Health Law Advisor

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

The Scope of FDA’s Proposed Revisions to the IND Regulations May Not Be Sufficient to Achieve Its Stated Goals

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Last week, the U.S. Department of Health and Human Services (“HHS”) announced that FDA intends to update its regulations governing clinical studies of new drugs.  More specifically, FDA intends to update Parts 312 and 16 of Title 21 of the Code of Federal Regulations (the “Code” or “CFR”).  In its announcement, HHS stated that the revisions will be focused on defining and clarifying “the roles and responsibilities of the various persons engaged in the initiation, conduct, and oversight of clinical investigations subject to [investigational new drug] requirements.”  The announcement also notes that the changes will “better protect the rights, safety and welfare of subjects and help ensure the integrity of clinical trial data.”

I don’t think anyone disagrees that these are important goals and that FDA should be commended for recognizing their importance and taking steps to achieve them.  However, these are not the only goals FDA should be striving to achieve as it revamps these regulations.  As noted in the January 29, 2015 Innovation for Healthier Americans report issued by Senators Alexander and Burr, clinical trials are becoming longer and the number of procedures subjects are required to undergo continues to increase.  This not only makes trials more expensive, but also makes it harder to enroll and retain subjects.  Addressing the rising costs and enrollment difficulties is one of the drivers behind the 21st Century Cures Act which is working its way through the House and the companion legislation working its way through the Senate.  Although addressing these goals has bipartisan support and FDA legislation traditionally has been less susceptible to the partisan gridlock in Congress, there is no guarantee that Congress will be able to address these issues legislatively.  Therefore, it would be advisable for FDA also to focus on streamlining the regulatory process and establishing a framework for the use of surrogate endpoints and adaptive clinical trial designs.  This can serve two purposes.  First, it hedges against the possibility that a legislative fix will not materialize.  Second, it reduces the potential that FDA will need to revisit these regulations again if a legislative fix does materialize.

In addition to expanding the goals FDA is pursuing with these changes, FDA should also expand the scope of the regulations that it will update to achieve these goals.  According to the announcement, FDA only intends to update Parts 312 and 16.[1]  However, it is unclear how FDA can achieve these goals if it limits the scope of changes to these parts of the Code.  Part 312 primarily focuses on the division of responsibilities as between the sponsor and the investigator.  However, there are other parties and entities responsible for the oversight of clinical investigations, including institutional review boards (IRBs) and the institutions where the studies are conducted.  Specifically, IRBs are responsible for ensuring the protection of rights, safety, and welfare of clinical trial subjects.  Although Part 312 requires the Sponsor and the Investigator to ensure IRB approval and continuing oversight, Part 312 does not specifically address the roles and responsibilities of an IRB or the research institutions.  Instead, these are addressed in Part 56.  Therefore, it is unclear how FDA will be able to effectively clarify the “roles and responsibilities of the various persons engaged in the initiation, conduct, and oversight of clinical investigations” and “better protect the rights, safety and welfare of subjects” without also updating Part 56.

I look forward to seeing the changes FDA proposes to make to Part 312. I just hope that these changes enhance the protection of study subjects and ensure the integrity of the data generated by clinical trials in a manner that also makes conducting and participating in clinical trials less burdensome than it is currently.



[1] 21 CFR Part 16 governs regulatory hearings to which investigators are entitled to in the event they are disqualified pursuant to 21 CFR § 312.70 or to which sponsors are entitled in the event FDA terminates an IND.

DOL’s New “White Collar” Exemption Rule To Impact Health Care Industry

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Act-Now-Advisory-BadgeOur colleagues, Michael S. Kun, Member of the Firm, and Jeffrey H. Ruzal, Senior Counsel, at Epstein Becker Green, have written an Act Now Advisory that will be of interest to many of our readers: DOL’s New “White Collar” Exemption Rule Goes Into Effect on December 1, 2016.

On May 18, 2016, the U.S. Department of Labor (“DOL”) announced the publication of a final rule that amends the “white collar” overtime exemptions to significantly increase the number of employees eligible for overtime pay. The final rule will go into effect on December 1, 2016.

What Is New

The final rule provides for the following changes to the executive, administrative, and professional exemptions:

  • The salary threshold for the executive, administrative, and professional exemptions will increase from $23,660 ($455 per week) to $47,476 ($913 per week), which represents the 40th percentile of full-time salaried workers in the lowest-wage census region (currently the South). This threshold is approximately $3,000 less per year than that proposed last summer in the NPRM.
  • The total annual compensation requirement for “highly compensated employees” subject to a minimal duties test will increase from the current level of $100,000 to $134,004, which represents the 90th percentile of full-time salaried workers nationally. This threshold is approximately $12,000more per year than that proposed last summer in the NPRM.
  • The salary threshold for the executive, administrative, professional, and highly compensated employee exemptions will be automatically updated every three years to maintain the standard salary level at the 40th percentile of full-time salaried workers in the lowest-wage census region to “ensure that they continue to provide useful and effective tests for exemption.”
  • The salary basis test will be amended to allow employers to use non-discretionary bonuses and incentive payments, such as commissions, to satisfy up to 10 percent of the salary threshold.


What Allowance Is Being Afforded to the Health Care Industry

With its publication of the final rule, the DOL announced a Time Limited Non-Enforcement Policy (“Policy”) for providers of Medicaid-funded services for individuals with intellectual or developmental disabilities in residential homes and facilities with 15 or fewer beds. Under the Policy, from December 1, 2016 (the effective date of the final rule) until March 17, 2019, the DOL will not enforce the updated salary threshold of $913 per week for employers providing these services.

The DOL issued the Policy in response to inter-agency discussion between the DOL and the U.S. Department of Health and Human Services (“HHS”) about the concern that the final rule would frustrate the HHS’s goal of providing services to individuals with intellectual or developmental disabilities in integrated settings that support full access to the community and the provision of services through small, community-based settings that maximize individuals’ autonomy, quality of life and community participation.

What This Means

While it is certainly good news for employers that the duties tests for the various exemptions will not be augmented in the final rule, the significant increase to the salary threshold is expected to extend the right to overtime pay to an estimated 4.2 million workers who are currently exempt. This change will not only affect labor costs but also require employers to rethink the current structures and efficiencies of their workforces, including assessing how the reclassification of workers from exempt to non-exempt will affect their fundamental business models. In addition, to the extent exempt employees are reclassified as non-exempt, employers will have to consider implementing policies and procedures to both comply with overtime laws and control overtime worked, such as proscription against off-the-clock work and proper maintenance of accurate record-keeping.

The apparent trade-off for scaling back the salary threshold from the proposed $50,440 to $47,476 for the executive, administrative, and professional exemptions is the increase in the highly compensated employee salary threshold from the proposed $122,148 to $134,004 announced in the final rule. That, of course, is a substantial increase to the current $100,000 threshold and will likely result in employers relying less than they had previously on this exemption.

The permitted use of non-discretionary bonuses and incentive payments, such as commissions, to satisfy up to 10 percent of the salary threshold may help soften the impact of the increase to the salary threshold. Employers should proceed carefully, however, if they wish to take advantage of that provision. For example, employers should make sure that the 10 percent maximum allowance is not exceeded, which could otherwise lead to misclassification claims. Also, employers should be mindful of maintaining a proper distinction between discretionary and non-discretionary bonuses and only attribute the latter to satisfy the salary threshold.

With respect to the DOL’s Policy delaying enforcement against providers of Medicaid-funded services for individuals with intellectual or developmental disabilities in residential homes and facilities with 15 or fewer beds, employers should take heed that that the Policy applies only to DOL investigations and enforcement actions. Because the FLSA provides employees with the right to bring a private cause of action, the Policy provides no apparent protection against private lawsuits that may be brought by employees who are treated as exempt but paid less than the updated salary threshold of $913 per week effective December 1, 2016. Although difficult to predict, plaintiffs’s attorneys may not pursue private litigation until the March 17, 2019 end date of the Policy to evaluate whether the DOL issues a NPRM addressing the application of the final rule for providers of Medicaid-funded services for individuals with intellectual or developmental disabilities in residential homes and facilities, and also to maximize the potential value of a lawsuit since the statute of limitations under the FLSA is two years (or three years if willful).

Resistance to the final rule can be expected. There is little doubt that the DOL modified its proposed salary threshold increase of $50,440 to $47,476 in response to nearly 300,000 comments, many of which were from employers and advocacy groups providing thoughtful commentary on the practical issues and repercussions of implementing such a significant increase to the salary threshold. Because of the severity of the final rule, a Congressional challenge may be in the offing. Subject to the Congressional Review Act, the final rule will be scrutinized by the next Congress to be seated in 2017.

For the full Act Now Advisory, click here.

Will Sad Facts Make Bad Law?

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Despite popular opinion, lawyers and judges are human and sometimes the facts of a case make it near impossible for judges to play the role of the modest umpire calling balls and strikes described by Chief Justice Roberts in his confirmation hearing.  Sometimes, bad facts make bad law because the plaintiff is so sympathetic that the just ruling may not be the “right” one.  Fachon v. U.S. Food and Drug Administration et al., appears to be the epitome of this.

Earlier this year, a 20-year old man, Eugene Neil Fachon, was diagnosed with Diffuse Intrinsic Pontine Glioma (“DIPG”) a form of brain cancer for which there is no cure.  His doctors told him he had only three months to live.  At the time of his diagnosis, Mr. Fachon was pursing an engineering degree at Northeastern University in Boston.  While his fellow college students were trying to figure out where to go for spring break, Mr. Fachon was trying to figure out what to do next in light of his grave prognosis.  Instead of undergoing the standard treatment, radiation, which may have had the potential to extend his life for up to three additional months, he decided to participate in a clinical trial that was intended to investigate the efficacy of Antineoplaston therapy.  The clinical trial was being performed pursuant to an Investigation New Drug Application (“IND”) that was in effect, pursuant to 21 CFR 312.40, at the time Mr. Fachon was enrolled.[1]  Mr. Fachon enrolled in the study on March 13, 2016, becoming the first and only subject enrolled.  On or about the same day Mr. Fachon began receiving the investigational drugs, April 21, 2016, FDA placed a clinical hold on the clinical trial and ordered the study site to stop administering the investigational drugs to Mr. Fachon.

After being unable to convince FDA to allow him to continue receiving the investigational drugs, despite the clinical hold, Mr. Fachon filed suit seeking a preliminary injunction, a permanent injunction and temporary restraining order prohibiting FDA from enforcing its clinical hold and requiring FDA to allow him to continue receiving the investigational drugs.  Mr. Fachon argued that FDA violated his due process rights under the 5th and 14th Amendments because FDA failed to notify Mr. Fachon of its intent to impose a clinical hold and grant Mr. Fachon an opportunity to be heard.  On May 17th, Judge John J. McConnell, granted Mr. Fachon the temporary restraining order he requested.

In granting the temporary restraining order, Judge McConnell concluded that once Mr. Fachon started participating in the clinical trial, he had a protectable interest in continuing his participation that entitled him to due process.  The key aspects of due process are notice and an opportunity to be heard.  Thus, Judge McConnell concluded that before FDA could take away Mr. Fachon’s right to continue receiving the investigational drugs, FDA may have been required to notify Mr. Fachon and provide him an opportunity to convince FDA otherwise.

However, other than concluding that this right arose once Mr. Fachon started receiving the study drug, Judge McConnell did not provide much of explanation about this right, including the source of this right or the scope of the right.

I am not saying that Judge McConnell was wrong in granting the temporary restraining order, to the contrary.  I agree that the balance of the equities favored granting the temporary restraining order, but Judge McConnell could have (and I think should have) granted the temporary restraining order without reaching the conclusion on the merits of the case and without concluding that Mr. Fachon was entitled to due process.

Because Judge McConnell chose to recognize this right, this case has the potential to significantly impact how clinical trials are conducted.  To the extent participants in clinical trials are entitled to due process, some questions will need to be answered, including:

  • Would subjects who benefit from the investigational product during the study be entitled to continue receiving the investigational product until it is approved by FDA? This is not an unusual concept as other countries grant subjects this right already.
  • How does this impact an investigator’s ability to remove a subject from a study without the subject’s consent? An informed consent is required to describe the “[a]nticipated circumstances under which the subject’s participation may be terminated by the investigator without regard to the subject’s consent.”[2] However, an informed consent cannot include any language through which a subject waives any of his or her legal rights.
  • Before FDA places a clinical hold on a study that includes a requirement that enrolled subjects stop receiving the study drugs, will FDA be required to notify all study subjects and provide them an opportunity to be heard before the clinical hold goes into effect?

These are complicated issues that are best suited for legislative and regulatory solutions.  Therefore, hopefully the parties and the judge can find an appropriate resolution to this case that allows Mr. Fachon to pursue this experimental treatment without opening up Pandora’s box.



[1] Although the Plaintiff’s motion characterizes the clinical trial as “FDA-Approved”, FDA does not necessarily “approve” clinical trials.  Rather, FDA regulated clinical trials must be performed pursuant to an IND that is “in effect” and an IND is deemed to be effective the earlier of 30 days after FDA receives the IND or FDA notifies the clinical Sponsor that the clinical trial may begin. 

[2] 21 CFR § 50.25(b)(2)

FDA Issues Draft Guidance Encouraging More Widespread Use of Electronic Health Record Data in Clinical Trials

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On May 17, 2016, FDA issued Draft Guidance for Industry on Use of Electronic Health Record Data in Clinical Investigations (“Draft Guidance”).  This Draft Guidance builds on prior FDA guidance on Computerized Systems Used in Clinical Investigations and Electronic Source Data in Clinical Investigations, and provides information on FDA’s expectations for the use of Electronic Health Record (“EHR”) data to clinical investigators, research institutions and sponsors of clinical research on drugs, biologics, medical devices and combination products conducted under an Investigational New Drug Application or Investigational Device Exemption.

While the recommendations set forth in the Draft Guidance do not represent a significant departure from existing guidance, research sponsors, institutions and investigators should consider the extent to which their existing policies and procedures, template agreements, protocols and informed consent documents should be updated to incorporate FDA’s recommendations.

Specifically, the draft guidance provides additional detail on FDA’s expectations for the due diligence to be performed by sponsors prior to determining the adequacy of any EHR system used by a clinical investigator to capture source data for use in a clinical investigation. FDA expects sponsors to assess whether systems have adequate controls in place to ensure the confidentiality, integrity, and reliability of the data. FDA encourages the use of EHR systems certified through the ONC Health IT Certification Program, and will presume that source data collected in Health IT certified EHR systems is reliable and that the technical and software components of privacy and security protection requirements have been met. Sponsors should consider requesting additional detail in site pre-qualification questionnaires or pre-study visits regarding any EHR system utilized by clinical investigators to record source data, including whether such systems are Health IT certified. Sponsors may also consider the extent to which their existing site qualification policies and clinical trial agreements templates adequately reflect the technical requirements for sites utilizing EHR systems to record source data, the need to ensure that any updates to those systems do not impact the reliability of the security of the data, and the extent to which the data, including all required audit trails, are backed up and retained by the site to ensure necessary access by FDA.

The Draft Guidance also includes recommendations regarding the information it expects to be included in study protocols and informed consent documents. When the use of EHR systems is contemplated, FDA recommends that study protocols include a description or diagram of the electronic data flow between the EHR and the sponsor’s EDC system, along with information regarding the manner in which the data are extracted and imported from the EHR and monitored for consistency and completeness. FDA also recommends incorporation into informed consent forms of information regarding the extent of access to EHRs granted to sponsors, contract research organizations, and study monitors, as well as a description of any reasonably foreseeable risks with the use of EHRs, such as those involving an increased risk of data breaches. While information related to third party access to health information is typically addressed in informed consent documents, specific details related to access to EHRs and their associated risks are less common. Sponsors and research institutions should consider the extent to which their template informed consent documents should be updated to incorporate the best practice recommendation in the Draft Guidance.

In addition, in the Draft Guidance, FDA encourages the development and use of interoperable EDC and EHR systems to permit electronic transfer of EHR data into the eCRFs being utilized for a clinical trial, including the adoption of data standards and standardization requirements of the ONC Health Information Technology (Health IT) Certification Program. While interoperability of EHR and EDC systems offers the promise of increasing efficiency of clinical trial data collection and reducing the transcription errors that commonly result from the maintenance of this information in separate repositories, FDA acknowledges challenges related to the diverse ownership of the data and EHR systems used to capture them, and the confidentiality of clinical trial information, that will need to be overcome in order to realize the benefits offered by interoperability.

Health Care Providers May Soon See a Twofold Increase in False Claims Act Penalties

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In fiscal year 2015, the U.S. Department of Justice (“DOJ”) recovered more than $3.5 billion from False Claims Act (“FCA”) cases. A staggering $1.9 billion of that amount was recovered from health care providers who were alleged to have provided unnecessary care, paid kickbacks or overcharged federal health care programs.  While this amount may seem high, the drastic increases in FCA penalties expected this summer have the potential to skyrocket FCA recoveries in coming years. DOJ has not yet released the increased penalty amounts that would apply to FCA cases involving companies in the health care and life sciences industries, but penalty increases released this month by another agency, the U.S. Railroad Retirement Board (“Railroad Board),[1] seem to be a good indication of what providers can expect.

On May 2, 2016, the Railroad Board released an interim final rule, which will take effect on August 1, 2016, that nearly doubles the penalty amounts for false claims submitted to the Railroad Board. The mandatory minimum penalty will increase to $10,781 per claim and the maximum penalty to $21,563 per claim.  The current civil monetary penalty amounts under the FCA (which apply across all federal agencies) range from $5,500 per claim (minimum) to $11,000 per claim (maximum).


False Claims Act Penalties: Breaking Down the Numbers
Date and Legislation Minimum Penalty Maximum Penalty Additional Facts


Federal False Claims Act

31 U.S.C. § 3729

$5,000 $10,000 N/A

Inflation Adjustment Act


$5,500 $11,000 This adjustment was no more than 10% of the previous penalty amount due to the cap imposed by the Debt Collection Improvement Act of 1996.

Federal Civil Penalties Inflation Adjustment Act Improvements Act  (Bipartisan Budget Act of 2015, Section 701)

$10,781 $21,563 The minimum and maximum penalty amounts are derived by multiplying:

(a) the 1986 penalty amounts; with

(b) the Consumer Price Index for all Urban Consumers (CPI-U) percentage increase between 1986 and 2015 (which is 215.628%).


Federal agencies that handle FCA cases are required (under the Bipartisan Budget Act of 2015 (the “Act”)) to publish rules updating their FCA penalty amounts by July 1, 2016, with the new amounts becoming effective on August 1, 2016.  And the penalty increases may not stop there. Under the Act, federal agencies may make annual adjustments to penalty amounts on January 15 of each year.  The allowable increase is based on the percent increase between the Consumer Price Index for all Urban Consumers (“CPI-U”) from the previous year and the CPI-U from two years before.[2]  In other words, if the Railroad Board were to increase the minimum and maximum penalties in 2017, the adjustment would be calculated by multiplying the 2016 penalty amounts ($10,781 (minimum), $21,563 (maximum)) with the percent change between the CPI-U for October 2016 and October 2015.

It is important to remember that this interim final rule is specific to the Railroad Board, and therefore does not apply broadly to health care FCA cases. Still, it strongly suggests that other agencies, including DOJ, are headed in the same direction.  Health care providers and life sciences entities should be thinking about the implications of the impending penalty increases.  For example, higher penalty amounts could make it harder for defendants to reach favorable settlement agreements as relators and the government will have a stronger argument for starting negotiations at much higher numbers.  Also, note that the increased penalties do not affect the government’s ability to seek treble damages in FCA cases.  At the end of the day, though, we suspect that the government will avoid being too aggressive in pushing for extremely high penalty amounts as these could potentially incite challenges under the excessive fines bar of the Eighth Amendment of the U.S. Constitution.

If you are interested in commenting on this interim final rule, note that the Railroad Board has a condensed comment period.  Comments must be submitted on or before July 1, 2016.  Since future penalty adjustment increases do not require prior public notice or comment, this may be one of the few opportunities for health care stakeholders to weigh in.


[1] The Railroad Board is an independent executive agency that administers retirement, survivor, unemployment, or sickness benefit programs for railroad workers and their families.  As part of the retirement program, the Railroad Board has administrative responsibilities under the Social Security Act to provide railroad workers benefit payments and Medicare coverage.

[2] Agencies can, through rulemaking, choose to increase penalties by a lesser amount than the new formula dictates, but only if the Secretary of the agency finds, and the Director of the U.S. Office of Management and Budget concurs, that increasing the penalty by the required amount will have a negative economic impact or that the social costs outweigh the benefits.

Defend Trade Secrets Act Signed Into Law

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On May 11, 2016, President Obama signed into law the Defend Trade Secrets Act (“DTSA”), which became effective immediately. The DTSA provides the first private federal cause of action for trade secret misappropriation, and it allows parties to sue in federal court for trade secret misappropriation—regardless of the dollar value of the trade secrets at issue.   Employers in the health care and life science industry may want to note that the DTSA

requires that employers provide certain notices of these whistleblower protections in employment-related agreements that govern trade secrets or other confidential information entered into or amended after May 11, 2016.

For more information, please see the Trade Secrets & Noncompete Blog here.

50-State Survey on Telemental Health Laws in the United States

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Telemental/telebehavioral Health SurveyEpstein Becker Green has just released the 50-State Survey of Telemental/Telebehavioral Health (2016), a groundbreaking, comprehensive survey on the laws, regulations, and regulatory policies impacting telemental health in all 50 states and the District of Columbia.

While other telehealth studies exist, this survey focuses solely on the remote delivery of behavioral health care.

Compiled by attorneys in Epstein Becker Green’s Telehealth practice, the survey details the rapid growth of telemental health—mental health care delivered via interactive audio or video, computer programs, or mobile applications—and the increasingly complex legal issues associated with this trend. Additionally, the survey provides one source for state-by-state coverage of legal issues related to telemental health, such as:

  • Definitions of “telehealth” or “telemedicine”
  • Licensure requirements
  • Governing bodies
  • Reimbursement and coverage issues
  • The establishment of the provider-patient relationship
  • Provider prescribing authority
  • Accepted modalities for delivery (e.g., telephone, video) to meet standards of care

Read the firm’s full announcement and click here to download the complimentary survey.

OIG’s Evaluation Process and Non-Binding Criteria for Section 1128(b)(7) Exclusions

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Our colleagues George B. Breen, Jonah D. Retzinger, and Daniel C. Fundakowski of Epstein Becker Green have published a client alert that will be of interest to our readers: “OIG Issues New Guidance on Its Evaluation Process and Non-Binding Criteria for Section 1128(b)(7) Exclusions.”

Following is an excerpt:

On April 18, 2016, the Office of Inspector General (“OIG”) of the Department of Health and Human Services issued a revised policy statement applicable to exclusions imposed under Section 1128(b)(7) of the Social Security Act (“Act”), pursuant to which OIG may exclude individuals or entities from participation in federal health care programs for engaging in conduct prohibited by Section 1128A (civil monetary penalties) or Section 1128B (criminal penalties for acts involving federal health care programs) of the Act. OIG typically invokes Section 1128(b)(7) when initiating exclusion proceedings in the context of False Claims Act (“FCA”) matters.

The revised policy statement serves two purposes: (1) it describes how OIG evaluates risk to federal health care programs, and (2) it overhauls the non-binding factors that OIG uses in determining that some period of exclusion should be imposed against an individual or entity that has defrauded Medicare or any other federal health care program. The revised policy statement supersedes and replaces the policy statement published by OIG in 1997, which first set forth the non-binding criteria used by OIG in assessing whether to impose a Section 1128(b)(7) permissive exclusion.

A summary of the guidance and an overview of the ramifications for the health care industry are provided below. …

Read the full alert here.

Shielding Hospital Mergers From Federal Antitrust Scrutiny – One Size May Not Fit All

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Patricia M. WagnerPaul A. GomezWest Virginia recently took a bold step to set the stage to shield an in-state hospital merger from further antitrust scrutiny by the Federal Trade Commission (FTC).  Certain healthcare stakeholders are likely watching these developments with some excitement and with some thought toward pursing similar initiatives in their respective states.  Although this may have some positive effects for healthcare mergers (depending upon one’s point of view) it is not altogether clear that state review processes that might shield a merger from federal antitrust enforcement will necessarily be less burdensome to those who want to merge.

Governor Tomblin recently signed into law a West Virginia bill to create a state authority for approval of certain healthcare mergers and other collaborations that involve teaching hospitals.  The measure would also give the state authority power to approve certain treatment cost increases, among other things.  This measure appears to have been designed to shield a particular hospital merger in West Virginia from FTC antitrust scrutiny via the state action immunity doctrine, although it will have application to certain other hospital mergers involving a teaching hospital that may be forthcoming in the state.  The state action immunity doctrine requires that the state policy must be articulated clearly and that the state must actively supervise the policy.  On March 24, 2016 in response to a joint request from the West Virginia hospitals and the FTC staff, the Commission issued an order withdrawing the matter from adjudication for thirty days.  As stated in the order, the withdrawal was to allow “the Commission to review the legislation- and to hear from both Complaint Counsel and Respondents as to the relevance of the legislation” to the pending proceeding.  That delay order expires at midnight on April 25th.

Some observers, including a former director of the FTC Bureau of Competition, believe that the FTC will most likely abandon its current action to block the pending merger for now in light of this state law development, potentially opting to wait to observe whether the state actually does actively monitor the merger and its conditions with sufficient zest to continue to confer the protection of the state action immunity doctrine over the longer run.  The FTC may also opt to wait for now and observe whether any anti-competitive effects actually manifest as a result of the merger.

This instance of West Virginia acting to protect a particular merger may be somewhat unique, with the state attorney general having already approved the merger with certain protective conditions, but the FTC electing to challenge it nonetheless.  However, some other states have also taken similar steps to potentially construct a shield against federal scrutiny of hospital or other healthcare provider mergers through the state action immunity doctrine.  And in at least some cases, it may not be clear that the state approval process for such mergers will generally be less onerous or more desirable than potential antitrust scrutiny from either the FTC or the U.S. Department of Justice.  For example, often in order to be granted such protection, the parties must submit extensive materials to the state demonstrating plans for improving access to care, quality of care, addressing patients’ needs, and lowering costs of care (and the benefit of that lower cost of care will passed on to patients).   In addition, the state maintains review authority over the parties, so that the parties must continue to report on their ability to meet the goals and benchmarks described.  The state retains the ability to revoke approval of the transaction if the parties fail to meet the commitments made as part of the approval process.

For those who may be considering pursuit of a state approval process for healthcare mergers as a potentially “better” alternative to federal antitrust scrutiny, one should also consider the political climate of the state and to what degree state politicians and regulators consider encouragement of mergers and acquisitions to be needed for better access and better integrated healthcare.  The prevailing wisdom in one state with a large rural population and a scarcity of healthcare providers may be significantly different than one with several major metropolitan areas and/or a large suburban population with multiple healthcare providers.  In sum, those who may be considering pursuit of similar measures as those enacted in West Virginia and certain other states should carefully assess political, economic and healthcare climate and market conditions of the state that they are in before investing heavily in such an endeavor.  One size does not necessarily fit all when it comes to potential use of the state action immunity doctrine.

Has Chevron Deference Run Out of Gas?

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Robert E. Wanerman

Robert E. Wanerman

A group of conservative members of Congress have introduced a pair of bills (S. 2724 and H.R. 4768) that would sweep away one of the basic principles of administrative law if they became law. The proposed amendments would make it easier to challenge many determinations involving the Department of Health and Human Services in federal courts by legislatively overruling the deference commonly applied to agency interpretations of the law.

Even before the Administrative Procedure Act was enacted in 1946, the Supreme Court gave great weight to an administrative agency’s interpretations of the statutes they administer.  Since 1984, the scope of judicial review of agency action has been guided by the Court’s ruling in Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-43 (1984), which described a familiar two-part analysis: (1) if Congress has directly addressed the precise question in legislation, a court follows the statute; (2) if the statute is silent or ambiguous, then a court does not craft its own interpretation of the statute but determines if the agency’s action is based on a “permissible construction of the statute.”  Since that time, Chevron has become the most frequently cited case in federal administrative law, and Chevron-type deference has been central to judicial review of administrative decisions in hundreds of rulings by the Supreme Court and lower federal courts.

The bills would eliminate judicial deference to administrative agency determinations by requiring that a reviewing court, whether a district court or a court of appeals, make an initial determination on all relevant questions of law without regard to any interpretations of statutes or rules in the agency’s final decision.  According to the sponsors, this will expand the role of the judiciary as a check against agency action and remedy the perceived imbalance between the branches of government.  The lead sponsor in the Senate, Senator Hatch, stated in a press release that amending the Administrative Procedure Act is necessary to ensure that courts determine the law and not administrative agencies.  In support of their position, the sponsors cited to three decisions of the Supreme Court as examples of abuses under Chevron, even though two of those decisions were written by Justice Scalia and the third by Justice Thomas.

However, even if this amendment were enacted it might not achieve its stated goal. It likely would not require that all agency interpretations be discarded once a party seeks judicial review of agency action; under several pre-Chevron decisions of the Supreme Court, a reviewing court can still give an agency’s interpretation significant weight and defer to the agency’s position if it is persuaded that the agency has acted within the scope of its delegated authority from Congress and considered the matter thoroughly.  In addition, it would not halt the role of administrative agencies to fill necessary gaps created when Congress enacts ambiguous legislation.