The Information Sharing and Analysis Organization-Standards Organization (ISAO-SO) was set up under the aegis of the Department of Homeland Security pursuant to a Presidential Executive Order intended to foster threat vector sharing among private entities and with the government. ISAOs are proliferating in many critical infrastructure fields, including health care, where cybersecurity and data privacy are particularly sensitive issues given HIPAA requirements and disproportionate industry human and systems vulnerabilities.  Therefore, in advising their companies’ management, general counsel and others  might benefit from reviewing the FAQ’s and answers contained in the draft document that can be accessed at the link below.

Announcing the April 20 – May 5, 2017 comment period, the Standards Organization has noted the following:

Broadening participation in voluntary information sharing is an important goal, the success of which will fuel the creation of an increasing number of Information Sharing and Analysis Organizations (ISAOs) across a wide range of corporate, institutional and governmental sectors. While information sharing had been occurring for many years, the Cybersecurity Act of 2015 (Pub. L. No. 114-113) (CISA) was intended to encourage participation by even more entities by adding certain express liability protections that apply in several certain circumstances. As such proliferation continues, it likely will be organizational general counsel who will be called upon to recommend to their superiors whether to participate in such an effort.

With the growth of the ISAO movement, it is possible that joint private-public information exchange as contemplated under CISA will result in expanded liability protection and government policy that favors cooperation over an enforcement mentality.

To aid in that decision making, we have set forth a compilation of frequently asked questions and related guidance that might shed light on evaluating the potential risks and rewards of information sharing and the development of policies and procedures to succeed in it. We do not pretend that the listing of either is exhaustive, and nothing contained therein should be considered to contain legal advice. That is the ultimate prerogative of the in-house and outside counsel of each organization. And while this memorandum is targeted at general counsels, we hope that it also might be useful to others who contribute to decisions about cyber-threat information sharing and participation in ISAOs.

The draft FAQ’s can be accessed at :  https://www.isao.org/drafts/isao-sp-8000-frequently-asked-questions-for-isao-general-counsels-v0-01/

On March 15, 2017, the United States District Court for the Western District of Pennsylvania issued an opinion that sheds insight on how courts view the “writing” requirement of various exceptions under the federal physician self-referral law (or “Stark Law”). The ruling involved the FCA qui tam case, United States ex rel. Emanuele v. Medicor Assocs., No. 1:10-cv-245, 2017 U.S. Dist. LEXIS 36593 (W.D. Pa. Mar. 15, 2017), involving a cardiology practice (Medicor Associates, Inc.) and the Hamot Medical Center. The Court’s detailed discussion of the Stark Law in its summary judgment opinion provides guidance as to what may or may not constitute a “collection of documents” for purposes of satisfying a Stark Law exception.

This opinion is of particular note because it marks the first time that a physician arrangement has been analyzed since the Stark Law was most recently amended in November 2015, at which time the Centers for Medicare and Medicaid Services (“CMS”) clarified and codified its longstanding interpretation of when the writing requirement is satisfied under various exceptions.

Arrangements Established by a “Collection of Documents”

Both the “professional services arrangement” and “fair market value” exceptions were potentially applicable, and require that the arrangement be “in writing” and signed. However, two of the medical directorships were not reduced to a formal written agreement. The Defendants identified the following collection of documents as evidence that the writing requirement was satisfied:

  • Emails regarding a general initiative between Hamot and Medicor for cardiac services, but without any specific information regarding directorship positions, duties or compensation.
  • Letter correspondence between Hamot and Medicor discussing the potential establishment of a director position for the women’s cardiac program.
  • Internal summary that identified a Medicor physician as the director of the women’s cardiac program.
  • Unsigned draft Agreement for Medical Supervision and Direction of the Women’s Cardiac Services Program.
  • A one page letter appointing a Medicor physician as the CV Chair and identifying a three-year term that expired June 30, 2008.

The Court said that although “these kinds of documents may generally be considered in determining whether the writing requirement is satisfied, it is essential that the documents outline, at an absolute minimum, identifiable services, a timeframe, and a rate of compensation.” (emphasis added). In addition, the Court noted that CMS requires that at least one of the documents in the collection be signed by each party. After confirming that these “critical” terms were missing from the documents described above, the Court concluded that no reasonable jury could find that either arrangement was set forth in writing in order to satisfy Stark’s fair market value exception or personal service arrangement exception.

Expired Arrangements

Other directorships were initially memorialized in signed, formal written contracts, but they all terminated pursuant to their terms on December 31, 2006 and were not formally extended or renewed in writing on or prior to their termination. Thereafter, Medicor continued to provide services and Hamot continued to make payments under the agreements. The parties eventually executed a series of “addendums” to extend the term of each arrangement, although these addenda had a prior effective date. During the timeframe between when the agreements expired and when the addenda were executed, invoices were continuously submitted and paid.

Plaintiff argued that the failure to execute timely written extensions in advance of renewals resulted in a failure of all six arrangements to meet the “writing” requirement under a relevant Stark Law exception. The Court disagreed, explaining that there is no requirement that the “writing” be a single formal agreement and CMS has provided guidance as to the type of collection of documents that could be considered when determining if the writing requirement is met at the time of the physician referral. In this case, the Defendants specifically relied upon the invoices from Medicor to Hamot and the checks that were sent in payment thereof.

In deciding that a reasonable jury could find that there was a sufficient collection of documents, the Court denied Plaintiff/Relator’s motion for summary judgment with respect to these six ‘expiring” directorships, and the case will proceed to trial on these claims.

Hospitals should carefully consider this opinion when auditing Stark Law compliance of their physician arrangements. A more detailed article analyzing this case will be published in the July edition of Compliance Today.

The Medicare Payment Advisory Commission (“MedPAC”) met in Washington, DC, on April 6-7, 2017. 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 gauge the direction of the health care marketplace. Our five biggest takeaways from the April meeting are as follows:

1. MedPAC unanimously passes a draft recommendation aimed at improving the current ASP payment system and developing the Drug Value Program as an alternative, voluntary program.

In the March meeting, MedPAC discussed a proposed recommendation to address the rapid growth in Part B drug spending. The short-term policy reforms for the current ASP payment system would be made in 2018, while the Drug Value Program would be created and phased in no later than 2022. MedPAC passes this draft recommendation unanimously with no changes. In the June report to Congress, MedPAC intends to add text to reflect more detail on certain issues, as well as other approaches and ideas for reducing Part B drug spending.

2. MedPAC discusses key issues addressed in a draft chapter on premium support in Medicare to appear in MedPAC’s June report.

MedPAC has developed a draft chapter on premium support in Medicare to serve as guidance if such a model were to be adopted. MedPAC does not take a position on whether such a model should be adopted for Medicare. A premium support model would include Medicare making a fixed payment for each beneficiary’s Part A and Part B coverage, regardless of whether the beneficiary enrolls in fee-for-service or a managed care plan. The beneficiary premium for each option would reflect the difference between its total cost and the Medicare contribution. The draft chapter addresses key issues for this model from previous MedPAC sessions, including the treatment of the fee-for-service program, standardization of coverage options, the calculation of benchmarks and beneficiary premiums, as well as a new proposal regarding premium subsidies for low-income beneficiaries. The draft chapter will be included in MedPAC’s June report to Congress.

3. MedPAC unanimously passes a draft recommendation for the implementation of a unified prospective payment system for post-acute care.

In the March meeting, MedPAC proposed a draft recommendation regarding a PAC PPS. During the discussion in the previous meeting, the percent of the reduction in aggregate payments was the largest point of contention. MedPAC decided the proposed 3% reduction was too low, and increased the reduction to aggregate payments to 5% for the finalized draft recommendation. MedPAC passes this draft recommendation unanimously with the change to the reduction of aggregate payments.

4. Regional variation in Medicare Part A, Part B, and Part D spending and service use

MedPAC compared its most current evaluation of geographic differences in Medicare Program spending and service use with calculations from previous years. The primary takeaway from the current data was that there was much less variation in service use relative to variation in spending.  Most of the service use variation in Part A and B services came from post-acute care.  Among Prescription Drug Plan (PDP) enrollees, drug use also varied less than drug spending.

5. Measuring low-value care in Medicare

MedPAC has been measuring the issue of low-value care, meaning services considered to have little or no clinical benefit, for the last three years. In June 2012, MedPAC had also recommended value-based insurance design, in which the Secretary could alter cost-sharing based on evidence of the value of services. In order to do so, however, CMS would first need information on how to define and measure low-value care.  MedPAC has been using 31 claims-based measures for low value care developed by researchers and published in JAMA. For 2014, MedPAC’s analysis found that 37% of beneficiaries received at least one low-value service.  Medicare spending for these services was estimated to be $6.5 billion.  MedPAC acknowledges that this estimate is conservative because the measures used do not also include downstream services that may result from the initial low-value service.  MedPAC also briefly discussed the issues associated with formulating performance measures in general, including for the merit-based incentive payment system (MIPS) included in Medicare Access and CHIP Reauthorization Act.

In a previous blog post, we discussed a City of Chicago Ordinance, set to take effect on July 1, 2017, that will require pharmaceutical sales representatives to obtain a license before being able to operate within city limits. The draft rules for this ordinance were released on March 17, 2017.

These rules provide additional detail regarding the licensure requirements as well as other associated education and disclosure requirements with which pharmaceutical representatives will be expected to comply beginning in July of this year. In order to obtain initial licensure as a pharmaceutical representative, applicants must complete an online course that will provide an overview of these requirements.  Proof of course completion must be submitted along with the license application, which will cost $750.  To maintain the license, representatives must complete a minimum of 5 hours of continuing professional education every year thereafter.  Approved providers will be listed at www.cityofchicago.org/health.  Notably, continuing education provided by pharmaceutical manufacturers to their employees will not be accepted to fulfill the requirement. A licensed representative who does not meet these continuing education requirements may face substantial penalties, including suspension or revocation of the license, inclusion in a public list of representatives whose licenses have been revoked, and/or a fine between $1,000 and $3,000 per day of violation.

In addition to the professional education requirement, pharmaceutical representatives will also be required to track and report certain sales information on an annual basis or upon request by the Commissioner of Public Health. This information must include: a list of the health care professionals who were contacted, the location and duration of each contact, the pharmaceuticals that were promoted, and whether product samples or any other compensation was offered in exchange for the contact.[1]  For applicants who receive initial licensure, the time period for the data that must be collected and reported shall cover an 11-month period, starting on the day of licensure and ending one month before its expiration.  For representatives with a renewed license, the data shall cover a 12-month period that will begin one month before the license renewal and will end one more before its expiration.  If the Commissioner of Public Health requests the information at any other time, the request will designate the time period the submission must cover, and it will be due within 30 days of the request.

A pharmaceutical representative who is found to have violated any provision of the Ordinance or these rules will be subject to suspension or revocation of licensure and/or a fine of $1,000 to $3,000 per day of violation. Once a license is revoked, it cannot be reinstated for a period of two years from the date of revocation.[2]

These new requirements will undoubtedly place a significant burden on pharmaceutical manufacturers and their sales representatives who work in Chicago.[3]  The public is invited to submit any comments it may have on the proposed rules by April 2, 2017.

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

[2] Section 4-6-310(j)

[3] The requirements have already drawn considerable criticism from affected members of the pharmaceutical industry, who state that they will impose an unnecessary and harmful tax on one of the most important sectors of the city’s economy.

The Medicare Payment Advisory Commission (“MedPAC”) met in Washington, DC, on March 2-3, 2017. 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 gauge the direction of the health care marketplace. Our five biggest takeaways from the March meeting are as follows:

  1. MedPAC proposes a draft recommendation for the implementation of a prospective payment system for post-acute care settings.

MedPAC determines a PAC PPS could be implemented as soon as 2021. In considering the various factors, MedPAC proposes a draft recommendation for a PAC PPS. Recommendations include a 3 year transition period for implementation, a 3% reduction in aggregate payments, granting the Secretary the authority for periodic revisions and rebasing of payments to align with the current cost of care, and the incorporation of uniform functional assessment data into the risk adjustment method, when such data is available. MedPAC created the recommendations with the goals of lowering spending, correcting inequities in current payments that favor certain patients and providers over others, redistributing payments across providers to narrow disparities in profitability, and increasing the willingness of providers to treat all types of patients so they will be easier to place upon discharge. These recommendations are only a draft, and particularly the percent of the reduction in payments seems subject to increase. MedPAC will discuss and vote on these recommendations at the April meeting.

  1. MedPAC discusses proposed recommendations to address the rapid growth in Part B drug spending.

MedPAC discusses the package of policy reforms developed over the last few years that have been refined following feedback in the January meeting. The draft recommendations are comprised of both short-term and long-term strategies to reduce Part B drug spending. The short-term strategies including requiring manufacturers paid under Part B to submit ASP data, with a civil monetary penalty for failure to report, reducing wholesale acquisition cost-based payment to ASP plus 3 percentage points, requiring manufacturers to pay a rebate to Medicare when the ASP for a product exceeds an inflation benchmark, and requiring the Secretary to use a common billing code to pay for a reference biologic and its biosimilars. The first long-term strategy proposed is the creation and implementation of a new alternative, voluntary program called the “Drug Value Program” no later than 2022. Under this system, Medicare would contract with private vendors to negotiate prices for Part B products, not to exceed 100% ASP. Providers would pay negotiated prices for DVP products and Medicare would pay providers the negotiated price plus an administrative fee, with the opportunity for shared savings. The second long-term strategy, also to be completed no later than 2022 or upon implementation of the DVP, is to reduce the ASP add-on under the ASP System. MedPAC will discuss and vote on these recommendations at the April meeting.

  1. MedPAC considers proposals to refine MIPS and A-APM’s and to encourage primary care.

MedPAC reviews proposals for two issues related to clinician payments: 1) refining MACRA and 2) finding better methods to support primary care.  MedPAC considers the MIPS system under MACRA to be inadequate at identifying high value physicians, and thus contemplates a series of ideas designed to remedy this problem, including replacing all measure reporting by clinicians with patient experience measures, designing policies to move clinicians from MIPs to A-APMs, and making A-APMs relatively more attractive for clinicians. MedPAC also discusses ways to better support primary care, including upfront payments for primary care providers in two-sided ACOs and providing all primary care providers with a per beneficiary payment.

  1. MedPAC continues its discussion regarding issues in designing a premium support system for Medicare.

MedPAC discusses the extent to which a premium support system in Medicare should have standardization in benefits, cost sharing, and other features.  One premium support model discussed, which is modeled after how Medicare Parts C and D currently function, would involve a standardized benefit package, with cost sharing that is standardized or actuarially equivalent across plans, and a standard option would be available for beneficiaries to buy. Similar to Part C, plan bids will determine the government contribution towards a beneficiary’s choice, and fee-for-service Medicare is treated as a bidding plan. MedPAC also discusses how supplemental Medicare plan could be integrated into a premium support system and how the benchmark plan should be determined.

  1. MedPAC is contemplating both the financial and the quality-related impacts of shifting Medicare to a premium support system.

MedPAC discusses the impact of implementing a premium support system on plan participation.  MedPAC also reviews potential distributional impacts of using premium supports.  MedPAC’s rough analysis shows that premium supports may lead to more than half of Medicare beneficiaries being enrolled in managed care plans due to shifts in the premiums in fee for service plans.  While the financial implications of premium support is the primary focus of the discussion, MedPAC also addresses how to manage and maintain quality standards under premium support, including through the establishment of minimum standards for plans, provider network adequacy, and plan data disclosure requirements that could aid in setting the performance standards and payment adjustments.  MedPAC also discussed promoting higher quality plans through more direct financial incentives, such as allowing a higher contribution from the government towards high-quality plans to incentivize enrollment in these plans.

On January 19, 2017, the United States Food and Drug Administration (“FDA”) unveiled a new drug designation process for regenerative advanced therapies, an important first step toward implementation of the regenerative medicine provisions of the 21st Century Cures Act.  Products for which a designation as a regenerative advanced therapy (“RAT”) is obtained are eligible for accelerated approval under the 21st Century Cures Act, which was signed into law by former President Obama on December 13, 2016 with sweeping bipartisan support.

The accelerated approval provisions for RATs under the 21st Century Cures Act are intended to facilitate expedited review and approval of stem cell therapies and other cellular and tissue products for use in serious or life threatening diseases, which are currently subject to regulation as unapproved drugs. Under the 21st Century Cures Act, regenerative medicine therapies eligible for a RAT designation may include any “cell therapy, therapeutic tissue engineering product, human cell and tissue product, or any combination product using such therapies or products, except for those products regulated solely under Section 361 of the Public Health Service Act (“PHS”), and part 1271 of Title 21, Code of Federal regulations.”[1]

Under the 21st Century Cures Act, the sponsor of a product must show the following to be eligible for a RAT designation:

  • The drug is a regenerative medicine therapy;
  • The drug is intended to treat, modify, reverse, or cure a serious or life-threatening disease or condition;[2] and
  • Preliminary clinical evidence indicates that the drug has the potential to address unmet medical needs for such disease or condition.

Pursuant to the FDA website on the Regenerative Advanced Therapy Designation, a sponsor requesting a RAT designation for its product must make such a request either concurrently with submission of an Investigational New Drug application (“IND”), or as an amendment to an existing IND. Consistent with requests for fast track and breakthrough therapy designations, the FDA only requires that a sponsor describe the preliminary clinical evidence that supports a RAT designation, and does not require the sponsor to submit primary data.  Information that will be considered includes: a description of any available therapies for the disease or condition already in existence, the study design, the population studied, the endpoints used, and a description of the study results and statistical analyses.

The RAT designation process will be overseen by the newly created Office of Tissues and Advanced Therapies (OTAT). The OTAT will manage the application process for RAT designation, and will notify the sponsor within 60 days of receiving an application as to whether the RAT designation is granted. If a sponsor does not receive a RAT designation for its product the OTAT will provide an explanation in writing of its rationale for the denial.

A sponsor that obtains a RAT designation for its product is entitled to meet with the FDA early in its development program to discuss the potential use of surrogate or intermediate endpoints that may be used to support accelerated approval of the product. RATs may be eligible for accelerated approval based upon surrogate or intermediate endpoints reasonably likely to predict a long-term clinical benefit, and based on data obtained from a “meaningful number of sites” with subsequent expansion to additional sites, along with the collection of additional data in the post-market phase.

The implementation of the RAT designation process will enable manufacturers to begin to take advantage of the less burdensome review process enabled by the 21st Century Cures Act.  While some patient advocates have expressed concern that the availability of an accelerated approval pathway for regenerative medicine products may impede the development of robust evidence establishing their safety and effectiveness, and may ultimately result in patient harm, 21st Century Cures’ accelerated approval provisions are likely to be a harbinger of a new wave of regenerative medicine therapies that provide additional options for patients facing serious or life threatening conditions.

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[1] 21st Century Cures Act Sec., Sec. 3033(8).  Human Cells, tissues, and cellular and tissue-based products (HCT/Ps) are regulated solely under section 361 of the PHS Act and the regulations of 21 C.F.R. Part 1271 if all of the following criteria are met: the HCT/P is minimally manipulated, intended for homologous use (as reflected in labeling and advertising), is not manufactured by combining cells or tissues with another article, except for water, crystalloids, or a sterilizing, preserving or storage agent, and does not have a systemic effect nor is dependent upon the metabolic activity of living cells for its primary function. Therefore, if a product meets all of the aforementioned criteria, the HCT/P will still be regulated under 21 C.F.R. Part 1271 and will not be subject to regulation as a drug product.

[2] The FDA will use its standard definitions found in its Expedited Program Guidance as a guide to determining whether a product meets the required criteria, such as whether a condition is “serious or life-threatening” or whether a drug is “intended to treat a serious disease or condition.”

Our colleagues Joshua A. Stein and Frank C. Morris, Jr., at Epstein Becker Green have a post on the Health Employment And Labor blog that will be of interest to many of our readers: “The U.S. Access-Board Releases Long-Awaited Final Accessible Medical Diagnostic Equipment Standards.”

Following is an excerpt:

As part of a flurry of activity in the final days of the Obama Administration, the U.S. the Architectural and Transportation Barriers Compliance Board (the “Access Board”) has finally announced the release of its Accessibility Standards for Medical Diagnostic Equipment (the “MDE Standards”).  Published in the Federal Register on Monday, January 9, 2017, the MDE Standards are a set of design criteria intended to provide individuals with disabilities access to medical diagnostic equipment such as examination tables and chairs (including those used for dental or optical exams), weight scales, radiological equipment, mammography equipment and other equipment used by health professionals for diagnostic purposes. …

Read the full post here.

On Monday, January 23rd, Senators Bill Cassidy (R-LA) and Susan Collins (R-ME) introduced the Patient Freedom Act of 2017 (“PFA”), the first of what may be many Republican Affordable Care Act (“ACA”) “replacement” alternatives. The PFA is notable for several reasons. It is the first replacement plan to be introduced in the 115th Congress, it is sponsored by Senators who are considered comparatively moderate on health issues, and thus its content may represent an opportunity for compromise in the future, and, perhaps most interestingly, does not actually repeal the ACA. The overarching feature of the PFA is that it allows states to control which course they chart for health reform.

The ACA: What Stays and What Goes  

If enacted, the PFA would eliminate the majority of the provisions contained in Title I of the ACA. This includes the individual and employer mandates, the community rating provision, essential benefits requirements, and the establishment of the health benefit exchanges. However, the ACA provisions the PFA retains are just as notable as the provisions it removes. The PFA maintains the bans on lifetime and annual coverage limits, maintains the ACA ban on coverage exclusions based on preexisting conditions, continues to permit dependents to remain on their parents’ plan until age 26, keeps in place the ACA non-discrimination requirements, and maintains the ACA mental health parity coverage requirements. The PFA also does not repeal any provisions outside of Title I, leaving many features in place, such as Medicaid expansion and Medicare prescription drug plan provisions.

State Options

The PFA would shift the decision of how to implement health reform to individual states. The PFA allows states to choose between three options: 1) maintain the current ACA model using subsidies and health benefit exchanges to provide insurance coverage; 2) enact a market-based option or “state alternative;” or 3) select to design its own health system without federal funding. If a state fails to select one of the options by a certain date they will be deemed to have selected the market based option.

Option 1: Keep the ACA

States that elect to continue to operate under the ACA will be treated as if the changes to Title I of the Act in the PFA were never enacted. This will allow states to maintain health benefits exchanges and for eligible enrollees to receive federal subsidies and cost sharing reductions to purchase coverage from qualified health plans (“QHPs”). However, States may see a reduction in the exchange subsidies and costs sharing reductions available to enrollee as the PFA includes an additional provision designed to align federal funding between ACA states and states that elect the new market-based approach.

Option 2: Market-Based Approach

The market-based approach, or “State Alternative” option, will allow states to essentially shift residents enrolled in QHPs and potentially Medicaid into a standard high-deductible health plan containing basic pharmaceutical coverage and some coverage for preventive care and free immunizations. Residents currently enrolled in QHPs will receive Roth health savings accounts (“HSAs”) funded through tax credits.  These tax credits will replace the advanced premium tax credits QHP-enrollees are currently eligible to receive with a tax credit that is similarly advanceable and refundable.  The tax credit is also adjustable based on the age, income, and geographic location of the enrollee.

States may also include the Medicaid expansion population under this market-based alternative, but only enrollees not otherwise eligible for Medicare coverage, and eligibility for federal Roth HSA contributions will be limited to those not enrolled in a federal healthcare or veterans benefit program. States can either administer the market-based solution themselves or they can allow the federal government to administer the system. The total amount of the tax credits available under the market based approach will be equal to 95 percent of the total projected ACA premium tax credits and cost-sharing subsidies that the state would have otherwise received.

What’s Next and What to Watch?

The PFA is the first of what may be many Republican plans to replace the ACA. Reports indicate other members of Congress, including Senator Rand Paul, are expected to release alternative plans in the near future. It is unlikely that any one plan will be enacted in the form that it is introduced. However, significant insight into what ultimate changes may occur can be gained by monitoring how stakeholders- such as members of Congress, the administration, and governors- respond to the various provisions contained in these proposals. Health care entities should closely monitor the provisions that appear to have support among the various stakeholders to ensure that there is sufficient time to react and adapt to the changing health care environment.

Congress is currently considering two bills that would dramatically alter the ways in which all federal agencies develop and publish rules. If enacted, both would create significant new obligations for agencies such as CMS and the FDA, expand the scope of judicial review of rules, and would increase the potential for political influence over the rulemaking process. Both bills passed the House on party-line votes, and are under consideration by the Senate.

The first bill, H.R. 5, would overhaul multiple phases of the federal rulemaking process. These proposed changes would make the rulemaking process significantly longer and more complex for agencies, and includes provisions that could prevent some rules from ever taking effect. The key provisions of the bill are summarized below:

  • Prior to publishing any rule (1) with an expected annual impact of $100 million or more, (2) that may reduce employment, or (3) that involves a novel legal or policy issue, an agency would have to publish an advance notice that it intends to publish a proposed notice of rulemaking, and must solicit comments on the notice. A proposed rule could only be published after this new additional process is complete.
  • Whenever an agency publishes a proposed rule for public comment in any of the categories described above, it would have to explain the basis for the rule, the data it relied on, and would have to explain the alternatives to the rule and justify why they were not adopted. In addition to the current public comment period, once a proposed rule was published an interested party could then request a hearing to contest the quality of the information relied on by the agency. Any resolution of this new step would slow down the rulemaking process further.
  • In all cases where a rule is expected to have an annual impact of at least $1 billion annually, the agency would now be required to conduct a public hearing limited to fact issues. This would add to the time and cost of publishing a new or revised rule.
  • When a final rule is published, the agency would be required to explain in the preamble to that rule why the rule will have the lowest possible cost unless it involves public health, safety, or welfare.
  • All agencies would be required to publish all documents considered by an agency prior to publishing the rule.  This would eliminate the deliberative process privilege that has been in place for decades, which is intended to promote the exchange of views within an agency, and may have a chilling effect on agency deliberation. In many cases, a final rule could not take effect until all of the information relied on by the agency had been made available electronically for at least six months unless the agency or the President claims an exception.
  • Recipients of federal funds would be prohibited from advocating for or against the rule, or appealing to the public to either support or oppose the rule.
  • Guidance documents issued by agencies, including manuals, circulars, and other subregulatory publications would no longer have any legal effect and could not be relied on by the agency for any actions. The bill does not explain how many important parts of federal programs, such as the administration of grants or cost accounting for hospitals in the Medicare program would be handled. These and other programs rely heavily on the detailed information found only in agency manuals and guidance. Without these guidelines, health care providers, suppliers, manufacturers, and researchers among others would find it increasingly difficult to comply with federal laws.

The bill would also make drastic changes in the scope of any judicial review of published agency rules. The bill would overturn the Supreme Court’s landmark Chevron decision, which established the principle that when an agency is charged with administering a statute and interprets ambiguous statutory language in a regulation, courts will defer to the agency’s permissible interpretation of the law. In its place, the bill would authorize courts to review all questions of law involving a regulation without giving weight to the agency’s experience or expertise. Courts would be empowered to impose their own constructions of the law on an agency, upending decades of precedents. This has the potential to increase federal courts’ dockets and place those courts in the position of reviewing technical information without all of the resources available to conduct a review. In addition, by allowing courts to decide cases without relying on the agency’s rationale, this increases the potential for inconsistent decisions and confusion among regulated entities such as health care providers, suppliers, and manufacturers seeking to comply with federal laws.

The second bill, H.R. 26, focuses more on expanding Congress’s control over the rulemaking process once an agency has completed the public notice and comment procedure under current law. It also expands the legislative veto over rules, which currently is authorized only when Congress disapproves of a rule and requires the President’s concurrence.

Under the bill, agencies would be required to report all new rules to Congress, and must identify all “major rules” as determined by the Office of Management and Budget that (1) will have an annual impact of $100M or more, (2) increases costs or prices, or (3) will have a significant impact on competition, employment, investment, or foreign trade. The report to Congress must also contain an analysis of the projected number or jobs that would be gained or lost as result of the rule. All major rules with the exception of those necessary for an emergency, enforcement of criminal laws, or to implement a trade agreement would not go into effect unless both houses of Congress approve the rule by a joint resolution within 70 legislative days after the agency submits its report. There is only one chance to obtain approval of a major rule during a session of Congress; if the joint resolution is not approved, or if no action is taken, the bill would bar Congress from considering a second resolution on the same rule during the same two-year session of Congress. This would allow Congress to override an agency and force the agency to begin the rulemaking anew, if at all. Congress would retain the authority to disapprove all other rules by a joint resolution. The bill also allows for judicial review of Congress’s actions only to review whether or not it followed the procedure in the statute; the merits of any action would be unreviewable.

In addition to expanding control over prospective rules, the bill would also add a sunset provision for existing rules. All agencies would be required to review current rules at least once every ten years and report to Congress; if Congress then failed to enact a joint resolution to retain the rules, they would be nullified.

Although the bills passed the House, it will be much harder for the Senate to pass them as well. Under Senate rules, 60 votes are required to end debate and bring the bills to a vote. Since the Republicans only hold 52 seats, they would need additional votes from Democrats in order for the bills to pass.

On his first day in office, President Trump issued an Executive Order entitled “Minimizing the Economic Burden of the Patient Protection and Affordable Care Act Pending Repeal.” The Executive Order is, in effect, a policy statement by the new administration that it intends to repeal the Patient Protection and Affordable Care Act (the “ACA” or the “Act”) as promptly as possible. The Executive Order also directs the Secretary of Health and Human Services and the heads of all other executive departments and agencies that, pending repeal of the ACA, they are to exercise the full extent of their authority and discretion to “take all actions consistent with law to minimize the unwarranted economic and regulatory burdens of the Act, and prepare to afford the States more flexibility and control to create a more free and open healthcare market.”

Impact on the Individual Mandate

The Executive Order does not explicitly name provisions of the ACA to be targeted by executive agency and department heads. However, Section 2 appears to be aimed at the ACA’s “individual mandate,” which requires that individuals obtain health care insurance or pay a fine, and one potential effect of the Executive Order may be limited enforcement of the individual mandate:

To the maximum extent permitted by law, the Secretary of Health and Human Services (Secretary) and the heads of all other executive departments and agencies (agencies) with authorities and responsibilities under the Act shall exercise all authority and discretion available to them to waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the Act that would impose a fiscal burden on any State or a cost, fee, tax, penalty, or regulatory burden on individuals, families, healthcare providers, health insurers, patients, recipients of healthcare services, purchasers of health insurance, or makers of medical devices, products, or medications.

Impact on the Insurance Marketplace

The Executive Order also mandates that executive agency and department heads “provide greater flexibility to States and cooperate with them in implementing healthcare programs,” and “encourage the development of a free and open market in interstate commerce for the offering of healthcare services and health insurance, with the goal of achieving and preserving maximum options for patients and consumers.”

Regulatory Freeze

Also on January 20, 2017, the White House issued a memorandum to the heads of executive departments and agencies entitled “Regulatory Freeze Pending Review.” The memorandum directs that, except for certain emergency situations, no regulation be sent to the “Office of Federal Register (the “OFR”) until a department or agency head appointed or designated by the President after noon on January 20, 2017, reviews and approves the regulation.” “[W]ith respect to regulations that have been published in the OFR but have not yet taken effect,” the memorandum directs agency and department heads to postpone the effective date for 60 days from the date of the memorandum, as permitted by law and subject to exceptions for emergency situations. The memo also instructs executive agency and department heads to consider delaying effective dates beyond the 60-day period to address substantial questions of law or policy.

So, What Does This Mean…..From the Counselor to the President 

On Sunday, January 22, 2017, Kellyanne Conway, Counselor to the President, said that President Trump “wants to get rid of that Obamacare penalty almost immediately, because that is something that is really strangling a lot of Americans…”[1]

When asked if Trump would stop enforcing the individual mandate, she replied, “He may.” Conway also stated that the Trump Administration planned to end ACA’s requirement that employers with more than 50 full-time workers offer affordable coverage to their workers. “We’re doing away with this Obamacare penalty,” she said. “This tax has been… a burden on many small business owners…”[2]

Conway also noted that the Trump Administration does not intend to eliminate ACA entirely: “For the 20 million who rely upon the Affordable Care Act in some form, they will not be without coverage during his transition time.”[3] Conway noted that the President is “going to replace this with a plan that allows you to buy insurance across state lines, that is much more centered around the patient, and access to health care. . .”[4]

What’s Next And What To Watch?

Earlier today, Republican Senators Susan Collins of Maine and Bill Cassidy of Louisiana unveiled a bill intended to be an “Obamacare replacement plan,” “The Patient Freedom Act of 2017.” The Senators’ proposal, which is based upon a proposal originally put forward by the Senators in 2015, is intended to provide more power to the states on health care policy, to increase access to affordable insurance, and to help cover those who are currently uninsured.[5] For instance, states who like Obamacare will be able to keep it. Senator Cassidy explained as follows: “So, California and New York, you love Obamcare? You can keep it.”

In sum, uncertainty remains as to the extent that ACA will be changed, replaced, or otherwise amended, whether the changes will be administrative or legislative, and how much the changes to the Act will disrupt the health care marketplace. A flurry of further activity by the President, agency administrators, and members of Congress is expected over the coming days and weeks. Health care entities should closely follow these developments to ensure that they have sufficient time to react and adapt to the changing health care environment.

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[1] ‘This Week’ Transcript 1-22-17: Kellyanne Conway, Sen. John McCain, and Sen. Chuck Schumer, http://abcnews.go.com/Politics/week-transcript-22-17-kellyanne-conway-sen-john/story?id=44954948 (last accessed Jan. 23, 2017).

[2] Trump’s ACA executive order heightens insurance market jitters, Modern Healthcare, Jan. 22, 2017, http://www.modernhealthcare.com/article/20170122/NEWS/170129985/breaking-trumps-aca-executive-order-heightens-insurance-market (last accessed Jan. 23, 2017).

[3] Emily Schultheis, Top Trump Aide: 20M on Obamacare “Will Not Be Without Coverage” in Transition to New Plan, http://www.cbsnews.com/news/top-trump-aide-20m-on-obamacare-will-not-be-without-coverage-in-transition-to-new-plan/ (last accessed Jan. 23, 2017).

[4] ‘This Week’ Transcript 1-22-17: Kellyanne Conway, Sen. John McCain, and Sen. Chuck Schumer, http://abcnews.go.com/Politics/week-transcript-22-17-kellyanne-conway-sen-john/story?id=44954948 (last accessed Jan. 23, 2017).

[5] https://www.collins.senate.gov/newsroom/senators-collins-cassidy-introduce-aca-replacement-plan-expand-choices-lower-health-care (last accessed Jan. 23, 2017).