Health Law Advisor

Thought Leaders On Laws And Regulations Affecting Health Care And Life Sciences

In First Speech since the Election, DOJ Deputy Attorney General, Sally Yates, “Optimistic” that Corporate Misconduct Will Remain a DOJ Priority under New Administration

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As many pundits speculate regarding the future of the Yates Memo[1] in a Trump administration, on Wednesday, November 30, 2016, Department of Justice (“DOJ”) Deputy Attorney General, Sally Q. Yates, provided her first comments since the election.  The namesake of the well-known, “Yates Memo,” Yates spoke at the 33rd Annual International Conference on Foreign Corrupt Practices Act in Washington, D.C. and provided her perspective on the future of DOJ’s current focus on individual misconduct.

Yates, who has served at the DOJ for over twenty-seven years, stated that while the DOJ has endured many transitions in leadership during her tenure, the ideology of the DOJ with respect to general deterrence as well as enforcement of corporate misconduct has remained unchanged. Thus, Yates predicted that the incoming administration under President-elect Donald Trump will maintain the DOJ’s current commitment to pursing potential individuals while combating alleged cases of corporate fraud and wrongdoing, proclaiming:

In 51 days, a new team will be running the department, and it will be up to them to decide whether they want to continue the policies that we’ve implemented in recent years. But I’m optimistic. Holding individuals accountable for corporate wrongdoing isn’t ideological; it’s good law enforcement.[2]

Given the length of time that white collar investigations typically take, Yates noted there are a significant number of corporate investigations that began after the issuance of the Yates Memo in September 2015 that will not resolve until well after the new administration takes control. Yates also stated that she expects that the cases already in the pipeline will continue being pursued, and as a result, she anticipates that “higher percentage of those cases [will be] accompanied by criminal or civil actions against the responsible individuals.”[3]

In recent years, the Department of Justice has accelerated its emphasis on the investigation and prosecution of healthcare-related cases.[4]  In the civil realm, since release of the Yates Memo in September 2015, there has been a significant increase in False Claims Act[5] settlements containing a cooperation provisions.[6] In the criminal side of the house, since the release of the Yate Memo, DOJ has brought high-profile indictments alleging violations of federal law including conspiracy to commit health care fraud, violations of the anti-kickback statute, money laundering, and aggravated identity theft, and involving a variety of health care-related services such as home health care, psychotherapy, physical and occupational therapy, durable medical equipment, and compounding prescription drugs schemes.  Most recently, on December 1, 2016, an indictment was unsealed in the Northern District of Texas charging 21 people, including the founders and investors of the physician-owned Forest Park Medical Center (“FPMC”) in Dallas, other executives at the hospital, and physicians, surgeons, and others affiliated with the hospital,[7]  with allegedly participating in a $200 million bribery and kick-back scheme focused on inducing surgeons to use the FPMC facilities.

Even before the Yates memorandum explicitly set forth guidance regarding parallel investigations, over the past few years DOJ already was increasing coordination between civil and criminal attorneys running parallel health care-related investigations with the goal of establishing collaboration at the very inception of an investigation. One U.S. Attorney’s Office, the District of New Jersey, even has co-located criminal and civil assistants dedicated to investigating health care fraud, who are supervised by the same AUSA to facilitate civil and criminal investigations, increase coordination and “maximize appropriate deterrence.”[8]

Notably, in June 2016, DOJ and the Department of Health and Human Services (HHS) announced a nationwide sweep of health care fraud civil and criminal cases.  Billed as the largest health care-related take-down in history, and led by DOJ’s Medicare Fraud Strike Force[9] in 36 federal districts, the takedown resulted in criminal and civil charges being filed against 301 individuals, including 61 doctors, nurses, and other licensed medical professionals, for their alleged participation in health care fraud schemes involving approximately $900 million in false billings.[10] [11]

Based on Yates’s comments on November 30, 2016, it can be anticipated that there will be a continued effort by the DOJ to combat corporate misconduct by focusing on individual accountability for alleged wrongdoers. Therefore, health care companies will need to remain diligent in maintaining sufficient compliance and corporate policies, including providing adequate training for executives and employees on the Yates Memorandum, as well as conducting thorough internal investigations, and to identify potential instances of corporate misconduct.[12] Since a centerpiece of the Yates Memo is the disclosure of individual wrongdoing in order to receive credit for cooperating with an investigation, health care-related companies must develop ways to identify individuals involved in potential fraudulent schemes, and the extent of each individual’s potential involvement in wrongdoing, to ensure they receive credit for cooperation. As Yates’s concluded on November 30th, “In the days ahead, this institution – and those who lead it – will continue the hard work of rooting out corruption here and abroad. And we will remain determined to protecting and strengthening our values of justice, fairness, and the rule of law. That has always been, and will always be, at the core of the DOJ.”[13] Thus, there is no indication of a DOJ slow-down any time soon, and based on recent high-profile DOJ enforcement efforts, the health care industry will not be excluded from DOJ’s focus on individual accountability any time soon either.

____

[1] Sally Quillian Yates, Deputy Attorney Gen., DOJ, “Individual Accountability for Corporate Wrongdoing,” (“Yates Memo”), (Sept. 9, 2015) The Yates Memo, released by the DOJ in September 2015, sets forth six specific steps for DOJ attorneys to focus on while assessing potential corporate wrongdoing:  (1) in order to quality for any cooperation credit, corporations must provide to the Department all relevant facts relating to the individuals responsible for the misconduct; (2) criminal and civil corporate investigations should focus on individuals from the inception of the investigation; (3) criminal and civil attorneys handling corporate investigations should be in routine communication with one another; (4) absent extraordinary circumstances or approved departmental policy, the Department will not release culpable individuals from civil or criminal liability when resolving a matter with a corporation; (5) DOJ attorneys should not resolve matters with a corporation without a clear plan to resolve related individual cases, and should memorialize any declinations as to individuals in such cases; and (6) civil attorneys should consistently focus on individuals as well as the company and evaluate whether to bring suit against an individual based on considerations beyond that individual’s ability to pay.

[2] Sally Quillian Yates, Deputy Attorney Gen., DOJ, Remarks at the 33rd Annual Int’l Conference on Foreign Corrupt Practices Act (Nov. 30, 2016).

[3] Id.

[4] DOJ, Facts and Statistics¸ (June 9, 2015), https://www.justice.gov/criminal-fraud/facts-statistics.

[5] The False Claims Act, 21 U.S.C. § 3729(2)(B).

[6] Eric Toper, “DOJ Increasingly Demanding Corporate Cooperation in FCA Settlements After Yates Memo,” Bloomberg BNA, (May 25, 2016), https://www.bna.com/doj-increasingly-demanding-n57982072932/.

[7] Shelby Livingston, “Execs, Physicians at Doc-Owned Luxury Hospital Chain Indicted in Alleged Kickback Scheme,” Modern Healthcare (Dec. 6, 2016), http://www.modernhealthcare.com/article/20161206/NEWS/161209950/execs-physicians-at-doc-owned-luxury-hospital-chain-indicted-in. See https://www.justice.gov/usao-ndtx/pr/executives-surgeons-physicians-and-others-affiliated-forest-park-medical-center-fpmc (press release and indictment).

[8] Gabriel Imperator, Combating Healthcare Fraud in New Jersey: An Interview with Paul J. Fishman, Compliance Today 16-22 (Oct. 2015).

[9] DOJ, June 2016 Takedown, (June 22, 2016), https://www.justice.gov/criminal-fraud/health-care-fraud-unit/june-2016-takedown (The Medicare Fraud Strike Force are part of the Health Care Fraud Prevention & Enforcement Action Team (“HEAT”), a joint initiative announced in May 2009 between the DOJ and HHS to focus their efforts to prevent and deter fraud and enforce current anti-fraud laws around the country. Since its inception in March 2007 it has charged over 2,900 defendants who have falsely billed the Medicare program over $8.9 billion).

[10] Id.

[11] Id.

[12] For more information please view: EBG’s Individual Accountability in Health Care Fraud Enforcement: Thought Leaders in Health Law.

[13] Yates, supra note 2.

Chicago Imposes Burdensome New Licensure and Disclosure Obligations on Pharmaceutical Representatives

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On November 16, the City of Chicago passed an ordinance that will require pharmaceutical sales representatives to become licensed in order to promote prescription drugs to health care providers within city limits.  The ordinance was passed unanimously, despite ardent objections from pharmaceutical manufacturers and industry organizations.  While Mayor Rahm Emanuel states that the new licensing requirement is part of a larger series of efforts by the city to combat heroin and opioid addiction, industry representatives characterize the license as a harmful tax increase that does not effectively address the problem. This law will impose significant new burdens on any pharmaceutical manufacturer with sales representatives who call on health care providers in Chicago.

The ordinance, which will take effect on July 1, 2017, imposes a litany of new requirements on pharmaceutical representatives working in the city. Medical device representatives and distributors are not required to be licensed under the ordinance. In order to become initially licensed, applicants must complete a professional education course to be established by the Commissioner of Public Health.  The fee for the initial application and each annual renewal will be $750.  Then, to maintain the license, representatives must complete a minimum of five hours of continuing education every year.

In addition to the licensing requirement, pharmaceutical representatives will also be required to periodically report marketing data to city officials. Upon request or at given time intervals to be established by the Commissioner, representatives will have to disclose a list of the health care professionals that they contacted, along with:

  • The location and duration of the contact,
  • The pharmaceuticals that were promoted,
  • Whether they provided product samples, materials, or gifts to the health care professional, and the value of those items, and
  • Whether and how the health care professional was compensated in exchange for the contact with the pharmaceutical representative.[1]

Pharmaceutical representatives also are expressly prohibited from any deceptive or misleading promotion of a prescription drug, the use of any professional designation suggesting that the representative holds a license to practice medicine or other profession that he or she does not hold, and being present for any patient examination without the patient’s consent.

Any representative found in violation of the ordinance faces a fine between $1,000 and $3,000 per violation, with each day on which a violations persists constituting a separate offense.

When the ordinance takes effect, Chicago will become one of only two cities in the country – the other being the District of Columbia – to impose such requirements on pharmaceutical representatives.  Moreover, the D.C. regulations are not as burdensome as Chicago’s. For example, the D.C. license does not require completion of a professional education course nor does it require reporting of marketing data to city officials.  Additionally, the fee for the D.C. application is $175 compared to Chicago’s $750.

According to local press reports, a coalition of sixteen pharmaceutical companies, and organizations such as the Illinois Chamber of Commerce, the Illinois Manufacturer’s Association, the Epilepsy Foundation of Greater Chicago, and the Pharmaceutical Research and Manufacturers of America, wrote a letter to the City Council of Chicago expressing its concerns. The group stated that, “[t]hese proposed reporting requirements are unnecessary and duplicating, creating an unnecessary tax on one of the most important sectors of our economy.”

Whether the new license requirement will successfully aid in fighting opioid addiction in Chicago is uncertain; but, what is certain is that the requirement will place a significant burden on pharmaceutical manufacturers who should begin to take steps now in order to prepare themselves and their representatives for these new obligations.  We will continue to monitor and report on implementing rules established by the Commissioner of Public Health and any other new developments leading up to the ordinance’s effective date.

[1] Section 4-6-310(g)(1)

Parallel Review – Forcing Manufacturers to Go All In

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On October 24, 2016 the Food and Drug Administration (“FDA”) in conjunction with the Centers for Medicare & Medicaid Services (“CMS”) announced their intention to extend the Parallel Review pilot program indefinitely. The Parallel Review process is intended to provide timely feedback on clinical data requirements from FDA and CMS, and minimize the time required for receiving Medicare coverage nationally.  Sounds good.  So, why have so few manufacturers taken advantage of the program to date?

Despite its admirable goals, the current Parallel Review Process is too limited in scope and involves significant risks for manufacturers.

The standard process for obtaining Medicare coverage involves a sequential review. First, the device manufacturer must obtain approval, 510(k) clearance, or a de novo classification by the FDA.  After FDA approval, clearance, or de novo classification has been received, the manufacturer would seek coverage of the device or procedure using the device from CMS.  The manufacturer has the option of pursuing a National Coverage Determination (“NCD”) from CMS or a local coverage determination (“LCD”) from one or more of the Medicare Administrative Contractors (“MACs”).

In contrast, under the Parallel Review program, FDA and CMS simultaneously review manufacturer’s clinical trial design and data. Parallel Review is broken down into two stages: (1) the pivotal clinical trial design development stage, and (2) the concurrent evidentiary review stage. This two stage process is designed to allow manufacturers to minimize the likelihood of having to conduct additional trial(s) at a later date to meet CMS’s coverage requirements and shorten the overall timeline by having the agencies review the evidence simultaneously.  Although the goal is right, there are some disadvantages.

First, the Parallel Review program is limited to devices that are subject to pre-market approval or de novo classification. This is only a small portion of the market today. To put this in context, for every 140 510(k)s cleared by the FDA, one PMA is approved. In 2014, for example, there were 3203 510(k) clearances compared to only 42 PMAs and 28 de novo classifications. This means that the vast majority of devices will not be eligible for Parallel Review.

The more significant limitation is that the program requires the manufacturer to pursue a NCD. Deciding whether to pursue a NCD or LCD is a significant strategic consideration for any manufacturer.  Requiring that manufacturers apply for a NCD in the Parallel Review process  creates a high degree of risk that manufacturers – and their investors – may not be willing to take. As manufacturers are painfully aware, if CMS issues an unfavorable NCD, Medicare coverage is not available anywhere in the US. Because NCDs apply nationally to all MACs, the LCD option is foreclosed by an unfavorable NCD. Manufacturers can appeal, of course. But reopening an adverse NCD requires a significant amount of new data that may take years to compile through new clinical trials and there is no guarantee that a reopening will be granted or a favorable NCD will be published.  As a result, the lack of a choice between NCDs and LCDs can be a powerful deterrent to the Parallel Review program.

This risk is compounded by the fact that manufacturers are not allowed to drop out of the NCD process after the NCD tracking sheet has been publicly posted by CMS. Although the program is designed to provide early feedback, it is not unusual for CMS to have additional comments throughout the NCD process. Under the current Parallel Review process, manufacturers would be required to pursue NCDs even if they later received new information that made the NCD pathway less desirable.

It is also unclear if the program is appropriately resourced. The Parallel Review Pilot Program was limited to no more than five candidates per year. If the Agencies are serious about accelerating the path to market and payment for even this subcategory of devices, they need to allow more devices into the program and ensure that it is appropriately staffed to adequately address the needs of the participants.

While the Parallel Review program has its challenges, it is a step in the right direction. It just does not go far enough.  In order to have a more predictable and streamlined path to market, manufacturers need clear guidance on coverage criteria that can be leveraged nationally or locally.  Moreover, this guidance should apply to any device that required clinical evidence for coverage, regardless of whether the device is subject to a PMA, de novo or 510(k) clearance.

By focusing on broad based improvements to the coverage determination process, the Agencies would be able to provide patients with access to more devices more quickly using less Agency resources. If, for example, the time frame for the NCD and LCD process could be reduced by 20 days on average by providing more transparent guidance, and if you could apply that to half of the products that received approval, de novo classification, or clearance in 2014, that would save over 32,000 days of review time.  Admittedly, that is spread out over time and among manufacturers but the impact is not insubstantial.

FDA’s expansion of its program to include the opportunity to get feedback from private payors is also a positive development for manufacturers.   While it is still too early to know the impact of this program, commercial payors are another key piece of any manufacturer’s commercial strategy and must be considered early.

The decision to make the Parallel Review Program permanent no doubt reflects a commitment by FDA and CMS to working with manufacturers to help bring new devices to market in a faster and more efficient way.   However, opportunities remain to improve the program to expedite the process in a way that benefits industry – and patients – more broadly.

Top Five Takeaways from MedPAC’s Meeting on Medicare Issues and Policy Developments — October 2016

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The Medicare Payment Advisory Commission (“MedPAC”) met in Washington, DC, on October 6-7, 2016. The purpose of this and other public meetings of MedPAC is for the commissioners to review the issues and challenges facing the Medicare program and then make policy recommendations to Congress. MedPAC issues these recommendations in two annual reports, one in March and another in June. MedPAC’s meetings can provide valuable insight into the state of Medicare, the direction of the program moving forward, and the content of MedPAC’s next report to Congress.

As thought leaders in health law, Epstein Becker Green monitors MedPAC developments to gage the direction of the health care marketplace. Our five biggest takeaways from the October meeting are as follows:

1. While Accountable Care Organizations received high marks for quality they failed to produce Medicare savings in 2015.

MedPAC staff provided a status report on Medicare Accountable Care Organizations (“ACOs”). The report found that while ACOs received high marks for quality they failed to produce significant Medicare savings in 2015. Pioneer model ACOs produced net savings of only $5 million while Medicare Shared Savings ACOs cost the Medicare program $216 million. The MedPAC staff conducted a review of the ACO data and found that ACOs in the south, those that are physician led, and are smaller in size were more likely to produce savings. However, the most important variable was the historic level of service use in the area where the ACO was located. Regions with a high historic use of services had more success producing savings.

2. MedPAC finds the rate of potentially avoidable hospital admissions varied significantly among long-stay nursing facilities.

As part of an ongoing project to develop measures to properly evaluate initiatives aimed at reducing the number of hospital admissions and use of skilled nursing facilities among long-stay nursing facility residents, MedPAC staff found a wide discrepancy among nursing facility providers. Overall the staff found that in 2014 long-stay nursing residents accounted for 200,000 “potentially avoidable” hospital admissions and 20 million days of skilled nursing facility care. They found that nursing facilities with fewer than 100 beds and rural nursing facilities made up a disproportionate share of facilities with high potentially avoidable hospital admission rates. The data showed that some facility-level characteristics affected the rate of potentially avoidable hospital admissions; facilities with higher portions of hospice days and access to x-ray services on site had lower potential avoidable admissions, and facilities with a higher use of licensed practical nurses and lower frequency of physician visits had higher rates of hospital use.

3. MedPAC considering suggesting changes to Part B drug payment policies.

MedPAC discussed a number of policy options with respect to the Part B drug payments. The options the Commission discussed sought to either increase price competition and address the growth in Part B prices or improve the current payment formula and available data.  The polices designed to increase price completion and address price growth  included: consolidating billing codes for drugs and biologics with similar health effects, limit the growth in drug prices based on inflation, and introduced a restructured competitive acquisition program. The policies designed to improve the payment formula and improve available data included: modifying the average sale price add-on formula, modifying the wholesale accusation cost formula, and strengthen the manufacture reporting requirements. MedPAC is expected to continue to actively work towards developing policy recommendations regarding Part B drug payment reforms.

4. MedPAC continues to develop a premium support model to reward high quality plans and ACOs and incentivize beneficiaries to seek out high quality care.

As part of its efforts to develop a payment model that rewards high quality care and incentivizes beneficiaries to seek high quality care MedPAC continued its discussion of alternative quality measures that could be used across the Medicare delivery system. Under this alternative model Medicare would use a smaller number of population based health outcomes and patient experience to measures to measure quality across the delivery spectrum (including fee-for service). The Commission suggests that these quality measures be collected at a local market level; each market will then be given a quality benchmark based on the measures. Medicare Advantage (“MA”) plans and ACOs which have quality scores that are higher than the benchmark would see an increased federal contribution to lower beneficiary premiums, with the hope of pushing more beneficiaries into higher quality delivery systems based on the lower beneficiary premiums.

5. MedPAC is considering how to improve Medicare’s behavioral health benefits.

MedPAC staff gave an overview of behavioral health issues among Medicare beneficiaries and of highlighted potential areas for programmatic improvement. The staff suggested Medicare improve payment of inpatient psychiatric care and work towards integrating primary care delivery and behavioral health services. MedPAC appears to be committed to dedicating more resources towards developing policy options for achieving these suggestions in the future.

If At First It Doesn’t Succeed—FTC Will Try, Try Again to Oppose Hospital Mergers

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Recently, the Federal Trade Commission (“FTC”) faced major losses in challenging hospital mergers.  However, it is clear that the FTC is not backing down, especially given its tendency to conclude that proposed efficiencies do not outweigh the chance of lessening competition.

In July of this year, the FTC abandoned a challenge to the proposed merger of St. Mary’s Medical Center and Cabell Huntington Hospital in West Virginia after state authorities had changed West Virginia law and approved the merger despite the FTC’s objections. This year as well, the FTC failed to enjoin the Penn State Hershey Medical Center and PinnacleHealth System (“Pennsylvania Hospital Merger”) and the Advocate Health Care and NorthShore University Health System (“Illinois Hospital Merger”) under a relevant geographic market theory in the federal district courts.  However, the FTC promptly appealed to the United States Courts of Appeals for the Third and Seventh Circuits, respectively.

Against many predictions to the contrary, the FTC prevailed when, on September 27, 2016, the Third Circuit reversed the District Court’s decision in the Pennsylvania Hospital Merger, concluding that the lower court erred when it disagreed with the FTC on the choice and use of the proper test to define the relevant geographic market. The Third Circuit concluded that the hypothetical monopolist test should determine the relevant geographic market, and that using patient flow data to show a relevant market is “particularly unhelpful in hospital merger cases.”[1]  This means that using data showing why one patient travels to a farther hospital for services does not have a constraining effect on the price charged by the nearby hospital that the patient does not choose.  Additionally, the Third Circuit expressed extreme skepticism about using an efficiencies defense.  While it recognized that other courts and the government’s Merger Guidelines themselves consider efficiencies in their antitrust analyses, it made clear that “efficiencies are not the same as equities”[2] needed to successfully overcome a Clayton Act Section 7 claim in considering whether an injunction is warranted.

The Third Circuit’s logic may have emboldened the FTC, which on September 30, 2016, formally urged Virginia state authorities to reject the proposed merger of Mountain States Health Alliance and Wellmont Health System, two large regional health systems, claiming that the merger would lessen competition and reduce the quality, availability, and price of health care services in the area.  The FTC is alleging, that if the merger were consummated, the new entity would control 71% of the geographic market for inpatient hospital services in the area that both systems serve, and proposed efficiencies (e.g., greater clinical service offerings, reductions in labor expenses, and reductions in purchasing) are not extraordinary enough to outweigh the anticompetitive harms created.  While Virginia does not require FTC consent to approve the merger, the FTC’s evaluation under the Merger Guidelines carries weight because its process is similar to Virginia’s antitrust review.

Going forward, potential merger partners in the health care space should recognize that the FTC has been energized in its opposition to consolidation and should be attentive to the careful definition of geographic markets with an eye towards the hypothetical monopolist test. As stakeholders begin crafting acquisition strategies to take advantage of the Affordable Care Act’s consolidation opportunities, they should recognize that the enforcement components of the government such as the FTC are in apparent contradiction with the policy arm of the administration and that the FTC won’t back down from its challenges to mergers.

[1] FTC v. Penn State Hershey Medical Center, et al., at 19, No. 16-2365 (3d Cir. 2016).

[2] Id.at 36.

HHS Increases Civil Monetary Penalties and 299 Other Fines

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Health care providers, life sciences companies and other entities subject to regulation by the Food and Drug Administration (“FDA”) or the Centers for Medicare & Medicaid Services (“CMS”) should be aware that the U.S. Department of Health and Human Services (“HHS”) is increasing the maximum civil monetary penalty amounts that may be assessed by the agency.

The new maximum adjusted penalty amounts may have a significant impact on entities that violate or fail to meet mandatory reporting requirements set by FDA or CMS. Of the 299 enumerated increased fines, 137 fines (45.8%) have increased by over 75%, 100 fines (33.4%) increased by over 97%, and 64 fines (21.4%) have doubled or more.  These increased fines affect a wide variety of activities and providers illustrated by the following examples:

Fine Previous Penalty New, Increased Penalty
Fines for failure to report drug samples required by 21 U.S.C. § 353(d)(3)(E) $100,000 per instance $197,869 per instance
Fines for participating in prohibited conduct under 21 U.S.C. § 331 (misbranding, unapproved alteration, use of counterfeits, and other conduct related to the use of drugs or devices) $1,000,000 $1,781,560
Fines for any related series of violations of requirements relating to electronic products under 21 U.S.C. § 360pp(b)(1) $375,000 $937,500
Improper billing fines for Hospitals, critical access hospitals, or skilled nursing facilities under 42 U.S.C. § 1395cc(g) $2,000 $5,000
Fines for certain biological product recall violations under 42 U.S.C. § 262(d) $100,000 $215,628
Fines to Medicaid MCOs that improperly expel or refuse to reenroll a beneficiary under 42 U.S.C. § 1396b(m)(5)(B)(i) $100,000 $197,869
Fines for failure to report medical malpractice claims, or breaching confidentiality of information within such a claim, to the National Practitioner Data Bank under 42 U.S.C. § 11131(b)(2)-(c) $10,000 $21,563
Skilled Nursing Facility fines for noncompliance under 42 U.S.C. § 1395i-3(h)(2)(B)(ii)(l) $10,000 $20,628
Fines for failure to promptly provide appropriate diagnosis codes to CMS under 42 U.S.C. § 1395u(p)(3)(A) $2,000 $3,957
Daily fines for failure by a home health agency to be in compliance with statutory requirements per 42 U.S.C. § 1395bbb(f)(2)(A)(i) $10,000 $19,787

The adjusted civil monetary penalty amounts became effective on September 6, 2016, and are applicable only to HHS civil penalties assessed after August 1, 2016 for violations that occurred after November 2, 2015.  Pursuant to the Bipartisan Budget Act of 2015 (“2015 Act”) and the Administrative Procedures Act (5 U.S.C. 553(b)(3)(B)), HHS finalized the interim rule without prior notice or comment period.  As the 2015 Act provided a straight forward formula to calculate future civil monetary penalty adjustments, HHS determined that there was good cause for immediate implementation without a notice and comment period.

While penalties that more than double their previous amounts may be alarming, a penalty increase is not surprising considering some penalties have remained unchanged since 1968.[1]  These increases represent only the initial “catch up” adjustments required by the 2015 Act.  Similar to the U.S. Department of Justice and U.S. Railroad Retirement Board penalty increase adjustments for the False Claims Act discussed previously, HHS must also make subsequent annual civil monetary penalty adjustments for inflation by January 15 each  year. These increased penalties, along with the anticipated yearly inflation adjustments, provide companies with additional incentives to increase their compliance efforts in the hope of limiting their exposure to additional penalties.

[1] For example, 21 U.S.C. 360pp(b)(1) increased the penalty for any person who violated requirements for electronic products 150% from its pre-inflation penalty, from $1,100 per unlawful act or omission pre-adjustment to $2,750 per act or omission post-adjustment.

Top Five Takeaways from MedPAC’s Meeting on Medicare Issues and Policy Developments — September 2016

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The Medicare Payment Advisory Commission (“MedPAC”) met in Washington, DC, on September 8-9, 2016. The purpose of this and other public meetings of MedPAC is for the commissioners to review the issues and challenges facing the Medicare program and then make policy recommendations to Congress. MedPAC issues these recommendations in two annual reports, one in March and another in June. MedPAC’s meetings can provide valuable insight into the state of Medicare, the direction of the program moving forward, and the content of MedPAC’s next report to Congress.

As thought leaders in health law, Epstein Becker Green monitors MedPAC developments to gage the direction of the health care marketplace. Our five biggest takeaways from the September meeting are as follows:

  1. MedPAC expects Medicare spending growth to outpace GDP, with total Medicare spending to reach approximately $1 trillion by 2025
    MedPAC began its September meeting with a discussion of the projected growth in the Medicare program. Although the growth in both Medicare and overall health care spending slowed from 2009 to 2013, the Congressional Budget Office (“CBO”) and the Medicare Trustees (“Trustees”) project that total Medicare spending will return to growing at a rate that outpaces gross domestic product (“GDP”) growth. Driven by an increase in both enrollment and per beneficiary spending, the CBO and Trustees project that total Medicare spending will grow at an average rate of 7 percent annually through 2025; if these projections are accurate, the Medicare program will almost double in size—from $600 billion in 2015 to approximately $1 trillion 2025.
  2. MedPAC predicts the trends in Medicare to trigger action from the Independent Payment and Advisory Board in 2017
    MedPAC staff expects the growth in Medicare spending to trigger action from the Independent Payment and Advisory Board (“IPAB”) at some point in 2017. Created by the Affordable Care Act, IPAB is an independent board tasked with proposing Medicare policies designed to reduce spending growth. As of now, no one has been appointed to IPAB. If there are no members when Medicare growth triggers IPAB action, IPAB’s authority will transfer to the Secretary of Health and Human Services. The Secretary will then be required to fulfill IPAB’s role, and the Secretary’s savings proposals will automatically become law unless Congress affirmatively acts to block the proposals.
  3. Physician practice sizes continue to grow, and a greater number are affiliating with health systems and hospitals
    MedPAC staff, using the SK&A Office-based physician database (a commercial database file with information on almost 600,000 physicians), determined that the number of physicians who reported as affiliated with a health system or hospital rose from 34 percent in 2012 to 39 percent in 2014. Over that same time period, the percentage of physicians working in practices with more than 50 physicians grew from 16 percent to 22 percent. MedPAC plans to look deeper into the size and affiliation of physician practice groups, including the geographic distribution of practice groups, to more accurately understand the infrastructure needed to move towards alternative payment models.
  4. MedPAC will focus on recommending steps for adjusting the clinician fee schedule to address “misvalued” services
    MedPAC expressed concern that certain clinician services, mainly primary care, are undervalued and undercompensated as a part of the clinician fee schedule. Accordingly, MedPAC will continue to look at recommendations to improve the Relative Value Scale Update Committee (or “RUC”) process and make suggestions to increase payment for primary care services, including a potential partial capitation payment for primary care services.
  5. MedPAC is considering how to evaluate initiatives for reducing avoidable hospitalizations of long-stay nursing facility residents
    MedPAC staff gave an overview of provider initiatives to reduce avoidable hospitalizations of nursing facility residents. These initiatives included efforts made in conjunction with the Center for Medicare and Medicaid Innovation that feature a new three-part payment model. The new model will make payments to facilities for providing treatment for qualified conditions, increase payments to clinicians for providing treatment in nursing facilities, and establish a new payment to providers who conduct care coordination in nursing facilities. MedPAC is planning on developing measures to evaluate the success of these initiatives at reducing cost and improving beneficiary care.

FDA Announces November Public Hearing on Off-Label Communications: An Important Step Forward or a Signal that FDA is Headed Back to the Drawing Board?

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On August 31, 2016, FDA issued a notification of public hearing and request for comments on manufacturer communications regarding unapproved uses of approved or cleared medical products. The hearing will be held on November 9-10, 2016, and individuals wishing to present information at the hearing must register by October 19, 2016. The deadline for written comments is January 9, 2017.

In the notice, FDA posed a series of questions on which it is seeking input from a broad group of stakeholders, including manufacturers, health care providers, patient advocates, payors, academics and public interest groups. The topics on which FDA is seeking feedback are broad, but generally include:

  • The impact of off-label communications on public health,
  • The impact of changes in the health care system on the development of high-quality data on new uses of cleared or approved products,
  • Preserving incentives for manufacturers to seek approval for new uses, standards for truthful and non-misleading information,
  • Factors FDA should consider in monitoring and bringing enforcement actions based on off-label communications by manufacturers,
  • The extent to which data on which off-label communications are based should be publicly available, and
  • The changes FDA should consider to existing regulations governing manufacturers’ communications regarding their products.

This announcement comes in the wake of increased pressure from lawmakers, public interest groups, and regulated industry for FDA to issue guidance or propose regulatory changes to address recent litigation clarifying commercial speech protections for pharmaceutical and medical devices manufacturers under the First Amendment. On May 26, 2016, the House Committee on Energy and Commerce sent a letter to HHS Secretary Sylvia Burwell expressing concern that FDA had failed to clarify its current thinking on permissible manufacturer communications about uses of cleared and approved drugs and devices beyond the scope of their approved labeling. In the letter, the committee noted that FDA had neither issued guidance, including guidance on the permissible scope of “scientific exchange” that has been on FDA’s Guidance Agenda since 2014, nor conducted the public hearing it announced in May 2015 in connection with negotiations on the proposed 21st Century Cures bill.  The committee expressed concern that HHS was preventing FDA from issuing guidance or proposing new regulations to address a string of recent court victories for companies and individuals prosecuted for off-label communications about drug and medical devices.

In light of the current state of First Amendment commercial speech protections, which makes it clear that manufacturers’ truthful and non-misleading speech regarding their products is not unlawful even if that speech includes uses of their products that have not been approved or cleared by FDA, other stakeholders have actively encouraged FDA to issue guidance or modify its regulations to conform its regulatory oversight and enforcement activities to this reality. While stakeholder groups have been actively engaged on these issues for several years, recent examples include the February 2016 white paper issued by the Duke-Margolis Center for Health Policy outlining policy options for off-label communications, and the joint release by BIO and PhRMA of the Principles on Responsible Sharing of Truthful and Non-Misleading Information about Medicines with Health Care Professionals and Payers on July 27, 2016.

Despite pressure from interested stakeholders, FDA has yet to propose changes to its regulations or issue long-awaited guidance on a number of topics related to manufacturers’ communications regarding off-label uses of their cleared or approved products. While FDA’s 2016 Guidance Agenda, updated most recently on August 6, 2016, continues to promise guidance on manufacturer communications regarding unapproved, unlicensed, or uncleared uses of approved, licensed, or cleared human drugs, biologics, animal drugs and medical devices and the inclusion of health care economic information in promotional labeling and advertising for prescription drugs, among others, the post-election timeline for the public hearing and FDA’s ongoing collection of feedback announced in the August 31st notice may suggest that FDA is going back to the drawing board. In particular, the focus in the notice’s background discussion and in FDA’s questions on the public health impact of off-label communications may suggest that FDA is re-evaluating its position in response to the HHS concerns about broader dissemination of off-label by manufacturers that were highlighted in the Energy and Commerce committee letter.  While FDA’s notice and request for comments is a step in the right direction, it likely signals a further delay in the issuance of guidance that is needed to bring greater clarity to the currently unsettled regulatory framework for FDA’s oversight of manufacturers’ off-label communications, and a punting of these important decisions to the next administration.

New FDA Draft Guidance Shows Limited Compromise with Brand and Generic Drug Manufacturers

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The Food and Drug Administration (FDA) issued a draft guidance (Draft Guidance) on July 11, 2016 that allows some generic drug manufacturers holding an Abbreviated New Drug Application (ANDA) to update the label of the drug they manufacture with new safety information.  The Draft Guidance provides new clarifications and recommendations to generic drug manufacturers seeking to update a generic label after withdrawal by the name brand manufacturer of the reference listed drug (RLD) (a “Withdrawn RLD”).  The Draft Guidance explains how a generic manufacturer may submit an updated label of a generic drug to the FDA for approval after withdrawal of the RLD.  The FDA must approve the proposed new label before the new generic label may be issued.  The Draft Guidance also reminds applicants that the FDA continues to retain the authority to request the ANDA-holder with a Withdrawn RLD to update the label of the drug under its ANDA for safety reasons.

The issue of generic labeling was put in the spotlight in 2011 with the US Supreme Court’s decision in  PLIVA, Inc. v. Mensing, 131 S. Ct. 2567 (2011), which held that generic drug manufacturers could not be held liable for failure to warn under state tort law because such laws were preempted by FDA regulations.  The specific regulations at issue prohibit generic manufacturers from changing a drug label unless and until the label of the RLD is amended.    Per Justice Thomas:

[t]he FDA denies that [generic drug manufacturers] could have… unilaterally strengthen[ed] their warning labels. The agency interprets… [its regulations] to allow changes to generic drug labels only when a generic drug manufacturer changes its label to match an updated brand-name label or to follow the FDA’s instructions. 

In response to public outcry over the decision in PLIVA, the FDA published a proposed rule entitled, “Supplemental Applications Proposing Labeling Changes for Approved Drugs and Biological Products” (Proposed Rule). This Proposed Rule gives generic manufacturers much broader powers and responsibilities over the labels of the generic drugs they manufacture.  The Proposed Rule was issued in 2013 and has been subject to controversy within the pharmaceutical industry.  This controversy has led to multiple delays in the finalization of the Proposed Rule and the unusual step by appropriations committees in the House of Representatives and the Senate to approve budgets that prohibit spending on the Proposed Rule.  As we reported in a June blog post, publication of the Proposed Rule has now been pushed out to at least the Summer of 2017.

In the interim, FDA’s Draft Guidance focuses on changes to generic drug labeling under a much narrower set of circumstances where the New Drug Application (NDA) of the RLD has been withdrawn by the brand name manufacturer for reasons other than safety or efficacy.

Currently, holders of a NDA or ANDA are each required to collect post-marketing safety data and provide the FDA with reports and safety data they receive for a drug under an NDA or ANDA. Based upon the data and reports submitted to the FDA, the FDA may request or require a change to the label of the corresponding drug (either a NDA or an ANDA with a Withdrawn RLD) in accordance with 21 USC §355(o)(4).  Additionally, NDA holders have available a mechanism by which the NDA holder can update the label of the drug under the NDA on its own or by providing a suggested label to the FDA for review.  This mechanism has typically been unavailable to ANDA holders. (See “Guidance for Industry: Safety Labeling Changes – Implementation of Section 505(o)(4) of the FD&C Act,” footnote 10).  The Draft Guidance clarifies that this second avenue for updating a drug’s label is available for an ANDA holder with a Withdrawn RLD if changes become necessary based upon new safety information it obtains.

Additionally, the Draft Guidance describes the other sources of data available to the holder of an ANDA with a Withdrawn RLD to aid in determining whether a label should be updated. Specifically, the FDA suggests that such an ANDA holder should review the labels of other drugs, both NDAs and ANDAs, containing the same active ingredient as they may have been updated more recently than the label of the RLD at the time it was withdrawn.

The ability to update a label under these circumstances is important for an ANDA holder with a Withdrawn RLD to avoid misbranding allegations. As the Draft Guidance states:

as a Drug is used over time, the scientific community’s understanding of the drug may evolve based on data from various sources…. Therefore, the labeling of ANDAs that rely on the withdrawn RLD might eventually become inaccurate and outdated, resulting in labeling that is false and/or misleading…

While review of new data and undergoing the process of supplementing a drug’s label with new safety information may be burdensome for ANDA holders, it is likely preferable to the risk of facing misbranding allegations.

The avenue for updated labeling in the Draft Guidance also resembles the concept of Expedited Agency Review (EAR) included in the alternative to the Proposed Rule issued jointly by the Generic Pharmaceutical Association (GPhA) and the Pharmaceutical Research and Manufacturers of America (PhRMA). While the Draft Guidance only applies to a very small and specific set of generic labels, the similarities between EAR and the FDA’s process for updating the label of an ANDA with a Withdrawn RLD demonstrates cooperation between the FDA and industry to at least find common ground on the issue of generic labeling. While the recommendations set forth in the Draft Guidance may be a sign the FDA is willing to listen to industry suggestions, the Draft Guidance’s impact is too limited to predict whether the FDA will  continue to search for middle-ground with the remaining generic labeling issues raised in the Proposed Rule.

Per the listing in the Federal Register, any comment on the Draft Guidance must be submitted by September 9th, 2016 in order to be considered in rendering the final guidance.

OCR Hones in on Smaller HIPAA Breaches

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The U.S. Department of Health and Human Services, Office of Civil Rights (“OCR”), the agency tasked with enforcing the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), recently announced that it will redouble its efforts to investigate smaller breaches of Protected Health Information (“PHI”) that affect fewer than five-hundred (500) individuals.

It has been widely known that OCR opens an investigation for every breach affecting more than 500 individuals; this announcement describes OCR’s new initiative to investigate smaller breaches as well.  OCR stated that in determining when it will open an investigation, it will evaluate a number of factors, such as: (1) the size of the breach, (2) whether the PHI was stolen or improperly disposed of, (3) whether an entity reports multiple breaches, (4) whether numerous entities are reporting breaches of a particular type, and (5) whether the breach involved unauthorized access to an IT system.  The announcement also notes that OCR may consider lack of breach reports for a region, suggesting that OCR is interested in investigating the potential of under reporting.

The announcement emphasized that OCR can determine both large scale trends among HIPAA regulated entities, and entity-specific compliance issues that must be addressed by investigating breaches.  The announcement also serves as a warning to persons and/or entities subject to HIPAA to ensure that their breach reporting and other HIPAA compliance efforts are up-to-date and ready to withstand any potential scrutiny from OCR.