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.

Two cases decided over the last three months have added California[1] and Massachusetts[2] to the list of minority states that hold brand name manufacturers of drugs (“Brand Manufacturers”) liable under state “failure to warn” laws when sued by patients that exclusively used a generic version of the Brand Manufacturer’s drug.  These cases follow the US Supreme Court decision in PLIVA, Inc. v. Mensing, 131 S. Ct. 2567 (2011) (“PLIVA”), which held that generic drug manufacturers cannot be held liable for failure to update the safety label of a drug or biologic in violation of state “failure to warn” tort law since regulations from the U.S. Food and Drug Administration (“FDA”) prohibit generic manufacturers from unilaterally updating a generic drug’s label.  Following PLIVA, the FDA proposed a rule entitled, “Supplemental Applications Proposing Labeling Changes for Approved Drugs and Biological Products” (“Proposed Rule”) meant to allow generic drug or biologic manufacturers (“Generic Manufacturers”), under certain circumstances, to update safety labels without the requirement that the label match the label of the Brand Manufacturer.  The Proposed Rule also would have required Generic Manufacturers in certain circumstances to collect post-market safety information.  However, after twice delaying publication of a final rule, the FDA withdrew its Proposed Rule last year.   Now that the Proposed Rule has been withdrawn, manufacturers holding New Drug Applications or Biological License Applications (collectively herein, “NDAs”) for the drugs or biologics they manufacture are faced with increased uncertainty with regard to the application of state “failure-to-warn” duties and liabilities, especially in light of the recent decisions by the California  and Massachusetts supreme courts.

The Evolution (or lack thereof) of Failure to Warn Cases

PLIVA held that Generic Manufacturers have only “an ongoing federal duty of ‘sameness’” meaning that a Generic Manufacturer is required only to keep its warning label identical to the Brand Manufacturer’s.  However, PLIVA left the determination of whether Brand Manufacturers would be liable under the same laws up to each state to decide.  Most state courts have not imposed a duty to warn onto Brand Manufacturers when the injury stems from the exclusive use of a generic drug.   However, two recent cases in California and Massachusetts have expanded the number of minority-view states.

While following PLIVA, the California Supreme Court’s decision in T.H. v. Novartis Pharmaceuticals Corp., 4 Ca. 5th 145 (Cal. Dec. 21, 2017) (“Novartis”) in many ways is an extension of Conte v. Wyeth, Inc., 168 Cal.App.4th 89, 94 (2008) (“Conte”), a decision that pre-dates PLIVA.  Conte was the first case to hold that Brand Manufacturers owe a duty of care to patients whose “doctors foreseeably rely on the name-brand manufacturer’s product information when prescribing a medication, even if the prescription is filled with a generic version of the prescribed drug.”  Novartis held that “a brand-name drug manufacturer owes a duty of reasonable care in ensuring that the label includes appropriate warnings, regardless of whether the end user has been dispensed the brand-name drug or its generic bioequivalent.”  The majority’s decision applied factors that focused on foreseeability and public policy justifications for (or against) carving out exceptions to the general duty to warn.  Ultimately, noting that California places greater emphasis on foreseeability than other states when determining whether to obligate a party as having a duty, the Court held that Brand Manufacturers have a duty and “can be liable for the effects of its deficient warning label, despite transferring the NDA to a successor, if the harm is reasonably foreseeable and is proximately caused by the label.”   The Court stated that the federal requirement to revise “a warning as soon as there is reasonable evidence of an association of a serious hazard with a drug” without needing causal proof under 21 C.F.R. § 201.80(e) created a “continuing duty to warn of potential risks.”  The decision was not without controversy mostly because the Court held that the Brand Manufacturer was still duty-bound despite divesting itself from ownership and control of the NDA.

The dissent in Novartis noted that “predecessor liability for failure to warn has never before been recognized by any court, in any jurisdiction” and that two prior decisions, In re Darvocet, Darovan and Propoxyphene Products Liability Litigation, 2012 WL 767595 (E.D.Ky. Mar. 7, 2012) and Lyman v. Pfizer, No. 2:09-cv-262 (D.Vt. July 20, 2012), each rejected predecessor liability as the original manufacturer’s “failure to warn” would be too remote to establish proximate cause of the injury.  In terms of transferring the duty through divestment, the dissent noted that “[t]here is no logical stopping point” for this broad and continuing duty for Brand Manufacturers.   The majority’s opinion offers no guideposts as to when divestment is sufficient to cease liability or at what time interval the predecessor is relieved of this duty.

The Massachusetts Supreme Court struggled with when to impose the duty to warn on a Brand Manufacturer in its recent opinion in Rafferty v. Merck & Co, Inc., 479 Mass. 141 (Mar. 16, 2018) (“Merck”).  While following PLIVA’s strict guidance that Generic Manufacturers cannot be held accountable under failure to warn laws where the Generic Manufacturer has adhered to the “duty of sameness,” the Court found that “public policy is not served if generic drug consumers have no remedy for the failure of a [Brand Manufacturer] to warn in cases where such failure exceeds ordinary negligence.”  However, rather than impose a duty under the plaintiff-friendly negligence standard, the Court held that a Brand Manufacturer’s duty is “the duty not to intentionally or recklessly cause harm to others.”  The court reasoned “that allowing a generic drug consumer to bring a general negligence claim for failure to warn against a brand-name manufacturer poses too great a risk of chilling drug innovation, contrary to the public policy goals embodied in the Hatch-Waxman amendments.”  After establishing this new standard, the Court permitted the plaintiff to amend his complaint to add “a common-law recklessness claim” if the plaintiff could allege that the Brand Manufacturer “intentionally failed to update the label on its drug, knowing or having reason to know of an unreasonable risk of death or grave bodily injury associated with its use.”

Perhaps in response to Novartis, the Court described its holding as applying to a Brand Manufacturer “that controls the contents of the label on a generic drug,” though no additional guidance was provided on the issue of predecessor liability.  By choosing a recklessness standard, Massachusetts becomes the first “middle ground” state on the issue: while becoming a minority state in terms of finding a duty to warn for Brand Manufacturers under the circumstances, it is also “the only court to limit the scope of liability arising under this duty to reckless disregard of the risk of death or grave bodily injury.”

The Federal Regulatory Landscape

FDA regulations require a Brand Manufacturer to obtain FDA approval of all labeling and to update the label of its drug “as soon as there is reasonable evidence of an association of a serious hazard with a drug; a causal relationship need not have been proved.”  The FDA allows the company that holds an NDA to submit a “Changes Being Effected” supplement or “CBE-0” which allows Brand Manufacturers to unilaterally update their labels immediately upon receipt by the FDA of the supplement, under certain circumstances, including strengthening a safety label or adding additional warnings.

However, as the PLIVA decision made clear, this requirement falls squarely on the shoulders of the NDA holder and does not pass onto Generic Manufacturers.  Instead, Generic Manufacturers, under PLIVA, must maintain a duty of “sameness”.  As a result, a Generic Manufacturer may not unilaterally update the drug’s label if the update will cause the label to be different from the brand name drug’s label.  The FDA originally enacted this requirement as part of the Hatch-Waxman Act  to assure prescribers that the generic drug is bioequivalent to the brand name drug, thereby encouraging the use of generic drugs.  However, the Proposed Rule indicates that the FDA was considering changing its position on the issue.

Under the Proposed Rule, a Generic Manufacturer would have had the ability to unilaterally change its drug’s label under CBE-0.  Additionally, a Generic Manufacturer would have been able to send a “Dear Health Care Provider” letter describing the reasons for the change in an effort to disseminate urgent information regarding the drug’s safety, dosage, administration, or efficacy information.  Unfortunately, after extending a public comment period and hosting a Public Hearing to discuss the Proposed Rule, the FDA  withdrew the rule on September 29, 2017.  This decision leaves states in the precarious position of trying to balance the rights of Brand Manufacturers and clients of Generic Manufacturers, as well as traditional theories of tort liability, as the Merck decision clearly demonstrates.   The dissent in the Novartis decision specifically discussed the Proposed Rule and how a final rule on the issue would likely have altered the Court’s analysis and changed its decision.

Conclusion

In the wake of these cases, only one thing is clear: state courts continue to struggle with how to apply the federal preemption of liability for Generic Manufacturers from state failure to warn liability under PLIVA.  Even where states have adopted liability for Brand Manufacturers, additional questions persist.  The Novartis decision creates no clear line of when a Brand Manufacturer’s liability evaporates through the passage of time or divestment from an NDA.  The Merck decision sets out a new standard without applying it.  This leaves Brand Manufacturers with few answers when determining whether to expand their monitoring activities and determining how aggressive to be in filing for a CBE-0 for products the Brand Manufacturer may no longer manufacture or own.

[1] T.H. v. Novartis Pharmaceuticals Corp.  4 Cal. 5th 145 (Dec. 21, 2017)

[2] Rafferty v. Merck & Co, 479 Mass. 141 (Mar. 16, 2018)

The Medicare Payment Advisory Commission (“MedPAC”) met in Washington, DC, on March 1-2, 2018. 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 gives an update on CMS’s financial alignment demonstration for dual-eligible beneficiaries

MedPAC provided an update to CMS’s demonstration for dual-eligible beneficiaries.  The purpose of the demonstration is to improve the quality of care in the dual-eligible program and reduce costs in both Medicare and Medicaid programs.  MedPAC briefly reported on the two demonstration models tested among 13 states: (1) Medicare-Medicaid Plans (“MMPs”) and (2) Managed Fee-for-Services (“FFS”).

For MMPs, the rates appeared to be adequate following a 2016 increase in the Part A/B rates (5-10%).  Enrollment has been lower than expected because many beneficiaries chose to either opt out before passive enrollment took effect or disenroll from their MMP.  Although overall participation rate was 29 percent of eligible participants, the total MMP enrollment has been stable since mid-2015.  Plan participation in MMPs has decreased.  Eighteen MMPs have left the demonstration largely because participation and enrollment were very low.  Regarding the effects of MMPs on service use, quality, and cost, CMS is still collecting reports and data.  However, MedPAC expects that the reports from the first and second year of the demonstration will provide little insight since implementing the demonstrations were challenging.  Some MMPs reported that it took 18 to 24 months before they could see changes in patterns of service use among their enrollees.

For Managed FFS, CMS estimated that there was a reduction in Medicare spending by $67 million during its first 2.5 years of operation in Washington state.  But MedPAC believed that the savings was inflated because the savings figure is based on an estimate of what Medicare would have otherwise spent on roughly 20,000 dual eligibles enrolled, while actual numbers of enrolled dual eligibles was closer to 3,000.  MedPAC recalculated the total savings to be approximately $9,000 per year.  In contrast, CMS found that Colorado state’s demonstration increased Medicare Part A/B spending.

Overall, MedPAC thought that the limited data showed that the demonstrations were going well despite the challenges at the start of the programs.

  1. MedPAC’s mandated report regarding the effects of the Hospital Readmissions Reduction Program

As part of the 21st Century Cures Act mandate, MedPAC provided a report on whether the Hospital Readmission Reduction Program (“HRRP”) had any effect on readmission rates.  MedPAC found that readmission rates declined faster after the program was enacted.  Although some critics of the program suggested that HRRP only shifted patients from readmission hospital stays to observation stays and emergency department (“ED”) visits.  However, MedPAC stated that its analysis showed rapid growth in use of observation and ED with and without an inpatient stay, suggesting that HRRP did not drive the increase.  Additionally, MedPAC also reported that overall, HRRP decreased mortality rates.  The one mortality that increased was heart failure, but MedPAC explained that the reason for the increased heart failure mortality was probably because of the decline in initial admissions (easier cases being treated on an outpatient basis), thereby increasing the raw readmission rates for more complicated conditions (e.g., heart failure).

  1. MedPAC discusses modifying Medicare rules to allow Discharge Planners to recommend higher-quality PAC providers

MedPAC discussed the possibility of modifying Medicare’s rules to permit discharge planners, under some circumstances, to recommend certain Post-Acute Care (“PAC”) providers. Beneficiaries served by low-quality providers are at an increased risk of re-hospitalization and more likely to experience negative clinical outcomes than beneficiaries served by higher quality providers. As such, it is central to both the integrity of the Medicare program and wellbeing of the beneficiaries that the value of the dollars spent on PAC is maximized.

Although the IMPACT Act required hospitals to use quality data during the discharge process and provide it to beneficiaries with the hopes that they would choose higher-quality PAC providers, preliminary reviews and data have shown that this method has failed to gain traction. MedPAC found that beneficiaries prefer to rely on information from trusted sources, such as their health care provider, families and friends over the reported quality data when it comes to choosing a PAC provider. This can be partially attributed to the fact that, as it stands, a discharge planner cannot recommend a specific PAC provider, but can only present the data to the beneficiary.

Thus, by modifying the rules to permit discharge planners to proactively recommend “higher-performing” PAC providers, discharge planners could assist beneficiaries in understanding the extent to which the quality of care varies among PAC providers within the beneficiary’s geographical area. Along with such a policy, the definition of “higher-quality” or “higher-performing” PAC would have to be established and quantified. MedPAC proposed both a “flexible” and “prescriptive” approach to defining a “higher-quality” PAC provider, and is awaiting Commissioner reaction to the different approaches or any other models that should be further considered.

  1. MedPAC discusses payment accuracy for sequential PAC stays

The Commission has long advocated for implementing a unified prospective payment system (“PPS”) for all four settings of post-acute care (“PAC”). Under such a system, each stay is considered an independent event, and payment is based on the average cost of stays. To reflect their much lower cost, the unified PPS would have a large adjustment for home health agencies. However, sequential stays, defined as a PAC stay within 7 days of a previous PAC stay, pose two challenges to payment accuracy. First, payments should track the cost of each stay in a sequence of care. Over the course of care, a beneficiary’s care needs are likely to fluctuate, with initial stays having different average costs than later stays. MedPAC found that the cost per stay for home health agencies are much lower for later stays in a sequence than the earlier stays. Thus, without some sort of an adjustment, profitability under a PAC PPS would be higher for later home health stays. If payments do not accurately reflect these fluctuations in care, providers may base their care on financial reasons rather than on the best course of care for the patient. Second, as regulations are aligned, some providers may opt to treat patients over a continuum of care, which makes it difficult to ensure that providers are accurately paid for each phase of care without improperly inducing volume of PAC admission. MedPAC discussed various strategies to counter the incentive to increase subsequent PAC stays, including redefining a “stay” as a long duration, requiring physician attestation of continued need of care, and implementing value-based purchasing that would include a resource use measure.

  1. MedPAC proposes two draft recommendations related to Emergency Department Use

MedPAC presented two draft recommendations related to improving efficiency and preserving access to emergency department (“ED”) care in both rural and urban areas. The primary objective has long been to preserve access to care in rural areas, by providing for higher inpatient rates to providers for rural PPS hospitals, and implementing a cost-based payment for critical access hospitals. However, these strategies have become increasingly inefficient and do not always preserve emergency access, as seen by declining admissions at critical access hospitals over the last 12 years. Thus, MedPAC proposed establishing a 24/7 ED in outpatient-only hospitals for isolated hospitals (those more than 35 miles from other hospitals). Such a program would be funded by outpatient PPS rates per service, as well as Medicare fixed subsidies to fund standby costs, emergency services, and physician recruitment. Such a policy would maintain emergency access in isolated areas and offset the cost of the additional ED payments with efficiency gains from consolidating inpatient services.

MedPAC’s second policy option addresses urban stand-alone EDs, where MedPAC is concerned that Medicare is encouraging overuse of ED services. MedPAC found that urban stand-alone EDs appear to have lower patient severity and lower standby costs than on-campus EDs (“OCEDs”) even though they are paid on the same basis as OCEDs. Thus, MedPAC recommended that policymakers consider either of two options for urban OCEDs in close proximity to on-campus hospital EDs (within six miles).  One option would be to have Medicare pay OCEDs a reduced Type A payment rate by using a fixed percentage across each of the five levels of ED service. The second option would be to pay these facilities Type B rates, which would lower ED payments, on average, by 28% across all five ED levels. For urban OCEDs that are more isolated from on-campus hospital EDs, MedPAC suggested permitting them to receive the higher-paying Type A rates as they currently do. The rationale for these policies would be to better align payments with the cost of care, to reduce incentives to build new EDs near existing sources of emergency care, and to preserve access to ED services where they are truly needed.

On February 20th the Department of the Treasury, Department of Labor, and Department of Health and Human Services (together the “tri-agencies”) released a proposed rule which would alter how long short-term, limited-duration insurance (“STLDI”) plans could be offered. Under current rules the maximum duration that a STLDI plan can be offered is less than 3 months, if the proposed rule is enacted that period would be extended to less than 12 months.  The tri-agencies are accepting comments on the proposed rule until April 23rd.

What are short-term, limited-duration health insurance plans?

STLDI plans were designed to provide temporary coverage for consumers who otherwise could not access longer-term health insurance products (such as a consumer transitioning between jobs). Coverage offered by STLDI plans is not considered Minimum Essential Coverage and because STLDI plans do not meet the definition of “individual health insurance coverage” established by the Public Health Service Act they are exempted from many of the Affordable Care Act (“ACA”) requirements. Due to the fact that STLDI plans don’t have to comply with ACA requirements they commonly feature preexisting condition exclusions, annual and life time limits, feature higher cost-sharing requirements, and are medically underwritten they tend to be less expensive and attract younger, healthier enrollees.

Why are the regulations changing?

The proposed rule was issued in response to President Trump’s October 12, 2017 executive order which, among other things, instructed the tri-agencies to reconsider the Obama era rule which limited the time period STLDI plan could be offered to less than 3 months. The presumed intent of proposed rule is to foster more and less expensive health insurance options for individuals in the individual market.  However, the Obama administration initially issued the regulations limiting STLDI plans after observing that the plans were adversely impacting the marketplace risk pools, and the political motivation to adversely impact those risk pools and through them “Obamacare” can’t be fully discounted.

What is the likely impact?

The consensus among policy makers is that extending the duration of the coverage period that STLDI can be offered is likely to increase the number of consumers who elect to enroll in these plans over health insurance that constitutes Minimum Essential Coverage. The number of people enrolling in STLDI plans is likely to increase further in 2019 when consumers will no longer face a tax penalty for failing to maintain minimum essential coverage. One estimate suggests that if the proposed rule is enacted in 2019, 4.2 million consumers will enroll in the STLDI plans and 2.9 million fewer people will maintain Minimum Essential Coverage. While we don’t know the scope this would have on the risk pools in the individual market, it warrants monitoring by plans and providers moving forward.