Healthcare Litigation

Many regulatory and legislative calls for modernizing the federal physician self-referral law (or “Stark Law”) in light of the move to value-based payment under Medicare have been made in recent months.  Most recently, a hearing on “Modernizing the Stark Law to Ensure the Successful Transition from Volume to Value in the Medicare Program” took place on July 17th with the House Ways and Means Subcommittee on Health.  At the hearing, the Department of Health and Human Services (HHS), legislators and providers emphasized that the Stark Law has slowed the move to value-based payment under Medicare and that reforms to the Stark Law are needed. Further, the Centers for Medicare & Medicaid Services (CMS) published a Request for Information (RFI) on June 25th regarding reducing the regulatory burdens of the Stark Law, with a particular focus on soliciting comments on how the Stark Law may impede care coordination initiatives.  The RFI describes how transforming the healthcare system into one that pays for value is a key priority of HHS, and that HHS launched a “Regulatory Sprint to Coordinated Care” to accelerate this transformation.  One of CMS’s goals in this Regulatory Sprint is to address “unnecessary obstacles to coordinated care, real or perceived, caused by the [Stark Law].”  In a press release related to the RFI, CMS Administrator Seema Verma is quoted as follows: “We are looking for information and bold ideas on how to change the existing regulations to reduce provider burden and put patients in the driver’s seat. . . . Dealing with the burden of the physician self-referral law is one of our top priorities as we move towards a health care system that pays for value rather than volume.” In the RFI, CMS requests public input on 20 different areas.  These areas include, among others, the structure of existing or potential alternative payment models and other novel financial arrangements, what additional exceptions to the Stark Law are needed for these arrangements, the utility of certain existing exceptions to the Stark Law, and creating new defined terms and revising certain existing defined terms.  CMS also requests comments on areas beyond care coordination initiatives, such as requests for input on defining “commercial reasonableness” in the context of Stark Law exceptions, qualifying as a “group practice,” other areas of Stark Law regulations that need clarification, and compliance costs for regulated entities. The hearing and RFI continue the recent trend of regulatory and legislative initiatives aimed at modernizing the Stark Law in light of the move to value-based payment under Medicare.  As we explained in our prior post, a bill that addresses this very topic, titled the “Medicare Care Coordination Improvement Act of 2017,” was introduced in both the U.S. House of Representatives (H.R. 4206) and Senate (S. 2051) in November 2017.  The bill is still under consideration in both the House and the Senate.  (Please see our prior post for a detailed explanation of the bill.)  As we also explained in this prior post, in January 2018, CMS Administrator Verma identified Stark Law reform as a top policy priority and reported that an inter-agency group was being formed to review the law. Next, as the RFI describes, the President’s fiscal year 2019 budget, which was released in February 2018, included a legislative proposal to create a new Stark Law exception for arrangements arising from alternative payment model participation. Given these recent developments, Stark Law legislative and regulatory reforms are likely to occur in the near future.  The RFI is a great opportunity for stakeholders to be involved in these reforms.  CMS is accepting comments on the RFI through August 24, 2018.  If you would like to submit comments, one of the authors or your regular Dorsey attorney would be happy to assist you.

On June 12, the FDA issued guidance that clarifies its recommendations for certain product communications made by medical product manufacturers, packers, and distributors (collectively “firms”). The guidance, “Medical Product Communications That Are Consistent With the FDA-Required Labeling” (the “Guidance”), explains the FDA’s views on firms’ communication of information that is not contained in the FDA-required labeling for their drugs or medical devices, but that is consistent with that labeling. As explained in a statement by FDA Commissioner Scott Gottlieb introducing the Guidance, FDA-required labeling “is the primary tool that communicates the essential information needed for the safe and effective use of a medical product [and it is] subject to content requirements and limitations.” That being said, FDA-required labeling does not address all that is known about a product, such as data from post-market studies and surveillance of a product’s approved uses or additional information obtained from pre-market studies. Firms may want to communicate this information to help inform decision-making regarding patient care, and payors want this information to inform their purchasing decisions or negotiation of value-based contracts. However, firms may be wary of communicating such information for fear of being deemed to have communicated information that is inconsistent with FDA-approved labeling, that is false or misleading, and/or that establishes a new intended use. In response to a number of questions from firms on these issues, the Guidance seeks to clarify what types of information are considered consistent with FDA-required labeling. It also provides general recommendations for conveying that information in a truthful and non-misleading way, along with examples to illustrate these concepts. The Guidance makes clear that the FDA does not view communications consistent with required labeling alone as evidence of a new intended use, though it does caution that such communications will not necessarily be excluded altogether from assessing a firm’s conduct if there is other evidence of a new intended use. When determining whether a communication is consistent with the required labeling for the product, the FDA considers three factors. A communication must satisfy all three factors in order to be consistent with the required labeling: Comparing to Conditions of Use: First, the FDA considers how the information in the product communication compares to the information about the conditions of use in the product’s required labeling. More specifically, a product communication is not consistent with the FDA-required labeling if the representations/suggestions in the communication relate to a different indication than the ones reflected in the product’s required labeling, if the patient population represented/suggested in the communication is outside of the approved/cleared patient population in the required labeling, if the representations/suggestions in the communication conflict with the use limitations or directions for handling, preparing, and/or using the product reflected in the required labeling, or if the representations/suggestions about the product conflict with the recommended dosage or use regimen, route of administration, or strengths set forth in the required labeling.   Evaluating Effect on Potential for Harm: Second, the FDA considers whether the product communication increases the potential for harm to health relative to the labeling. If a communication alters the risk-benefit profile of a product in a way that may result in increased harm to health, this indicates the communication is not consistent with the required labeling. For example, if the representations/suggestions in a communication may introduce new risks not included in FDA-required labeling or increase the rate of occurrence or severity of existing risks, the communication may fail this test.   Evaluating Effect on Safe and Effective Use: Finally, the FDA considers whether the directions for use in the labeling enable the product to be used safely and effectively under the conditions represented/suggested in the product communication under consideration. Here, firms should examine any unique considerations associated with the use suggested by a product communication and whether the FDA-required labeling furnishes appropriate context.   The Guidance acknowledges the potential for overlap in these three factors, but emphasizes that all must be satisfied for a communication to be consistent with the required labeling. It also gives examples of communications that may satisfy one factor but fail others. The Guidance also outlines recommendations for truthful and non-misleading promotional communications of information consistent with required labeling, including recommendations regarding evidentiary support. To be truthful and non-misleading, representations or suggestions made by firms about their products need to be grounded in fact and science and presented with appropriate context. Any data, studies, or analyses relied on should be scientifically appropriate and statistically sound to support the representations or suggestions made. While sufficient evidentiary support must be presented, the FDA will not consider representations or suggestions in a communication consistent with required labeling to be false or misleading based only on the lack of evidence sufficient to satisfy the applicable approval/clearance standard. In the same statement introducing the Guidance, Commissioner Gottlieb also introduced accompanying guidance, “Drug and Device Manufacturer Communications With Payors, Formulary Committees, and Similar Entities - Questions and Answers,” which we covered in more detail in a previous post. Commissioner Gottlieb explained that the ultimate goal of the two guidances “is to help facilitate a market that is more competitive, based on the outcomes that matter most –the benefit to patients.” Authors’ Note: Summer Associate Margaret Fitzpatrick provided substantial assistance with the drafting of this blog post.

On June 12, the FDA issued guidance that clarifies its recommendations for certain medical product communications. The guidance, “Drug and Device Manufacturer Communications With Payors, Formulary Committees, and Similar Entities - Questions and Answers” (the “Guidance”), provides answers to common questions about the communications between medical product manufactures, packers, and distributors (“firms”), and insurance companies, formulary committees and similar entities (“payors”). In particular, it addresses communications by firms to payors regarding approved or cleared products as well as unapproved products and unapproved uses of approved or cleared products. In a statement, FDA Commissioner Scott Gottlieb acknowledged the sophistication of payors as an audience and recognized their need for access to a range of information on the effectiveness, safety, and cost-effectiveness of approved/cleared products. The Guidance is therefore designed to enable truthful, non-misleading and appropriate company communications to promote public health benefits such as increased cost savings from informed and appropriate coverage and reimbursement decisions. The FDA similarly seeks to give companies clear guidelines for providing payors with truthful and non-misleading information about unapproved products and unapproved uses of approved/cleared products. Through the Guidance, the FDA aims to help facilitate communications that can allow payors to provide coverage for these new products and new uses more quickly after FDA approval or clearance as well as help companies and payors to establish pricing structures that benefit patients as well as health plans. First, the Guidance addresses the communication of health care economic information (“HCEI”) regarding both approved drugs and approved/cleared devices. HCEI is defined in section 502(a) of the Food, Drug, and Cosmetics Act (“Section 502(a)”) as “analysis… that identifies, measures, or describes the economic consequences… of the use of a drug.” As noted in the Guidance, HCEI generally pertains to economic consequences related to the clinical outcomes of treating, preventing, or diagnosing a disease. The Guidance clarifies Section 502(a), which provides that the FDA will not consider dissemination of HCEI to an appropriate audience to be false or misleading if the HCEI relates to an approved indication and is based on competent and reliable scientific evidence (the “CARSE” standard). Specifically, the Guidance expounds on the FDA’s thinking as to what it means to “relate to an [approved] indication,” the type of evidentiary support needed for HCEI, and the components of HCEI to which the CARSE standard applies, among other topics. Notably, although the language in Section 502(a) addressing HCEI applies to drugs, not devices, the FDA states that its recommendations are also applicable to firms’ communications of HCEI regarding approved/cleared devices. The Guidance also describes information that should be included when disseminating HCEI. While recognizing not all categories of information will be applicable to particular HCEI presentations, the Guidance provides that, when relevant, the HCEI presentation should also clearly and prominently include appropriate background and contextual information, including study design and methodology, generalizability, limitations, sensitivity analysis, and additional information for a balanced and complete presentation. The disclosure of this information may be concise, so long as all material information is provided. In response to indications from payors that they need to plan for and make coverage and reimbursement decisions far in advance of the effective date of such decisions, the Guidance also discusses types of information about unapproved products or unapproved uses of approved/cleared/licensed products that a firm may communicate to a payor. Provided that the information is “unbiased, factual, accurate, and non-misleading,” communications may include product information, information about the indication sought, anticipated timeline for possible FDA approval/clearance/licensure of the product or new use, product pricing information, patient utilization projections, product-related programs or services, and factual presentations of results from studies including clinical studies of drugs or devices or bench tests that describe device performance. Additionally, the communication must be accompanied by additional information, including a clear statement that the product or use is not approved/cleared/licensed, and that the safety or effectiveness of the product or use has not been established. In the same statement introducing the Guidance, Commissioner Gottlieb also introduced accompanying guidance, “Medical Product Communications That Are Consistent With the FDA-Required Labeling - Questions and Answers,” which we will cover in more detail in Part II of this post.   Authors' Note: Summer Associate Margaret Fitzpatrick provided substantial assistance with the drafting of this blog post.

Last week the Centers for Medicare & Medicaid Services (“CMS”) released its first Rural Health Strategy. The strategy is intended to improve the agency’s service to individuals living in rural areas. CMS’ Rural Health Council, created during the Obama Administration, developed the strategy by examining current rural-focused programs at CMS, reviewing the methods used by CMS Centers and Offices to integrate rural issues in agency policies, and hosting several listening sessions with stakeholders, including healthcare providers and consumers. CMS notes in the strategy that approximately one in five Americans live in rural areas, and that rural communities are plagued with many issues: higher poverty, more chronic conditions, greater levels of uninsured and underinsured, a shrinking healthcare workforce, lack of specialty services, and fragmented care. The information gathered was grouped into eight themes, including: improving reimbursement; adapting and improving quality measures and reporting; improving access to services and providers; improving service delivery and payment models; and improving affordability and accessibility of insurance options. From the themes, the Rural Health Council drafted five key objectives that constitute the goals of the Rural Health Strategy: apply a rural lens to CMS programs and policies; improve access to care through provider engagement and support; advance telehealth and telemedicine; empower patients in rural communities to make decisions about their health care; and leverage partnerships to achieve the goals of the CMS Rural Health Strategy. According to CMS, applying a rural lens to the agency’s actions aims will ensure rural communities’ unique needs are considered in CMS policymaking and program creation. Improving access to care will focus on transportation, the move away from volume and toward value, technical assistance to providers, and scope of practice. Advancing telehealth and telemedicine will build on CMS’ recent support of such measures, including improved reimbursement, easing cross-state licensure, and reducing related administrative and financial burdens. The strategy concludes that the latter two objectives, empowering rural patients and leveraging partnership, will require better engagement and communication with patients and collaborations with stakeholders, respectively. CMS noted it was already working on several of these initiatives, even before the Rural Health Strategy was announced. The extent to which, and how quickly, these initiatives are adopted and implemented, however, is unclear. We will continue to monitor any future developments and progress of CMS’ Rural Health Council and Rural Health Strategy and provide additional analysis of related legal changes.  

Last month, the Centers for Medicare and Medicaid Services (“CMS”) announced new flexibility in what Medicare Advantage plans may cover as “supplemental health care benefits.” The announcement was part of CMS’ release of Calendar Year 2019 Medicare Advantage and Part D Rate Announcement and Call Letter. The Medicare Managed Care Manual (Chapter 4, Section 30.1) defines supplemental benefits as (1) not covered by original Medicare, (2) primarily health related, and (3) incurring a non-zero direct medical cost. Primarily health related items or services previously have been described as having a primary purpose to “prevent, cure or diminish an illness or injury” and primary purposes of comfort, cosmetic, or daily maintenance have been specifically excluded. CMS’ new interpretation of “primarily health related” expressly allows daily maintenance and other items. The agency’s justification to expand its interpretation was that items and services that can diminish the impact of injuries or health conditions have been shown to reduce emergency care and overall utilization of health care services. The one example provided in the call letter was fall prevention devices, e.g., support bars in bathrooms and showers. Primarily health related items or services must now have 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.” Items or services “must be reasonably and rationally encompassed” by at least one of these purposes. In addition, CMS stated that the benefits need to directly focus on an enrollee’s healthcare needs, be medically appropriate, and be “recommended” by a provider as part of a care plan if not supplied by that provider. Importantly, a physician order is not necessary for an item or service to be “recommended.” Keeping with federal beneficiary inducement prohibitions, plans may not offer supplementary benefits that are solely inducements to enroll. Clearly, this new interpretation of “primarily health related” creates a much broader allowance for items or services than only those that prevent, cure or diminish illness or injury under the old definition. Services that compensate for physical impairments might include transportation, cooking, or cleaning. Services that reduce healthcare utilization might include more intensive home-based support to keep Medicare Advantage enrollees in their homes and out of nursing facilities. Many groups stand to benefit from the increased flexibility for supplemental benefits, most obviously being plan sponsors, who can take a more comprehensive approach to healthcare to drive down utilization. Ride-hailing services, such as Uber and Lyft, may be enlisted to provide transportation to medical appointments, while grocery delivery services like Instacart could keep beneficiaries stocked with healthy foods selected for individual dietary needs. Finally, beneficiaries themselves will enjoy assistance with daily tasks that impact their health and allow them to age-in-place, at home. What remains unknown is whether CMS will eventually roll out similar benefits to traditional Medicare, which covers approximately two-thirds of all Medicare enrollees. Traditional Medicare still does not cover directly health related supplemental benefits such as dental care and eyeglasses that Medicare Advantage has been covering for years under the more restrictive definition of supplemental benefits.

On May 11, 2018, President Trump gave his long-awaited speech on his administration’s plan to lower prescription drug prices. In addition, the administration published its Blueprint to Lower Drug Prices and Reduce Out-of-Pocket costs. The blueprint can be found here.  The blueprint focuses on four areas for reform including strategies to: (1) improve competition; (2) increase negotiation power; (3) provide incentives for lower list prices; and (4) lowering out-of-pocket costs. Some specific strategies outlined in President’s speech and in the blueprint include: Measures to promote innovation and competition for biologics; Assessing the varying drug prices paid by foreign countries versus the United States; Encouraging sharing of samples needed for generic drug development; Creating additional efforts to promote the use of biosimilars; Reforming Medicare Part D to give plan sponsors more power when negotiating with manufacturers; Allowing additional substitution in Medicare Part D to address price increases for single-source generics; Considering requiring manufacturers to include list prices in advertisements; Considering whether to restrict the use of rebates, including reconsidering the Anti-Kickback safe harbor for drug rebates; Considering fiduciary status for Pharmacy Benefit Managers; Reforms to the 340B Drug Discount Program; Considering changes to regulations regarding drug copay discount cards; and Prohibiting Part D contracts from preventing pharmacists’ from telling patients when they could pay less out-of-packet by not using their insurance. President Trump emphasized in his address that he expects many of these changes to occur quickly, and comments are being sought on the policies outlined in the Blueprint. It is unclear how quickly, and how many, of the proposals will actually be adopted and implemented.  We are continuing to monitor these trends and any resulting changes for our clients in the pharmacy market, and we will provide updates as we have them.

All eyes are on the federal government as top officials have recently signaled upcoming actions which could impact the prices of prescription drugs. In the past two weeks, leaders from both the FDA and HHS have made statements signaling that the agencies are focused on reducing prescription drug prices. In remarks at the Food and Drug Law Institute conference held on May 3, 2018, U.S. Food and Drug Administration Chief Scott Gottlieb suggested that by reexamining the current safe harbor under the anti-kickback statute for drug rebates, list prices for drugs would be closer to negotiated prices and competition may increase. Mr. Gottlieb stated that, while “[t]here’s a range of reasons why drug prices are too high” one reason “that’s driving higher and higher list prices, is the system of rebates between payers and manufacturers. And so what if we took on this system directly, by having the federal government reexamine the current safe harbor for drug rebates under the Anti-Kickback Statute?” (The transcript of Mr. Gottlieb’s remarks can be found here). Mr. Gottlieb appears to be siding with critics of drug rebates who have argued that the practice leads to higher prices for patients because the rebates do not make their way down to patients, and instead, patients pay list prices for the drugs as they meet their out-of-pocket obligations. Mr. Gottlieb also mentioned some additional upcoming actions to reduce drug prices, including a Biosimilars Action Plan that is similar to the FDA’s Drug Competition Act Plan (DCAP); additional policies under DCAP to promote generic competition; a comprehensive framework for the regulation of gene therapy; and prioritizing the review of low competition products for generic product applications. Additionally, Mr. Gottlieb alluded to changes that may be introduced by Secretary of Health and Human Services, Alex Azar, including policies that “will dismantle many of the provisions that shield parts of the drug industry from more vigorous competition” and “a series of changes to the pricing mechanism in [Medicare] Part D.” Days later, on May 9, Alex Azar told members of the American Hospital Association that “HHS is focused on solving a number of the problems that plague drug markets. These include the high list prices set by manufacturers; seniors and government programs overpaying for drugs due to the lack of the latest negotiating tools; rising out-of-pocket costs for consumers; and foreign governments free-riding off of American investments in innovation.” Mr. Azar’s full speech can be watched here. President Trump is schedule to deliver a speech on Friday, May 11, 2018 addressing the steps that the administration plans to take to address drug pricing in the United States. Mr. Azar noted that President Trump wants to go “much, much further” in addressing drug prices than the proposals initially set forth in the President’s 2019 Budget. We will continue to closely monitor these activities which may have a significant impact on all involved in the prescription drug market.

  Last week, with bipartisan support, both the Iowa House and Senate passed, unanimously, HF 2377   (“An Act Relating to the Regulation of Certain Substances, Including the Regulation of the Practice of Pharmacy, Providing Penalties, and Including Effective Date Provisions”). The bill is expected to be signed into law by the Governor in the coming days. Like many other states throughout the country, Iowa has taken steps to increase the State’s regulation of opioid prescriptions in the wake of a national opioid epidemic. The new law will impact the operations of prescribers and pharmacies.  New requirements state that most prescribing practitioners must register with the State’s prescription drug monitoring program (PMP) and check the PMP database prior to prescribing an opioid.  The current law encourages, but does not require, practitioners to check the PMP database prior to writing a prescription for an opioid. The new law will also require pharmacies and prescribers that furnish, dispense, or supply controlled substances identified in Iowa Code 124.544(1)(g) to submit information to the PMP regarding the prescription within one business day of dispensing the controlled substance.  Current law at Iowa Admin. r. 657-37.3(3) exempts prescribers who administer or dispensed a controlled substances for purposes of outpatient care from this reporting requirement. Additionally, beginning January 1, 2020, unless an exemption applies, every prescription issued for a controlled substance must be transmitted to a pharmacy electronically. The bill also establishes continuing education requirements for licensed individuals prescribing opioids. Prescribers should be aware that, similar to legislation passed in other states, beginning February 1, 2019, the Iowa Board of Pharmacy will provide annual reports to prescribers which are aimed at showing prescribers how they compare to their peers.  Each year, prescribing practitioners will receive a summary of the prescriber’s history of prescribing controlled substances and a comparison to others in the same profession or specialty. Additionally, the Iowa Board of Pharmacy will provide specific notifications to prescribing practitioners and pharmacists regarding patients that may be doctor or pharmacy shopping or be at risk of abusing or misusing controlled substances. The bill also includes a “Good Samaritan Law” that provides immunity from prosecution under laws such as drug possession, for persons who call 911 to seek help for a drug overdose.  The immunity is not available for drug dealers or repeat offenders.  Practitioners and pharmacies should prepare now by implementing immediate changes to their policies and procedures in order to comply with the new requirements under HF 2377.  Changes would include requirements for prescribers to enroll in the PMP database, report to the PMP database within 1 business day of dispensing a controlled substance, and check the PMP database prior to writing a prescription for a controlled substance.  Software security changes may also need to be implemented by January 1, 2020 in order to accommodate the new electronic prescribing requirements for controlled substances.     

Harnessing existing digital health solutions to improve chronic care management was a prominent topic at HIMMS this year (amongst many others, including AI and cybersecurity, both of which we will cover in upcoming blog posts). While this is not a new topic, it was particularly “buzzy” this year due to the ever-increasing number of large technology and wearables vendors entering the healthcare space, and as medical device manufacturers look to pair services with their existing devices. Chronic care management, as its name denotes, involves higher-touch and ongoing communication between the patient and the provider. Since digital health solutions are a cost-effective means to connect patients and providers, and because providers can use them to reach patients at home to help correct behaviors that contribute to or ameliorate chronic conditions, digital health solutions hold great promise as an effective chronic care management tool – and, indeed, as HIMMS this year made apparent, digital health solutions are poised for exponential growth. As with any relatively new field, however, we have noticed that certain key issues tend to be overlooked, often at great cost. Here are the top 5 overlooked issues we have noted:   Value proposition in a crowded market: Make no mistake about it: this is a crowded market with many different types of vendors hoping to launch the next big thing in digital chronic care management solutions. So many of the pitch decks and conversations we have been privileged to be a part of tend to focus on the market size in terms of clinical need: that there are X number of patients with Y chronic condition who would welcome Z solution. The mistake, however, is presuming that this suffices to capture attention. The barrier to market entry is relatively low (FDA considerations, if applicable, notwithstanding!), and the customers – providers and patients – are relatively wary of yet another device, application, or website to manage. Investors and customers alike will ask, what, specifically, is your digital health chronic care solution’s real value proposition; what truly differentiates you? Effectively managing a chronic condition is the baseline minimum expectation. You must offer something more.   EHR integration – the how and where: Many sellers of digital health chronic care solutions tout the ability of the device or software program to integrate with a provider’s EHR and/or with a patient-facing application so that providers and patients can monitor the relevant condition. This is all to the good, as transparent, real-time results are a key facet of chronic care management. The item that is missed, however, is how that information will be displayed in the EHR; where, exactly, will it appear? Is that in readable and, importantly, reportable format for the providers? It does a provider little good if a blood viscosity result appears in the EHR as a pdf attachment that is not searchable as a discrete data element. It is important to ask vendors and potential partners this at the outset, and to obtain the answer in writing.   Process flow: Providers and medical device manufacturers alike are doing a good job of convening clinical experts to discuss particular care needs and associated care management regimen. This is then translated into the digital health offering. What is missed, however, is thinking through the end-to-end process between provider, patient, and both their interactions with the software, to ensure that it’s as seamless and hassle-free as possible. Patients who would be, well, patient with a clinician who is taking a few extra moments to answer a question would not necessarily be as patient with extra clicks or wait time from a digital health program. Providers, in turn, are looking for the least amount of clicks to enable them to do what they do best: offer the patients helpful advice. Mapping out the exact flow of when and how the software – and any integrated devices – will behave, and who is required to do what, is critical.   Data ownership and access: While vendors – medical device and software and analytics alike – race to develop in-house chronic-care solutions, many are looking to partner with providers to provide clinical input and data and to serve as a beta testing and initial customer site. Partnerships are proliferating, and while good attention is paid in the negotiating process to the typical business terms, we have noted that data flow, ownership, and access tends to be a secondary thought. To be clear, HIPAA, privacy, and cybersecurity are still at the front of everyone’s minds; however, the operational brass tacks of exactly what data will display where, which party will provide that data, and exactly who will access the data and its derivatives is still oft-overlooked. Just as we recommend process flows from the user-end perspective (see above point), we also have found that data maps are instrumental to a successful partnership. If you have created one for your organization for cybersecurity and breach incident response, you will find that to be a useful starting point; you will then want to discuss and create a new, macro-level flow that reflects the flow across the parties. Then, check with counsel, and ensure that the relevant contracts (e.g., partnership, services, and/or BAA agreement(s)) align with that data map.   Licensure – you probably need it: “Chronic care management” encompasses so many conditions that it can, at times, be used as a marketing lure to sell wellness-related devices and services. Any company that considers itself in the “wellness” sphere and employing people to provide ongoing advice – whether by phone, video, e-mail, or other means – should make a point to check with counsel as to whether professional licensure is required. It does not matter what label you give to those employees (e.g., “coach” vs. “counselor,” or “care guide” vs. “RN”), rather, it matters what type of care is being offered through the digital health solution and what condition(s) it is addressing. A digital health solution that addresses a specific clinical condition is likely one that is regulated, which means that the employees interacting with the patient are also likely to need some form of relevant licensure. This one is a mission-critical ask, so be sure to check with counsel early on (and title your employees correctly on your website and sales materials).   We welcome your suggestions for additional focus topics within this series on digital health-related issues. Please contact Shira Hauschen at Hauschen.Shira@Dorsey.com with any comments, suggestions, or questions.

On February 13, in a matter of special note to non-profit hospitals and senior living organizations across the country, legislation was introduced in the United States House of Representatives that would restore tax exemption for interest on advance refunding bonds.   The Tax Cuts and Jobs Act of 2017 eliminated tax exemption for interest on such advance refundings when President Trump signed the act into law on December 22. Non-profit health care organizations have used advanced refundings for years as a way to take advantage of lower interest rates and to refinance debt in advance of the call date. That financing tool was taken away by the new tax law as of December 31, 2017.   Representative Randy Hultgren (R-IL), joined by five co-sponsors representing both parties (two Republicans and three Democrats), introduced H.R. 5003 seeking to fully reinstate tax exemption for interest on advance refunding bonds. The legislation, which has been referred to the House Committee on Ways and Means, enjoys not only bipartisan support but also the backing of national organizations such as the American Hospital Association and the Bond Dealers of America. The text of the legislation can be found here https://www.congress.gov/115/bills/hr5003/BILLS-115hr5003ih.pdf.   Among the numerous legislative responses to the new tax law introduced this session, tax-exempt health care organizations should pay particular attention to the progress of H.R. 5003.  

Overview On February 9, President Trump signed the Bipartisan Budget Act of 2018 (“BBA”) into law. The BBA funds the federal government through March 23 and included a bipartisan agreement to increase annual spending authority for a two-year period. In addition, the legislation contains significant policy changes impacting Medicare, Medicaid and other federal health agencies. These changes include revisions to the federal physician self-referral law (commonly referred to as the “Stark Law”), expansion of coverage for telehealth services, funding extensions of several critical Medicare programs, and changes to the Medicare Shared Savings Program. A summary of some of these key health care policy changes is included below. Revisions to the Stark Law The BBA revised the Stark Law to codify certain regulatory changes that went into effect on January 1, 2016 and corresponding clarifications via preamble by the Centers for Medicare & Medicaid Services (“CMS”) in the 2016 Medicare Physician Fee Schedule Final Rule (the “2016 Final Rule”). Specifically, the BBA revised the Stark Law to indicate the following: The writing requirement of various Stark Law compensation exceptions can be satisfied “. . . by a collection of documents, including contemporaneous documents evidencing the course of conduct between the parties involved.” Previously, CMS had only indicated in preamble text in the 2016 Final Rule that a collection of documents could be relied upon to meet the writing requirement. This was not set forth in regulatory text, however. Now that this language is in the Stark Law itself, stakeholders can take greater comfort in relying on a collection of documents to meet the writing requirement. The signature requirement of various Stark compensation exceptions is met if the parties obtain the required signatures “not later than 90 consecutive calendar days immediately following the date on which the compensation arrangement became noncompliant” and the arrangement otherwise complies with all applicable criteria. This statutory language now aligns with regulatory language in 42 C.F.R. § 411.353(g) regarding temporary noncompliance with signature requirements. That regulatory language was revised in the 2016 Final Rule to provide organizations with greater flexibility and to eliminate the prior rule that included a confusing, and often unhelpful, distinction between inadvertent noncompliance not inadvertent noncompliance. The Stark Law itself, however, has not previously referenced any provisions with respect to temporary noncompliance with the signature requirements. A holdover lease or personal service arrangement can indefinitely meet the requirements of the Stark exceptions for rental of office space, rental of equipment and personal service arrangements, respectively. However, the immediately preceding arrangement must have expired after a term of at least one year, the arrangement must have met all requirements of the applicable exception when it expired, the holdover arrangement must be on the same terms and conditions as the immediately preceding arrangement, and the holdover arrangement must continue to satisfy the conditions of the applicable exception. This statutory language now aligns with regulatory language regarding holdovers in the rental of office space, rental of equipment and personal service arrangements exceptions in 42 C.F.R. § 411.357. That regulatory language was revised in the 2016 Final Rule which previously only permitted holdovers for up to six months. The Stark Law itself, however, has not previously referenced any provisions with respect to holdover arrangements. These Stark-related provisions of the BBA used the language from Section 301 of H.R.3178, titled the “Medicare Part B Improvement Act of 2017,” which we summarized in our blog post here. This bill, which includes many other non-Stark Law-related provisions, is still pending in the Senate. We note that, while the changes to the Stark Law under the BBA were fairly inconsequential, broader Stark Law reform initiatives, including in response to the move to value-based payments under Medicare, are also currently underway. See our blog post here for further details. Increase in Civil and Criminal Penalties for Violations of Fraud and Abuse Laws The BBA significantly increased civil and criminal penalties for federal health care program fraud and abuse. Specifically, existing maximum penalties under the Civil Monetary Penalties Law (“CMPL”) for improperly filed claims (under 42 U.S.C. § 1320a–7a(a)) increased to $20,000 (from $10,000), to $30,000 (from $15,000), and to $100,000 (from $50,000). Maximum penalties under the CMPL for payments to induce reduction or limitation of services (under 42 U.S.C. § 1320a–7a(b)) increased to $5,000 where they were previously $2,000 and $10,000 where they were previously $5,000. Additionally, criminal penalties for acts involving federal health care programs under 42 U.S.C. § 1320a–7b, including but not limited to the Anti-Kickback Statute, were increased to $100,000 (from $25,000), to $20,000 (from $10,000), and to $4,000 (from $2,000). Finally, maximum sentences for felonies involving federal health care program fraud and abuse under 42 U.S.C. § 1320a–7b, including but not limited to the Anti-Kickback Statute, were increased to ten years where they were previously five years. The effective date of these increased penalties is February 9, 2018 (the date of enactment of the BBA). We note that, in 2016, penalties under the CMPL and for criminal acts involving federal health care programs were adjusted for inflation in accordance with the Bipartisan Budget Act of 2015 (see 81 Fed. Reg. 61538 et seq. (Sept. 6, 2016)), and are adjusted on an annual basis under 45 C.F.R. § 102.3 (but have not yet been updated for 2018). So, the previous statutory maximum penalties had already been increased from the amounts set forth in the statute, and now have been increased even further. It is not clear how inflation adjustments will be applied in 2018 to the new statutory penalty maximums under these laws. Medicare Telehealth Expansion The BBA also included potentially far-reaching expansions to Medicare coverage for telehealth services. Telehealth Services for Stroke Patients Current Medicare coverage for telehealth services is limited to certain care locations that are either: (A) outside of any Metropolitan Statistical Area and designated as a rural health professional shortage area; or (B) participating in a Federal telemedicine demonstration project. The BBA eliminates this originating site requirement beginning January 1, 2019 for services to diagnose, treat, or evaluate symptoms of an acute stroke. The Medicare beneficiary receiving diagnosis, treatment, or evaluation of an acute stroke may be located at any hospital or critical access hospital, mobile stroke unit, or any other type of care site that CMS designates. Home Dialysis Assessments Similarly, beginning January 1, 2019 Medicare beneficiaries with End Stage Renal Disease (“ESRD”) may choose to receive monthly ESRD-related clinical assessments via telehealth. A face-to-face clinical assessment will be required monthly during the initial 3 months of home dialysis, and thereafter only once every 3 consecutive months. The statute also states that the provision of telehealth technologies to a Medicare beneficiary receiving home dialysis will not be considered remuneration under the beneficiary inducement statute, so long as the telehealth technologies are not offered as part of any advertisement or solicitation, are provided for purposes of furnishing telehealth services related to the beneficiary’s ESRD, and meet any other requirements CMS may adopt by regulation. The condition-based expansions in telehealth coverage for ESRD and stroke patients beyond rural health professional shortage areas signals an important recognition that service delivery via telehealth is both effective and increasingly common. Telehealth Services Provided Under Medicare Advantage Plans Beginning in plan year 2020, a Medicare Advantage Plan (“MA Plan”) may provide additional telehealth benefits to its enrollees. The telehealth benefits must be a service type available under Medicare Part B, and must be services that the MA Plan identifies as clinically appropriate to furnish using electronic information and telecommunications technology when a clinician is not at the same locations as the plan enrollee. CMS will adopt regulations regarding physician and practitioner requirements, coordination of benefits rules, and other requirements. If the MA Plan wishes to offer the service via telehealth, the MA Plan must offer the same benefit in-person and allow the enrollee to determine whether or not to receive the benefit via telehealth. The MA Plan’s bid to CMS must attribute the telehealth benefit cost to amounts attributable to the provision of benefits under the original Medicare fee-for-service program. Telehealth Services to ACO Beneficiaries Lastly, the BBA allows increased Medicare coverage for telehealth services provided to Medicare fee-for-service beneficiaries assigned to an Accountable Care Organization (“ACO”) participating in certain Medicare shared savings programs. After January 1, 2020, the existing Medicare telehealth geographic limitations will not apply when a physician or practitioner participating in an ACO provides telehealth services covered under Medicare to a Medicare beneficiary assigned to the ACO. The beneficiary’s home can be an originating site for the telehealth services, but the beneficiary’s home need not be located in a rural health professional shortage area. This expansion in telehealth coverage applies only to ACOs participating in a two-sided ACO model (in which the ACO shares in both savings and losses), or an ACO tested and expanded pursuant to authority granted to the Center for Medicare and Medicaid Innovation. No facility fee will be paid; only the professional service is paid pursuant to this telehealth expansion. And coverage does not extend to services appropriate only for hospital inpatients. Other ACO Changes The BBA includes a provision allowing ACOs to elect to have beneficiaries assigned to the ACO prospectively rather than having Medicare beneficiaries attributed to ACOs retroactively using encounter data based upon visits for primary care services. A beneficiary may also choose to align with an ACO in which his or her main primary care provider participates. The beneficiary can continue to receive services from any provider participating in Medicare even if he or she elects to align with a specific ACO. The BBA also establishes a new voluntary ACO beneficiary incentive program that allows certain two-sided risk ACOs to offer beneficiaries a payment of up to $20 per service for receiving select primary care services. ACOs that want to offer payment to beneficiaries will have to apply for approval to participate in the incentive program with Health and Human Services. Outpatient Therapy Payments The BBA repeals annual payment caps for outpatient hospital therapy services (including physical therapy, speech-language pathology services, and occupational therapy) effective January 1, 2018. Funding Extensions The BBA includes a number of funding extensions for critical health care programs, including: Extension of CHIP funding for four more years (Fiscal Year 2024 through Fiscal Year 2027); Five-year extension of the Medicare low-volume hospital payments through September 30, 2022; Five-year extension of the Medicare-dependent hospital (MDH) program through September 30, 2022. Two-year extension of funding for quality measure endorsement, input, selection, and reporting requirements. Five-year extension with reforms of the home health rural add-on until October 1, 2022.

    When the U.S. Department of Health and Human Services (“HHS”) announced a new Conscience and Religious Freedom Division in the HHS Office for Civil Rights (“OCR”), it framed a problem and a solution. The press release stated that “fundamental and unalienable rights of conscience and religious freedom” are not being fully enforced on a federal level, and that as part of President Trump’s promise to uphold such rights a new division in OCR will be tasked with vigorous and effective enforcement.[1] What was less immediately clear in the announcement was how the new division of OCR will improve enforcement of conscience and religious freedom rights. Here we provide an overview of the history and cites to various laws in the conscience and religious freedom space that OCR may use for enforcement, as well as a summary of the recent proposed regulations that OCR issued on this topic on January 26, 2018 Religious Discrimination Against Federal Healthcare Beneficiaries The new OCR division cites several laws prohibiting discrimination against recipients of HHS assistance on the basis of religion. OCR enforces the following: Section 508 of the Social Security Act, for the Maternal and Child Health Services Block Grant Section 533 of the Public Health Services Act, for the Projects for Assistance in Transition from Homelessness Section 1908 of the Public Health Service Act, for the Preventive Health and Health Services Block Grants Section 1947 of the Public Health Service Act, for the Community Mental Health Services Block Grant and the Substance Abuse Prevention and Treatment Block Grants The Family Violence Prevention and Services Act, for programs, services and activities under the Act The Communications Act of 1934, for federally-funded public telecommunication entities[2] Existing Conscience Laws Since the 1970s, several statutes have been enacted that protect the rights of providers, entities and beneficiaries of federal health care programs to object in a variety of ways to certain health care services. OCR reviews complaints under these laws and can take action to enforce them. In its recently proposed rule, OCR details several laws it intends to enforce.[3] Some of the earliest conscience protections, which are called the “Church Amendments”, prohibit a person from being required to perform abortions or sterilizations if contrary to his or her religious or moral beliefs. Entities are provided similar protection. Discrimination in employment of physicians and other personnel, and in residency and internship programs based on a person’s religious or moral beliefs regarding abortion and sterilization is also prohibited. The Church Amendments apply to grants, contracts, loans and loan guarantees under the Public Health Service Act and in some instances, under the Developmental Disabilities Assistance and Bill of Rights Act.[4] The Coats-Snowe Amendment extends abortion-related nondiscrimination provisions to federal, state and local governments receiving federal financial assistance. It protects conscience rights of entities, which includes physicians, physician trainees and residents.[5] The Weldon Amendment attached to an HHS appropriation bill similarly prohibits funds going to any government, agency or program that requires individuals or entities to provide, pay for, cover, or refer for abortions.[6] The Consolidated Appropriations Act of 2017 expands Weldon Amendment protections to the Medicare Advantage program.[7] The Affordable Care Act includes a variety of conscience protections related to assisted suicide, abortion, and the individual mandate to carry insurance.[8] Revised Conscience Rule In January 2018, OCR announced a proposed rule to strengthen conscience-based protections for individuals and entities with objections to certain activities based on religious belief and moral convictions.[9] The proposed rule is not entirely new, however. It would make significant changes to 45 CFR part 88 (entitled: “ENSURING THAT DEPARTMENT OF HEALTH AND HUMAN SERVICES FUNDS DO NOT SUPPORT COERCIVE OR DISCIMINATORY POLICIES OR PRACTICES IN VIOLATION OF FEDERAL LAW”), which stems originally from a 2008 Bush-era rule.[10] The Bush-era rule was itself revised substantially in 2011 during the Obama administration.[11] OCR now proposes to return much of 45 CFR part 88 to its 2008 Bush-era form, adding a requirement that certain recipients of HHS funds certify they comply with conscience protection laws and notify individuals of their rights thereunder.[12] The proposed rule details OCR’s enhanced investigative and enforcement abilities and expands its enforcement authority to more conscience-protection laws than the 2008 or 2011 iterations.[13] The rulemaking states that OCR will “handle complaints [both formal and not], perform compliance reviews, investigate, and seek appropriate action,” including terminating funding and requiring repayment.[14] OCR states that a more centralized approach to enforcement of conscience protections is necessary in part due to rapidly rising complaints. OCR notes that ten conscience-related complaints were filed from implementation of 45 CFR part 88 in 2008 until the November 2016 presidential election.[15] However, since President Trump’s election, thirty-four complaints have been filed.[16] We will continue to monitor the development of this rule as it proceeds through the rulemaking process.   [1] https://www.hhs.gov/about/news/2018/01/18/hhs-ocr-announces-new-conscience-and-religious-freedom-division.html [2] https://www.hhs.gov/conscience/religious-freedom/index.html [3] 83 Fed. Reg. 3880. [4] Id. at 3882. [5] Id. at 3882-83. [6] Id. at 3883. [7] Id. [8] Id. [9] https://www.hhs.gov/about/news/2018/01/19/hhs-takes-major-actions-protect-conscience-rights-and-life.html [10] 83 Fed. Reg. at 3885. [11] Id. [12] Id. at 3891. [13] Id. [14] Id. at 3899. [15] Id. at 3886. [16] Id.  

https://dorseyfca.com/third-circuit-false-claims-act-liability-premised-on-an-anti-kickback-statute-violation-requires-proof-that-at-least-one-federal-claim-resulted-from-an-improper-referral-or-recommendation/

Stark Law Reform Initiatives The Centers for Medicare & Medicaid Services (CMS) Administrator Seema Verma recently identified federal physician self-referral law (or “Stark Law”) reform as a top policy priority and reported that an inter-agency group is being formed to review the law. Specifically, in a January 17 American Hospital Association Town Hall webcast focused on regulatory relief for hospitals and health systems (excerpt available here), Verma reported that CMS will be looking to modernize the Stark Law to reflect the move from fee-for-service to value-based payments under Medicare. According to Verma, the Stark Law was one of the top responses from providers to a CMS request asking providers to identify the most burdensome regulations. Because the Stark Law is not completely in CMS’s jurisdiction, an inter-agency group is being formed to look at Stark Law reform initiatives that will include CMS, the Department of Health and Human Services (HHS) Office of Inspector General, the HHS General Counsel, and the Department of Justice. Verma also indicated that then-acting Secretary of HHS Eric Hargan was interested in the issue. Lastly, Verma specified that Congressional intervention may be required. While not mentioned by Verma in the recent webcast, a bill that addresses modernizing the Stark Law in light of the shift to value-based payment under Medicare, titled the “Medicare Care Coordination Improvement Act of 2017,” was introduced in both the U.S. House of Representatives (H.R. 4206) and the Senate (S. 2051) on November 1, 2017. The bill is still under consideration in both the House and the Senate. If enacted, this bill would give HHS authority to grant waivers to fraud and abuse-related statutes for participants in the Medicare Shared Savings Program, i.e., accountable care organizations. Such waiver authority would be extended to “covered APM entities” such as entities participating in alternative payment models (or “APMs,” as defined by MACRA) and similar entities. Additionally, the bill would expand the authority of HHS to promulgate ownership and compensation exceptions to the Stark Law to promote care coordination, by expanding the HHS Secretary’s authority to provide exceptions for financial relationships not posing a “significant risk of program or patient abuse, including those that would promote care coordination, quality improvement, or resource conservation by physician practices under [Medicare] part B” (emphasis added), rather than the current standard for exceptions, which requires that excepted arrangements not pose a “risk of program or patient abuse.” It would also limit the Secretary from imposing requirements that could adversely affect care coordination or participation in APMs. Finally, it would establish a new statutory exception to the Stark Law for services furnished pursuant to an arrangement entered into for the purpose of developing or operating an APM, provided the arrangement meets certain requirements including that it is in writing, that services are furnished at fair market value and that semi-annual reports are submitted to the Secretary on the progress of the APM (among other requirements). Further, while not addressing modernizing the Stark Law in light of the shift to value-based payment under Medicare, two additional bills that would amend the Stark Law are currently pending. First, H.R. 3726, the “Stark Administrative Simplification Act of 2017,” was introduced in the House on September 11, 2017. This bill proposes an alternative protocol to the Stark self-referral disclosure protocol (SRDP) for inadvertent technical noncompliance (including, for example, compensation arrangements with an inadvertent missing signature) with the Stark Law and reduced civil monetary penalties for disclosures made pursuant to this alternative protocol. This bill is still under consideration in the House. Second, H.R. 3178, titled the “Medicare Part B Improvement Act of 2017”, was passed in the House in July 2017 and is currently pending in the Senate. Among non-Stark Law-related provisions, if enacted, this bill would codify in the Stark Law certain regulatory changes that went into effect on January 1, 2016 (and corresponding clarifications via preamble by CMS) regarding the writing requirement of the Stark Law compensation exceptions, temporary non-compliance with the signature requirement of the Stark Law compensation exceptions, and the indefinite holdover provision for the lease of office space or equipment and personal services arrangements exceptions. It remains to be seen where the above-described legislation will lead, and what additional legislative and/or regulatory initiatives will be pursued given the stated focus on Stark Law reform by CMS Administrator Verma, the inter-agency group formed to review Stark Law changes, and the new HHS Secretary Alex Azar. 2018 DHS Code List and CPI-U Updates The 2018 Medicare Physician Fee Schedule (PFS) final rule, which took effect on January 1, included the annual update to the list of CPT/HCPCS codes used to identify certain categories of Stark designated health services (DHS) (the Code List).  As we explained in our post on the 2017 PFS, the Stark Law regulations at 42 C.F.R. § 411.351 specify that the following four categories of DHS are defined by reference to the Code List: (1) clinical laboratory services; (2) physical therapy, occupational therapy, and outpatient speech-language pathology services; (3) radiology and certain other imaging services; and (4) radiation therapy services and supplies.  (The other categories of DHS—which are (1) durable medical equipment and supplies; (2) parenteral and enteral nutrients, equipment and supplies; (3) prosthetics, orthotics, and prosthetic devices and supplies; (4) home health services; (5) outpatient prescription drugs; and (6) inpatient and outpatient hospital services—are defined at 42 C.F.R. § 411.351 without reference to the Code List.) The Code List is updated annually to reflect changes in the most recent CPT and HCPCS Level II publications and to account for changes in Medicare coverage and payment policies. Further, items and services that may qualify for either of two Stark Law exceptions—the exception for preventive screening tests, immunizations and vaccines at 42 C.F.R. § 411.355(h) and the exception for EPO and other dialysis-related drugs at 42 C.F.R. § 411.355(g)—are identified by reference to the Code List.  The Code List included the annual updates to the codes eligible for the preventive screening tests, immunizations and vaccines exception.  However, as in previous years, the Code List does not include any codes eligible for the EPO and other dialysis-related drugs exception (for reasons explained by CMS in the rule). The PFS rule includes tables showing the additions and deletions to the Code List.  As per usual, the complete list was posted to the CMS website dedicated to the Code List, found here. Finally, per the CPI-U Updates page of the CMS Stark website, CMS updated the compensation limits for the nonmonetary compensation exception (at 42 C.F.R. § 411.357(k)) and medical staff incidental benefits exception (at 42 C.F.R. § 411.357(m)), which are both updated annually for inflation. For calendar year 2018, the non-monetary compensation limit is $407 and medical staff incidental benefits must be less than $34 per occurrence. (CMS also noted in a footnote on this page that, “From November 9, 2016, through November 16, 2017, the CY 2015 nonmonetary compensation limit was inadvertently listed on this website as $395 instead of $392.”)

The annual H-1B cap season will be opening April 2, 2018.  As usual, the application window period is 5 business days.  65,000 H-1B visas are allotted every year. An additional 20,000 visas are set aside for individuals with a U.S. Master’s or higher degree. In general, first time H-1B visa applicants, such as foreign students in F-1 visa status, are subject to the cap, unless the employer is a cap-exempt organization. To apply, one must have a U.S. job offer in a professional-level position that requires at least a bachelor’s degree in a relevant field, and the individual must also have such educational credentials. The cap will almost certainly be met this year within the 5 day window period (April 2 to April 6, 2018).  If an employer misses this window, no new H-1B visas will be available until the following year. The petitions that are timely filed are then subject to a government-conducted lottery. Last year, for 85,000 H-1B visas, around 200,000 applied. Interested employers should initiate the application process as soon as possible to allow sufficient time for petition preparation by the end of March, 2018. H-1B preparation could take 4-6 weeks, which includes getting the Department of Labor’s certification needed for H-1B filing. In addition, President Trump’s “Buy American, Hire American” executive order recently heightened the level of scrutiny on H-1B petitions, leading to a significant increase in the number of pushbacks (Requests for Further Evidence). H-1B petitions now need to be prepared with these added issues in mind. Please contact us for further information.

In recent weeks, the United States Department of Justice (“DOJ”) issued two memoranda that might change the calculus of False Claims Act (“FCA”) cases.  The memoranda at a minimum provide organizations with new—or at least invigorated—defenses to qui tam actions and civil enforcement matters. First, on January 10, Michael Granston, Director of DOJ’s Civil Frauds section, issued a memorandum encouraging DOJ trial attorneys to consider dismissing unmeritorious qui tam cases (even over the objection of the relator).  The DOJ’s authority to dismiss FCA cases has long been built directly into the governing statute, 31 U.S.C. § 3730(c)(2)(A), which provides that: The Government may dismiss the action notwithstanding the objections of the person initiating the action if the person has been notified by the Government of the filing of the motion and the court has provided the person with an opportunity for a hearing on the motion. In practice, DOJ trial attorneys rarely uses this power, preferring to allow qui tam cases they declined to intervene in to continue being prosecuted by the relator.  The Granston Memo encourages a shift in practice by suggesting that DOJ attorneys should dismiss qui tam cases that lack substantial merit.  Meritless qui tam cases drain limited government resources and may “generate adverse decisions that may affect the government’s ability to enforce the FCA.”  To aid in determining whether a DOJ attorney should seek dismissal of a declined qui tam action, the Granston Memo sets forth seven factors, including curbing parasitic qui tams and preserving government resources. Second, on January 25, the Associate Attorney General (“AAG”) issued a memorandum prohibiting reliance on government agency “guidance documents” as a basis for liability in DOJ affirmative civil enforcement matters—including FCA cases.  Such “guidance documents” include all non-statutory or regulatory documents that purport to advise the public of legal rights or obligations, as are commonly issued by agencies like the US Environmental Protection Agency and the Department of Health and Human Services.  The memo advises DOJ litigators that because “[g]uidance documents cannot create binding requirements that do not already exist by statute or regulation . . . [DOJ] litigators may not use noncompliance with guidance documents as a basis for proving violations of applicable law.”  The AAG's memo acknowledges that sub-regulatory guidance serves a valuable function, and does not likely presage a government-wide change in agency’s use of such documents.  But FCA matters—qui tam or otherwise—that are built on such sub-regulatory guidance are on shakier ground. These memoranda create interesting implications for FCA cases.  First, the AAG’s memo narrows potential FCA liability by excluding a wide range of agency documents from being the basis of FCA violations.  The AAG’s memo also raises interesting questions about what agency materials might be evidence of “materiality,” particularly after the Supreme Court’s recent Escobar decision.  Second, although the authority of the DOJ to dismiss qui tam actions has not changed, the government may be newly receptive to arguments for the dismissal of plainly deficient qui tam cases.  The memo thus presents an opportunity for legal counsel to affirmatively seek dismissal of a weak FCA case—a move that could potentially save the accused violator the time and expense of otherwise defending against the case. The two memoranda are available here and here.

In a prior blog post from September 8, 2017, we wrote about the many ways in which states are addressing the opioid crisis through legislation. One of the states we discussed was New Jersey who at the time had proposed a new rule to regulate the relationship between manufacturers and prescribers. This month that New Jersey rule became final. On January 16, 2018 the New Jersey Attorney General issued final regulations entitled Limitations On and Obligations Associated with Acceptance of Compensation from Pharmaceutical Manufacturers by Prescribers (“the Rule”). The stated intent of the Rule is to minimize the potential for conflicts of interest and reduce incentives for treatment decisions to be influenced by payments from drug manufacturers, thereby encouraging healthcare practitioners who prescribe to focus on the patient's best interests.[1] The Rule became effective on January 16, 2018. The Rule does not apply to contracts entered into on or before January 15, 2018.[2] Second, the Rule only prohibits “prescribers” (defined as physicians, podiatrists, physician assistants, advanced practice nurses, dentists, and optometrists licensed in New Jersey) from accepting certain compensation from pharmaceutical manufacturers; the Rule does not prohibit the offering or payment of any compensation.[3]  In other words, the Rule does not authorize any penalties or other enforcement action against any pharmaceutical manufacturer; rather the various New Jersey professional licensing boards have authority to take enforcement action against prescribers for accepting prohibited compensation. Prohibited Gifts and Payments A New Jersey prescriber may not accept, directly or indirectly, any of the following from a pharmaceutical manufacturer or a manufacturer’s agent: Any financial benefit or benefit-in-kind, including, but not limited to, gifts, payments, stock, stock options, grants, scholarships, subsidies, and charitable contributions, except as specifically permitted by the Rule. Any entertainment or recreational items (e.g., tickets to theater or sporting events, or leisure or vacation trips). Items of value that do not advance disease or treatment education, including, but not limited to: Pens, note pads, clipboards, mugs, or other items with a company or product logo; Items intended for the personal benefit of the prescriber or staff, such as floral arrangements, sporting equipment, or artwork; Any payment in cash or a cash equivalent; or Any payment or direct subsidy to a non-faculty prescriber to support attendance at, as remuneration for time spent attending, or for the costs of travel, lodging, or other personal expenses associated with attending, any education event or a promotional activity. Any meals unless permitted as described below under Permitted Gifts and Payments.[4] “Pharmaceutical manufacturer" means any entity: engaged in the production, preparation, propagation, compounding, conversion, or processing of prescription drugs or biologics, by extraction from substances of natural origin, or independently by means of chemical synthesis; or directly engaged in the packaging, repackaging, labeling, relabeling, or distribution of prescription drugs or prescription biologics. “Pharmaceutical manufacturer's agent" or "manufacturer's agent" means a person who, while employed by, or under contract with, a pharmaceutical manufacturer, engages in detailing, promotional activities, or other marketing of prescription drugs or biologics to any prescriber authorized to prescribe, dispense, or purchase prescription drugs, biologics, healthcare facility, or pharmacist, but shall not include a prescriber or pharmacist when acting within the ordinary scope of the practice for which he or she is licensed.[5] Permitted Gifts The following permitted gifts and payments from pharmaceutical manufacturers or manufacturer’s agents are permitted: Items designed primarily for educational purposes for patients or the prescriber that have minimal or no value to the prescriber outside of his/her professional responsibilities (e.g., anatomical models). A subsidized registration fee at an education event, if that fee is available to all participants. Modest meals, worth no more than $15 per prescriber[6], provided by an event organizer at an education event, but only if the meals facilitate the educational program to maximize prescriber learning. Modest meals, worth no more than $15 per prescriber, provided by a manufacturer to non-faculty prescribers at a promotional activity. Compensation, based on fair market value, for providing bona fide services as a speaker or faculty organizer or academic program consultant for an education event which may also include reasonable payment and remuneration for travel, lodging, and other personal expenses associated with such services, and continuing education credit if applicable. Compensation, based on fair market value, for providing bona fide services as a speaker or faculty organizer or academic program consultant for a promotional activity, or for participation on advisory bodies or under consulting arrangements. A prescriber may also accept reasonable payment for travel, lodging, and other expenses associated with such services, but may not accept continuing education credit. Compensation, based on fair market value, for participation on advisory bodies or under consulting arrangements. Reasonable payment or remuneration for travel, lodging, and other expenses in connection with research activities. Reasonable payment to prospective applicants for travel, lodging, and other expenses in connection with employment recruitment. Royalties, licensing fees, or other arrangements regarding the purchase of intellectual property rights from a prescriber.[7] Sample medications intended to be used exclusively for the benefit of the prescriber’s patients, so long as the prescriber does not charge for these samples.[8] Bona Fide Services Payment Cap Prescribers are limited to a total of $10,000 in the aggregate per calendar year from all pharmaceutical manufacturers for speaking at promotional activities, participation on advisory boards, and consulting arrangements.[9] Permitted payments for speaking at education events (in contrast to payments for speaking at promotional activity) are not subject to the $10,000 cap but must be fair market value and set forth in a written agreement. Payments for research activities and payments for royalties and licensing fees are also not subject to this cap.[10] Research is defined to include pre- and post-market activities assessing the safety or efficacy of prescribed products as well as scientific advising on the development, testing, and evaluation of prescribed products.[11] "Bona fide services" means those services provided by a prescriber pursuant to an arrangement formalized in a written agreement including, but not limited to, presentations as speakers at promotional activities and education events, participation on advisory boards, and consulting arrangements. The written agreement shall specify the services to be provided, the dollar value of the consideration to be received by the prescriber, based on the fair market value of the services, specify that the meetings held in association with bona fide services occur in venues and under circumstances conducive to the services provided and that the activities related to the services are the primary focus of the meeting, and identify the following: The legitimate need for services in advance; The connection between the competence, knowledge, and expertise of the prescriber and the purpose of the arrangement; How participation of the prescriber is reasonably related to achieving the identified purpose; The manner by which the prescriber will maintain records concerning the arrangement and the services provided by the prescriber; and An attestation that the prescriber's decision to render the services is not unduly influenced by a pharmaceutical manufacturer's agent.[12] "Bona fide services" does not include services provided by a prescriber in connection with research activities. Required Disclosures Prescribers speaking at an education event or for a promotional activity must directly disclose to attendees, either orally or in writing, at the beginning of the presentation that they have accepted payment from the sponsoring manufacturer within the preceding 5 years.[13] A prescriber who is an employee of a pharmaceutical manufacturer and who also provides patient care must disclose this to patients, but those employees are exempt from the compensation prohibitions of the Rule.[14] Conclusions The final Rule will certainly impact the interaction between manufacturers and prescribers licensed in New Jersey. A key difference between the New Jersey Rule and other state laws and voluntary ethics codes addressing relationships between pharmaceutical manufacturers and prescribers is that the New Jersey Rule is directed at prohibiting New Jersey licensed prescribers from accepting prohibited compensation. Until now, much of the federal and state law (other than anti-kickback statutes) regulating this area has focused on prohibiting manufacturers from paying prescribers certain types or levels of compensation (or mandating disclosure of such payments). In contrast, the Rule places at risk the professional licensure of a New Jersey prescriber if they accept a prohibited payment. This New Jersey rule regulating the relationship of manufacturers and prescribers is one of several approaches to curb the opioid crisis and increase transparency and may become a model as other states evaluate how to stem the tide of this growing epidemic. [1] See Attorney General Response to Comment 1, 50 N.J.R. 578(a). [2] N.J.A.C. § 13:45J-1.1A. [3] N.J.A.C. § 13:45J-1.2. [4] N.J.A.C. § 13:45J-1.3. [5] N.J.A.C. § 13:45J-1.2. [6] N.J.A.C. § 13:45J-1.2 (defining “Modest Meal”). [7] N.J.A.C. § 13:45J-1.4. [8] N.J.A.C. § 13:45J-1.5. [9] N.J.A.C. § 13:45J-1.6. [10] N.J.A.C. § 13:45J-1.6. [11] N.J.A.C. § 13:45J-1.2 (defining “Research” as “ any study assessing the safety or efficacy of prescribed products administered alone or in combination with other prescribed products or other therapies, or assessing the relative safety or efficacy of prescribed products in comparison with other prescribed products or other therapies, or any systemic investigation, including scientific advising on the development, testing, and evaluation, that is designed to develop or contribute to general knowledge, or reasonably can be considered to be of significant interest or value to scientists or prescribers working in a particular field. "Research" shall include both pre-market and post-market activities that satisfy the requirements of this definition.”).   [12] N.J.A.C. § 13:45J-1.2 (defining “Bona Fide Services”). [13] N.J.A.C. § 13:45J-1.7. [14] N.J.A.C. § 13:45J-1.8.

If the government does not take action and continues to pay for Medicare/Medicaid claims after it learns of non-compliance related to the claims, is the non-compliance material to the government’s decision to pay? This is a question being answered in the negative by courts across the country, who have concluded that the government (or a qui tam relator) is not able to proceed under a False Claims Act (FCA) “implied certification” theory if evidence shows that the government did not take action and continued to pay claims after learning of non-compliance with laws associated with those claims. A Florida Federal Court in United States ex. rel. Ruckh v. Salus Rehabilitation, LLC et. al (Case No. 8:11-cv-1303-T-23TBM), is one of the latest to address this issue and find no FCA violation. Background In 2016, the United States Supreme Court addressed the issue of whether a claim submission without disclosure of a statute or regulation infraction could potentially trigger a FCA violation in Universal Health Services, Inc. v. United States ex rel. Escobar, spawning a new line of cases that have interpreted the new standards the Court set forth for implied certification FCA cases. Prior to the Escobar decision, the circuit courts across the U.S. were split on the issue. In these so-called “implied certification” cases, the government alleged that the party submitting a claim to the government impliedly certified that the services were provided in compliance with laws. In Escobar, the Supreme Court analyzed the reach of the FCA in situations in which a party was alleged to have made a misrepresentation in a payment claim to the federal government because the services provided were, in fact, not in compliance with the law. The Court recognized the implied certification theory, but held, among other things, that under the theory, FCA liability depends on whether the defendant violated a requirement that it knew was material to the government’s decision to pay. In providing guidance on how to determine “materiality”, the Court noted that, “[t]he materiality standard is demanding. The False Claims Act is not ‘an all-purpose antifraud statute’ or a vehicle for punishing garden-variety breaches of contract or regulatory violations.” The Court went on to note: “[I]f the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated, that is very strong evidence that those requirements are not material” and “if the Government regularly pays a particular type of claim in full despite actual knowledge that certain requirements were violated, and has signaled no change in position, that is strong evidence that the requirements are not material.” Analysis In light of the guidance in Escobar, many courts in analyzing “implied certification” allegations under the FCA, have given significant consideration to evidence about how the government acted following a defendant’s non-compliance disclosure. Courts will make a fact-intensive inquiry into the post-disclosure conduct of the government in order to determine whether a given violation is material to the governments’ payment decision on the related claims. If the government refused to make further payment or took other action against the provider after learning of the non-compliance, that refusal may help the government or a relator to establish that compliance with the particular law at issue was material to the government’s decision to pay. However, if the government continues to pay the claims, and takes no other action, it has proven difficult for the government or a relator to succeed. A recent example of the uphill battle Escobar is presenting for relators and the government in these “implied certification” FCA cases is the Salus case. On January 11, 2018, a federal court in Florida followed a line of post-Escobar cases, denying an implied certification theory case under the FCA based on evidence that the government continued to pay claims related to the subject matter of the relator’s complaint, even after the government learned about the non-compliance. In Salus, a nurse relator alleged FCA violations against the owners and operators of 53 specialized nursing facilities based on the nursing facility’s alleged failure to maintain a comprehensive care plan for residents required under Medicaid, as well as defects in paperwork required to support claims to the Medicare program, such as unsigned or undated documents. The judge in Salus vacated a $350 million verdict against Salus Rehabilitation, which had been entered less than a year earlier (on March 1, 2017), because the evidence in the case showed that the government knew about the non-compliance, and did nothing about it. In overturning the prior verdict against the nursing homes, the court stated, “[n]ot only did the relator fail to prove that the governments regarded the disputed practices as material and would have refused to pay, but the relator failed to prove that the defendants submitted claims for payment despite the defendants’ knowing that the governments would refuse to pay the claims if either or both governments had known about the disputed practices. In fact, both governments were—and are—aware of the defendants’ disputed practices, aware of this action, aware of the allegations, aware of the evidence, and aware of the judgements for the relator—but neither government has ceased to pay or even threatened to stop paying the defendants for the services provided to patients throughout Florida continuously since long before this action began in 2011.” The judge noted that the government had never made any complaint or imposed any administrative sanction on the practices alleged by the relator. The judge further wrote, “federal and state governments regard the disputed practices with leniency or tolerance or indifference, or perhaps with resignation to the colossal difficultly of precise, pervasive, ponderous and permanent record-keeping in the pertinent clinical environment.” The Salus decision is another win for health care providers who have long lived in fear of the enormous penalties under the FCA whenever non-compliance is discovered with the highly complex, technical and ever-changing health care regulations. While each case applying the materiality standard must be analyzed on its particular facts and circumstances at issue, the post-Escobar cases analyzing the materiality standard have provided a welcomed, more consistent approach that providers can look to when defending these cases.

https://dorseyfca.com/hipaa-as-a-basis-for-fca-liability-one-court-says-yes/

On January 5, 2018, the Office of the Inspector General of the United States Department of Health and Human Services (“OIG”) released a favorable Advisory Opinion 17-09 that addresses Section 1128A(b)(1) of the Social Security Act (the “Gainsharing CMP”) and Section 1128B(b) of the Social Security Act (the “Anti-Kickback Statute”) with respect to a cost-reduction arrangement (the “Arrangement) between a medical center (“Medical Center”) and designated surgeons. The Arrangement called for the Medical Center to share with the designated surgeons a percentage of the Medical Center’s cost savings as a result of the cost-reduction measures agreed to by the parties. This advisory opinion is the first gainsharing advisory opinion issued since the passage of the Medicare Access and CHIP Reauthorization Act (“MACRA”) in 2015.  MACRA clarified that the Gainsharing CMP was only violated if the payment to the physician is for the purpose of reducing medically necessary services. However, the clarification under MACRA does not appear to have changed the OIG’s analysis significantly.  Gainsharing arrangements have long been considered suspicious by the OIG; although numerous gainsharing arrangements had been reviewed in OIG Advisory Opinions, and have been found to contain enough mitigating factors to not warrant sanctions.  The OIG has analyzed these arrangements under the Gainsharing CMP and the Anti-kickback Statute, and has expressed concern that gainsharing arrangements could result in: (i) stinting on patient care; (ii) cherry picking healthy patients and steering sicker (and more costly) patients to hospitals that do not offer such arrangements; (iii) payments to induce patient referrals; and (iv) unfair competition among hospitals that offer incentive compensation programs in order to foster physician loyalty to attract more referrals.  This advisory opinion joins the list of previous advisory opinions in which the OIG has analyzed detailed facts and circumstances about a proposed gainsharing arrangement with physicians, and has approved the arrangement because it included certain criteria for minimizing the risk of fraud and abuse.  Advisory Opinion 17-09 is helpful to hospitals and physicians that are interesting in entering into gainsharing arrangements because it provides recent insight into the OIG’s perspective on the important factors to include in these arrangements. The Gainsharing CMP prohibits a hospital from knowingly making payments, directly or indirectly, to a physician to induce the physician to reduce or limit medically necessary services to Medicare and Medicaid beneficiaries who are under the physician’s direct care. The Anti-Kickback Statute makes it a criminal offense to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce or reward referrals of items or services reimbursable by a Federal health care program. Here, Advisory Opinion 17-09 addresses an Arrangement between a Medical Center and spine surgeons (“Neurosurgeons”) who are part of a larger multi-specialty physician group (“Group”). In order to participate in the Arrangement, physicians have to be in the Group and be a Neurosurgeon. In total, four physicians were identified as eligible for participation in the Arrangement. All of the Neurosurgeons have medical staff privileges at the Medical Center and all of the Medical Center’s spinal surgeries are performed by the Neurosurgeons. In an effort to reduce costs, a subsidiary of the Medical Center (the “Program Administrator”) conducted a historical practices study of spinal fusion surgeries performed by the Neurosurgeons and identified 34 cost-saving opportunities; including things such as using product standardization. Under the Arrangement, the Medical Center will pay the Neurosurgeons a share of the three-years of cost-savings attributed to the changes the Neurosurgeons make when selecting products to use during the spinal fusion surgeries, among other cost-savings measures. The payment will be distributed to the Neurosurgeons on a per capita basis and the amount allocated to each Neurosurgeon will be subject to a long-standing, pre-existing provision in the Group’s operating agreement that requires the Group to withhold a percentage of collections earned by all physicians for their personally performed services to fund the Group’s administrative and recruitment expenses. The Arrangement includes safeguards such as monitoring and documentation requirements, which are intended to maintain quality of care and protect against inappropriate reduction in services to patients. The parties certified that the cost-savings recommendations will not reduce or limit medically necessary services for patients. Anti-Kickback Analysis: In reaching a favorable opinion, the OIG specifically noted the following safeguards are present in the Arrangement which limit the risk under the Anti-Kickback Statute that the payments to the Neurosurgeons would induce or reward referrals or attract referring physicians: (1) the payment of the cost savings on a per capita (as opposed to an individual) basis reduces the risk the Arrangement creates for any one Neurosurgeon to generate disproportionate cost savings; (2) the potential savings are capped based on the number of spinal fusion surgeries performed by the Neurosurgeons on Federal health care program beneficiaries in the relevant base year, thus limiting the Neurosurgeons’ incentives to increase their referrals to the Medical Center; (3) the aggregate payment to the Neurosurgeons will not exceed 50 percent of the projected cost savings estimated at the beginning of the term of the Arrangement, which reduces the risk of incentivizing referrals; (4) the Program Administrator collects and reviews data on patient severity, age, and payor of the spinal surgeries to confirm historically consistent selection of patients, to prevent data-skewing based on selecting healthier patients; (5) the group of Neurosurgeons retains the portion of the savings, rather than the individual physicians, and the amount retained must be used exclusively for the group’s long-standing formula set forth in their governance documents related to payment of administrative and recruitment expenses, which reduces the risk of inducing or rewarding referrals from non-participating physicians or any particular physician; (6) an annual rebasing method removes savings from prior years and ensures that the performance year savings are calculated only as compared to the most recent base year therefore preventing improper duplicate payments that could constitute unlawful kickbacks; (7) evidence-based medical reviews were completed in order to establish clinical guidelines and evaluations related to the recommended cost-saving measures. Following these reviews, the Requester certified that the recommendations may require additional training for the Neurosurgeons, or changes in their clinical practices/processes, which provided support for the compensation to the Neurosurgeons; (8) the Arrangement ties the incentives to the actual, verifiable cost savings attributable to each recommendation implemented during spinal fusion surgeries, which creates transparency that reduces the risk of the Medical Center accounts being manipulated to “game the system”; (9) Neurosurgeons continue to make patient-by-patient determinations as to the most appropriate device or supply and continue to have access to the same selection of devices and supplies that they had prior to the Arrangement; and (10) no neurosurgeons from other physician groups participate in the Arrangement, thus the risk is reduced that the Medical Center would use the Arrangement to attract others from competitor hospitals to perform surgeries at the Medical Center. Gainsharing CMP: With respect to its analysis of the Arrangement under the Gainsharing CMP, the OIG stated that it relied on the truthfulness of the Requestor’s certification that none of the cost-saving recommendations in the Arrangement will reduce or limit medically necessary services for patients, and that the Program Administrator monitors any changes in cost, resource utilization or quality of patient care; and reports quarterly to a Program Oversight Committee, which is comprised of representatives from the Medical Center, an administrative subsidiary of the Medical Center, the Program Administrator and the Neurosurgeons. The OIG would not opine on whether the recommended cost-saving measures would reduce only non-medically necessary services, but the OIG did evaluate the Requestor’s methodology for developing the recommendations, monitoring safeguards and calculating the savings, and the OIG concluded the methodology was reasonable. The OIG concluded that together, the reasonableness of the methodology and the certifications from the Requestor reduced the risk appropriately that the payments to the Neurosurgeons would limit/reduce medically necessary services to Medicare and Medicaid patients. For more information about gainsharing arrangements, contact your Dorsey & Whitney attorney.    

Last week, Dr. Scott Gottlieb, Commissioner of the FDA, touched on two issues that have frequented headlines in the past two years. First, in remarks made on November 28, 2017, Commissioner Gottlieb expanded on plans to finalize guidance related to complex generic drugs, a broader issue that received specialized focus during coverage of EpiPen’s price hike that began in 2016 and has continued in 2017. Then, on November 30, 2017, Commissioner Gottlieb stated plans to leverage accelerated approval processes for promising drugs, using targeted cancer drugs as an example. Innovative cancer treatments, especially recently approved cancer treatments using gene alteration techniques, which the Commissioner specifically discussed later in the session when discussing the progress of the Oncology Center of Excellence, have also grabbed headlines of late. While these topics, and efforts to address them, are not entirely novel, each statement provided understanding into the FDA’s ongoing efforts to remove regulatory barriers to drug access and gave additional insight as to concrete changes the FDA may be implementing in the foreseeable future. On the complex generic drug issue, Commissioner Gottlieb started by noting steps the FDA has taken to address lack of competition due to branded drug makers using tactics to block generic drug makers from running bioequivalence studies, as well as opportunistic behavior by speculators who acquire off patent drugs with little competition and raise prices sharply. He then went on to expand on plans to improve the process for developing and approving complex generic drugs. Without mentioning EpiPen by name, Commissioner Gottlieb used an example of a drug delivered through a complex device, such as an auto-injector, and went on to explain that “the branded drug maker may still hold IP on certain features of the device. In such a circumstance, the drug can be an old medicine, but the device can be hard to copy since new patents protect its key features.” According to Commissioner Gottlieb, the FDA will aim to address this and similar issues in guidance it is working to finalize under which, among other things, generic products will be allowed “to have certain labeling differences from the branded product – if such labeling changes stem from permitted design differences.” As long as differences in design will not affect the clinical effect or safety profile, the generic product can be approved. This relaxation of rigorous “sameness” standards may prove to have a significant effect on the availability of generic products in situations such as that presented by EpiPen. Similar to the complex generics, the accelerated approval discussion was also part of a larger discussion of steps the FDA is taking to address issues in its approval process. Commissioner Gottlieb and Dr. Francis Collins, Director of NIH, addressed the House Committee on Energy and Commerce to discuss progress in implementing the 21st Century Cures Act nearly a year into its existence. The Cures Act is sweeping legislation that, among other things, aims to streamline the drug and device approval process. For earlier discussion of the Cures Act and its treatment of certain medical software, see this post from my colleague, Ross D’Emanuele. Although Commissioner Gottlieb and Dr. Collins discussed progress under the Cures Act broadly, the Commissioner used his opening statement to specifically mention his view of a potential path for accelerated approval of promising drugs such as targeted cancer treatments. Specifically, Commissioner Gottlieb discussed the potential for using a process, similar to existing accelerated approval processes, for drugs like targeted cancer treatments that may show an “outsized benefit on overall survival” in small trials. Such drugs would ordinarily require further evidence as to how to use the drug in clinical setting, but Commissioner Gottlieb said earlier approval with post-market approval studies to collect further information could often be beneficial. As explained by the Commissioner, accelerated approval is ordinarily granted in situations where drugs show benefits on a surrogate endpoint, such as tumor shrinkage; however, he suggested in his prepared statement it may also be appropriate in these circumstances where outsized benefit is shown on a clinical endpoint, such as survival. It remains to be seen if and how these plans will be finalized and implemented. However, it is clear that the FDA plans to continue to address issues in the drug and device approval process that have come under public scrutiny as of late.

On October 2, the Veterans Administration (VA) proposed a new rule that would expand access to quality care and availability of mental health, specialty, and general clinical care for VA beneficiaries through the use of telemedicine. In their proposed rule, the VA explains the difficulty it has faced attracting a sufficient number of providers to furnish telemedicine services because state professional licensure laws restrict telehealth activities to within state borders. Providers fear discipline from those states for the unlicensed practice of medicine for treating veteran beneficiaries outside of the state in which they are licensed. In addition, in the current telehealth program, many VA medical centers only allow telehealth on federal property out of concern regarding these state limitations, which has hindered the telehealth program from expanding and reaching beneficiaries who need treatment but are not on federal property (e.g., those who are in their homes). The proposed rule aims to address these issues by permitting all VA physicians to treat patients via telehealth across state lines, regardless of where they’re licensed. This federal law would preempt state restrictions on licensure and telehealth, as most states currently restrict providers (including VA clinicians) from treating patients located in that state if the provider is not licensed there. Relaxing these requirements will encourage greater provider participation in the VA’s telemedicine program. In addition, these new rules would allow veterans, from their home, to use a mobile app, called VA Video Connect, to connect with their healthcare providers and conduct a home videoconferencing session. The proposed rule explains that eliminating veteran suicide and providing access to mental health care is the VA’s “number one priority” and this proposed rule would improve the VA’s ability to reach some of its most vulnerable beneficiaries. The commentary in the rule explains that telehealth “empowers beneficiaries to take a more active role in their overall health” and that the program is “particularly important for beneficiaries with limited mobility, or for whom travel to a health care provider would be a personal hardship.” Rural connectivity, decreasing wait times for veterans, improving access to mental health services, and an overall increase in access to care is the driving force behind these efforts. In fiscal year 2016, VA practitioners saw 702,000 patients via telemedicine in 2.17 million episodes of care. Almost half of those who received telemedicine care were in rural areas. The VA has already seen improved patient care as a result of the VA’s expansion of telemedicine services. For example, the VA reports there was a 31 percent decrease in VA hospital admissions for beneficiaries enrolled in the VA telehealth monitoring program for non-institutional care and chronic care management. Additionally, the VA reports a 39 percent reduction in the number of acute psychiatric VA bed days of care. The commentary states, “This rule would ensure that VA health care providers provide the same level of care to all beneficiaries, irrespective of the State or location in a State of the VA health care provider or the beneficiary.” The AMA supports this proposed rule. In its statement supporting the proposed rule, the AMA emphasized that the rule is narrowly tailored to only apply the multi-state licensure pre-emption to VA-employed providers who are directly controlled and supervised by the VA, and does not cover contracted physicians or providers who are not directly controlled and supervised. Those interested in providing feedback can submit written comments until November 1, 2017.

Perhaps lost amid the healthcare news coverage of competing proposals regarding “Medicare for All” and the repeal of Obamacare, the Centers for Medicare & Medicaid Services (“CMS”) last month announced the expansion of its Targeted Probe and Educate (“TPE”) claims review program to the entire country by the end of the year. CMS’s announcement can be found here.   The expansion of the TPE program is welcomed by the provider community, many members of which view this as an opportunity for proactive education and corrective action with CMS, as opposed to the punitive approach taken under other Medicare programs that evaluate claims retrospectively and put the provider at risk of fines and other penalties if a mistake is discovered.  During the recent pilot phase of the TPE program in four Medicare Administrative Contractor (“MAC”) jurisdictions, CMS found decreases both in the number of claim errors after providers/suppliers received education and in the number of appealed claims decisions, which demonstrate that the program works to increase claims accuracy.   MACs, on behalf of CMS, review clinical documentation related to claims to prevent improper Medicare payments. Historically, when conducting an audit, MACs have reviewed all providers/suppliers billing a particular service. However, the approach under TPE will be different in that it will focus on only a subset of providers/suppliers. Specifically, MACs focus on those providers/suppliers identified through data analysis as having (a) the highest claim error rates or (b) billing practices that differ greatly from their peers with respect to those items/services (i) that pose the greatest financial risk to Medicare and/or (ii) that have a high national error rate.   Another difference from prior audit programs is that providers/suppliers identified for the TPE program have a more manageable, limited number of claims (e.g., 20-40) reviewed, compared to the burdensome number of claims that have been audited in other Medicare programs.  Following the claims review, CMS will provide individual education to address any errors found. This review and education process continues for up to three rounds. A helpful CMS flowchart outlining this process can be found here.   Providers/suppliers that demonstrate sufficient improvement may be excused from the TPE process following any round. On the other hand, providers/suppliers with persistent high error rates after three rounds of the TPE process may face consequences such as prepay review, extrapolation, RAC audits, or other actions.  

On September 7, 2017, the OIG posted an advisory opinion regarding a retail pharmacy chain’s proposal to extend to federal health care program beneficiaries the option to participate in a paid membership program that includes discounts on certain prescriptions and clinical services offered by the retail chains’ pharmacies and in-store clinics.  Presently, the pharmacy chain’s program excludes federal health care program beneficiaries.  The OIG found that the proposed program would meet the retailer reward exception to the definition of remuneration under the Beneficiary Inducement law, and that the proposed program would pose a minimal risk of fraud and abuse under the Anti-Kickback Statute.   The pharmacy chain’s proposed membership program included the following benefits:   Members of the program would have access to discounts on the pharmacies’ retail prices for specific items that the Member paid for entirely out-of-pocket (ex. generic drugs, pet prescriptions, nebulizer devises, blood glucose testing meters, immunizations, and other prescriptions listed on the pharmacy membership benefit program’s formulary); Members would have access to a 10 percent discount on clinical services paid for out-of-pocket (ex. physicals, immunizations, health screenings); Members could earn a 10 percent credit toward future eligible retail purchases when they purchased certain company-branded products and in-store photo finishing.  The credit could not be used to purchase prescriptions, immunizations, clinic services, alcohol, gift cards, postage stamps, pre-paid cards, milk products, tobacco products, or for retail pharmacy or clinic cost-sharing amounts. The OIG noted that the vast majority of products and services for which Members could earn and redeem credits are not federally reimbursable.   Members could enroll in the program either online through the company’s website or in person. The membership would be open to the general public. The only requirements for membership are a payment of an annual membership fee, that the Member be over 18 years of age, and that the Member provide certain personal information such as name, date of birth, address and phone number.   In order for federal health care program beneficiaries to access the discounts, the Members would need to pay for such items and services out-of-pocket (if the Member’s health plan or prescription plan covers an item that the Member would like to purchase through the retailer’s membership program, the Member would have to relinquish his or her health or prescription plan’s coverage for that particular purchase and instead, pay for the item out-of-pocket). The proposed membership program’s terms and conditions specifically state that Members are entirely responsible for all charges for discounted items or services they purchase through the program and that there would be no additional incentives given to Members for filling or transferring a new prescription to the pharmacy. The proposed program would allow for Medicare beneficiaries to submit claims for drugs purchased out-of-pocket while the beneficiary is in the Part D coverage gap, which would count toward a Medicare Part D beneficiary’s true out-of-pocket cost calculation.   Based on these facts, the OIG concluded that the proposed arrangement would implicate both the Anti-Kickback Statute and the Beneficiary Inducement CMP because the discounted items, services and earned credits could induce a beneficiary to select the retailer for his or her federally reimbursable items or services.  However, the OIG found that inclusion of federal health care program beneficiaries into the paid membership program would not constitute grounds for civil money penalties under the Beneficiary Inducement law, and that the OIG would not impose administrative sanctions under the Anti-Kickback Statute because the program:   Would satisfy the requirements of the exception to the definition of remuneration related to retailer rewards under the Beneficiary Inducement law. Specifically, the OIG noted that: the membership is the equivalent of a “coupon” under the retailer rewards exception; the earned credits would constitute a “rebate” under the same exception; the membership is available to the general public on equal terms; and the offer or transfer of rewards would not be tied to the provision of any other items or services that are federally reimbursed.  The retailer specifically certified that its pharmacies and clinics would not submit a claim to a Federal healthcare program or to any other 3rd party payor for any of the items or services purchased at a discount under the membership program, and that the Members would be entirely responsible for all charges.  Further, the OIG noted that with respect to the credits, the membership program did not have a different mechanism for accumulating or redeeming credits between items and services that are, and are not, covered by Federal health care programs.  Also, the vast majority of items and services for which a Member could earn and redeem a credit are not federally reimbursable.  Of note, the OIG stated that if the Member could only earn or redeem (or could preferentially accumulate or use) credits based on the purchase of federally reimbursable items or services, the OIG would reach a different conclusion; and Would pose a low risk of fraud and abuse under the Anti-Kickback Statute because, in addition to the positive factors described under the OIG’s analysis under the Beneficiary Inducement law, the arrangement also does not include any features to specifically steer beneficiaries to the retail pharmacies or clinics or to purchase federally reimbursable items or services. It was noted that the membership program included a broad range of inventory, including groceries and toiletries.  The Members would not be required to purchase prescriptions, immunizations, clinic services or any other services that are federally reimbursable.  Instead, the Members would earn credits through other purchases under the membership program.  Also, there would not be any offers related to transferring prescriptions or filling them at the retailer, or receiving clinic services at the retailer’s stores. Further, the OIG pointed out that the arrangement would be unlikely to result in overutilization or otherwise increase costs to Federal health care programs because the Member would already have obtained a written order for a prescription from his or her prescriber, and, regardless, the pharmacies would not submit claims for the prescriptions purchased under the membership program to any Federal health care program.  Further, the arrangement would not involve a waiver or reduction in any cost sharing amounts incurred by Federal health care program beneficiaries, and there would only be “very limited exceptions” in which Members would earn/redeem credits on items that would be paid for by Federal health care programs.   As always, OIG opinions are only applicable to the requesting individual or entity and cannot be relied on by any other individual or entity. However, this opinion provides guidance on the OIG’s current stance on pharmacy member benefit programs that include federal health care beneficiaries. We recommend organizations looking to extend their member benefit programs to include federal health care beneficiaries contact their legal representatives to help structure the program in accordance with federal and state statutes and regulations.   The full advisory opinion can be found here.

Several states have proposed and enacted new laws to address the opioid crisis, including laws that focus on reducing financial incentives that drug manufacturers can give to providers. Most recently, New Jersey Governor Chris Christie proposed a new regulation that would cap how much NJ prescribers can earn from drug companies at $10,000 per year.  The governor’s office estimates that doctors in New Jersey were paid $69 million from drug companies and device manufacturers in 2016 and that two thirds of that amount were paid to 300 physicians in the state. The goal of the regulation is to reduce unnecessary prescription of painkillers by prohibiting prescribers from accepting lavish meals and uncapped compensation for any speaking engagements, consulting, or other services. The proposed regulation also strengthens existing limitations for licensees of the NJ Boards of Medical Examiners, Dentistry, and Optometry and extends requirements to Advanced Practice Nurses in order to reduce incentives for “over prescribing.” The proposed rule’s clarifications are designed to make it easier for these NJ state boards to hold prescribers accountable by: specifying prohibited items as the following: cash, gift cards, entertainment and recreational items; items for prescriber’s personal use; payments supporting non-faculty attendance at promotional activities; and continuing education events; providing exemptions from these prohibitions if the purpose of the payment is for the benefit of patients or prescriber education, including some educational materials; setting standards for agreements for “bona fide services,” which might include speaking at promotional activities and continuing education events, participation in advisory bodies, and under consulting arrangements. These standards include requiring the terms of those agreements to be in writing, with dollar amounts, and an articulation of the prescriber’s expertise; giving clear restrictions on what constitutes a “modest” meal: it must be provided in a setting that enables learning, the value of the meal must not exceed $15, and such meals must not occur more than four times per year for any one provider; and capping compensations for bona fide services (with the exception of speaking at continuing education events) from all manufacturers at $10,000 every calendar year.   New Jersey is just one of several states to react recently to the opioid crisis with additional scrutiny of payments to physicians. In June of 2017, the Maine governor signed 32 MRSA §13759, An Act to Prohibit Certain Gifts to Health Care Practitioners. The law prohibits licensed pharmaceutical and medical device manufacturers and wholesalers from providing certain gifts to practitioners. Member of the Maine House of Representatives, Scott M. Hamann explained the law is meant to curb the addiction problem in the state by preventing doctors from overprescribing. Also in June of 2017, the city of Chicago took aim at the opioid crisis publishing rules to implement a city ordinance which requires a license for pharmaceutical representatives who market or promote within Chicago more than 15 calendar days per year. Those licensees must collect and disclose information about their activities, including a list of health care professionals within Chicago contacted; the number of times the health care professionals were contacted; the location and duration of contact; the pharmaceuticals promoted; whether product samples, materials, or gifts of any value were provided to the health care professional and the value of the products, materials, or gifts; and whether and how the health care professional was compensated for contact with the pharmaceutical representative.   Various state open payments requirements are also in place in Vermont, Nevada, Massachusetts, Connecticut, California, Washington D.C., and Minnesota. Drug and manufacturing companies should note and monitor these and other states’ ongoing developments in this area. The New Jersey rule will be published October 2, 2017, but it will not be implemented until after a public hearing to take public comment from the regulated communities, industry representatives, and the public. The public hearing is expected to be held October 19, 2017.

On July 18, 2017, the United States Attorney’s Office for the Northern District of Illinois announced that it was creating a new unit located in Chicago within the office’s Criminal Division dedicated to prosecuting criminal health care fraud (the Health Care Fraud Unit). The office explained that it expected the unit, which will include five prosecutors, to build on its successful prosecution of numerous health care fraud cases in recent years and “bring even greater focus, efficiency and impact to [its] efforts in this important area.” The Health Care Fraud Unit will also build on the office’s previous prosecution of significant diversion of controlled substances cases, in line with the office’s emphasis on battling the opioid crisis. Other United States Attorney’s Offices may follow suit in creating such units. Chicago is also one of nine areas where a Medicare Fraud Strike Force team is located, which are inter-agency teams that focus on the worst offenders in health care fraud “hot spots.” The week prior to the announcement of the new Health Care Fraud Unit in Chicago, there was a national health care fraud “takedown” involving more than 400 defendants allegedly responsible for $1.3 billion in false billings to Medicare and Medicaid, which was the largest health care fraud enforcement action in the history of the Department of Justice and involved coordination among multiple federal and state agencies. While such “takedowns” occur on approximately a bi-annual basis, this one is notable for its size. These events and others like them show the continued emphasis on combating health care fraud under the new administration. In Chicago and across the country, prosecution of criminal healthcare fraud cases will likely continue to increase, and civil health care fraud investigations and qui tam actions will also likely increase.

Under 42 U.S.C. § 1320a-7b(b)(1)(A) it is a felony for a physician to solicit or receive a kickback “in return for referring” a Medicaid or Medicare patient to another medical provider. But as a recent decision by the Eighth Circuit in United States v. Iqbal demonstrates, physicians are not the only ones capable of making illegal referrals under the statute—consultants can, too. Defendant Iqbal was a consultant that managed a group of physicians. He approached a medical provider (“PCP,” a home care agency) with a profit-splitting scheme: he would send physicians’ patients to PCP in exchange for fifty-percent of PCP’s profits for serving the patient. PCP contacted authorities about the scheme and thereafter accepted Iqbal’s proposal while working undercover with authorities. The sting operation resulted, at first, in a March 2011 meeting between Iqbal and PCP. At that meeting Iqbal touted his strong relationship with the group of physicians and his ability to refer their patients to PCP, and reiterated his fifty-fifty profit sharing scheme to which PCP agreed. Iqbal’s physicians later referred two patients to PCP, which PCP served and received Medicaid and Medicare reimbursement. PCP sent Iqbal separate payments in June and August for his fifty-percent share of the profits that PCP made from serving the two patients. Iqbal was charged with three counts of illegal kickbacks: One, for soliciting illegal kickbacks during his March 2011 meeting with PCP; Two, for receiving an illegal kickback in June; and Three, for receiving an illegal kickback in August. All three counts were “in return for referring” patients to PCP under § 1320a-7b(b)(1)(A). Iqbal challenged the sufficiency of the evidence, and conceded that the statutory phrase “in return for referring” meant that one must cause or induce the referral. The two-judge majority willingly assumed as much, declined to interpret the statute any narrower, and found the evidence sufficient to affirm his convictions. Although the majority’s reasoning was not surprising, Judge Kelly in a partial dissent and concurrence took up the task of interpreting the statutory phrase, “in return for referring.” The Eighth Circuit had not previously defined the term. Judge Kelly relied on cases from other circuits in similar contexts to adopt the interpretation “that a person refers an individual for a service only when, as a practical matter, the person exercises decision-making control over the selection of the service provider.” As a result, Judge Kelly utilized a narrower definition than Iqbal and the majority. Under that definition, Judge Kelly found insufficient evidence to affirm Iqbal’s convictions for receiving a kickback for referring the two patients, because the government failed to show that Iqbal exercised decision-making control over the physicians’ referrals. Judge Kelly, however, affirmed Iqbal’s conviction for soliciting a kickback during his March meeting with PCP because Iqbal held himself out to PCP as having the ability to make the referrals, regardless of his actual ability to do so. So physicians, consultants, and everyone in between dealing with Medicaid and Medicare patients should keep in mind that while decision-making control over a referral is likely necessary evidence to prove a “referral” in return for an illegal kickback, solicitations do not require such decision-making control. All that is required is representing that one has the ability to do so.