Category: Administrative & Regulatory

Health Care Reform Update – Week of June 24, 2013

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CMS Releases Guidance on State Alternative Applications for Health Coverage

On June 18th, the Centers for Medicare and Medicaid Services (CMS) released guidance on state alternative applications for health coverage through the ACA that will determine eligibility for enrollment in Qualified Health Plans (QHPs). In alternative applications, states must:

  • Request information necessary for determining eligibility for coverage in a QHP.
  • Minimize the burden on the applying household.
  • Rely primarily on electronic information, and only request paper documentation when necessary.

Supreme Court Rules Generic Drugmakers Not Liable for Defects

On June 24th, the Supreme Court issued a 5-4 ruling that generic drugmakers cannot be held liable for defective products as the drugs and warning labels must be exactly the same as brand name products. The case, Mutual Pharmaceutical Co. v. Bartlett, posited that even though generic companies cannot make changes to the label, they do have the discretion to pull the drug from the market. The majority, led by Justice Alito, found that federal generic law preempts state “failure to warn” law in this case. In two dissenting opinions, justices argued that the responsibility to remove the drug from the market was valid and that Congress’ intent was to preserve a role for state law in drug regulation.

Implementation of the Affordable Care Act

On June 14th, the Jobs and Premium Protection Act (H.R. 763), which would repeal a tax on health insurance plans, gained the 218 cosponsors necessary to pass the House.

On June 17th, Rep. Mark Meadows (R-NC) introduced legislation to delay implementation of the ACA until all activity by the IRS since the beginning of 2010 is audited.

On June 17th, the House Oversight and Government Reform Committee subpoenaed HHS for information on the CO-OP program of the ACA.

On June 17th, the five Democratic members of Pennsylvania’s House delegation wrote to Governor Tom Corbett (R) to urge him to expand Medicaid in the state.

On June 17th, Senators Claire McCaskill (D-MO) and Tom Coburn (R-OK) sent a letter to colleagues urging a repeal of an ACA provision that they say creates a disparity in the Medicare hospital wage index system.

On June 18th, Enroll America launched its “Get Covered America” campaign to provide uninsured individuals with more information about the ACA enrollment process.

On June 19th, Senators Susan Collins (R-ME) and Joe Donnelly (D-IN) introduced legislation to extend the definition of a full-time worker under the ACA from 30 hours to 40 hours.

On June 19th, Republicans on the Senate HELP Committee sent a letter to FDA Commissioner Margaret Hamburg with questions on why the agency is able to promote the ACA.

On June 20th, the Obama administration issued a state-by-state list of rebates that consumers will receive from insurers across the country that failed to meet ACA efficiency rules.

On June 20th, a 95-52 vote in the Maine House of Representatives fell three votes short of overriding Gov. Paul LePage’s (R) veto of Medicaid expansion.

On June 21st, four hospital organizations sent a letter to members of Congress urging for a delay to reductions to the Medicare and Medicaid Disproportionate Share Hospital (DSH) program.

Other HHS and Federal Regulatory Initiatives

On June 18th, CMS issued a bulletin for state Medicaid agencies on when funding is available for certain administrative costs related to the activities of a state Long-Term Care Ombudsman.

Other Congressional and State Initiatives

On June 17th, former CMS administrator Don Berwick announced he will run to be governor of Massachusetts.

On June 17th, the Senate unanimously passed a bill to end the ban on organ donations between people who are HIV positive.

On June 18th, the Congressional Budget Office (CBO) projected that immigration legislation currently under consideration in the Senate would result in an additional $110 billion in health care spending over 10 years.

On June 18th, the House passed a bill that would ban most abortions after 20 weeks. The legislation is expected to die in the Senate, and the White House has threatened to veto.

On June 19th, bipartisan legislation introduced in the Senate and House would allow Medicare to cover prescription drugs for chronic weight management.

On June 19th, a study published in the Journal of Infectious Diseases indicated that the human papillomavirus vaccine reduced the prevalence of HPV among teen girls by more than half.

On June 20th, Senate Majority Leader Harry Reid (D-NV) said sequester cuts to the NIH must be eliminated. He said an inconsistency of funds at NIH is discouraging organizations from applying for grants and pursuing vital research.

On June 20th, the House Ways and Means Health Subcommittee held a hearing on the 2013 Medicare Trustees Report.

Other Health Care News

On June 17th, Susan G. Komen issued a press release that Executive Director of the IOM Judith Salerno will serve as the organization’s new CEO.

On June 18th, former HHS Secretary Tommy Thompson announced the formation of the Working Group on Pharmaceutical Safety, an organization focused on compounding reform.

Hearings and Mark-Ups Scheduled

Senate

On June 24th, the Senate Homeland Security and Governmental Affairs Committee will hold a hearingtitles “Curbing Prescription Drug Abuse in Medicare.”

On June 26th, the Senate Finance Committee will hold a hearing to examine health care quality.

On June 26th, the Senate Committee on Aging will conduct a hearing on respecting patients’ wishes and advanced care planning.

House of Representatives

On June 26th, the House Energy and Commerce Subcommittee on Oversight and Investigations will hold a hearing titled “Challenges Facing America’s Businesses Under the Patient Protection and Affordable Care Act.”

On June 26th, the House Energy and Commerce Subcommittee on Health will hold a hearing titled “A 21st Century Medicare: Bipartisan Proposals to Redesign the Program’s Outdated Benefit Structure.”

On June 27th, the House Veterans’ Affairs Committee will hold a hearing to assess the VA’s capital investment options to provide veterans’ care.

On June 27th, the House Committee on Education and the Workforce will conduct a hearing to address school lunch regulations and the consequences for schools and students.

On June 27th, the House Small Business Committee will hold a hearing on mobile medical app entrepreneurs.

On June 28th, the House Energy and Commerce Subcommittee on Health will hold a hearing titled “Examining Reforms to Improve the Medicare Part B Drug Program for Seniors.”

David Shirbroun also contributed to this update.

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U.S. Supreme Court Rules on Defense of Marriage Act (DOMA) and California’s Proposition 8

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Earlier this morning, in the case of U.S. v. Windsor, the Supreme Court of the United States found Section 3 of the Defense of Marriage Act (DOMA) to be unconstitutional. In a 5-4 decision authored by Justice Kennedy, the Court ruled that Section 3 of DOMA deprived same-sex couples of the equal protection guarantee of the Fifth Amendment of the U.S. Constitution. Note that the Windsor decision only applies to Section 3 of DOMA (which previously prohibited same-sex couples from enjoying any benefit under federal law). The decision does not apply to another key provision of DOMA that allows one state to refuse to recognize same-sex marriages performed in another state.

In the separate Hollingsworth v. Perry case challenging California’s Proposition 8 (which prohibited same-sex marriages), the Court ruled that it lacked jurisdiction to rule on the constitutionality of Proposition 8. This ruling has the effect of reinstating the original opinion of the United States District Court for the Northern District of California which found Proposition 8 unconstitutional under California law and prohibited the enforcement of Proposition 8 statewide. As a result, same-sex marriages will resume in California relatively shortly (perhaps in as soon as a month). As widely expected, the Court did not declare a constitutional right to marry in all states.

For more information on these cases and the immediate impact on employee benefit programs, please join our webinar on “DOMA and Proposition 8: Immediate Implications for Employee Benefit Plan Sponsors” scheduled for July 2, 2013.

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U.S. Supreme Court Directs 5th Circuit Court of Appeals to Re-Examine University of Texas’ Race-Conscious Admissions Policies

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On Monday, June 24, 2013, the U.S Supreme Court issued a much-anticipated ruling in the first affirmative-action case since the 2003 landmark decisions of Gratz v. Bollinger and Grutter v. Bollinger.  However,  Monday’s ruling in Fisher v. University of Texas at Austin did not reach the merits of the school’s policy, holding that the 5th Circuit Court of Appeals applied the incorrect standard of review.

For academic institutions that have race-conscious admissions policies, this case does not alter the current legal requirement that such polices be “narrowly tailored” to further the compelling governmental interest of having a diverse student body.  Because the appellate court did not properly apply this “strict scrutiny” standard, the Supreme Court sent the case back to the lower court for further consideration.

In Fisher, a Caucasian applicant, Abigail Fisher, applied to the University of Texas in 2008. After being rejected for admission, Fisher sued the University, claiming that the school’s race-conscious policy violated the Equal Protection Clause of the U.S. Constitution’s 14th Amendment which requires that racial classifications be subjected to strict scrutiny.

The District Court granted summary judgment to the University. On appeal, the Fifth Circuit Court of Appeals affirmed the dismissal, deferring to what it called “a constitutionally protected zone of discretion,” and holding that Fisher could challenge only whether the University’s decision was made in good faith.

In a 7-1 decision, the U.S. Supreme Court rejected the cursory analysis of both lower courts and held that the proper standard of review must be applied.  Specifically, the Court held that the District Court and appellate court each confined their strict scrutiny analysis too narrowly.  A “meaningful” judicial review, the Court wrote, would have assessed whether the University’s admissions policy was narrowly tailored to achieve student body diversity that “encompasses a broad array of qualifications and characteristics of which racial or ethnic origin is but a single though im­portant element.”

Fisher presents the most recent challenge to academic affirmative action in the Fifth Circuit, which, in 1996, effectively banned such practices in Texas. See: Hopwood v. State of Texas, 84 F. 3d 720 (5th Cir. 1996). In 2003, the Grutter case overruled that ban and the University of Texas re-implemented a race-conscious admissions policy.

Now that the Fisher case has been remanded to the appellate level, the constitutionality of race-conscious admissions policies in state-funded academic institutions remains unchanged.  Advocates and opponents of affirmative action in public education will have to continue to wait until the Fifth Circuit completes its review and undertakes the level of strict scrutiny review required by the Equal Protection Clause.

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Increased Availability of Health Care Data Means More Oversight and More Litigation

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The increasing availability of health care claims and payment data may portend the future of government and private health care enforcement and litigation.

Data is the lifeblood of health care fraud enforcement efforts.  For many years, Medicare enforcement was hampered by CMS’s use of multiple Medicare contractors to pay and process Medicare claims.  In late 2010, I wrote about how this could change with the allocation of more than $350 million to create integrated Medicare and Medicaid databases designed to enhance government health care fraud detection and enforcement efforts.  It now appears that the future is here.

OIG Report on Medicare Part D Data

Last week, the OIG issued a Report analyzing 2009 Medicare Part D data.  The Report finds that of 1.1 million individual medical practitioners who had prescribed drugs paid for through Part D, 736 general practitioners were “extreme outliers” in terms of five key measures:

  • The average number of prescriptions written per beneficiary;
  • The number of pharmacies filling that provider’s prescriptions;
  • The percentage of prescriptions for Schedule II drugs;
  • The percentage of prescriptions for Schedule III drugs; and
  • The percentage of prescriptions for brand name drugs.

The data analysis uncovered some eye-popping statistics.   One physician was responsible for prescriptions filled by 872 different pharmacies located in 47 states and Guam, another averaged more than 71 prescriptions per individual beneficiary, and another ordered more than 400 prescriptions for each of 16 beneficiaries.  In 2009, Medicare paid more than $352 million on prescriptions written by the 736 physicians identified as extreme outliers.

The Report provides government prosecutors with a roadmap for potential enforcement.  It also illustrates what may be the future of public and private health care fraud enforcement as more and more health care payment data becomes publicly available.  Not only government prosecutors, but also individuals with their own agendas, will be able to analyze the data for aberrations and outliers.

CMS Release of Medicare Claims Processing Data

In recent months, CMS has begun publicly releasing Medicare claims processing data, including hospital charge data for specified outpatient and inpatient treatments.   Multiple media reports have already pointed out discrepancies in the hospital prices reflected in the data.  CMS promises that more health care data will be forthcoming.

Injunction on Release of Physician Payment Information Overturned

On May 31, 2013, a federal judge overturned an injunction that had been in place for 33 years, which had prevented the release of information on what Medicare pays individual physicians.   The injunction was initially issued at the request of the Florida Medical Association, which argued that release of information on what Medicare paid the physicians constituted an unwarranted invasion of personal privacy, reasoning the judge found “no longer equitable.”

Medicare Data Access Bill Introduced

After this injunction was lifted, legislation was introduced in the Senate to make Medicare payment data publicly available in a free, searchable database.  The Medicare Data Access for Transparency and Accountability Act would also affirm that data on Medicare payments to physicians and suppliers is public information, not exempt from disclosure under the Freedom of Information Act.  The bill does not address whether publication of the data constitutes public disclosure for purposes of qui tamsbrought under the federal or state false claims acts.

It is clear that through integrated databases, government investigators are gaining enhanced access to Medicaid and Medicare data that will be mined and analyzed to develop future health care enforcement cases.  It is also clear that insurers, the media, class action counsel, and potential qui tam whistleblowers also may soon be mining this newly available data to identify potential outliers and develop their own health care based litigation efforts.

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Is Regulation of Greenhouse Gases Through the Clean Air Act Becoming “Too Big to Fail”?

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In a much-publicized decision in 2007, the Supreme Court ruled that the United States Environmental Protection Agency (USEPA) is authorized to regulate greenhouse gases (GHGs) through the Clean Air Act. Massachusetts v. EPA, 549 U.S. 497 (2007). A slew of recent cases have rejected plaintiffs’ attempts to assert common law claims for damages based on the consequences of past emissions of GHGs. The courts generally have found that USEPA has occupied the role of regulating GHGs, and challenges to the agency’s actions must be brought through the appropriate administrative channels. As the Supreme Court weighs whether to grant certiorari in the Coal. for Responsible Regulation, Inc., et al. v. EPA, No. 09-1322 (D.C. Cir. June 26, 2012), the case that addresses four USEPA GHG rules, the Supreme Court may have difficulty in changing course from the idea that GHGs should be regulated pursuant to the Clean Air Act.

Comer v. Murphy Oil et al., No. 12-60291 (5th Cir. May 14, 2013).

In the aftermath of Hurricane Katrina, Mississippi Gulf residents sued numerous energy companies, alleging that the defendants’ emissions of GHGs exacerbated the severity of and damage caused by the Class 5 hurricane (hereinafter Comer I). The claims ranged from public and private nuisance, trespass and negligence, to fraudulent misrepresentation and conspiracy. The district court dismissed Comer I with prejudice, finding that the plaintiffs had no standing to bring these claims and the claims were non-justiciable because they involved a political question.

Comer I became mired in technical details and procedures, and ultimately the plaintiffs tried to refile the case to bring an entirely new lawsuit, Comer II. The Fifth Circuit dismissedComer II because the plaintiffs brought the same claims they alleged in Comer I, and the district court had already dismissed those claims on the merits. The court applied the doctrine of res judicata, which bars parties from litigating the same claim a second time, and, consequently, Comer II was barred by the district court’s original dismissal in Comer I. Because Comer I held that plaintiffs have no standing to challenge GHG emissions through common law claims, it supports the idea that GHGs should be regulated through the Clean Air Act, rather than addressed through litigation.

Native Village of Kivalina v. ExxonMobil Corp. et al., No. 09-17490 (9th Cir. Sept. 21, 2012).

Kivalina is a village located on the far northwest shore of Alaska. The village had long been protected by the winter ice that persisted and protected the land mass itself. Due to melting icebergs and rising sea levels, the village land mass is eroding, and remains unprotected by the ice wall for much of the year. The village almost certainly will be either eroded into nothingness or inundated by the Arctic Ocean in the next twenty years. Kivalina sued a large group of energy companies, alleging that the GHGs emitted by them resulted in global warming and their village’s imminent destruction. Under a theory of common law public nuisance, the village sought damages to allow the relocation of the community.

The District Court held that political questions such as those raised by the allegations were not justiciable. Further, the court held the plaintiffs lacked Article III standing because they could not show that the named defendants likely caused the injuries, nor could the injuries be traced to an act of any of the defendants.

The Ninth Circuit agreed but expounded on the role of federal common law in pollution cases. The Court noted that federal common law has developed to fill gaps arising in cases of transboundary pollution and that those cases generally arise as nuisance claims. Despite its acknowledgement that nuisance claims can be used to regulate pollution, the Ninth Circuit explained that where a statute directly addresses the underlying issue, developing a federal common law was not necessary to address the issue. Accordingly, because the Supreme Court found that Congress acted through the Clean Air Act to address GHG pollution inMassachusetts v. EPA, filling the gap with federal common law (or public nuisance claims) was not necessary. Furthermore, the Ninth Circuit found that federal common law does not fill a gap solely based on the type of relief requested. In other words, the plaintiffs inKivalina sought damages rather than emission reduction, the latter being the type of relief afforded by the Clean Air Act. Although the plaintiffs’ requested relief was not available under the Clean Air Act, the Clean Air Act still displaced federal common law and prevented plaintiffs from seeking damages through a common law claim (such as public nuisance).

Consequently, Kivalina, like Comer, supports the idea that USEPA is charged with regulation of GHGs through the Clean Air Act.

Public Trust Doctrine Cases

Along a similar avenue, a number of public trust doctrine cases have been filed on behalf of children since 2011. In these cases, the plaintiffs allege that children’s futures are being affected by the lack of action to regulate GHGs, and they request that the various agencies cited in the lawsuits — primarily USEPA and Department of the Interior — take immediate action to reduce GHGs. These cases use the public trust doctrine as the basis of the complaint by alleging that the atmosphere is a common resource that must be managed for the public good and the agencies have failed to properly manage that resource. These cases have generally been dismissed for failure to state a claim for which relief can be granted.See Alec L. v. Perciasepe, No. 11-cv-2235 (D.D.C. May 22, 2013); Sanders-Reed v. Martinez, No. D-101-cv-2011-01514 (D.N.M. July 14, 2012); Alec L. v. Jackson, No. 1:11-cv-02235 (D.D.C. May 31, 2012); Loorz v. Jackson (D.D.C. April 2, 2012); Filippone v. Iowa Dep’t of Natural Resources, No. 2-1005, 12-04444 (Iowa Ct. App. Mar. 13, 2013); Aronow v. State, No. A12-0585 (Minn. Ct. App. Oct. 1, 2012).

In general, cases arising under the public trust doctrine face two challenges. First, the Supreme Court held in PPL Montana, LLC v. Montana, No. 10-218 (2012), that the public trust doctrine is a matter of state, not federal, common law and so a federal claim is not justiciable in federal court. Second, in AEP v. Connecticut, No. 10-174 (2011), the Supreme Court held that the role of regulating GHGs, and any consequence(s) of GHGs, has been occupied by the Clean Air Act and therefore challenges to the regulation of GHGs should be brought through the Clean Air Act rather than through a common law claim. Again, these cases are important for the future of GHG regulation because they affirm the agency’s role as the regulator of GHGs through the Clean Air Act.

Montana Envt’l Info. Center v. U.S. Bureau of Land Mgmt., No. cv-11-15-GF-SEH (D. Mont. June 14, 2013).

In another case affirming the role of the Clean Air Act in regulating GHGs, environmental groups claimed that the Bureau of Land Management (BLM) failed to adequately consider climate change, global warming, and the emission of GHGs in violation of the National Environmental Policy Act (NEPA) before approving oil and gas leases on federal land in Montana in 2008 and 2010. The environmental groups argued that BLM’s failure to follow NEPA procedures would result in emissions of methane gas from the oil and gas leases at issue. The release of methane gas would cause global warming and climate change, which would present a threat of harm to their aesthetic and recreational interests in lands near the lease sites by melting glaciers, warming streams, and promoting the destruction of forests through the proliferation of plagues of beetles.

The district court dismissed the lawsuit because the environmental groups lacked standing to bring the claim. The court found that the environmental groups failed to demonstrate that BLM’s alleged failure to follow proper procedure created an increased risk of actual, threatened, or imminent harm to their recreational and aesthetic interests in lands near the lease sites. Although the environmental groups had local recreational and aesthetic interests at heart, the court found that the effects of GHG emissions are diffuse and unpredictable, and the groups presented no scientific evidence or recorded scientific observations to support their assertions that BLM’s leasing decisions would present a threat of climate change impacts on lands near the lease sites. Furthermore, the environmental groups did not show that methane emissions from the lease sites would make a meaningful contribution to global GHG emissions or global warming. The court therefore found that the environmental groups failed to establish injury-in-fact and causation. As a result, the court foreclosed another potential avenue for litigating claims surrounding GHG emissions, and potential plaintiffs now seem to be left only with direct challenges to USEPA’s regulations (or lack thereof).

Conclusion

The Court would mark a dramatic shift if it moved away from these cases. By the time the Supreme Court has the opportunity to review climate change regulation again, the Obama administration may have set a “too big to fail” bar with its climate policies. Regardless of what happens in the future, however, as of today, the Court’s decision in Massachusetts v. EPA appears to have had a pronounced impact, acceding to USEPA the authority to regulate GHGs through the Clean Air Act, and denying common law remedies for impacts tied to climate change.

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Details of Health Insurance Exchanges: Health and Human Services (HHS) Releases Proposed Rule

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On Wednesday, June 19, 2013, the U.S. Department of Health and Human Services (HHS) published a proposed rule that sets forth several new polices related to implementation of the Affordable Care Act’s (ACA) health insurance exchanges (Exchanges) (also known as Health Insurance Marketplaces).

The proposed rule focuses in large part on program integrity with respect to qualified health plans (QHPs) offered through state-run Exchanges and federally-facilitated Exchanges (FFE). The proposed rule also addresses the resolution of certain QHP-related grievances and correction of improperly allocated premium tax credits and cost-sharing reductions, provides states with new flexibility to operate only a Small Business Health Options Program (SHOP) Exchange, and makes certain notable technical corrections. Significant changes proposed by the rule are:

Program Integrity

  • State Exchanges: The proposed rule establishes oversight and financial integrity standards for state exchanges, including reporting and auditing requirements aimed at ensuring that consumers are properly given their choices of available coverage, qualified consumers correctly receive advance payments of the premium tax credit or cost-sharing reductions, and Exchanges otherwise meet the standards of the ACA.
  • FFE: The proposed rule provides details regarding oversight functions of the FFE, including records retention requirements and compliance reviews to be conducted by HHS and proposes the bases and processes for imposing civil monetary penalties in the FFE, as well as for decertifying plans from participation.

Resolution of Grievances

The proposed rule establishes a process for resolving “cases” received by a QHP issuer operating in an FFE (i.e., grievances regarding the operation of the plan, other than advance benefit determinations). While such cases generally must be resolved within 15 days, “cases involving the need for urgent medical care” must be resolved no more than 72 hours after they are received by the QHP, unless a stricter state standard applies. A determination regarding benefit tiers or plan design may fall within HHS’ proposed definition of a “case” for these purposes, so long as it is not a claim denial, which is subject to a different process.

Correcting Improper Allocation of Premium Tax Credits and Cost-Sharing Reductions

The proposed rule specifies the actions a QHP must take if it does not provide the appropriate premium tax credit payments or cost-sharing reductions. The proposed rule prohibits QHPs from recouping excess funds paid on behalf of a consumer or to a provider and requires QHPs to refund any excess payments made by enrollees within certain, specified timeframes.

State Flexibility to Operate Only a SHOP Exchange

The proposed rule allows states to operate only a SHOP exchange, leaving the operation of the Exchange serving the individual and small group markets to the federal government. To implement this change, HHS proposes to allow states that have received conditional approval to operate a state-based Exchange to modify their proposal to offer solely the SHOP Exchange.

States that have not received conditional approval do not have the option of operating only a SHOP in the 2014 plan year. However, for plan years 2015 and beyond, HHS will consider new proposals from states wanting to operate only the SHOP.

Technical Change

  • The proposed rule also amends the applicable definitions of “small employer” and “large employer” for purposes of the Exchanges to those that with an average of at least one, but not more than 100 employees and those with an average of at least 101 employees, respectively.

The Consumer Financial Protection Bureau, Week in Review: June 10 – June 14, 2013

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CFPB Launches Regulatory Implementation Page

In an effort to streamline resources and better assist financial institutions implementing the many new rules and policies promulgated by the CFPB, the CFPB announced the launch of its “Regulatory Implementation” webpage, available here. The page is a one-stop shop for financial institutions looking for assistance in understanding some of the more salient differences and requirements of the rules. In addition to a number of quick-reference guides, the page also contains compliance guides for the following rules: (i) Ability to Repay/Qualified Mortgage; (ii) 2013 HOEPA Rule; (iii) Loan Originator Compensation; (iv) ECOA Valuations; (v) TILA HPML Appraisals; (vi) Escrows; and (vii) TILA and RESPA Servicing.

CFPB Examines Impact of Overdraft Practices on Consumers

On June 11, 2013, the CFPB released its “CFPB Study of Overdraft Programs” (the Report), which is available here. The Report was based upon (i) responses the CFPB received to a request for information published in the Federal Register in February 2012, and (ii) aggregate, institution-level information data and random samples of consumer checking accounts. Through the inquiry, the CFPB determined that overdraft programs are costly to consumers, provide substantial sources of checking account revenue for financial institutions, and vary widely across financial institutions.

The Report noted that overdraft practices employed by financial institutions are frequently very complex. Not only do the fees charged for overdraft protection vary, but many other differences exist throughout the industry, including: the number of times a consumer can be charged; whether there are caps on such charges; the amount of such caps; the scope of overdraft protection; and even the order in which transactions are posted. Each of these factors can play a significant role in determining the fees consumers will face. Accordingly, the CFPB’s report raises concerns about consumers’ ability to understand, navigate and anticipate fees.

In light of the Report’s findings, the CFPB has announced its intention to engage in further review of account-level data to better understand how differences in practices affect consumers.

CFPB Proposes New Redress System for Victims of Unlawful Activities

Under Section 1055(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the CFPB may obtain various types of monetary relief, such as restitution, refunds and damages, in both judicial and administrative proceedings. The CFPB collectively refers to such relief as “redress”, and can be required to receive such redress from a defendant and then distribute it to victims of unlawful activities. In order to better assist this process, which is known as “Bureau-Administered Redress,” the CFPB is proposing a new system of records that will enable the CFPB to manage distributions to consumers.

Specifically, the new system will enable the CFPB to: (i) track the collection, allocation and distribution of funds in the Civil Penalty Fund and redress monies; (ii) identify and locate victims who may receive such payments; (iii) determine the amounts that the CFPB will distribute to such victims; (iv) maintain associated account and financial information; and (v) develop reports to applicable tax officials regarding such payments.

The proposal, which is available here, states that any comments on the proposed system must be received no later than July 11, 2013. The new system will become effective on July 22, 2013, unless comments are received that result in a contrary determination.

CFPB Releases New Training Module to Combat Financial Exploitation of Older Americans

On June 12, 2013, the CFPB along with the Federal Deposit Insurance Corporation (FDIC), released a tool called “Money Smart for Older Adults.” The purpose of the module is to assist older adults (age 62 and older), as well as their caregivers, in avoiding and preventing financial exploitation. In addition, it provides information to educate consumers about planning for a secure financial future and making informed financial decisions.

The module, which consists of a scripted instructor guide, a participant/resource guide and Power Point slides, has been designed to be presented and administered by financial institution representatives, adult protective services agencies, senior advocacy organizations, law enforcement, and similar organizations and agencies.  The module is available, free of charge, on the FDIC website. Click here to view.

CFPB Assistant Director Tells Nonbanks to Quickly Implement Compliance Management Systems

During the American Bankers Association’s Regulatory Compliance Conference on June 12, 2013, Peggy Twohig, the CFPB’s Assistant Director for Supervision Policy, urged nonbank entities to implement compliance management systems without delay. She specifically pointed to many payday lenders, consumer reporting agencies, mortgage lenders and servicers, student lenders and debt collectors that have yet to implement these compliance management systems.

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Supreme Court Holds That Reverse Payment Patent Settlements Are Subject to Antitrust Scrutiny

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For over a decade, the antitrust enforcers at the Federal Trade Commission have challenged the type of patent settlement where a brand-name drug manufacturer pays a prospective generic manufacturer to settle patent challenges, and the generic manufacturer agrees not to bring its generic to market for a specified number of years. The lower federal courts have over the years rejected the challenges. However, on June 17, 2013, the Supreme Court addressed the issue in Federal Trade Commission v. Actavis, and in a 5-3 decision held that such settlements are subject to rule of reason antitrust scrutiny. However, beyond that conclusion, the Court left the questions of how to structure and resolve the rule of reason issue to the lower courts and future cases.

As Justice Breyer’s majority opinion summarized the issue and its holding:

Company A sues Company B for patent infringement. The two companies settle under terms that require (1) Company B, the claimed infringer, not to produce the patented product until the patent’s term expires, and (2) Company A, the patentee, to pay B many millions of dollars. Because the settlement requires the patentee to pay the alleged infringer, rather than the other way around, this kind of settlement agreement is often called a ‘reverse payment’ settlement agreement. And the basic question here is whether such an agreement can sometimes unreasonably diminish competition in violation of the antitrust laws.

In this case, the Eleventh Circuit dismissed a Federal Trade Commission (FTC) complaint claiming that a particular reverse payment settlement agreement violated the antitrust laws. In doing so, the Circuit stated that a reverse payment settlement agreement generally is ‘immune from antitrust attack so long as its anticompetitive effects fall within the scope of the exclusionary potential of the patent.’ And since the alleged infringer’s promise not to enter the patentee’s market expired before the patent’s term ended, the Circuit found the agreement legal and dismissed the FTC complaint. In our view, however, reverse payment settlement such as the agreement alleged in the complaint before us can sometimes violate the antitrust laws. We consequently hold that the Eleventh Circuit should have allowed the FTC’s lawsuit to proceed. (Citations omitted.)

The Court reasoned that even if the settlement agreement’s anticompetitive effects fall within the scope of the exclusionary potential of the patent, that fact or characterization cannot immunize the agreement from antitrust attack. Justice Breyer found that “it would be incongruous to determine antitrust legality by measuring the settlement’s anticompetitive effects solely against patent law policy, rather than by measuring them against procompetitive antitrust policies as well” and that “patent and antitrust policies are both relevant in determining the ‘scope of the patent monopoly’ — and consequently antitrust law immunity — that is conferred by a patent.”

Justice Breyer acknowledged that a conclusion of antitrust immunity would find some degree of support in a general legal policy favoring the settlement of dispute. However, he concludes that this factor should not “determine the result here” but is offset by five sets of considerations:

First, the specific restraint at issue has the potential for genuine adverse effects on competition. To the Court, even though the settlement permitted the challenger to enter the market before the patent expired, the settlement also entrenched the patent holder for the period the challenger agrees to stay out of the market in exchange for a payment, delaying the potential for lower prices. As the Court put it, “The patentee and the challenger gain; the consumer loses.”

Second, these anticompetitive consequences will at least sometimes prove unjustified. To be sure, in some circumstances, the reverse payment may amount to no more than a rough approximation of the litigation expenses saved through the settlement, or compensation for other services the generic has promised to perform. In such circumstances, a patentee is not using its monopoly profits to avoid the risk of patent invalidation or a finding of no infringement. In the antitrust proceeding, the Court concludes, the patentee should have to show that such legitimate justifications are present.

Third, where a reverse payment threatens to inflict unjustified anticompetitive harm, the patentee likely possesses the power to bring that harm about.

Fourth, the majority believes that an antitrust action would be administratively feasible. The majority did not believe that it would be necessary to litigate patent validity to normally answer the antitrust question — an unexplained large reverse payment itself would normally suggest that the patentee has serious doubts about the patent’s survival. “In a word, the size of the unexplained reverse payment can provide a workable surrogate for a patent’s weakness, all without forcing a court to conduct a detailed exploration of the validity of the patent itself.”

Fifth, the fact that a large, unjustified reverse payment risks antitrust liability does not prevent litigating parties from settling in some other way, without the potential to maintain and share patent-generated monopoly profits.

The FTC advocated that the Court adopt a rule that reverse payments are “presumptively unlawful” and that they be analyzed under a “quick look” approach, requiring the patentee to show empirical evidence of procompetitive effects. The Court rejected this position, instead instructing the issue undergo a full rule of reason analysis. In doing so, it left to the lower court the structuring of this and other rule of reason antitrust litigation on the issue.

In practical terms, the decision leaves many difficult issues to be grappled with, and the majority’s apparent confidence that the antitrust question is answerable without getting into the patent issues themselves may prove more aspirational than practical. Chief Justice Roberts’s dissent exposes one flaw:

The majority seems to think that even if the patent is valid, a patent holder violates the antitrust laws merely because the settlement took away some chance that his patent would be declared invalid by a court. …This is flawed for several reasons.

First, a patent is either valid or invalid. The parties of course don’t know the answer with certainty at the outset of litigation; hence the litigation. But the same is true of any hard legal question that is yet to be adjudicated. Just because people don’t know the answer doesn’t mean that there is no answer until a court declares one. Yet the majority would impose antitrust liability based on the parties’ subjective uncertainty about that legal conclusion.

The Court does so on the assumption that offering a ‘large’ sum is reliable evidence that the patent holder has serious doubts about the patent. Not true. A patent holder may be 95% sure about the validity of its patent, but particularly risk averse or litigation averse, and willing to pay a good deal of money to rid itself of the 5% chance of a finding of invalidity. What is actually motivating a patent holder is apparently a question district courts will have to resolve on a case-by-case basis. The task of trying to discern whether a patent holder is motivated by uncertainty about its patent, or other legitimate factors like risk aversion, will be made all the more difficult by the fact that much of the evidence about the party’s motivation may be embedded in legal advice from its attorney, which would presumably be shielded from discovery.

The FTC has hailed the decision:

The Supreme Court’s decision is a significant victory for American consumers, American taxpayers, and free markets. The Court has made it clear that [reverse payment] agreements between brand and generic drug companies are subject to antitrust scrutiny, and it has rejected the attempt by branded and generic companies to effectively immunize these agreements from the antitrust laws. With this finding, the Court has taken a big step toward addressing a problem that has cost Americans $3.5 billion a year in higher drug prices.

The FTC’s “victory lap” is probably premature. To be sure, we now know that blanket antitrust immunity for reverse payment settlements does not exist. However, everything else remains up for grabs. Until there are additional decisions grappling with the actual issue of liability issued, and reviewed, the extent and circumstances of antitrust liability is unclear. The risk-averse patent holder to whom Justice Roberts alluded might well be motivated to avoid utilizing reverse payments in structuring settlements in the future. In addition, the Competition Office of the European Union actively continues to examine reverse payments settlements, and there have been renewed calls for federal legislation banning such settlements.

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Basic Guidelines for Protecting Company Trade Secrets

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Under the Uniform Trade Secrets Act (UTSA), “trade secrets” are generally defined as confidential proprietary information that provides a competitive advantage or economic benefit. Trade secrets are protected under the Economic Espionage Act of 1994 (EEA) at the federal level, and the vast majority of states have enacted statutes modeled after the UTSA (note that some jurisdictions, such as California, Texas and Illinois, have adopted trade secret laws that differ substantially from the UTSA; thus, businesses should research laws in the relevant jurisdiction(s).). Under the UTSA, to be protectable as a trade secret, information must meet three requirements:

i. the information must fall within the statutory definition of “information” eligible for protection;

ii. the information must derive independent economic value from not being generally known or readily ascertainable by others using appropriate means; and

iii. the information must be the subject of reasonable efforts to maintain its secrecy.

Trade secret theft continues to accelerate among U.S. companies, and can have drastic consequences. To combat this threat, Congress and certain state legislatures have recently enacted legislation to broaden trade secret protection. As a result, it is paramount that companies safeguard all proprietary information that may qualify as protectable trade secrets. This blog post explains some key trade secrets concepts, and offers pointers on how to identify and protect trade secrets.

(1) Determine Which Data Constitutes “Information”

The UTSA-type statutes generally define “information” to include:

Financial, business, scientific, technical, economic, and engineering information;

Computer code, plans, compilations, formulas, designs, prototypes, techniques, processes, or procedures; and

Information that has commercial value, such as customer lists or the results of expensive research.

Courts have similarly interpreted “information” to cover virtually any commercially valuable information. Examples of information that has been found to constitute trade secrets includes pricing and marketing techniques, customer and financial information, sources of supplies, manufacturing processes, and product designs.

(2) “Valuable” and “Not Readily Ascertainable” Information

To be protectable, information must also have “economic value” and not be “readily ascertainable” by others. Courts generally determine whether information satisfies this standard by considering the following factors:

Reasonable measures have been put in place to protect the information from disclosure;

The information has actual or potential commercial value to a company;

The information is known by a limited number of people on a need-to-know basis;

The information would be useful to competitors and would require a significant investment to duplicate or acquire the information; and

The information is not generally known to the public.

(3) Take Reasonable Measures to Maintain Secrecy

Businesses should implement technical, administrative, contractual and physical safeguards to keep secret the information sought to be protected. Companies should identify foreseeable threats to the security of confidential information; assess the likelihood of potential harm flowing from such threats; and implement security protocols to address potential threats. Examples of security measures might include restricting access to confidential information on a need-to-know basis, employing computer access restrictions, circulating an employee handbook that outlines company policies governing confidential information, conducting entrance interviews for new hires to determine whether they are subject to restrictive covenants with former employers, conducting exit interviews with departing personnel to ensure that the employee has returned all company materials and agrees to abide by post-employment obligations, encrypting confidential information, limiting access to confidential information through passwords and network firewalls, track all access to network resources and confidential information, restrict the ability to email, print or otherwise transfer confidential information, employ security personnel, limit visitor access, establish surveillance procedures, and limit physical access to areas that may have confidential information.

Conclusion

This blog post is intended to provide some broad guidelines to identifying and protecting company trade secrets. Most if not all companies have confidential information that may be protectable as a trade secret. But certain precautions need to be in place to ensure that the information is protectable. Because each company and situation is different, you should seek advice about your specific circumstances.

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Tri-Agencies Release Final Rules on Wellness Programs

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On May 29, 2013, the U. S. Departments of Labor, Health and Human Services and the Treasury (the Tri-Agencies) issued final regulations (the final rules) implementing the changes that the Patient Protection and Affordable Care Act (PPACA) made to wellness programs. The final rules apply to both grandfathered and non-grandfathered group health plans and are effective for plan years beginning on or after January 1, 2014.

The final rules do not change the basic distinction between “participatory” wellness programs and “health-contingent” wellness programs. The final rules, consistent with the proposed rules, focus largely on revisions to health-contingent wellness programs. The key PPACA changes to the 2006 wellness regulations include:

  • Increases in the maximum allowable rewards under a health-contingent wellness program from 20% of the cost of coverage to 30% for non-smoking related programs and a 50% maximum for smoking related programs;
  • Clarifications of what constitutes a “reasonably designed” health-contingent wellness program; and
  • Additional guidance on reasonable alternatives that must be offered under any health-contingent wellness program so that the program remains non-discriminatory.

Participatory wellness programs are programs that either do not provide a reward or do not require an individual to meet a standard related to a health factor in order to obtain a reward. Participatory wellness programs are presumed to be nondiscriminatory if participation is made available to all similarly situated individuals, regardless of their health status. Examples include programs that reimburse employees for the cost of membership in a fitness center, or reward employees who complete a health risk assessment. These programs are easier to administer and not subject to the more exacting criteria that apply to health-contingent wellness programs.

Health-Contingent wellness programs require an individual to satisfy a health-related standard to obtain a reward. Examples include programs that provide a reward for smoking cessation, or programs that reward achievements for specified health-related goals, such as lowering cholesterol levels or losing weight. The final rules subdivide health-contingent wellness programs into two types: activity-only and outcome-based. An activity-only wellness program requires an individual to perform or complete an activity related to a health factor (e.g., a diet or exercise program), but it does not require the individual to reach or maintain a specific health result. In contrast, an outcome-based wellness program requires an individual to reach or maintain a specific health outcome (such as not smoking or attaining certain results on biometric screenings).

Modification to Maximum Rewards

All health-contingent wellness programs must satisfy five requirements to ensure compliance with the HIPAA non-discrimination rules. The final rules, as noted above, increase the maximum rewards allowed under a health-contingent wellness program. The five requirements are listed below and reflect the PPACA increases in the maximum rewards:

  1. The reward must be available to all similarly situated individuals;
  2. The program must give eligible individuals the opportunity to qualify for the reward at least once a year;
  3. The program must be reasonably designed to promote health and prevent disease;
  4. The reward must not exceed 30% of the cost of coverage (or 50% for programs designed to prevent or reduce tobacco use); and
  5. The program must provide a reasonable alternative standard to an individual who informs the plan that it is unreasonably difficult or medically inadvisable for him or her to achieve the standard for health reasons and therefore will not get the reward.

Clarifications to Reasonable Designs

Consistent with the 2006 regulations, the final rules continue to require that health-contingent wellness programs be reasonably designed to promote health or prevent disease. A program will meet this standard if it has a reasonable chance of improving health or preventing disease; is not overly burdensome; is not a subterfuge for discrimination based on a health factor; and is not highly suspect in the method chosen to promote health or prevent disease. The rules provide plan sponsors with a great deal of flexibility to design a wellness program.

Guidance on Reasonable Alternatives

The final rules modify the structure of the 2006 requirements with respect to providing reasonable alternatives for those individuals who are unable to attain the health-related goals of a health-contingent wellness program.

First, to satisfy the reasonable alternative requirement, the same full reward must be available to individuals who satisfy the reasonable alternative as is provided to individuals who are able to satisfy the standard program. As noted in the Preamble to the final rules, this means that the reasonable alternative must allow the individual a longer period to complete the program, and the reward earned must be the same as that given under the standard program.

The final rules do not require that the reasonable alternative be determined in advance and, consistent with past practice, allows the alternative to be set on an individual-by-individual basis. The final rules reiterate that, in lieu of providing a reasonable alternative, a plan or issuer may waive the otherwise applicable standard and simply provide the reward. Although in general a doctor’s verification is not needed for an individual to qualify for the reasonable alternative, the final rules do permit a doctor’s verification to be required under the activity-based reasonable alternative.

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