On Monday, August 12, 2018, the U.S. Department of Justice (“DOJ”) announced a new addition to its regional Medicare Fraud Strike Forces: a Newark/Philadelphia Regional Medicare Strike Force that will target both healthcare fraud and opioid overprescription.[1] The newly-formed Newark/Philadelphia Strike Force joins nine existing regional Medicare Strike Forces, all of which are focused in geographical areas of high healthcare fraud risk: Miami, Florida; Los Angeles, California; Detroit, Michigan; Southern Texas; Southern Louisiana; Brooklyn, New York; Tampa, Florida; Chicago, Illinois; and Dallas, Texas.[2] The Newark/Philadelphia Strike Force will be supported by the resources of several federal agencies, including the Health Care Fraud Unit of the Justice Department’s Criminal Division’s Fraud Section, the U.S. Attorney’s Offices for the District of New Jersey and the Eastern District of Pennsylvania, the FBI, U.S. Department of Health and Human Services Office of the Inspector General (“OIG”), and the U.S. Drug Enforcement Administration.[3]

The creation of the regional Newark/Philadelphia Strike Force comes as little surprise as this heavily populated region is home to many major players in the healthcare industry, including pharmaceutical companies and healthcare facilities. Significantly, earlier this year, Maureen Dixon, the Special Agent in Charge of OIG’s Philadelphia Regional Office testified before the U.S. Senate Committee on Finance’s Health Care Subcommittee and highlighted many cases in the New Jersey/Philadelphia region as prototypical examples of patient harm and prescription and treatment fraud and addressed efforts to prevent opioid overutilization and misuse.

Enforcement in the Region: Expect More Enforcement Against Providers and Home Health Care Agencies

The new Newark/Philadelphia Strike Force is expected to usher in quickly a new wave of fraud enforcement to the region. Historically, DOJ’s Strike Forces have targeted provider activity, with enforcement often aimed at clinicians and home health care agencies. The new Strike Force’s dedicated focus on opioid overutilization is in line with the priorities of the District of New Jersey’s U.S. Attorney Craig Carpenito, who has made the abuse of opioid prescriptions a target for his district.  In February of this year, the District of New Jersey’s U.S. Attorney’s Office reorganized and announced the formation of an Opioid Abuse Prevention and Enforcement Unit to complement the existing Healthcare and Government Fraud Unit within that Office’s Criminal Division.

Notably, the addition of the new Newark/Philadelphia Strike Force demonstrates DOJ’s continued belief that behavior – both on the provider and the patient sides – can be changed through enforcement. The Strike Forces’ data-driven model of health care enforcement eschews reliance on qui tam filings and whistleblowers for investigative leads in favor of identifying and targeting health care fraud through data analytics.  Nationwide, the Strike Forces have brought a significant increase in healthcare fraud prosecutions since the concept was first introduced in 2007. Indeed, since their creation in 2007, the Strike Forces have been instrumental in obtaining nearly 2,500 indictments related to over $3 billion in fraudulent health care payments.[4]Most recently, DOJ’s Medicare Strike Forces were in part responsible for the DOJ’s July 2018 health care fraud takedown, the nation’s largest to date, resulting in 601 arrests in connection with over $2 billion of fraudulent billings.[5] 162 defendants, including 32 doctors, were charged for their roles in prescribing and distributing opioids and other narcotics.[6]

Impact on Provider Exclusion Actions

It is likely that the number of exclusion actions pursued by OIG will increase in the region because of the Newark/Philadelphia Strike Force. In the intervening year between DOJ’s June 2017 and July 2018 health care fraud takedowns, the OIG issued nearly 600 exclusion notices to individuals and entities whose conduct “contributed to opioid diversion and abuse.”[7] Among those issued exclusion notices were 67 doctors, 402 nurses, and 40 pharmacy services.[8]

Opioid Overutilization Enforcement

The Newark/Philadelphia Strike Force is the first of its kind to have a specific focus on targeting opioid overutilization. Identifying and targeting the opioid epidemic is a top priority of both DOJ and the OIG; according to Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, CDC data found that over 40 percent of all U.S. opioid overdose deaths involved a prescription opioid in 2016.[9][10] A 2018 OIG report on opioid abuse in the Medicare Part D program found that about 460,000 beneficiaries received high amounts of opioids in 2017, and about 71,000 beneficiaries are at serious risk of opioid misuse or overdose.[11]

* * *

Both the Eastern District of Pennsylvania and the District of New Jersey have developed novel, cutting-edge healthcare fraud cases time and time again over the past decade.  The addition of expertise and resources provided by the new Strike Force in these two districts demonstrate a clear intent to continue this trend. However, it remains to be seen if the new Strike Force and its opioid focus will divert resource away from other more long-term, complex investigations these Districts have traditionally concentrated on.

[1] https://www.justice.gov/opa/pr/assistant-attorney-general-benczkowski-announces-newarkphiladelphia-medicare-fraud-strike

[2] https://www.justice.gov/opa/pr/assistant-attorney-general-benczkowski-announces-newarkphiladelphia-medicare-fraud-strike

[3] Id.

[4] https://oig.hhs.gov/fraud/strike-force/

[5] https://www.justice.gov/opa/pr/national-health-care-fraud-takedown-results-charges-against-601-individuals-responsible-over

[6] https://www.fda.gov/ICECI/CriminalInvestigations/ucm612183.htm; https://oig.hhs.gov/newsroom/media-materials/2018/takedown/2018HealthCareTakedown_FactSheet.pdf; https://www.law360.com/articles/1064720/doj-s-health-care-enforcement-initiative-is-still-going-strong.

[7] https://oig.hhs.gov/newsroom/media-materials/2018/takedown/2018HealthCareTakedown_FactSheet.pdf

[8] Id.

[9] https://oig.hhs.gov/oei/reports/oei-02-18-00220.pdf; https://oig.hhs.gov/reports-and-publications/featured-topics/opioids/

[10] https://www.justice.gov/opa/pr/assistant-attorney-general-benczkowski-announces-newarkphiladelphia-medicare-fraud-strike

[11] https://oig.hhs.gov/oei/reports/oei-02-18-00220.pdf

The Office of Inspector General (“OIG”) of the U.S. Department of Health and Human Services issued Advisory Opinion No. 18-03 in support of an arrangement where a federally qualified health center look-alike (the “Provider”) would donate free information technology-related equipment and services to a county health clinic (the “County Clinic”) to facilitate telemedicine encounters with the County Clinic’s patients (the “Proposed Arrangement”).  The OIG concluded that although the Proposed Arrangement could potentially generate prohibited remuneration under the federal Anti-Kickback Statute (“AKS”) and Civil Monetary Penalties Law (“CMPL”) with the requisite intent to induce or reward referrals of federal health care programs, the OIG would exercise its discretion and not sanction the Provider or the County Clinic (collectively the “Requestors”).

The OIG’s analysis and conclusion of the Proposed Arrangement provides new insight into the government’s position on these type of donations that facilitate telemedicine encounters.  Specifically, how the government views these type of donations with the continued expansion of coverage and reimbursement of telemedicine services under federal health care programs.  The Advisory Opinion indicates support for the development of collaborative telemedicine affiliations and that the potential remuneration from the future referrals can be outweighed by the access to health care services and benefits actually received by rural or remote communities.

Proposed Arrangement

The County Clinic is a division of the County Department of Health that furnishes certain confidential sexually transmitted infection testing, treatment and counseling. The Provider has an existing referral relationship with the County Clinic but the facilities are separated by about 80 miles making it difficult for patients to access the Provider.  Under the Proposed Arrangement, the Provider would donate information technology-related equipment and services to the County Clinic to facilitate telemedicine encounters between the Provider and the County Clinic’s patients for certain HIV prevention and treatment services.  The Provider would cover the costs of the equipment, its set up, and maintenance through grant-funding from the State Department of Health.  The Provider would bill the Medicare program for the professional services delivered in the telemedicine encounters.  The County Clinic would house the equipment and bill the state Medicaid program an originating site fee related to the telemedicine encounters. The originating site is not required to provide any personnel or equipment in order to bill for the facility fee (Q3014) (which is only a coverage requirement to provide the telehealth consult).

OIG Analysis

AKS makes it a criminal offense to knowingly and willfully offer or receive remuneration in an effort to induce or reward referrals of items or services reimbursable by federal health care programs. CMP provides for penalties against any person who offers or transfers remuneration to a Medicaid or Medicare beneficiary that the benefactor knows or should know is likely to influence the beneficiary’s selection of a specific provider, service, or item that will be paid, in whole or part, by Medicaid or Medicare.

Under the Proposed Arrangement, the County Clinic would receive remuneration of the free equipment and services and the Provider would have the opportunity to bill for the telehealth consultation referred by the County Clinic.  As such, the OIG acknowledged that the Proposed Arrangement could potentially generate prohibited remuneration under the federal AKS with the requisite intent to induce or reward referrals of services payable by a federal health care program.  However, the OIG identified the following factors as minimizing the potential risk of fraud and abuse:

  • There are safeguards in place to prevent patient steering to the Provider for treatment; namely use of technology with any other provider is not restricted and patients are given the option to have either a virtual or in-person consultation
  • Not likely to result in patient steering for prescriptions to any pharmacy operated by the Provider or County Clinic
  • There would be no increased cost to any federal health care program
  • Patients would benefit by having increased access to treatment; making it more likely that patients will seek out and receive such services

It is important to keep in mind that under the Proposed Arrangement the County Clinic would not obtain ownership of the equipment, as the Provider would use grant funds awarded by the State Department of Health to cover the costs of the equipment and services and the state agency would retain title and have the authority to recover the equipment at any time.  This could prove to be an important distinction concerning whether and how donating providers can provide information technology-related equipment and services to referring facilities in the other arrangements.

Notes and Comments

In prior Advisory Opinions (99-14, 04-07 and 11-12) concerning donations of information technology-related equipment and supplies, the OIG similarly concluded that it would not pursue sanctions; however, those proposed arrangements would not have directly resulted in a service payable by a federal health care program, but rather would only potentially result in other items or services to the patient by the donating provider. Under the Proposed Arrangement, both the County Clinic and the Provider would be in a positon to submit claims to a federal health care program as a result of the telemedicine encounter and follow-up services.  Nevertheless, the OIG concluded that there would be no increased cost to any federal health care program because the County Clinic would have performed the preliminary tests and referred clinically appropriate patients for in-person consultations and, potentially, follow-up items and services regardless of the Proposed Arrangement.

While the analysis acknowledges the additional reimbursement the County Clinic would receive for serving as the originating site (i.e., the location of the Medicaid beneficiary when the service furnished via a telecommunications system occurs), there is no actual analysis of this facility fee and why it is not considered an increased cost.  To be clear, the County Clinic does not provide the HIV preventative services to be delivered by the Provider via the telemedicine consultation, and therefore, would not have previously received any payments if and when the patient was referred to the Provider for an in-person consultation.

Again, it appears that the OIG is willing to prioritize the health benefits to patients over any secondary or tertiary benefits to the referring provider; especially when such subsequent benefits are unlikely to result in overutilization and have the potential to decrease costs to federal health care programs.

Eighty years ago today, President Roosevelt signed the Federal Food, Drug, and Cosmetic Act (“FD&C Act”).  In recognition of this anniversary, EBG reviews how the FD&C Act came to be, how it has evolved, and how the Food and Drug Administration (“FDA”) is enforcing its authority under the FD&C Act to address the demands of rapidly evolving technology.

I’m Just a Bill

The creation of the FD&C Act stems from a sober event in American History.  In 1937, a Tennessee drug company marketed elixir sulfanilamide for use in children as a new sulfa drug.  The diethylene glycol (“DEG”) used as a solvent for the elxir is poisonous to humans.  The untested drug killed over 100 people, including children.  The public’s response to the disaster prompted and ensured the passage of the FD&C Act in 1938, which included the creation of the process known as pre-market approval, requiring that new drugs be proven safe before going on the market.

Growing Pains and Milestones

Since 1938, FDA’s jurisdiction has expanded as various public health emergencies and other challenges faced by the health care system have caught national attention.  Among the many legislative acts passed over the years, the following are of particular relevance to current developments:

(1) Food Additives Amendment of 1958, addressing safety concerns over new food additives and implementing generally recognized as safe (“GRAS”) requirements;

(2) Drug Price Competition and Patent Term Restoration Act of 1984 (the “Hatch-Waxman” Act), establishing the modern generic drug approval system;

(3)  Nutrition Labeling and Education Act of 1990, granting FDA authority to require nutrition labels on most foods, and compelling FDA-compliant nutrient and health claims;

(4) Safe Medical Device Amendments of 1990, giving FDA post-market device surveillance authority and device tracking capability at the user level;

(5) Dietary Supplement Health and Education Act of 1994, defining “dietary supplement” and establishing a regulatory framework for such products;

(6) Food and Drug Administration Modernization Act of 1997, making changes to several FDA regulatory schemes, including biologics, devices, pharmacy compounding, food safety and labeling, and standards for medical products;

(7) Food and Drug Administration Amendments Act of 2007, authorizing FDA to require a Risk Evaluation and Mitigation Strategy (“REMS”) to ensure that drug benefits outweigh risks;

(8) Family Smoking Prevention and Tobacco Control Act of 2009, expanding FDA authority over manufacturing, distribution, and marketing of tobacco products;

(9) Drug Quality and Security Act of 2013, expanding FDA’s authority to regulate the manufacturing of compounded drugs as a reaction to a meningitis outbreak caused by contaminated compounded drug products; and

(10) 21st Century Cures Act of 2016, creating the Breakthrough Devices Program, the Regenerative Medicine Advanced Therapy Designation, and exempting certain software products from the definition of “medical device.”

An Old Dog Learning New Tricks

Over the last few years, FDA has felt the impact of and the need to respond to several societal developments.  The country is calling for the government to address drug prices and to gain better control over access to drugs containing controlled substances, such as opioids.  The surge in development of new technology has forced FDA to adapt its historically rigid device regulatory structure to accommodate innovations such as regenerative medicine therapies.  A renewed public focus on the nutritional value of food requires updates to nutritional labeling and food safety regulations, and the new “vaping” trend raises questions surrounding the sale and promotion of new tobacco products.  Across all of these developments, there is a trend toward more focused regulatory pathways that take into account the particular needs and challenges of specific product categories.  Many of these changes are either required or authorized by legislation, such as the 21st Century Cures Act; and statements by the agency, as well as numerous new draft and final guidance documents, give indications as to where FDA is headed in the next few years.

A. Drugs

Increasing Market Competition and Access: FDA is focused on increasing market competition for and patient access to prescription drugs. In furtherance of its Drug Competition Action Plan, the agency published a draft guidance to address the exploitation of REMS and prevent problematic pay-for-delay schemes. In the same vein, FDA implemented a Biosimilar Innovation Plan to facilitate development and approval of biosimilars, hoping to increasing patient access to costly biologics. Last week, FDA also withdrew its draft guidance on biosimilar analytical studies, announcing intent to issue a revised draft guidance in the future.

Drug Development Efficiency: Recent FDA publications also suggest that the agency is prioritizing a more streamlined drug development process. In February 2018, FDA released five guidance documents emphasizing a faster, patient-focused approach for drug development for neurological conditions. In March 2018, FDA updated its benefit-risk framework to further incorporate patient experience into the agency’s regulatory decision-making process. FDA published the first of four of its patient-focused drug development guidances on June 13, 2018.

In response to the opioid crisis, FDA is focusing heavily on changes to the drug compounding and controlled substance space. In March 2018, FDA published a draft guidance on evaluation of bulk drug substances nominated for inclusion in the 503(B) bulks list, requiring a showing of clinical need. FDA also plans to issue notice of proposed regulations for outsourcing facilities later in 2018.  FDA held a Patient-Focused Drug Development Meeting for Opioid Use Disorder in April 2018 and published an associated draft guidance on buprenorphine drug development and clinical trial design issues. We expect to see more FDA movement on drug development as the year progresses, particularly with respect to opioid use disorder treatment therapies.

B. Devices

Streamlining the Device Pathway: FDA continues to implement changes to the regulatory pathway for manufacturers to bring their devices to market.  Per a draft guidance released in April 2018, the agency is expanding the abbreviated 510(k) pathway by creating a voluntary option for manufacturers when there is no acceptable predicate for a new device, but there is another device with the same intended use.  Manufacturers will be able to use the similar device as a “predicate” and demonstrate how their product conforms to newly-developed device-specific objective performance criteria.  While these performance criteria are still under development, they will eventually pave the way for more manufacturers to bring their products to market faster.

Precision Medicine: The national focus on precision medicine has encouraged many manufacturers to develop new products that incorporate genomics-based technology.  FDA is encouraging development of next generation sequencing (“NGS”)-based tests, which analyze larger sequences of the human genome, if not the whole genome, for a variety of different genetic variants.  FDA released two final guidance documents in April 2018, making recommendations on (1) the design and development of a NGS-based test for germline diseases and (2) use of public human genetic variant databases to support clinical validity of NGS-based tests and routes for establishing and justifying algorithms for variant annotation and filtering.

FDA is also evaluating its approach to the regulation of gene therapy products. Commissioner Gottlieb stated that the agency is at “an inflection point” with gene therapy thanks to increased reliability of vectors.  The focus has shifted from the efficacy of gene therapy to its durability, i.e. the long term effects of the treatment.  Recently, Commissioner Gottlieb announced FDA’s intent to start developing gene therapy guidance for products intended to treat hemophilia.

Regenerative Medicine: In efforts to implement its comprehensive policy framework for regenerative medicine and respond to certain provisions of the 21st Century Cures Act, FDA intends to create an expedited regulatory pathway for novel regenerative medicine therapies.  FDA is also actively enforcing against stem cell clinics promoting certain regenerative medicine therapies without approval and in violation of current good manufacturing practices.

Software and Artificial Intelligence (“AI”): In acknowledgment of the current “digital age,” FDA published a Digital Health Innovation Action Plan.  In April 2018, FDA released two policy documents – (1) a working model for the Digital Health Software Pre-Certification (Pre-Cert) Program Pilot and (2) guidance on regulation of digital health products with both FDA-regulated and unregulated functions.  Also in 2018, FDA authorized the marketing of AI-based clinical decision software (“CDS”) that functions to alert specialists when computed tomography (“CT”) indicates a potential stroke, as well as an AI algorithm for detection of wrist fractures.

C. Food

Food Safety: Since the Food Safety Modernization Act (“FSMA”) was passed, sixteen rules and dozens of guidances have been released (many of which have been in the last two years), bringing the law close to full implementation. These rules and guidances address the mandatory preventive controls for food manufacturing facilities; mandatory product safety standards; FDA’s new mandatory food recall authority; and the initial required inspection of over 600 foreign facilities and the subsequent requirement to “double those inspections every year for the next five years.” In light of the recent high profile foodborne illness outbreaks at chain restaurants and attributed to romaine lettuce, the agency is hoping the full implementation of the FSMA rules, in tandem with keeping food safety as a high priority for the agency, will minimize the risk of future outbreaks.

Nutrition: In 2018, the agency launched the FDA Nutrition Innovation Strategy, which, in addition to implementing new Nutrition Facts Label and Menu Labeling requirements, demonstrates that the agency is looking for more ways to modernize food labels and standards of food product identity to help consumers make healthier decisions. FDA also plans to release short-term voluntary sodium targets for food products in 2019.

Food Labeling: FDA issued a guidance in 2016 on the use of the term “healthy” in food labeling, and continues today to seek stakeholder input on how to redefine the term in such a way as will keep up with scientific advancements and help consumers understand what is in their food products.  FDA is also reviewing stakeholder input on how to define “natural,” and indicated in March 2018 that the agency will “have more to say on the issue soon.”

Dietary Supplements: The dietary supplement industry is a growing industry, and consumers are more interested in alternative products to promote wellness lifestyles. The industry is considered by some to still be the “wild wild west” in terms of enforcement, but FDA seems to be putting its foot down on companies making unsubstantiated claims about dietary supplement products or making claims that would otherwise classify the product as a drug.

D. Tobacco Products

Using its authority to regulate all tobacco products, FDA is addressing the rise in the use of vapes, vaporizers, pens and electronic cigarettes by children.  In April 2018, Commissioner Gottlieb announced the intent to issue new enforcement actions against bad actors, as well as to implement a Youth Tobacco Prevention Plan, seeking to reduce the amount of children exposed to e-cigarettes and vapes and those manufactures who target children with enticing flavors.   In May 2018, Commissioner Gottlieb stated “If you target kids, then we’re going to target you.”  FDA is also in the process of developing guidance for the development and regulation of e-cigarettes generally, suggesting that e-cigarettes could fall into the over-the-counter pathway due to their potential role in smoking cessation, and is reviewing the toxicology of the products.

Andrew Do, a Summer Associate (not admitted to the practice of law) in the firm’s Washington, D.C. office, contributed  to the preparation of this post.

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.

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 National Defense Authorization Act (“NDAA”) – passed in late 2016 – provides numerous changes to military health care. One of the changes, NDAA Sec. 706, establishes the Military-Civilian Integrated Health Care Delivery Systems – a sweeping new change for the Defense Health Agency (“DHA”) and the Military Treatment Facilities (“MTFs”) to provide health care services for non-active duty beneficiaries through partnerships with the private sector.

These private sector partnerships require the Secretary of Defense by January 1, 2018, to enter into Memoranda of Understanding (MOU) and contracts between the MTFs and:

  • Health maintenance organizations
  • Health care centers of excellence
  • Public or private academic medical institutions
  • Regional health organizations
  • Integrated health systems
  • Accountable care organizations, and
  • Other health systems as the Secretary of Defense considers appropriate.

This is an opportunity for these organizations to provide health care to the military dependents and retirees either in its own facilities utilizing capitated payments, bundled payments, or pay for performance. NDAA Section 706 makes clear that the covered beneficiaries are eligible to enroll in and receive medical services under the private sector components of the military-civilian integrated health delivery systems listed above. Of course, the health care services must be comparable to the quality of services received by beneficiaries at an MTF.

What is the purpose of the Military-Civilian Integrated Health Care Delivery System?

The Military-Civilian Integrated Health Care Delivery System is designed to improve access to health care and outcomes while enhancing the health care experience for beneficiaries. And the NDAA provides for the sharing of resources – such as staff, equipment, and training assets – between the Department of Defense (“DoD”) and the private sector to carry out the integrated health delivery systems. Importantly, services within the MTF that are essential for the maintenance of the DoD operation medical force readiness skills of health care providers must be maintained and members of the Armed Forces must be provided additional training opportunities to maintain these skills.

What will be included in the Military-Civilian Integrated Health Care Delivery System?

There are 9 major elements in the Military-Civilian Integrated Health Care Delivery System:

  1. Deliver high quality health care as measured by leading national health quality measurement organizations;
  2. Achieve greater efficiency in the delivery of health care by identifying and implementing within each such system improvement opportunities that guide patients through the entire continuum of care, thereby reducing variations in the delivery of health care and preventing medical errors and duplication of medical services;
  3. Improve population-based health outcomes by using a team approach to deliver case management prevention, and wellness services to high-need and high cost patients;
  4. Focus on preventive care that emphasizes:
    (A) Early detection and timely treatment of disease;
    (B) Periodic health screenings; and
    (C) Education regarding healthy lifestyle behaviors;
  5. Coordinate and integrate health care across the continuum of care, connecting all aspects of healthcare received by the patient, including the patient’s health care team;
  6. Facilitate access to health care providers, including
    (A) After-hours care;
    (B) Urgent care; and
    (C) Through telehealth appointments when appropriate;
  7. Encourage patients to participate in making health care decisions;
  8. Use evidence based treatment protocols that improve the consistency of health care and eliminate ineffective, wasteful healthcare practices; and
  9. Improve coordination of behavioral health services with primary health care.

Overall, these elements seek to provide high quality care more effectively and efficiently with a focus on providing preventative care as well as convenient access to providers.

The Federal Trade Commission’s (“FTC”) recently submitted Congressional Budget Justification and Annual Performance Plan and Report contains helpful insight into the FTC’s focus and expectations for the coming fiscal year.  Of particular note, is a slight shift of funds from activities designed to “protect consumers” to activities intended to “promote competition.”  High on the FTC’s list of actions designed to promote competition is continued scrutiny of the health care industry.  And to that end, the FTC reiterated its intention to, among other things:

Take action against anticompetitive agreements among health care providers and to challenge anticompetitive mergers of hospitals, medical device manufacturers, pharmaceutical companies, and other health care providers that contribute to the rising cost of health care. The FTC will also continue to advance its health care enforcement program by challenging anticompetitive conduct in the pharmaceutical industry that delays the introduction of generic drugs and costs consumers and governments enormous sums of money each year. The agency also will continue its vigorous advocacy for health care competition by advising local, state, and federal entities, upon request, on the competitive implications of pending government actions.

In order to accomplish its goals, the FTC has proposed a budget for its Fiscal Year 2018 of $306,317,000, which is on par with its current annual budget.  The amount requested would be offset by filing fees submitted pursuant to the Hart-Scott-Rodino Antitrust Improvements Act (“HSR”) by parties to transactions (mergers, joint ventures, etc.) meeting the HSR filing thresholds.  Filing fees are split with the Department of Justice, and the budget justification notably projects a reduction in anticipated filings resulting in a drop of approximately $15 million in expected fees.

The FTC’s budget justification also forecasts a slight drop in staff from 1,161 to 1,140 FTEs.  However, this reduction is not a consequence of diminished enforcement expectations but rather the effect of balancing out staff raises from the prior year with an effort to meet the President’s current budget request.  The reduction in staffing levels is expected to be accomplished through attrition and an adjusted hiring strategy rather than personnel layoffs.  Significantly, staffing levels for activities designed to promote competition are only nominally affected, and the FTC has actually asked for an increase in funding (approximately $1 million) associated with competition promoting activities.

Metrics from the prior year are also worth noting.  In particular, the FTC brought 29 enforcement actions in fiscal year 2016 of which 22 were merger related.  The FTC identifies mergers that raise potential antitrust concerns through the HSR filing process, as well as through “consumer and competitor complaints, referrals from other government agencies, and trade press.”  The FTC estimates that it saved consumers over $2.1 billion dollars in fiscal year 2016 as a result of its merger enforcement activities.

Overall, the FTC returned approximately $50.3 million dollars to consumers, and $7.3 million to the U.S. Treasury as a result of its enforcement actions in fiscal year 2016.  In addition, the FTC made a number of criminal referrals to the Department of Justice, resulting in 56 separate actions brought from FTC related matters.

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 August 31, 2016, FDA issued a notification of public hearing and request for comments on manufacturer communications regarding unapproved uses of approved or cleared medical products. The hearing will be held on November 9-10, 2016, and individuals wishing to present information at the hearing must register by October 19, 2016. The deadline for written comments is January 9, 2017.

In the notice, FDA posed a series of questions on which it is seeking input from a broad group of stakeholders, including manufacturers, health care providers, patient advocates, payors, academics and public interest groups. The topics on which FDA is seeking feedback are broad, but generally include:

  • The impact of off-label communications on public health,
  • The impact of changes in the health care system on the development of high-quality data on new uses of cleared or approved products,
  • Preserving incentives for manufacturers to seek approval for new uses, standards for truthful and non-misleading information,
  • Factors FDA should consider in monitoring and bringing enforcement actions based on off-label communications by manufacturers,
  • The extent to which data on which off-label communications are based should be publicly available, and
  • The changes FDA should consider to existing regulations governing manufacturers’ communications regarding their products.

This announcement comes in the wake of increased pressure from lawmakers, public interest groups, and regulated industry for FDA to issue guidance or propose regulatory changes to address recent litigation clarifying commercial speech protections for pharmaceutical and medical devices manufacturers under the First Amendment. On May 26, 2016, the House Committee on Energy and Commerce sent a letter to HHS Secretary Sylvia Burwell expressing concern that FDA had failed to clarify its current thinking on permissible manufacturer communications about uses of cleared and approved drugs and devices beyond the scope of their approved labeling. In the letter, the committee noted that FDA had neither issued guidance, including guidance on the permissible scope of “scientific exchange” that has been on FDA’s Guidance Agenda since 2014, nor conducted the public hearing it announced in May 2015 in connection with negotiations on the proposed 21st Century Cures bill.  The committee expressed concern that HHS was preventing FDA from issuing guidance or proposing new regulations to address a string of recent court victories for companies and individuals prosecuted for off-label communications about drug and medical devices.

In light of the current state of First Amendment commercial speech protections, which makes it clear that manufacturers’ truthful and non-misleading speech regarding their products is not unlawful even if that speech includes uses of their products that have not been approved or cleared by FDA, other stakeholders have actively encouraged FDA to issue guidance or modify its regulations to conform its regulatory oversight and enforcement activities to this reality. While stakeholder groups have been actively engaged on these issues for several years, recent examples include the February 2016 white paper issued by the Duke-Margolis Center for Health Policy outlining policy options for off-label communications, and the joint release by BIO and PhRMA of the Principles on Responsible Sharing of Truthful and Non-Misleading Information about Medicines with Health Care Professionals and Payers on July 27, 2016.

Despite pressure from interested stakeholders, FDA has yet to propose changes to its regulations or issue long-awaited guidance on a number of topics related to manufacturers’ communications regarding off-label uses of their cleared or approved products. While FDA’s 2016 Guidance Agenda, updated most recently on August 6, 2016, continues to promise guidance on manufacturer communications regarding unapproved, unlicensed, or uncleared uses of approved, licensed, or cleared human drugs, biologics, animal drugs and medical devices and the inclusion of health care economic information in promotional labeling and advertising for prescription drugs, among others, the post-election timeline for the public hearing and FDA’s ongoing collection of feedback announced in the August 31st notice may suggest that FDA is going back to the drawing board. In particular, the focus in the notice’s background discussion and in FDA’s questions on the public health impact of off-label communications may suggest that FDA is re-evaluating its position in response to the HHS concerns about broader dissemination of off-label by manufacturers that were highlighted in the Energy and Commerce committee letter.  While FDA’s notice and request for comments is a step in the right direction, it likely signals a further delay in the issuance of guidance that is needed to bring greater clarity to the currently unsettled regulatory framework for FDA’s oversight of manufacturers’ off-label communications, and a punting of these important decisions to the next administration.

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

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

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

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

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

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

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

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