Health Law Advisor

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

New EU Regulation on Clinical Trials on Medicinal Products

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By Daniel G. Gottlieb

On April 2, the European Parliament voted overwhelmingly to repeal the current EU Directive on clinical trials of medicinal products for human use and replace it with a new Regulation.  The primary goals of the new Regulation are to:

  1. Streamline the approval process for studies conducted across multiple Member states;
  2. Harmonize the regulation of clinical trials throughout the Member states; and
  3. Increase transparency of Clinical Trial results.

It was the European Parliament’s hope that accomplishing the first two goals would increase the number of clinical trials being conducted in the EU.  The Regulation has streamlined the review and approval process by permitting sponsors to submit only one application using a central portal.  That one application will then undergo a two phase review, the first is the assessment of the clinical trial with respect to those aspects that have been harmonized, and is cooperatively reviewed by all Member States in which the study will be conducted. (Part I of the Assessment Report).  Once authorization is granted in Part I of the Assessment Report, the second phase of the review, which is the assessment of the aspects of the clinical trial that are “intrinsically national in nature,” begins.  This assessment is performed by each Member State separately, and includes the review and assessment by the Ethics Committee in the Member State (Part II of the Assessment Report).

In addition to this fully streamlined process, Article 11 of the Regulation establishes what I will call a split review process.  Under this process a sponsor can request a limited review of the application under Part I of the Assessment Report.  Then the sponsor has up to two years to request an assessment under Phase II of the Assessment Report in each of the countries in which the study will be conducted.

With one exception, in my opinion, the EU Parliament struck the right balance between harmonizing the regulation of aspects of the study that are appropriately standardized across the EU, and allowing Member States to retain control of those aspects of a study that are “intrinsically national in nature.”  However, it is this one exception, the lack of harmonization of the informed consent process, that may cause a significant number of sponsors to opt for the split review process under Article 11 as opposed to the fully streamlined pathway.  Specifically, the assessment of a sponsor’s proposed informed consent process is left to each Member State during Part II of the assessment. Although the Regulation establishes specific information that must be provided to potential subjects during the informed consent process and requires the information to be “comprehensive, concise, clear, relevant and understandable to a lay person” it leaves the Member States free to establish different requirements for how the required information is presented.

I recently assisted a client navigate the ethical review process for several Phase III clinical trials in the EU and some of the biggest challenges we faced were caused by the variability in each Member State’s requirements for how the required informed consent information should be presented to the subject (e.g., imposing page limits for consent forms, requiring certain information to be in an Annex attached to the consent form).  Responding to these divergent assessments can be a very time consuming process, especially if the sponsor does not have any internal local resources.  However, companies are generally able to respond to these assessments in a timely manner because, unless they hit the unlucky lottery, the assessments are not all provided at one time or within a few days of each other.  However, if a sponsor were to take advantage of the fully streamlined process, these assessments could all come within days of each other and the sponsor would have, at most, 12 days to respond or risk having the application deemed lapsed.

The European Parliament could have reduced this risk if it had done more to harmonize the assessment of the informed consent process.  I am not saying that it should have fully harmonized the informed consent requirements, as I agree that certain aspects of the informed consent process are “intrinsically national in nature,” such as consent requirements for incapacitated subjects or minor subjects.  However, I at least partially agree with the European Parliament’s Committee on the Environment, Public Health and Food Safety that:

Currently, the ethical review procedure varies greatly between Member States, often with various bodies at national, regional and local levels, and multiple procedures leading to divergent assessments. This is a source of delays and fragmentation. In the interests of European patients and public health, the procedures and principles of ethical review should be better harmonised [sic] through the sharing of best practices between ethics committees. To this end the Commission should facilitate the cooperation of ethics committees. [Proposed Amendment 27]

Alternatively, I may have pushed for more harmonization, with the sections of a sponsor’s proposed informed consent form template that do not relate to those aspects of the clinical trial that are “intrinsically national in nature,” being assessed during Part I.  Then, during Part II, each Member State would be responsible for assessing those sections that relate to aspects of the study that are “intrinsically national in nature” that the sponsor proposes for each Member State.

In light of the European Parliament’s decision not to further harmonize the assessment of the informed consent process, sponsors may want to consider taking advantage of the split review process under Article 11 as a way of mitigating the risk of having their applications deemed lapsed.  This would allow the sponsor to first obtain approval of the harmonized aspects of the Study under Part I of the assessment, and then stagger its submissions to the various Member States for an assessment under Part II.  Although this approach does not avoid the challenge of the divergent assessment from different member states, the split review process offers some of the benefits of the streamlined process while allowing the sponsor to better align the timing of their obligations to respond to member states’ requirements for revision with their available bandwidth.

The Regulation also includes new requirements for transparency of clinical trial data that have been the source of much debate.  Please stay tuned for my analysis of how different these new requirements actually are.

Let It Snow, Let It Snow, Let It Snow! Key Takeaways from the OMHA Medicare Appellant Forum Include Efforts to Deal with Avalanche of Appeals Hearing Requests

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It is not only the weather outside that is frightful! The traditional Medicare administrative appeals process operates along a strict timetable that, in recent months, has been absolutely “snowed in” by the avalanche of requests for appeals hearings by Administrative Law Judges (ALJs) and significant administrative delays extending far beyond normal processing backlogs. These delays affect providers across the Medicare spectrum, including those who are contesting adverse coverage and reimbursement decisions, as well as those who are contesting overpayment determinations generated by Recovery Audit Contractor (RAC) or Zone Program Integrity Contractor (ZPIC) audits. On February 12, 2014, the U.S. Department of Health & Human Services’ Office of Medicare Hearings and Appeals (OMHA)[1] hosted its first ever Medicare Appellant Forum to update appellants on the status of OMHA operations; describe OMHA initiatives aimed at reducing the backlog of OMHA-level appeals; offer advice to appellants for making the administrative-appeals process work more efficiently at the OMHA level; and solicit input from the appellant community on reducing the appeals backlog and improving the efficiency of OMHA’s processes.

At several points during the Forum, Chief ALJ Nancy Griswold and other speakers emphasized that OMHA has not imposed a moratorium; to the contrary, OMHA has continued to hold appeals hearings. OMHA’s process simply has changed due to the significant increases in workflow. Most significantly, in July 2013 OMHA implemented a deferred assignment process, which affects requests for hearings that were received by OMHA on or after April 2013. The new process has suspended assignments of new hearing requests until an adjudicator becomes available, to allow cases to be assigned on a first-in / first-out basis as each individual ALJ’s case docket is able to accommodate the additional work. Seemingly efficient, but with a significant effect—as of January 28, 2014, there is an estimated delay of up to 28 months until a hearing is assigned to an ALJ’s docket, and the estimated average wait time to obtain a hearing after assignment to an ALJ’s docket exceeds 6 months. When asked what OMHA’s statutory or regulatory authority is for establishing this deferred assignment process, Chief ALJ Griswold said that it is a “case management issue” and that OMHA does have regulatory authority to manage its workload.

During the Forum, various speakers provided the audience with numerous statistics, some of which really help to put OMHA’s dilemma into perspective:

  • Between FY 2009 and the present (YTD FY 2014), OMHA’s average processing time for a single appeal has increased from 94.9 days to 329.8 days.
  • In January 2012, OMHA was receiving 1,200 new requests for hearings per week; presently, OMHA is receiving more than 15,000 new requests for hearings per week.

Generally, ALJs have three different types of appeals cases in their normal workload: (1) traditional Medicare Part A / Part B appeals, (2) appeals associated with claims that may be reimbursable by both the Medicare and the Medicaid programs (“dual eligible appeals”); and (3) appeals from decisions by Medicare contractors that are reviewing claims outside the traditional Medicare Part A / Part B claims review process (e.g., RACs, ZPICs). Notably, in October 2009 the Centers for Medicare & Medicaid Services (CMS) permanently implemented the fee-for-service RAC program on a nationwide basis. Although OMHA has reported a rise in the ALJs’ workloads for all three types of cases, Chief ALJ Griswold acknowledged during the Forum that the rise in the number of Medicare contractor appeals has been the most significant.

Potential Relief on the Horizon?

Several of the Forum speakers discussed the steps that OMHA is taking in the short term, as well as those that OMHA is contemplating as more long term strategies, not only for managing the current workload but also for eliminating paper processing and bringing the agency’s technological capabilities into the 21st century. OMHA discussed programmatic initiatives including development of an adjudication manual so that all OMHA ALJs can follow uniform processes, consideration of statistical sampling methods (which only would be done with appellant consent) that could speed up the appeals process, particularly when an appellant has large numbers of claims they are appealing, and implementation of various alternative dispute resolution methods, which Chief ALJ Griswold noted may be a possible avenue for dealing with the large numbers of denials based on technical errors.

OMHA also is working on several technical initiatives. In the Spring of 2014, OMHA expects to launch the ALJ Appeal Status Information System (AASIS), a website which will provide public access to OMHA appeal status information, allow users to query multiple Level 2 and/or Level 3 appeal numbers, and access appeals data such as OMHA field office assignments, ALJ assignments and appeal status. In the second quarter of 2014, OMHA is hoping to launch a Medicare Appeals Template System (MATS), a document-generation system that will provide users with fillable forms to create individualized templates, with the goal of improving efficiency through increased data propagation. Longer term, anticipated for the Summer of 2016, OMHA hopes to launch an Electronic Case Adjudication and Processing Environment (ECAPE), a shared record system that will offer users functionality such as case intake, case assignment, workflow management, exhibiting, decision writing, closing and case management. ECAPE would allow appellants to electronically file appeals hearing requests, submit evidence in electronic form, view case files electronically, and send and receive communications to/from OMHA.

Comments from the Peanut Gallery: OMHA Is Not the “True Problem”

Attendees at the Forum were demonstrably appreciative of OMHA’s willingness to host the Forum and the efforts that OMHA is making to combat its current workload. However, when given the opportunity to ask questions, attendees provided clear and repeated feedback regarding their impression of the “true problem” – namely, the large numbers of denials at the first two levels of the appeals process. Level 1 of the appeals process is called redetermination and is performed by the same Medicare Administrative Contractor (MAC) that originally processed the claim. Level 2 of the appeals process is called reconsideration and is performed by a Qualified Independent Contractor (QIC). Among the issues that attendees cited were problems with the QICs transmitting the full record to the ALJs when cases move to the third level of appeal; large numbers of denials for “technical” (versus “medical necessity”) reasons; (c) refusals by the MACs and QICs to reopen their decisions, despite the goal of trying to resolve appeals at the lowest possible level of the appeals process; and allowing “clinical inference” at all levels of the appeals process. Attendees urged for better efforts by CMS to resolve the issues at the first two levels of the appeals process, which would not only make the appeals process smoother at all levels of the appeals process, but also would help OMHA reduce its workload if cases can be resolved more easily at the first two levels of the appeals process.

Looking Ahead

What comes next will be the true test. OMHA has laid out an aggressive plan for combatting its overwhelming workload. Appellants will be watching OMHA’s progress carefully, with the hope that programmatic and IT improvements to the system will help providers and beneficiaries to see relief more quickly as appeals are resolved more efficiently. OMHA is planning to publish a Federal Register notice to solicit public comments and suggestions regarding its efforts to streamline and reduce its workload, but timing for publication of this notice is unknown. The bigger question, however, is whether CMS will be responsive to the feedback from Forum attendees regarding the need for significant improvements at the first two levels of the appeals process. Time will tell … stay tuned.



[1] There are five levels in the Medicare administrative appeals process. The U.S. Department of Health & Human Services’ Office of Medicare Hearings and Appeals’ Administrative Law Judges hold hearings and issue decisions related to Medicare coverage determinations that reach the third level of the Medicare administrative appeals process.

Webinar on the ACA Employer Mandate: Feb. 20

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In a complimentary webinar on February 20 (1:00 p.m. ET), our colleagues Frank C. Morris, Jr., and Adam C. Solander will review the ongoing impact of the Affordable Care Act (ACA) on employers and their group health plans.

The Treasury Department and the Internal Revenue Service recently issued highly anticipated final regulations implementing the employer shared responsibility provisions of the ACA, also known as the employer mandate. The rules make several important changes in response to comments on the original proposed regulations issued in December 2012 and provide significant transition relief.

Objectives of the webinar are to:

  • Provide an overview of the shared responsibility rules
  • Discuss how the changes to the rules will affect employers of all sizes
  • Analyze special rules for seasonal, educational, and other employees and those with breaks in service
  • Provide insight into compliance issues affecting employers
  • Discuss strategies for compliance
  • Provide a roadmap of future ACA regulations

Click here to read more about this webinar, or click here to register.

Major Themes at 340B Coalition Winter Conference Include Contract Pharmacy Oversight, Medicaid Managed Care, and Anticipated 340B “Mega-Reg”

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By Alan J. Arville

Last week, the 2014 340B Coalition Winter Conference was held in San Diego, California (the “Winter Conference”), where representatives from the Health Resources and Services Administration (“HRSA”) of the United States Department of Health and Human Services (“HHS”), the Office of Inspector General (“OIG”) of HHS, and industry stakeholders (including Epstein Becker Green) presented on current developments with the 340B drug discount program (the “340B Program”). A brief summary of the 340B Program, including contract pharmacy arrangements, can be found at our previous blog post here. The following are a few noteworthy takeaways from the Winter Conference:

Contract Pharmacy Oversight: On February 5, 2014, the HRSA Office of Pharmacy Affairs (“OPA”), the office responsible for administering the 340B Program, issued a letter to 340B covered entities (“Covered Entities”) stressing that Covered Entities must exercise “vigilant oversight” of their contract pharmacy arrangements to ensure compliance with the 340B Program requirements to prevent diversion and duplicate discounts. The letter repeats previous HRSA guidance on contract pharmacy arrangements[1] that HRSA expects Covered Entities to conduct annual audits of contract pharmacies that are performed by an independent auditor. Most notably, the letter states that “if HRSA finds a covered entity providing no oversight of its contract pharmacy arrangements, this is a violation of program requirements and HRSA will no longer permit the participation of that contract pharmacy arrangement.” This was repeated by the OPA Director in a presentation, last Thursday, February 6, at the Winter Conference.

On the day prior to HRSA’s letter to Covered Entities, the OIG issued a report (the “OIG Report”) (discussed here) on contract pharmacy arrangements revealing that while most Covered Entities reported that they monitor their contract pharmacy arrangements internally to detect potential diversion or duplicate discounts, only 7 of 30 Covered Entities interviewed reported that they have retained independent auditors, and 4 of 30 Covered Entities reported that they neither monitor their contract pharmacy arrangements nor retain independent auditors.[2]

Due to HRSA’s letter and the OIG report, Covered Entities should be on heightened alert to ensure they are monitoring contract pharmacy arrangements for compliance. Ideally, annual audits should be performed by an independent contractor, however, the companies that offer independent auditing services in this area (and their experience, quality of service, and capabilities) are not widely known among Covered Entities. At the Winter Conference, HRSA indicated that at the very least Covered Entities must regularly perform effective self-audits of contract pharmacy arrangements to prevent diversion and duplicate discounts. To this end, Covered Entities should develop policies and protocols for performing such self-audits and explore the availability of independent auditing services.

Contract pharmacies, on the other hand, should be alarmed that HRSA’s stated penalty for the Covered Entity’s failure to carry out its own responsibility to exercise oversight over the contract pharmacy is to remove the contract pharmacy arrangement from the 340B Program. Thus, contract pharmacies should contact their Covered Entities to proactively support and coordinate Covered Entity oversight and audit activities.

Medicaid Managed Care Organizations (“MCO Medicaid”): The statute implementing the 340B Program prohibits Covered Entities from subjecting drug manufacturers to duplicate discounts on 340B-purchased drugs. Duplicate discounts occur when a drug manufacturer pays a State Medicaid agency a rebate under the Medicaid drug rebate program on a drug sold at the already-discounted 340B price. In the OIG Report, the OIG states that the risk of “duplicate discounts applies to MCO Medicaid as well as traditional fee-for-service Medicaid in States where drug manufacturers are paying rebates on drugs dispensed through MCO Medicaid.”

The OIG Report noted that while the majority of Covered Entities reported that their contract pharmacies do not dispense to either Fee For Service (“FFS”) Medicaid or MCO Medicaid beneficiaries, 2 of 30 Covered Entities reported that they did not know whether their contract pharmacies do so for MCO Medicaid beneficiaries, and 8 of 30 Covered Entities reported that their contract pharmacies dispense to Medicaid beneficiaries, 6 of which did not report a method to prevent duplicate discounts. Perhaps most problematic, the OIG Report states that administrators hired by Covered Entities to manage drug inventory tracking systems with contract pharmacies reported that the information needed to accurately identify MCO Medicaid prescriptions is not readily available.

Previous guidance issued by HRSA on contract pharmacy arrangements provides that the parties to a contract pharmacy arrangement must not use 340B-purchased drugs to dispense Medicaid prescriptions, unless the Covered Entity and contract pharmacy establish an arrangement with the applicable State Medicaid agency to prevent duplicate discounts. Certain industry stakeholders have interpreted HRSA’s guidance to apply to FFS Medicaid prescriptions but not MCO Medicaid prescriptions. Nevertheless, it was reiterated by an OIG representative at the Winter Conference that, irrespective of varying interpretations of HRSA’s previous guidelines, the statute prohibits both FFS Medicaid and MCO Medicaid duplicate discounts. HRSA has not yet issued a policy that specifically addresses the application of the duplicate discount prohibition to MCO Medicaid covered prescriptions.

Based on the OIG Report and the implementing statute to the 340B Program, Covered Entities should presume that the risk of duplicate discounts applies to MCO Medicaid in States where manufacturers are paying rebates on drugs dispensed through MCO Medicaid plans. If the Covered Entity determines that such rebates are required in the applicable State, the Covered Entity should determine how it, or its administrator (if applicable), is ensuring that duplicate discounts are prevented. In some instances, the Covered Entity may need to contact the applicable State Medicaid agency and MCO Medicaid plans to obtain information needed to accurately identify MCO Medicaid beneficiaries.

340B Mega-Rule Eagerly Anticipated: HRSA issued a public statement that it is currently developing, and expects to publish, proposed regulations by June 2014 that will address at least the following 4 areas: (1) definition of an eligible patient, (2) compliance requirements for contract pharmacy arrangements, (3) hospital eligibility criteria and (4) eligibility of hospital off-site facilities. At the Winter Conference, HRSA did not expound on the scope or content of the proposed regulations in each of the foregoing areas.

With respect to the definition of an eligible patient, the OIG Report summarized how the Covered Entities interviewed applied inconsistent methods for identifying 340B-eligible prescriptions, based on differing interpretations of the eligible patient definition. Industry stakeholders at the Winter Conference both supportive and critical of the 340B Program expressed that they welcome new regulations that will clarify the definition of an eligible patient, and other areas where the statute and existing guidelines are ambiguous.


[1] HRSA, Notice Regarding 340B Drug Pricing Program—Contract Pharmacy Services, 75 Fed. Reg. 10272 (Mar. 5, 2010).

[2] HHS OIG, Memorandum Report: Contract Pharmacy Arrangements in the 340B Program (Feb. 4, 2014),

OIG Issues Report on 340B Contract Pharmacy Arrangements Supporting Need for Tighter Rules

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By Constance Wilkinson, Alan Arville, and David Gibbons

The U.S. Department of Health and Human Services (“HHS”) Office of Inspector General (“OIG”) released a Report [1] on February 5th based on in-depth interviews with a sample of thirty 340B Covered Entities – half were disproportionate share hospitals (“DSH”) and half were community health centers (“CH”) – and eight contract pharmacy administrators to gain a better understanding of how contract pharmacy arrangements operate under the 340B Drug Discount Program, codified as Section 340B of the Public Health Service Act (“340B Program”).

By way of background, the 340B Program, created in 1992 and administered by the Health Resources and Services Administration (“HRSA”), requires drug manufacturers to give discounts to entities covered under the law – known as “Covered Entities” – in order to have their drugs covered by Medicaid. The manufacturer must agree to sell each of its outpatient prescription drugs to Covered Entities enrolled in the 340B Program “at or below a ceiling price” that is derived from the same Average Manufacturer Price and Unit Rebate Amount calculated under the Medicaid Drug Rebate Program.[2] Covered Entities are subject to certain compliance requirements, including preventing duplicate discounts (i.e., preventing Medicaid rebate claims for prescriptions that were filled with drug purchased at the 340B price by reporting how they bill Medicaid on the Medicaid Exclusion File) and preventing diversion of 340B drugs (i.e., ensuring that only eligible patients receive 340B drug in accordance with the 340B program definition of a patient). According to HRSA’s subregulatory guidance, a Covered Entity may enter into agreements with one or more specified pharmacies to dispense drugs purchased at 340B discounts to the Covered Entity’s eligible patients.[3]

The Report provides a useful overview of the contract pharmacy arrangement “replenishment” model in use today and notes that the use of contract pharmacies by Covered Entities as well as the number of contract pharmacy arrangements has increased dramatically over the past several years. The Report focuses on the statutory prohibitions of diversion and duplicate discounts and also on access to discounted prices for 340B eligible uninsured patients. Notably, the Report does not discuss the applicability of the Federal Anti-Kickback Statute to 340B contract pharmacy arrangements. While limited in its scope, the Report raises some significant issues that HRSA will need to consider as it develops comprehensive regulations anticipated to be released later this year.

First, the OIG found that Covered Entities are taking inconsistent approaches to interpreting HRSA’s definition of an “eligible patient” under the 340B Program.[4] The OIG found that Covered Entities differ with respect to how they classify prescriptions as 340B-eligible, with regard to when the determination is performed (before or after the prescription is written), the time limits applied to when a prescription can be 340B-eligible relative to a physician visit, and the data used to determine eligibility. For example, eligible patients must receive health care services from providers that are either employed by or under a contractual or other arrangement with the Covered Entity such that the Covered Entity is responsible for the health care services delivered to eligible patients. In practice however, these providers sometimes provide services in their private offices, which creates some ambiguity as to whether such services, including prescribing of drugs otherwise covered by the 340B Program, meet the eligibility requirements. When the OIG examined how contract pharmacies operate in scenarios such as this, they found that Covered Entities categorized 340B eligibility differently and used different means to make such categorizations, resulting in inconsistencies among Covered Entities in similar circumstances regarding the utilization of 340B drug.

Second, Covered Entities encounter difficulties in identifying 340B eligible prescriptions for patients enrolled in Medicaid managed care plans. To comply with the statutory prohibition against duplicate discounts (noted above), Covered Entities choose whether or not they will dispense 340B drugs to Medicaid beneficiaries; if they do dispense 340B drugs to Medicaid beneficiaries, Covered Entities must provide HRSA with their pharmacy Medicaid Provider number, which is then entered in the HRSA Medicaid Exclusion File. The HRSA Medicaid Exclusion File is provided to state Medicaid agencies and manufacturers to ensure that a Medicaid rebate is not sought from a manufacturer for drugs already sold at the 340B discount. The difficulty in complying with this provision for Medicaid managed care patients arises from a lack of information available from state Medicaid agencies and managed care plans using the same routing numbers for their Medicaid managed care patients as for privately insured patients.

Third, the Report noted that eight of the thirty Covered Entities included in the study do not offer the 340B discounted drug price to their uninsured patients who are dispensed prescriptions through a contract pharmacy. Most of the 340B contract pharmacy administrators serving these entities revealed that the determination of eligibility is made after the drug is dispensed. Therefore, the contract pharmacy charges the uninsured patient the full cost of the prescription at the time it is dispensed. Among the eighteen Covered Entities interviewed that do offer 340B discounts to uninsured patients, it is common for the Covered Entity to address the underlying issue by providing their 340B eligible uninsured patients with a 340B discount card that, when presented to the pharmacy, notifies the pharmacy to charge the discounted rate.

The Report does not provide any recommendations in response to the inconsistencies in contract pharmacy arrangement operations identified by the OIG, but notes that comments or questions concerning the Report can be submitted by April 5. The OIG states that recommendations could be forthcoming in a future report as the agency continues to review contract pharmacy arrangements.

An accompanying podcast is available at available at



[1] HHS OIG, Memorandum Report: Contract Pharmacy Arrangements in the 340B Program (Feb. 5, 2014),

[2] Section 340B(a)(1) of the Public Health Service Act. 42 U.S.C. § 256b(a)(1) (2011),

[3] HRSA, Notice Regarding 340B Drug Pricing Program—Contract Pharmacy Services, 75 Fed. Reg. 10272 (Mar. 5, 2010).

[4] HRSA, Notice Regarding Section 602 of the Veterans Health Care Act of 1992 Patient and Entity Eligibility, 61 Fed. Reg., 55156, 55157-55158 (Oct. 24, 1996).

ACA’s Employer “Pay or Play” Mandate Delayed – What Now for Employers?

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A recent article in Bloomberg BNA’s Health Insurance Report will be of interest: "ACA’s Employer ‘Pay or Play’ Mandate Delayed – What Now for Employers?" by Frank C. Morris, Jr., and Adam C. Solander, colleagues of ours, based in Epstein Becker Green’s Washington, DC, office. Following is an excerpt:

The past few weeks have changed the way that most employers will prepare for the employer ‘‘shared responsibility” provisions of the Affordable Care Act (ACA). Over the past year or so, employers have scrambled to understand their obligations with respect to the shared responsibility rules and implement system changes, oftentimes with imperfect information to guide their efforts to comply with ACA.

Understanding the difficulties that both employers and the health insurance exchanges or marketplaces would have, the Internal Revenue Service (IRS) on July 2 issued a press release stating it would delay the shared responsibility provisions and certain other reporting requirements for one year, until Jan. 1, 2015.

On July 9, the IRS published Notice 2013-45 (Notice), providing additional information on the one-year delay. Specifically, the following three ACA requirements are delayed:

  1. The employer shared responsibility provisions under Section 4980H of the Internal Revenue Code (Code), otherwise known as the employer mandate;
  2. Information reporting requirements under Section 6056 of the Code, which are linked to the employer mandate; and
  3. Information reporting requirements under Section 6055 of the Code, which apply to self-insuring employers, insurers, and certain other providers of ‘‘minimum essential coverage,” as defined by ACA.

The IRS notice clarifies that only the above three requirements are delayed. The notice does not affect the effective date or application of other ACA provisions, such as the premium tax credit or the individual mandate. Given the fact that the law itself is not delayed, the notice has raised significant issues for employers despite their being generally pleased with the mandate and penalty delay. This article will discuss the impact of the delay and some of the issues that employers should consider as a result of the delay.

Click here to download the full article in PDF format. The attached file is reproduced with permission from Health Insurance Report, 19 HPPR 28, 7/31/13. Copyright © 2013 by The Bureau of National Affairs, Inc. (800-372-1033)

4th Circuit Upholds Employer Mandate Under Commerce Clause, Tax Power

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I was recently quoted in an article titled "4th Circuit Upholds ACA’s Employer Mandate, Says Insurance Regulation Within Commerce," by Mary Anne Pazanowski, in Bloomberg BNA’s Health Care Daily Report. Following is an excerpt:

A unanimous U.S. Court of Appeals for the Fourth Circuit July 11 declared the Affordable Care Act’s employer mandate a valid exercise of Congress’s power to regulate commerce under the U.S. Constitution’s Commerce Clause (Liberty University Inc. v. Lew, 4th Cir., No. 10-2347, 7/11/13).

In an opinion co-authored by Judges Diana Gribbon Motz, James A. Wynn Jr., and Andre M. Davis, the court held that the mandate is ‘‘simply an example of Congress’s longstanding authority to regulate employee compensation offered and paid for by employers in interstate commerce.”

The ruling comes in a case filed by Liberty University Inc. and two individual plaintiffs that challenged both the individual and employer mandates. Treasury Secretary Jacob Lew has been substituted as a defendant in place of former Secretary Timothy Geithner.

Stuart Gerson, a former acting U.S. attorney general who is now an attorney with Epstein Becker Green in Washington, told BNA July 11 that ‘‘there is considerable force to the Fourth Circuit’s view that health insurance decisions affect employment, which itself is a matter of interstate commerce.”

He predicted that, if the case returns to the Supreme Court—as seems likely based on a July 11 press release from the university’s attorneys—there would be four solid votes to uphold the Fourth Circuit’s ruling. But, he said, ‘‘it is difficult to predict how the chief justice and the other four conservative justices come out on this point.” He added, though, that ‘‘one must at least recognize that there is a difference between an individual’s decision not to engage in commerce and the clear commercial activity in which Liberty indisputably engages.”

Of course, Gerson said, if the conservatives on the high court vote to uphold Liberty’s challenge to the employer mandate, Chief Justice John G. Roberts Jr. ‘‘could again perform the legerdemain and create a fifth vote for affirmance by holding that the employer man- date is supportable under the tax power as was the individual mandate in NFIB. The Fourth Circuit’s alternative reasoning allows for this result.”

More on the ACA Employer Mandate Delay: Employers Get Welcome Relief from Penalties Until 2015, but Many Questions Remain

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Our colleagues Kara Maciel, Frank C. Morris Jr., Elizabeth Bradley, and Adam Solander have posted a client advisory on the recent ACA employer mandate delay, exploring the ramifications and unresolved issues that employers should consider. Following is an excerpt:

In reaction to employers’ concerns about the many difficulties posed in efforts to comply with the Employer Mandate provisions of the Affordable Care Act ("ACA"), the Obama administration ("Administration") announced late yesterday that it is delaying the implementation of the penalty provisions and other aspects of the shared responsibility regulations until 2015. While the delay may have been to accommodate stakeholder requests, the delay also may have accommodated the Administration in connection with its readiness to implement the Employer Mandate. This delay could be a precursor to other implementation delays as the Administration seeks to make the ACA’s implementation successful, especially in light of intense scrutiny as to implementation and an inability to amend the law in Congress.

Read the full advisory: Employer Mandate Delayed—Employers Get Welcome Relief from Penalties Until 2015, but Many Questions Remain.

Affordable Care Act: Important Deadline for Employee Notices of the Health Insurance Marketplace (Exchange) Due October 1, 2013

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By Gretchen Harders and Michelle Capezza

On May 8, 2013, the Employee Benefits Security Administration of the Department of Labor (the “DOL”) issued Technical Release 2013-02 (the “Release”) providing important guidance under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (the “Affordable Care Act”) with regard to the requirement that employers provide notices to their employees of the existence of the Health Insurance Marketplace, generally referred to previously as the Exchange. These employee notices must be provided to existing employees no later than October 1, 2013. This deadline is intended to correspond to the open enrollment period for the Marketplace commencing October 1, 2013 for coverage through the Marketplace beginning January 1, 2014. The Release includes temporary guidance and two model employee notices of the Marketplace upon which employers may rely. The Release further provides an updated model election notice for group health plans for purposes of the continuation coverage provisions under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) to include information of the health coverage options offered to individuals through the Marketplace for comparative purposes.

Employee Notice of the Marketplace. The Affordable Care Act amended the Fair Labor Standards Act (“FLSA”) to require employers to issue employees a notice of the health coverage options available under the Marketplace. The FLSA requirement was required to have been satisfied on or before March 1, 2013; however, given the regulatory delays in establishing and approving the Marketplace, the DOL extended the deadline. The guidance under this Release is temporary through the applicability date of October 1, 2013, but may be relied upon until future guidance and regulations are issued.

Which employers are required to comply with the notice requirements?

Whether or not required to “pay or play” under the Affordable Care Act, all employers subject to the FLSA must provide the employee notice. The FLSA generally applies to employers that employ one or more employees and are engaged in or produce goods for interstate commerce. The FLSA also covers, among other things, hospitals, schools, institutions of higher education and federal, state and local government agencies. To determine whether an employer is subject to the FLSA, the DOL provides an internet assistance tool at

Which employees must receive the notice?

Employers must provide the employee notice to each employee whether or not the employee has part-time or full-time status. It does not matter whether the employee is enrolled or eligible to enroll in a group health plan. A separate notice is not required to dependents or other individuals who may become eligible for coverage under the plan, but are not employees.

What information must the notice provide?

The employee notice must contain the following information:

  • The existence of the Marketplace;
  • The contact information and description of services offered on the Marketplace;
  • A statement that the individual may be eligible for a premium tax credit if the employee purchases a qualified plan on the Marketplace; and
  • A statement that if the employee purchases a qualified plan on the Marketplace, the employee may lose the employer contribution to any health benefit plan offered by the employer and all or a portion of employer contributions may be excluded from federal income.

What are the DOL model notice(s)?

The DOL has provided two model employee notices available on its website, one for employers who do not offer a health plan and one for employers who offer a health plan to some or all employees. The Release provides that employers may use the model notice(s) provided the notice(s) include the information described above.

The model employee notice for employers who do not offer health coverage includes the information described above, as well as an explanation of the impact of the availability of employer health coverage on the employee’s eligibility for subsidies on the Marketplace. The model employee notice does not require the employer to provide specific contact information for the Marketplace in the state where the employee resides, but rather refers the employee to the website for contact information for the Marketplace in the employee’s area. This model employee notice requires the employer to provide contact information for the employer, including the employer’s EIN. This is the information an employee will need to include in an application for a premium subsidy on a Marketplace.

The model employee notice for employers who do offer health coverage generally includes the same information as the model employee notice for employers who do not offer health coverage. This model employee notice does, however, require the employer to provide contact information to obtain more information about the employer’s health care coverage. The disclosure requires the employer to state whether the health care coverage is offered to all employees and, if not to all employees, a description of those employees eligible for health care coverage. It also requires the employer to state whether it offers dependent coverage and which dependents are eligible. Finally, the employer is required to disclose whether the health care coverage offered meets the minimum value standard and that the cost of coverage is intended to be affordable. The Department of Treasury and Internal Revenue Service recently issued proposed guidance to assist employees in assessing whether the coverage offered provides minimum value. See our prior blog post New Proposed guidance for Determining Whether Employer-Sponsored Health Plan Provides Minimum Value.

The model employee notice includes optional information that an employer may provide to the employee based on the Marketplace Employer Coverage Tool to better understand their coverage choices, including whether the employee is eligible in the next three months for employer coverage, whether the employer offers a health plan that meets the minimum value standard, the premium for employee-only coverage under the lowest-cost plan that meets the minimum value standard if the employee received the maximum discount for any tobacco cessation program, and what changes the employer will make for the next plan year. Although this information is optional, it may be to an employer’s benefit to demonstrate, where appropriate, that its plan is providing minimum value and is affordable.

When must the employee notice be provided and what are the acceptable delivery methods?

Current employees before October 1, 2013 must be provided with the notice no later than October 1, 2013. Beginning October 1, 2013, the employer must provide each new employee the notice at the time of hire, which will be considered timely provided in 2014 if provided within 14 days of the employee’s start date.

The employee notice must be provided free of charge in writing in a manner calculated to be understood by the average employee. The employee notice may be provided by first class mail or electronically if in accordance with the DOL’s electronic disclosure safe harbor.

COBRA Model Notice. Under COBRA, an individual who was covered by a group health plan the day before a qualifying event occurred may be eligible to elect COBRA continuation coverage. These qualified beneficiaries must be provided with an election notice within 14 day after the plan administrator receives notice of a qualifying event. The COBRA election notice is required to include specific information.

The DOL updated its model COBRA election notice to provide information about the Marketplace for the purposes of informing qualified beneficiaries that they may also be eligible for a premium tax credit to pay for coverage offered through the Marketplace. It also includes clarification on the limit on pre-existing conditions exclusions beginning in 2014. Such information is not specifically required under the Affordable Care Act and should have no impact on whether an employer is subject to the employer responsibility penalties if in fact a former employee obtains coverage on the Marketplace.

The Release provides that the use of the model COBRA election notice completed appropriately will be considered good faith compliance with the COBRA election requirements. The model COBRA election notice does not provide a specific deadline or compliance date. Employers may wish to review their existing COBRA election notices for changes relating to the Affordable Care Act.

Employers have long been waiting for specific guidance from the DOL on the employee notice requirements. Now that it is here, compliance should be addressed well before the October 1, 2013 deadline.

Client Alert: OIG Issues Updated Guidelines for Evaluating State False Claims Acts: Is More State Litigation on the Horizon?

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Health Reform - Epstein Becker Green

Our colleagues at Epstein Becker Green have issued a client alert: "OIG Issues Updated Guidelines for Evaluating State False Claims Acts: Is More State Litigation on the Horizon?," by George B. Breen, Wendy C. Goldstein, and Daniel C. Fundakowski.

Following is an excerpt:

On March 15, 2013, the U.S. Department of Health and Human Services’ Office of Inspector General (“OIG”) released the Updated OIG Guidelines for Evaluating State False Claims Acts (“2013 Guidelines), which replaces the original version released in 2006.

The 2013 Guidelines describe OIG’s methodology for determining whether a state’s Medicaid false claims law satisfies the four requirements in Section 1909(b) of the Social Security Act (“Act”) that are necessary to qualify for a 10-percentage-point increase in the state share of Medicaid-related false claims recoveries. While Section 1909 of the Act does not require a state to enact false claims act legislation, only states that have enacted a qualifying law will be eligible for the 10-percentage-point increase in its share of Medicaid false claims recoveries.

Unquestionably, these recent changes have expanded provider liability under the federal False Claim Act, making it easier for relators to bring cases against health care providers, who may now be facing a more rigid regulatory regime. This recognition, coupled with a financial incentive, may spur state efforts to re-tool false claims statutes to comply with Section 1909 of the Act. Attendant with increased interest in Medicaid false claims actions will inevitably come increased compliance scrutiny. Accordingly, assessing compliance programs to ensure conformity with state payor programs is advised.

Read the full alert here.