Category: Health

The Blame Game: Senators Clash with the Trump Administration

Why are prescription drug prices so high in the U.S.? While this question can hardly be considered a new topic in American healthcare, the recent clash of words between the Trump Administration and Democratic Senators has once again brought focus to the issue of prescription drug prices. According to the Administration, pharmacy benefit managers (“PBMs”) and drug distributors – who President Trump has dubbed as “middlemen” – are largely to blame for higher drug prices. However, Democratic Senators, PBMs, and drug distributors have recently pushed back against the Administration’s claims, arguing that the Administration’s claims are not supported by any evidence, and, in some cases, are contrary to the core functions of PBMs and drug distributors.

Background

PBMs and drug distributors have been in the crosshairs of the Administration for several months. In a speech on May 11, 2018, President Trump outlined the American Patients First blueprint (the “Blueprint”), which outlined the approach that the Administration would pursue to lower drug prices. Among several targets for change were PBMs and drug distributors, noting that among the Administration’s top goals was “eliminating the middlemen.”[1]

The Blueprint specifically sets forth the Administration’s belief that “[b]ecause health plans, pharmacy benefit managers [], and wholesalers receive higher rebates and fees when list prices increase, there is little incentive to control list prices.”[2] The Blueprint did not, however, provide any evidence or rationale for these claims. Nevertheless, the Blueprint proposes several changes to the way that PBMs operate, including creating a fiduciary duty for PBMs, and restricting the ability of PBMs to retain a percentage of the rebate collected on behalf of health plans. The Blueprint does not, however, elaborate on the Administration’s plans for drug distributors.

United States Department of Health and Human Services (“HHS”) Secretary Alex Azar elaborated on the Blueprint’s claims during a June 12, 2018 hearing before the Senate Committee on Health, Education, Labor and Pensions, where he claimed that PBMs threatened to remove drugs from their formularies if the drug manufacturers decreased list prices.[3] Secretary Azar repeated these claims on June 26, 2018, before the Senate Committee on Finance, where he claimed that drug manufacturers who voluntarily reduced list prices would be harmed by PBMs that would prioritize competing drugs with higher prices when setting their drug formularies.[4]

Senators and Stakeholders Push Back

In a letter to Secretary Azar , Senators Elizabeth Warren (D-MA) and Tina Smith (D-MN) criticize Secretary Azar’s allegations regarding the role of PBMs in drug pricing, calling them “disturbing and serious.” [5] The Senators argue that PBMs and drug distributors hold themselves out as “key players in negotiating lower drug prices and making the market for drugs more efficient” – directly contrary to Secretary Azar’s claims.[6]

The Senators investigated Secretary Azar’s claims by reaching out to the six largest PBMs and three largest drug distributors in the United States. The PBMs unanimously indicated that they never pushed back or otherwise disadvantaged any drug manufacturer for lowering list prices. Express Scripts noted that lower list prices receive favorable formulary consideration, exactly the opposite of Secretary Azar’s claims.[7] The drug distributors gave similar answers, indicating that they did not influence or have any ability to influence the list prices for drugs. Instead, one drug distributor indicated that it negotiated fees for distribution services “agnostic of [the manufacturer’s] product pricing.”[8]

Moving Forward

The Administration appears unfazed by the questions and concerns of PBMs, drug distributors, and Democratic Senators, and has focused its attention on changes to the way PBMs operate. One manner in which PBMs aim to reduce drug prices is by negotiating rebates with drug manufacturers who want to list their products on PBM formularies. On August 17, 2018, Secretary Azar claimed that HHS has the power to eliminate rebates on prescription drug purchases. While the PBM industry contends that only Congress has the ability to change the rebate system, Secretary Azar stated that rebates were created by HHS regulations, and “[w]hat one has created by regulation, one could address by regulation.” [9]

The Secretary’s claims are likely related to a proposed rule that HHS submitted to the Office of Management and Budget (“OMB”) titled “Removal of Safe Harbor Protection for Rebates to Plans or PBMs Involving Prescription Pharmaceuticals and Creation of New Safe Harbor Protection” on July 18, 2018.[10] The OMB is still reviewing the proposed rule, and nothing is currently known about the rule beyond its title; however, Secretary Azar’s comments indicate that the rule may be aiming to adjust or eliminate the ability of PBMs to negotiate with drug manufacturers for rebates. While it is unclear exactly what will be presented in such proposed rule, it appears likely that the Administration will continue pursuing aggressive changes to the way that PBMs operate.

[1] Kerry Dooley Young, Trump Lays Out Drug Plan, Calling for More Competition, Less ‘Global Freeloading’, Medscape (May 11, 2018)

[2] United States Department of Health & Human Services, American Patients First, The Trump Administration Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs, (May 2018)

[3] Prescription Drug Pricing, C-SPAN, (June 12, 2018)

[4] Prescription Drug Supply and Cost, C-SPAN, (June 26, 2018)

[5] Senator Elizabeth Warren & Senator Tina Smith, Letter to U.S. Department of Health and Human Services Secretary Alex Azar, August 17, 2018, at 3, Senator Elizabeth Warren & Senator Tina Smith, Letter to U.S. Department of Health and Human Services Secretary Alex Azar, August 17, 2018, at 3

[6] Id. The Pharmaceutical Care Management Association, which promotes PBMs nationwide, claims PBMs will save employers, unions, government programs, and consumers $654 on drug costs over the next decade. Pharmaceutical Care Management Association, Our Industry

[7] Senators Warren and Smith, at 4

[8] Id. at 6.

[9] Yasmeen Abutaleb, U.S. Health Secretary Says Agency Can Eliminate Drug Rebates, U.S. News, (Aug. 20, 2018)

[10] Office of Management and Budget, RIN 0936-AA08, (July 18, 2018)

 

Copyright © 2018, Sheppard Mullin Richter & Hampton LLP.

CMS Proposes to Overhaul the Medicare Shared Savings Program

On August 9, 2018, the Centers for Medicare and Medicaid Services (CMS) issued a proposed rule to overhaul the Medicare Shared Savings Program (MSSP). The proposal, titled “Pathways to Success,” would make significant changes to the accountable care organization (ACO) model at the heart of the program. The proposed changes include a restructuring of the current ACO risk tracks, updating spending benchmarks, increased ACO flexibility to provide care, as well as changes to the electronic health records requirements for ACO practitioners.

Background

There are currently 561 Shared Savings Program ACOs serving over 10.5 million Medicare fee-for-service (FFS) beneficiaries. Under the MSSP, ACOs are assessed based on quality and outcome measures, and by comparing their overall health care spending to a historical benchmark. ACOs receive a share of any savings under the historical benchmark if they meet the quality performance requirements.

Currently, the MSSP allows ACOs to participate in one of three “tracks.” Track 1 is a “one-sided” model, meaning that participating ACOs share in their savings, but are not required to pay back spending over the historical benchmark. Track 2 and Track 3 are “two-sided” models, meaning that participating ACOs share in a larger portion of any savings under their benchmark, but may also be required to share losses if spending exceeds the benchmark. Currently, the vast majority of ACOs participate in Track 1.

Restructuring the Tracks

CMS proposes retiring Track 1 and Track 2, creating a BASIC track, and renaming Track 3 the ENHANCED Track. CMS describes the BASIC track as a “glide path” that will help ACOs transition to higher levels of risk and potential reward.  To that end, the BASIC track contains five levels that ACOs would transition through over the course of a five year contract period, spending a maximum of one year at each level. The first two years would involve upside-only risk, with a transition to increasing levels of financial risk in the remaining three years. Current Track 1 ACOs will be limited to one-year of upside-only participation before taking on downside risk. This is a substantial acceleration from the current Track 1 Model, which permits ACOs to avoid downside risk for up to six years.

Finally, the proposed rule draws a distinction between low revenue ACOs and high revenue ACOs. Low revenue ACOs (typically composed of rural ACOs and physician practices) would be permitted to spend two 5-year contract periods on the BASIC track. High revenue ACOs (typically composed of hospitals) would be permitted only one 5-year contract period on the Basic track.

Source: Proposed Rule: Medicare Program; Medicare Shared Savings Program; Accountable Care Organizations–Pathways to Success

Updating the Historical Spending Benchmarks

Every year, an ACO’s spending is comparing to its historical benchmark to determine the ACO’s participation in any shared savings or losses. Under the proposed rule, the benchmark methodology will incorporate regional FFS expenditures beginning in the first contract period. Also, the historical benchmark will be rebased at the beginning of each 5-year contract period. Adjustments to the benchmark related to regional expenditures will be capped at 5% of the national Medicare FFS per capita expenditure. According to CMS, these changes will improve the predictability of historical benchmark setting and increase the opportunity for ACOs to achieve savings against the historical benchmark.

Expanding ACO Flexibility in Beneficiary Care

The proposed rule contains several changes to the MSSP aimed at increasing the flexibility of ACOs to provide cost-effective care to their assigned beneficiaries. For example, to support the ACO’s coordination of care across health care settings, ACOs will be eligible to receive payment for telehealth services furnished to prospectively assigned beneficiaries even when they would otherwise be prohibited based on geographic prerequisites. The proposed rule also expands the Skilled Nursing Facility (SNF) 3-Day Rule Waiver to all ACOs in two-sided models. This waiver permits Medicare coverage of certain SNF services that are not preceded by a qualifying 3-day inpatient hospital stay.

Finally, the proposed rule permits ACOs in two-sided models to reward beneficiaries with incentive payments of up to $20 for primary care services received from ACO professionals, Federally Qualified Health Centers, or Rural Health Clinics.

Changing Electronic Health Record Requirements

Currently, one of the quality measures for which ACOs are assessed relates to the percentage of participating primary care providers that successfully demonstrate meaningful use of an electronic health records system for each year of participation in the program. The proposed rule eliminates this measure. Instead, CMS proposes to adopt an “interoperability criterion” that assesses the use of certified electronic health record technology for initial program participation and as part of each ACO’s annual certification of compliance with program requirements.

Commentary

CMS’s proposal is not surprising in light of CMS Administrator Seema Verma’s recent comments about upside-only ACOs. At an American Hospital Association annual membership meeting this past spring, Administrator Verma is quoted as saying:

[T]he majority of ACOs, while receiving many waivers of federal rules and requirements, have yet to move to any downside risk.  And even more concerning, these ACOs are increasing Medicare spending, and the presence of these ‘upside-only’ tracks may be encouraging consolidation in the market place, reducing competition and choice for our beneficiaries.  While we understand that systems need time to adjust, our system cannot afford to continue with models that are not producing results.

Though the rule is only a proposal at this time, the above comments illustrate that CMS is serious about requiring providers to be more financially accountable for the care of their patients. And the agency is clear-eyed about the short-term impact of the proposal, estimating that more than 100 ACOs will exit the MSSP over the next 10 years if the proposal is finalized.  The agency nevertheless believes that the new program would be attractive to providers due to its simplicity (as compared to the current program) and the new opportunity it offers clinicians to qualify as participating in an Advanced Alternative Payment Model (APM) when they reach year 5 of the BASIC track. APMs are an important concept under the Quality Payment Program (QPP) that was ushered in by the Medicare Access and CHIP Reauthorization Act of 2015. Clinicians participating in an Advanced APM are exempt from reporting under the QPP’s Merit-based Incentive Payment System (MIPS) and are eligible for certain financial incentives. The fates of the MSSP and the QPP are thus intertwined, and the co-evolution of the programs is at a critical stage, especially in light of CMS’s July release of a proposed rule modifying the QPP. We will continue to report on the developments of both of these programs.

 

©1994-2018 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.

What You Should Know About Special Focus Facility Nursing Homes

The Center for Medicare Advocacy (CMA) recently issued a Special Report focusing on progressively ineffective enforcement actions against nursing-home facilities that have demonstrated a pattern of serious noncompliance with federal nursing-home care standards meant to ensure quality care and resident safety.

The report concludes that in addition to a noncompliant nursing home’s ability to mislead consumers about its quality of care by masking staffing levels and self-reporting quality-care measures to the federal government, penalties in the form of monetary fines—imposed on the most unsafe nursing homes—are declining, and thus, are likely ineffective in improving the care provided to residents.

In cooperation with state surveyors, the Centers for Medicare & Medicaid (CMS) regularly visits nursing homes to determine whether they are ensuring resident safety by complying with federal nursing-home care standards: The standards also determine whether nursing homes may participate in Medicare and Medicaid reimbursement programs. And while most nursing homes have some deficiencies, most of them correct those problems within a reasonable period of time. But for nursing homes with (1) a history of having twice the average number of deficiencies, (2) deficiencies resulting in serious quality and safety issues, and (3) those issues persisting over a long period of time, CMS identifies them as Special Focus Facilities (SFF) and subjects them to additional surveys and fines.

CMS attempts to notify the public about identified SFF’s by publishing a monthly report providing the status of SFF’s by grouping them into categories separated by the following Tables:

Table Category
A Newly Added
B Not Improved
C Improving
D Recently Graduated
E No Longer in Medicare and Medicaid

The report also contains the number months the nursing home has operated as SFF.

As of the most recent SFF Update, July 19, 2018, CMS identified or had identified the following New Jersey Nursing Homes as Special Focus Facilities:

Nursing Home Location Status Months as SFF
New Grove Manor East Orange Newly Added 4 months
Cooper River West Pennsauken Improving 12 months
Meadowview Nursing & Respiratory Care Williamstown Recently Graduated 15 months

CMS also attempts to notify the public about the quality of care provided by all Medicare- and Medicaid-certified nursing homes in the country through its Nursing Home Compare Five-Star Rating website. The star-rating system gives each nursing home a rating from 1 to 5 stars in three categories: (1) health inspections, (2) staffing, and (3) quality of resident care measures (collected on each patient). Based on those ratings, CMS also calculates an overall rating.

However, while all three categories help provide a snapshot of a nursing home’s quality, a New York Times article faulted the five-star rating system for being susceptible to manipulation, and thus capable of misleading the public. That is because CMS allowed nursing homes to self-report data for two of the three categories: staffing and quality of resident care measures.  Only the health inspections category provided an independent window into the quality of a nursing home, because CMS conducts the inspections onsite and reports the results of the inspections.

Healthcare professionals have traditionally viewed the level of staffing as indicative of the nursing home’s ability to provide quality care and ensure patient safety. But even after the 2015 revision to the 5-Star Rating System to, in part, improve the accuracy of reporting staffing levels, nursing homes have continued mask the erratic levels of individuals working from day to day.

So while an unsafe nursing home may report a high-quality star rating (4 or 5 stars) in staffing and quality care measures, the health inspections category provides a more accurate assessment of how well the nursing home protects residents from harm.

For example, as of July 30, 2018, the Nursing Home Compare website reports the following quality star ratings for New Grove Manor nursing home, listed above:

The CMS website shows that despite CMS (1) assigning a Much Below Averagerating (1 star) for health inspections, (2) assigning a Below Average rating (2 stars) for overall quality, and (3) identifying New Grove Manor as a Special Focus Facility—CMS permits New Grove Manor to report an Above Average rating (4 stars) for staffing levels and to self-report an Above Average rating (4 stars) for quality measures..

Moreover, the CMA Special Report suggests that despite the poor performance of the 18 Newly Added nursing homes in the SFF Update, July 19, 2018, enforcement actions against those nursing homes are relatively minor. The Special Report notes that when attributing the total amount fines ($992,325) to all 18 Newly Added facilities, covering the prior 3-years, the average fine per year for each SFF is $18,375. However, as the Special Report notes, CMS imposed fines on only 12 of the 18 nursing homes over the prior three years. Thus, for those 12 nursing homes, the average fine per year was merely $27,562.

 

COPYRIGHT © 2018, STARK & STARK
This post was written by Eric D. Dakhari of Stark & Stark Law Firm.

Telehealth Gets a Boost in Proposed Physician Fee Schedule

Some very good news for the telehealth community can be found amidst the more than 1,400 pages of the proposed Medicare Physician Fee Schedule for 2019 (“Proposed Rule”) issued by CMS yesterday.  Finally, CMS acknowledges just how far behind Medicare has lagged in recognizing and paying for physician services furnished via communications technology.

Virtual Check-In

The longstanding barriers to Medicare payment for telehealth visits based on the location of the patient and the technology utilized could soon give way to payment for brief check-in services using technology that will evaluate whether or not an office visit or other service is warranted.  CMS proposes to establish a new code to pay providers for a virtual check in. For many telehealth providers, the payment proposal will not go far enough since the new code can only be used for established patients. CMS notes that the telehealth practitioner should have some basic knowledge of the patients’ medical condition and needs that can only be gained by having an existing relationship with the patient.

Store and Forward

In other good news, the Proposed Rule creates a specific payment code for the remote professional evaluation of patient-transmitted information conducted via pre-recorded “store and forward” video or image technology.  CMS recognizes that the progression of technology and its impact on the practice of medicine in recent years will result in increased access to services for Medicare beneficiaries. CMS is seeking comment as to whether these type of telehealth services could be deployed for new patients as well as existing patients.

The Bipartisan Budget Act of 2018

The Proposed Rule also implements important expansions of telehealth services included in the Bipartisan Budget Act of 2018 (“BBA of 2018”) passed last winter. The BBA of 2018 made way for end-stage renal disease patients to receive certain clinical assessments via telehealth beginning in January 2019.  Under the Proposed Rule, CMS proposes to amend its regulations to add in the home of the patient as the “originating site.” Under existing Medicare rules, the patient’s home is not an appropriate “originating site” for a telehealth visit.

Comments on the Proposed Rule are due by September 10, 2018.

 

©1994-2018 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.

Following Repeal of the Individual Mandate, Twenty States Challenge the Affordable Care Act

On February 26, 2018, twenty states (the “Plaintiffs”) jointly filed a lawsuit[1] in the U.S. District Court for the Northern District of Texas requesting that the court strike down the Patient Protection and Affordable Care Act (“ACA”), as amended by the Tax Cuts and Jobs Act of 2017 (the “TCJA”), as unconstitutional. The Plaintiffs’ suit gained support from the White House last week, when Attorney General Jeff Sessions delivered a letter to House Speaker Paul Ryan on June 7, 2018 (the “Letter”), indicating that the Attorney General’s Office, with approval from President Trump, will not defend the constitutionality of the individual mandate – 26 U.S.C. 5000(A)(a) – and will argue that “certain provisions” of the ACA are inseverable from that provision.[2]The Letter indicates that this is “a rare case where the proper course is to forgo defense” of the individual mandate, reasoning that the Justice Department has declined to defend statutes in the past when the President has concluded that the statute is unconstitutional and clearly indicated that it should not be defended.

Acknowledging that such a position breaks from a longstanding tradition of defending the constitutionality of duly enacted legislation, the Letter offers support for both of the Plaintiffs’ main arguments: first, the Plaintiffs claim that the individual mandate is no longer constitutional, because individuals will no longer pay a penalty for being uninsured after December 31, 2018; second, if the individual mandate is unconstitutional, the ACA is also unconstitutional, because the ACA cannot continue to function without the individual mandate. These arguments are discussed in further detail below.

The Individual Mandate

The Plaintiffs argue that the individual mandate, which requires individuals to be insured under the ACA or pay a tax if uninsured, is no longer constitutional following passage of the TCJA. When the United States Supreme Court reviewed the constitutionality of the individual mandate in 2012, the Court determined that Congress could not direct people to buy insurance under the Commerce Clause or Necessary and Proper Clause, but requiring individuals to buy health insurance or pay a fee was a constitutional use of Congress’s taxing powers.[3]

The Plaintiffs argue that the individual mandate can no longer be considered a valid use of Congress’s taxing power, because the TCJA reduces the fee for being uninsured to $0 beginning January 1, 2019. Although the TCJA effectively eliminated the individual mandate’s tax provisions, the requirement for individuals to buy insurance remains unaffected. The Plaintiffs argue that the individual mandate cannot be interpreted as a tax, because it lacks the central feature of any tax – the ability to generate revenue for the government. The individual mandate, therefore, cannot be upheld as a use of Congress’s taxation powers, and the Supreme Court also determined that it could not be upheld under the Commerce Clause or the Necessary and Proper Clause. Absent a constitutional basis, the Plaintiffs argue that the individual mandate can no longer be upheld.

The ACA Without the Individual Mandate

The Plaintiffs go on to argue that, if the individual mandate is unconstitutional, so too is the entire ACA. Citing the ACA and the Supreme Court, the Plaintiffs claim that the individual mandate is essential to creating effective health insurance markets and, because it is so “closely intertwined” with the rest of the ACA, severing the individual mandate would cause the rest of the ACA to cease functioning.[4] The Plaintiffs assert several arguments in furtherance of the charge that the “unconstitutional individual mandate” and ACA significantly harm and impact State sovereignty:

  • The ACA imposes a “burdensome and unsustainable panoply of regulations” on markets that each State has sovereign responsibility to regulate, including requirements for States to offer health insurance exchanges and minimum coverage standards for health insurance products.[5] Forcing the Plaintiffs to comply with ACA rules and regulations harms the States in their sovereign capacity, because the States lose the ability to enact or enforce their own laws or policies that conflict with the ACA.

  • States are significantly harmed by ACA rules and regulations compelling them to take costly corrective actions to stabilize insurance markets. The Plaintiffs argue that ACA regulations of the individual insurance market caused insurers to pull out of State marketplaces due to unsustainable rising costs. This, in turn, leads to costs rising further, as less competition exists in the healthcare markets. To escape the cycle of rising costs, the Plaintiffs argue that the States have to expend significant sums of money to stabilize healthcare markets.

  • States are significantly harmed as Medicaid and Children’s Health Insurance Plan (CHIP) providers. The Plaintiffs argue that the individual mandate and the ACA caused millions of individuals to enroll in Medicaid and CHIP, either because the ACA expanded program eligibility or the individual mandate forced individuals to enroll in one of the programs if they could not afford to purchase insurance in the marketplace. The influx of new Medicaid and CHIP enrollees caused states to incur “significant monetary injuries,” because the States are obligated to “share the expenses of coverage with the federal government.”[6]

  • States are harmed in their capacity as large employers. The ACA requires States, as large employers, to offer health insurance plans to eligible employees. The plans must contain minimum essential benefits defined under the ACA. Additionally, the ACA imposes a 40% excise tax on high cost employer-sponsored health coverage.[7]To comply with these, and other, ACA requirements, States must expend significant amounts of money to provide health coverage to employees. Some states, including Wisconsin, restructured their employer-sponsored health insurance plans to avoid the ACA excise tax. Other states, including Missouri and South Dakota, have cut other parts of their budgets to account for increased employer-provided healthcare costs.

Based on the allegations discussed above, the Plaintiffs request that the District Court declare the ACA, as amended by the TCJA, to be unconstitutional either in part or in whole, declare unlawful all rules and regulations promulgated pursuant to the ACA, and enjoin the defendants from enforcing the ACA. A ruling in favor of the Plaintiffs could not only eliminate the requirement for individuals to purchase health insurance, but could disrupt or eliminate some or all of the healthcare programs and mandates established under the ACA.

While the litigation aims high, numerous legal scholars and stakeholders have blasted the merits of the DOJ’s latest intervention (or lack thereof). Republican Senator Lamar Alexander released a statement remarking that “[t]he Justice Department argument in the Texas case is as far-fetched as any I’ve ever heard.” Jonathan H. Adler, a law professor at Case Western Reserve University School of Law who helped develop the arguments against the ACA in prior litigation (most notably, King vs. Burwell), described the Department of Justice argument as “just absurd,” arguing that there “is no legal basis for applying severability doctrine in this way, and no precedent for the Justice Department to accept such an argument.” While the merits of the litigation appear to be dubious, it nonetheless represents a mortal threat to the ACA and its popular protections for pre-existing conditions. Over the coming months, we will observe how this plays out legally and politically.

[1] Complaint, Texas & Wisconsin, et al v. United States et al, (N.D. Tex. 2018) (No. 4:18-cv-00167-O).

[2] Jefferson Sessions, Re: Texas v. United States, NO. 4:18-cv-00167-O (N.D. Tex.), United States Office of the Attorney General, (June 7, 2018).

[3] Nat’l Fed’n of Indep. Bus. v. Sebelius, 567 U.S. 519, 558, 574 (2012).

[4] 42 U.S.C. § 18091(2)(I); King v. Burwell, 135 S. Ct. 2480, 2487 (2015).

[5] Complaint at 16-17.

[6] Complaint at 22-23.

[7] 26 U.S.C. § 4980I.

Copyright © 2018, Sheppard Mullin Richter & Hampton LLP.

DEA Proposed Rule Would Limit Drug Manufacturer’s Annual Opioid Production

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

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

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

Section 1303.11: Aggregate Production Quotas

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

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

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

Section 1303.13: Adjustments of Aggregate Production Quotas

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

Section 1303.23: Procedures for Fixing Individual Manufacturing Quotas

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

Section 1303.32: Purpose of Hearing 

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

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

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

 

©2018 Epstein Becker & Green, P.C. All rights reserved.

When Nursing Homes Feed Into Corporate Web, Patient Care Fails

According Kaiser Health News, an analysis of nursing home financial records revealed that nearly three-quarters of all nursing homes in the U.S. are owned by people who also have vested interest in companies that in turn sell services and goods to these same nursing homes.

These business dealings are known as “related party transactions.” These transactions enable a nursing home owner to arrange contracts with their related businesses above a more competitive price, allowing them to turn around and siphon off the extra profit.

As an additional benefit, creating these corporate “webs” provides a layer of legal protection to nursing home owners. When a nursing home is sued, it is often very difficult for victims and their families to collect from the other related companies an owner holds stake in, thereby allowing them to “shore” away money.

Unfortunately, nursing homes which deal in “related party transactions” tend to have significant shortcomings which specifically affect their patients. The Kaiser Health News analysis showed that nursing homes which outsource to related organizations “have fewer nurses and aides per patient, have higher rates of patient injuries and unsafe practices, and are the subject of complaints almost twice as often as independent [nursing] homes.”

In order for related companies to be brought into a nursing home lawsuit, the client’s attorney needs to convince the judge that all the companies acted together as “one entity,” meaning that the nursing home was unable to make standalone decisions. This is a complicated and often time and money intensive decision, as it often requires obtaining evidence like company documents and emails to prove the connections.

 

COPYRIGHT © 2018, Stark & Stark.
This post was written by Sherri Warfel of Stark & Stark.
More health news is available on the National Law Review’s Health Page.

President Trump Signs the “Securing our Agriculture and Food Act”

President Trump recently signed the “Securing our Agriculture and Food Act” (H.R. 1238). The bill amends the Homeland Security Act of 2002 to direct the Assistant Secretary for Health Affairs for the Department of Homeland Security (DHS) to carry out a program to coordinate DHS efforts related to defending the food, agriculture and veterinary systems of the United States against terrorism and other high-consequence events that pose a high risk to homeland security.

According to Michigan Farm News, the law will:

  • Provide oversight and management of DHS’s responsibilities pursuant to Homeland Security Presidential Directive 9 – Defense of United States Agriculture and Food;
  • Provide oversight and integration of DHS activities related to veterinary public health, food defense and agricultural security;
  • Lead DHS policy initiatives related to food, animal and agricultural incidents and to overall domestic preparedness for, and collective response to, agricultural terrorism;
  • Coordinate with other DHS components on activities related to food and agriculture security and screening procedures for domestic and imported products; and
  • Coordinate with appropriate federal departments and agencies.
This post was written by Aaron M. Phelps of  Varnum LLP© 2017
For more legal analysis go to The National Law Review

Potential Obstacle To Effective Internal Compliance Reporting System? The False Claims Act

Yes, you read the title of this post correctly.  Under the False Claims Act, a whistleblower is not required to report compliance concerns internally through a company’s internal reporting system before filing a “qui tam” court action.  Indeed, the False Claims Act — with its potential “bounty” of 15 to 30 percent of the government’s recovery — may actually encourage employees to file suit in the first instance, to qualify as an “original source,” and bypass the organization’s reporting system altogether, thereby frustrating a key component of an effective compliance program.  Whistleblower organizations have recently gone so far as to discourage individuals employed by health care providers from bringing compliance concerns directly to their employer so that they can get a share of the government’s recovery.

A provider or other entity participating in the Medicare or Medicaid programs, however, can mitigate that risk through, among other things, employee training and disciplinary policies encouraging good-faith reporting and the promotion of a culture of compliance, including setting the right “tone from the top.”

Internal Reporting System.  The cornerstone of any effective compliance program is developing and implementing a robust internal reporting system that employees can use to raise any compliance concerns on an anonymous basis.  Among other things, when compliance concerns are brought to the attention of the organization’s compliance personnel, the organization can investigate the issue and take appropriate steps to prevent or remediate any continued potential misconduct.  Likewise, having such a system in place may serve as a defense to liability under the False Claims Act.  Even if improper billing is found to have taken place, evidence that the organization has an effective, anonymous internal compliance reporting system may show that the improprieties were not the result of deliberate indifference or reckless disregard for such practices.

False Claims Act.  Plainly, the risk of treble damages and per claim penalties under the False Claims Act is a powerful incentive for a health care organization to implement an effective compliance program.  What is more, the provision for whistleblower awards under the False Claims Act can be an effective tool to aid the government in detecting and preventing overpayments by Medicare and Medicaid to fraudulent operators and other bad actors.  By allowing whistleblowers to file relator actions under seal and potentially share in any of the government’s recovery — as well as to seek damages for any retaliatory employment action — the False Claims incentivizes employees in the health care industry to come forward with information about fraudulent billing, without the fear of reprisal.

The Tension Between The Two.  At the same time, a whistleblower’s potential recovery can operate as a countervailing disincentive for an employee to report compliance concerns internally.  That is because under the False Claims Act, a qui tam relator is entitled to a “bounty” only if the individual is the “original source” of information to the government about the improper billing practices that are the subject of the relator’s action.  On the other hand, if an employee does dutifully report a compliance concern internally through the organization’s reporting system, and the organization itself reports any overpayments to the government or remediates the misconduct itself, the whistleblower may be unable to sue and recover any “bounty.”  As noted earlier, this point is not lost on the relator bar.

Overcoming The Tension.  How does a provider overcome the entreaties of the relator bar, along with the incentives under the False Claims Act whistleblower provisions, to convince employees with compliance concerns to avail themselves of the company’s internal reporting system?  At the outset, the reporting system may be both effective and credible to instill  confidence in the system so that employees will take full advantage of it – that is, the organization must deliver on its promise of anonymity and protection of good-faith reporting and must follow through on a timely basis with a thorough investigation and meaningful corrective action, if indicated.  Further, a robust reporting system, standing alone, will not be effective unless all other elements of an organization’s compliance program are working effectively as well, starting with a “culture of compliance,” reinforced by the executive team and management, and continuing with inservice compliance training, underscoring the importance of timely reporting and the anonymity and other protections afforded to reporting employees.

Likewise, the organization must have personnel and disciplinary policies that reward good-faith reporting and punish compliance lapses, both for engaging in unlawful conduct as well as for failing to report it.  That said, taking any disciplinary action against an employee who files suit as a relator, without ever having reported the compliance concerns in breach of the employee’s duties, is fraught with the risk that the termination or other action will be challenged as retaliation for filing the False Claims Act action, and that the cited ground — failing to report   — is allegedly merely pretextual.

However, with the proper messaging and training, coupled with a robust anonymous reporting system, the company can give its employees good reason to “do the right thing” and report compliance concerns to the company in the first instance, despite the lure of a False Claims Act bounty.

This post was written byBrian T. McGovern of Cadwalader, Wickersham & Taft LLP.
For more legal analysis check out the National Law Review.

US Attorney’s Office in Chicago Announces Creation of Health Care Fraud Unit

Acting US Attorney Joel Levin says the new dedicated unit aims to bring “even greater focus, efficiency, and impact to our efforts in this important area.”

The US Attorney’s Office for the Northern District of Illinois recently announced the creation of a Health Care Fraud Unit—a team of five assistant US attorneys devoted to prosecuting all types of healthcare fraud cases, including fraudulent billing schemes and diversion of controlled substances.

The announcement came just days after the largest US Department of Justice national healthcare fraud enforcement “takedown” action against 412 defendants across 41 federal districts for the alleged participation in schemes involving over $1 billion in fraudulent healthcare billing. Fifteen individuals, including two Chicago-area licensed physicians, are facing federal criminal charges and potential Office of Inspector General (OIG) exclusion as a result of this action.

Nationwide, US Attorney offices have a major role in healthcare fraud enforcement. In Fiscal Year 2016 alone, US Attorney offices opened 975 new criminal healthcare fraud investigations and 930 new civil healthcare fraud investigations.[1] 

While the US Attorney’s Office for the Northern District of Illinois has a long history of prosecuting healthcare fraud cases, the creation of a dedicated unit within the office may have a number of quantifiable effects, including the following:

Rise in Criminal Investigations and Prosecutions. The dedicated unit, comprised of criminal prosecutors, will focus on the criminal prosecution of entities and individuals when the alleged healthcare fraud rises to the level of criminal culpability. As such, there likely will be a rise in investigative activity that includes attempted interviews of potential targets, subjects, or witnesses by government agents; the issuance of grand jury subpoenas; and the execution of search warrants.

In addition, the criminal prosecutors undoubtedly will work closely with government attorneys assigned to the civil division and—to the extent permitted in accordance with grand jury secrecy rules—share certain information with civil division attorneys.

Rise in Enforcement Investigations and Actions. With increased focus, resources, and the sharing of information obtained from criminal investigations, there also may be a rise in the number of civil investigative demands issued to companies in the healthcare industry that are suspected of fraud, waste, and abuse. The US Attorney’s Office for the Northern District of Illinois may become more proactive in its efforts—alongside the OIG—to increase the collection of civil penalties against healthcare organizations and executives.

Rise in Qui Tam Suits. With a dedicated Health Care Fraud Unit, the Northern District of Illinois may become a more attractive venue for whistleblowers seeking to recover under the False Claims Act for alleged fraud, waste, and abuse.

The new Health Care Fraud Unit will operate within the criminal division of the US Attorney’s Office for the Northern District of Illinois. Assistant US Attorney Heather McShain will lead the unit, and Assistant US Attorney Stephen Chahn Lee will serve as senior counsel.

For more Health Care news go to the National Law Review.

[1] See The Department of Health and Human Services and The Department of Justice Health Care Fraud and Abuse Control Program Annual Report for Fiscal Year 2016.

This post was written by Tinos Diamantatos and  Eric W. Sitarchuk of Morgan, Lewis & Bockius LLP.