Health Law Advisor

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

New Federal and State Initiatives Seek to Combat Antimicrobial Resistance

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Recent federal and state legislative efforts signal an increased focus on a significant and largely underappreciated public health threat – antimicrobial resistance (i.e., when a microorganism (such as a bacteria or virus) is able to resist the effects of medications such as antibiotics and antivirals, causing such medications to be ineffective). The results of a 2014 study underscore the magnitude of the threat of so-called “superbugs,” estimating that the number of deaths worldwide attributable to antimicrobial resistance will reach 10 million by 2050.  By comparison, the same study projected 8.2 million deaths from cancer, and 1.2 million deaths from traffic accidents by 2050.  Legislative efforts to address antimicrobial resistance span from encouraging development of new pathways to market for antimicrobial drugs to expanding data collection and monitoring efforts to better understand the scope of the problem.  The combination of new data and less-restrictive pathways to market simultaneously provide pharmaceutical companies with a faster entry into the market for antimicrobial drugs and a better understanding by local health departments and hospitals of the need for new drugs to combat resistant strains of microorganisms.

Federal Initiatives

On the federal side, the 21st Century Cures Act (the “Act”), signed into law by President Obama on December 13, 2016, includes several measures related to antimicrobial resistance.  For example, the Act creates a new approval pathway for “limited population drugs,” which are antibacterial or antifungal drugs “intended to treat a serious or life-threatening infection in a limited population of patients with unmet needs.” While the Act allows FDA to approve limited population drugs with less data than typically would be required, the approval is restricted to “the intended limited population,” and the manufacturer must meet additional labeling requirements to inform physicians of the drug’s limited approved use.  In addition, manufacturers of drugs approved through this pathway are required to submit any promotional materials to FDA at least 30 days before they plan to use them.

While adding specific labeling requirements for new drugs approved for limited populations, the Act also changes labeling requirements for susceptibility test interpretive criteria. Susceptibility test interpretive criteria includes the myriad of testing options used to determine whether a patient is infected with a specific microorganism or class of microorganism that can effectively be treated by a drug.  The Act requires pharmaceutical manufacturers to replace the currently existing susceptibility test interpretive criteria from the drug’s packaged insert or labeling with a reference to a FDA website to be built where such criteria for all drugs will be held.  Manufacturers have one year from the day the website is established to move its susceptibility test interpretive criteria to the so-called “Interpretive Criteria Website.”

The Act also increases monitoring and reporting of antimicrobial drug use and antimicrobial resistance at federal healthcare facilities, like VA hospitals and facilities run through the Indian Health Service or the Department of Defense. Further, it requires annual federal data reporting on aggregate national and regional trends related to antimicrobial resistance. A broad base of reliable data on antimicrobial resistance and the associated morbidity and mortality does not currently exist. However, along with the federal government, certain states are also making efforts to improve data collection in this space.

State Initiatives

Many states receive funding from the Centers for Disease Control (CDC) to collect data about patients with extremely resistant strains of microoganisms, like carbapenem-resistant Enterobacteriacea, or “CRE” – a bacteria that kills an estimated 600 Americans each year. The Illinois Department of Health, for example, developed a registry in 2014 that tracks positive lab tests for extremely drug-resistant organisms, including CRE.  Illinois began tracking this information following a deadly outbreak of CRE in 2013.  Health care facilities participating in the registry receive alerts when an infected patient is transferred in and must report CRE-positive culture results of patients within seven calendar days.  The most recent annual report shows a 7% increase in overall cases; however, a recent article posits that the increase may be somewhat attributable to better reporting efforts by hospitals gaining experience identifying CRE.  Similar programs exist in many states, but these programs typically do not track the outcomes of CRE cases.

A recently proposed bill in California (California Senate Bill 43) would require hospitals to include information within death certificates that identifies whether “any antimicrobial-resistant infection…was a factor in the death.”  Specifically, the bill would require the “attending physician [who] is legally obligated to file a certificate of death” to determine whether, in the physician’s professional judgment, an antimicrobial-resistant infection was a factor in the patient’s death.  State law already mandates tracking of over 80 communicable diseases, like HIV and Hepatitis (A-E), but only tracks antibiotic-resistant infections of VRE and MRSA if they are contracted while a patient is already in the hospital.

Given the magnitude of the potential threat, it is reassuring that legislative initiatives are showing an increased focus on antimicrobial resistance. New pathways to market for antimicrobial drugs and increased public awareness of the rising threat of “superbugs” should lead to additional innovation by drug manufacturers.  The limited population pathway may also cause some manufacturers to reassess their pipelines and strategies to market drugs toward limited populations.  For manufacturers facing expensive and burdensome FDA requirements to market new antimicrobials to a general population, the limited population pathway may provide a cheaper and faster entry into the market.  Early entry into the market can then fund additional efforts expand the label beyond a limited population.

Court Issues Nationwide Injunction Prohibiting Enforcement of Section 1557 Provisions Relating to Gender Identity and Termination of Pregnancy – But Other Provisions Still Can Be Enforced

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On December 31, 2016, the U.S. District Court for the Northern District of Texas issued a nationwide preliminary injunction that prohibits the U.S. Department of Health and Human Services (HHS) from enforcing certain provisions of its regulations implementing Section 1557 of the Affordable Care Act that prohibit discrimination on the basis of gender identity or termination of pregnancy. This ruling, in Franciscan Alliance v. Burwell (Case No. 7:16-cv-00108-O), a case filed by the Franciscan Alliance (a Catholic hospital system), a Catholic medical group, a Christian medical association, and eight states in which the plaintiffs allege, among other allegations, that the Section 1557 regulations force them to provide gender transition services and abortion services against their religious beliefs and medical judgment in violation of the Religious Freedom Restoration Act (“RFRA”).

By way of background, the Section 1557 regulations prohibit discrimination on the basis of gender identify, which regulations define to mean “an internal sense of gender, which may be male, female, neither, or a combination of male and female, and which may be different from an individual’s sex assigned at birth.”[i] The regulations prohibit a categorical insurance coverage exclusion or limitation for all health services related to gender transition and requires providers to provide transition-related procedures if the provider performs an analogous service in a different context. The plaintiffs also alleged that because they perform certain procedures for miscarriages, the Section 1557 regulations will require them to perform such procedures for abortions to avoid discriminating on the basis of termination of pregnancy.

The court held that the Section 1557 regulations failed to incorporate the exceptions for religious institutions and abortions services that Congress provided in Title IX. The court also found that Title IX, which is incorporated by Section 1557 statute, only prohibits discrimination on the basis of biological sex. The court further noted that “the government’s own health insurance programs, Medicare and Medicaid, do not mandate coverage for transition surgeries; the military’s health insurance program, TRICARE, specifically excludes coverage for transition surgeries. . .”[ii]

Specifically, the court concluded that “the regulation violates the Administrative Procedure Act (“APA”) by contradicting existing law and exceeding statutory authority, and the regulation likely violates the [RFRA] as applied to Private Plaintiffs.” The court also agreed that the plaintiffs would likely suffer irreparable harm without the injunction as “one of the State Plaintiffs is already undergoing investigation by the HHS’s OCR, and entities similarly situated to Private Plaintiffs have already been sued under the Rule since it took partial effect on May 18, 2016″ (emphasis added). Conversely, the court found that HHS will not suffer any harm by delaying implementation of this portion of the Section 1557 regulations. It should be noted that this is a ruling granting a preliminary injunction and a final ruling on the merits of a permanent injunction is still to come.

While an HHS appeal of this order would normally be expected, the impending change of Administration—including new leadership at HHS and an expected early Congressional push to repeal and replace the Affordable Care Act—makes it very uncertain whether an appeal will be filed, or ruled upon, prior to any possible changes in the regulatory scheme or underlying statute.

Health care entities should take note, however, that the remaining provisions of the Section 1557 regulations, including those that prohibit discrimination on the basis of disability, race, color, age, national origin, or sex (other than gender identity), are not impacted by the nationwide injunction and HHS can still enforce such provisions. Indeed, HHS has issued a broadcast email specifically stating that:

“[OCR] will continue to enforce the law—including its important protections against discrimination on the basis of race, color, national origin, age, or disability and its provisions aimed at enhancing language assistance for people with limited English proficiency, as well as other sex discrimination provisions—to the full extent consistent with the Court’s order.”

Health care entities should closely monitor this area of law for further developments and ensure that their operations are compliant with the remaining provisions of the Section 1557 regulations.

Further information regarding Section 1557 and its accompanying regulations can be found in EBG Client Alerts and Webinars.

[i] 45 C.F.R. § 92.4

[ii] The court cited Burwell v. Hobby Lobby Stores, Inc., 134 S. Ct. 2751, 2780 (2014). The Supreme Court will consider whether Title IX covers gender identity in Gloucester Cty. School Bd. V. G.G., Sup. Ct. No. 16-273, during the current term.

FY 2016 False Claims Act Recoveries: Government Enforcement Remains Lucrative and a Continued Source of Risk for Health Care Entities—But Will This Change in a Trump Administration?

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The federal government continues to secure significant recoveries through settlements and court awards related to its enforcement of the False Claims Act (FCA), particularly resulting from actions brought by qui tam relators. In fiscal year (FY) 2016, the federal government reported that it recovered $2.5 billion from the health care industry. Of that $2.5 billion, $1.2 billion was recovered from the drug and medical device industry.  Another $360 million was recovered from hospitals and outpatient clinics.

Government Intervention Drives Recoveries

The FY 2016 FCA statistics reflect that more than 97% of the recoveries from qui tam cases resulted from matters in which the government elected to intervene and pursue directly. Government intervention remains a real danger to health care entities.

However, more than 80% of new FCA matters were filed by qui tam relators; relator share awards reached almost $520 million in FY 2016. The financial incentives to pursue these matters are significant and well recognized; last year, the number of new qui tam FCA cases was the second highest since 1987.

Enforcement Climate Became Worse for Individuals in FY 2016—and Will Likely Continue

The government’s focus on individual liability, as reflected in the “Yates Memo,” is expected to continue. This focus on individual accountability has recently resulted in substantial FCA recoveries from physicians, a former hospital CEO, a nursing home CFO, and even the Chair of a board of directors.[1]  On the administrative side, such focus has resulted in the 20-year exclusion of a physician specializing in urogynecology whom the government alleged billed for services not performed or not medically necessary. Indeed, this focus continues: just last week, the government filed a FCA complaint against a mental health and substance abuse clinic and its owner in his individual capacity.

Regulatory Changes in 2016 Created More Financial Exposure

The monetary exposure faced by health care industry participants under the FCA is increasing. In June, the Department of Justice released an interim final rule increasing the minimum per-claim penalty under Section 3729(a)(1) of the FCA from $5,500 to $10,781 and increasing the maximum per-claim penalty from $11,000 to $21,563.

The Government’s Use of Technology

The use of technology has markedly enhanced the government’s recovery efforts. Federal and state governments, along with some commercial insurers, are investing in the use of predictive analytics that can analyze large volumes of health care data to identify fraud, waste, and abuse. Notably, the government reportedly enjoyed an $11.60 return for each dollar it spent on its investment in these technologies in 2015.  The use of such technology is expected to continue under the new administration.

The Risk of Enforcement Is Real

The FY 2016 FCA statistics reflect the government’s belief that devoting time and resources to FCA cases makes “good business sense.” This realization is very unlikely to change. Health care entities—as well as individuals—must be alert to potential violations and have strong compliance functions to deal with compliance-related matters in a way that prevents claims and litigation.

Enforcement in a Trump Administration and Opportunities to Reshape the Landscape

Enthusiasm for efforts to curb fraud, waste, and abuse is bipartisan. As a result, government enforcement is likely to stay on its present course with the incoming administration, in good part due to the high return on investment in government fraud investigations and no public policy outcry to reduce such enforcement efforts.

While the growth of the federal government’s investment in enforcement efforts might slow due to both the anticipated federal worker hiring freeze and President-elect Trump’s pledge to reduce regulations, health care entities should not ignore the real risk that they face in this area.

A new administration, however, may bring opportunities to reshape part of the enforcement landscape. President-elect Trump promised to repeal and replace the Affordable Care Act (“ACA”). Included within the ACA were several provisions that made it easier for qui tam relators to bring FCA cases.[2] While it is likely that such provisions—which plainly benefit the government—would be pressed for exemption from any repeal, this does present the potential for legislative changes beneficial to potential FCA defendants. Additionally, given the real likelihood of multiple U.S. Supreme Court appointments, along with the need to fill the more than 100 current federal district court vacancies, more legal challenges to efforts to expand the reach of the FCA can be anticipated.

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[1] See Press Release, Department of Justice, North American Health Care Inc. to Pay $28.5 Million to Settle Claims for Medically Unnecessary Rehabilitation Therapy Services (Sept. 19, 2016), https://www.justice.gov/opa/pr/north-american-health-care-inc-pay-285-million-settle-claims-medically-unnecessary; Press Release, Department of Justice, Former Chief Executive of South Carolina Hospital Pays $1 Million and Agrees to Exclusion to Settle Claims Related to Illegal Payments to Referring Physicians (Sept. 27, 2016), https://www.justice.gov/opa/pr/former-chief-executive-south-carolina-hospital-pays-1-million-and-agrees-exclusion-settle.

[2] The ACA impacted the FCA by narrowing the Public Disclosure Bar (31 U.S.C. § 3730(e)(4)(A)), expanding the scope of the “original source” exception for the Public Disclosure Bar (31 U.S.C. § 3730(e)(4)(B)), relaxing intent requirement for violations of the Anti-Kickback Statute (42 U.S.C. § 1320a-7b(h)), and providing that claims resulting from Anti-Kickback Statute violations would also be considered false claims (42 U.S.C. § 1320a-7b(g)).

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

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

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

1. MedPAC discusses recommending that Congress update Medicare inpatient and outpatient payments by the amounts specified in current law.

MedPAC reviewed the inpatient and outpatient hospital payment adequacy. In doing so MedPAC reviewed beneficiary access to care, provider access to capital, quality of care, and the impact of cost growth on hospital margin. MedPAC found that beneficiary access to care is good, provider access to capital is strong, quality is improving, and that margin for inpatient and outpatient hospital services in Medicare was at 9%. This led the MedPAC make a draft recommendation that Congress update the inpatient and outpatient payments as currently specified in existing law.

2. MedPAC finds annual volume growth in the clinician services highest in five year period, but that beneficiary access to clinician services remained comparable to private health insurance.

In reviewing payment adequacy to physicians and other health professionals MedPAC staff found that the annual volume growth in clinician services was higher in 2015 than it was in the period from 2010-2014. The staff also found that the growth in services reflected a shift from freestanding offices to hospital based settings. However, despite the growth in volume MedPAC also found that Medicare beneficiaries have comparable access to clinician services as those with private insurance. Based on this MedPAC’s draft recommendation to Congress is that they should increase payment rates for physician and other health professional services as specified in current law.

3. MedPAC considers recommending changes to how Medicare pays for skilled nursing facility (SNF) services.

MedPAC’s review of the current SNF payment model found that Medicare fee-for-service payments remain higher then Medicare Advantage payments for services and that differences in beneficiary population across payment models does not explain the payment differences. They also found that the current payment model has resulted in a wide disparity in SNF margins partially due to the current payment model favoring intensive therapy over medically complex care. MedPac’s draft recommendation is for Congress to eliminate the market basket for 2018 and 2019 and direct the Secretary of Health and Human Services to revise the prospective payment system for SNFs.

4. MedPAC considers recommending Congress eliminate the update to Medicare hospice payments for 2018.

MedPAC review of the Medicare hospice benefit found that the number of hospice providers has continued to increase and that the number of Medicare beneficiaries utilizing hospice has also increased. Medicare hospice providers saw a marginal profit of 11% in 2014. Given the strength of marginal profit and the increase of in the number of hospice providers MedPAC’s draft recommendation is that Congress should eliminate the update to the hospice payment rates for fiscal year 2018.

5. MedPAC considers recommending changes to Medicare’s home health payment model, including reducing the total payment level.

MedPAC found that Medicare home health benefits have resulted in a provider margin of better than 16% in the 2001 to 2014 period. MedPAC also found that the current payment model may be creating inefficiencies in treatment by incentivize multiple therapy visits per episode. To address these areas MedPAC’s draft recommendation is that Congress should reduce payments by 5% in 2018, and implement a two year rebasing of the payment system, beginning in 2019. Further, MedPAC draft recommendation is that Congress should direct the Secretary of Health and Human Services to revise the PPS to eliminate the use of therapy visits as a factor in payment determinations, concurrent with rebasing.

The Future Impact of Populism on Drug Pricing Reform

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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.

In First Speech Since the Election, DOJ Deputy Attorney General, Sally Yates, “Optimistic” That Corporate Misconduct Will Remain a DOJ Priority Under New Administration

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

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

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

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

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

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

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

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

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

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

[3] Id.

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

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

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

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

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

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

[10] Id.

[11] Id.

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

[13] Yates, supra note 2.

Chicago Imposes Burdensome New Licensure and Disclosure Obligations on Pharmaceutical Representatives

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

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

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

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

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

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

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

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

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

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

Parallel Review – Forcing Manufacturers to Go All In

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[2] Id.at 36.