Recently, Judge Robert T. Conrad, Jr. of the United States District Court for the Western District of North Carolina (Charlotte Division), rejected efforts by The Charlotte- Mecklenberg Hospital Authority, doing business as the Carolinas Health Care System (“CHS”), to dismiss, at the pleadings stage, a complaint filed by the United States’ Antitrust Division of the Department of Justice, and the State of North Carolina, asserting that CHS’s anti-steering provisions in its payer contracts unreasonably restrain trade in violation of section 1 of the Sherman Act. Recognizing the Court’s limited review of preliminary motions, Judge Conrad, in the matter styled as United States of America et al v. The Charlotte-Mecklenberg Hospital Authority d/b/a Carolinas Health Care System, Civil Action No.3:16-cv-00311-RJC-DCK (W.D. N.C., Mar. 30,2017), ultimately concluded that the allegations of the Complaint, taken as true for purposes of ruling on the motion, asserted a claim that was “plausible,” meeting the pleading standards established by the Supreme Court in Bell Atlantic Corp. v. Twombly, 550 U.S. 544,570 (2007).

The complaint alleges that CHS is the largest hospital system in the Charlotte, North Carolina area, operating ten acute-care hospitals and garnering a market share of fifty percent (50%). CHS’s next closest competitor is alleged to have only half the number of acute-care hospitals, and less than half of CHS’s annual revenue. The complaint also alleges that “[a]n insurer selling health insurance plans to individuals and employees in the Charlotte area must have CHS as a participant in at least some of its provider networks, in order to have a viable health insurance business in the Charlotte area.” Based on these purported facts, the Complaint alleges that CHS maintains “market power” for the sale of acute care hospital services in the Charlotte area.

The complaint goes on to assert that CHS maintains anti-steering provisions in many of its payer contracts including those that collectively insure up to eighty-five percent of the insured residents in the Charlotte area. Furthermore, it is alleged that CHS is able to demand these provisions as a result of its market power.

Finally, the Complaint alleges that these anti-steering provisions impose an unreasonable restraint on competition. Among other things, these provisions have the effect of preventing payers from directing patients to lower cost, higher quality providers, and even prohibit payers from providing its enrollees with information about their health care options. The ultimate effect of these provisions is to allow CHS to maintain its dominant position in the market, and maintain supra competitive prices.

CHS filed an Answer to the Complaint, and a motion on the pleadings which is governed by the same standards as a motion to dismiss filed under Federal Rule of Civil Procedure 12 (b) (6). The essence of CHS’s motion is that the Plaintiff’s allegations were conclusory, and, in particular, the Complaint lacked factual allegations that show “actual competitive harm” resulting from the anti-steering provisions. In addition, CHS argued that: the steering restrictions were beneficial and procompetitive; CHS’s prices were higher due to superior product and consumer loyalty; payers were still able to steer and no payer had ever asked to remove the steering provisions. CHS also relied upon the recently issued Second Circuit decision in United States v. American Express Co., 838 F. 3d 179 (2d. Cir 2016), which ultimately rejected a lower Court’s finding, after a bench trial, that similar steering provisions were unlawful.

Judge Conrad ultimately concluded that while many of the allegations in the Complaint were conclusory, and not factual, the Plaintiff had sufficiently alleged anticompetitive harm. In particular, the Complaint contains plausible allegations that CHS maintains market power, and that as a result of this market power CHS is able to force the anti-steering provisions on payers resulting in CHS’s ability to charge supra-competitive prices. Judge Conrad rejected CHS’s additional factual arguments concluding that these were not appropriate arguments to address on a preliminary motion.

Finally, Judge Conrad rejected the invitation to compare the case before him with that of United States v. American Express. In doing so, Judge Conrad noted: 1) he was not bound by a decision of the Second Circuit; 2) the health care industry is different from the credit card industry; and 3) the case before him was still in the preliminary stages while United States v. American Express was decided after discovery and a full trial on the merits.

In 2016, the populist trend in American politics was an undeniable factor behind Trump’s election victory as well as the ascendancy of Bernie Sanders and Elizabeth Warren within the Democratic Party.  During upcoming months, industry observers will be looking for signs as to whether drug pricing is an area in which both parties can agree on instituting significant legislative action at the state and federal levels.  The nature and shape of any such reforms will be highly consequential for the U.S. pharmaceutical industry, which has served as a prime source of innovation in medicine.  The question going forward is whether cool-headed reform that facilitates patient access to drugs without stymying pharmaceutical R&D investment can be achieved in an era of fervent populism and discontent over rising healthcare costs.

For more, see Politics, Populism, and the Future of Prescription Drug Pricing Reform in PharmaExec.com.

If your organization has missed an opportunity to participate in the voluntary Medicare Bundled Payments for Care Initiatives and/or the mandatory CJR program, CMS’ Centers for Medicare and Medicaid Innovation has issued a proposed rule introducing three new mandatory Episode Payment Models (EPMs) and a Cardiac Rehabilitation incentive payment model intended to be tested with a broad scope of hospitals which may not have otherwise participated in innovative payment model testing.

In the proposed rule issued August 2, 2016, CMS introduced EPMs for Acute Myocardial infarction (AMI), Coronary Surgery Bypass Graft (CABG) and Surgical Hip/Femur Fracture Treatment- Excluding Lower Joint Replacement (SHFFT) and a Cardiac Rehabilitation incentive model to be tested for five performance years, beginning July 1, 2017 and continuing through December 31, 2021. CMS estimates Medicare savings of $170 million over the five-year test period.

These new EPMs were selected to compliment care episodes addressed in other voluntary BPCI models and the mandatory Comprehensive Joint Replacement program with different patient populations due to the clinical conditions and non-elective treatment nature of the episodes chosen. As the clinical characteristics of these EPMs include both planned and unplanned treatment needs and underlying chronic conditions, the EPMs will be tested over a broader and complementary array of hospitals and MSA regions, to further promote care redesign models that focus on coordination and alignment of care in a largely fragmented acute to post acute care spectrum. It is hoped that with testing these new EPMs and the Cardiac Rehabilitation incentive model with a broader scope of hospitals with aligned post-acute providers will promote the rapid development of evidence-based knowledge CMS is striving to obtain.

These AMI, CABG and SHFFT EPMs were selected due to the high volume of these procedures among beneficiaries with common chronic conditions, such as cardiovascular disease, which contribute to the episode and impact high readmission rates. With these EPMs, CMMI is furthering its goals of testing innovative payment models to reduce cost and improve care transition efficiencies and long term outcomes throughout the care continuum. The same quality measures applied to Comprehensive Joint Replacement will be applied to SHFFT. The Cardiac Rehabilitation incentive model is designed to encourage treatment, reduce barriers to high –value care and increase utilization of cardiac rehabilitation and intensive cardiac services which have been shown to improve long term outcomes, but appear to be underutilized. (For example, CMS estimates that 35% of AMI patients older than 50 receive cardiac rehabilitation services). The Cardiac Rehabilitation incentive payment will be made to the selected hospitals with AMI and CABG EPMs for cardiac rehabilitation services provided during the EPM as they are already engaging in managing such episodes.

The EPM episodes will begin with acute admission at an anchor hospital for the applicable MS-DRG for the EPM upon discharge, and continue for 90- day period post discharge. Similar to CJR , acute care hospitals bear the financial risk for AMI, CABG and SHFFT EPMS, which include the inpatient admission(s), all related Medicare Part A and B services, including hospital, post-acute and physician services within the 90-day period. Eligible beneficiaries admitted to the anchor hospital for the applicable EPM will automatically be included within the applicable EPM. Hospitals and providers will be paid under Medicare FFS and after the first performance year, calculation of the actual episode payments will be reconciled against an established historical EPM quality adjusted target. Hospitals will bear upside and downside risk for the episodes after performance year two. The Cardiac Rehabilitation incentive will be paid to AMI and CABG EPM hospitals at a per cardiac rehabilitation/ intensive cardiac rehabilitation service level based on threshold treatments provided per AMI/ CABG episode post discharge.

While complementing current BPCI and CRJ programs, CMS is addressing potential advantages and disadvantages to certain overlapping of programs, geographic regions (MSAs) and hospitals. For example, acute care hospitals participating in BPCI Models 2 and 4 for hip and femur procedures and for all three BPCI cardiac episodes (AMI, PCI and CABG) will not be included for selection for the new EPMs. SHFFT EPMs will be implemented in the same 67 geographic MSAs where the CJR model is currently implemented. AMI and CABG EPMs will be implemented together in 98 MSAs selected based on specific criteria to avoid overlap with other payment initiatives such as BPCI models and AMI/ CABG procedure volumes.

Hospitals and certain ACOs may share gains with other providers under the AMI, CABG and SHFFT models as EPM collaborators. Similar to other model programs, the adoption of certain waivers are also proposed, such as adopting waivers of the telehealth originating and geographic site requirements and allowing for in-home telehealth visits for the three EPMs; EPM-specific limits for post-discharge home nursing visits and the SNF 3-day stay waiver, and expanding the practitioners allowed to perform certain cardiac rehabilitation services. Hospitals’ aligning with post acute providers and programs to effectively manage their EPM patients’ post acute transition and treatment adherence and monitoring will be critical to the EPM program success.

The selected MSAs and hospitals will be announced with the publication of the final rule. CMS is requesting public comment on the proposed rule and on any alternatives considered, by October 3, 2016.

In its recent decision in U.S. House of Representatives v. Burwell,[1] the U.S. District Court for the District of Columbia ruled that the Obama administration’s payment of cost-sharing subsidies for enrollees in plans offered through the Affordable Care Act’s Exchanges is unauthorized for lack of Congressional appropriation. The decision would affect future cost-sharing subsidies, though the court immediately stayed the decision pending its outcome on appeal.[2]

In its decision, the court found in favor of the members of the House of Representatives, based upon its interpretation of the applicable law. Specifically, the court found that, when Congress passed the Affordable Care Act, including Sections 1401 (premium subsidies) and 1402 (cost-sharing subsidies), it permanently appropriated funds for the former but not the latter.

The court examined prior Office of Management and Budget submissions to the House Appropriations Committee, finding that the administration had explicitly acknowledged the lack of appropriated funds for the cost-sharing reduction payments. After the Republican-controlled Congress declined the administration’s appropriations requests for the cost-sharing reduction funds, President Obama signed an appropriations bill without it. Treasury subsequently paid the cost-sharing subsidies to issuers without an appropriation. As of December 2015, 56.4% of Exchange plan enrollees were receiving the subsidies.[3]

The court rejected the administration’s arguments that, under King v. Burwell, the Act must be read for its intended effect. While King identified “three key reforms”—guaranteed coverage and community rating, individual mandate and premium tax credits—the court found that King did not treat the section 1402 cost-sharing reduction provisions as integral to those reforms. Moreover, King found the Exchange statute nonfunctional due to drafting failure and thus in need of saving. By contrast, the district court found that, here, Congress’s simple failure to appropriate cannot be remedied by a court.

The case will almost certainly be appealed to the D.C. Circuit Court of Appeals.

Ultimately, if the ruling is affirmed, absent a Congressional fix, new legal problems would arise for the Affordable Care Act’s Exchanges. Regardless of an appropriation, the Act still requires issuers to reduce cost-sharing for eligible enrollees, which would likely shield consumers but leave issuers financially exposed.

Moreover, notwithstanding the apparent lack of appropriation, the Act requires the government to pay issuers for the cost-sharing subsidies. This raises questions concerning the government’s ability to recoup payments already made. Should the government elect to discontinue the payments going forward, issuers could seek legal redress.

Notably, an affirmation of the district court could impact Exchange premiums. Many issuers have already raised premium rates for 2017, citing a high proportion of costlier, sicker enrollees. Should the courts ultimately place the burden on issuers to subsidize cost sharing, these costs are also likely to be shifted to premiums.

______

[1] House of Representatives v. Burwell, No. 14-1967 (D.D.C. May 12, 2016), available at https://ecf.dcd.uscourts.gov/cgi-bin/show_public_doc?2014cv1967-73.

[2] In an earlier, controversial ruling in this proceeding, the same court allowed members of the Republican majority of the U.S. House of Representatives to proceed with the suit against the Secretaries of Treasury and Health and Human Services. The administration had argued that the House members did not standing to sue, but the court disagreed and declined to dismiss the suit.

[3] According to CMS, as of December 31, 2015, the ten highest states by percentage of Exchange plan enrollees receiving cost sharing subsidies were Mississippi (76.7%), Alabama (72.2%), Florida (70.1%), Georgia (68.1%), Hawaii (67.90%), North Carolina (63.9%), South Dakota (63.3%), Idaho (62.9%), Tennessee (62.7%) and Utah (62.6%). See CMS, Effectuated Enrollment Snapshot (Mar. 11, 2016), https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2016-Fact-sheets-items/2016-03-11.html.

In its Fiscal Year 2017 Private Insurance Legislative Proposals, President Obama’s Budget contains a provision seeking to “eliminate surprise out-of-network healthcare charges for privately insured patients.” Described as an attempt to “promote transparency on price, cost, and billing for consumers,” this measure requires hospitals and physicians to collaborate so that patients receiving treatment at in‐network facilities do not face unexpected charges from out‐of‐network practitioners. This provision could have far-reaching effects, potentially impacting enrollees in traditional commercial plans, Exchange plans and government plans (such as Medicare Advantage plans).

A surprise bill situation arises when patients incur unexpected, out‐of‐network charges when receiving health care services at an “in-network” or “participating” hospital. For example, a surprise bill may arise from a situation where certain physicians (e.g., anesthesiologists or emergency room physicians) who provide services to the patient during an episode of care are not participating with a health plan, even if other providers who see the patient and the hospital itself are participating. In such scenarios, the non-participating providers may charge patients for both cost sharing and any unpaid balances for those specific services, as if the patient had gone to an “out-of-network” or “non-participating” provider.

The proposal in the Budget would change that and require hospitals and physicians to “work together to ensure that patients receiving treatment at in‐network facilities do not face unexpected out‐of‐network charges from out‐of‐network practitioners that cannot be avoided by the patient.” This would be accomplished by requiring hospitals to take “reasonable steps” to match patients with providers who are considered in‐network for the patient’s plan. Also, all physicians who regularly provide services in hospitals would be required to accept the contracted, in‐network rate as payment‐in‐full, even though no actual contract is in place. Thus, in situations where a hospital failed to match a patient to an in‐network provider, safeguards would still be in place to protect the patient from surprise out‐of‐network charges. How such amount would be calculated and enforced is not yet clear at this stage.

On a state level, legislation has been passed that affords patients protections against surprise bills in California, Texas, Florida, Illinois, Colorado, Maryland, West Virginia and New Jersey, but the state with the most rigorous protections is New York. A New York law went into effect in March 2015, protecting patients from surprise bills when services are performed by a non-participating doctor at a participating hospital or ambulatory surgical center or when a participating doctor refers an insured patient to a non-participating provider (the law also protects consumers from bills for emergency services).

Many particulars regarding the proposal in the Budget remain unclear, as limited information was presented around the proposed provision. Besides the need for legislative action, specific questions exist around what standards would be used for calculating new payment rates, implementation and enforcement mechanisms, provider appeal and dispute resolution processes, managed care contracting implications, state versus federal jurisdictional issues and impacts on plan premium pricing. However, what is clear is that the federal government has begun to follow states’ leads in introducing protections for patients from unforeseen medical expenses.

Epstein-Becker-Green-ClientAlertHCLS_gif_pagespeed_ce_KdBznDCAW4In February 2012, two years after the passage of the Affordable Care Act (“ACA”), the Centers for Medicare & Medicaid Services (“CMS”) issued a proposed rule, which was subject to significant public comment, concerning reporting and returning certain Medicare overpayments (“Proposed Rule”). On February 12, 2016, four years from the issuance of the Proposed Rule (and six years after passage of the ACA), CMS issued the final rule, which becomes effective on March 14, 2016 (“A and B Final Rule”).

The A and B Final Rule applies only to providers and suppliers under Medicare Parts A and B. The return of overpayments under Medicare Parts C and D are addressed in a final rule that was published by CMS in May 2014 (“C and D Final Rule”). To date, no final regulations have been adopted that address Medicaid requirements.

Among other things, the A and B Final Rule and its preamble provide:

  • a six-year lookback period;
  • that providers and suppliers must exercise “reasonable diligence” in connection with identifying potential overpayments;
  • that the time period to conduct “reasonable diligence” should be no more than six months, except in extraordinary circumstances; and
  • that “identification” includes quantifying the amount of the overpayment.

Kirsten M. Backstrom, George B. Breen, Anjali N.C. Downs, David E. Matyas, and Meghan F. Weinberg coauthored a Health Care and Life Sciences Client Alert that addresses a number of the significant provisions of the A and B Final Rule, describes an important difference between the two final rules, and sets forth a list of nine key “takeaways” that we believe all Medicare providers and suppliers should be aware of.

Click here to read the full Health Care and Life Sciences Client Alert.

We recently wrote about the many failures of health insurance co-ops created under the Affordable Care Act (“ACA”), and the impact of those failures on providers and other creditors, consumers, and taxpayers.

As we described, nonprofit co-op insurers were intended to increase competition and provide less expensive coverage to consumers; however, low prices, lack of adequate government funding, restrictions on the use of federal loans for marketing, and low risk corridor payments from the Centers for Medicare & Medicaid Services created financial challenges for these insurance plans. Facing insolvency, state regulators have ordered many plans to cease offering coverage and be wound down.

In New York, the largest co-op established under the ACA, Health Republic Insurance Company of New York (“Health Republic”), was ordered shut down by New York State regulators in September 2015 because of its poor financial condition.  Health Republic’s insolvency triggered a strong push by trade groups, legislators and other representatives for meaningful change in New York.

Various trade groups, including the Healthcare Association of New York State (“HANYS”) and the Greater New York Hospital Association (“GNYHA”), have been advocating for solutions, such as the establishment of a health insurance guarantee fund to protect consumers and providers in the event of a health insurer’s insolvency or liquidation.  Presently, New York is the only state that does not have an insurance guaranty fund. In other states, guaranty funds have been effective in protecting consumers and providers when co-op plans have failed.  Others proposed remedies include state funding of shortfalls through the budget process and reform of the insurance rate approval process.

On January 6, 2016, the New York State Senate conducted a hearing regarding Health Republic’s demise.  The Senators hosting the hearing sought to determine, among other things, whether new regulations, such as those with respect to rate setting, could prevent future insurer failures.

Recently, New York State Senate Health Committee Vice Chair David Valesky (D-Syracuse) introduced legislation that would establish a guaranty fund, financed by a temporary one-time assessment on the state’s health insurers, to reimburse doctors and hospitals if a health plan becomes insolvent. Health insurers would be barred from passing along the cost of the assessment to policyholders.  The bill is supported by HANYS and GNYHA.  The insurance industry, in contrast, opposes the bill.  [reported in Crain’s Health Plus Feb. 4 and http://www.nystateofpolitics.com/2016/02/valesky-bill-shores-up-medical-insurance/ ]

On Wednesday, October 14, 2015, the U.S. District Court for the District of Columbia (the “Court”), Judge Rudolph Contreras, vacated the Health Resources and Services Administration’s (“HRSA”) interpretive rule on Orphan Drugs (“the Interpretative Rule”) as “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.”[1]  As a result of the ruling, pharmaceutical manufacturers are not required to provide 340B discounts to certain types of covered entities for Orphan Drugs, even when the drugs are prescribed for uses other than to treat the rare conditions for which the Orphan Drug designation was given.[2]  This issue has been the subject of long and protracted litigation including a previous court ruling that invalidated HRSA’s Final Rule on Orphan Drugs because HRSA lacked the authority to promulgate the rule.[3] [HRSA Issues Interpretive Rule on 340b Orphan Drug in Response to Court Vacating Final Rule]

By way of background, the Affordable Care Act (“ACA”) amended the Public Health Service Act (“PHSA” or “the statute”) and expanded access to 340B discounts by creating new categories of eligible covered entities including freestanding cancer hospitals, children’s hospitals, critical access hospitals, rural referral centers and sole community hospitals.[4]  For these categories of covered entities only, the amendment also excluded drugs  “designated by the Secretary under section 360bb of Title 21 for a rare disease or condition” (“Orphan Drugs”) from the definition of covered outpatient drugs subject to mandatory 340B pricing requirements (“the orphan drug exclusion”).[5]

In the Interpretive Rule issued on July 24, 2014, HRSA narrowly interpreted the exclusion and required pharmaceutical manufacturers to provide 340B discounts to the new types of covered entities for Orphan Drugs when they are used to treat something other than the rare diseases and conditions they were developed to target.[6] In addition, HRSA sent letters to pharmaceutical manufacturers stating that failure to provide 340B discounts to eligible 340B covered entities for non-orphan uses would be deemed a violation of the statute.[7]  The lawsuit challenged HRSA’s interpretation, arguing that the orphan drug exclusion must apply to Orphan Drugs regardless of their particular use.[8]  The Court denied HRSA’s motion for summary judgment and granted PhRMA’s motion for summary judgment because it determined HRSA’s Interpretive Rule was contrary to the plain language of the statute.[9]

Analysis in the Court’s Opinion

Initially, the Court recognized HRSA’s authority to offer its interpretation of the statute and noted that PhRMA was not challenging HRSA’s authority to issue the Interpretive Rule.  Although the Court determined in the previous litigation that HRSA did not have authority under the statute to promulgate its Final Rule, the Court recognized that HRSA would need to provide interpretation of a pharmaceutical manufacturer’s obligations under the 340B Program.[10]

The Court determined that the Interpretive Rule constituted “final agency action” under the Administrative Procedure Act (“APA”).[11]  The Court focused the majority of its analysis on whether HRSA’s Interpretive Rule was “final.”[12]  Based on the two-part test set forth in Bennett v. Spear, the Court analyzed whether the action was the “consummation of the agency’s decision-making process” and whether “the action must be one by which rights or obligations have been determined or from which legal consequences will flow.”[13]  Since HHS conceded that the Interpretive Rule met the first element, the Court focused on the second element and determined that even prior to enforcement action, there were significant practical and legal burdens for covered entities and pharmaceutical manufacturers in the Interpretive Rule that impacted their business practices.  Additionally, since HRSA sent the manufacturers letters informing them that they were non-compliant with the statute unless the requirements in the Interpretive Rule were followed, potential penalties would accrue until HRSA pursued an enforcement action.[14]  The Court stated that “[h]aving thus flexed its regulatory muscle, [HHS] cannot now evade judicial review.”[15]  The Court concluded that the Interpretive Rule met the second element of the Bennett test.[16]

When analyzing the merits, the Court held that the Interpretive Rule “conflicts with the statute’s plain language.”[17]  Because of the conflict, the Court afforded the Interpretive Rule no deference.[18]   The Court relied on how Congress used the Orphan Drug terminology in other parts of the U.S. Code.[19]  Previously, in other contexts Congress included additional language to specify that the applicability was limited to occasions when the designated drug was used to treat the rare disease or condition, rather than the use of the Orphan Drug in general.  The Court noted that if it adopted the narrow meaning HRSA intended under the Interpretive Rule, the identified phrases elsewhere in the Code would be rendered superfluous based on the principle of statutory construction to give effect to every word in the statute.  Because of its conflict with the plain language of the statute, the Court held that the Interpretative Rule was “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.”[20]

Implications from the Decision

This decision means that pharmaceutical manufacturers are not required to provide 340B discounts on Orphan Drugs, whatever their use, to the types of covered entities added by the ACA. The Court acknowledged concerns that the amount of lost savings for these drugs could impact a covered entity’s decision to participate in the 340B Program.[21]

Additionally, this decision has implications for HRSA’s proposed Omnibus Guidance published on August 28, 2015, the comment period for which is open until October 27, 2015.  The Omnibus Guidance provides comprehensive guidance for the 340B Program. [HRSA Issues Proposed “Omnibus Guidance”].  While the Court recognized HRSA’s ability to issue interpretive guidance,[22] such guidance could be vulnerable to challenge if HRSA, after consideration of the comments submitted, finalized an Omnibus Guidance that is not consistent with the 340B statute.  Industry stakeholders should consider highlighting these types of inconsistences in the proposed Omnibus Guidance as they formulate comments for submission next week.

Finally, the recent decision might provide impetus for Congress to take legislative action.  The Court noted that it “would not rewrite the statute,” suggesting that Congress needs to take action if its intent was to limit the orphan drug exclusion.[23]  Given Congress’ recent focus on the 340B Program, it is possible that Congress could either amend the statute to clarify the orphan drug exclusion or to provide HRSA with additional rulemaking authority to allow it to address this issue and other oversight issues.


[1] 5 U.S.C. § 706(2)(A).  Pharm. Research & Mfrs. of Am. v. U.S. Dep’t of Health & Human Servs, No. 1:14-cv-01685-RC at 38 (D.D.C October 14, 2015) (hereinafter “PhRMA“).

[2] PhRMA at 36-8. HRSA may appeal the District Court’s decision within 60 days of the decision date.

[3] Pharm. Research & Mfrs. of Am. v. U.S. Dep’t of Health & Human Servs., 43 F. Supp. 3d 28 (D.D.C. 2014).

[4] Patient Protection and Affordable Care Act, Pub. L. No. 111-148, § 7101(a), 124 Stat. 119, 821–22 (codified as amended at 42 U.S.C. § 256b(a)(4)(M)–(O)).

[5] 42 U.S.C. § 256b(e).  The orphan drug exclusion does not apply to disproportionate share hospitals.

[6] HHS HRSA, Interpretive Rule: Implementation of the Exclusion of Orphan Drugs for Certain Covered Entities Under the 340B Program, (July 21, 2014), http://www.hrsa.gov/opa/programrequirements/interpretiverule/

[7] PhRMA at 10.  Additionally, the HRSA website explained that manufacturers could be subject to statutory penalties, refunds of overcharges, or termination of their Pharmaceutical Pricing Agreements. Id.

[8] Id.  at 1-2.

[9] Id. at 1-2.

[10] Id. at 12-13.

[11] The APA mandates that judicial review is permitted only when there is “final agency action.”

[12] Id. at 14, 15-27.

[13] Id. at 14.

[14] Id. at 22-26.

[15] Id. at 27.

[16] Id. at 23-27. 

[17] Id. at 2.

[18] Id. at 29.  The Court explained that if the statute were ambiguous, the Interpretive Rule was entitled to Skidmore deference, which means the Court would only follow the Interpretive Rule to the extent it is persuasive. HRSA’s Interpretive Rule would not receive Chevron deference because HRSA lacked the authority to promulgate regulations related to the orphan drug exclusion (as decided in the prior litigation).  Id.

[19] Id. at 30.

[20] Id. at 38.

[21] Id. at 36-37.

[22] Id. at 12-13.

[23] Id. at 37.

On September 28, 2015, the Centers for Medicare & Medicaid Services (“CMS”) issued a request for information (“RFI”) seeking comments on two key components of the physician payment reform provisions included in the Medicare Access and CHIP Reauthorization Act of 2015 (“MACRA”), the law enacted on April 16, 2015, repealing the sustainable growth rate formula used to update payment rates under the Medicare Physician Fee Schedule.  The RFI was originally open for a 30-comment period.  However, CMS has announced that it is extending the comment period for an additional 15 days.  Comments to the RFI are now due to CMS on November 17, 2015.

The RFI included an extensive list of questions related to the implementation of the Merit-Based Incentive Program System (“MIPS”), as well as adoption and physician participation in Alternative Payment Models (“APMs”) and Physician-Focused Payment Models (“PFPMs”).  More details on the questions that CMS has raised and the areas where CMS is seeking input in the RFI are discussed in the Epstein Becker Green Client Alert, “New Opportunity to Comment on Key Components of Medicare Physician Payment Reform: CMS Issues 30-Day Request for Information on MIPS and APMs.”

Importantly, in the CMS announcement extending the public comment period released on October 15, 2015, CMS identified sections and questions in the RFI that are of higher priority to the agency.  For example, CMS has ranked questions about how physicians should be identified to determine eligibility, participation, and performance under the MIPS performance categories, and what measures and reporting mechanisms should be used for each of the four MIPS performance categories (quality, resource use, clinical practice improvement activities, and meaningful use of certified electronic health record technology), above questions about public reporting requirements, use of measures from other payment systems, and the weighting of performance categories and the determination of performance scores and thresholds.  Similarly, for questions related to the adoption of APMs, CMS has prioritized questions about how to define the amount of services furnished through an eligible APM entity, how to determine the Medicare and other payer payment thresholds used to identify qualifying and partial qualifying APM participants, and how to compare state Medicaid medical home models to medical home models expanded under Section 1115A(c) of the Social Security Act.  Given the short period of time to provide comments to CMS, stakeholders should consider the priority rankings that CMS has assigned to the various topics that it is seeking input on.

All stakeholders, not just physicians, should consider how the fundamental shift in Medicare physician payments, from traditional fee-for-service to value-based models, will impact them.  It is important to engage with CMS now by submitting comments to the RFI, in order to shape how these new payment mechanisms are implemented in the years to come.  For additional information about the physician payment reforms implemented in MACRA, or if you are interested in submitting comments to CMS, please contact Lesley Yeung or the Epstein Becker Green attorney who regularly handles your legal matters.

The Health Resources and Services Administration (“HRSA”) issued a notice proposing guidance under the 340B Drug Pricing Program.  The proposed Omnibus Guidance was issued in pre-publication format and is available online at https://s3.amazonaws.com/public-inspection.federalregister.gov/2015-21246.pdf.  The notice is scheduled to be published in the Federal Register on August 28, 2015 and will be available at https://www.federalregister.gov/articles/2015/08/28/2015-21246/guidance-340b-drug-pricing-program-omnibus.

HRSA intends to finalize the proposed guidance after consideration of public comments.  The notice is open for a 60-day public comment period, with comments due on or before October 27, 2015.

The proposed Omnibus Guidance notice attempts to clarify current 340B Program requirements for covered entities enrolled in the 340B Program and for drug manufacturers that make their drugs available to covered entities under the 340B Program.  Highlighted below are some of the most notable aspects of the proposed guidance.

A.  340B Program Eligibility and Registration[i]

  • Among other clarifications and areas discussed, HHS is seeking comments on alternatives to demonstrating the eligibility of an offsite outpatient facility or clinic.

B.  Drugs eligible for purchase under the 340B Program[ii]

  • HRSA clarifies that the definition of “covered outpatient drug” excludes only those drugs in the designated sites of service described in the statute that are reimbursed under Medicaid as part of a bundled reimbursement rate for a service (not a drug billed to any other party or reimbursed separately by Medicaid).

C.  Individuals Eligible to Receive 340B Drugs

The proposed guidance clarifies the definition of eligible 340B patients by focusing on the prescriber’s relationship to the covered entity, the patient’s relationship to the covered entity, and the setting of the covered entity.  In HRSA’s interpretation, the criteria that determine if an individual is “a patient of the entity” eligible for the use of 340B drugs must be met on a “prescription-by-prescription or order-by-order basis.”[iii]  An individual is an eligible patient of a covered entity under the proposed guidance if all of the following conditions are met:

  1. The individual receives a health care service at a covered entity site which is registered for the 340B Program and listed on the public 340B database.
  2. The individual receives a health care service from a health care provider employed by the covered entity or who is an independent contractor for the covered entity, such that the covered entity may bill for services on behalf of the provider.
  3. An individual receives a drug that is ordered or prescribed by the covered entity provider as a result of the service described in (2). An individual will not be considered a patient of the covered entity if the only health care received by the individual from the covered entity is the infusion of a drug or the dispensing of the drug.
  4. The individual receives a health care service that is consistent with the covered entity’s scope of the grant, project, or contract.
  5. The individual is classified as an outpatient when the drug is ordered or prescribed. The patient’s classification status is determined by how the services for the patient are billed to the insurer (e.g., Medicare, Medicaid, private insurance). An individual who is self-pay, uninsured, or whose cost of care is covered by the covered entity will be considered a patient if the covered entity has clearly defined policies and procedures that it follows to classify such individuals consistently.
  6. The individual has a relationship with the covered entity such that the covered entity maintains access to auditable health care records which demonstrate that the covered entity has a provider-to-patient relationship, that the responsibility for care is with the covered entity, and that each element of this patient definition in this section is met for each 340B drug.[iv]

In the summary of the proposed guidance, HRSA discusses the applicability to the patient definition to the following scenarios.[v]

  • An individual that sees a physician in private practice for follow-up care from a covered entity is not an eligible patient since the private practice is not listed in the 340B database.
  • An individual is not an eligible patient when the health care is provided by an organization that has an affiliation arrangement with the covered entity (even if the covered entity has access to the affiliate’s records).
  • Privileges or credentials at a covered entity are not sufficient to demonstrate that a patient treated by the privileged provider is an eligible patient of the covered entity.
  • The proposed guidance explains that a covered entity’s employees must independently meet the eligible patient definition and are not automatically eligible patients by status of their employment. Even covered entities with self-funded plans, which are financially responsible for employees’ health care, and contract with loosely affiliated health care professionals, must have its employees independently meet the eligible patient definition.

D.  Covered Entity Responsibilities

Diversion

  • In discussing drug inventory/replenishment models in the summary to the proposed guidance, HRSA definitively states that an improper accumulation, even prior to the placement of an order, equals diversion and constitutes a violation.[vi]

Prohibition of Duplicate Discounts[vii]

  • Covered Entities can select whether to use 340B drugs for its Medicaid Managed Care Organization (“MCO”) patients and can vary the selection at different covered entity sites and MCOs as long as such distinction is made available to HHS. In addition, a covered entity should have mechanisms in place to identify MCO patients.
  • The proposed guidance reserves the right to make the covered entity MCO carve-in or carve-out information publicly available through an Exclusion File or other mechanism.
  • With respect to contract pharmacy arrangements, the default position in the proposed guidance is that contract pharmacies will not dispense 340B drugs for Medicaid Fee-for-Service (“FFS”) or MCO patients. The summary to the proposed guidance states that if a covered entity wishes for its contract pharmacy to dispense 340B drugs to Medicaid FFS or MCO patients, the covered entity will provide HHS a written agreement with its contract pharmacy and State Medicaid agency or MCO that describes a system to prevent duplicate discounts.[viii]

Maintenance of Auditable Records[ix]

  • HRSA is proposing a record retention standard of 5 years for manufacturers and covered entities.
  • For covered entities, a systemic failure to maintain records adequate to permit auditing is considered a failure to meet the statutory audit requirements, and constitutes grounds for a loss of eligibility and termination from the program.

E.  Contract Pharmacy Arrangements[x]

  • The proposed guidance does not include any limitation on the number of contract pharmacies permitted (“one or more licensed pharmacies”) to dispense 340B drugs to the covered entity’s patients.
  • HRSA reiterates its long-standing position that a covered entity “retain complete responsibility” for contract pharmacy compliance with program requirements. The proposed guidance contemplates that Covered Entities will conduct quarterly reviews (i.e., a comparison of the covered entity’s prescribing records to the contract pharmacy’s dispensing records) in addition to independent annual audits.

F.  Manufacturer Responsibilities[xi]

  • HRSA includes guidance regarding limited distribution plans, such as specialty pharmacy or restricted distribution networks, and requires advance written notification of such plans to HRSA in advance of their implementation.
  • HRSA proposes to require manufacturer credits or refunds both in routine instances of retroactive adjustment to relevant pricing data as well as exceptional circumstances such as erroneous or intentional overcharging for covered outpatient drugs. Manufacturers would not be allowed to calculate refunds in any manner other than by individual NDC including (but not limited to) aggregating purchases, de minimis amounts, and netting purchases.  This refund or credit is expected to occur within 90 days of the determination by the manufacturer or HHS that an overcharge occurred.
  • HRSA proposes to extend the requirement for an annual recertification to manufacturers, in which case they would be required to review and update their 340B database information, including the NDCs subject to 340B pricing.

G.  Rebate Option for AIDS Drug Assistance Programs[xii]

  • HRSA proposes that AIDS Drug Assistance Programs seeking access to 340B prices  either purchase directly (i.e., at the 340B ceiling price) or, in order to receive a rebate after the purchase, make an election at the time of registration and inform HRSA that the it intends to pursue a rebate mechanism.
  • In addition, AIDS Drug Assistance programs choosing the rebate or hybrid option are expected to make a “qualified payment” and submit claims-level data to the manufacturer to support that payment. A “qualified payment” for a covered outpatient drug includes (i) a direct purchase at a price greater than the 340B ceiling price or (ii) a payment of the health insurance premiums that cover the covered outpatient drug purchases at issue and payment of a copayment, coinsurance, or deductible for the covered outpatient drug.

H.  Program Integrity[xiii]

  • Expanded program integrity provisions clarify HRSA audits of covered entities (including their child sites and contract pharmacies) and manufacturers and their contractors (such as wholesalers). All HRSA audits require the auditee’s provision of auditable records, HRSA’s initiation of notice and hearing procedures prior to making a final determination regarding compliance, and the opportunity to submit a corrective action plan to HRSA to address noncompliance.

In addition to the areas highlighted above, the proposed guidance contains additional clarifications regarding fundamental 340B Program issues, such as covered entity eligibility and registration, annual recertification, the GPO prohibition, and duplicate discounts.

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[i] Omnibus Guidance, Section II.A, p.8.

[ii] Id. at Section III.B, p.72.

[iii] Id. at Section III.C(a). p. 72.

[iv] Id. at Section III.C(a)(1)-(6), p. 72-3.

[v] Id. at Section II.C.(a)(1)-(6), p. 24-8.

[vi] Id.at Section II.C Drug inventory/replenishment models, p. 29.

[vii] Id. at Section III.D Prohibition of duplicate discounts (a)(2) and (c), p.74-5; Section III.E at (b)(2), p.78-9.

[viii] Id. at Section II.D Contract pharmacy, p. 35,

[ix] Id. at Section III.D Maintenance of auditable records, p. 76-7.

[x] Id. at Section III.E(b)(3), p. 79.

[xi] Id. at Section III.F Obligation to offer 340B prices to covered entities at (c), p. 81; Procedures for issuance of refunds and credits, p.82; and Manufacturer recertification, p. 82.

[xii] Id. at Section III.G(a)-(c), p. 83.

[xiii] Id. at Section III.H HHS audit of a manufacturer and its contractors (a)-(b), p. 88-9.