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September 13, 2016

CMS Provides Physician Feedback Regarding MACRA


The Centers for Medicare & Medicaid Services (CMS) announced on its blog earlier this month that it will allow physicians to select their level of participation for the first performance year of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) Quality Payment Program. The program starts January 1, 2017. Of note, during the first performance year (2017), “[c]hoosing one of these options would ensure [physicians] do not receive a negative payment adjustment” under MACRA in 2019.


Under the Quality Payment Program, physicians will fall under the Merit-Based Incentive Payment System (MIPS) if they do not qualify under the Advanced Alternative Payment Model (Advanced APM) option. In 2019, those physicians in the MIPS default option could face Medicare rate adjustments of up to five percent  based on their performance under four weighted performance categories: (i) quality (50 percent); (ii) resource use (10 percent); (iii) advancing care information (25 percent); and (iv) Clinical practice improvement (15 percent). Advanced APMs include, for example, Track 2 and 3 MSSP Accountable Care Organizations (ACOs); next generation ACOs; and bundled payment models. Physicians who qualify under the Advanced APM option earn a five percent incentive, are excluded from MIPS adjustments, and receive higher fee-schedule updates after 2024.


Recognizing that many physicians could face negative payment adjustments under MIPS as a result of participating under the Quality Payment Program, CMS will allow eligible physicians to “pick their pace of participation” and ensure that they do not receive such negative payment adjustments in 2019 by choosing one of four options for the first performance year:


1. test the Quality Payment Program

2. participate for part of the calendar year

3. participate for the full calendar year

4. participate in an Advanced APM in 2017


The first three options fall under MIPS; the fourth option falls under the Advanced APM. In the first option, physicians could “submit some data to the Quality Payment Program,” avoid negative payment adjustments, and test the waters before broader participation in subsequent years. Under option two, the performance year could begin later than January 1, 2017, a physician practice “could qualify for a small positive payment adjustment,” and a physician would submit Quality Payment Program information for fewer days. The third option is ideal for those physician practices that are ready to participate beginning January 1, 2017, and who are able to submit a full year of quality data. Additionally, physicians “could qualify for a modest positive payment adjustment.” The fourth option would fit those physicians or physician groups who treat enough Medicare beneficiaries and who receive enough of their Medicare payments through an Advanced APM (e.g., MSSP ACOs). Through the Advanced APM option, physicians/physician groups would “qualify for a 5 percent payment in 2019.” CMS has not clarified what the difference is between a “small” and “modest” payment adjustment. However, CMS may address this in the final rule, along with how it will implement MIPS and the Advanced APM. CMS will release the final rule by November 1, 2016.


J. Nicole Martin, Cozen O'Connor, Philadelphia, PA


 

April 22, 2016

HHS OIG Issues New Criteria for Exclusion from Federal Programs


The Office of the Inspector General (OIG) released updated guidance on April 18 outlining when a person or company will be barred from participating in federal healthcare programs. The new exclusion guidance supersedes previous guidelines issued in 1997. Per the updated criteria, the OIG “evaluates healthcare fraud cases on a continuum,” based on how likely a provider is to commit fraud again and the impact on patients. Lower risk providers include those who self-disclose violations and cooperate with a subsequent investigation. Higher-risk providers may face heightened scrutiny, or in rare cases, Medicare exclusion.


When determining whether a provider is “high” or “low” risk for noncompliance, the OIG will consider a number of factors, including the adverse impact on individuals, leadership involvement, and cooperation during an investigation. Entities that initiate disciplinary actions against individuals responsible for misconduct and devote additional resources to compliance will be considered lower risk. A history of bad conduct and a refusal to enter into a corporate-integrity agreement, however, point to a company or person being higher-risk.


In its new guidance, the OIG focuses on permissive exclusion for conduct that is determined to constitute fraud, kickbacks, or another prohibited activity. The OIG explains in the guidance how an exclusion decision will be made when there is a finding of liability or where the Department of Justice settles a case brought under the False Claims Act. In such a case, the OIG will presume that some period of exclusion should be imposed against such a party. It also notes, however, that “this presumption in favor of exclusion is rebuttable in certain situations.”


According to one expert, the most significant change, however, is that the OIG has made clear that having a compliance program only puts a company in a neutral position, instead of giving said company bonus points. Not having a compliance program, however, will push an entity toward being considered high-risk.


Eric W. Shannon, Debevoise & Plimpton LLP, New York, NY


 

April 8, 2016

FDA Approves Second-Ever Biosimilar


On April 5, the U.S. Food and Drug Administration (FDA) approved Celltrion’s biosimilar Inflectra, a copy of Janssen Biotech's Remicade. Inflectra is now the second biosimilar to be cleared in the United States. The drug, which will eventually be marketed by Pfizer Inc, replicates Remicade’s complex monoclonal antibody structure and functions as an immunosuppressant.


According to Law360,


The FDA cleared Inflectra in every Remicade indication not covered by market exclusivity. The indications include adult and pediatric forms of Crohn’s disease, adult forms of psoriasis and ulcerative colitis, and forms of rheumatoid arthritis, psoriatic arthritis and a spinal disorder called ankylosing spondylitis. Inflectra was only studied in a subset of those indications, but the FDA extrapolated the findings to assume safety and effectiveness for other conditions.


Under a naming convention for biologics, Inflectra’s active ingredient will have a random four-letter suffix. The IV-administered drug will be sold as Inflectra (infliximab-dyyb). The product will not be made immediately available, however, due to ongoing litigation in federal court between Celltrion and Janssen, a unit of Johnson & Johnson.


“Biosimilars can provide access to important treatment options for patients who need them,” said Dr. Janet Woodcock, director of FDA's Center for Drug Evaluation and Research in an FDA press release. “Patients and the health care community can be confident that biosimilar products are high quality and meet the agency's rigorous scientific standards.”


Novartis was the first developer to gain FDA approval of a biosimilar. The agency approved Zarxio, a biosimilar of Amgen's Neupogen, in late 2015. Zarxio launched with a 15 percent discount off the price of its innovator counterpart.


Eric W. Shannon, Debevoise & Plimpton LLP, New York, NY


 

March 25, 2016

Medicare Proposes Mandatory Participation in Part B Drug Payment Model


Medicare would require all physicians, outpatient hospitals, and suppliers nationwide to participate in a payment-model demonstration covering all Part B drugs under a proposed rule published by the Center for Medicare and Medicaid Innovation (CMMI) March 8, 2016. CMMI states in the proposed rule preamble:


To eliminate selection bias, we are proposing to require participation for all providers and suppliers furnishing any Part B drugs included in the Part B Drug Payment Model. . . . Mandatory participation allows us to observe the experiences of an entire class of providers and suppliers with various characteristics, such as different geographies, patient populations, and specialty mixes, and to examine whether these characteristics impact the effect of the model on prescribing patterns and Medicare Part B drug expenditures.


Mandatory participation by purchasers and Part B drug manufacturers nationwide represents a significant expansion in the scope and breadth of payment models tested by CMMI. CMMI recently finalized a rule establishing a separate payment model—the Comprehensive Care for Joint Replacement Model (CJR)—that mandates hospital participation in 67 metropolitan statistical areas, not nationwide. No litigation has commenced to date over mandatory hospital participation in the CJR.


Drug manufacturers, providers and suppliers already have expressed significant concern with the mandatory nature of the proposed payment model—as well as myriad other policy-payment issues raised in the proposed rule. Additionally, members of Congress including House Energy and Commerce Committee chairman Fred Upton (R-MI), House Ways and Means Committee chairman Kevin Brady (R-TX), and Senate Finance Committee chairman Orrin Hatch (R-UT) stated they will pursue “aggressive oversight over CMMI” in response to the proposed rule.


CMMI’s statutory authority to conduct mandatory payment demonstrations appears rather broad, however. Section 1115A of the Social Security Act states that the Department of Health and Human Services “Secretary may elect to limit testing of a model to certain geographic areas.” As written, this statutory language seems to presume that model testing will occur in all Medicare geographic areas, but could be limited to only certain geographic areas if the secretary so chose. Moreover, the statute declares that “no administrative or judicial review” exists to appeal specified model requirements including: “(A) the selection of models for testing; (B) the selection of organizations, sites or participants to test those models selected; and (C) the elements, parameters, scope, and duration of such models for testing or dissemination.”


CMMI does propose excluding certain providers, suppliers, and specific drugs from the Part B Drug Payment Model, but on a very limited basis for specific policy concerns.


CMMI will accept comments on the proposed rule through May 9, 2016.


Kara Cardinale, Kasper Cardinale Consulting, LLC, Washington, D.C.


 

March 21, 2016

Office of Civil Rights Announces Two Significant HIPAA Breach Settlements


On consecutive days, the Office of Civil Rights (OCR) of the Department of Health and Human Services (HHS) recently announced two large settlements for breach of the Health Insurance Portability and Accountability Act (HIPAA). On March 16, 2016, OCR announced that it entered into a resolution agreement with North Memorial Health Care of Minnesota for $1.55 million plus a two-year corrective-action plan. On March 17, 2016, OCR followed by announcing that Feinstein Institute for Medical Research, a New York biomedical research institute, agreed to pay to $3.9 million and enter into a three-year corrective-action plan to settle potential HIPAA violations. Both cases resulted from the all-too-familiar scenario of breaches resulting from stolen, unencrypted laptops.


In the Minnesota hospital breach, the unencrypted laptop containing the personal health information (PHI) of over 9,000 individuals was stolen from the locked car of an employee of a business associate of the hospital. According to the OCR’s investigation, the hospital failed to have a business-associate agreement in place with that particular business associate. OCR also alleged that the hospital had not previously performed a risk analysis to identify and address potential risks and vulnerabilities to the electronic PHI (ePHI) it maintained, accessed, or transmitted.


In the New York research-corporation breach, OCR alleged that the institution did not have policies and procedures in place, including a policy on encryption and one that addressed use and access of electronic devices (e.g., the removal of the devices from the institution’s facility), nor did it have in place a security-management process that sufficiently addressed potential security risks and vulnerabilities to ePHI, namely, its confidentiality, vulnerability, or integrity. Notably, the stolen, unencrypted laptop contained the PHI of about 13,000 individuals. Both OCR settlements also include multiple-year corrective-action plans requiring the hospital and research facility to conduct risk analyses/assessments, train their employees, and have HIPAA compliant policies and procedures in place.


OCR’s 2016 breach enforcement appears to be off to a very strong start with these two high-dollar settlements. Lessons learned from both breaches include the significance of encrypting electronic devices, conducting and updating on a regular basis security-risk assessments and analyses, having adequate safeguards in place to protect PHI, having business associate agreements with all business associates, and having and implementing HIPAA policies and procedures to protect the security and privacy of PHI—including for example, policies related to encryption, authorized access to ePHI/PHI, and removal of electronic devices from facilities.


Gregory M. Fliszar and J. Nicole Martin, Cozen O'Connor P.C., Philadelphia, PA


 

February 23, 2016

Hepatitis C Risk Adjuster Maintained for 2017 in Medicare Part D


Medicare Part D will continue to adjust payments to insurers in 2017 specifically to cover the cost expensive drugs used to treat chronic viral hepatitis C, according to the advance notice released by the Centers for Medicare and Medicaid Services (CMS) February 19, 2016.


The agency had considered applying a downward adjustment to the current coefficient for chronic hepatitis C in the Part D risk-adjustment model, known as the RxHCC model, for the upcoming payment year. However, after review of beneficiary diagnosis data from 2013 and prescription drug event (PDE) data from 2006 to 2015, Medicare concluded that “continued uncertainty regarding the pattern of chronic Hepatitis C among beneficiaries and current expenditures continue to reflect the influx of these [new] medications onto the market” and therefore insufficient data exist to lower the risk adjuster for hepatitis C in 2017.


Maintaining the current hepatitis C reimbursement policy in 2017 represents a short-term “win” for the brand biopharmaceutical industry, particularly in a political environment highly sensitized to drug pricing. Drug makers in effect will be able to continue demanding high prices for hepatitis C products next year, at least in the Part D market.


However, manufacturers of particularly high-cost drugs and biologics should be wary of CMS employing such a policy over the long term.  In effect, the policy allows Medicare to establish the reimbursement rate that it will pay to Part D insurers (i.e., the specific RxHCC coefficient set by CMS staff) for hepatitis C therapies in a payment year. In other words, CMS essentially is setting the maximum price it will pay to Part D insurers for a product through risk adjustment without officially “negotiating” a price with a drug manufacturer. As such, manufacturers of high-cost therapies should consider the hepatitis C precedent when developing and pricing their products for use in Part D.


CMS indicated it will continue to assess the pattern and diagnosis of chronic hepatitis C to make potential modifications to this policy in upcoming payment years.


The agency will accept comments on the advance notice through March 4, 2016, and will issue the final rate announcement April 4, 2016.


Kara Cardinale, Kasper Cardinale Consulting, LLC, Washington, D.C.


 

January 7, 2016

Hospital Argues That Texas Court Lacked Jurisdiction in Ebola Nurse's Case


A hospital chain being sued by a nurse who contracted Ebola has asked a Texas appeals court to let it move a dispute over her employment status to the state workers’ compensation agency, saying the lower court that barred it from doing so lacked jurisdiction. On December 23, 2015, Texas Health Resources (THR), owner of Texas Health Presbyterian Hospital Dallas, asked a Texas appeals court to reverse a temporary injunction granted in October by a Dallas County district judge. The injunction kept Nurse Nina Pham’s negligence lawsuit in state court, instead of transferring it to the Texas Department of Insurance Division of Worker’s Compensation, where THR claims the suit belongs.


Specifically, THR argues that the lower court’s decision should be reversed because the court lacked subject-matter jurisdiction over the issue of its co-employer status. According to THR, this issue falls within the purview of the Texas Division of Workers’ Compensation (DWC) pursuant to the state worker’s compensation statute. THR claims that because Pham’s suit raises questions about the hospital’s policies and procedures, and because her injuries occurred in the course and scope of her employment, the proper forum for resolution of her claims is in the workers’ comp program. Pham however contends that THR is a third party—not her employer—and that she thus has the right to pursue her claims in a public forum, not within an administrative agency.


THR stated in its brief, “Before Pham’s personal injury lawsuit for damages can proceed, the DWC first must decide whether THR was a co-employer of Pham at the time of her work-related injury.” If THR had been Pham’s co-employer at such time, THR argues, then the Texas Worker’s Compensation Act “provides Pham’s exclusive remedy, and she may not recover damages against THR.”


Pham’s condition made national news in the fall of 2014 when several individuals were diagnosed with Ebola in the United States. Pham recovered and subsequently sued THR in March 2015, claiming that its hospital was both negligent in ignoring the dangers of the Ebola virus, and that it invaded her privacy through its public-campaign-like actions during the course of her illness. A trial is currently slated for October 2016.


For more information on the topic of Ebola, be sure to check out the Health Law Litigation Committee-sponsored roundtable, Ebola and the Public Health System: Risk Management and Legal Duties in Fighting a Deadly Infectious Disease. The panel, consisting of a healthcare attorney, a hospital executive, and a public-health official, highlight and debate the issues presented by the spread of Ebola to the United States.


Eric W. Shannon, Debevoise & Plimpton LLP, New York, NY


 

January 6, 2016

Aetna Kickback Suit Against Laboratory Marketing Company Allowed to Proceed


Health insurer Aetna’s fraud and conspiracy action against healthcare-services marketing firm Bluewave Healthcare Consultants, Inc. may proceed, even though Bluewave did not submit false or fraudulent claims to Aetna, the U.S. District Court for the Eastern District of Pennsylvania held in a December 28, 2015, memorandum opinion.


In a complaint filed April 10, 2015, Aetna alleged that Bluewave and its owners conspired with the cardiovascular testing disease laboratory company Health Diagnostics Laboratory, Inc. (HDL) to unlawfully induce physicians to order unnecessary laboratory services provided by HDL for Aetna beneficiaries. According to the complaint, Bluewave contacted referring physicians and told them that they would receive a payment for each blood sample they referred to HDL for analysis. Bluewave received commissions from HDL from the revenue the laboratory collected from sales attributable to Bluewave’s marketing efforts. Aetna alleged that Bluewave received more than $200 million in improper commissions during the course of the alleged conspiracy.


Bluewave moved to dismiss Aetna’s complaint on grounds that HDL, rather than Bluewave, submitted the allegedly fraudulent bills. Therefore, Bluewave maintained, Aetna could pursue legal recourse only against HDL.


The court rejected Bluewave’s argument, explaining that under Pennsylvania common law, a party can be liable if it “authorized” or otherwise “participated” in a fraudulent misrepresentation, even if the party did not make the fraudulent misrepresentation serving as the basis of the claim. The court held that the complaint’s allegations regarding Bluewave’s participation in the kickback scheme were sufficient to satisfy the participation requirement, even under Federal Rule. The court also denied Bluewave’s motion to dismiss Aetna’s tortious interference with contract, unjust enrichment, and civil conspiracy claims.


The alleged conspiracy between Bluewave and HDL also is the subject of a pending qui tam action against Bluewave. In April 2015, HDL agreed to pay $47 million to settle a False Claims Act action alleging that HDL violated the federal Anti-Kickback Statute, 42 U.S.C. § 1320a-7b, by paying physicians to request medically unnecessary laboratory tests provided by HDL. HDL subsequently filed for bankruptcy protection.


Andrew A. Kasper, Robinson, Bradshaw & Hinson, P.A., Charlotte, N.C.


 

December 3, 2015

Allergan, NY State End Antitrust Fight over Alzheimer's Drug Switching


Drug manufacturer Allergan and New York State have settled a heated antitrust lawsuit that accused Allergan of switching patients from an older dementia pill to a newer and more expensive version to avoid generic competition. As part of the deal, Allergan agreed to pay $172,000 in litigation expenses and to withdraw an appeal filed last month with the U.S. Supreme Court. The suit triggered debate over the controversial practice known as “forced switching” or “product hopping,” in which a drug manufacturer reformulates a medicine to receive a life-extending product patent and withdraws the original product before generic competitors can enter the market.


New York attorney general Eric Schneiderman agreed to end his investigation into the decision made by Actavis (which has since merged with Allergan) to stop manufacturing the original, twice-daily Namenda IR before generic versions of the drug were to debut in July 2015. The investigation began under suspicion that Actavis was attempting to force patients onto the newer, once-daily version of the drug, Namenda XR, which faces no generic competition. Schneiderman had previously stated that this maneuver was “unethical and illegal,” because it blocked competition and effectively eliminated patient choice.


As part of the settlement, Allergan agreed to withdraw the appeal it filed with the U.S. Supreme Court last month. In its filing, Allergan contested an injunction to keep Namenda IR on the market issued by U.S. District Judge Robert Sweet of the Southern District of New York in December 2014. The Second Circuit upheld the injunction in May 2015.   


“The company believes that the novel and unprecedented legal holding in the court's decision is limited to the facts and findings in this particular case,” Robert Bailey, Allergan’s executive vice president and chief legal officer, said in a statement explaining its willingness to drop the appeal.


Allergan has admitted no wrongdoing in the settlement. Further, the company contends that the larger issue over the legality of product hopping remains unresolved. Said Bailey, Allergan remains “committed to clarifying the law in this area” in the manner laid out in its Supreme Court petition, and it anticipates “opportunities to do so in the future.”


Eric W. Shannon, Debevoise & Plimpton LLP, New York, NY


 

November 18, 2015

Medicare Part B Reimbursement for Biosimilars Could Change


Biosimilars could receive separate Medicare billing codes in future years depending on how the marketplace evolves, according to the 2016 Physician Fee Schedule (PFS) final rule published October 30, 2015.


“We agree that it is desirable to have fair reimbursement in a health marketplace that encourages product development, and we agree with commenters who support future refinements to policy as needed based on actual experience with this new segment of the market,” the Centers for Medicare and Medicaid Services (CMS) states in the preamble of the PFS final rule. As such, the “proposed revised regulation text would not preclude CMS from separating some, or all, of a group of biosimilars for payment (and the creation of one or more separate [Healthcare Common Procedures Code System] codes) should a program need to do so arise.”


Under the final rule, Medicare will assign all biosimilars to the same billing code—or HCPCS code—effective January 1, 2016. The final policy aligns with that initially proposed. However, the preamble language notably appears less stringent than the original proposal and clearly indicates that the agency has the statutory authority to consider alternative approaches to biosimilar reimbursement should a policy need develop. “While other interpretations of the statute may be possible, we believe our interpretation is consistent with statute.”


Medicare Part B and beneficiary spending on the 10 most expensive drugs and biologics totaled about $9.1 billion in 2010, of which eight were brand biologic products. The Affordable Care Act established a pathway for Food & Drug Administration approval of biosimilars to compete with brand biologics with the goal of lowering spending growth on high-cost specialty biopharmaceutical products. In the final rule, CMS suggests that the goal of “improving the quality, price, and access” of biosimilars to Medicare beneficiaries potentially could drive reimbursement changes in the future.


Biosimilar manufacturers advocated for Medicare to assign distinct billing codes for each biosimilar product. They argued that without separate billing codes, there would be insufficient financial incentive to develop these products. By contrast, CMS and other stakeholders such as the Medicare Payment Advisory Commission (MedPAC) have suggested that until more biosimilar products enter the market and more data become available, assigning individual HCPCS codes should result in artificially high biosimilar prices that will not significantly reduce costs for Medicare and its beneficiaries.


Section 3139 of the Affordable Care Act amends section 1847A of the Social Security Act to outline Medicare Part B payment methodology for biosimilars.


Kara Cardinale, Kasper Cardinale Consulting, LLC, Washington, D.C.


 

November 3, 2015

Hospitals Will Pay Government $250 Million for Cardiac Device Coverage Violations


Hundreds of U.S. hospitals will pay an aggregate sum in excess of $250 million related to cardiac devices that were implanted in Medicare patients in violation of Medicare coverage requirements, the Department of Justice (DOJ) announced on October 30, 2015. The settlements encompass 457 hospitals in 43 states where “cardioverter defibrillators” were implanted in Medicare patients too soon after they had suffered a heart attack, or underwent bypass surgery or an angioplasty. The hospitals and others were defendants in a federal whistleblower suit brought under the federal False Claims Act, a law that imposes liability on companies that defraud the U.S. government and which has been increasingly used to police the healthcare industry. The lawsuit was filed in federal district court in the Southern District of Florida by Leatrice Ford Richards, a cardiac nurse, and Thomas Schuhmann, a healthcare reimbursement consultant. The whistleblowers have received more than $38 million from the settlements. 


Medicare sets waiting periods of up to 90 days before implanting the $25,000 defibrillator devices, which deliver mild electric shocks to restore a normal heart rhythm. Clinical trials have shown that the heart often recovers its own rhythm during that time, making the pricey defibrillators unnecessary.


The settlements were the result of a coordinated effort among the U.S. Attorney’s Office of the Southern District of Florida, the Civil Division’s Commercial Litigation Branch and Department of Health and Human Services- Office of Inspector General, Office of Investigations, and Office of Counsel to the Inspector General. The conduct in question occurred between 2003 and 2010.


 “The settlements announced today demonstrate the Department of Justice’s commitment to protect Medicare dollars and federal health benefits,” said U.S. Attorney Wifredo A. Ferrer of the Southern District of Florida. “Guided by a panel of leading cardiologists and the review of thousands of patients’ charts, the extensive investigation behind the settlements was heavily influenced by evidence-based medicine. In terms of the number of defendants, this is one of the largest whistleblower lawsuits in the United States and represents one of this office’s most significant recoveries to date. Our office will continue to vigilantly protect the Medicare program from potential false billing claims.”


The DOJ has provided a downloadable list of the 70 settlements on its website. The claims resolved by these settlements are allegations only and there has been no determination of liability. Among the large healthcare providers involved, Hospital Corporation of America agreed to pay $15.8 million; Ascension Health settled for $14.9 million.


The Justice Department stated that it continues to investigate additional hospitals.


Eric W. Shannon, Debevoise & Plimpton, LLP, New York, NY


 

October 23, 2015

$256 Million FCA Settlement May Force Lab Company into Bankruptcy


Millennium Health has entered into a $256 million settlement agreement with the Department of Justice (DOJ) to resolve claims that it billed federal health programs for medically unnecessary testing services and improperly provided in-kind remuneration to physicians who referred such services to Millennium, the DOJ announced October 19, 2015.


According to the DOJ, between 2008 and 2015, Millennium induced physicians to order medically unnecessary urine and genetic tests without making any assessment of individualized needs for such tests. Under federal law, the Medicare program only reimburses items and services that are “reasonable and necessary for the diagnosis or treatment of illness or injury.” 42 U.S.C. § 1395y(a). Providers requesting reimbursement from Medicare for items or services are obligated to ensure that such items are services are medically necessary. 42 C.F.R. § 1004.10. When a provider submits a request for payment to the Medicare program certifying that the items or services for which reimbursement is sought were medically necessary, and such items were not in fact medically necessary, the request for payment constitutes a false claim for purposes of the federal False Claims Act (FCA). Mikes v. Straus, 274 F.3d 687, 697–98 (2d Cir. 2001).


The DOJ also alleged that Millennium violated the federal Anti-Kickback Statute and Stark Law by providing “free point of care urine drug test cups to physicians—expressly conditioned on the physicians’ agreement to return the urine specimens to Millennium for hundreds of dollars’ worth of additional testing.” Subject to several exceptions and safe harbors, the federal Anti-Kickback Statute makes it unlawful to pay anything of value to induce or reward referrals for services reimbursed by federal healthcare programs. 42 U.S.C. § 1320a-7b. Subject to a number of exceptions, the federal “Stark Law” prohibits physicians from making referrals for certain health services to entities with which the physician has a financial relationship. 42 U.S.C. § 1395nn(a).


The settlement agreement resolves a number of qui tam actions pending in the District of Massachusetts. As part of the settlement, the qui tam relators will receive nearly $32 million of the $256 million recovery.


Millennium said it is in the process of negotiating an out-of-court debt restructuring or pre-arranged bankruptcy to facilitate its payment of the settlement. The settlement agreement includes a number of provisions to ensure Millennium’s financial obligations under the agreement are not extinguished through the restructuring.


Andrew A. Kasper, Robinson, Bradshaw & Hinson, P.A., Charlotte, N.C.


 

October 16, 2015

OIG Issues Alert on Data Arrangements and AKS Safe Harbor Exception


The U.S. Department of Health and Human Services, Office of the Inspector General (OIG), issued an alert on October 6, 2015, relating to information blocking and the Federal Anti-Kickback Statute (42 U.S.C. 1320a-7b(b)) (AKS). The AKS prohibits individuals and entities from knowingly and willfully offering, paying, soliciting, or receiving remuneration to induce or reward referrals of business reimburseable under any federal healthcare program. Violation of the AKS can result in imposition of criminal penalties, civil monetary penalties, program exclusion, and liability under the Federal False Claims Act (31 U.S.C. 3729–33).


The OIG “policy reminder” addresses a growing trend in the healthcare industry—arrangements involving the provision of software or information technology (IT) by providers (such as hospitals) to an existing or potential referral source (such as a physician practice). The Electronic Health Record (EHR) safe harbor under the AKS enables certain donors to provide interoperable EHR software, IT, and training services to potential referral sources, provided that there are no restrictions to the use, compatibility, or interoperability of donated items or services. 42 CFR § 1001.952(y)(3). The goal of the safe harbor, according to the OIG, is “to protect beneficial arrangements that would eliminate perceived barriers to the adoption of EHR without creating undue risk that the arrangements might be used to induce or reward the generation of [federal health program] business.” 71 FR 45111 (Aug. 8, 2006).


In its reminder, the OIG focused on the parameters of the EHR safe harbor and provided examples of conduct that would fall outside of the safe harbor and thus be actionable under the AKS. For example, an agreement between a donor and a recipient to limit a competitor from interfacing with the donated items or services is prohibited by the statute. Further, even an agreement between a donor and an EHR vendor to charge non-recipient providers or suppliers high fees may be actionable. The OIG also encouraged whistleblowers to come forward with knowledge of “potentially problematic donation arrangements”—often referred to as “data/information blocking”—that may violate the safe harbor.


“Healthcare providers and health IT vendors should pay close attention to OIG’s Alert,” according to the law firm Cozen O’Connor. “Blunt message from the OIG: follow the EHR safe harbor closely, and beware if you are using EHR donated technology to block information from competitors,” added another commentator.


Eric W. Shannon, Debevoise & Plimpton LLP, New York, NY


 

September 25, 2015

HRSA Proposes Relatively Broad Eligibility Criteria in Drug-Pricing Program


The Health Resources and Services Administration (HRSA) proposes relatively broad eligibility criteria for certain types of hospitals to participate in the 340B drug-pricing program in draft omnibus guidance released August 28, 2015. Under the program, drug manufacturers extend significant price discounts for outpatient prescription drugs to eligible healthcare organizations and covered entities in an effort to extend "scarce Federal resources as far as possible."


By statute, four types of hospitals may qualify for 340B price discounts, including those: (1) owned or operated by state or local government, (2) "formally granted government powers" by the government, (3) contracting with the government to provide healthcare to low-income individuals not eligible for Medicare or Medicaid, or (4) meeting the statutorily specified disproportionate share (DSH) adjustment percentage. 42 U.S.C. § 256b(a)(4)(L)(i). In particular, hospitals appear to maintain a relatively broad ability to meet 340B eligibility requirements under the third qualification as proposed in the omnibus guidance.


To qualify for 340B under criterion (3), a private, non-profit hospital must have a contract with a state or local government with "enforceable expectations" to provide health care services, including "direct medical care," to low-income individuals. The guidance does not define patients who meet the definition of "low-income" beyond asserting they may not be eligible for Medicare or Medicaid, as specified by statute. The guidance also does not specify the percentage of total healthcare services or the exact types of services patients must receive at the hospital for the hospital to qualify for 340B. Prior to the release of the omnibus guidance, both the Health and Human Services Office of the Inspector General (OIG) and the Government Accountability Office (GAO) highlighted the HRSA's broad administrative discretion in allowing 340B-eligible hospitals to define what constitutes a "low-income" patient and the amount and type of healthcare services provided as potentially expanding the scope of the 340B program beyond its original intent.


The 340B program has grown significantly in recent years in part due to provisions in the Affordable Care Act extending eligibility to children's hospitals, freestanding cancer hospitals, certain rural hospitals, and additional hospitals meeting the disproportionate share adjustment percentage requirement. The amount of drugs purchased by 340B-covered entities (hospitals and other organizations) has increased from about $2.4 billion in 2005 to $7.1 billion in 2013, according to a May 2015 report by the Medicare Payment Advisory Commission. Given the significant expansion of 340B, some policy makers have considered administrative and legislative ways to limit the scope of the program, including some proposals included in the omnibus guidance.


The HRSA released the draft omnibus guidance after it rescinded a proposed rule clarifying 340B program requirements. The agency revoked the rule after a federal district court determined that HRSA has statutory authority to issue regulations only in narrow policy areas related to 340B. The HRSA will accept comments on the draft omnibus guidance through October 27, 2015. The HRSA’s authority to issue interpretive guidance regarding the 340B program is the subject of ongoing litigation.


Kara Kasper Cardinale, Washington, D.C.


 

September 24, 2015

DOJ Reaches $115 Million Settlement with Adventist

Adventist Health System agreed to pay the federal government $115 million to resolve potential False Claims Act liability primarily related to allegedly improper-compensation arrangements with its employed physicians, the Department of Justice (DOJ) announced September 21, 2015. Adventist also agreed to pay nearly $4 million to four states to extinguish potential liability related to the same conduct.


According to the DOJ, Adventist allegedly “submitted false claims to the Medicare and Medicaid programs for services rendered to patients referred by employed physicians who received bonuses based on a formula that improperly took into account the value of the physicians’ referrals to Adventist hospitals.” Subject to several exceptions and safe harbors, the federal Anti-Kickback Statute makes it unlawful to pay anything of value to induce or reward referrals for services reimbursed by federal healthcare programs. 42 U.S.C. § 1320a-7b. Subject to a number of exceptions, the federal “Stark Law” prohibits physicians from making referrals for certain health services to entities with which the physician has a financial relationship. 42 U.S.C. § 1395nn(a).


The settlement agreement stems from two qui tam actions filed in the U.S. District Court for the Western District of North Carolina. Under the False Claims Act, the four qui tam relators, all of whom worked at an Adventist hospital in Hendersonville, North Carolina, are entitled to a portion of the $115 million settlement. Counsel for the relators said it was the largest healthcare fraud settlement related to physician referrals in history.


The qui tam actions also alleged that Adventist unlawfully (1) submitted “upcoded” claims for medically unnecessary treatment, (2) submitted claims for services provided by doctors lacking proper credentials, (3) submitted separate claims for services that should have been bundled into a single claim, and (4) submitted claims for services not documented in patients’ medical records.


In March, Adventist reached a $5.4 million settlement with DOJ to resolve claims that it provided radiation oncology services to federal health beneficiaries outside of the supervision of radiation oncologists or other qualified providers.


Andrew A. Kasper, Robinson, Bradshaw & Hinson, P.A., Charlotte, N.C.


 

September 16, 2015

FDA Dramatically Reduces Counterfeit Drug Alert Forecast


On Monday, September 14, the U.S. Food and Drug Administration (FDA) reduced its original prediction of annual counterfeit drug notifications, a requirement under the federal Drug Supply Chain Security Act (DSCSA). The FDA initially predicted that regulated entities under the law would issue 5,000 such alerts per year; it now estimates that they will issue 1,000.


The DSCSA requires drugmakers, distributors, and pharmacies to issue notifications when they detect red flags—such as missing product information and foreign terms on packaging—indicating that a product could be a counterfeit. The notification requirement took effect earlier this year.


In its announcement, the FDA provided little explanation for the estimate reduction. The agency did note that it revised the figure in response to questioning by a trade group. “While FDA does not know the exact number of notifications that will be submitted, we lowered the estimate to 1,000 notifications in response to the comment and our re-examination of the data,” the agency said.


The notification estimate was one of several revisions publicized in an announcement related to forthcoming final guidance on identification of suspect drugs. The FDA reiterated in the announcement that it predicts only a small minority of all companies registered with the agency will issue notices in any given year.


Eric W. Shannon, Debevoise & Plimpton LLP, New York, NY


 

September 11, 2015

Mergers Should Be Presumed Likely To Enhance Market Power, AMA Says


The proposed mergers between health insurers Anthem and Cigna as well as Aetna and Humana should be presumed likely to impermissibly enhance the combined entities’ market power for purposes of federal antitrust review, the American Medical Association (AMA) concluded in studies released September 8.


Using 2013 data regarding commercial enrollment in fully and self-insured health-insurance plans, the AMA’s Health Policy Group evaluated how the mergers should be scrutinized under the 2010 Department of Justice/Federal Trade Commission Horizontal Merger Guidelines. The Horizontal Merger Guidelines provide that mergers between entities competing in highly concentrated markets should be presumed likely to enhance market power if the merger would increase an econometric measure of market concentration by a certain numerical threshold.


Anthem’s proposed merger with Cigna, announced July 24, 2015, would exceed that threshold—and thus should be presumed to enhance the combined entities’ market power—in 85 metropolitan areas in 13 states, the AMA’s study found. The proposed merger poses a risk of significantly diminishing competition in an additional 26 metropolitan areas, the group reported.


The Aetna-Humana tie-up, which the firms announced on July 3, 2015, should be presumed likely to enhance market power in 15 metropolitan markets in 7 states, the AMA concluded. The proposed merger would create significant competitive concerns in an additional 58 metropolitan markets in 14 states, the study found.


Based on the results of the two analyses, “AMA is urging federal and state regulators to carefully review the proposed mergers and use enforcement tools to preserve competition,” AMA President Steven J. Sack, M.D. said in a statement.


Andrew A. Kasper, Robinson, Bradshaw & Hinson, P.A., Charlotte, N.C.


 

September 4, 2015

UCLA Not Responsible in Medical Data Breach Suit


On September 3, 2015, a California jury found in favor of the University of California, Los Angeles Health System, ending (for now) a much-publicized medical-privacy dispute.


In April 2013, plaintiff Norma Lozano filed suit against UCLA in California state court, alleging illegal disclosure of her confidential medical information and invasion of privacy. Lozano alleged that in September 2012, Alexis Price—a former office employee of Dr. John Edwards, a physician affiliated with UCLA’s Geffen School of Medicine—accessed Lozano’s medical records using Dr. Edwards’s borrowed credentials. Price allegedly texted cell phone photos of Lozano’s private medical records to Lozano’s ex-boyfriend, Dedreck Harris, and others, and accused Lozano of having a sexually transmitted infection. Price and Harris and are now married.


Lozano testified at trial that the unauthorized disclosure by her ex-boyfriend’s new partner left her “stressed, crying, and depressed,” and argued that UCLA should have done more to prevent its medical records from being accessed without proper authorization.  


Attorneys for UCLA argued at closing that the blame for what happened to Lozano rested with Dr. Edwards and his former employee, Price. Several jurors, according to Law360, stated after the trial that they felt “UCLA was the wrong target for Lozano’s suit.” One juror told the news outlet that he may have reached a different verdict had either Price or Dr. Edwards been the defendants, and not UCLA.


Notably, the UCLA health system announced just weeks ago that cybercriminals had hacked into its network and that the attack had affected approximately 4.5 million people. Whether or not the hackers gained access to any personal or medical information is not known, and a cooperative investigation with the FBI is currently underway.


Eric W. Shannon, Debevoise & Plimpton LLP, New York, NY


 

June 25, 2015

SCOTUS Upholds Tax Subsidies for Healthcare.gov Consumers


In a 6–3 decision, the U.S. Supreme Court ruled today in King v. Burwell that tax credits are available to consumers shopping on the Affordable Care Act’s federal marketplace, not just those shopping on state exchanges. Chief Justice John Roberts and Justices Anthony Kennedy, Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotomayor, and Elena Kagan comprised the majority, while Justices Samuel Alito and Clarence Thomas joined Justice Antonin Scalia in a 21-page dissenting opinion.


The controversy arose out of the act’s language providing for subsidies to be distributed for marketplaces “established by the State.” The petitioners argued that the plain language limits the subsidies to state, not federal, marketplaces, while the respondents and proponents of the act—including the act’s architects—argued that subsidies were meant to be available on all exchanges, with the goal to cover all Americans. Proponents feared that limiting subsidies to state exchanges could seriously destabilize the act, rendering health insurance prohibitively expensive for many consumers. The Court agreed. While recognizing the language as “ambiguous,” the Court “reject[ed] petitioners’ interpretation because it would destabilize the individual insurance market in any State with a Federal Exchange, and likely create the very ‘death spirals’ that Congress designed the Act to avoid.”


In his dissent, Scalia decried the majority’s decision as reflecting the “philosophy that judges should endure whatever interpretive distortions it takes in order to correct a supposed flaw in the statutory machinery.” He stated that Congress, not the judiciary, was responsible for both making laws and mending them.


Sarah Anna Santos, Hunton & Williams LLP, Charlotte, NC


 

May 15, 2015

Should Home-Care Providers Be Exempt from FLSA Wage Requirements?


On May 7, 2015, the U.S. Court of Appeals for the D.C. Circuit heard oral arguments in the case of Home Care Association of America v. Weil, No. 15-5018 (D.C. Cir.). The case stems from federal regulations promulgated by the Department of Labor (final rule) that modified the regulations regarding the “companionship exemption” under the Fair Labor Standards Act (FLSA).


Under the FLSA, employees that work more than 40 hours per week are entitled to overtime pay at 1.5 times their regular rate of pay. However, workers who provide “companionship services” are exempt from this overtime requirement. Under the prior regulations set forth at 29 C.F.R. § 552.6, “companionship services” were defined as services that provide “fellowship, care and protection for a person who, because of advanced age or physical or mental infirmity, cannot care for his or her own needs.” Such services included household work such as preparing meals, making beds, and washing clothes. As a result of the prior rule, home-care aides employed by home-health agencies were not entitled to minimum wage or overtime pay.


The final rule sought to narrow the definition of “companionship services” by limiting the duties that were included in the exempt services. Furthermore, the final rule provided that third-party employers, such as home-care agencies, would not qualify for the companionship exemption. Under the final rule, millions of home-care aides would be entitled to minimum wage and overtime pay. It should be noted that some states have already promulgated state laws that eliminate the companionship exemption at the state level.


The Home Care Association of America challenged the final rule by filing suit in U.S. district court. Home Care Association of America v. Weil, Civil Action No. 14-967 (D.D.C.). The U.S. court determined that the Department of Labor’s third-party-provider regulation exceeded the Department of Labor’s authority by seizing Congress’s lawmaking authority. On January 14, 2015, the court issued an order vacating the final rule’s revised definition of companionship services.


In January, 2015, the Department of Labor appealed the decision to the U.S. Court of Appeals for the D.C. Circuit. The Department of Labor issued the following statement on its website:


The Department issued the Home Care Final Rule to extend minimum wage and overtime protections to almost 2 million home care workers. The Department stands by the Final Rule. We believe the Rule is legally sound and is the right policy—both for those employees, whose demanding work merits these fundamental wage guarantees, and for recipients of services, who deserve a stable and professional workforce allowing them to remain in their homes and communities.


Meanwhile, the home-care industry argues that the industry cannot afford to pay its home-care aides increased wages and overtime unless government programs increase reimbursement for such services.


On May 7, 2015, the appellate court heard oral arguments regarding the matter. The Department of Labor argued that it is fully within its powers to fill in gaps regarding definitions in the law, arguing that the court should give deference to federal agency interpretations where the plain language of the statute does not provide the necessary definition or interpretation. The home-care parties’ arguments focused on the impact that the final rule had on consumers, and the impermissible encroachment by the Department of Labor in attempting to eradicate a statutory exemption.


This case is significant in that it will determine whether nearly 2 million home-care workers will be entitled to the same wage and overtime requirements as other health-care workers. If the new regulations are upheld, it would greatly impact the home-care industry, which would be subject to the FLSA’s wage and overtime requirements. While workers may benefit, the home-care industry will be faced with the challenge of lower reimbursement rates and increased expenses. This case poses difficult questions and issues for the appellate court to decide. Despite the decision, it is anticipated that the non-prevailing side in this litigation will proceed to appeal the matter to the U.S. Supreme Court.


Samantha France, RezLegal, LLC, Jacksonville, FL


 

March 25, 2015

FTC and DOJ under Fire for "Anti-Hospital" Bias at Conference


A recent workshop hosted by the Federal Trade Commission (FTC) and Department of Justice (DOJ) to examine antitrust issues in healthcare featured an anti-hospital bias and was not represented sufficiently by healthcare providers, according to the American Hospital Association and other trade groups. In a letter dated March 16, the trade groups condemned the conference’s “lack of objectivity and balance” and “overwhelming anti-hospital points of view” in discussing the anti-competitive concerns that arise as hospitals increasingly consolidate and collaborate.


The conference focused on the risk of price increases and leverage and ignored the benefits of healthcare consolidation, said the letter. According to the letter, such benefits include rescuing failing hospitals and improving the quality of services at hospitals with insufficient funds to improve equipment.


The conference only featured one representative of the hospital system, said the letter, who spoke regarding Accountable Care Organizations, not the benefits of hospital consolidation. The trade groups offered to provide panelists and subject matter in the future to ensure “robust and complete marketplace information” and “a balanced public record and a sound basis for public policy decisions.”


Sarah Anna Santos, Hunton & Williams LLP, Charlotte, NC


 

February 4, 2015

Doctors and Terminal Patients Sue over NY Assisted-Suicide Law


Terminally ill patients, their doctors, and End of Life Choices New York, a nonprofit that provides counseling on end-of-life decision making, filed suit on February 4 seeking to effectively legalize in New York “aid-in-dying,” the practice by which physicians prescribe medication to their terminally ill, mentally competent patients to achieve a peaceful death. The suit seeks declaratory judgment that the New York law prohibiting assisted suicide does not apply to aid-in-dying, or, in the alternative, that the New York law violates the due-process and equal-protection provisions of the New York Constitution.  


Aid-in-dying is not suicide as used in New York’s Assisted Suicide Statute, according to the complaint.


Suicide precipitates a premature death of a life of otherwise indefinite duration, often motivated by treatable depression. In such cases, mental illness can impair the individual’s judgment. Aid-in-dying, in stark contrast, allows mentally-competent, terminally-ill patients who face impending death due to the progression of terminal illness to make a rational, informed, autonomous choice.


In the alternative, says the complaint, if the term “suicide” as used in the New York law does include aid-in-dying, the statute discriminates against the plaintiffs, depriving them of equal protection under the law, and violates the patient plaintiffs’ rights to privacy without due process of law.


The complaint alleges that evolving medical standards and public views support aid-in-dying.


The case is Myers et al. v. Schneiderman et al., in the Supreme Court of the State of New York, County of New York. It has not yet been assigned a case number.


Sarah Anna Santos, Hunton & Williams LLP, Charlotte, NC


 

January 16, 2015

CMS Administrator to Resign


Marilyn Tavenner, administrator of the Centers for Medicare and Medicaid Services (CMS), will step down from her position at the end of February, she announced Friday morning. The resignation comes only days before the Supreme Court hears the critical Affordable Care Act (ACA) tax-subsidy case, King v. Burwell, which is scheduled for oral argument in early March. Experts say the case could seriously destabilize the ACA if the Court decides that tax credits are only available to consumers shopping on state exchanges.


Tavenner started at CMS in February 2010 and rose to the top position in 2011. In 2013, she won Senate confirmation with bipartisan support. Her tenure at CMS spanned a historic period of change in U.S. healthcare, including the passage of the ACA as well as the troubled rollout of HealthCare.gov in 2013. Her announcement did not indicate a reason for her departure.


Sarah Anna Santos, Hunton & Williams LLP, Charlotte, NC


 

January 15, 2015

OIG Reveals Heightened Risk of Fraud in Assisted Living Hospice Care


A report released January 13 by the Office of Inspector General (OIG) for the U.S. Department of Health and Human Services reveals a heightened risk of improper payments for hospice care provided in assisted living facilities, or ALFs. The report comes as a resource to help the Centers for Medicare and Medicaid Services (CMS) reform the hospice payment system as required by the Affordable Care Act.


Hospices receive Medicare payments based on the amount of time patients are under their care, rather than by services rendered. Consequently, beneficiaries in ALFs, who typically have longer stays and diagnoses requiring less complex care than beneficiaries in other settings, may offer hospices the greatest financial gain. According to the report, Medicare payments for hospice care in ALFs more than doubled in five years, totaling $2.1 billion in 2012. The hospices were paid about $1,100 per week for each beneficiary but typically provided fewer than 5 hours of visits per week, said the report.


The OIG said the report “raises questions about whether Medicare is paying appropriately for hospice care in ALFs and whether beneficiaries are receiving the services they need during their last months of life.” It called for greater accountability and payment reform, including developing claims-based measures of quality such as the average numbers of services provided and physician visits. CMS concurred with each of the report’s recommendations, and specifically supported anti-fraud measures targeting those hospices with a high percentage of beneficiaries who rarely receive hospice visits.


Sarah Anna Santos, Hunton & Williams LLP, Charlotte, NC


 

January 5, 2015

DOJ Intervenes in Whistleblower Suits Accusing Omnicare of Kickbacks


The U.S. Department of Justice has intervened in two False Claims Act suits accusing Omnicare Inc., the nation’s largest provider of pharmacy services to nursing homes, of receiving kickbacks from drug manufacturer Abbot Laboratories Inc. in exchange for promoting the seizure drug Depakote. According to the complaint, Omnicare touted Depakote as a tool to control agitation in dementia patients of the nursing homes that Omnicare serviced, and to avoid federal regulations preventing the use of chemical restraints on the elderly.


Omnicare received millions of dollars in kickbacks disguised as rebates, educational grants, and other corporate financial support, the complaint alleged, and caused Medicaid and Medicare programs to pay hundreds of millions of dollars for invalid claims. Between 1998 and 2008, Medicare and Medicaid claims for Depakote prescriptions rose from less than $3 million to over $92 million.


The Department of Justice is seeking treble damages, restitution, and civil penalties. The cases are United States of America et al., ex rel. McCoyd v. Abbott Laboratories et al., case number 1:07-cv-00081, and United States of America et al., ex rel. Spetter v. Abott Laboratories Inc. et al., case number 1:10-cv-00006, in the U.S. District Court for the Western District of Virginia.


Sarah Anna Santos, Hunton & Williams LLP, Charlotte, NC


 

December 29, 2014

ACA Auto-Renewal Proposal under Fire


The Centers for Medicare and Medicaid Services (CMS) are taking heat from insurers, hospitals, and consumer groups for a proposal that would automatically re-enroll Affordable Care Act (ACA) customers into lower-priced policies. Currently, people are defaulted into the same plan, but due to the risk of rate increases, CMS proposed a new rule in November that would default customers into the lowest-premium plan in their insurance tier unless they take action to renew or decline coverage.

 

According to trade groups, however, the emphasis on price ignores other key factors and may incentivize insurers to detrimentally restrict benefits and networks to keep premium prices low.  The American Hospital Association further cautioned that the proposal would leave the enrollee at “great risk of benefit, network and operational changes and is not an acceptable approach[,]” noting that for many consumers—especially those requiring ongoing care—maintaining access to preferred providers is more important than premium level. Additionally, nonprofit group Families USA has expressed concerns that the proposal may adversely impact consumers who don’t understand that low premiums are often accompanied by higher deductibles and smaller networks.

 

Although there is controversy over how to best design it, automatic re-enrollment is an important way to help people stay insured. It has contributed to the 6.4 million sign-ups through HealthCare.gov this year.


Sarah Anna Santos, Hunton & Williams LLP, Charlotte, NC


 

December 15, 2014

Ninth Circuit to Hear FCA Public Disclosure Bar Controversy En Banc


The Ninth Circuit will hear an appeal en banc to resolve a controversy regarding the False Claims Act’s public disclosure bar, the court said on December 3. The question is whether the bar—which stops relators from bringing suit based on publicly disclosed allegations unless the relator is an original source of the information—requires relators to have had a hand in the public disclosure to qualify as an original source. Both the defendant and the relators argued that en banc review was unnecessary.


The issue is presented by U.S. ex rel. Steven J. Hartpence and U.S. ex rel. Geraldine Godecke v. Kinetic Concepts Inc., et al., case numbers 12-55396 and 12-56117, in the Ninth Circuit Court of Appeals. The relators are former employees of medical device maker Kinetic Concepts Inc. (KCI) and accuse KCI of submitting reimbursement claims for its accelerated-wound-healing devices to Medicare using a code that allowed for automatic payment of the claims, despite knowing that the claims required individual review. The lower court dismissed the case on the ground that the allegations were based on publicly disclosed information, and relators appealed.


According to KCI, the issue is well settled by the Ninth Circuit’s decision in U.S. ex rel. Wang v. FMC Corp., which held that relators must have had a “hand in the public disclosure” of allegations that are part of the relator’s qui tam suit. However, according to the relators, the Supreme Court’s decision in Rockwell International Corp. v. U.S. repealed Wang. KCI contends that Rockwell never reached the issue of whether relators needed to have a hand in public disclosure, and that the issue is rapidly becoming moot in light of a 2010 amendment to the FCA that changed the standard of the public disclosure bar.


Sarah Anna Santos, Hunton & Williams LLP, Charlotte, NC


 

December 15, 2014

Employer Lacks Standing to Sue for ACA Employer Mandate Delay


An orthodontics practice suing the Department of the Treasury and the IRS for delaying the ACA employer mandate lacked Article III standing to bring the suit, the Eleventh Circuit ruled on December 2. The court held that the employer did not show that it sustained the requisite injury when the Obama administration delayed enforcement of the mandate for two years for businesses with 100 or more employees.


Kawa Orthodontics LLP asserted it was injured because it spent time and resources preparing for compliance in 2014 that it would have used differently had it known the mandate would be delayed. The majority, however, rejected this argument as too abstract and indefinite to confer Article III standing, holding that Kawa failed to allege that it has been actually harmed in a concrete way. Although the dissent contended that Kawa was harmed by the loss of interest it could have earned on the money it spent on compliance, the majority held that Kawa never expressly made that argument and therefore waived it.


The majority further held that even if Kawa could show injury, it lacked standing because it failed to show causation and redressability. According to the majority, any injury Kawa sustained was caused by the ACA itself, not the delay, and its injury could only be redressed by money damages, which Kawa did not and could not seek in its lawsuit.


The case is Kawa Orthodontics LLP v. U.S. Department of Treasury Secretary et al., case number 14-10296, in the U.S. Court of Appeals for the Eleventh Circuit.


Sarah Anna Santos, Hunton & Williams LLP, Charlotte, NC


 

November 24, 2014

House Sues Obama Administration over ACA


On November 21, the Republican-controlled U.S. House of Representatives filed suit against the Obama administration, claiming that it unconstitutionally postponed implementation of the employer mandate of the Affordable Care Act (ACA) and paid funds to health-insurance companies that were never formally appropriated. The White House criticized the lawsuit as a political stunt.


In July 2013, the Obama administration announced that it would delay the ACA employer mandate, originally set to take effect into 2014, by one year, so that businesses with 50 or more full-time employees must provide health insurance for 70 percent of their full-time employees by 2015 and 95 percent by 2016. Although Republicans typically oppose the employer mandate, the complaint attacks the delay as an unconstitutional refusal to enforce an act of Congress. “Not only is there no license for the Administration to ‘go it alone’ in our system, but such unilateral action is directly barred by Article I,” says the lawsuit.


The lawsuit further claims that the administration has unlawfully made payments to health-insurance companies as part of an ACA program designed to offset discounts on deductibles and copays that insurers must provide to participate in ACA marketplaces. According to the complaint, these funds—expected to exceed $175 billion over the next decade—were never formally appropriated.


After both BakerHostetler and Quinn Emanuel jumped ship, the House hired George Washington University Law School professor Jonathan Turley to represent it in the case. Turley is a known critic of executive overreach, under both Republican and Democratic presidents.


Other constitutional experts, however, claim the House has no standing to sue the executive branch because it did not suffer an institutional injury from the administration’s actions. Instead, the appropriate remedy for Congress was to withhold appropriations for other programs or pass or repeal additional laws, according to experts.


The case is U.S. House of Representatives v. Burwell et al., case number 1:14-cv-01967, in the U.S. District Court for the District of Columbia.


Sarah Anna Santos, Hunton & Williams LLP, Charlotte, NC


 

November 21, 2014

DOJ Recovers $5.7B in FCA Payouts


On November 20, the Department of Justice (DOJ) announced that it had brought in a record $5.7 billion from False Claims Act litigation in fiscal year 2014, shattering the previous record from 2012, when it recovered $4.9 billion.


While the healthcare industry typically accounts for the lion’s share of FCA payouts, in 2014, the DOJ focused on the financial industry, extracting $3.1 billion from banks and financial institutions for misconduct related to the housing and mortgage crisis.


Medicare and Medicaid fraud resulted in $2.3 billion in payouts in 2014, which is comparable to past years of the Obama administration. This figure includes $1.1 billion from Johnson & Johnson for alleged off-label drug marketing, $120 million from Omnicare Inc. for allegedly paying kickbacks to nursing homes, and $150 million from Amedisys Inc. for allegedly billing unnecessary home healthcare. Approximately $335 million came from hospitals, including $100 million from Community Health Systems Inc. for allegedly improper patient admissions and $85 million from Halifax Hospital Medical Center for allegedly improper referrals.


Remaining payouts came largely from government contractors.


About $3 billion from the $5.7 billion came from qui tam suits. Whistleblowers took home $435 million in 2014.


Sarah Anna Santos, Hunton & Williams LLP, Charlotte, NC


 

November 10, 2014

Supreme Court to Hear ACA Tax Credit Case


On November 7, the U.S. Supreme Court agreed to hear King v. Burwell to decide if tax credits are available to consumers shopping on the Affordable Care Act's federal marketplace in addition to those exchanges established by the states.


Both the Fourth Circuit and the D.C. Circuit have answered this question in the affirmative, meaning no circuit split exists on the issue. While granting certiorari without a circuit split may indicate that the Court thinks the lower courts erred, it also may only mean that the Court wants to resolve uncertainty, as the rules for granting certiorari say that cases may be accepted to address “an important question of federal law that has not been, but should be, settled by this court.” No circuit split or error is required.


The Affordable Care Act expressly provides for subsidies on state exchanges, but it is disputed whether Congress intended to limit them only to states. Experts say that if subsidies are found to not be available on the federal marketplace, the decision could seriously destabilize the act. Health insurance would become prohibitively expensive for many consumers. Healthier people would refuse to buy plans, jeopardizing consumer protections and leaving insurers with an unprofitable customer base.


However, given these serious ramifications, there would be heavy pressure to work out another solution.


Roughly half of the states rely completely on the federal marketplace, HealthCare.gov, and face a loss of subsidies should the Supreme Court rule for the petitioners. In that case, these states may be able to keep subsidies by technically establishing their own exchanges and then handing off operations to the federal government. Alternatively, Congress could amend the act to expressly provide for subsidies in the federal marketplace, although that may be difficult with Republicans in power.


The case is David King et al. v. Sylvia Mathews Burwell et al., case number 14-114, in the Supreme Court of the United States.


Sarah Anna Santos, Hunton & Williams LLP, Charlotte, NC


 

November 7, 2014

CDC to Release Ebola Safety Guidelines for Utility Workers


The Centers for Disease Control and Prevention (CDC) will be soon be releasing guidelines for wastewater utility workers who come into contact with Ebola-contaminated waste, including workers performing sewer maintenance, repairing or replacing live sewers, and cleaning portable toilets. Officials did not provide a date for the release.


Although the CDC states that the risk of infection to these workers is low, they can minimize exposure by taking certain precautions such as wearing face shields, rubber shoes, rubber gloves, and impermeable suits. The CDC further recommends that they avoid eating, drinking, smoking, or chewing gum in the vicinity of such waste, and that they wash with soap and water after any contact.


The CDC also encourages the use of disinfectants such as bleach to deactivate the Ebola virus in waste prior to discharging to sewer lines and treatment plants. However, due to a lack of research, it is not clear how much disinfectant is needed to deactivate the virus.


There is also little data tracking Ebola in wastewater. While there is no conclusive evidence linking the spread of Ebola through waste, “there is no evidence not to link it either,” according to a director for the Water Environment Research Foundation.


Sarah Anna Santos, Hunton & Williams LLP, Charlotte, NC


 

October 29, 2014

Government Claims NYC Fraudulently Billed Millions in FCA Suit


The federal government intervened in a False Claims Act suit against New York City and Computer Services Corp. on October 27, alleging that they fraudulently billed Medicaid millions of dollars through computer programs that automatically altered billing data.


The fraud was allegedly perpetrated in connection with the early intervention program (EIP) services, which, in New York, are available to children under three years old with developmental delays. According to the suit, the city and CSC circumvented the “secondary payor” rule, which requires them to exhaust private insurance before billing Medicaid, by assigning children with missing policy identification numbers with default numbers that would result in coverage denials by private insurers, and by bypassing waiting requirements for private insurance claims to be resolved. The suit also claims that they used a computer program to identify diagnosis codes that Medicaid would likely reject and replace them with generic codes that would be accepted.


Both defendants deny the allegations, claiming that all services billed were authorized and provided.


The government is seeking treble damages and civil penalties. The case is U.S. ex rel. Vincent Forcier v. Computer Sciences Corp., case number 12-cv-07150, in the U.S. District Court for the Southern District of New York.


Sarah Anna Santos, Hunton & Williams LLP, Charlotte, NC


 

October 27, 2014

AMA Calls on CMS to Reform "Tsunami" of Medicare Penalty Rules


In a letter to the Centers for Medicare and Medicaid Services (CMS) on October 21, the American Medical Association (AMA) called on CMS to synchronize and simplify the requirements for avoiding penalties under Medicare incentive programs, and to reverse proposals to raise penalties from these programs to 10 percent or more.


The letter states that the “tsunami of rules and policies surrounding the penalties are in a constant state of flux” and so complex that even the staff in charge of implementing them cannot fully understand them. Describing contractor help desks as “so overloaded that physicians cannot get through,” many AMA members report that even when they can get through, the help desk is frequently unable to answer their questions.


The AMA cited the requirements of the Meaningful Use (MU), Physician Quality Reporting System (PQRS), and Value-Based Modifier (VBM) programs as particularly burdensome. For example, many physicians erroneously believe that if they report the quality measures in the MU program, they have complied with PQRS, claims the AMA, and physicians are largely unaware that the VBM even exists.


Providing specific recommendations for these three program, the AMA warned that the current state of Medicare incentive programs “threatens to do serious damage to the agency’s image and to physician confidence in the government’s stated goal of achieving a health care system that delivers more value for the dollar.”


Sarah Anna Santos, Hunton & Williams LLP, Charlotte, NC


 

October 27, 2014

SNF Reaches Largest Failure-of-Care Settlement in DOJ History


On October 10, 2014, the Department of Justice (DOJ) and the U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG) jointly announced a $38 million settlement with a skilled nursing facility (SNF), Extendicare Health Services Inc. and its subsidiary Progressive Step Corporation (ProStep). Extendicare owns and operates 146 SNFs in 11 states. Prostep offers Extendicare residents occupational, physical, and speech rehabilitation services.


The settlement stemmed from allegations in two qui tam cases: United States ex rel. Lovvorn v. EHSI, et. al. C.A. 10-1580 (E.D. Pa); and United States ex rel. Gallick et al., v. EHSI et al., C.A. 2:13cv-092 (S.D. Ohio). The allegations were that Extendicare (1) “billed Medicare and Medicaid for materially substandard nursing services that were so deficient that they were effectively worthless”; and (2) “billed Medicare for medically unreasonable and unnecessary rehabilitation therapy services.”


Regarding the worthless-services allegations, Extendicare allegedly billed both Medicare and Medicaid for “substandard skilled nursing services and failed to provide care to its residents that met federal and state standards of care and regulatory requirements” from 2007 through 2013 at 33 of its SNFs. The government contended, among other allegations, that extendicare did not (1) have a “sufficient number of skilled nurses to adequately care for its skilled nursing residents; (2) provide adequate catheter care to some of the residents; and (3) follow the appropriate protocols to prevent pressure ulcers or falls.” Based on these allegations, the federal government’s position is clear: it will not stand for worthless services, and SNFs that bill federal programs for worthless, substandard services will pay the price. According to Attorney General Stuart F. Delery, “[i]t is critically important that [the government] confront[s] nursing home operators who put their own economic gain ahead of the needs of their residents. Operators who bill Medicare and Medicaid while failing to provide essential services or bill for services so grossly substandard as to be effectively worthless will be pursued for false claims.”


Note however, two months ago in United States ex rel. Vanessa Absher, et al. v. Momence Meadows Nursing Center, Inc. and Jacob Graff, Case No. 13-1886 (Aug. 20, 2014), the Seventh Circuit made it clear that “a ‘diminished value’ of services theory does not satisfy this standard,” because “[s]ervices that are ‘worth less’ are not ‘worthless.’” Based on the Seventh Circuit’s position, it appears that both the government and relators share an evidentiary burden to demonstrate that a SNF’s services are indeed worthless and not just worth less, that is, merely inadequate or of “diminished value.”


Under the Extendicare settlement, the federal government will receive $32.3 million and the state Medicaid programs will receive $5.7 million. Additionally, there were two relators, one in each qui tam case. The relator in the worthless-services qui tam action will receive $250,000, while the relator for the rehabilitation therapy services (upcoding) case will receive over $1.8 million. In addition to these settlement amounts, Extendicare must enter into a five-year corporate integrity agreement (CIA) with HHS-OIG.


More information is available at the DOJ website about the CIA and qui tam allegations related to the rehabilitation services.


J. Nicole Martin, Cozen O'Connor, Philadelphia, PA


 

October 27, 2014

Prepare for Changes to CMS's Five-Star Quality Rating System for Nursing Homes


Choosing a nursing home can be a daunting task for consumers who often have myriad questions regarding the quality of care available at the nursing homes in their areas. To help answer these questions, the Centers for Medicare and Medicaid Services (CMS) has created the Nursing Home Compare website, which provides consumers with easy-to-compare ratings of nursing homes’ staffing, quality measures, and health inspections, as well as an overall rating, of each nursing home in the country. To help consumers make informed decisions about nursing-home quality, CMS uses the Five Star Quality Rating System, by which CMS compares data from nursing-home inspections, self-reports, and assessments. Based on this information, CMS calculates nursing homes’ star levels on a scale of one to five, with five stars being much above average and one star being much below average.


However, there has been concern over the accuracy of the self-reported data that CMS uses in calculating its star ratings. To improve the Five Star Quality Rating System, and to standardize the results, Congress recently passed the Improving Medicare Post-Acute Care Transformation Act (IMPACT Act). The IMPACT Act will require providers to submit standardized data to allow CMS to compare quality across different post-acute care settings, and will provide funding for the quarterly electronic submission of nursing-home staffing information that is tied to payroll data. CMS will also increase both the number and type of quality measures used in the Five Star Quality Rating System. The first additional measure, starting January 2015, will be the extent to which antipsychotic medications are in use. Future additional measures will include claims-based data on re-hospitalization and community discharge rates.


According to CMS, the following improvements to the Five Star Quality Rating System will be made beginning in 2015:


  • Upgraded user interface to ease navigation and improve the clarity of key metrics for both online and printable formats.
  • Revised scoring methodology by which CMS calculates each facility’s quality-measure rating, which CMS uses to calculate the overall Five Star rating.
  • Increased number and type of quality measures that are not solely based on self-reported data. This makes the rating system less susceptible to the manipulation of a few measures, and provides a more comprehensive assessment of the quality of care nursing homes provide.
  • Improved linkage to state-based websites for improved access to information that is uniquely reported by individual states.
  • Improved reporting on nursing-home staffing that increases the accuracy of data for staffing levels and adds other critical measures such as turnover and retention.

Dana Petrillo, Cozen O'Connor, Philadelphia, PA


 

October 14, 2014

Using Statistical Sampling and Extrapolation to Prove False Claims


A recent decision in the case of United States ex rel. Martin v. Life Care Centers of America, Inc., No. 1:08-cv-251, in the Eastern District of Tennessee, may significantly impact the methods employed by the federal government and qui tam relators to establish liability under the False Claims Act (FCA). On a partial motion to dismiss, the judge in this case ruled that the federal government may use statistical sampling and extrapolation to establish that Life Care Centers of America, Inc. (Life Care) submitted false claims to the Medicare program.


The government and relator in this case alleged that Life Care, an operator of skilled nursing facilities (SNFs), pressured its therapists to provide “Ultra High” levels of rehabilitation services to Medicare beneficiaries in Life Care’s many facilities as a means to enhance revenue, regardless of the beneficiaries’ individual needs. The government and relator further alleged that Life Care staff engaged in medically unnecessary or unreasonable services that were often performed in an unskilled manner and put patients at risk of harm.


Due to the high volume of Medicare beneficiaries treated at Life Care SNFs, the government did not undertake a claim-by-claim review of all the claims filed in the time period at question. Instead the government sought to use a random sample of 400 cases from various Life Care SNFs and extrapolate from this sample an estimate of the total number of false claims submitted by Life Care and the total overpayments made by Medicare.


The defendant argued that such methods do not provide sufficiently individualized proof of the submission of false claims. The government pointed to the widespread use of statistical sampling and extrapolation in administrative-agency decisions to determine the amount of overpayments owed to federal health-care programs, and in criminal cases to establish losses or damages. The court found that the cases presented by both parties were distinguishable from the case at bar, and that the use of statistical sampling in other instances did not necessarily justify its use in the instant case.


The court noted that administrative agencies are afforded wide discretionary powers and only those actions determined to be “arbitrary and capricious” may be set aside by the courts. This standard, the court noted, was distinct from the “preponderance of the evidence” standard required to prove the elements of a false claim. Moreover, statistical sampling and extrapolation by administrative agencies are methods explicitly authorized by statute. The court also drew a clear line between the use of these methods to establish damages after proving a defendant’s liability, and using these methods to actually prove liability.


Notwithstanding its criticisms of the government’s argument, the court stated that accepting the defendant’s position—that claim-by-claim review was necessary to prove FCA liability—would materially limit the efficacy of the FCA and ultimately ruled that such arguments are more appropriate for consideration by the finder of fact, and not on a motion to dismiss.


It is yet to be seen whether statistical sampling and extrapolation will prove effective in establishing liability under the FCA and whether other courts will concur with the reasoning employed in this ruling. It may be the case, however, that this decision opens the door to further use of these methods by the federal government and qui tam relators to establish FCA liability. The effective and widespread use of statistical sampling and extrapolation to prove the falsity of nonspecific claims could significantly impact FCA litigation and liability exposure for health-care providers.


Charles Harris, Hunton & Williams LLP, Richmond, VA


 

September 29, 2014

CMS and ACOs: A Busy Summer and a Busier Fall


It has been a busy summer so far for the Centers for Medicare & Medicaid Services (CMS) with respect to Accountable Care Organizations (ACOs), as the agency has proposed altering the quality reporting measures under the Medicare Shared Savings Program (MSSP) for 2015 and beyond. Expect an even busier fall as other potentially broader proposed rule changes for ACOs are analyzed by the Office of Management and Budget (OMB) and both sets of proposals wind their way through the public-comment process.


The proposed changes concerning quality reporting would revise and update the measures used to evaluate the MSSP ACOs’ performance. Overall, the CMS says it would like to focus more on outcome-based measures (as opposed to process-based measures), reduce duplicative measures, and reflect current clinical practices without increasing ACO’s reporting burden.


More specifically, the CMS proposes to add 12 new measures and remove eight, which would increase the total number of quality measures from 33 to 37. The new measures relate to “avoidable” admissions for patients with multiple chronic conditions, heart failure, and diabetes; depression readmission; readmissions to skilled nursing facilities; patient discussion of prescription costs; and updated composite measures for diabetes and coronary artery disease.


The CMS would like to modify the scoring system to award bonus points toward shared savings to ACOs that make year-over-year improvements on individual measures. Moreover, the agency would like to modify its benchmarking methodology to use flat percentages to establish the benchmark for a measure when the national FSS data results in the 90th percentile being greater than or equal to 95 percent. And, finally, the CMS proposes several ways to align MSSP reporting requirements with other reporting programs, including Medicare’s Electronic Health Records Incentive Program and the Physician Quality Reporting System.


Fewer details are available about the next set of proposed rules changes, which were submitted to OMB on June 26 and will be printed in the Federal Register after review. It is expected that these regulations will include changes to the MSSP’s payment provisions. The proposed changes would apply to existing ACOs and approved ACO applicants starting January 1, 2016.


Chris Raphaely and Ryan Blaney, Cozen O'Connor


 

September 29, 2014

ACOs and Pay for Value All about the Data


It has been over three years since the Centers for Medicare and Medicaid Services (CMS) announced its proposed rule and guidance on the development and implementation of Accountable Care Organizations. About four million Medicare beneficiaries are now in an ACO, and over 400 provider groups are participating in ACOs. An estimated 14 percent of the U.S. population is being treated within an ACO.


By all indications, these numbers will continue to grow as the U.S. health system moves away from the fee-for-service model to pay for value models that reward quality and cost savings and require clinical coordination among different types of providers, in many cases providers who are unrelated other than through an ACO or other similar arrangement. The seamless sharing of data, patient information, and collaboration among large, medium, and small physician practices; hospitals; post-acute providers; and even private companies such as pharmacy chains is critical to the success of these organizations.


These arrangements involve new risks under the Health Insurance Portability and Accountability Act and state privacy and security laws. Providers will have much more access to information about services rendered by other providers than ever before. Providers will often have their own electronic health-records systems and databases that are not compatible with each other and provide varying degrees of security. Breaches by one provider or vendor could implicate many other providers as well as an ACO or other “conduit” entity such as a clinically integrated network.


It is essential that ACOs and these other entities take steps to protect the privacy and security of their patients’ health information through: (i) policies and procedures that limit the use and sharing of patient-identifying information only to the minimum extent necessary; properly address “supersensitive” data such as HIV, substance abuse, and mental health data; and set forth mitigation activities should a breach occur; (ii) business associate and other contracts that adequately protect the non-breaching parties in the event of a breach; (iii) insurance policies that provide adequate coverage for mitigation costs, fines, penalties, and civil damages (and proof that participants have them as well); (iv) privacy and security-risk assessments; and (v) reasonable standards with respect to privacy and security for their participants, which are monitored and enforced. This requires these organizations to critically analyze the roles of their workforce, network infrastructures, technology and security policies, processes and vulnerabilities, information flow, and participant capabilities.


As provider payment models move away from the fee-for-service model, busy executives and lawyers will have many issues to grapple with. Exciting new relationships and arrangements may get out ahead of what may seem like less immediate concerns, specifically the prevention of and preparation for a data breach. Nevertheless, it is important for that gap not to grow too large, particularly as the public and the media increase their focus on the damage these breaches can cause.


Chris Raphaely and Ryan Blaney, Cozen O'Connor


 

September 15, 2014

Health-Care Groups Ask SCOTUS to Overrule 4th Cir. FCA Decision


The American Hospital Association, American Medical Association, and Pharmaceutical Research & Manufacturers of America filed an amicus brief in Kellogg Brown & Root Services Inc. et al. v. U.S. ex rel. Carter, No. 12-1497, in the Supreme Court of the United States, asking the Court to overturn the Fourth Circuit’s interpretation of the Wartime Suspension of Limitations Act (WSLA) and the False Claims Act (FCA). Amici warned that the Fourth Circuit decision will force businesses, hospitals, and other health-care providers “to defend against stale, repetitive, and frequently meritless claims” of alleged fraud.


The WSLA tolls the statute of limitations for “any offense” involving fraud against the federal government “[w]hen the United States is at war.” 18 U.S.C. § 3287. The Fourth Circuit interpreted this provision to apply to both civil and criminal claims, which the groups argue was incorrect because “[t]he statutory term ‘offense’ plainly covers only criminal offenses, not civil claims.”


Further, the groups contend that the Fourth Circuit erred in holding that the WLSA applies whenever the United States is engaged in “armed hostilities,” even when there has been no formal declaration of war. Noting that “since the attacks of September 11, 2001, the United States has been continually engaged in numerous undeclared ‘armed hostilities,’” the groups argued that the Fourth Circuit’s decision “potentially authorizes indefinite tolling of all FCA claims.”


Finally, the amici argue that the Fourth Circuit erroneously interpreted the FCA’s first-to-file bar, which provides that “[w]hen a person brings [a qui tam FCA] action . . . no person other than the government may intervene or bring a related action based on the facts underlying the pending action.” 31 U.S.C. § 3730(b)(5). The Fourth Circuit found “pending” in this statute to mean an action still actively pending before a court, such that the bar ends when the action is dismissed, leaving other relators free to file a claim based on the same facts.


Amici, however, argue that the term “pending” is a short-hand reference for the first-filed action, rather than an action that is still active. This reading, the brief argues, comports with Congress’s intention to create a “race to the courthouse.” The Fourth Circuit interpretation, amici warn, will subject businesses to “serial, duplicative claims without any corresponding public benefit.”


Sarah Anna Santos, Hunton & Williams, Charlotte, NC


 

September 15, 2014

Catholic Charity Seeks Exemption from ACA Contraception Mandate


In the face of continued court losses, the Obama administration further relaxed the Affordable Care Act’s birth-control mandate to allow religious nonprofits and closely held for-profits to win accommodations simply by notifying the government, rather than their insurers, of their objections. The government is then to relay those objections to the employer’s health-insurance administrator, which the government will then typically require to supply coverage.


This tweak came as a response to a decision from the Supreme Court in July, which at least temporarily blocked a requirement that religious nonprofits notify their insurers of objections.


However, in the case of Little Sisters of the Poor, a Catholic charity, coverage is administered as a “church plan” by Christian Brothers Services, which the government said will not be expected to supply contraception. Little Sisters, however, contends that the exemption for church plans has not been sufficiently formalized, and that the Obama administration “at a minimum [intends] to seek voluntary provision of the drugs” by Christian Brothers.


Instead, Little Sisters wants to be treated as a church and be completely exempt from compliance with the mandate, rather than having to comply with some sort of notification.


The case is Little Sisters of the Poor Home for the Aged et al. v. Sylvia Mathews Burwell et al., No. 13-1540, in the U.S. Court of Appeals for the Tenth Circuit.


Sarah Anna Santos, Hunton & Williams, Charlotte, NC


 

June 25, 2014

Is $210 Million Enough? How About $54.2 Million?


On June 25, 2014, the Centers for Medicare & Medicaid Services (CMS) and the Department of Health and Human Services Office of Inspector General (OIG) issued and certified, as required by the Small Business Jobs Act of 2010 (SBJA) their second implementation year report for the Fraud Prevention System (FPS) along with a press release. By way of background, CMS is under pressure from Congress and the U.S. Government Accountability Office (GAO) to enhance their health-care fraud, abuse, and waste-prevention and -detection success through the use of predictive analytics technologies while at the same time monitoring the expenditures and costs by government contractors and auditors such as Zone Program Integrity Contractors (ZPICs) to prevent fraud. Last October, the GAO published a report concerning CMS’s Medicare program integrity titled, “Contractors Reported Generating Savings but CMS Could Improve Its Oversight.”


CMS and OIG’s report to Congress on the FPS responds to many, but not all, of the GAO’s criticisms. Here are a few of the noteworthy findings and observations in the report:


  • CMS reports that they “identified or prevented” $210.7 million in Medicare payments attributed to FPS. This is a return on investment (ROI) of $5 to $1 for the second implementation year and an increase ROI from Year 1.
  • OIG disagrees with CMS’s use of “identified savings” to calculate the success of the FPS and instead recommends using “adjusted savings” as a measure of savings and return on investment related to the department’s use of FPS.
  • Under OIG’s adjusted savings analysis, OIG only certified $54.2 million of the $210.7 million as attributed to the department’s use of FPS.
  • OIG found that the “Department’s use of its predictive analytics technologies resulted in a ROI of $1.34 (not $5) for every dollar spent on the FPS.
  • Based on criticism received by OIG and GAO, CMS reported that they changed the methodology to require ZPICs  to submit provider-specific outcome data to be able to conduct more quality control reviews prior to reporting savings.
  • OIG disagreed with CMS and stated, “[A]lthough the Department has made significant progress in addressing the challenges of measuring actual and projected savings, its procedures were not always sufficient to ensure that its contractors provided and maintained reliable data to always support FPS savings.” Interestingly, OIG initially included a much stronger statement but revised the final statement based on CMS’s objections. The original statement was “[T]he Department could not ensure that its contractors always provided and maintained reliable data to support FPS savings.”
  • CMS expects that future activities of the FPS will substantially increase savings by expanding the use of predictive analytics and modeling beyond identifying fraud and into areas of waste and abuse. This will require more refined predictive models and modifications from insights from field investigators, policy experts, clinicians, and data analysts. In Year 3, CMS will convene workgroups with federal agency, states, and private partners to develop and expand FPS’s capabilities.
  • In Year 3, CMS also will explore the cost-effectiveness and feasibility of expanding predictive analytics technology to Medicaid and the Children’s Health Insurance Program (CHIP). CMS anticipates working with state Medicaid agencies to train and explore opportunities for expanding predictive analytics.

Practice Tip: CMS’s FPS is more fully integrated into the Medicare FPS payment system and allows CMS to monitor and deny individual claims in the prepayment stage. ZPICs and other government contractors will continue to be the government’s “boots on the ground” but they will be armed with better information and real time data to investigate. Providers need to take any and all inquiries by ZPICs seriously. Anticipate more coordinated investigations by the FBI, ZPICs, state AGs, state Medicaid fraud agencies, and federal agencies and faster freezing or rejections of provider claims. Anticipate the expansion of FPS’s predictive analytics to the areas of waste and abuse.


Ryan Blaney, Cozen O'Connor, Washington, D.C.


 

May 28, 2014

Failure to Encrypt Mobile Devices = Nearly $2 Million in Settlements


The Department of Health and Human Services (HHS) Office for Civil Rights (OCR) settled for the collective amount of $1,975,220 with Concentra Health Services and QCA Health Plan, Inc. (QCA). The settlements stem from OCR investigations in 2011 and 2012 related to each of the companies reporting a single stolen laptop; Concentra also had a laptop stolen in 2009.


In its press release, HHS stated that after further investigating Concentra, it found that Concentra was aware prior to the most recent laptop theft that not all of its laptops, desktop computers, medical equipment, tablets and other devices that contained ePHI were encrypted. But despite Concentra’s discoveries as a result of risk analyses that it had conducted, it failed to remedy the critical risks and did not encrypt all of the devices. OCR also found that Concentra had insufficient security-management processes. OCR’s investigation of QCA revealed that in addition to the unencrypted laptop, QCA failed to comply with numerous Health Insurance Portability and Accountability Act (HIPAA) privacy and security requirements for several years.


Susan McAndrew, OCR’s deputy director of health information privacy, reiterated the significance of encryption and the obligations of covered entities and business associates to adequately secure mobile devices when she stated that OCR’s message to covered entities and business associates is simple: “encryption is your best defense against these incidents.” McAndrew’s statement is significant and a shift from the view that although security is an obligation, encryption is not required under the HIPAA Security Rule. In light of these two settlements and the deputy director’s commentary, it is evident that OCR views encryption as an essential security safeguard for laptops, desktop computers, medical equipment, tablets, and other mobile devices.


Concentra has agreed to pay HHS a monetary settlement of $1,725,220 and QCA has agreed to pay $250,000. Both entities have also agreed to each undertake a corrective action plan (CAP), which CAPs include risk analyses, development of risk-management plans, policy and procedure revisions, staff training, and certification of staff training. Concentra’s CAP contains more onerous requirements, including the continued submission of additional documents, reports, and encryption status updates to HHS. Concentra’s CAP may be more extensive than QCA’s because it already had a laptop that contained ePHI stolen in 2009 and because it failed to remedy the encryption issue it discovered during the risk analyses it performed prior to the second laptop being stolen. OCR also noted that QCA did encrypt its devices after the laptop was stolen and it discovered the breach.


For more information about the settlements and the CAPs, see the Concentra Resolution Agreement and the QCA Resolution Agreement.


Practice Tip: Audit your encryption policies and practices for all mobile devices to adequately secure your company’s mobile devices.


Ryan Blaney and J. Nicole Martin, Cozen O'Connor


 

April 19, 2014

HHS Releases a New Security-Risk-Assessment Tool


The Department of Health and Human Services (HHS) recently released a new security-risk-assessment (SRA) tool for small- to medium-sized health-care providers. The Health Insurance Portability and Accountability Act (HIPAA) requires covered entities to conduct periodic assessments of the administrative, physical, and technical safeguards in their handling of protected health information. This new tool will help health-care providers conduct and document risk assessments and produce a report that can be provided to potential auditors.


The tool was created jointly by the HHS Office of the National Coordinator for Health Information Technology (ONC) and the HHS Office of Civil Rights (OCR), and its release precedes OCR’s expected launch of a permanent HIPAA audit program. The OCR has previously identified security risk assessments as an area of consistent weakness among covered entities and has said it will be a particular focus for auditors.


Entities using the new tool will be asked 156 yes or no questions. Each question addresses a specific HIPAA requirement, and additional resources are provided with each question to help providers better understand the language and requirements of the associated HIPAA security rule. In the event that a provider answers no or cannot answer an applicable question, the provider must note the need for corrective action and implement a plan immediately.


Providers can download the SRA Tool and additional guidance here. The ONC plans to make updates and improvements to the tool after an initial period of use.


Gregory M. Fliszar


 

July 23, 2013

Contrasting Opinions in Health-Care-Law Rulings


On July 22, 2014, the U.S. Court of Appeals for the D.C. Circuit and the Fourth Circuits released opinions regarding the federally run health-care exchanges under the Affordable Care Act (ACA). Specifically, the cases explore subsidies provided to individuals purchasing health insurance in federal exchanges.


In both cases, the primary question was whether health-care plans purchased through federally run health-care exchanges were eligible for tax credits under the ACA. Twenty-seven states opted to not create their own exchanges, and nine created only partial exchanges. In answering this question, the Fourth Circuit in King v. Burwell found that the statutory language of 26 U.S.C. § 36(b) was ambiguous when read in the context of the statutes as a whole, and did not clearly express congressional intent. As such, the unanimous 3–0 King panel reasoned that “if Congress wanted to create a two-tiered exchange system, it would have done so expressly.” The Fourth Circuit then determined that the statutory interpretation chosen by the IRS was permissible.


The D.C. Circuit reasoning in Halbig v. Burwell was in direct contrast, holding 2–1 that the IRS regulation authorizing tax credits in federal exchanges under the ACA was invalid, particularly because the “ACA unambiguously restricts the section 36(b) subsidy to insurance purchased on Exchanges ‘established by the State.’” The Halbig court reasoned that under 26 U.S.C. § 36(b), such tax credits are limited to health-care plans purchased “through an exchange established by the State,” which limits eligibility to only those plans purchased from a state-run exchange.


Those in support of the Halbig decision remark that Halbig has “reaffirmed the principle that the law is what Congress enacts—the text of the statute itself—and not the unexpressed intentions of hopes of legislators.” The Fourth Circuit reasoning, in contrast, represents a more “purposive” interpretation, according to Professor Nicholas Bagley of University of Michigan Law School. Such an approach is generally more lenient in providing flexibility for textual ambiguities.


While legal experts do not expect the losing party to petition the Fourth Circuit for a rehearing en banc, the administration will soon announce their request for en banc consideration by the entire D.C. Circuit. Interestingly, this announcement was already predicted in the Edwards dissent, in which he refers to the majority opinion as a “proposed judgment,” suggesting the likelihood of the case being reheard and eventually superseded.


Some question if this case is U.S. Supreme Court-bound. A rehearing and reversal of today’s Halbig decision would result in a removal of the inconsistency currently in place between the Fourth and D.C. Circuits. Professor Jonathan Adler of Case Western Reserve University School of Law, a proponent of the Halbig theory from its outset, noted that the Roberts Court seems particularly attracted to cases in which there is a circuit split, and that its removal may decrease the likelihood of Supreme Court review. This is especially true in light of the fact that the Halbig and King cases lack “meaningful differences.” Adler also noted that if the Supreme Court were to review the case, that he predicts the decision would be a “close” one and “challenging for many” of the justices.


If the Halbig decision is ultimately upheld, it’s unclear if the government would honor the D.C. Circuit decision as a nationwide invalidation of the rule, or would instead simply aver the court’s judgment, and extend it to a more localized geographic region, or even to the individual plaintiffs. In addition, 36 states may again be faced with the choice of whether or not to create a state exchange. If choosing not to do so, such states would potentially face immense political pressure for neighboring states providing the tax credits for their own individual citizens.


Barry Jackson, William E. Moschella, and Cate McCanless, Brownstein Hyatt Farber Schreck, LLP, Washington, D.C.


 

January 24, 2013

HHS to Publish Final HIPAA Omnibus Regulations


The U. S. Department of Health and Human Services (HHS) has announced that it will publish the final HIPAA Omnibus Regulations in the Federal Register on January 25, 2013. These long-awaited regulations implement important changes to the HIPAA privacy, security, breach notification, and enforcement regulations as required by the Health Information Technology for Economic and Clinical Health Act (the HITECH Act) and the Genetic Information Nondiscrimination Act (GINA). A brief overview of some of the key changes follows.


Broader Definition of Business Associates
Under the final regulations, the definition of a business associate has been expanded to include: 1) providers of data-transmission services that require access to protected health information (PHI) on a routine basis; 2) personal-health-record vendors that provide such records on behalf of a covered entity; and 3) subcontractors that create, receive, maintain, or transmit PHI on behalf of the business associate. Subcontractors are persons to whom a business associate delegates a function, activity, or service, other than a member of the business associate’s workforce. This definition encompasses all levels of a business associate’s subcontractors and therefore greatly expands the applicability of HIPAA.


Liability of Business Associates for Civil and Criminal Penalties
Prior to HITECH, business associates had to comply only with the contractual obligations imposed on them through business-associate agreements and their primary liability was to the relevant covered entity for breach-of-contract damages. Under HITECH, business associates, including their subcontractors, are liable for criminal and civil penalties for violations of the applicable provisions of HIPAA. As the final rule makes clear, the provisions of HIPAA that are applicable to business associates include all of the security regulations; some of the privacy regulations, including the minimum necessary standard and the requirement to implement business-associate agreements with their subcontractors; the breach-notification regulations; and the enforcement regulations, including providing access to facilities, records, and other information to the secretary of HHS.


Civil monetary penalties range up to $50,000 per violation and $1.5 million for all violations of a single requirement in a calendar year. Under the final regulations, business associates will also be liable, in accordance with the federal common law of agency, for civil monetary penalties for a violation based on the act or omission of any agent of the business associate, including a workforce member or a subcontractor acting within the scope of the agency.


HHS Required to Investigate Violations Due to Willful Neglect
As has been self-evident for the past three years, HITECH laid the groundwork for more rigorous and punitive enforcement of HIPAA. The final regulations fuel this trend by mandating that HHS investigate any complaint when a preliminary review indicates a possible violation due to willful neglect.


Risk of Significant Harm Threshold Eliminated from Definition of Breach
The final regulations modified the definition of breach such that it no longer includes a “significant risk of financial, reputational or other harm to the individual” threshold. Instead, the final regulation adopts a presumption that any acquisition, use, or disclosure of PHI not permitted under the HIPAA privacy regulations is a breach unless the covered entity or business associate demonstrates that there is a low probability that the PHI has been compromised based on a risk assessment. Such a risk assessment must consider, at minimum, the following factors: 1) the nature and extent of the PHI involved; 2) the unauthorized person who used the PHI or to whom it was disclosed; 3) whether the PHI was actually acquired or viewed; and 4) the extent to which the risk to the PHI has been mitigated. The final regulations also eliminate the exception from the definition of breach for PHI that did not include the identifiers excluded from limited data sets as well as dates of birth and zip codes.


Use and Disclosure of Genetic Information for Underwriting Generally Prohibited
The final regulation amended the privacy regulations to prohibit health plans from using or disclosing PHI that is genetic information for underwriting purposes, except in the case of long-term-care policies. Use or disclosure of PHI that is genetic information for non-underwriting purposes in permitted, as long as the use of disclosure otherwise complies with the privacy regulation. Genetic information is broadly defined to include not only genetic tests of an individual or his or her family member, but also manifestations of disease in family members, request for or receipt of genetic services, and participation in clinical research that includes genetic services by the individual or his or her family member.


Effective and Compliance Dates
The final rule becomes effective March 26, 2013, and covered entities and business associates must comply with the applicable requirements by September 23, 2013. Business-associate agreements that are entered into prior to January 25, 2013, and not modified between March 26, 2013, and September 23, 2013, will be deemed compliant until the earlier of any renewal or modification after September 23, 2013, or September 22, 2014.


Sheila Sokolowski, 2013 Hogan Marren, Ltd., Chicago, IL


 

January 10, 2013

The Affordable Care Act's Impact on the IRS


American taxpayers will start feeling the impact of the Affordable Health Care Act in 2014, when they will have to provide proof of health insurance on their tax returns. Accordingly, that situation will put the IRS at the center of the debate. Specifically, the debate is about the IRS’s capability to police the healthcare decisions of millions of people while at the same time collecting routine taxes.


Essentially, under the law, the IRS will provide tax breaks and incentives to help pay for health insurance. But, it will also impose taxes on those who decide not to purchase health insurance. The law sounds easy to implement. But, according to the Treasury inspector general overseeing the IRS, the healthcare law “includes the largest set of tax law changes in more than 20 years.”


Impact on Administrative Issues: The law will certainly require new regulations, forms, publications, and new computer and outreach programs. Furthermore, the IRS will need to hire many new employees to implement the law. The need to hire new employees can only be satisfied by budget increases that are already being targeted by some representatives in Congress. The IRS is anticipated to spend over $800 million to hire new employees and upgrade its computer systems.


Impact on the IRS’s Enforcement: The law limits the IRS’s ability to collect the taxes on those who decide not to purchase health insurance. There are no civil or criminal penalties for refusing to pay. The IRS cannot garnish wages, and no interest accumulates for the unpaid taxes. Thus, IRS will be left with two options to enforce the law: threats to withhold refunds, and threatening letters.


Because of the complexity of health law, the IRS will likely struggle with the enforcement and administration of the law. However, with more resources, the IRS can overcome the potential impacts of the Affordable Care Act.


Norayr Zurabyan, Loyola Law School


 

October 12, 2012

Rigel Decision Validates Pharmaceutical Practices


On September 6, 2012, the Ninth Circuit Court of Appeals, in an opinion with significant implications for all companies involved in drug development, affirmed the dismissal of a securities fraud suit against Rigel Pharmaceuticals, Inc. The decision—the first from the Ninth Circuit to address the implication of last year’s landmark Supreme Court decision in Matrixx Initiatives, Inc. v. Siracusano, 131 S.Ct. 1309 (2011) in the drug development and approval process—validates the process followed by many drug development companies of initially releasing “top-line data” from drug trials, and later disclosing more detailed data at scientific conferences.


In questions of first impression for the court, the opinion—In re Rigel Pharmaceuticals, Inc. Securities Litigation, No. 10-17619 (9th Cir. Sep. 6, 2012)—made two important holdings that impact life sciences companies. First, the court held that a securities fraud class action should not be allowed to proceed past a motion to dismiss based on allegations that the company should have used a different or allegedly better statistical methodology to evaluate the efficacy of the trial. Second, the court held that the oft-used practice of initially disclosing only top-line data does not render such disclosures false as long as the more detailed data omitted from the disclosures do not render such disclosures misleading.


Background
In Rigel, the company issued a press release in December 2007 reporting the safety and efficacy results of a Phase IIa clinical study of its drug designed to treat rheumatoid arthritis. The press release reported top-line results, which showed a statistically significant improvement for patients in the treatment groups over those in placebo groups. The press release also reported key safety results and side effects, indicating “good tolerability” of the drug by patients. Eleven months later, company executives presented more detailed findings from this study at the American College of Rheumatology (ACR) Annual Scientific Meeting and in an article published in the medical journal Arthritis and Rheumatism. The additional details, which had not been part of the 2007 press release, included efficacy data broken down based on geographical locations where the patients were enrolled. The additional data showed a potential country interaction in which, even though similar improvements between drug and placebo groups were observed among patients enrolled in Mexico and the United States, the Mexican patients had a higher placebo response rate than U.S. patients. The additional information also included detailed safety results, including information regarding all adverse events suffered by 3 percent or more of the patient population. Shortly after the ACR meeting, the company’s stock price decreased significantly in late 2008.


The plaintiff asserted securities fraud claims under section 10(b) of the Securities Exchange Act of 1934, alleging that the 2007 press release was false and misleading because the statement that the study had shown statistically significant results was based on a flawed statistical methodology, and because it failed to report the more detailed safety and efficacy data that investors would find important. The Ninth Circuit rejected both arguments.


Courts Will Not Second Guess Methodology for Interpreting Clinical Results
First, the court rejected the plaintiff’s contention that the December 2007 disclosures were fraudulent because the company used an allegedly “flawed methodology” in interpreting the data. Among other things, the plaintiff argued that a different statistical methodology (calculating the “p-value”) should have been used to determine the efficacy of the trial in light of the potential country interaction reflected in the detailed data. The court noted that “[n]either the Supreme Court nor this court has addressed” such a challenge. In rejecting the plaintiff’s argument, the court explained that allegations of falsity failed because they amounted to nothing more than disagreements about the design of the study and appropriate statistical methodology to be used in evaluating the results of the study:


Plaintiff . . . did not allege that Defendants had chosen or changed their statistical methodology after seeing the unblinded raw data from the clinical trial. Instead, Plaintiff challenged Defendants’ reported statistical results by alleging that Defendants should have used Plaintiff’s chosen statistical methodology . . . . Thus, Plaintiff’s allegations of “falsity” essentially are disagreements with the statistical methodology adopted by the doctors and scientists who designed and conducted the study, wrote the journal article, and selected the article for publication. The allegations, therefore, concern two different judgments about the appropriate statistical methodology to be used by Defendants. The allegations are not about false statements.

The Court concluded that “[b]ecause Plaintiff does not allege that Defendants misrepresented their own statistical methodology, analysis, and conclusions, but instead criticizes only the statistical methodology employed by Defendants, Plaintiff did not adequately plead falsity with respect to statistic results.”


Matrixx Does Not Require Disclosure of All Material Information
The court also addressed, for the first time, the impact of the Matrixx decision in the context of the disclosure of results of drug clinical trials by life sciences companies. In Matrixx, the Supreme Court rejected a Ninth Circuit decision holding that serious adverse events experienced after the commercial launch of a drug need only be disclosed if they rise to the level of statistical significance. The plaintiff in Rigel argued that under Matrixx, once a company chooses to disclose any safety information related to a clinical trial, it must disclose all material safety information. The Ninth Circuit squarely rejected this contention by stating: “The Matrixx court made it clear that not all material adverse events would be material and, more importantly, that not all material adverse events would have to be disclosed.”


The court concluded, “as long as the omissions do not make the actual statements misleading, a company is not required to disclose every safety-related result from a clinical trial, even if the company discloses some safety-related results and even if investors would consider the omitted information significant.”


The court also affirmed the dismissal of the plaintiff’s claims under Section 11 of the Securities Act of 1933. The plaintiff had alleged that similar representations regarding the clinical study results made by Rigel in its secondary offering were misleading, and thus, actionable. The court held that the plaintiff was obligated to meet the heightened pleading requirements of Federal Rule of Civil Procedure 9(b) because the Section 11 claims relied on the same misrepresentations as the fraud claims. The court concluded that the plaintiff failed to meet these pleading requirements.


Takeaways
The court’s holding in Rigel should provide some guidance and peace of mind to all drug development companies releasing clinical trial results. As always, companies should adhere to a predetermined methodology in conducting and analyzing their clinical trials and accurately report the results of that analysis. When disclosing the “top-line” results from such studies, the Ninth Circuit’s decision in Rigel should provide significant protection from securities fraud claims so long as those results, though incomplete, are not misleading. The decision will also provide protection against after-the-fact challenges to the design of clinical studies and the statistical methodologies used to evaluate the results of such studies.


Rigel was represented by Cooley LLP. The plaintiffs were represented by Robbins Geller Rudman & Dowd LLP.


Keywords: litigation, health law, Ninth Circuit, top-line data, Securities Exchange Act of 1934, Securities Act of 1933


John C. Dwyer is a partner, Shannon Eagan is a partner, and Adam Trigg is an associate at Cooley LLP in Palo Alto, California.


 

July 29, 2012

The Affordable Care Act Decision's Impacts on Life Sciences


The June 28, 2012, U.S. Supreme Court decision upholding the Patient Protection and Affordable Care Act impacts the life sciences industry in a number of ways, affecting innovation and compliance initiatives by medical device, pharmaceutical, and biotechnology companies.


Innovation
A number of provisions in the act provide incentives and resources for product innovation. First, it is expected that more than 30 million Americans will obtain health-care coverage on account of the act. A bigger pool of Americans with health coverage to pay for treatment will yield growth in pharmaceutical sales and, perhaps, the ability to charge higher drug prices, which, in turn, could spur innovation. In addition, the act created the Therapeutic Discovery Project Program, through which $1 billion in new therapeutic discovery-project grants and tax credits will be awarded. In 2010, 2,923 companies specializing in biotechnology and medical research in 47 states and the District of Columbia received awards under the grant program. Firms can opt to receive either a grant or a tax credit under the program, which allows both profitable companies and startups that are not yet profitable to benefit. A third measure in the act likely to have a positive impact on innovation is a provision that gives biotech companies a dozen years of exclusive rights to the data underpinning their products.


On the other hand, the ruling leaves intact a 2.3 percent excise tax on medical devices that is estimated to cost the industry $20 billion over the next 10 years and that manufacturers fear will burden innovation. On the other hand, some believe that, as in the case of pharmaceutical manufacturers, expansion of health-care coverage will increase the demand for medical devices and offset the effect of the tax.


The Supreme Court ruling affects not only the speed but also the direction of life sciences product innovation. PricewaterhouseCoopers has identified five broad pillars of medical technology innovation: financial incentives (such as reimbursement for the adoption of new technologies), resources for innovation (such as academic medical centers), a supportive regulatory system, demanding and price-insensitive patients, and a supportive investment community of venture capitalists and other investors. PricewaterhouseCoopers, Medical Technology Innovation Scoreboard: the Race for Global Leadership (January 2011). Various provisions in the act promote the development of more cost-effective ways of delivering care, including a measure that calls for more real-world evidence of a new drug’s superiority over other treatments to qualify for reimbursement. Such provisions may spur more definitive product innovation as opposed to production of “me too” drugs and new devices that make only modest improvements to existing products.


Compliance
Certain provisions in the act impact compliance initiatives in the life sciences industry. The act includes “Sunshine Provisions,” which require pharmaceutical and medical device manufacturers to track and report payments and other transfers of value greater than $10 to physicians and teaching hospitals. While under prior laws improper industry-provider relationships primarily were uncovered by whistleblowers and government investigations, the Sunshine Provisions place the onus on life sciences manufacturers to disclose their relationships with providers for review by others. This enhanced transparency and data accessibility could result in sharper scrutiny by enforcement agencies of information about improper relationships and violations of fraud and abuse laws. Moreover, other provisions in the act enhance the government’s ability to pursue violations of existing fraud and abuse laws—for example, revisions to the intent requirement of the Anti-Kickback Statute and strengthening of fraud enforcement tools through changes to the False Claims Act, civil monetary penalty laws, sentencing guidelines and exclusion authority, and the dedication of $250 million for fraud and abuse enforcement. These changes will require life sciences companies to carefully structure and manage relationships with providers and ensure that their compliance initiatives include efficient and effective operating procedures for tracking and reporting payments, educating and training sales and research personnel, and auditing and monitoring provider relationships.


Keywords: litigation, health law, Supreme Court, Patient Protection and Affordable Care Act, life sciences


—Robyn S. Shapiro, Drinker Biddle & Reath LLP


 

July 29, 2012

Supreme Court Upholds Affordable Care Act


On June 28, 2012, the U.S. Supreme Court released its much-anticipated decision on the constitutionality of various provisions of the Patient Protection and Affordable Care Act (ACA). The Court upheld the “individual mandate” as a legitimate constitutional exercise of Congress’s taxing authority. The Court also upheld the requirement for states to expand eligibility under their Medicaid programs, although it struck down the provision that could have required noncomplying states to forfeit 100 percent of the their Medicaid funding.


Individual Mandate Upheld
Under the ACA’s “individual mandate,” beginning in 2014, virtually all Americans must maintain health insurance coverage. Those challenging the individual mandate argued that it exceeds Congress’ authority under the Commerce Clause of the Constitution, in that the Commerce Clause does not extend to the regulation of inactivity (in other words, the failure to purchase health insurance).


The Court ruled that the Commerce Clause does not grant the federal government the authority to require citizens to purchase health insurance; however, the Court found that the individual mandate is a constitutional exercise of Congress’s taxing authority, because the penalty for those not purchasing insurance is essentially a tax.


Impact
While the mandate has survived constitutional challenge, many remain skeptical that it will significantly impact insurance purchases because failure to purchase insurance has no criminal implications and results in relatively small required “tax” payments.


Medicaid Expansion Limited
In the Supreme Court case, the 26 state plaintiffs argued that the ACA’s expansion of Medicaid to benefit nearly all people under the age of 65 with income at or below 133 percent of poverty was coercive because the federal government could take away all of the states’ existing Medicaid funding if they failed to expand their Medicaid coverage. The Court let stand the expanded Medicaid coverage requirement but invalidated the provision that could have forced states that did not comply to forfeit all of their Medicaid funding. The Court stated that any forfeiture of a state’s Medicaid funds must be limited to those funds associated with the expansion requirement.


Impact
The Court’s ruling leaves questions regarding the implementation of the Medicaid expansion requirement. To ensure cooperation from the states, the federal government may need to offer additional financial incentives or find some other means to assure the implementation of this aspect of the ACA.


Severability
In the weeks leading up to the Supreme Court decision, there was much discussion as to what would happen if the individual mandate were struck down. In its briefs, the government argued that, in that event, the guaranteed-issue and community-rating provisions of the law should be invalidated, but all other provisions of the act could be severed and survive. Those bringing suit argued that the ACA’s requirements were so intertwined that if the individual mandate were found to be unconstitutional, the entire act would have to be invalidated.


Because the Court upheld the individual-mandate requirement, it found no need to address severability. Thus, additional provisions of the ACA (such as those relating to the closing of the Medicare Part D coverage gap and the excise tax on medical devices) were upheld by the Court’s decision.


Keywords: litigation, health law, Supreme Court, Patient Protection and Affordable Care Act, Medicaid


Matthew P. Amodeo, Jennifer R. Breuer, Anna Schwamlein Howard, and Robyn S. Shapiro, Drinker Biddle & Reath LLP


 

July 11, 2011

Sixth Circuit Upholds Constitutionality of Health Care Reform


On June 29, 2011, the United States Court of Appeals for the Sixth Circuit in the case of Thomas More Law Center v. Obama ruled that the Patient Protection and Affordable Care Act (the health-care law) is a constitutionally sound legislative act by Congress under the Commerce Clause. The opinion by the Sixth Circuit is the first opinion by a U.S. Court of Appeals on the constitutionality of the health-care law championed by the administration of President Obama.  The Fourth Circuit and the Eleventh Circuit have heard oral arguments on constitutional challenges to the health-care law but have not issued rulings. The U.S. Court of Appeals for the D.C. Circuit and the Ninth Circuit have oral arguments scheduled in cases challenging the law. According to the petitioner, the ruling of the Sixth Circuit will be appealed to the U.S. Supreme Court.


The health-care law includes a mandate that individuals buy health insurance, which complies with the act's minimum level of coverage or the individual is subject to a penalty. The focus of the Sixth Circuit's opinion is whether the individual health insurance requirement regulates economic activity with a substantial effect on interstate commerce and thereby constitutes a permissible constitutional act pursuant to the Commerce Clause. The Sixth Circuit ruled that the government had a rational basis for concluding that the individual mandate was essential to the act’s attempt to regulate the national health-care market.


The issue that has split district courts is whether Congress, pursuant to the Commerce Clause, may constitutionally regulate an individual's inactivity. The Sixth Circuit in Thomas More focused on the broader economic implications of an individual’s failure to purchase health insurance. In assessing the economic effect of an uninsured individual on health-care expenditures, two realities were important to the court’s analysis: (1) at some point in their lifetime, everyone will access health care; and (2) pursuant to federal law, everyone is entitled to medical treatment regardless of their ability to pay. The court determined that the government reasonably concluded that the failure of individuals in the aggregate to purchase health insurance will result in unpaid medical expenses. The government reasonably concluded that unpaid medical expenses shifts costs to the government and to the private sector. Therefore, the court ruled that the government had a rational basis to conclude that the aggregate expense of uncompensated health-care costs from the uninsured has a substantial economic effect on the health-care delivery system throughout the country. As a result, the court concluded the act was constitutional.


—Erik H. Olson, The Olson Law Firm, LLC, Atlanta, GA


 

December 16, 2010

Key Provision in Health Care Reform Ruled Unconstitutional


On December 13, 2010, a federal district judge in Virginia ruled that a key provision of the new health-care reform law—the Minimum Essential Coverage Provision, otherwise known as the individual mandate—is unconstitutional. U.S. District Judge Henry E. Hudson held that Congress exceeded its constitutional powers under the Commerce Clause, or associated Necessary and Proper Clause, by requiring each citizen to arrange for the purchase of health insurance. Virginia v. Sebelius, E.D. of VA Case No. 3:10-cv-188-HEH, court opinion linked here.


Judge Hudson, who was appointed by George W. Bush, is the first judge in the country to invalidate any part of the new health-care reform law the Patient Protection and Affordable Care Act (PPACA). See www.hernblawg.com/wp-admin/post-new.php#_ftn1. (Two courts, one in Virginia and one in Michigan, have already dismissed lawsuits challenging the constitutionality of PPACA.) In siding with Virginia Attorney General Kenneth T Cuccinelli, II, the judge observed that his survey of case law “yielded no reported decisions from any federal appellate courts extending the Commerce Clause or General Welfare Clause to encompass regulation of a person’s decision not to purchase a product, not withstanding its effect on interstate commerce or role in a global regulatory scheme.” In other words, an individual’s personal decision to purchase—or not to purchase—health insurance from a private provider is beyond the historical reach of the U.S. Constitution.



—Don A. Hernandez and Jennifer Tsao, Hernandez Schaedel & Associates, Pasadena, CA


 

October 15, 2010

U.S. District Court Issues Ruling on the Health Care Reform Act


On Thursday, October 7, in Thomas More Law Center v. Obama, Judge George Caram Steeh of the U.S. District Court for the Eastern District of Michigan issued the first in what promises to be a series of rulings on the Patient Protection and Affordable Care Act (Health Care Reform Act or Act). The ruling upheld the Act, finding that the plaintiffs' claims were not barred for lack of standing or under the Anti-Injunction Act; rather, they failed under the Commerce Clause and General Welfare Clause.


The plaintiffs, who sought a preliminary injunction and a declaration that Congress lacked the constitutional authority to pass the Act, included the Thomas Moore Law Center, a public interest law firm, and various uninsured individuals. In response to the government's argument that they lacked standing, plaintiffs claimed to suffer economic hardships under the Act's minimum coverage provision. [The minimum coverage provisions mandate that every U.S. citizen not falling within certain exceptions maintain "minimum essential coverage" for health care each month beginning in the year 2014. If an individual fails to comply with this requirement, the Act imposes a penalty to be included with a taxpayer's return.] The court, however, found that the plaintiffs did in fact have standing to assert their claims. The court reasoned that, although the Act's minimum coverage provisions go into effect in 2014, the future mandates imposed present budgeting constraints on the plaintiffs thus satisfying the standing requirement of a redressable injury. The court similarly rejected the government’s arguments under the Anti-Injunction Act, stating that, unlike other such cases, the declaratory relief sought had nothing to do with immediate tax collection by the IRS but with "the statutory requirement that individuals obtain health insurance coverage as provided."



Ardith Bronson, Weil, Gotshal & Manges, Miami, FL


 

August 5, 2010

Pennsylvania Appellate Court Expands Corporate Liability to Nursing Homes


On July 24, 2010, a Pennsylvania Superior Court panel in the case, Scampone v. Grane Healthcare Co., issued a precedential decision when it ruled that nursing homes may be held corporately liable for patient neglect. Previously, nursing homes were viewed as being more akin to a “physician’s outpatient office,” which does not have corporate liability exposure. As such, the nursing home’s corporate entity was usually dismissed from these types of lawsuits. However, in the instant case, the court reasoned that “[e]xcept for the hiring of doctors, a nursing home provides comprehensive and continual physical care for its patients . . . [thus] the degree of involvement in the care of patients of skilled nursing home facilities is markedly similar to that of a hospital.” Based on those findings, the court determined that corporate negligence was a supportable cause of action against Grane Healthcare considering that the entity managed all aspects of the operation of the nursing facility.

 

—Joanne Snow, Hanson Peters NYE

 

April 6, 2010

Court Upholds Denial of Hospital's Property Tax Exemption


In a highly anticipated opinion issued March 18, 2010, the Illinois Supreme Court upheld an administrative agency’s denial of a nonprofit hospital system’s application for a charitable exemption under the state’s property tax code. Provena Covenant Medical Center v. Department of Revenue, Docket No. 107328.


The hospital system, Provena Hospitals, sought an exemption from 2002 property taxes for its hospital properties based on Illinois’ statutory charitable exemption. [Provena also sought a religious exemption. That exemption was also denied at the administrative level and in the Supreme Court. The focus of the opinion, and this case note, is the Court’s decision on the charitable exemption.] The local administrative agency denied the application and the state Department of Revenue upheld that denial. Provena appealed the administrative agency’s ruling in circuit court and eventually in the Illinois Appellate Court and the Supreme Court.


The Court, applying a “significantly deferential” standard of review, upheld the administrative decision denying the exemption. It held that Provena failed to demonstrate either that it was a charitable institution or that its properties were being used for a charitable use.



Jacy T. Rock, Faegre & Benson, Denver, CO


 

March 23, 2010

Court Declares Non-Economic Damages Caps to Be Unconstitutional


On March 22, 2010, the Georgia Supreme Court held that caps on noneconomic damages violate the Georgia Constitution. Atlanta Oculoplastic Surgery v. Nestlehutt, 2010 WL 1004996.


The damages caps were passed in 2005 as part of Georgia’s Tort Reform Act, which was designed to “promote predictability and improvement in the provision of quality health care services and the resolution of health care liability claims and . . . thereby assist in promoting the provision of health care liability insurance by insurance providers.” Ga. L.2005, p. 2.


In the trial court, a jury found for the plaintiff and awarded the plaintiff noneconomic damages of $900,000 for pain and suffering and $250,000 for loss of consortium. The plaintiff then moved to have O.C.G.A. § 51-13-1, the damages cap statute, declared unconstitutional. The trial court granted the motion and entered judgment in the full amount awarded by the jury.


The Georgia Supreme Court held that the statute violated the right to a jury trial contained in the Georgia Constitution. The Court held that the right to a jury trial for claims involving the negligence of a health care provider, along with the right to an award of the full measure of damages, including noneconomic damages, as determined by the jury, had existed since the time the state constitution was adopted. A cap on noneconomic damages clearly violates that right, the Court continued, because by requiring a court to reduce a damages award determined by a jury, the statute “nullifies the jury's findings of fact regarding damages and thereby undermines the jury's basic function.” Nestlehutt, 2010 WL 1004996 at *4. The ruling is retroactive, meaning that the statute was null and void as of the date it was passed.


Chad Graddy, Baker, Donelson, Bearman, Caldwell & Berkowitz, P.C., Memphis, TN