Category: Health Care Law

Insurer Enters Into $1.7 Million Health Insurance Portability and Accountability Act (HIPAA) Settlement

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The U.S. Department of Health and Human Services (HHS) announced yesterday that it has entered into a resolution agreement with a national managed care organization and health insurance company (hereinafter “Company”) to settle potential violations of the Health Insurance Portability and Accountability Act of 1996 (HIPAA).

Investigation and Resolution Agreement

The HHS Office for Civil Rights (OCR) conducted an investigation after receiving the Company’s breach report, a requirement for breaches of unsecured protected health information (PHI) pursuant to the Health Information Technology for Economic Clinical Health Act (HITECH) Breach Notification Rule.

The investigation indicated that the Company had not implemented appropriate administrative and technical safeguards required by the Security Rule; and as a result, security weaknesses in an online application database left electronic PHI (ePHI) of 612,042 individuals unsecured and accessible to unauthorized individuals over the internet. PHI at issue included names, dates of birth, addresses, social security numbers, telephone numbers, and health information. Specifically, with regard to ePHI maintained in its web-based application database, the Company did not:

  1. Adequately implement policies and procedures for authorizing access to ePHI;
  2. Perform an adequate technical evaluation in response to a software upgrade affecting the security of ePHI; or
  3. Adequately implement technology to verify the identity of the person/entity seeking access to ePHI.

HHS and the Company entered into a resolution agreement, and the Company agreed to pay a $1.7 million settlement.  Notably, the resolution agreement did not include a corrective action plan for the Company.

Stepped up Enforcement

Beginning with the September 23, 2013 Omnibus Rule compliance date, HHS will have direct enforcement authority over business associates and subcontractors.  The settlement is an indication that HHS will not hesitate to extend enforcement actions to business associates and subcontractors.

The settlement is also a reminder of HHS expectations regarding compliance with HIPAA and HITECH standards.  HHS noted “whether systems upgrades are conducted by covered entities or their business associates, HHS expects organizations to have in place reasonable and appropriate technical, administrative and physical safeguards to protect the confidentiality, integrity and availability of electronic protected health information – especially information that is accessible over the Internet.”

More information regarding the Omnibus Rule and its expanded liability is available here.

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What Have We Learned from Audits under the Medicare Electronic Health Record (EHR) Incentive Program?

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Through the first half of this year, the Centers for Medicare & Medicaid Services auditor has conducted numerous pre- and post-payment audits of meaningful use attestations submitted by eligible providers to the Medicare Electronic Health Record Incentive Program.  This newsletter provides an overview of pre- and post-payment audit activity as well as recommendations for how Eligible Providers should prepare themselves for audits.

Through the first half of this year, Figliozzi & Company (Figliozzi), the audit contractor for the Medicare Electronic Health Record (EHR) Incentive Program (EHR Incentive Program), has conducted numerous pre-payment and post-payment audits of meaningful use attestations submitted by eligible professionals, eligible hospitals and critical access hospitals (collectively, Eligible Providers).  This experience navigating pre-payment and post-payment audits has generated several recommendations that Eligible Providers should consider, whether or not they are under audit.

The following sections of this On the Subject provide an overview of Medicare EHR Incentive Program pre- and post-payment audit activity, an overview of the more recently implemented pre-payment audit program and recommendations for how Eligible Providers should prepare themselves for audits.

Overview of Incentive Program Audit Activity

The Centers for Medicare & Medicaid Services’ (CMS) EHR Incentive Program regulations authorize CMS to review an Eligible Provider’s meaningful use attestation to determine whether the Eligible Provider has met the requirements for an incentive payment.  Since its inception, CMS has incorporated automatic pre-payment edit checks into the EHR Incentive Program attestation and payment systems.  According to a February 2013 publication from CMS titled “EHR Incentive Programs Supporting Documentation for Audits” (CMS Audit Publication), CMS uses such pre-payment edit checks “to detect inaccuracies in eligibility, reporting and payment.”  Beginning with attestations submitted in January 2013, CMS also conducts pre-payment audits, which are “random and may target suspicious or anomalous data.”

In addition to pre-payment edit checks and audits, CMS also conducts post-payment audits, amounting to approximately 5 percent to 10 percent of Eligible Providers receiving incentive payments.  Eligible Providers selected for post-payment audits must present supporting documentation to validate their submitted attestation data, and CMS will withhold payment of the incentive payment for the Eligible Provider’s subsequent EHR incentive payment year until the audit is resolved.

Pre-Payment Audit Program

Implementation of pre-payment audits was widely anticipated in response to criticism from the Department of Health and Human Services Office of Inspector General (OIG).  In November 2012, the OIG released a report titled “Early Assessment Finds That CMS Faces Obstacles in Overseeing the Medicare EHR Incentive Program” (OIG Report).    The OIG Report noted that “CMS does not verify the accuracy of professionals’ or hospitals’ self-reported meaningful use information prior to payment.”

In recommending pre-payment audits, the OIG Report states that “[a]lthough CMS is not required to verify the accuracy of this information prior to payment, doing so would strengthen its oversight of the anticipated $6.6 billion in incentive payments.  Verifying self-reported information prior to payment could also reduce the need to identify and recover erroneous payments after they are made.”

CMS initially resisted the implementation of pre-payment audits in an October 2012 letter from CMS Acting Administrator Marilyn Tavenner to the OIG, speculating that implementation of pre-payment audits could significantly delay payments to Eligible Providers and, further, that requesting additional documentation from Eligible Providers would also impose an increased upfront burden.

Notwithstanding the initial resistance, CMS began conducting pre-payment audits for attestations submitted in 2013.  Figliozzi, which was previously appointed as a CMS contractor for purposes of conducting post-payment audits, conducts pre-payment audits on behalf of CMS.

As with the post-payment audits, CMS intends to conduct pre-payment audits of approximately 5 percent to 10 percent of Eligible Providers submitting attestations for meaningful use; according to the CMS Audit Publication, some Eligible Providers will be selected at random, while others will be audited based on submission of “suspicious or anomalous data.”  Given the unrelated process for selecting Eligible Providers for pre- and post-payment audits, it is possible that CMS may audit up to 20 percent of Eligible Providers submitting attestations for meaningful use in a given year.

Eligible Providers selected for pre-payment audits must present supporting documentation to validate data submitted during attestation before CMS will release their incentive payments.  The CMS regulations for the Medicare and Medicaid Program provide that Eligible Providers must keep documentation supporting their demonstration of meaningful use for six years.

Pre-Payment Audit Preparation Best Practices

Based on Eligible Providers’ experience with the pre-payment and post-payment audits, we recommend the following practices to improve the chance of a successful audit:

  • Understand Core and Menu Set Measures.  An Eligible Provider should review and be familiar with the specification sheets and frequently asked questions (FAQs) for the core and menu set meaningful use measures published by CMS on the EHR Incentive Program website.  The specification sheets and FAQs resolve many ambiguities created by the measures themselves and the auditors rely upon them as interpretive guidance to the measures.
  • Use Multi-Disciplinary Teams.  Eligible Providers should utilize a multi-disciplinary team of information technology and clinical personnel for the implementation and management of their EHR systems and meaningful use requirements to ensure the system is properly configured for measures (such as the drug-drug and drug-allergy interaction checks measure) that simply require functionality to be activated during the Eligible Provider’s meaningful use reporting period.
  • Documenting Measure Compliance.  Eligible Providers should retain documentation for each of the measures.  Such documentation may include: dated screen captures that demonstrate the Eligible Provider met the measure during the reporting period or otherwise by the applicable deadline, security risk assessment reports or an e-mail from an immunization registry confirming receipt.
  • Security Assessment. If an Eligible Provider relies upon a vendor hosting its EHR to conduct the security risk analysis required for the protection of electronic health information meaningful use measure, then the Eligible Provider should request a letter from the vendor stating the timing of the vendor’s assessment in order to demonstrate that the security assessment was completed before the end of the Eligible Provider’s meaningful use reporting period.
  • Certification of EHR System.  Eligible Providers should be prepared to provide documentation that they have implemented the version of a vendor’s EHR that has been certified as supporting meaningful use by the Office of the National Coordinator for Health Information Technology rather than an earlier uncertified version.  Eligible Providers using an EHR system that is provided on a “software-as-a-service” (SaaS) basis or otherwise from a cloud environment should be prepared for the auditor to request verification regarding the version number of the EHR system in use during the applicable reporting period.  Eligible Providers must obtain such verification from their EHR vendor and, as such, should maintain a relationship with an appropriate contact person at the vendor.  Eligible Providers should also monitor upgrades and version changes pushed by EHR vendors to ensure any upgrade does not affect the certified status of the EHR technology.  A significant change to an EHR system may require the vendor to seek re-certification of the system.
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2013 Family and Medical Leave Act (FMLA) Amendments: Have you Complied?

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In February 2013, the U.S. DOL published the Final Rule implementing statutory changes to the Family and Medical Leave Act of 1993 (FMLA).  The final rule expanded the military family leave provisions, among other changes.  The following chart was adapted from the DOL’s Wage and Hour Division website and shows a side-by-side comparison of the salient provisions of the current regulations:

Qualifying Exigency Leave (§ 825.126)
2008 Regulations 2013 Regulations
An eligible employee may take FMLA leave for qualifying exigencies arising out of the fact that the employee’s spouse, son, daughter or parent (the covered military member) is on active duty or has been notified of an impending call or order to   active duty in support of a contingency operation.

Eligible employees may take qualifying exigency leave for any of the
following reasons:

(1) short notice deployment; (2) military events and related activities; (3) childcare and school activities; (4) financial and legal arrangements; (5) counseling; (6) rest and recuperation; (7) post-deployment activities; and (8) additional activities.

Employees who request qualifying exigency leave to spend time with a military member on Rest and Recuperation leave may take up to five days of leave.

 “Covered military   member” is now “military member” and includes both members of the National Guard and Reserves and the Regular Armed Forces.

“Active duty” is now “covered active duty” and requires deployment to a foreign country.

A new qualifying exigency leave category for parental care leave is added.  Eligible employees may take leave to care for a military member’s parent who   is incapable of self-care when the care is necessitated by the member’s covered active duty. Such care may include arranging for alternative care, providing care on an immediate need basis, admitting or transferring the parent to a care facility, or attending meetings with staff at a care facility.

The amount of time an eligible employee may take for Rest and Recuperation qualifying exigency leave is expanded to a maximum of 15 calendar days.
 

Military Caregiver Leave (§ 825.127)
2008 Regulations 2013 Regulations
An eligible employee who is the spouse, son, daughter, parent, or next of kin of a covered servicemember (a current servicemember) of the Armed Forces, including National Guard and Reserve members, with a serious injury or illness incurred in the line of duty on active duty for which the servicemember is undergoing medical treatment, recuperation, or therapy, is otherwise in outpatient   status, or is otherwise on the temporary disability retired list, may take up to 26 work weeks of FMLA leave to care for the servicemember in a single 12-month period. The definition of covered servicemember is expanded to include covered veterans who are undergoing medical treatment, recuperation, or therapy for a serious injury or illness.

A covered veteran is an individual who was discharged or released under conditions other than dishonorable at any time during the five-year period prior to the first date the eligible employee takes FMLA leave to care for the covered veteran.

The period between enactment of the FY 2010 NDAA on October 28, 2009 and the effective date of the 2013 Final Rule is excluded in the determination of the five-year period for covered veteran status.
 

Serious Injury or Illness for a Current Servicemember (§ 825.127)
2008 Regulations 2013 Regulations
A serious injury or illness means an injury or illness incurred by a covered servicemember in the line of duty on active duty that may render the servicemember medically unfit to perform the duties of his or her office, grade, rank, or rating. The definition of a serious injury or illness for a current servicemember is expanded to included injuries or illnesses that existed before the beginning of the member’s active duty and were aggravated by service in the line of duty on active duty in the Armed Forces.
 

Serious Injury or Illness for a Covered Veteran (§ 825.127)
2008 Regulations 2013 Regulations
Not applicable. A serious injury or illness for a covered veteran means an injury or illness that was incurred or aggravated by the member in the line of duty on active duty in the Armed   Forces and manifested itself before or after the member became a veteran, and is:

(1) A continuation of a serious injury or illness that was incurred or aggravated when the covered veteran was a member of the Armed Forces and rendered the servicemember unable to perform the duties of the   servicemember’s office, grade, rank, or rating; OR

(2) A physical or mental condition for which the covered veteran has received a VA Service Related Disability Rating (VASRD) of 50 percent or greater and such VASRD rating is based, in whole or in part, on the condition precipitating the need for caregiver leave; OR

(3) A physical or mental condition that substantially impairs the veteran’s ability to secure or follow a substantially painful occupation by reason of a disability or disabilities related to military service or would do so absent treatment; OR

(4) An injury, including a psychological injury, on the basis of which the covered veteran has been enrolled in the Department of Veterans Affairs Program of Comprehensive Assistance for Family Caregivers.
 

Appendices
2008 Regulations 2013 Regulations
The FMLA optional-use forms and Notice to Employees of Rights Under the FMLA (poster) are provided in the appendices to the regulations. The FMLA optional-use forms and poster are removed from the regulations and no longer available in the appendices. They are now available on the Wage and Hour Division website, www.dol.gov/whd, as well as at local Wage and Hour district offices.

 

If you are a covered employer under FMLA, have you done the following?

Displayed the new DOL FMLA Notice Poster, electronically or in hard copy?

  • Updated your FMLA policy, which must be in your
    employee handbook or distributed to each employee?
  • Started using the new FMLA forms, such as the
    Notice of Eligibility, Designation Notice, and various Certification forms?
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A Short-Lived Victory for Generic Drug Manufacturers?

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On June 24, 2012, the U.S. Supreme Court handed down its decision in Mutual Pharmaceutical Co. Inc. v. Bartlett, 570 U.S. ____ (2013), finding that design-defect claims against generic drug companies are pre-empted where federal law prohibits an action required by state law. The Supreme Court had previously held in Pliva v. Mensing, 564 U.S. ____ (2011) that failure to warn claims against generic drug manufacturers are pre-empted by the Federal Food Drug and Cosmetic Act since generic drug makers must copy innovator drug labeling precisely in order to obtain approval of their products by the U.S. Food and Drug Administration (“FDA”). The Court in Mutual rejected the argument of lower courts that the generic manufacturer could comply with both federal and state law by choosing not to make and distribute the product at all.

The case in question involved the drug sulindac, a non-steroidal anti-inflammatory drug product marketed by the innovator as Clinoril®. The plaintiff in the case had been prescribed sulindac for treatment of shoulder pain. She subsequently developed a case of toxic epidermal necrolysis following taking an FDA approved generic product equivalent to Clinoril®, which resulted in significant and permanent disability (including blindness) and disfigurement. Subsequent to the event, the FDA required a more specific warning as to this possible side effect on sulindac products. A jury found the generic manufacturer liable under a theory that there was a design defect with the product, and the First Circuit affirmed, holding that the generic manufacturer could have complied with both federal and state law by not manufacturing and distributing the product. This was the method by which the lower courts overcame prior precedent that a state law may be impliedly pre-empted when it is not possible to comply with both federal and state law.

The Supreme Court in Mutual noted that the generic manufacturer could not comply with the state law, since federal law requires that the active ingredient, the amount of the active ingredient, the dosage form, and the labeling had to be identical to the innovator product. In this case, it was not possible to redesign the product, and the only way, under New Hampshire law, to remedy the design defect would have been to strengthen the product’s warnings. That too could not be done, as FDA rules require the labeling of the generic to be identical to that of the innovator. The Court ruled that in such a case the state law is without effect, and relevant New Hampshire warning-based design defect cause of action was pre-empted with respect to FDA-approved generic drugs sold in interstate commerce.

The scope of the Mutual decision may be limited to those states where design-defect claims allow for a risk-utility approach such as that the New Hampshire requires. The New Hampshire standard requires, among other things in determining whether there is a valid cause of action for a design defect, a determination as to whether there is a possible warning to avoid unreasonable risk of harm from the design defect and the efficacy of such warning. So not every design-defect claim may be pre-empted, depending on each state’s laws are interpreted. But given the Court’s reasoning, even state laws that do not take into effect the presence of and efficacy of a warning, may be pre-empted, as the generic must copy the formula of the innovator in all respects, except for the inactive ingredients in the product. (It should be noted that generics of some dosage forms – ophthalmic products and injectable products – must, in most cases, contain the same inactive ingredients as in the innovator product in the same amounts).

Furthermore, the FDA may amend its rules to permit ANDA holders to make changes in labeling. See “FDA Rule Could Open Generic Drug Makers to Suits,” The New York Times, Business, July 4, 2013, at B2. As stated in the posting on the OMB website (RIN 0910-A694):

Abstract: This proposed rule would amend the regulations regarding new drug applications (NDAs), abbreviated new drug applications (NDAs), abbreviated new drug applications (ANDAs), and biologics license applications (BLAs) to revise and clarify procedures for changes to the labeling of an approved drug to reflect certain types of newly acquired information in advance of FDA’s review of such change. The proposed rule would describe the process by which information regarding a “changes being effected” (CBE) labeling supplement submitted by an NDA or ANDA holder would be made publicly available during FDA’s review of the labeling change. The proposed rule also would clarify requirements for the NDA holder for the reference listed drug and all ANDA holders to submit conforming labeling revisions after FDA has taken an action on the NDA and/or ANDA holder’s CBE labeling supplement. These proposed revisions to FDA’s regulations would create parity between NDA holders and ANDA holders with respect to submission of CBE labeling supplements.

The expected date for a Notice of Proposed Rulemaking is September 2013. It could, of course, take FDA quite some time to propose a rule, and put it into effect, given the requirements of the Administrative Procedure Act. And Congressional action is also a possibility.

For the present, however, generic drug manufacturers appear to be shielded from liability under the doctrine of pre-emption from most, if not all, failure to warn and design defect claims under state law. Whether that victory is short-lived or not remains to be seen.

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Obama Administration Delays Until 2015 Large Employer Shared Responsibility Requirements, Reporting and Tax Penalties

Dickinson Wright LogoOn July 2, 2013, the Department of Treasury announced a one-year delay in the employer shared responsibility mandate under the Affordable Care Act (“ACA”) and related information reporting.

Complexity Leads to Delayed Reporting Implementation

The Department said that over the past several months, the Administration engaged in dialogue with businesses about the new employer and insurer reporting requirements under ACA. It took into account employer concerns about the complexity of the requirements and their need for more time to implement them effectively. Based on this, the Administration announced that it will provide an additional year, to January 1, 2015, before the ACA mandatory employer and insurer reporting requirements begin. It said the delay is designed to meet two goals. First, it will allow the Department to consider ways to simplify the new reporting requirements consistent with the law. Second, it will provide time to adapt health coverage and reporting systems while employers are moving toward making health coverage affordable and accessible for their employees. The Department said that within the next week, it will publish formal guidance describing the transition. In doing so, it said it is working hard to adapt and be flexible about reporting requirements as it implements the law.

More specifically, the Department said that the ACA includes information reporting (under Code Section 6055) by insurers, self-insured employers, and other parties that provide health coverage. It also requires information reporting (under Code Section 6056) by certain employers with respect to the health coverage offered to their full-time employees. The Department expects to publish proposed rules implementing these provisions this summer, after a dialogue with stakeholders – including responsible employers that already provide their full-time work force with coverage that exceeds the minimum employer shared responsibility requirements – in an effort to minimize the reporting, consistent with effective implementation of the law.

Once these rules have been issued, the Administration will work with employers, insurers, and other reporting entities to strongly encourage them to voluntarily implement this information reporting in 2014, in preparation for the full application of the provisions in 2015. It said that real-world testing of reporting systems in 2014 will contribute to a smoother transition to full implementation in 2015.

Delayed Implementation of Shared Responsibility and Tax Penalties

The Department said it recognizes that this transition relief will make it impractical to determine which applicable large employers owe the shared responsibility tax payment for not providing minimum essential coverage that is affordable and provides minimum value (under Code Section 4980H) for 2014. Accordingly, the Department is extending transition relief on the employer shared responsibility payments. Under the transition relief, applicable large employers will not owe either the $2,000 tax or the $3,000 tax for 2014. Any employer shared responsibility tax payments will not apply until 2015. During the 2014 transition period, the Department strongly encourages employers to maintain or expand the health coverage they provide to their employees.

Importantly, the Department said its actions do not affect employees’ access to the premium tax credits available under the ACA, although without employers reporting on who they provide coverage to, it is hard to see how the government will know which individuals qualify for a tax credit. Without more, this suggests that the Department intends that marketplaces for individuals will still be available January 1, 2014. It also suggests that most Americans will still have to obtain health benefits coverage or pay the individual tax. It is not clear if the notice employers are required to send to all employees by October 1, 2013 advising them of the marketplaces will still be required. The upcoming guidance should address this and other requirements. The Department also said that this delay does not change the compliance requirements under any other provision of the ACA. This suggests that the PCORI fee payable by July 31, 2013 is still due, the 90-day maximum waiting period for benefits eligibility in 2014 still applies, etc.

Hopefully, the upcoming guidance will provide more detail on on-going employer responsibilities. Until then, it appears that, presuming there are no additional delays or relief:

  • Employers will not have to count full-time employees and full-time equivalents in 2013 to determine if they are applicable large employers beginning January 1, 2014.
  • Applicable large employers will not have to determine their full-time employees for purposes of providing minimum essential coverage in 2014.
  • Applicable large employers who do not provide minimum essential coverage to all full-time employees in 2014 will not owe the $2,000 tax times all full-time employees (minus 30) if one full-time employee purchases coverage through a marketplace and obtains a tax credit or subsidy.
  • Applicable large employers that provide minimum essential coverage that is not affordable or does not provide minimum value in 2014 will not owe the $3,000 tax times all full-time employees who purchase coverage through a marketplace and receive a tax credit or subsidy.
  • Employers will not have to report to the government on their full-time employees and health plan coverage in 2014, although the government will urge voluntary reporting.
  • Employers that have been considering adjusting the structure of their workforces to minimize the number of their full-time employees appear to have additional time in which to analyze and implement workforce changes.
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New Requirement for Long-Term Care (LTC) Facilities That Arrange Hospice Services through a Medicare-Certified Hospice

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Effective August 26, 2013, the Centers for Medicare & Medicaid Services require that a long-term care, or LTC, facility that chooses to arrange for the provision of hospice services through a Medicare-certified hospice must have a signed agreement with the hospice delineating the services that will be provided by each.

New Condition of Participation Requirement for Long-Term Care Facilities

The Centers for Medicare & Medicaid Services (CMS) has added a new Condition of Participation (CoP) that requires that long-term care (LTC) facilities (that is, Medicare-certified skilled nursing and Medicaid-certified nursing facilities) that choose to arrange for the provision of hospice services through a Medicare-certified hospice must have in place a written agreement delineating the respective roles and responsibilities of each.  The CoP requires that the agreement, signed by an authorized official of the LTC facility and the hospice, must be in place before any hospice services can be provided through the arrangement by the hospice.  The new CoP requirement is effective August 26, 2013.

In its description of the requirement, published in the June 27, 2013, Federal Register, CMS explains that where LTC facilities and hospices provide many of the same services to residents who have elected the hospice benefit, the purpose of the agreement is to ensure that duplicative or conflicting services are not provided to the resident as part of the hospice benefit, and that there will be no missing hospice services.  CMS believes that the written clarification of the responsibilities of the LTC facility and the hospice will increase coordination of care for patients as well as foster communication between the two providers assisting patients and their families.  CMS also believes that the clear division of responsibilities and increased communication required by this new rule will help address the duplication of services criticized by the Office of Inspector General in a July 2011 report, and address situations where neither the LTC facility nor the hospice are providing a needed hospice service.

Options and New Requirement

An LTC facility has two options under the newly added CoP: it may arrange for the provision of hospice services through a written agreement with a Medicare-certified hospice specifying the services to be provided by the LTC facility and the hospice, or it may assist the resident in transferring to a facility that will arrange for the provision of hospice services when a resident requests a transfer.

If the hospice care is furnished in an LTC facility through an agreement with a Medicare-certified hospice, the agreement must ensure, among other things, that the hospice services meet professional standards and principles that apply to individuals providing services in the facility and to the timeliness of the services.  The regulations prescribe what must be addressed in the agreement.  For example, the agreement would specify that it is the LTC facility’s responsibility to furnish 24-hour room and board care, meet the resident’s personal care and nursing needs in coordination with the hospice representative, and ensure that the level of care provided is appropriately based on the resident’s needs.  The hospice’s responsibilities are delineated to include providing medical direction and management of the patient, nursing, counseling (including spiritual, dietary and bereavement), social work and medical supplies and drugs necessary for palliative care associated with the terminal illness.  The final regulation and CMS’ commentary published in the Federal Register provide considerable guidance to providers in developing new agreements, or amending existing agreements with hospices, to address the new requirement.

LTC facilities choosing to provide hospice services through arrangements with hospices without the required written agreement can face sanctions for their failure to meet the requirement of this new CoP.  While one commenter suggested extending the deadline for implementation of the rule to allow hospices and LTC facilities more time to develop agreements, CMS believes that the August 26, 2013, effective date is an adequate timeframe.

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Health Care Reform Update – Week of June 24, 2013

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CMS Releases Guidance on State Alternative Applications for Health Coverage

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

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

Supreme Court Rules Generic Drugmakers Not Liable for Defects

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

Implementation of the Affordable Care Act

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

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

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

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

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

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

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

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

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

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

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

Other HHS and Federal Regulatory Initiatives

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

Other Congressional and State Initiatives

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

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

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

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

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

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

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

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

Other Health Care News

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

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

Hearings and Mark-Ups Scheduled

Senate

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

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

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

House of Representatives

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

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

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

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

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

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

David Shirbroun also contributed to this update.

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

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

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

OIG Report on Medicare Part D Data

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

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

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

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

CMS Release of Medicare Claims Processing Data

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

Injunction on Release of Physician Payment Information Overturned

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

Medicare Data Access Bill Introduced

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

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

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

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

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

Program Integrity

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

Resolution of Grievances

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

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

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

State Flexibility to Operate Only a SHOP Exchange

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

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

Technical Change

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The FTC has hailed the decision:

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

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

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