically ill. Special supplemental benefits for the chronically ill (“SSBCI”) include benefits that are not primarily health related and may be offered non-uniformly[1] to eligible enrollees. According to the new law, a chronically ill person: (1) has one or more comorbid and medically complex chronic conditions that is life threatening or significantly limits the overall health or function of the enrollee, (2) has a high risk of hospitalization or other adverse health outcomes, and (3) requires intensive care coordination.[2] For 2020, CMS will consider any enrollee with a condition identified as a chronic condition in section 20.1.2 of Chapter 16b of the Medicare Managed Care Manual to meet the statutory criterion (1) above, which would include approximately 73 percent of the Medicare Advantage population. Medicare Advantage plans must document their determinations that enrollees meet all three criterion above before providing SSBCI. In addition to being limited to chronically ill enrollees, SSBCI must “have a reasonable expectation of improving or maintaining the health or overall function of the enrollee as it relates to the chronic condition or illness.” CMS explained that SSBCI could be provided to enrollees with degenerative conditions whose health worsen over time, even though this may apparently contradict the requirement that SSBCI improve or maintain the health or function of individuals. The SSBCI need only improve or maintain the health or overall function of an enrollee while the enrollee is using said supplemental benefit. Permissible examples of SSBCI include: Meals furnished to the enrollee beyond a limited basis Transportation for non-medical needs such as grocery shopping Pest control Indoor air quality equipment and carpet shampooing to reduce irritants that may trigger asthma attacks Benefits to address social needs Capital or structural improvements, e.g., permanent ramps, and widening hallways or doorways Medicare Advantage plans must still incur a non-zero direct medical cost for supplemental benefits. CMS stated that, for SSBCI, such incurred cost should be a non-administrative cost even if it is not necessarily paid to a medical provider. For example, a plan may contract with a community-based organization such as a meal delivery service. For any questions about this increased flexibility, please your contact the authors or your regular attorney at Dorsey & Whitney.   [1] CMS is waiving uniformity requirements with respect to SSBCI, as authorized by Section 1852(a)(3)(D)(ii) of the Social Security Act. [2] Section 1852(a)(3)(D)(ii) of the Social Security Act.

The Centers for Medicare & Medicaid Services (CMS) is “actively working” on updates to regulations under the federal physician self-referral law (or “Stark Law”), according to CMS Administrator Seema Verma during a March 4, 2019 speech. Verma stated that the updated regulations will be issued later this year, and “will represent the most significant changes to the Stark law since its inception.” Verma explained in her remarks that the Stark Law, when enacted in 1989, made sense in a fee-for-service context, but as health care transitions to a value-based system where providers take on risk and payment is for outcomes rather than individual services, “we don’t have nearly as much need to interfere with who’s getting paid for what service.” According to Verma, CMS hopes that Stark Law regulatory changes “will help spur better care coordination and help support our work to remove barriers to innovation while continuing to provide appropriate safeguards for our programs.” Verma stated that the updated regulations will include “clarifying the regulatory definitions of volume or value, commercial reasonableness and fair market value; addressing issues such as lack of signature, incorrect dates or other areas of technical noncompliance; and updating the regulation to address a world in which there are cybersecurity and electronic health records requirements.” These Stark Law regulatory reforms are part of the “Regulatory Sprint to Coordinated Care” launched by the Department of Health and Human Services (HHS). Under this initiative, various HHS agencies have issued requests for information (RFIs) to solicit feedback from stakeholders on removing regulatory obstacles to care coordination. CMS published an RFI on June 25, 2018 soliciting comments regarding Stark Law reforms (as we described in our post here), which received 392 comments before the close of the comment period. We anticipate that CMS will summarize and respond to many of the comments that it received in preamble to the proposed Stark Law regulations to be issued later this year, as well as incorporate suggestions from stakeholders in the proposed regulations themselves. Also as part of the Regulatory Sprint, the HHS Office of Inspector General (OIG) published an RFI on August 27, 2018 soliciting comments on reforms to the anti-kickback statute and beneficiary inducements civil monetary penalty (as we described in our post here), which received 359 comments before the close of the comment period. Additionally, the HHS Office for Civil Rights (OCR) published an RFI on December 14, 2018 soliciting comments on reforms to the Health Insurance Portability and Accountability Act (HIPAA) privacy and security regulations, on which the comment period closed last month. The fourth and final area of focus of the Regulatory Sprint (according to an HHS press release) is 42 CFR Part 2, which relates to the confidentiality of substance use disorder patient records. An RFI under the Regulatory Sprint for this regulation has not been published by the Substance Abuse and Mental Health Services Administration (SAMHSA, which is the agency that administers this regulation). We will provide information about regulatory reform developments under these other areas of the Regulatory Sprint as they become available.

The U.S. Department of Health and Human Services Center for Medicare and Medicaid Innovation (“CMS Innovation Center”) issued a press release on February 14, 2019, announcing the Emergency Triage, Treat, and Transport Model (the “ET3”). The ET3 is a five-year payment model that will test two new Medicare ambulance supplier and provider payments for: Treatment “on-the-scene” or through telehealth; and Emergency transport to alternative destinations such as a primary care office or urgent care clinic. Currently, Medicare only authorizes payment for emergency ambulance services when they transport patients to hospitals, critical access hospitals, skilled nursing facilities, and dialysis centers. As such, ambulance suppliers and providers often bring Medicare beneficiaries to a hospital emergency department, even if there is a more convenient and appropriate setting available. There are many instances where treatment could be provided either on-the-scene or at a lower-acuity destination, but those options are not payable under Medicare and thus largely ignored. Both new payment options offer the opportunity for ambulance suppliers and providers to deliver care to Medicare beneficiaries in ways not typically considered in the past. Ambulance suppliers and providers can expand their partnerships beyond hospitals to include primary care doctors’ offices, urgent care clinics, or any number of other lower-acuity destinations. Additionally, ambulance suppliers and providers can partner with qualified health care practitioners to provide telehealth services in order to increase their participation in the growing digital health industry. The goal is to help reduce unnecessary emergency department visits and improve the efficiency and quality of care. The ET3 summary provides three means by which the ET3 will “reduce expenditures and preserve or enhance quality of care": Providing person-centered care, such that beneficiaries receive the appropriate level of care delivered safely at the right time and place while having greater control of their health care through the availability of more options; Encouraging appropriate utilization of services to meet health care needs effectively; and Increasing efficiency in the EMS system to more readily respond to, and focus on, high-acuity cases, such as heart attacks and strokes. As stated in the press release, ET3 is another step in the larger effort towards a value-based health care system that aims to deliver the right care, from the right provider, at the right price. The CMS Innovation Center anticipates that payments made through the ET3 will begin January 1, 2020, and end December 31, 2024. Moving forward, the CMS Innovation Center will begin accepting applications from Medicare-enrolled ambulance suppliers and providers in summer 2019. Once participants are selected to test the ET3, the CMS Innovation Center will begin contracting with local governments or other entities that operate 911 dispatches in locations where participating ambulance suppliers and providers serve. These contracts will help develop medical triage lines that will screen 911 callers before ambulance launch. If you would like to explore these opportunities further, please contact anyone in Dorsey’s Healthcare practice or your regular Dorsey attorney.

This month the Department of Justice rough a "first of its kind" action against two pharmacies, their owner, and three pharmacists for allegedly dispensing and billing Medicare for prescriptions in violation of both the Controlled Substances Act and the False Claims Act. For more on information on this, visit our FCA Now blog, linked here: https://dorseyfca.com/doj-levels-false-claims-act-at-pharmacies-to-combat-opioid-crisis/

The Office of Inspector General of the Department of Health and Human Services (“OIG”) released a proposed rule to eliminate safe harbor protection under the anti-kickback statute for drug price reductions that pharmaceutical manufacturers pay to Medicare and Medicaid plan sponsors and their pharmacy benefit managers (“PBMs”). The OIG proposed replacing the current safe harbor protection for drug price discounts and rebates with a new safe harbor to protect only those drug price reductions that are set in advance and are applied fully to the price of the product charged to the Medicare or Medicaid beneficiary at the point of sale. In addition, the OIG proposed a new safe harbor to protect compensation from pharmaceutical manufacturers to PBMs for services provided to the manufacturer, but only if those payments are fixed, fair market value payments not tied to volume or value, and the PBM discloses such payments to its health plan customers. The OIG’s proposals could have a significant impact on the drug discount and rebate arrangements that are commonly in place between manufacturers and Medicare Part D plans/Medicaid managed care organizations (and PBMs acting on behalf of these plans). The OIG’s proposals would also impact Medicare and Medicaid beneficiaries who would be entitled to receive any such discounts directly at the point of sale. The proposed rule release can be found here and is expected to be published in the Federal Register on February 6. The proposed effective date of the new rules is January 1, 2020, with an earlier effective date of 60 days after the final rule is published, for the new point of sale safe harbor.           I.        Discount Safe Harbor – Changes to Focus on Point-of-Sale Reductions in Drug Prices   The federal anti-kickback statute (Social Security Act § 1128B(b)) makes it a criminal offense for anyone knowingly and willfully to pay, solicit, or receive anything of value to induce referrals of items or services that are reimbursable under any federal health care program. Violation of the statute is a felony, and can carry civil fines, imprisonment, exclusion from federal health care programs, and be the basis for liability under the False Claims Act. An existing safe harbor protects from anti-kickback statute liability discounts and rebates on drug prices that pharmaceutical manufacturers pay to health plans or their PBMs. The OIG’s proposal would revise the discount safe harbor to exclude from protection any reduction in price or other compensation in any form paid from a pharmaceutical manufacturer to a Medicare Part D or Medicaid managed care organization or their PBM in connection with the sale or purchase of a prescription drug. The proposal reflects OIG’s concern that the current manner in which drug price discounts and rebates are structured does not result in lower drug costs to federal programs and federal program beneficiaries, and in fact may be a cause of rising drug costs, and may be contrary to the purposes of the anti-kickback statute. In its place, the OIG proposes to add a new safe harbor focused narrowly on point-of-sale reductions in prescription drug prices. That safe harbor would protect reductions in the price charged by a manufacturer for drug products that are payable by a Medicare Part D or Medicaid managed care organization or their PBM, but only if that price reduction meets three conditions (the “Point of Sale Safe Harbor”): First, the reduced price must be set in advance. OIG intends this to mean that the terms of the price reduction are fixed and disclosed in writing to the plan sponsor by the time of the initial purchase. Second, the sale may not involve a rebate unless the full value of the price reduction is provided to the dispensing pharmacy through chargebacks. This means that when a pharmacy dispenses a drug to a beneficiary, the total payment to the pharmacy (including the beneficiary co-payment, payment from the health plan, and any chargeback payment from the manufacturer) must be no less than the drug price agreed between the manufacturer and the health plan sponsor or their PBM. Lastly, the reduction in price must be completely applied to the price charged to the beneficiary at the time of sale. This means that the drug price to which the beneficiary’s cost-sharing obligations apply at the point of sale must be the same price (taking into account all discounts) that the manufacturer charges to the plan sponsor or their PBM. The OIG also noted that the discount safe harbor would continue to not apply if a manufacturer offered a price reduction to payors other than Medicare and Medicaid payors (i.e., situations in which parties “carve out” referrals of federal health care program beneficiaries or business from otherwise “questionable” financial arrangements). The OIG is especially concerned with these “carve out” arrangements if the offer of a discount on products would serve as an inducement for the purchase of products that are reimbursable by federal healthcare programs (e.g., offering a discount to a private health plan that is conditioned, even implicitly, on a product’s favorable formulary placement in the health payor’s Part D plans).            II.        New PBM Service Fee Safe Harbor   In addition, the OIG proposed a new safe harbor to protect compensation from pharmaceutical manufacturers to PBMs for services rendered to the manufacturers that relate to PBMs’ arrangements to provide PBM services to health plans (the “PBM Service Fee Safe Harbor”). The OIG did propose three specific conditions that must be met in order for compensation to be protected under the PBM Services Fee Safe Harbor. The first proposed condition of the safe harbor would require the PBM and the pharmaceutical manufacturer to have a written agreement that covers all of the services the PBM provides to the manufacturer in connection with the PBM’s arrangements with health plans for the term of the agreement, and specifies each of the services to be provided by the PBM and the compensation for such services. Notably, the OIG declined to propose a specific definition for PBM services but did provide a list of examples of services that it generally considers to be PBM services, including: contracting with a network of pharmacies; establishing payment levels for network pharmacies; negotiating rebate arrangements; developing and managing formularies, preferred drug lists, and prior authorization programs; performing drug utilization review; and operating disease management programs. The second proposed condition requires that compensation paid to the PBM must: (i) be consistent with fair market value in an arm’s-length transaction; (ii) be a fixed payment, not based on a percentage of sales; and (iii) not be determined in a manner that takes into account the volume or value of any referrals or business otherwise generated between the parties, or between the manufacturer and the PBM’s health plans, for which payment may be made in whole or in part under Medicare, Medicaid, or other Federal health care programs. Finally, the Department proposes that the PBM disclose in writing to each health plan with which it contracts at least annually, and to the Secretary upon request, the services it rendered to each pharmaceutical manufacturer that are related to the PBM’s arrangements with that health plan and the associated costs for such services. Other than the proposed revisions to the discount safe harbor, and the new PBM Service Fee Safe Harbor, the OIG did not propose to modify any other existing safe harbors which PBMs may use to protect payments from manufacturers. The OIG specifically noted the possibility that certain types of remuneration that manufacturers might pay to PBMs could continue to be protected under another existing safe harbor. For example, PBMs could presumably continue to rely on the Group Purchasing Organization (GPO) safe harbor to protect certain administrative fees paid by drug manufacturers to PBMs for GPO services, even if those fees are based on the total prescription volumes of health plans on behalf of which the PBM contracts with the manufacturers.          III.        Conclusion   The OIG proposal reflects a clear intent to substantially alter many of the current drug discount and services compensation practices among pharmaceutical manufacturers and Part D/Medicaid MCO payers and their PBMs. The proposal also reflects the OIG’s skepticism that current drug discount and compensation practices among manufacturers and PBMs are sufficiently transparent to health plans to ensure that all appropriate cost reductions and value is passed through to health plans and reflected in lower health plans costs and lower premiums for beneficiaries. The proposal to exclude drug price reductions to Part D and Medicaid MCO health plan sponsors and PBMs is proposed to be effective on January 1, 2020. The OIG is also proposing that the new Point-of-Sale Safe Harbor will take effect in a shorter time frame of sixty (60) days after the rule is finalized. Comments to the proposed rule may be submitted 60 days after publication in the Federal Register. There are a number of steps that parties to the type of arrangements covered by the proposed rule should take, including reviewing their current discount and rebate agreements to determine whether there will need to be amendments to these contracts in order to comply with the proposed rule, if it is finalized. Parties will also need to evaluate what compliance measures are needed in order to operationalize the changes in these arrangements to ensure compliance with the new safe harbor requirements. Finally, in light of the attention OIG is giving to these type of arrangements, now would be an opportune time to review arrangements for compliance with the current safe harbor restrictions, such as the carve out restriction described above. If you have further questions about this proposed rule, please contact the authors or any other health care transaction and regulatory attorneys at Dorsey & Whitney.

Today, the Centers for Medicare and Medicaid Services (“CMS”) released additional tips regarding submitting Open Payments data.[1] A quick refresher: Submitting data through CMS’s application, Open Payments, is the means to fulfill the Sunshine Act, a federal regulatory requirement that applicable manufacturers, group purchasing organizations (“GPOs”), and health care providers disclose: a) certain transfers of value given to physicians and teaching hospitals, as well as b) any ownership or investment interest physicians, or their immediate family members, may have in their company. As previous Open Payments reporting entities know all too well, submitting data in the Open Payments system requires careful attention to detail, and can often be a time-consuming, painstaking process. CMS’s notice included a new document, “Open Payments Submissions Suggestions,” highlighting, among other things, two key issues for reporting entities to be aware of heading into this year’s submission period: Accuracy is important. While users may submit data in the appropriate field and format, if the content of the submission contains errors – even minor errors such as stray punctuation – the content of the submission will not be valid. Takeaway for reporting entities: Carefully reviewing and validating submissions, and ensuring enough time during the process to do so, is key to a smooth and stress-free Open Payments submission process. Note that even extra spaces at the tail end of a field will cause your submission to error out – one must scrutinize that closely. Submit early in the reporting period. While reporting entities have until March 31, 2019 to report data, CMS reminded users that the system becomes busy towards the end of the reporting period – we have, in fact, seen the system hang as the submission deadline nears. Should reporting entities uncover problems, they may find themselves scrambling to meet the reporting deadline. Takeaway for reporting entities: Allotting enough time to review and validate data well in advance of the March 31, 2019 deadline ensures that any uncovered issues can be addressed without becoming major obstacles to meeting the reporting deadline. We recommend that you complete your data formatting and input no later than six weeks prior to the deadline (roughly mid-Feb.) to allow time for initial submission, clean-up of errors, and correction of those errors for final submission. We hope this notice was helpful, and we are happy to answer further questions.  Dorsey Health Strategies has extensive experience in preparing and submitting Open Payments submissions on behalf of our clients, and we’d be pleased to help your organization with this year’s submission. If you’d like to learn more about how we can support you, please contact us at 612.492.6418. [1] Note that the Open Payments submission window is fast approaching, opening on February 1, 2019.

The Justice Department announced in a recent press release that it obtained more than $2.8 billion in settlements and judgments from cases involving fraud and false claims against the government. For more information, visit our FCA Now Blog: https://dorseyfca.com/for-fy2018-justice-department-touts-nearly-3-billion-in-false-claims-act-recoveries-mostly-from-qui-tams-and-alleged-healthcare-frauds/  

On December 20, 2018, CMS announced the first part of its two-part advance notice to implement changes to the Medicare Advantage (“MA”) risk adjustment methodology for 2020 (the “Advance Notice”), which can be found here. A key element of the CMS proposal in the Advance Notice is to incorporate into the risk adjustment methodology the number of conditions an individual beneficiary may have, making an adjustment as the number increases. This proposal is intended to meet a risk adjustment requirement added by the 21st Century Cures Act (42 U.S.C. 1395w-23(a)(1)(I)(i)(I)). As a matter of background, in order to mitigate against the risk of only the healthiest Medicare beneficiaries being targeted to participate in the MA program, federal payments to MA plans are adjusted to reflect how sick their members are. The sicker a member is, the higher the payment to the member’s MA plan is supposed to be. Under the current risk adjustment model, the member’s level of sickness or “risk score” is determined in large part by identifying certain health conditions the member has that are included in the model, i.e., “payment conditions.” The proposed risk adjustment model in the Advance Notice would make a further adjustment as the number of payment conditions the member has increases, up to a maximum of 10 conditions. In addition, what constitutes payment conditions in the proposed model would expand to include categories for mental health, substance use disorder, and chronic kidney disease. As an alternative to the proposed model described above, the Advance Notice presents another payment condition count for public comment. This alternative model supplements the proposed model mentioned above by adding categories for pressure ulcers and dementia as payment conditions. CMS intends to phase-in implementation of one version of these new risk adjustment models beginning with 2020 payments, which payments are proposed to be a 50/50 blend of the current model and the new model. The 21st Century Cures Act requires full implementation of the new risk adjustment model by 2022. The Advance Notice also includes a proposal to phase-in a change how CMS calculates an MA member’s risk score. For 2020, CMS proposes that half of the risk score be calculated using diagnoses from encounter data (i.e., treatment information from a clinician), Risk Adjustment Processing System (“RAPS”) inpatient diagnoses, and fee-for-service (“FFS”) diagnoses, and that half of the risk score will be calculated with diagnoses from RAPS and FFS diagnoses. This proposal would result in increased importance of encounter data to establish a member’s risk score. The second part of CMS’s Advance Notice regarding MA capitation rates and final payment policies for 2020 has not yet been released. Comments on the risk adjustment methodology modifications proposed in the first part are due February 19, 2019 and can be submitted here. CMS will publish the final 2020 MA rate announcement on or before April 1, 2019.

On January 7, 2019, FDA Commissioner Scott Gottlieb announced significant updates to the FDA’s pilot Software Pre-Certification Program, sometimes referred to more broadly as a Digital Health Pre-Certification Program (“Pre-Cert”). Pre-Cert was originally announced in 2017 as part of the FDA’s Digital Health Innovation Action Plan. The FDA envisions the program as a streamlined process for bringing digital health technologies to market. More specifically, the FDA hopes to develop Pre-Cert into a program by which certain digital health developers can become precertified as part of an “Excellence Appraisal.” Excellence-appraised developers could then take advantage of streamlined premarket submission processes for their digital devices. To date, the FDA has been working with a variety of stakeholders, including nine companies “represent[ing] a wide range of companies and technology in the digital health sector,” in developing the program. In connection with the announcement earlier this week, the FDA issued “three documents that, together, launch us into the next phase of the agency’s vision of Pre-Cert.” The first of the three documents is a Regulatory Framework for Conducting the Pilot Program within Current Authorities (the “Framework”). This document builds out the regulatory framework within which the FDA will implement Pre-Cert.  Here are some highlights: At least to start, Pre-Cert is limited to software as a medical device (“SaMD”), defined as software intended to be used for one or more medical purposes that perform these purposes without being part of a hardware medical device. The FDA hopes eventually to expand the program to review all medical device software products, including software in a medical device (“SiMD”) and other software that could be considered accessories to hardware medical devices. The FDA intends to utilize the De Novo classification process (section 513(f)(2) of the FD&C Act), an existing pathway for certain new types of low to moderate risk devices to obtain marketing authorization as a Class I or Class II device as opposed to automatic Class III designation, for the next phase of Pre-Cert. Here is an overview of the proposed process: Participants with a SaMD product may participate in an Excellence Appraisal, as well as an optional Review Determination Pre-Submission. When submitting a product for De Novo Review, an excellence-appraised developer would submit a streamlined “Pre-Cert De Novo Request,” in which it would not need to re-submit information reviewed during the Excellence Appraisal or the optional Pre-Submission. Assuming premarket requirements are met, the FDA would classify the device by written order and, if the device is Class II, establish special controls, which may include Excellence Appraisal elements and postmarket data collection elements. Following a De Novo order, an excellence-appraised developer would also be able to take advantage of a streamlined “Pre-Cert 510(k)” process, in which the developer can again leverage submission requirements already documented during the Excellence Appraisal and optional Pre-Submission process. The FDA expects review of a Pre-Cert 510(k) to be more efficient than the review of a traditional 510(k). The Pre-Cert 510(k) can also be used for modifications to devices, assuming a 510(k) is required for the modification.  The second document is a 2019 Test Plan (the “Test Plan”). The Test Plan lays out the scope and approach of the Pre-Cert pilot in 2019.  The primary purpose of the Test Plan “is to assess whether the Excellence Appraisal and Streamlined Review components together produce an equivalent basis for determining reasonable assurance of safety and effectiveness for a SaMD product… as compared to the traditional paradigm.” Here are some highlights: Consistent with the Framework, the scope of the Test Plan is limited to: (i) selected SaMD with De Novo Requests, and (ii) selected 510(k) submissions, which would be tested as if they were follow-on 510(k)s for devices classified through a Pre-Cert De Novo Request. The FDA plans to prioritize selection of submissions that will enable evaluation and testing of all four components (Excellence Appraisal, Review Pathway Determination, Streamlined Review, and Real-World Performance plan) outlined in the Working Model (discussed below), and to focus on cases representing a broad spectrum of software developers (e.g., small and large firms, low- and high-risk products, companies not traditionally considered medical device manufacturers). During the Test Plan, the FDA will apply both the proposed Pre-Cert pathway and the traditional review process to each test case, enabling it to refine Pre-Cert and confirm the validity of the overall program. Developers participating in the Pre-Cert pilot, after an Excellence Appraisal and optional Pre-Submission, will still need to submit full traditional marketing submissions. Internally, the FDA will then create a “mock Streamlined Review package” and review the submission on parallel paths, traditional and “mock Streamlined.” Similarly, the FDA will also be internally conducting retrospective tests of SaMD regulatory submissions previously reviewed. Finally, the third document released is an updated Working Model (currently v1.0). The Working Model, which has been updated over time with continuous public input, describes in greater detail the goal, vision, scope, and process for Pre-Cert. It also includes summaries of public comments that have been received and FDA responses to them. Pre-Cert, if implemented and successful in accomplishing FDA’s stated goals, could have a significant impact on the healthcare industry beyond the software developers it promises to impact directly. Digital health is increasingly becoming an important tool for healthcare businesses. Streamlining processes for bringing digital health technology to market and modifying existing technology will in turn increase the rate at which providers are able to utilize updated digital health technologies in practice. As this technology continues to garner the focus and support of regulatory bodies, it will be important not only for developers to understand the FDA’s streamlined approval process, but also for providers to prepare for the potential transformative effect digital health tools can have on the care they provide.

On December 21, 2018, CMS announced a final rule, subsequently published in the December 31 issue of the federal register, significantly overhauling the Medicare Shared Savings Program (“MSSP”). Among the important changes in the final rule is a redesign of MSSP’s participation options. Under MSSP, providers of services and suppliers participating in an Accountable Care Organization (“ACO”) continue to receive traditional fee-for-service payments under Medicare Parts A and B but may be eligible to receive shared savings payments if they meet specified quality and savings requirements. Originally launched in 2012, MSSP has grown such that CMS estimates more than a quarter of Medicare FFS beneficiaries now receive care from providers participating in a Medicare ACO. Prior to the redesign, MSSP included three tracks. Track 1 was “one-sided,” meaning ACOs received a share of savings they achieved for Medicare (i.e., spending less than a benchmark), but they were not required to pay back a share of any losses (i.e., spending exceeding the benchmark). Tracks 2 and 3, on the other hand, were “two-sided,” meaning ACOs were eligible to receive a share of savings but also had to pay back a share of any losses. In exchange for accepting risk of loss, ACOs in Tracks 2 and 3 were eligible to receive a larger portion of savings than ACOs in Track 1. ACOs were only permitted to participate in Track 1 for a maximum of six years (two, three-year agreement periods) before switching to a two-sided model. Given that 2019 marks the seventh year of the MSSP program, MSSP entrants from the initial program year in 2012 faced mandatory transition to Track 2 in 2019 if they wanted to remain in the program, with other early adopters facing the same fate in coming years. However, in reviews of the program, CMS found that the vast majority of ACOs were still participating under Track 1, and many Track 1 ACOs were reluctant and/or unprepared to move to a two-sided model under Track 2. Meanwhile, CMS found ACOs in one-sided models actually increased Medicare spending relative to their benchmarks, while ACOs participating in two-sided models generated significant savings for Medicare. As an initial step to address some of these issues, CMS created a temporary “Track 1+” model, which began in 2018, which incorporated into the Track 1 model a more limited downside risk payment design as compared to Track 2. The MSSP redesign in many ways builds on the experience of introducing the Track 1+ model, which CMS found to be an effective way to encourage ACOs to progress more rapidly to performance-based risk.  Under the redesign, CMS has replaced the Track 1, Track 2, Track 3, and Track 1+ models with two tracks, a BASIC track and an ENHANCED track. The ENHANCED track is based on the existing Track 3. The BASIC track, on the other hand, replaces the rest of the existing tracks with a model aimed at aiding ACOs in transitioning to more significant downside risk, providing them with “pathways to success.” Under the BASIC track, ACOs begin under a one-sided model and incrementally phase-in higher levels of risk that, at their highest point, would qualify as an Advanced Alternative Payment Model under the Quality Payment Program (for background on QPP see some of our earlier posts, here and here).  The BASIC track provides a one-sided model available for the first two years for most eligible ACOs (some ACOs that previously participated in Track 1 are restricted to a single year, while some low revenue ACOs are allowed up to three years).  Following that, ACOs can take on progressively higher risk in third through fifth years (the MSSP redesign also replaces existing three-year agreement periods with minimum five-year agreement periods). In order to allow time to transition to the new BASIC or ENHANCED tracks, CMS finalized an agreement period start date of July 1, 2019 rather than January 1, 2019. Pursuant to an earlier rule, in anticipation of changes, ACOs with agreement periods that would have ended December 31, 2018 were able to opt for a six-month extension period. In addition, in this final rule, CMS provides for ACOs in a three-year agreement period not expiring in 2018 the ability to voluntarily terminate existing participation agreements and enter a new agreement period starting July 1, 2019 under one of the new tracks (prior to this change, ACOs would have faced a “sit out” period after termination). For ACOs entering into agreements with a July 1, 2019 start date, there will be an initial, six-month performance year through December 31, 2019, with five additional performance years to follow. The Notice of Intent to Apply for the ACO agreement period with a July 1, 2019 start date is available through January 18, 2019. As of this blog posting, CMS has yet to finalize the rest of the application timeline for the July 1, 2019 start date. Information on the timeline is available here. There are many other pieces to the final rule. Some highlights include: Updates to repayment mechanisms for two-sided model ACOs; Revisions to MSSP’s benchmarking methodology; Integrity-focused changes, including modifying review criteria for ACOs, providing additional termination options for CMS in ACO participation agreements, and revising consequences for agreement termination; A number of changes aimed at promoting innovation through regulatory flexibility, including annual choice of beneficiary-assignment methodology for ACOs, expanding the use of telehealth in ACOs, and expanding SNF 3-day rule waiver eligibility; and Changes aimed at promoting beneficiary engagement, including allowing certain beneficiary incentive programs and strengthening beneficiary notification requirements (CMS is developing template notices for ACOs and ACO participants to use). CMS also sought input on allowing a beneficiary “opt-in” methodology for assignment, or possibly using a hybrid claims-based and opt-in approach, but it continues to consider comments on this issue and did not finalize an opt-in based methodology in this rule. A CMS fact sheet including additional information on the highlights noted above can be found here. Overall, in its comments regarding the final rule, CMS expressed confidence that two-sided ACO models remain a viable, and promising, option for achieving savings in Medicare while also promoting greater quality in care. Through its final rule, CMS aimed to provide ACOs and ACO participants with new “pathways to success” in realizing these goals of the MSSP.  Only time will tell if ACOs are able to successfully navigate these new pathways. In any event, the overhaul will begin affecting MSSP ACOs as early as July of 2019.

On Wednesday, November 28, 2018, the U.S. Department of Health and Human Services (“HHS”) released a draft document titled, Strategy on Reducing Regulatory and Administrative Burden Relating to the Use of Health IT and EHRs.  The report was developed by the Centers for Medicare and Medicaid Services (“CMS”) and the HHS Office of the National Coordinator for Health Information Technology (“ONC”).  HHS was required under the 21st Century Cures Act—signed into law in December 2016—to develop goals, strategies, and recommendations to reduce electronic health record (“EHR”) burdens that impact the delivery of health care services.  HHS solicited input for the strategy in listening sessions, written responses, and other stakeholder contact.  Now that the draft strategy is released, HHS is soliciting additional feedback on their website for sixty days, until January 28, 2019.  To provide written comments and review the strategy, visit the strategy webpage here. The report identifies three goals: Reduce the effort and time required to record health information in EHRs for clinicians; Reduce the effort and time required to meet regulatory reporting requirements for clinicians, hospitals, and healthcare organizations; and Improve the functionality and intuitiveness (ease of use) of EHRs. Potentially more enlightening are the strategies and recommendations, which offer a guide to what actions CMS may take in future rulemaking and guidance.  The report recommends that the regulatory burden around patient encounter documentation should continue to be reduced.  HHS notes that office and outpatient evaluation and management visit documentation has already been updated and streamlined in the 2019 Physician Fee Schedule final rule and that CMS removed some documentation requirements for admission orders to inpatient rehabilitation facilities.  Other recommendations that may directly reduce or alter the regulatory burden on providers include the following: Waive documentation requirements for alternative payment models Automate ordering and prior authorization procedures by adopting standardized templates, data elements, and real-time standards-based electronic transactions Support pilots for standardized electronic ordering Simplify scoring for the Promoting Interoperability performance category (of the Quality Payment Program and Promoting Interoperability Programs, formerly EHR Incentive Programs for hospitals and clinicians) Incentivize innovative uses of health IT and interoperability Continue providing states with Medicaid funding for health IT systems and to promote interoperability among Medicaid providers Adopt additional data standards for better access, integration, and analysis across different systems Explore less burdensome electronic quality measurements Improve interoperability between EHRs and state prescription drug monitoring programs Increase the use of electronic prescribing of controlled substances, with better access to medication history Harmonize EHR data reporting requirements across federal programs to reduce reporting burden Provide additional guidance on HIPAA privacy and other federal confidentiality requirements regarding substance use disorder health information (to facilitate electronic health information exchange) When health IT and EHR incentive programs, such as the Medicare EHR Incentive Program (commonly known as “meaningful use,” and now part of the Merit-Based Incentive Payment System (“MIPS”)), were first rolled out, much of the focus was on switching providers to electronic systems to enable better care and patient access.  For example, in ONC’s Federal Health IT Strategic Plan 2015 – 2020, goals include: improving health care quality and value, supporting individual access, privacy, and autonomy, honoring personal health preferences, and building a culture of EHR use.  The 2015 – 2020 strategic plan makes minimal reference to improving clinical workflows or enabling efficiencies for providers.  As health IT and EHRs have matured in the past few years, it is increasingly clear that individual clinicians and health care organizations have become more burdened through the implementation of electronic systems, not less.  The new Strategy on Reducing Regulatory and Administrative Burden Relating to the Use of Health IT and EHRs discusses the issues faced and potential solutions to be implemented by CMS and other federal programs.  The final version of the strategy will be published in late 2019 after ONC reviews and analyzes the comments made through January 28, 2019.

On Friday, November 2, 2018, the Centers for Medicare and Medicaid Services (“CMS”) issued its calendar year 2019 Medicare Hospital Outpatient Prospective Payment System (“OPPS”) and Ambulatory Surgical Center Payment System final rule. Despite significant resistance and concerns from hospitals, CMS finalized its proposed site-neutral payment policy for clinic visit services provided at off-campus provider-based departments (“PBDs”), including PBDs that were excepted under the Bipartisan Budget Act of 2015. Currently, clinic visit services receive a higher payment when provided at PBDs. Under the new site-neutral payments rule, PBD clinic visit services will be paid at the same rate as clinic visit services provided in standalone physician offices, even when the PBD is excepted. The site-neutral payments will be phased in over two calendar years, 2019 and 2020. The services that will be affected are described by HCPCS code G0463: hospital outpatient clinic visit for assessment and management of a patient. These services are the most common services paid for under OPPS, and in calendar year 2017 represented about one-third of all OPPS claims. In 2017, PBDs received $184 for a new patient clinic visit, compared to $109 reimbursement in a physician office setting. For established patients, the same service is $158 compared to $74, respectively. Under the new site-neutral payments rule, the OPPS reimbursement for the clinic visit service will be cut by 30 percent in calendar year 2019 and 60 percent in 2020 and onward. CMS justified the change as a cost cutting measure, citing Medicare Payment Advisory Commission (“MedPAC”) reports that have long called for site-neutral payments to combat the shift of services from lower-cost physician offices to higher-cost PBDs. CMS’ concern—based on OPPS payment growth and the MedPAC report—is that “payment incentives, rather than patient acuity or medical necessity, are affecting site-of-service decision-making.” In sum, CMS believes increasing OPPS payments are a result of services shifted to PBDs to pursue higher reimbursement (not care-centered factors), and therefore switching to site-neutral payments will not affect patient care and outcomes. Affected hospitals and providers have vigorously disagreed with CMS’ reasoning for site-neutral payments, believing patients, especially those in rural and disadvantaged communities, will suffer. Opponents of site-neutral payments noted many reasons why costs are higher at PBDs than independent physician offices: patients are typically poorer and have more chronic health problems, hospitals have higher overhead, and more regulatory compliance is required. In addition, in responses to the CMS proposed rule in July, many commenters disputed CMS’ statutory authority to enact site-neutral payments. CMS disagreed, stating in the final rule, that it had broad authority to develop a method for controlling unnecessary increases in the volume of covered outpatient department services. The American Hospital Association has already released a statement that it, along with the Association of American Medical Colleges and others, intend to challenge the site-neutral payment provisions in court. Beyond finalizing site-neutral payments, the 1,100 page final rule included other important developments. Notably, in response to comments on the proposed rule and upon further consideration by CMS, the proposal to limit service expansion for excepted, off-campus PBDs was not adopted. The proposal would have limited new items and services excepted off-campus PBDs could provide to clinical groups of services that were in place by a set date. Many commenters opposed the service limitation plan and found it irrational that services would not be allowed to change along with community and provider demand and evolution. CMS stated it may still pursue future rulemaking limiting service expansions. Additionally, CMS finalized its proposal to reduce 340B drug reimbursements for 340B drugs dispensed at off-campus PBDs. A copy of the final rule is available here, which will be officially published in the Federal Register on November 21, 2018.

On October 18, 2018, the Centers for Medicare and Medicaid Services (“CMS”) proposed a new rule (“Proposal”) that would require direct-to-consumer (“DTC”) television advertisements of prescription drugs paid for by Medicare or Medicaid to include the drug’s wholesale acquisition cost (“List Price”). The Proposal comes as part of the current administration’s promise and attempt to both lower the cost and increase the transparency of prescription drug prices. As the Proposal notes, prescription drug prices have seen a dramatic increase over the past decade due to factors such as lack of competition and lack of relevant product information. The Proposal aims to address these factors in an attempt to improve the efficient administration of the Medicare and Medicaid programs and lower the cost of prescription drugs. Prescription drug prices are variable and largely unknown to everyday consumers. Typically, a consumer knows the price of a product before making an informed decision on purchasing that product. That is not the case with prescription drugs where the consumer often makes purchase decisions without knowing much, if any, information about the drug’s price. By mandating the inclusion of a prescription drug’s List Price, CMS hopes to make prescription drug prices more transparent in a fashion similar to the “sticker” price on a new car. The List Price is the price set by drug manufacturers. It can play a major role in price negotiations between payors (e.g., an employer providing a prescription drug benefit plan to its employees or the government providing Medicare and Medicaid coverage), pharmacy benefit managers, and manufacturers. These negotiations impact a benefit plan’s cost sharing and the ultimate drug price paid by the consumer. The price paid by the consumer for prescription drugs can vary widely based on these individual negotiations, but the underlying element of every price is the static List Price. Currently, there is no market pressure for manufacturers or pharmaceutical companies to compete based on the List Price, but the Proposal argues that mandating its inclusion in DTC television advertising will eventually lead to lower prices through increased competition and consumer knowledge. There are at least three main critiques with this Proposal, all of which are pre-emptively addressed by the Proposal: The first is that the Proposal will not lower drug prices but rather make the market for prescription drugs more confusing to consumers. The argument is that since the List Price is rarely the price paid by consumers (in fact, it is largely only paid by those without any coverage), advertising a high List Price will only deter potential consumers instead of create competition. The Proposal states that even though the List Price is typically not the price paid, it is a basic piece of factual information that the consumer should know in order to have at least one metric for comparison shopping. The second critique is that the Proposal will not withstand First Amendment scrutiny; namely, that this mandate is unreasonably compelled speech by the government. The Proposal states that the List Price is simply a required disclosure of factual information in a commercial speech setting, thus requiring a lower level of First Amendment scrutiny. The third main critique is that the Proposal lacks an enforcement mechanism. If a prescription drug advertiser violates the Proposal, their name is only added to a list of violators on the CMS website. The Proposal assumes that enforcement will come from private actions for false or misleading advertising under the federal Lanham Act. In order to better address the critiques outlined above, CMS is accepting comments on the Proposal until December 17th, 2018. In addition to the above critiques, CMS is seeking comments regarding the requirements of the price disclosure among other specific aspects of the Proposal. If you would like to submit comments, one of the authors or your regular Dorsey attorney would be happy to assist you.  

Today, President Trump signed into law two bills that have gained bipartisan support including the “Know the Lowest Price Act of 2018” and the “Patient Right to Know Drug Prices Act”. Together, these two bills ban “gag order” clauses in contracts for Medicare and Medicare Advantage Beneficiaries and commercial employer-based and individual insurance policies. “Gag order” clauses are sometimes in contractual agreements between pharmacies, insurance companies, and pharmacy benefit managers and usually restrict or penalize pharmacies and their staff for informing patients that their prescription would be less expensive if they paid the cash price for the prescription, instead of paying for the prescription using an insurance plan. Under the new legislation, while pharmacists may tell patients about lower cost options, they are not required to do so. Therefore, if a pharmacist does not provide the information to the patient, the patient will be responsible for asking for the information from pharmacy. The new legislation is effective immediately for commercial insurance contracts and will be effective for Medicare beneficiaries starting January 1, 2020. Some pharmacies and patients will be impacted by the new federal legislation more than others, since as of March 2018, fourteen states have already passed legislation that banned the “gag order” practice.

The Dorsey Health Law blog team keeps readers up-to-date on relevant topics in the health care industry. In order to do so, the members of the blog team communicate regularly with other practice groups within the firm for applicable updates from client publications. For this post, we would like to thank Dorsey’s Telephone Consumer Protection Act (“TCPA”) practice group, who writes monthly summaries about ongoing TCPA cases, for providing the following summary of note: Healthcare Message Exempt under the TCPA’s Implementing Regulations In Bailey v. CVS Pharm., Inc., No. 17-cv-11482, 2018 U.S. Dist. LEXIS 137049 (D.N.J. Aug. 14, 2018), the District of New Jersey Court granted CVS’ motion to dismiss plaintiff’s class action complaint for violation of the TCPA; defendant sent texts to customers notifying them that their prescriptions were ready for pick-up and included the words “flu shots available.”  Plaintiff had visited one of CVS’ pharmacies and provided her phone number to receive notification of when her prescription would be ready for pick-up.  The court granted the motion to dismiss, because it found the message to be a “healthcare message” which was exempt under the TCPA’s implementing regulations. The court also found that plaintiff had provided prior express consent to receive a message about a “health-related benefit” (e.g., the notification about the flu shot), because under the healthcare exemption, “an entity need only receive express consent, not written, to escape TCPA liability.” You can read the rest of this month's TCPA case summaries here.

The Department of Health and Human Services’ (HHS) Office of Inspector General (OIG) has identified the anti-kickback statute (AKS) and beneficiary inducements civil monetary penalty (CMP) as potential barriers to arrangements that could promote better patient care coordination and value-based arrangements.  On August 27, 2018, the OIG published a Request for Information (RFI) seeking input from industry stakeholders on how the agency could modify existing or add new safe harbors to the AKS and exceptions to the beneficiary inducements CMP definition of “remuneration” in order to “foster arrangements that would promote care coordination and advance the delivery of value-based care, while also protecting against harms caused by fraud and abuse.”     The RFI describes how transforming the healthcare system into one that better pays for value is a key priority for HHS, and that HHS has launched what it calls a “Regulatory Sprint to Coordinated Care” to accelerate this transformation, with a focus of removing “unnecessary obstacles” to coordinated care. This OIG RFI is part of HHS’s Regulatory Sprint. As we described in our blog post here, the Centers for Medicare & Medicaid Services (CMS) also recently published an RFI related to reforms to the federal physician self-referral law (or “Stark Law”) as part of HHS’s Regulatory Sprint. Comments are due from stakeholders to the OIG RFI by 5 PM on October 26, 2018. Specifically, OIG is seeking input on the following topics: Promoting Care Coordination and Value-Based CareThe OIG would like information about potential arrangements that the healthcare industry is interested in pursuing, which may implicate the AKS and CMP, such as care coordination arrangements, value-based arrangements, alternative payment models, arrangements involving innovative technology and other novel financial arrangements.  The OIG requests a detailed explanation of the proposed structure and terms of the arrangements, and a description of how the arrangement promotes care coordination or value-based care.  The description should also include an explanation of how the proposed arrangement prevents potential harms such as increased costs, inappropriate utilization, poor quality of care and distorted decision-making.  For each detailed description, the OIG requests that stakeholders describe the new or modified AKS safe harbors or exceptions to the beneficiary inducements CMP definition of “remuneration” that may be necessary in order to protect the described arrangement.  The OIG is also seeking input on several key definitions that are used in the regulatory provisions related to health care delivery reform, payment reform and the AKS, such as the definition of coordinated care, care coordinator and care coordination services. Beneficiary Engagement, including Beneficiary Incentives and Beneficiary Cost-Sharing Obligations  The OIG is seeking feedback on the types of incentives that providers, suppliers and others want to provide to beneficiaries.  For each incentive, the OIG wants to know how providing the incentive would contribute to or improve quality of care, care coordination and patient engagement (including adherence programs).  The OIG published several specific questions in the RFI such as whether beneficiary incentives connected to medication adherence and medication management should be treated differently than other types of beneficiary incentives, and if so, how and why.  Further, the OIG is seeking input regarding what disclosures the offer or should be required to make to beneficiaries regarding an incentive, such as the source of the incentive, as well as input regarding the risks and benefits related to certain types of incentives such as cash equivalents, gift cards, in-kind items and services, and non-monetary remuneration.  Additionally, the OIG is also seeking input on whether the “nominal value” threshold under the CMP should be increased from $15 per item and $75 in the aggregate per patient on an annual basis, whether a similar nominal value “policy” should be applied to the AKS, and if so, how such policy would contribute to care coordination or value-based care.  The OIG is also requesting information about how reducing or eliminating patient cost-sharing obligations might improve care delivery and promote quality of care. Other Related Topics of Interest  The OIG is seeking feedback on a number of related topics of interest. These include: (a) current fraud and abuse waivers developed for purposes of carrying out the Medicare Shared Savings Program; (b) donated or subsidized cybersecurity-related items and services; and (c) new exceptions under the Bipartisan Budget Act of 2018 related to (i) incentive payments under the ACO Beneficiary Incentive Program and (ii) telehealth technologies. The Intersection of the Stark Law and the AKSFinally, the OIG would like feedback regarding circumstances in which Stark Law exceptions and AKS safe harbors should align for purposes of the goals of the RFI and circumstances in which Stark Law exceptions related to care coordination/value-based care should not have a corresponding AKS safe harbor. The OIG noted that, where relevant, it intends to review comments submitted in response to the CMS RFI related to the Stark Law (described above), but that it urges commenters to resubmit any relevant comments to the OIG RFI to ensure that they are considered by the OIG, given the volume of questions included in the CMS RFI and the separate authorities of the OIG and CMS.   Please contact the authors or your regular attorney at Dorsey & Whitney if you want more information about the RFI process or desire to submit comments to the RFI by the October 26, 2018 deadline.