On June 20, 2018, the Centers for Medicare and Medicaid Services (“CMS”) published an advance copy of a request for information seeking public input on reforms to the Physician Self-Referral Law (or “Stark Law”).

The request for information stems from on-going efforts by the Department of Health and Human Services (“HHS”) to accelerate the government’s transformation from a fee-for-service to a value-based system focused on care coordination.  Dubbed the “Regulatory Sprint to Coordinated Care” (#RS2CC), HHS expressed an intent to first identify regulatory requirements that act as obstacles to coordinated care, and then issue guidance or revise regulations to address these obstacles and/or incentivize coordinated care.

In connection with this HHS initiative, CMS acknowledged and identified that certain aspects of the Stark Law may pose potential obstacles to coordinated care.  Through their request for information, CMS seeks additional information and input from the public to help achieve their goal of “reducing regulatory burden and dismantling barriers to value-based care transformation.”  In particular, CMS has asked the public to share their thoughts and experiences related to:

  • the structure of arrangements between DHS entities that are used to effectuate alternative payment models and novel financial arrangements;
  • potential revisions to current Stark Law exceptions and key defined terms that would serve to permit or encourage the implementation of alternative payment models; and
  • the creation of new Stark Law exceptions to permit or encourage the implementation of alternative payment models.

The request for information follows a number of other administrative actions and announcements focused on reforming the current regulatory environment, particularly with respect to physician arrangements and, more specifically, the Stark Law. In January, CMS Administrator Seema Verna announced a plan to form an interagency group focused on reviewing the regulatory barriers to alternative payment models created by the Stark Law.  In addition, the Fiscal Year 2019 budget proposal, issued by the Office of Management and Budget in February, includes a proposal to reform the Stark Law to “better support and align with alternative payment models and to address overutilization.”  These more recent actions continue to build on concerns and suggestions identified in a white paper released by the Senate Finance Committee in 2016 titled “Why Stark? Why Now? Suggestions to Improve the Stark Law to Encourage Innovative Payment Models.”

This request is only the first formal step in the combined efforts of HHS and CMS to adopt what may be significant changes to the Stark Law.  However, the government appears to be poised to move quickly on regulatory reforms now that the ball is rolling, as evidenced by their branding of these efforts as a “sprint.”

Epstein Becker Green is in the process of coordinating with clients that are interested in submitting responses to the request for information.  If your organization is interested in developing comments to this request and would like assistance in these efforts, please contact Victoria Sheridan by e-mail at vsheridan@ebglaw.com or by phone at (973) 639-8296.

The final copy of the request for information is scheduled to be published in the Federal Register on June 25, 2018.

Tuesday’s decision by Judge Richard Leon of the U.S. District Court for the District of Columbia categorically approving the merger of AT&T and Time Warner, without imposing any conditions or limitations and rejecting granting a stay for appeal purposes, will, unless blocked if there is an appeal, open the way for a series of pending vertical merger deals.

A “vertical merger” is a merger of two companies that do not compete and that are at different levels of the product or service-provision process. Such mergers do not reduce the number of competitors in a given market and, by producing efficiencies, generally have been considered productive and far less economically threatening than horizontal mergers among competitors. Indeed the Department of Justice (DoJ) had not challenged such a merger since the early 1970s. In challenging AT&T, DoJ argued that economic harm was threatened by the purported ability of the acquiring company to control downstream access to product and thus cause raised prices to consumers.  Judge Leon rejected DoJ’s arguments in all regards.

The communications industry has been patiently awaiting the outcome of the case. But that isn’t the only economic sector that is going to see energetic activity. The health care sector stands right beside it, and we expect to see vertical merger action there too.

There are many major deals in the wings and, especially in the health care space, a number of them involve potential vertical relationships. As health care costs continue to rise and both public and private payers move towards value-based and other models, vertical integration is expected to become more attractive.

We at Epstein Becker Green will be writing in greater detail in the days to come, but our antitrust team already is gearing up for counseling and litigation defense matters generated in the wake of the AT&T case. We’ll continue to report on any subsequent activity in that matter as well, with the deal set to close on June 21, unless a higher court intervenes. That team, consisting of Stuart Gerson, John Steren, Trish Wagner, and Mark Lutes, among others, scored a recent victory in an important merger case on behalf of its client Palmetto Health* in the Fourth Circuit case of SCPH Legacy Corp. v. Palmetto Health, in which the U.S. Court of Appeals rejected claims of antitrust standing and antitrust injury, two fundamental issues in merger analysis.

*Prior results are based on the merits of the case and do not guarantee a similar outcome.

The pace of health care transactions is robust, purchase price multiples are increasing, and many health care businesses are taking advantage of a sellers’ market.  Recently, our clients have increasingly turned to representation and warranty (“R&W”) insurance, finding a market more amenable to the nuances of health care deals than in the past. In the right deal, R&W insurance can limit risk to both seller and buyer and increase value to a seller by allowing for “walk-away” or “naked” deals.  R&W insurance may also be used as a tool by a buyer to increase the attractiveness of its offer in a competitive environment.

The acquisition of a company or its assets is typically governed by a purchase agreement and related transaction documents. The purchase agreement will contain various representations and warranties by the seller regarding a variety of matters, such as the seller’s assets and financial performance (including growth projections), and the accuracy of its billings for services, and its compliance with law (including healthcare laws and regulations). The buyer must do its own diligence before consummating a transaction, but in connection with such diligence it also relies on the seller’s representations and warranties. Following the closing of the transaction, if it is determined that one of the seller’s representations was incorrect (i.e., breached) and the buyer suffers damages as a result, the buyer usually has a right to compensation pursuant to the purchase agreement and related transaction documents.  Frequently, however, those agreements limit the amount that the buyer may recover, either in total, or by using various formulas, deductibles, and/or caps.   Even in the absence of these limits, if the cash purchase price has been distributed by a seller to its creditors and owners, a buyer seeking recovery may face a complex and difficult process.

The most common way to protect a buyer from potential losses that may be difficult to recover using simple indemnification is to escrow a portion of the purchase price from which claims may be paid. The amount of the escrow and how long it must be held are important negotiated terms in the purchase agreement. At the conclusion of the agreed-upon escrow period, the funds remaining in the escrow account will be released to the seller. Naturally, a buyer will want the most protection (and a large escrow amount), while a seller will want to retain the largest portion of the purchase price (and a small escrow amount). That’s where R&W insurance comes in.

R&W insurance shifts the risk of liability for breaches of representations and warranties from the seller to the insurance company in order to provide the parties to the transaction with greater protection post-closing. By utilizing R&W insurance, a buyer will be more comfortable placing a smaller portion (or even none) of the purchase price in escrow, resulting in a larger portion of the purchase price being paid to the seller at closing. In the event a breach of covered representations and warranties by the seller is discovered post-closing, the buyer may look to the insurance company rather than to the escrow (and therefore to the seller) to be made whole.

R&W insurance is an interesting way to shift the risk involved in a transaction and to provide a buyer with greater certainty of collection in the event of a breach. Further, making R&W insurance a component of a bid may provide a buyer a way to favorably distinguish itself from other bidders in a typical “sale process” run by investment bankers (or in auction-style sale). There are many other considerations, however, when deciding whether to use R&W insurance in lieu of the traditional escrow model. Such considerations include, among others:

  • The size of the policy needed for the transaction, and whether the resulting cost of the policy makes good business sense. The size of a policy can range significantly, in theory covering losses up to the full purchase price, which will impact the cost of the insurance.
  • Whether, and the extent to which, the buyer wants the seller to have “skin in the game” post-closing (i.e., in the form of an escrow), potentially making R&W insurance less desirable.
  • Which representations and warranties the policy excludes. If significant claims are excluded (e.g., Medicare claims, HIPAA violations, or specific matters already under government investigation or subject to litigation), there may be a weaker business case for buying R&W insurance.
  • Who will pay for the R&W insurance (buyer? seller? split?).
  • Some healthcare deals are harder to insure for representations and warranties relating to billing and coding compliance, such as providers with a higher percentage of government payor reimbursement and a greater number of “high-end” CPT codes.
  • The policy’s requirements for a buyer to make (and collect) a claim under the policy. For example, does the policy contain a materiality requirement?  Are the policy requirements consistent with the term of the purchase agreement?

Buyers and sellers should be aware of the existence of R&W insurance, as well as the above considerations, when analyzing and negotiating transactions. It may provide a valuable alternative to the traditional indemnification escrow model.

The National Institute of Standards and Technology (“NIST) has announced that it will be seeking industry input on developing “use cases” for its framework of cybersecurity standards related to patient imaging devices. NIST, a component of the Department of Commerce, is the agency assigned to the development and promulgation of policies, guidelines and regulations dealing with cybersecurity standards and best practices.  NIST claims that its cybersecurity program promotes innovation and competitiveness by advancing measurement science, standards, and related technology in ways that enhance economic security and quality of life. Its standards and best practices address interoperability, usability and privacy continues to be critical for the nation. NIST’s latest announcement is directed at eventually providing security guidance for the healthcare sector’s most common uses of data, inasmuch as that industry has increasingly come under attack.

The current announcement is reflective of the interest of NIST and the Food & Drug Administration (“FDA”), the primary regulatory agency for medical devices, within the so-called Internet of Things (“IoT”).  Thus, NIST, through its National Cybersecurity Center of Excellence, will accept proposals up to  June 8, 2018, for “products and technical expertise” relevant to the creation of guidelines for securing data used by Picture Archiving and Communication Systems (“PACS”). NIST will attempt to harmonize the requirements for patient imaging devices with NIST’s overall cybersecurity framework.

The proposed project will examine the specific uses and regulatory requirements for patient imaging devices, and how those varying considerations apply to the use of the NIST cybersecurity framework. As the NIST project summary notes PACS are regulated by the FDA as “class II” devices that provide one or more functions related to the “acceptance, transfer, display, storage, and digital processing of medical images.”  These devices, which can be found in virtually every hospital, are not only vulnerable to cyber-attack in and of themselves, but NIST sees them as a “pivot point into an integrated healthcare information system.”

The current imaging device project follows last year’s release of draft guidelines for wireless infusion pumps, and evidences the government’s continuing concern, not only with the security of the IoT, but with specific reference to the vulnerable health care sector.

Epstein Becker Green routinely deals with questions related to medical device regulation and cybersecurity. For further information, you can contact Stuart Gerson, Adam Solander, Bradley Merrill Thompson or James Boiani.

The Florida State Legislature has decided to eliminate its state licensure requirement for clinical laboratories.  Effective July 1, 2018, Florida’s recent legislation (SB 622) repeals the entirety of Chapter 483, Part I of the Florida statutes, and in doing so removes the state licensure requirement for clinical laboratories operating in-state and out-of-state.  Section 97 of SB 622, approved by the Governor on March 19, 2018, repeals the entirety of Chapter 483, Part I of the Florida statutes, and therefore, in tow, eliminates section 59A-7.024(1) and as well as all other corresponding regulations.

Currently, all clinical laboratories providing services within the state of Florida must maintain a state license unless you were either: (1) a clinical laboratory operated by the U.S. government; (2) a clinical laboratory that only performed waived tests; or (3) a clinical laboratory that was operated and maintained exclusively for research and teaching purposes that did not provide services to patients.  Furthermore, an out-of-state laboratory testing specimens derived from the state of Florida is also required to obtain Florida state licensure if: (1) the out-of-state laboratory maintains an office, specimen collection station or other facility within the state of Florida (Fla. Adm. Code 59A-7.024); or (2) receives a specimen for examination from a clinical laboratory located within the state of Florida (Fla. Stat. § 483.091).

Beginning July 1, 2018, clinical laboratories and stakeholders will be able to provide their laboratory services in Florida or to Florida healthcare providers as long as they meet federal CLIA certification requirements.  Florida’s Agency for Health Care Administration (AHCA) expects to roll-out notifications regarding the change in state licensure requirements to currently licensed clinical laboratories in approximately two weeks and will post notice on its website.

In yet another development on the fight to address the opioid epidemic, U.S. Attorney General Jeff Sessions announced on Tuesday, April 17th that the U.S. Drug Enforcement Administration (“DEA”) will issue a Notice of Proposed Rulemaking (“NPRM”) amending the controlled substance quota requirements in 21 C.F.R. Part 1303. The Proposed Rule was published in the Federal Register yesterday and seeks to limit manufacturers’ annual production of opioids in certain circumstances to “strengthen controls over diversion of controlled substances” and to “make other improvements in the quota management regulatory system for the production, manufacturing, and procurement of controlled substances.”[1]

Under the proposed rule, the DEA will consider the extent to which a drug is diverted for abuse when setting annual controlled substance production limits. If the DEA determines that a particular controlled substance or a particular company’s drugs are continuously diverted for misuse, the DEA would have the authority to reduce the allowable production amount for a given year. The objective is that the imposition of such limitations will “encourage vigilance on the part of opioid manufacturers” and incentivize them to take responsibility for how their drugs are used.

The proposed changes to 21 C.F.R. Part 1303 are fairly broad, but could lead to big changes in opioid manufacture if implemented. We have summarized the relevant changes below.

Section 1303.11: Aggregate Production Quotas

Section 1303.11 currently allows the DEA Administrator to use discretion in determining the quota of schedule I and II controlled substances for a given calendar year by weighing five factors, including total net disposal and net disposal trends, inventories and inventory trends, demand, and other factors that the DEA Administrator deems relevant. Now, the proposed rule seeks to add two additional factors to this list, including consideration of the extent to which a controlled substance is diverted, and consideration of U.S. Food and Drug Administration, Centers for Disease Control and Prevention, Centers for Medicare and Medicaid Services, and state data on legitimate and illegitimate controlled substance use. Notably, the proposed rule allows states to object to proposed, potentially excessive aggregate production quota and allows for a hearing when necessary to resolve an issue of material fact raised by a state’s objection.

Section 1303.12 and 1303.22: Procurement Quotas and Procedure for Applying for Individual Manufacturing Quotas

Sections 1303.12 and 13030.22 currently require controlled substance manufactures and individual manufacturing quota applicants to provide the DEA with its intended opioid purpose, the quantity desired, and the actual quantities used during the current and preceding two calendar years. The DEA Administrator uses this information to issue procurement quotas through 21 C.F.R. § 1303.12 and individual manufacturing quotas through 21 C.F.R. § 1303.22. The proposed rule’s amendments would explicitly state that the DEA Administrator may require additional information from both manufacturers and individual manufacturing quota applicants to help detect or prevent diversion. Such information may include customer identities and the amounts of the controlled substances sold to each customer. As noted, the DEA Administrator already can and does request additional information of this nature from current quota applicants. The proposed rule would only provide the DEA Administrator with express regulatory authority to require such information if needed.

Section 1303.13: Adjustments of Aggregate Production Quotas

Section 1303.13 allows the DEA administrator to increase or reduce the aggregate production quotas for basic classes of controlled substances at any time. The proposed rule would allow the DEA Administrator to weigh a controlled substance’s diversion potential, require transmission of adjustment notices and final adjustment orders to a state’s attorney general, and provide a hearing if necessary to resolve material factual issues raise by a state’s objection to a proposed, potentially excessive adjusted quota.

Section 1303.23: Procedures for Fixing Individual Manufacturing Quotas

The proposed rule seeks to amend Section 1303.23 to deem the extent and risk of diversion of controlled substances as relevant factors in the DEA Administrator’s decision to fix individual manufacturing quotas. According to the proposed rule, the DEA has always considered “all available information” in fixing and adjusting the aggregate production quota, or fixing an individual manufacturing quota for a controlled substance. As such, while the proposed rule’s amendment may require manufacturers to provide the DEA with additional information for consideration, it is not expected to have any adverse economic impact or consequences.

Section 1303.32: Purpose of Hearing 

Section 1303.32 currently grants the DEA Administrator to hold a hearing for the purpose of receiving factual evidence regarding issues related to a manufacturer’s aggregate production quota. The proposed rule would amend this section to conform to the amendments to sections 1303.11 and 1303.13 discussed herein, allowing the DEA Administrator to explicitly hold a hearing if he/she deems a hearing to be necessary under sections 1303.11(c) or 1303.13(c) based on a state’s objection to a proposed aggregate production quota.

Industry stakeholders will have an opportunity to submit comments for consideration by the DEA by May 4, 2018.

[1] DEA, NPRM 21 C.F.R. Part 1303 (Apr. 17, 2018).

The Health Care Compliance Association (HCCA) kicked off its 22nd Annual Compliance Institute on Monday, April 16, 2018. During the opening remarks, Inspector General Daniel Levinson, of the Department of Health and Human Services (HHS) Office of Inspector General Office (OIG), announced the rollout of a new public resource to assist companies in ensuring compliance with Federal health care laws. The Compliance Resource Portal on the OIG’s website features:

  • Toolkits
  • Advisory opinions
  • Provider Compliance Resource and Training
  • Voluntary Compliance and Exclusions Resources
  • Resources for Health Care Boards and Physicians
  • Accountable Care Organizations
  • Special Fraud Alerts, Other Guidance, and Safe Harbors

The main benefit of the portal is that it streamlines public access to helpful compliance guidance resources, and allows for OIG to highlight new materials and updates.  For example, the portal already indicates that a Toolkit to Identify Patients at Risk of Opioid Misuse is “coming soon.”

In addition to announcing the portal, the Inspector General also touched on the dynamic shift in compliance considerations due to changes in the health care industry. Shifts such as the move towards value based care and the increase in role of technology create new risks and issues for providers, which makes user-friendly public access to compliance resources increasingly more important.

The Inspector General also emphasized the OIG’s focus on the “power of data” when it comes to compliance.  Mr. Levinson’s remarks indicated that data-driven decision making is crucial to navigating risk-mitigation waters, and that consequently the OIG places high value on the diligent collection and review of data in the compliance context.

The long-running saga of the Medicare appeals backlog added a new chapter that may give frustrated stakeholders a new remedy.[1]  On March 27, 2018, the United States Court of Appeals for the Fifth Circuit ruled that a home health agency may pursue a claim against the Secretary of HHS for failing to provide a hearing before an Administrative Law Judge within a reasonable time.  Family Rehabilitation, Incorporated v. Azar, No. 17-11337 (5th Cir., Mar. 27, 2018).

In this case, Family Rehabilitation (“Family”) received a notice from a Medicare Zone Integrity Program Contractor (“ZPIC”) in 2016 alleging that it had been overpaid $7.88 million based on an extrapolation from a sample of 43 claims.  It pursued its administrative appeal rights, and after the second level of review the overpayment was reduced to $7.62 million. At that point, its Medicare Administrative Contractor began recouping the alleged overpayment; at the same time, Family requested a hearing before an Administrative Law Judge. However, due to the backlog of Medicare Part B appeals, the Secretary conceded that it would take between three and five years to schedule a hearing even though the Social Security Act requires that an ALJ issue a decision within 90 days of a timely hearing request.[2]

Family was caught in a bind: if it waited for a hearing, it would likely have gone out of business without any Medicare reimbursement while over seven million dollars was being recouped. It took the drastic step of seeking an injunction to prevent CMS from recouping the alleged overpayments until its appeal had been decided. It alleged that because the recoupment would force it to go out of business before it had any chance to have its appeal heard, this amounted to irreparable harm and authorized the injunctive relief to prevent the Secretary from acting beyond the scope of his authorityAlthough the District Court dismissed the case on jurisdictional grounds, the Court of Appeals reversed the judgment and concluded that Family could state a cause of action based on the Secretary’s alleged failure to comply with the statute.

The Court of Appeals explained that although there is a presumption that all Medicare appeals will follow the established four levels of administrative appeals before a federal court will review the Secretary’s actions, there are exceptions. One well-established caselaw exception allows for direct judicial review of matters that are “entirely collateral” to a claim for benefits, and where the full relief requested cannot be obtained in an after-the-fact hearing.  The Court agreed that both elements were met, and that Family could argue that this provided a separate cause of action for relief. It agreed that the relief sought for alleged due process and equal protection violations could not be obtained through the administrative hearing process, and did not require a court to “wade into the Medicare Act and regulations” governing home health coverage and reimbursement; as a result, since the claims made by Family were unrelated to the merits of the alleged overpayment and recoupment because Family was not challenging the authority of CMS to recoup overpayments, they were entirely collateral.  The Fifth Circuit then sent the case back to the district court for a ruling on Family’s request for an injunction.

Although the Fifth Circuit did not rule on Family’s requests for an injunction, the decision is significant for stakeholders because it may give them an avenue for interim relief when CMS acts first, offers after-the-fact appeals, but then forces them to wait for years before deciding an appeal or even scheduling a hearing. The decision is narrow, but would be useful in circumstances where CMS is moving forward with recoupment of disputed Medicare funds that may ruin a provider or supplier because it would be out of business before it could even get a hearing. It may offer providers and suppliers a targeted remedy to forestall a recovery of disputed Medicare funds before a provider or supplier can have a hearing. This is different from an action that seeks to block CMS from taking any action before the administrative appeals process has been exhausted, because it does not challenge the merits of an alleged overpayment or the Secretary’s authority to recover overpayments.   In its decision, the court expressly rejected the Secretary’s arguments that Family was really seeking to prevent the recoupment of an overpayment, and was not persuaded that Family’s motivation was to short-circuit the appeals process. It noted that the relief sought was limited to suspending the recoupment before a hearing, which is different from a request to prohibit the recoupment altogether.

The slow pace of any executive or legislative remedy for the Medicare auditing and administrative appeals process may mean that in these circumstances federal courts may be less inclined to be deferential to agencies, and are open to finding that agency non-compliance may rise to the level of a constitutional violation.

[1] The ongoing history of the Medicare appeals backlog and attempts to remedy the situation are discussed in American Hospital Association v. Burwell, 209 F. Supp. 2d 221 (D.D.C. 2016).

[2] 42 U.S.C. § 1395ff(d)(1)(A).

Faced with the inability to repeal the Affordable Care Act (“ACA”) outright, the Trump Administration and Congress have taken actions to provide more health insurance options for Americans.  Thus far, the Administration announced that they would no longer make cost sharing reduction (“CSR”) payments to insurers on the Exchanges and extended the time period in which short-term, limited-duration insurance (“STLDI”) plans could be offered.  Meanwhile, Congress removed the individual mandate in the 2017 tax bill. The Administration asserts that these efforts are all solutions geared toward helping more Americans receive care as premiums are rising.  A March 28, 2018 Gallup poll showing that health care costs are a higher concern for Americans, over the economy supports the Administration’s asserted justification. However, some states have recently taken their own steps to provide more health coverage options for their citizens while discounting the ACA, possibly reflecting a sense of dissatisfaction with the seemingly dragging feet of the Federal Government.

Idaho

The Governor of Idaho released an Executive Order on January 5, directing the Idaho Department of Insurance to approve options that follow all state-based requirements, even if not all ACA requirements are met, so long as the carrier offering the option also offered an exchange-certified alternative in Idaho and authorized the Director of the Department of Insurance to seek a waiver from the U.S. Department of Health and Human Services in conjunction with this Executive Order, if the Director believed it is appropriate or necessary.

Idaho officials then released Bulletin No. 18-01 on January 24, which provides new provisions for “state-based plans” for those individuals who do not qualify for premium subsidies under the ACA. Under Idaho’s proposal, insurers would be allowed to (1) sell plans with 50% higher premiums for people with pre-existing conditions; (2) exclude coverage for pre-existing conditions for people who had a gap in coverage; (3) vary premiums by 5-to-1 based on age; (4) exclude coverage for some ACA essential benefits such as maternity care; and (5) set a $1 million annual cap on benefits. All of these provisions are prohibited by the ACA.

In February, Idaho sought approval for the Bulletin by Center for Medicare and Medicaid Services (“CMS”); however, CMS denied the proposition. CMS Administrator Seema Verma wrote a letter stating that Idaho’s proposed requirements are not in compliance with the ACA and warned that, if Idaho did not enforce the ACA standards, CMS would be forced to step in and directly enforce the ACA protections in the Idaho market.  If any health insurance issuer that is subject to CMS’s enforcement authority fails to comply with the ACA requirements, it may be subject to civil monetary penalties for each violation of up to $100 each day, for each responsible entity, for each individual affected by the violation.  Despite the response from CMS, Idaho still seeks to expand coverage options for Idaho residents.

Iowa

In a similar fashion, Governor Kim Reynolds urged the Iowa legislature to make health insurance affordable for Iowa residents in the Condition of the State Address.  On April 2, the Governor signed into law a bill that allows small businesses or self-employed individuals to band together to buy coverage through association health plans that do not comply with ACA plans.  The legislation would allow insurers to deny coverage to those with pre-existing conditions, create lifetime caps, and does not offer maternity care.   However, proponents of the bill emphasize that the coverage would not be considered insurance, but rather would simply function as a “health benefits plan”.  Proponents also note that these plans are cheaper alternatives for small employers or the self-employed.

Key Takeaways

States creating affordable health coverage with blatant disregard for the ACA is a note-worthy development in today’s tense healthcare climate. The outcome of the push of these initiatives by states is crucial because they are challenging the Administration’s willingness to enforce the ACA. Tolerance of such state plans would lead to cherry-picking, which would inevitably cause further destabilization of the market. Notably, CMS and Secretary of Health and Human Services Alex Azar have each emphasized upholding ACA as the law of the land. Stakeholders should pay attention to the outcome of these proposals because not only would the implementation of these plans destabilize markets, but the plans could also incentivize more states to follow suit and create their own plans.

The Centers for Medicare and Medicaid Services (“CMS”) issued on April 2, 2018, an advanced copy of the final rule title “Medicare Program; Contract Year 2019 Policy and Technical Changes to the Medicare Advantage, Medicare Cost Plan, Medicare Fee-for-Service, the Medicare Prescription Drug Benefit Programs, and the PACE Program” (“Final Rule”). This Final Rule will be published in the April 16, 2018 issue of the Federal Register.

This Final Rule implements provisions of the proposed rule that CMS released titled “Medicare Program; Contract Year 2019 Policy and Technical Changes to the Medicare Advantage, Medicare Cost Plan, Medicare Fee-for-Service, the Medicare Prescription Drug Benefit Programs, and the PACE Program” (“Proposed Rule”), which was published in the Federal Register on November 28, 2017.

Upon review of over 1,600 comments, CMS finalized many of the provisions as proposed or with minor revisions, deferred addressing some proposals until a later date, or opted not to finalize some provisions as proposed in the Proposed Rule.

We have summarized major provisions of the Proposed Rule in a three part Client Alert which EBG published earlier this year. For the provisions summarized in our Client Alert, the following chart reflects CMS’s actions in the Final Rule:

Provision CMS Action
Part 1 Client Alert: Negotiated Prices
Request for Information Regarding the Application of Manufacturer Rebates and Pharmacy Price Concessions to Drug Prices at the Point of Sale

 

Not Finalized

 

CMS is not finalizing any proposal at this time. Any new requirements would be addressed through future rulemaking.

Part 2 Client Alert: Beneficiary Cost, Access, and Protection
Part D Tiering Exceptions Finalized as proposed
Expedited Substitutions of Certain Generics and Other Midyear Formulary Changes Finalized with minor revisions
Treatment of Follow-On Biological Products as Generics for Non-Low Income Subsidy (“LIS”) Catastrophic and LIS Cost Sharing Not Finalized

 

CMS is not finalizing its proposed revision to the definition of generic drug. Instead, CMS is finalizing a different approach by modifying language at 42 § 423.782(a)(2)(iii)(A) and § 423.782(b)(2), to achieve the same desired goal of setting the copay amounts for biosimilars and interchangeable products to those of generics.

“Any Willing Pharmacy” Standard Terms and Conditions and Better Definitions of Pharmacy Types Finalized with minor revisions
Elimination of Meaningful Difference Requirement Finalized as proposed
Medicare Medical Loss Ratio Finalized with minor revisions
Part 3 Client Alert: Implementation of Comprehensive Addiction and Recovery Act of 2016 (“CARA”)
Drug Management Program for At-Risk Beneficiaries-
1. Identification of “At-Risk Beneficiaries” Finalized with minor revisions
2. Requirements of Drug Management Programs:
  • Written policies and procedures
Finalized with minor revisions
  • Case management/clinical contact/prescriber verification
Finalized with minor revisions
  • Limitations on Access to Coverage for Frequently Abused Drugs
Finalized with minor revisions
  • Requirements for Limiting Access to Coverage for Frequently Abused Drugs
Finalized with minor revisions
  • Beneficiary Notices
Finalized with minor revisions
  • Provisions Specific to Limitations on Access to Coverage of Frequently Abused Drugs to Selected Pharmacies and Prescribers
Finalized  with minor revisions
  • Drug Management Program Appeals
Finalized with minor revisions
  • Termination of a Beneficiary’s Potential At-Risk or At-Risk Status
Finalized with minor revisions
  • Data Disclosure and Sharing of Information for Subsequent Sponsor Enrollments
Finalized with minor revisions
Special Enrollment Period Limitations for At-Risk Dually-Eligible or Low-Income Subsidy-Eligible Beneficiaries Finalized with minor revisions
Part D Opioid Drug Utilization Review Policy and Overutilization Monitoring System Finalized as proposed[1]

The Final Rule will be effective for Medicare Advantage and Part D plans for the 2019 contract year. For additional information about the issues discussed above, please contact one of the authors or the Epstein Becker Green attorney who regularly handles your legal matters.

[1] Additional policies for plan year 2019 related to opioid drug utilization review controls were included in the Final Call Letter issued on April 2, 2018, available at https://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRateStats/Downloads/Announcement2019.pdf.