Ross C. D'Emanuele

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

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.

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.

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.”)

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.

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.

The Cybersecurity Act of 2015 established the Health Care Industry Cybersecurity Task Force to respond to severe cyber-attacks within the rapidly-expanding information technology (“IT”) aspect of health care. Section 405(c) of the Act required the Task Force to research and develop a report summarizing the vulnerabilities in health care IT. On June 2nd, 2017, the Task Force released its Report on Improving Cybersecurity in the Health Care Industry. The Report is sobering, and finds that health care cybersecurity is in critical condition.  The Report outlines six recommendations to improve cybersecurity in the health care industry: Define and streamline leadership, governance, and expectations for health care industry cybersecurity. Increase the security and resilience of medical devices and health IT. Develop the health care workforce capacity necessary to prioritize and ensure cybersecurity awareness and technical capabilities. Increase health care industry readiness through improved cybersecurity awareness and education. Identify mechanisms to protect R&D efforts and intellectual property from attacks or exposure. Improve information sharing of industry threats, risks, and mitigations. These six recommendations recognize the need to assess cybersecurity at the industry level in order to better protect patient care and security. To use a cliché, health care cybersecurity will only be as strong as the weakest link in the industry. However, not every health care entity has similar resources. So, while the recommendations call for improvements and updates to guidance, regulations, and laws that affect health care cybersecurity, they do so in a way that recognizes the need for flexibility in the health care industry. For example, the first recommendation calls federal legislation “confusing” and “conflicting” and asks for a unified regulatory framework that untangles the current mess. In addition, the recommendations illustrate that the growing sophistication of health care IT demands a broader cybersecurity approach than previously required. The cybersecurity concern no longer rests with only protected health information at the provider level. Now, cybersecurity needs to branch out and include, for example, medical device developers. Improving patient care is clearly a central goal, and the Report speaks to that objective by highlighting problem areas with a direct connection to patient care outcomes. The Report also recognizes that the health care industry is a mosaic of large systems, private practices, payers, and developers where a one-size-fits-all approach is not conducive to progress. As such, this Report may trigger a cybersecurity-themed review of various regulatory areas that takes into account both patient care needs and variations in health care entity resources. Summer Associate Randall Hanson provided substantial assistance with the drafting of this blog post.

The FDA has called on the drugmaker Endo Pharmaceuticals to stop selling the opioid Opana ER. The press release on June 8th reflecting this announcement marks a novel approach from the FDA, as the agency for the first time has asked a company to remove a painkiller from the market based on the public health consequences of abuse. This opioid is an extended release version of Opana, and was first approved in 2006. As the nation increasingly faced an epidemic of opioid abuse and overdoses, the manufacturer reformulated the drug in 2012, adding a coating to the medication intended to make it harder to snort or inject the medicine. The FDA found that the product met the regulatory standards for approval, but declined to approve labeling describing the medication as having abuse deterrent properties because they found that the data did not show that the reformulation could be expected to meaningfully reduce abuse. Despite the 2012 reformulation, an increasing number of people abused this opioid by crushing, dissolving, and injecting it. In March of 2017, a panel of advisers to the FDA voted 19-8, with one abstention, that the drug’s benefits no longer outweighed the risks. Data showed that while nasal abuse fell, the rate of abuse through intravenous injection increased and the drug has been associated with outbreaks of HIV and hepatitis C, as well as a blood disorder thrombotic microangiopathy. In addition, Opana was considered at the center of an HIV outbreak in Indiana in 2015. The opioid epidemic in the United States has prompted several novel approaches to reducing abuse, often at the state level. State level responses, including prescription drug monitoring programs, declarations of a state of emergency, and limiting prescription lengths for opioids, are being implemented across the country, at the same time that lawmakers debate the future of the Affordable Care Act which has aimed millions of dollars within the Medicaid program towards addiction treatment and prevention, and expanded the scope of the Mental Health Parity Act. Ohio Attorney General Mike DeWine filed a lawsuit against five opioid manufacturers on May 31, including Endo, accusing them of misleading doctors and patients about the danger of addiction and overdose. Other states and cities have filed similar lawsuits. Ninety-one Americans die every day from opioid overdose according to the CDC. The FDA has stated that if the company resists removal of this opioid from the market, the agency intends to take formal steps to remove it by withdrawing approval. Endo in a response stated that the company is reviewing the request and evaluating potential options as they “determine the appropriate path to move forward.” This FDA action is a significant step in what will likely be a lengthy journey in which federal and state regulators (and private plaintiffs) use whatever legal authorities available to combat an increasingly damaging public health crisis.

Not relying on Congress to take action on the Affordable Care Act, the Centers for Medicare and Medicaid Services (“CMS”) has proposed new regulations intended to attract health insurance issuers back into ACA health insurance exchanges and stabilize the individual and small group insurance markets. On February 17, 2017 CMS proposed a set of modifications to regulations promulgated pursuant to The Patient Protection and Affordable Care Act (Pub. L. 111-148) and The Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152), collectively known as the “Affordable Care Act” or “ACA.” A primary goal of the proposals is to improve the insurance risk pool in the ACA exchanges, individual, and small group markets by promoting continuous health insurance coverage and reducing incentives for individuals to enroll in health insurance plans only when they require services. For example, the proposed rule would allow CMS to verify that individuals seeking to enroll in the Exchanges within a special enrollment period (i.e., outside of the annual open enrollment period) are eligible for special enrollment.   Current CMS policy allows individuals to self-attest that they meet special enrollment period eligibility requirements and enroll without further verification. The proposed rule would also reduce the annual Exchange open enrollment period for 2018 so that it begins November 1, 2017 and ends December 15, 2017 (current regulations have the 2018 plan year enrollment period lasting until January 1, 2018).   CMS states that the 15 day enrollment period reduction may have a positive impact on the Exchange risk pool by reducing the adverse impact of  enrolling individuals who learn they will need services in late December. Another proposal aimed at promoting continuous insurance coverage (rather than enrollment when services are needed) is to permit insurance issuers to attribute an individual’s premium payment for new coverage to any debt the individual owes for premium non-payment for coverage from the same issuer within the prior 12 months. The issuer would be permitted to deny enrollment for the new coverage and apply payment to the past debt.   Regulations at 45 C.F.R. § 147.104 state that issuers must guarantee availability of coverage to individuals and employers, and current interpretation of that regulation allows an individual to avoid premium payment for current coverage at the end of a plan year, yet obtain new coverage from the same issuer so long as one month’s premium is paid at the beginning of the plan year. CMS also proposes to increase the flexibility issuers have to design health plans that meet the Affordable Care Act’s required coverage level. Under the proposal, health plans that have an actuarial value ranging from -4 to + 2 percentage points from the required actuarial value of health coverage would be considered a de minimis variation, and would meet the individual and small group market standard.   Current regulations allow a variation of -2 to +2 percentage points. CMS proposes that the States review the adequacy of an issuer’s provider network, rather than requiring issuers to comply with CMS network adequacy guidance. Where a State does not have a sufficient network adequacy review process, CMS would rely on an issuer’s accreditation from the National Committee for Quality Assurance, URAC, or the Accreditation Association for Ambulatory Health Care as a network adequacy review. Lastly, the proposal would reduce by 10% the minimum percentage of Essential Community Providers (providers that serve predominantly low-income and medically underserved individuals) in a plan service area that an issuer must include in its network, and would allow greater flexibility to identify Essential Community Providers. Whether these proposals are finalized and are enough to attract health insurance issuers back to the Exchange marketplace remains to be seen.   And legislation to repeal or significantly modify the ACA could make the latest CMS proposals moot.  Nonetheless, CMS is not assuming the ACA Exchanges will disappear, and appears to be moving forward with efforts to stabilize the Exchanges and individual and small group markets. A copy of the proposed rule is available here: https://www.gpo.gov/fdsys/pkg/FR-2017-02-17/pdf/2017-03027.pdf

One of President Trump’s first actions in office was to sign an Executive Order stating that his Administration will seek to repeal the Affordable Care Act (the “Act”). In the meantime, President Trump directed the executive branch to take “all actions consistent with law to minimize the unwarranted economic and regulatory burdens of the Act, and prepare to afford the States more flexibility and control to create a more free and open healthcare market.”  The Order directs the Secretary of HHS and the heads of other executive departments and agencies with authority under the Act to have all “authority and discretion” to waive, defer, grant exemptions from or delay implementing any provisions of the Act that would impose a fiscal burden on a State, individual, health care provider, health insurer, medical device maker, etc.  The Order states that the heads of applicable departments and agencies shall encourage the free and open market to preserve maximum options for patients and consumers.  To the extent any rulemaking is needed to carry out the directives in the Order, the heads of agencies are directed to follow through with notice and comment rulemaking. The Executive Order regarding agency actions pending the Act’s repeal is in today’s federal register, and can be found here:  https://www.federalregister.gov/documents/2017/01/24/2017-01799/minimizing-the-economic-burden-of-the-patient-protection-and-affordable-care-act-pending-repeal.  There are a large number of regulations that could be impacted in a short time frame. It is unclear whether and what agency action would be taken at the present when there is not yet in place an alternative system to the Affordable Care Act.  Dorsey attorneys will be closely following the changes to the Affordable Care Act and will provide updates as developments unfold.

The 21St Century Cures Act, Pub. L. No. 114-255, 130 Stat. 1033, was signed into law on December 13, 2016.  This expansive statute addresses topics ranging from investigational drug clinical trial design, mental health program funding and insurance coverage, to a new Medicare benefit for home infusion therapy, among many others.  This post focuses on amendments to the Federal Food, Drug, and Cosmetic Act (“FDCA”) addressing FDA regulation of medical software. Section 3060 of the 21St Century Cures Act describes five types of medical software that are not to be considered a regulated medical device under the FDCA.    Perhaps most notably, this includes software intended to support or provide recommendations to a health care professional about prevention, diagnosis, or treatment of a disease or condition, or to display, analyze, or print medical information about a patient or other medical information  such as peer-reviewed clinical studies and clinical practice guidelines. However, to avoid regulation the software function must enable a health care professional to independently review the basis for the software’s recommendations, so that it is not intended that the health care professional rely primarily on the software’s recommendations to make a diagnosis or treatment decision about an individual patient. In addition, the software function must not be intended to acquire, process, or analyze a medical image or a signal from an in vitro diagnostic device or a pattern or signal from a signal acquisition system. This provision essentially ensures that FDA may not regulate many types of clinical practice support software as medical devices, so long as the software does not acquire or analyze medical images or in vitro device signals, and does not perform biomedical signal acquisition. The other four types of medical software excluded from the definition of a medical “device” are software intended: to transfer, store, convert, format, or display clinical diagnostic laboratory test results or other device data, findings by a health care professional regarding such data and results, and general information about those findings and background information about the tests and devices, so long as the software is not intended to interpret or analyze a laboratory test or device data, results, or findings; for administrative support of a health care facility (including processing claims and billing information, business analytics, population health management, lab workflow, cost-effectiveness and utilization analysis, and appointment scheduling); to maintain or encourage a healthy lifestyle, so long as the software is unrelated to the diagnosis, cure, mitigation, prevention, or treatment of a disease or condition; and to serve as an electronic patient record to the extent the electronic record is intended to transfer, store, convert formats, or display the equivalent of a paper medical record, and so long as: (a) the records were created, stored, transferred, or reviewed by a health care professional (or by those supervised by a health care professional); (b) the records are part of a certified health information technology; and (c) the software function is not intended to interpret or analyze patient records in order to diagnose, cure, mitigate, prevent, or treat a disease or condition. The medical software industry will welcome these provisions because they clear away ambiguity as to whether many types of clinical practice support software, EHR software, and other types of administrative software used in health care settings may be regulated as medical devices under the FDCA. As medical software continues to evolve and biomedical signal acquisition and similar features continue to integrate into administrative and clinical practice software, certainly  some software functions of more complex, multi-use software may be regulated under FDA’s  medical device authorities.   Moreover, medical software developers and producers must remain attentive to regulation affecting certain aspects of their products and product use (such as HIPAA and FTC privacy and security regulation).   But the 21st Century Cures Act undoubtedly brings greater certainty about the costs and ongoing regulatory burden associated with a wide variety of medical software.

On November 2, the Centers for Medicare & Medicaid Services (CMS) finalized the 2017 Medicare Physician Fee Schedule (PFS) rule. This rule, which takes effect on January 1, 2017, updates payment policies and rates for services furnished under the PFS.  A CMS fact sheet summarizing the major components of the rule is available here.  The rule included several updates to and clarifications regarding the federal physician self-referral law (or “Stark Law”), including: (1) unit-based compensation in arrangements for the rental of office space or equipment; (2) a technical correction; and (3) the annual update to CPT/HCPCS codes used to identify certain categories of Stark designated health services (or “DHS”).  These updates and clarifications are either routine or, in the case of unit-based compensation, ultimately resulted in no changes to the Stark regulations as currently implemented. Unit-Based Compensation. First, the PFS rule included a lengthy discussion of unit-based compensation in arrangements for the rental of office space or equipment (so-called “per-click” arrangements).  This discussion stemmed from an opinion issued by the D.C. Circuit on June 12, 2015 in Council for Urological Interests v. Burwell, 790 F.3d 212 (available here).  In this opinion, the D.C. Circuit concluded that CMS’s discussion of a 1993 House of Representatives conference report in the 2009 Inpatient Prospective Payment System (IPPS) final rule, which finalized regulations prohibiting certain per-unit of service compensation formulas in the rental of office space and equipment regulatory exceptions (found at 42 C.F.R. § 411.357(a)(5)(ii)(B) and (b)(4)(ii)(B), respectively), “contained an unreasonable interpretation of the conferees’ statements” concerning the rental of office space and rental of equipment statutory exceptions (found at 42 U.S.C. § 1395(e)(1)(A) and (e)(1)(B), respectively), and remanded the case to CMS “to permit a fuller consideration of the legislative history.” CMS responded to this directive in the final PFS rule. In the proposed 2017 PFS rule (available here), CMS used the same language in the existing exceptions for office space and equipment and proposed to include in each exception a requirement that, as previously implemented, rental charges for the lease of office space or equipment are not determined using a formula based on per-unit of service rental charges, to the extent that such charges reflect services provided to patients referred by the lessor to the lessee.  CMS also used the opportunity to re-propose the same language, as was previously implemented, banning per-click lease arrangements in the exceptions for fair market value compensation and indirect compensation arrangements (at 42 C.F.R. § 411.357(l)((3)(ii)) and (p)(1)(ii)(B), respectively).  In the final rule, CMS finalized these requirements without modification.  The net result is that the language in all four exceptions (for office space, equipment, fair market value compensation and indirect compensation arrangements) has remained unchanged.  Note that the relatively new exception for timeshare arrangements (at 42 C.F.R. § 411.357(y)(6)(ii)(B)), which was effective on January 1, 2016, includes a parallel ban on per-unit of service fees, with CMS using the same rationale for including it there. CMS rejected the position of the Council for Urological Interests that it lacked authority to impose a ban on per-click leases, and asserted that its reasoning in this final rule fully addressed the court’s concerns. As the D.C. Circuit stated, CMS emphasized that the Stark Law “does not unambiguously forbid the Secretary from banning per-click leases as she evaluates the needs of the Medicare system and its patients.”  CMS pointed out that the Stark Law gives it the authority to add requirements as needed to protect against program or patient abuse, explicitly permits it to impose additional conditions on arrangements for the rental of office space or equipment, and does not state that per-click rates must always be permitted.  CMS stated its belief, as first stated in the 2009 IPPS rule, that such a ban is necessary because per-click lease arrangements (where the lessor makes referrals to the lessee that generate payments to the lessor) create improper incentives for physicians to over-utilize services (by ordering unnecessary services that would not have been ordered absent a profit motive), may narrow the choice of treatment options of a patient and may increase costs to the Medicare program. Further, citing language from the opinion, CMS stated that “Congress knew how to cabin the Secretary’s authority to impose ‘other’ requirements” and “knew how to further clarify what it meant by compensation that does not take into account the volume of business generated between the parties” (as it did in the employment exception). Additionally, Congress knew how to permit per-click payments explicitly (as it did in the exception for continuation of certain group practice arrangements with a hospital).  The fact that Congress did not explicitly prohibit or permit per-click arrangements in the context of the exceptions for office space and equipment leases supports the position that the Stark Law is silent regarding the permissibility of per-click for equipment rentals.  Therefore, CMS has the authority to impose such a prohibition in order to protect against program or patient abuse. CMS emphasized that it does not absolutely prohibit rental charges based on units of service furnished. This is only prohibited “where the lessor generates the payment from the lessee through a referral to the lessee for a service to be provided in the rented office space or using the rented equipment.”  For this reason, per-unit of service rental charges are permitted, as long as the referral for those services did not come from the lessor. Technical Correction. Second, the rule included a technical correction regarding instructions for submitting a request for an advisory opinion related to physician referrals at 42 C.F.R. § 411.372(a).  This rule now provides that parties must submit such requests to CMS according to instructions specified on the CMS website.  Previously, this regulation specified that parties must submit such requests to CMS in writing.  However, the CMS website regarding advisory opinions (available here) has not been updated since March 2016 and does not include instructions for submitting an advisory opinion.  These instructions will likely be posted to this website in the near future. Code List Updates. Third, the rule included the annual update to the list of CPT/HCPCS codes used to identify certain categories of DHS (the “Code List”).  As specified in the Stark Law regulations at 42 C.F.R. § 411.351, 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 Code List is updated annually to reflect changes in the most recent CPT and HCPCS Level II publications.  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.  We expect that, as per usual, the complete list will be posted before the end of the year to the CMS website dedicated to the Code List, found here. The advanced copy of the PFS rule is available here.  The official version of the rule is scheduled for publication in the Federal Register on November 15, 2016.

On October 4, 2016, the Centers for Medicare and Medicaid Services (“CMS”) published a final rule comprehensively updating and revising federal regulations that apply to long-term care facilities (“LTC Facilities”) participating in Medicare and Medicaid. This is the first comprehensive update of these regulations (located at 42 C.F.R. part 483, subpart B) since 1991. CMS said the revisions were necessary in part because the LTC Facility patient population has changed, becoming more diverse and clinically complex. In addition, CMS noted that extensive, evidence-based research conducted over the past two to three decades has enhanced the industry’s knowledge about resident safety, health outcomes, individual choice, and quality assurance and performance improvement. The final regulations will be implemented in three phases. Regulations included in Phase 1 will be implemented by November 28, 2016.  Regulation included in Phase 2 will be implemented by November 28, 2017 and regulations included in Phase 3 will be implemented by November 28, 2019. The final rule revises regulations impacting a wide variety of areas, including: resident rights; abuse, neglect and exploitation; admissions and transfers; resident assessments; person-centered care planning; quality of care; physician services; laboratory, radiology, and other diagnostic services; administration; quality improvement; compliance and ethics programs; physical environment; infection control; and training requirements. Some key provisions include: Arbitration Agreements. A prohibition on the use of pre-dispute binding arbitration agreements. LTC Facilities that participate in Medicare or Medicaid can no longer enter into pre-dispute binding arbitration agreements with their residents or their representatives. Similarly, a LTC Facility cannot require a resident to sign a post-dispute arbitration agreement as a condition of the resident’s continuing to stay at the facility. After a dispute arises, the resident and the LTC Facility may voluntarily enter into a binding arbitration agreement if both parties agree. The final rule does not affect existing arbitration agreements or render them unenforceable. Person-Centered Care Planning. LTC Facilities are required to develop and implement a baseline care plan for each resident within 48 hours of their admission, which includes the instructions needed to provide effective and person-centered care that meets professional standards of quality care. The baseline interim care plan must include, at a minimum, the initial resident goals based on admission orders, physician orders, dietary orders, therapy and social services and pre-admission screening and resident review process recommendations. Discharge assessment and planning must be included in the comprehensive care plan. Compliance and Ethics Program. The final rules requires the operating organization for each facility to have a compliance and ethics program with written compliance and ethics standards, policies and procedures. The final rule included a set of requirements that all operating organizations must meet, regardless of size. Operating organizations that have five or more LTC Facilities must meet additional requirements. The final rule requires all operating organizations to have the required compliance and ethics program in place within one year of the effective date of the final rule. Training Requirements. LTC Facilities must develop, implement, and maintain an effective training program for all staff, independent contractors, and volunteers. The training topics include: communications training; resident rights training; abuse, neglect, and exploitation training; quality assurance and performance improvement training; compliance and ethics training; and nurse aide in-service training –dementia and abuse. A copy of the final rule is available here: https://www.gpo.gov/fdsys/pkg/FR-2016-10-04/pdf/2016-23503.pdf