HHS OIG Signs Off on Substance Use Recovery Incentive Program

On March 2, 2022, the Department of Health and Human Services (“HHS”) Office of the Inspector General (the “OIG”) issued a new advisory opinion (“AO 22-04”) related to a program through which the Requestor would provide certain individuals access to digital contingency management (“CM”) and related tools to treat substance use disorders (“Program”).  The OIG advised that it would not impose administrative sanctions under the Anti-Kickback Statute (“AKS”) or the Beneficiary Inducements Civil Monetary Penalty Law (“CMPL”).

The Requestor, a digital health company, offers a Program that uses smartphone and smart debit card technology to implement CM for individuals with substance use disorders, addressing aspects of these disorders “in ways that conventional counseling and medications often cannot.” The Requestor makes this technology available to individuals who meet certain requirements through contracts with a variety of entities, such as health plans, addiction treatment providers, employee assistance programs, research institutions, and other treatment providers (“Customers”).

Individuals (‘Members”) are Customer- or self-referred, and are subject to a structured interview using the American Society of Addiction Medicine Continuum Triage tool before participation in the Program. The Requestor’s enrollment specialist, under the guidance of a licensed clinical supervisor, determines the type of services and frequency of recovery coaching using an evidence-based, automated algorithm. The Program technology establishes the schedule of expected target behavioral health events, objectively validates whether each expected event has occurred, and, if it has, promptly disburses the exact, protocol-specified incentive to the Member, using (where appropriate) a progressive reinforcement schedule.

The Program is not limited to treatments or federally reimbursable services; it also includes, among other features, support groups, medication reminders, and appointment attendance verification. For those that do include federally reimbursable services, the Requestor advised that such services may be furnished by a Customer. Incentives from the Program are provided to Members via a “smart debit card.” The card includes “abuse and anti-relapse protections (e.g., it cannot be used at bars, liquor stores, casinos, or certain other locations nor can it be used to convert credit to cash at ATMs or gas stations)”, and allows the Requestor to monitor use. Incentives are capped at $200/month and $599/year; individual incentives are typically relatively small, at $1-$3.

The Requestor receives fees from Customers on either a flat monthly basis, per eligible, active Member, or a pay-for-performance model, in which Requestor is paid upon a Member achieving certain agreed-upon targets for abstinence. The Requestor certified that the aggregate fees are consistent with fair market value and do not vary based on the volume or value of business generated under federal health care programs. Instead, fees are based on the service configurations being purchased and the intensity of behavioral targets that are planned for each Member, as well as whether a member is low- or high-risk, and in or out of treatment.

OIG concluded that two stream of remuneration potentially implicate the AKS and CMPL.  First, Customers pay Requestor a fee to provide services, some of which could incentivize a Member to receive a federally billable service. Second, some of the fees Customers pay to Requestor get passed on to Members as CM Incentives for achieving certain behavioral health goals, some of which may involve services that could be billable to Federal health care programs (e.g., a counseling session) by a particular provider or supplier, which could be a Customer. OIG noted its longstanding concerns relating to the offer of incentives intended to induce beneficiaries to obtain federally reimbursable items and services, as such incentives could present significant risks of fraud and abuse.

The OIG concluded that the Program presents a minimal risk of fraud and abuse and declined to impose sanctions, providing four justifications –

  1. The Requestor certified that the Program is based in research, and provided evidence that CM is a “highly effective, cost-efficient treatment for individuals with substance use disorders.” Therefore, the OIG decided that, taken together with the other safeguards present in the Arrangement, the incentives in the Requestor’s Program serve as “part of a protocol-driven, evidence-based treatment program rather than an inducement to seek, or a reward for having sought, a particular federally reimbursable treatment.”
  2. The incentives offered through the Program have a relatively low value and a cap, and largely are unrelated to any federally payable services, especially as the Requestor is not enrolled in and does not bill to federal health care programs for Program services. Therefore, the OIG determined that the risk of the incentives “encouraging overutilization of federally reimbursable services is low.”
  3. The Requestor’s Customer base is not limited to entities that have an incentive to induce receipt of federally reimbursable services. While the OIG acknowledged that there may be instances where an incentive may be given for receiving a federally billable service, the fees do not vary based on volume or value of any federally reimbursable services, and the Customers do not have control of the Program. Therefore, the OIG determined that the risk is low an entity would become a Customer to “generate business or reward referrals.”
  4. Although the incentives loaded onto a smart debit card function as cash equivalents, the OIG found the safeguards included in the Arrangement sufficient to mitigate fraud and abuse concerns. The Requestor, which does not bill federal health care programs or have an incentive to induce overutilization, determines what services an individual needs and what incentives are attached. Additionally, the smart debit card has “anti-relapse protections”, which can signal possible need for intervention. Therefore, the OIG concluded that the remuneration in the form the smart debit card is sufficiently low risk.

AO 22-04 reflects HHS’s continued aims to increase flexibility around substance use disorder treatments.  Just two weeks before, HHS announced two grant programs, totaling $25.6 million, to expand access to medication-assisted treatment for opioid use disorder and prevent the misuse of prescription drugs. In a press release, HHS Secretary Xavier Becerra is quoted as saying, “At HHS we are committed to addressing the overdose crisis, and one of the ways we’re doing this is by expanding access to medication-assisted treatment and other effective, evidenced-based prevention and intervention strategies.” HHS’ “National Tour to Strengthen Mental Health” is intended to “hear directly from Americans across the country about the challenges they’re facing, and engage with local leaders to strength the mental health and crisis care in our communities”, focused on three aspects: mental health, suicide, and substance use. Further flexibilities should be anticipated in these areas as the Tour continues.

Anyone seeking treatment options for substance misuse should call SAMHSA’s National Helpline at 800-662-HELP (4357) or visit findtreatment.gov. If you or anyone you know is struggling with thoughts of suicide, please call the National Suicide Prevention Lifeline at 800-273-TALK (8255), or text the Crisis Text Line (text HELLO to 741741).

Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.

Surprise! The No Surprises Act Changes Again

The No Surprises Act (Act), which became effective Jan. 1, 2022, is the latest health care law passed with the best of intent: to create consumer protection from unexpected out-of-network medical bills and to create a federal independent dispute resolution (IDR) process to resolve payment disputes between payers and out-of-network providers. Unfortunately, the Act, especially the U.S. Department of Health and Human Services’ (HHS) implementation of the IDR process, also creates a new administrative burden for health care providers. Providers and medical associations filed lawsuits in multiple jurisdictions to challenge HHS’ implementation of the IDR process and the constitutionality of the Act before it was even in effect.

On Feb. 24, 2022, the United States District Court for the Eastern District of Texas granted the Texas Medical Association’s Motion for Summary Judgement to vacate select IDR requirements. The Court found that HHS’ interim final rule’s IDR process, intended to resolve payment disputes regarding reimbursement for out-of-network emergency services and out-of-network services provided at in-network facilities, was contrary to the clear language of the Act[1] (Rule).

In general, the Act[2] requires health insurance payers (Insurers) to reimburse providers for certain out-of-network services at a statutorily calculated “out-of-network rate.”[3] Where an All-Payer Model Agreement or specified state law does not exist, to set such a rate, an Insurer must issue an initial out-of-network rate decision and pay such amount to the providers within 30 days after the out-of-network claim is submitted.[4] If the provider disagrees with the Insurer’s proposed out-of-network reimbursement rate, the provider has a 30-day window to negotiate a different payment rate with the Insurer.[5] If these negotiations fail, the parties can proceed to the IDR process.[6]

Congress adopted a baseball-style arbitration model for the Act’s IDR process. The Insurer and provider each submit a proposed out-of-network rate with limited supporting evidence. The arbitrator picks one of the offers while taking into account specified considerations, including the “qualified payment amount,” the provider’s training, experience, quality, and outcomes measurements, the provider’s market share, the patient’s acuity, the provider’s teaching status, case mix, and scope of services, and the provider’s/Insurer’s good-faith attempts to enter into a network agreement.[7] The “qualifying payment amount” (QPA), is designed to represent the median rate the Insurer would pay for the item or service if it were provided by an in-network provider.[8]

The Rule requires the IDR arbitrator to select the proposed payment amount that is closest to the QPA unless “the certified IDR entity [arbitrator] determines that credible information submitted by either party … clearly demonstrates that the [QPA] is materially different[9] from the appropriate out-of-network rate.”[10] This is a clear departure from the analysis set forth in the Act.

The Texas Medical Association challenged the Rule under the Administrative Procedures Act (APA), arguing that the Departments exceeded their authority by giving “outsized weight” to one statutory factor over the others specified by Congress, and that the Departments failed to comply with the APA’s notice and comments requirements in promulgating the Rule. In turn, the Departments argued that the plaintiffs did not have standing to bring the claims.

After dispensing with defendant’s standing arguments, the Eastern District of Texas Court ruled in favor of the plaintiff’s Motion for Summary Judgment and determined that “the Act unambiguously establishes the framework for deciding payment disputes and concludes that the Rule conflicts with the statutory text.” Under the Act, the arbitrators (or certified IDR entities) “shall consider … the qualifying payment amounts” and the provider’s level of training, experience, and quality outcomes, the market share held by the provider, the patient’s acuity, the provider’s teaching status, case mix, and scope of services, and the demonstrated good faith efforts of both parties in entering into a network agreement.”[11] The Act did not specify that any one factor should be considered the “primary” or “most important” factor. The Rule, in contrast, requires arbitrators to “select the offer closest to the [QPA]” unless “credible” information, including information supporting the “additional factors,” “clearly demonstrates that the [QPA] is materially different from the appropriate out-of-network rate.”[12] The Departments characterized the other factors as “permissible additional factors” that may be considered only when appropriate.[13] The Court found that the Department’s Rule was inconsistent with the Act and that since Congress had spoken clearly on the factors to be considered in the arbitration process, the Department’s interpretation of the Act was not appropriate and had exceeded the Department’s authority.[14]

Following the Court’s decision, the Departments issued a memorandum on Feb. 28, 2022, clarifying the Act’s requirements for providers and Insurers. The memo specifically noted that the Court’s decision would not, in their opinion, affect the patient-provider dispute resolution process.[15] The Departments also stated they would withdraw any guidance inconsistent with the Court’s Opinion, provide additional training for interested parties, and keep the IDR process portal open to resolve disputes. The Departments also will be considering further rulemaking to address the IDR process.

The No Surprises Act continues to surprise us all with more adaptations. Enforcement of this new law remains uncertain in light of the numerous legal challenges, including at least one constitutionality challenge.


[1] Requirements Related to Surprise Billing: Part II, 86 Fed. Reg. 55,980 (Oct. 7, 2021).

[2] Consolidated Appropriations Act of 2021, Pub. L. No. 116-260, div. BB, tit. I, 134 Stat. 1182, 2758-2890 (2020).

[3] 300gg-111(a)(1)(C)(iv)(II) and (b)(1)(D).

[4] 300gg-111(a)(1)(C)(iv) and (b)(1)(C).

[5] 300gg-111(c)(1)(A).

[6] 300gg-111(c)(1)(B).

[7] 300gg-111(c)(5).

[8] 300gg-111(a)(3)(E)(i)(I)-(II).

[9] “Material difference” is defined as “a substantial likelihood that a reasonable person with the training and qualifications of a certified IDR entity making a payment determination would consider the submitted information significant in determining the out-of-network rate and would view the information as showing that the [QPA] is not the appropriate out-of-network rate. 149.510(a)(2)(viii).

[10] 45 C.F.R. 149.510(c)(4)(ii).

[11] 300gg-111(c)(5)(C)(i)-(ii).

[12] 45 C.F.R. 149.510(c)(4)(ii)(A).

[13] 86 Fed. Reg. 56,080.

[14] Because the Departments had exceeded their statutory authority, no Chevron deference was owed to their regulations. Chevron U.S.A. v. Natural Resources Defense Council, Inc., 468 U.S. 837 (1984).

[15] This is a separate dispute resolution process designed to address disputes between patients and providers when bills for uninsured and self-pay patients are inconsistent with the good faith estimate provided by the health care provider.

© 2022 Dinsmore & Shohl LLP. All rights reserved.

OIG: Telehealth “Critical” to Maintaining Access to Care Amidst COVID-19

The federal Office of Inspector General (OIG) recently published a report (OIG Report) as part of a series of analyses of the expansion and utilization of telehealth in response to the COVID-19 public health emergency.  In its report, the OIG concludes that telehealth was “critical for providing services to Medicare beneficiaries during the first year of the pandemic” and that the utilization of telehealth “demonstrates the long-term potential of telehealth to increase access to health care for beneficiaries.” The OIG’s conclusions are notable because they come at a time when policymakers and health care stakeholders are determining whether and how to make permanent certain expansions of telehealth for patients nationwide.

The OIG Report is based on Medicare claims and encounter data from the “first” year of the pandemic (March 1, 2020 through February 28, 2021) as compared to data for the immediately preceding year (March 1, 2019 through February 29, 2020). Per the OIG Report, the OIG observed that approximately 43% of Medicare beneficiaries used telehealth during the first year of the pandemic, and that office visits were the most common telehealth encounter for those patients. The telehealth utilization data showed an 88-fold increase over the utilization of telehealth services for the prior year, which in part reflects the significant limitations on telehealth reimbursement under Medicare prior to COVID-19, in addition to the significant regulatory expansion of telehealth at the federal and state levels in response to COVID-19.

Interestingly, the OIG Report states that beneficiaries enrolled in a Medicare Advantage plan “were more likely to use telehealth” than Medicare fee-for-service beneficiaries, and that “CMS’s temporary policy changes enabled the monumental growth in the use of telehealth in multiple ways,” including by expanding the permissible patient locations, and the types of services that could be provided via telehealth. In addition, the OIG indicated that the use of telehealth for behavioral health services by beneficiaries “stands out” because of the higher incidence of beneficiaries accessing those services via telehealth, which may in turn influence policymaking and increase access to critical behavioral health care services.

Finally, the OIG Report notably includes a footnote which indicates that a separate report on “Program Integrity Risks” is forthcoming, which may shed light on corresponding compliance concerns that have arisen in connection with the significant expansion of telehealth in response to COVID-19.

Copyright © 2022 Robinson & Cole LLP. All rights reserved.

Congress Grants Five Month Extension for Telehealth Flexibilities

On Tuesday, March 16, 2022, President Biden signed into law H.R. 2471, the Consolidated Appropriations Act, 2022 (“2022 CAA”). This new law includes several provisions that extend the Medicare telehealth waivers and flexibilities, implemented as a result of COVID-19 to facilitate access to care, for an additional 151 days after the end of the Public Health Emergency (“PHE”). This equates to about a five-month period.

The 2022 CAA extension captures most of the core PHE telehealth flexibilities authorized as part of Medicare’s pandemic response, including the following:

  • Geographic Restrictions and Originating Sites: During the extension, Medicare beneficiaries can continue to receive telehealth services from anywhere in the country, including their home. Medicare is permitting telehealth services to be provided to patients at any site within the United States, not just qualifying zip codes or locations (e.g. physician offices/facilities).
  • Eligible Practitioners: Occupational therapists, physical therapists, speech-language pathologists, and qualified audiologists will continue to be able to furnish and receive payment for telehealth services as eligible distant site practitioners during the extension period.
  • Mental Health:  In-person requirements for certain mental health services will continue to be waived through the 151-day extension period.
  • Audio-Only Telehealth Services: Medicare will continue to provide coverage and payment for most telehealth services furnished using audio-only technology. This includes professional consultations, office visits, and office psychiatry services (identified as of July 1, 2000 by HCPCS Codes 99241-99275, 99201-99215, 90804-90809 and 90862) and any other services added to the telehealth list by the CMS Secretary for which CMS has not expressly required the use of real-time, interactive audio-visual equipment during the PHE.

Additionally, the 2022 CAA allocates $62,500,000 from the federal budget to be used for grants for telemedicine and distance learning services in rural areas. Such funds may be used to finance construction of facilities and systems providing telemedicine services and distance learning services in qualified “rural areas.”

Passage of the 2022 CAA is a substantial step in the right direction for stakeholders hoping to see permanent legislative change surrounding Medicare telehealth reimbursement.

Electronic Medical Record Provider Pays $930,000 in First Civil Cyber-Fraud Initiative Settlement

For the first settlement as part of the Department of Justice’s Civil Cyber-Fraud Initiative, DOJ settled a case against medical services government contractor Comprehensive Health Services, LLC (CHS) for $930,000.  This settlement resolves allegations brought forth in two qui tam lawsuits, where four whistleblowers filed suit on behalf of the government under the qui tam provision of the False Claims Act.  Three of the whistleblowers received $15,000, in addition to attorneys’ fees, and one relator received $127,050 for reporting fraud.

“This settlement serves notice to federal contractors that they will be held accountable for conduct that puts private medical records and patient safety at risk,” said the United States Attorney for the Eastern District of New York.

CHS, as part of the medical services they provided to the U.S. government, was paid to implement a secure electronic medical record (EMR) system as part of contracts with the State Department and Air Force at various U.S. consulate and military locations in Iraq and Afghanistan.  The EMR system housed personal health information and medical records for anyone who received medical treatment at the locations CHS served, including U.S. service members, diplomats, officials, and contractors.  According to the allegations, CHS did not consistently store patients’ medical records on the secure EMR system and indeed left scans on a network drive which non-clinical staff could access.

As part of several contracts to which CHS was a party, CHS was supposed to provide medical supplies, including controlled substances subject to U.S. Food and Drug Administration (FDA) or European Medicines Agency (EMA) approval.  According to the allegations, CHS “knowingly, recklessly, or with deliberate ignorance” submitted claims for payment for controlled substances that they obtained by means not sanctioned by these contracts.  Not only did CHS lack a Drug Enforcement Agency license to export controlled substances, but CHS also obtained controlled substances by having their U.S.-based subsidiary request that a South African physician prescribe controlled substances, according to the allegations.  The South African physician prescribed these controlled substances, absent FDA or EMA approval, and a shipping company from the same country imported the substances to Iraq.

Government contractors are supposed to adhere to the terms of their contracts in order to receive reimbursement from the U.S. government.  This medical services provider ignored procurement guidelines to obtain controlled substances, undermining safety controls and misrepresenting their adherence to contract terms in providing medical services to U.S. military personnel.  The DOJ’s Civil Cyber-Fraud Initiative brings the power of the False Claims Act to bear on contractors whose job is to protect sensitive information and critical systems.  Representing that data is secure when it is, in fact, not is a violation of the False Claims Act and constitutes cyber-fraud.  As the Special Agent in Charge of the U.S. Department of State OIG, Office of Investigations noted, “…this outcome will send a clear message that cutting corners on State Department contracts has significant consequences.”

Whistleblowers raised data privacy concerns to CHS, but the contractor failed to implement better cybersecurity protocols in response to their concerns.  The Department of Justice has rewarded its first whistleblowers as part of the Civil Cyber-Fraud Initiative, and they’re just getting started.

© 2022 by Tycko & Zavareei LLP
For more articles about digital health, visit the NLR Health Care Law section.

Government Continues Aggressive Antitrust Enforcement in the Healthcare Space

On February 24, 2022, the U.S. Department of Justice (“DOJ”) filed suit to block UnitedHealth’s proposed acquisition of Change Healthcare. UnitedHealth owns the largest health insurer in the U.S., while Change Healthcare is a data company whose software is the largest processor of health insurance claims in the U.S. The DOJ alleges that the acquisition, if allowed to proceed, would give UnitedHealth unfettered access to rival health insurers’ competitively sensitive information, including health insurance pricing. According to the complaint, this would lessen competition and “result in higher cost, lower quality, and less innovative commercial health insurance for employers, employees, and their families.”

The DOJ’s challenge continues a recent trend of aggressive enforcement involving vertical mergers (i.e. transactions between firms at different levels of the supply chain), with the Federal Trade Commission challenging three vertical mergers in the last year alone. These enforcement efforts represent a material shift from the prior enforcement attitude, which often allowed parties to resolve competition concerns raised by vertical mergers through conduct remedies such as information firewalls or supply commitments. The DOJ’s decision to forego such a remedy (assuming one was proposed) signals the government’s intent to take a tougher stance on mergers in the healthcare space. President Joe Biden previously listed prescription drugs and healthcare services as an antitrust priority area in his July 9, 2021 executive order.

The complaint was filed in the District Court for the District of Columbia and can be accessed here: https://www.justice.gov/opa/press-release/file/1476676/download.

Christopher Gordon also contributed to this article.

© Copyright 2022 Squire Patton Boggs (US) LLP
For more articles about healthcare, visit the NLR Health Care Law section.

New York To Require Licensure of Pharmacy Benefit Managers

In an effort to counteract rising prescription drug costs and health insurance premiums, New York Governor Hochul signed S3762/A1396 (the Act) on December 31, 2021.  This legislation specifies the registration, licensure, and reporting requirements of pharmacy benefit managers (PBMs) operating in New York. The Superintendent of the Department of Financial Services (Superintendent) will oversee the implementation of this legislation and the ongoing registration and licensure of PBMs in New York. Notably, this legislation establishes a duty of accountability and transparency that PBMs owe in the performance of pharmacy benefit management services.

Though the Governor only recently signed the Act, on January 13, 2022, an additional piece of legislation, S7837/A8388, was introduced in the New York Legislature.  If passed, this legislation would amend and repeal certain provisions proposed in the Act.  As of the date of this blog post, both the Senate and Assembly have passed S7837/A8388, and it has been delivered to the Governor for signature. Anticipating that Governor Hochul will sign S7837/A8388 into law, we have provided an overview of the Act, taking into account the impact that S7837/A8388 will have, and the changes that both make to the New York State Insurance, Public Health, and Finance Laws.

New York State Insurance Law: Article 29 – Pharmacy Benefit Managers

The Act adds Article 29 to the Insurance Law.  The Section includes, among other provisions, definitions applicable to PBMs, as well as licensure, registration, and reporting requirements, as detailed below.

Definitions

Section 2901 incorporates the definitions of “pharmacy benefit manager” and “pharmacy benefit management services” of Section 280-a of the Public Health Law.  “Pharmacy benefit management services” is defined as “the management or administration of prescription drug benefits for a health plan.”  This definition applies regardless of whether the PBM conducts the administration or management directly or indirectly and regardless of whether the PBM and health plan are associated or related. “Pharmacy benefit management services” also includes the procurement of prescription drugs to be dispensed to patients, or the administration or management of prescription drug benefits, including but not limited to:

  • Mail service pharmacy;
  • Claims processing, retail network management, or payment of claims to pharmacies for dispensing prescription drugs;
  • Clinical or other formulary or preferred drug  list  development or management;
  • Negotiation  or  administration  of  rebates, discounts, payment differentials, or other incentives,  for  the  inclusion  of  particular prescription  drugs  in a particular category or to promote the purchase of particular prescription drugs;
  • Patient compliance, therapeutic intervention, or  generic  substitution programs;
  • Disease management;
  • Drug utilization review or prior authorization;
  • Adjudication  of appeals or grievances related to prescription drug coverage;
  • Contracting with network pharmacies; and
  • Controlling the cost of covered prescription drugs.

A “pharmacy benefit manager” is defined as any entity that performs the above listed management services for a health plan.  Finally, the term “health plan” is amended to encompass entities that a PBM either provides management services for and is a health benefit plan or reimburses, in whole or in part, at least prescription drugs, for a “substantial number of beneficiaries” that work in New York.  The Superintendent has the discretion to interpret the phrase “substantial number of beneficiaries.”

Registration Requirements

PBMs currently providing pharmacy benefit management services must register and submit an annual registration fee of $4,000 to the Department of Financial Services (DFS) on or before June 1, 2022 if the PBM intends to continue providing management services after that date. After June 1, 2022, every PBM seeking to engage in management services must register and submit the annual registration fee to DFS prior to engaging in management services. Regardless of when a PBM registers, every PBM registration will expire on December 31, 2023.

Reporting Requirements

On or before July 1 of each year, each PBM must report and affirm the following to the Superintendent, which includes, but is not limited to:

  • Any pricing discounts, rebates of any kind, inflationary payments, credits, clawbacks, fees, grants, chargebacks, reimbursement, other financial or other reimbursements, inducements, refunds or other benefits received by the PBM; and
  • The terms and conditions of any contract or arrangement, including other financial or other reimbursement incentives, inducements, or refunds between the PBM and any other party relating to management services provided to a health plan including, but not limited to, dispending fees paid to pharmacies.

The Superintendent may request additional information from PBMs and their respective officers and directors. Notably, the above documentation and information are confidential and not subject to public disclosure, unless a court order compels it or if the Superintendent determines disclosure is in the public’s best interest.

Licensing Requirements

The Superintendent is also responsible for establishing standards related to PBM licensure.  The Superintendent must consult with the Commissioner of Health while developing the standards.  The standards must address prerequisites for the issuance of a PBM license and detail how a PBM license must be maintained.  The standards will cover, at a minimum, the following topics:

  • Conflicts of interest between PBMs and health plans or insurers;
  • Deceptive practices in connection with the performance of management services;
  • Anti-competitive practices connected to the performance of management services;
  • Unfair claims practices in connection with the performance of pharmacy benefit managements services;
  • Pricing models that PBMs use both for their services and for payment of services;
  • Consumer protection; and
  • Standards and practices used while creating pharmacy networks and while contracting with network pharmacies and other providers and in contracting with network pharmacies and other providers.  This will also cover the promotion of patient access, the use of independent and community pharmacies, and the minimization of excessive concentration and vertical integration of markets.

To obtain a license, PBMs must file an application and pay a licensing fee of $8,000 to the Superintendent for each year that the license will be valid.  The license will expire 36 months after its issuance, and a PBM can renew their license for another 36-month period by refiling an application with the Superintendent.

New York State Public Health Law: Amendments to Section 280-a

Duty, Accountability, and Transparency of PBMs

As briefly mentioned above, the Act also amends Public Health Law 280-a.  Notably, this legislation imposes imposes new duty, accountability, and transparency requirements on PBMs.  Under the new law, PBMs interacting with a covered individual have the same duty to a covered individual as the PBM has to the health plan for which the PBM is performing management services. PBMs are also compelled to act with a duty of good faith and fair dealing towards all parties, including, but not limited to, covered individuals and pharmacies. In addition, PBMs are required to hold all funds received from providing management services in trust.  The PBMs can only utilize the funds in accordance with its contract with their respective health plan.

To promote transparency, PBMs shall account to their health plan any pricing discounts, rebates, clawbacks, fees, or other benefits it has received. The health plan must have access to all of the PBMs’ financial information related to the management services the PBM provides it.  The PBMs are also required to disclose in writing any conflicts of interest PBMs shall disclose in writing any conflicts of interests, as well as disclose the terms and conditions of any contract related to the PBM’s provision of management services to the health plan, including, but not limited to, the dispensing fees paid to pharmacies.

New York State Finance Law: Addition of Section § 99-oo

If enacted, S7837/A8388 will add Section 99-oo to the Finance Law.  This law would create a special fund called the Pharmacy Benefit Manager Regulatory Fund (Fund).  The New York State Comptroller (Comptroller) and Commissioner of Tax and Finance will establish the Fund and hold joint custody over it. The Fund will primarily consist of money collected through fees and penalties imposed under the Insurance Law.  The Comptroller must keep Fund monies separate from other funds, and the money shall remain in the Fund unless a statute or appropriation directs its release.

Looking Forward: PBM Regulation in New York and Beyond

In a January 2, 2022, press release, Governor Hochul touted the Act as “the most comprehensive [PBM] regulatory framework” in the United States.  The Governor has made clear her intent to regulate PBMs, and New York lawmakers appear to just be getting started.  PBMs in New York and throughout the United States should anticipate their state’s legislatures introducing and enacting more laws and regulations.

©1994-2022 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.
For more about pharmacies, visit the NLR Healthcare section.

Oregon Health Authority Adopts COVID-19 Vaccination and Masking Rules in Healthcare and K-12 Education

On January 31, 2022, the Oregon Health Authority (OHA) published permanent rules relating to COVID-19 vaccination and masking requirements in healthcare settings, just a few days after issuing similar rules for K-12 schools. The permanent rules replaced temporary rules that expire after 180 days.

The permanent rules for both healthcare and K-12 settings will “remain in effect unless the State Public Health Director or State Public Health Officer issues an order stating that the requirements . . . are no longer necessary to control COVID-19.” Under both rules, the factors that may lead to a loosening of restrictions or rescission of the permanent rules include the following:

  • “The degree of COVID-19 transmission”

  • “COVID-19 related hospitalizations and deaths”

  • “Disparate COVID-19 related health impacts on communities of color and tribal communities”

  • “Guidance from the U.S. Centers for Disease Control and Prevention”

  • “Proportion of the population partially or fully vaccinated”

The statewide temporary indoor mask mandate is set to expire on February 8, 2022. OHA is still reviewing public comments on a proposed permanent indoor mask mandate and expects to publish a permanent rule in the coming weeks. Healthcare and K-12 employers may want to revisit their COVID-19 policies and workplace practices to consider whether they are complying

© 2022, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.
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SCOTUS’s HOUSE CALL on Healthcare Industry: The Economic Impact of Mandatory Vaccination

The Supreme Court of the United States in a per curiam opinion on Jan. 13 ruled that the Secretary of HHS (United States Department of Health and Human Services) did not exceed his statutory authority in requiring that, in order to remain eligible for Medicare and Medicaid reimbursement, all healthcare providers except for physician offices not regulated by CMS (Centers for Medicare & Medicaid Services), organ procurement organizations, portable X-Ray suppliers and certain healthcare professionals solely engaged in fully remote telehealth, must insure that their employees be vaccinated against Covid-19. The Court in a 5-4 decision maintained that the Secretary had adequately examined alternatives to mandatory vaccination even though the Final Interim Rule went into effect immediately with no sunset provision nor any revisions or assessment of public comment which is usually required under 5 U.S.C. Sections 553(b), 553(c). Interestingly, the Court, both in its decision and its dissent, failed to consider the scientific data on natural immunity, the incident of Covid infection and recovery among healthcare workers, or the significant easing of both hospitalizations and mortality data from the most recent Covid mutation, which is now considered the dominant strain of infection, Omicron.[1] Of even greater concern coming from its decision is a possible grave consequence (unintended or not) of having nearly 3 million healthcare workers fired between the end of January and end of March 2022.

The decision will spur many healthcare providers to either consider downsizing its healthcare platform (eliminating elective surgeries, closing maternity wards, diverting critical patients to other facilities, moving patients into home care more rapidly, etc.) or seeking protection under the bankruptcy code to obtain some breathing room. According to the American Hospital Association (“AHA”), post-pandemic, and even before the Mandate decision, the collective turnover across ICU’s, nursing units and emergency departments has risen from 18% to 30%.[2] There is no doubt that when a nurse leaves a healthcare organization, the vacancy affects the cost of operation many more times the amount of salary paid to the nurse. According to Nursing Solutions, Inc., the average period of time it takes to fill a nursing position is 85 days — and more than three months for a specialized nursing position. While a replacement nurse is located, the healthcare organization must rely on “travelers” and direct care staffing agencies charging super competitive rates. Just in the last year the use of costly employment agencies to cover gaps in staffing is up by 250% over the last year, according to the Florida Health Care Association, Oct. 25, 2021. A turnover of a single nurse whose salary ranges from $28,800 to $51,700 can translate to an average of $3.6-$6.5 million cost to the healthcare organization, given such factors as the cost of reduced productivity of an employee in the weeks leading up to their departure, time between the departure and employee’s replacement, paid overtime to cover the replacement, hi-cost outside staffing agency fees, advertising for open positions, conducting background checks and credential verifications, training onboard new employees and climbing the learning curve on the new clinical culture.[3]

None of the above costs take into account additional expense burdens for healthcare organizations coming from the mounting labor shortage at the nursing assistant and home health aides level, which are considering leaving the healthcare setting in droves and making more money and less aggravation in the retail field. Bloomberg reports that there will be a shortfall of 3.2 million lower-wage workers among all the healthcare organizations by 2026.[4] What is the economic effect of the mandate on healthcare organizations? Well, it’s obvious that by early Spring of this year, there will be fewer healthcare workers and the costs of providing healthcare will go up in spite of an injection of an additional $10 billion of Phase 4 Provider Relief Funds under the CARES ACT. Will the economic stress create more interest in turning to bankruptcy alternatives to allow these organizations time to adjust to the new normal? Even before the mandate was issued, the AHA projected that hospitals would lose over $54 billion dollars in net income during 2021. That loss comes after accounting for the infusion of $176 billion in CARES ACT funding, which didn’t directly address the current dilemma of loss of manpower. It would be likely that the losses for 2022 will be even more dramatic. Additionally, what is not taken into account in these figures is the deepening insolvency affecting the Long Term Care Industry, where 86% of nursing homes and 77% of assisted living facilities have indicated that their workforce situation has gotten worse over the last three months.[5]

Certainly, the upcoming additional economic stress among heath care organizations from potential depletion of manpower will present several challenges within a bankruptcy setting. For one, practitioners will need to navigate how best to utilize post-petition cash between important manpower related objectives such as retention bonuses, paid time off, overtime payments, staffing agencies’ fees, recruiting, advertising, credentialling, and new employee policies, and equally demanding needs such as rent and other critical healthcare vendors. Particular attention will be given to carefully tailored DIP financing to insure the viability of the organization while in bankruptcy and through its exit. While private equity has taken larger and larger roles in healthcare, and its desire to utilize roll-ups and consolidations, specialists in healthcare financial advising will have to be employed to assist the economic constituencies in understanding the mechanism for exiting the bankruptcy, given the balancing act between workforce equilibrium and quality of continued care. Ultimately, more healthcare organizations will require strong healthcare insolvency professional guidance to find an appropriate refuge and fresh start in the trying months to come.

FOOTNOTES

[1]  Of note concerning the timing of its decision and its rationale based on the science, one of the Justices in oral argument believed that in January 2022, there were over 100,000 children in the US currently in the ICUs when the actual total was far less.  Additionally, though the Wall Street Journal reported on January 26, 2022 that the Centers for Disease Control and Prevention (“CDC”) stated that Covid-19 deaths in the U.S. topped 2,100 a day, the highest in nearly a year, the article quotes Robert Anderson, chief of mortality statistics, who says, “You can have a disease that is for any particular person less deadly than another, like Omicron, but if it is more infectious and reaches more people, then you’re more likely to have a lot of deaths.”  As this article is going to print, see, also, Dr. Martin Makary, “The High Cost of Disparaging Natural Immunity to Covid,” Wall Street Journal, Jan. 26, 2022, concluding that “the superiority of natural immunity over vaccinated immunity is clear”.

[2]  Dave Muoio, Pandemic-Era overtime, agency staffing costs U.S. hospitals an extra $24B per year, Fierce Healthcare, Oct. 8, 2021.

[3] See 2021 NSI National Health Care Retention & RN Staffing Report, published by NSI Nursing Solutions, Inc., March 2021.

[4]  Lauren Coleman Lochner, US Hospitals Pushed to Financial Ruin as Nurses Quit During Pandemic, Bloomberg, Dec. 21, 2021.

[5] See FTI Healthcare Industry Sector Outlook, FTI Consulting, December 2021.

This article was written by Frank P. Terzo of Nelson Mullins law firm. For more information about vaccine mandates, please click here.

New Tools in the Fight Against Counterfeit Pharmaceuticals

The explosive growth of internet pharmacies and direct-to-consumer shipment of pharmaceuticals has provided increased access to, and reduced the cost of, important medications. Unfortunately, these same forces have increased the risks that counterfeit medicines will make their way to consumers, endangering patient safety and affecting manufacturers’ reputation in the public eye.

While the Food and Drug Administration attempts to police such misconduct through enforcement of the Food, Drug, and Cosmetics Act (FDCA), the resources devoted to enforcement are simply no match for the size and scope of the counterfeiting threat. Fortunately, pharmaceutical manufacturers are not without recourse, as several well-established tools may be used in the right circumstances to stop counterfeiters from profiting from the sale of knock-offs.

Experienced litigators can use the Lanham Act and the Racketeer Influenced Corrupt Organizations (RICO) Act to stop unscrupulous individuals and organizations from deceiving customers with counterfeit versions of trademarked drugs. Until recently, these legal weapons – including search warrants, seizures, forfeitures, and significant penalties – were typically wielded only by the government and only in criminal prosecutions.

As one recent case demonstrates, however, many of the tools that law enforcement has used for years to combat counterfeiters are also available to pharmaceutical manufacturers. In Gilead Sciences, Inc. v. Safe Chain Solutions, LLC, et al., the manufacturer of several trademarked HIV medications filed a civil complaint, under seal, alleging violations of the Lanham Act and RICO against scores of individuals and companies that were allegedly selling counterfeit versions of these drugs to patients across the country.

By deploying private investigators and techniques typically used by law enforcement, Gilead was able to gather a substantial amount of evidence before even filing the case. The company then used this evidence to secure ex parte seizure warrants and asset freezes, allowing it to locate and seize thousands of counterfeit pills and packaging before they could be shipped to unsuspecting consumers. Through the seizure of the financial proceeds of the alleged counterfeiting, Gilead prevented the dissipation of assets. If the company can successfully prove its RICO case, it stands to recover treble damages and attorneys’ fees as well.

Manufacturers of trademarked pharmaceuticals may consider using these and other tools to tackle the threat posed by counterfeiters. By drawing upon the experience and skills of trained litigators – particularly counsel who previously deployed these tools on behalf of the government while serving as federal prosecutors – companies can proactively protect their intellectual property and the consumers who depend on their products.

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