Health Care Reform Update – Week of July 29, 2013

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Senate HELP Updates Track-and-Trace, Compounding Proposals

On July 24th, the Senate Health, Education, Labor, and Pensions (HELP) Committee released updates to its drug compounding and track and trace legislation. Committee Chairman Tom Harkin (D-IA) and Ranking Member Lamar Alexander (R-TN) say they hope the Senate will pass the measure by unanimous consent in the near future. On July 25th, the Congressional Budget Office (CBO)indicated the bill would have virtually no impact on the federal budget.

House Energy and Commerce Subcommittee Advances SGR Bill

On July 24th, the House Energy and Commerce Subcommittee on Health passed by voice vote a bill to repeal the sustainable growth rate (SGR) Medicare physician payment method. The bill now moves to the full committee, which will consider a repeal of the SGR on July 31st. Rep. Michael Burgess (R-TX) suggested the committee will support the bill, but he said the legislation could become part of larger budget negotiations near the end of 2013.

Implementation of the Affordable Care Act

On July 22nd, Republicans on the House Ways and Means Committee sent a letter to Treasury Secretary Lew requesting information regarding a delay of the ACA employer mandate. The letter criticizes testimony provided by Treasury official Mark Iwry in previous committee hearings, stating he failed to provide sufficient information.

On July 22nd, House and Senate Republicans sent a letter to HHS Secretary Sebelius that urges a release of information regarding health insurance premiums in 34 states taking part in the ACA federal and federal-state partnership exchanges.

On July 23rd, while speaking with members of the National Council of La Raza, First Lady Michelle Obama urged supporters to go out and inform their families and friends about the facts regarding the implementation of the ACA.

On July 23rd, the Government Accountability Office (GAO) issued a report on pre-ACA base insurance premium rates. The report was requested by Senator Orrin Hatch (R-UT).

On July 24thRep. Diane Black (R-TN) introduced H.R. 2775, a bill to prohibit ACA subsidies from being provided to Americans until a system is in place to verify the financial standing of individuals applying for subsidies.

On July 24th, the American Medical Association (AMA) and the American Hospital Association (AHA) called on HHS to delay Stage Two requirements relating to the development of meaningful use of electronic health records (EHRs). The AMA and AHA suggest Stage Two should be delayed by one year to provide flexibility to small and rural providers.

On July 25th, during a Senate Small Business Committee hearing on the implementation of the ACA, Senator Mary Landrieu (D-LA)said she understands some business owners are harmed by coverage mandates of the law. Senator Landrieu said she is open to exploring ACA changes that will avoid harming business owners.

On July 25th, Speaker of the House John Boehner (R-OH) said no decision has been made on if Republicans will use a continuing resolution to block additional funding for ACA implementation and enforcement.

On July 26th, CMS announced a moratorium on enrollment of home health agencies in Miami and Chicago and a temporary halt on ambulance suppliers in Houston.

On July 26thMaryland released premium rates for individual health insurance to be sold on the state’s ACA exchange. Nine carriers will offer plans through the exchange.

Other HHS and Federal Regulatory Initiatives

On July 22nd, the Food and Drug Administration (FDA) provided Teva Pharmaceuticals exclusive rights until 2016 to sell its Plan B One-Step emergency contraception over the counter and without age restrictions.

On July 22nd, CMS announced the suspension of the National Average Retail Prices (NARP) survey, which provided pricing information on over 4,000 common drugs.

On July 23rd, the U.S. District Court of Appeals for D.C. ruled that the HHS Secretary is able to delegate his or her authority to outside contractors.

On July 23rd, HHS issued a final rule that orders discounts for orphan drugs, which are often used to treat rare conditions, to apply when used to treat non-orphan conditions.

On July 26th, the FDA released two proposed rules to regulate the safety of imported food. The first rule is available here, and the second rule can be found here.

Other Congressional and State Initiatives

On July 24th, the House Appropriations Labor-HHS Subcommittee delayed a markup of the FY 2014 appropriations bill that was scheduled for July 25th. A spokesperson for the full committee indicated scheduling conflicts resulted in the delay.

On July 25th, the CBO wrote a letter noting the Senate’s immigration bill, S. 744, will reduce deficits largely because of cash flows related to Social Security and Medicare Part A.

Other Health Care News

On July 24th the Institute of Medicine (IOM) published a report on the variation in health care spending among Medicare beneficiaries.

Hearings and Mark-Ups Scheduled

Senate

On July 30th, the Senate Budget Committee will conduct a hearing to examine containing health care costs.

On July 31st, the Senate Environment and Public Works Committee will conduct a hearing to examine toxic chemical threats and public health protections.

House of Representatives

On July 30th, the House Energy and Commerce Committee will conduct a markup of legislation to reform the sustainable growth rate (SGR) Medicare physician payment method. The markup is scheduled to continue on July 31st.

On July 31st, the House Ways and Means Health Subcommittee will hold a hearing to analyze the Obama administration’s authority to offer tax credits through the ACA exchanges.

On July 31st, the House Science Research and Technology Subcommittee will hold a hearing on the frontiers of human brain research.

On August 1st, the House Ways and Means Committee will hold a hearing to analyze the implementation of the ACA.

On August 1st, the House Energy and Commerce Committee will hold hearing to understand the latest issues relating to the implementation of the ACA. 

David Shirbroun also contributed to this update.

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Health Resources and Services Administration (HRSA) Clarifies 340B Orphan Drug Exception But 340B Audit Enforcement Remains Murky

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Recently, HRSA publicly announced the issuance of a final rule clarifying when 340B covered entities can purchase and distribute orphan drugs through the 340B Drug Pricing Program.  Separately, HRSA quietly posted a report on its completed audits of 340B covered entities through July 12, 2013.  While the new rule does shed light on when 340B entities can purchase orphan drugs at 340B discounted prices, the new audit report keeps 340B entities in the dark on HRSA enforcement of established regulatory violations.

Orphan Drugs

The Orphan Drug Act specifies that drugs used to treat a specific rare condition or disease, such as ALS or Huntington’s disease, qualify as orphan drugs, and provides incentives for manufacturers of such drugs.  The FDA designates which drugs qualify as orphan drugs.

The Affordable Care Act excludes orphan drugs from 340B pricing, but does not provide specifics on the breadth of the exclusion.  The new 340B rule, which will go into effect October 1, 2013, specifies that the orphan drug exclusion only applies to three types of qualified 340B covered entities:

  • Free standing cancer hospitals
  • Critical access hospitals, and
  • Rural referral and sole community hospitals.

Other types of covered entities can still purchase orphan drugs at 340B prices, as long as the entity is in compliance with other conditions of the 340B program.

Under the final rule, the orphan drug exception is only applicable to the three types of entities if the drug at issue is designated as orphan by the FDA and is being transferred, prescribed or sold for the rare condition or disease for which it was designated as orphan by the FDA.  So, for example, if drug X is designated as orphan for treatment of ALS, but is also FDA-approved to treat anorexia, it may be purchased at 340B discounts to dispense to anorexia patients.

A word of warning – providers can potentially qualify as a 340B covered entity under more than one of the eligibility classifications.  Going forward, HRSA will require that each covered entity designate itself as a single type of covered entity and abide by all governing regulations specific to that type of entity.   Providers will want to consider the applicability of the orphan drug exception when deciding which type of entity they will be for 340B purposes.

Audit Update

HRSA did not announce that it posted a report on completed FFY 2012 program audits through July 12, 2013.  While there is some interesting information in the report, the report is more striking for what it doesn’t say.

The report reflects:

  • HRSA completed a total of 34 FFY 2012 audits.
  • HRSA conducted audits of 340B covered entities in 20 different states:  5 audits in Texas, 3 in Georgia and Illinois, and 2 in California, Florida, Kentucky, Washington and Wisconsin, and multiple states had only 1 reported audit.
  • Half of the audits had no adverse findings and half had 1 or more adverse findings.
  • The most common adverse finding was dispensing drugs to ineligible patients, this included situations involving ineligible sites and or use of ineligible providers.
  • The second most common finding was a violation of the duplicate discount prohibition through Medicaid billings.
  • The third most common adverse finding was inaccurate record entries, involving incorrect addresses, listing of closed facilities, or use of an unlisted contract pharmacy.

The report does not reflect the total number of entities audited during FFY 2012 or how many audits are yet to be completed.

In several audits where the only listed violation involved an incorrect record regarding a site or contact, no sanction was imposed and corrective action was either limited to correction of the database or is pending.  But where the inaccurate record included use of an unlisted contract pharmacy, or where there were other findings regarding ineligible patients or duplicate discounts, sanctions are reported as “to be determined” and corrective action remains “pending.”

So we know HRSA is actively auditing 340B entities and the activities it finds problematic, but we still don’t know what they are going do about those activities.

Vault/MCCA Legal Diversity Career Fair – August 2, 2013

The National Law Review is pleased to bring you information about the upcoming Vault/MCCA Legal Diversity Career Fair:

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Attention 2L, 3L and Lateral Candidates:

Join us at the Vault/MCCA Legal Diversity Career Fair!

The Vault/MCCA Legal Diversity Career Fair will provide minority, female, LGBT and candidates with disabilities the opportunity to meet and network with recruiters from law firms and government agencies who are firmly committed to increasing diversity in the legal profession.

When: Friday, August 2, 2013

Where: Capital Hilton, Washington, DC

 

 

Consumer Financial Services Basics 2013 – September 30 – October 01, 2013

The National Law Review is pleased to bring you information about the upcoming  Consumer Financial Services Basics 2013.

CFSB Sept 30 2013

When

September 30 – October 01, 2013

Where

  • University of Maryland
  • Francis King Carey School of Law
  • 500 W Baltimore St
  • Baltimore, MD 21201-1701
  • United States of America

Facing the most comprehensive revision of federal consumer financial services (CFS) law in 75 years, even experienced consumer finance lawyers might feel it is time to get back in the classroom. This live meeting is designed to expose practitioners to key areas of consumer financial services law, whether you need a primer or a refresher.

It is time to take a step back and think through some of these complex issues with a faculty that combines decades of practical experience with law school analysis. The classroom approach is used to review the background, assess the current policy factors, step into the shoes of regulators, and develop an approach that can be used to interpret and evaluate the scores of laws and regulations that affect your clients.

In Largest Known Data Breach Conspiracy, Five Suspects Indicted in New Jersey

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On July 25, 2013, the United States Attorney for the District of New Jersey announced indictments against five men alleging their participation in a global hacking and data breach scheme in which more than 160 million American and foreign credit card numbers were stolen from corporate victims, including retailers, financial institutions, payment processing firms, an airline, and NASDAQ.  The scheme is the largest of its kind ever prosecuted in the United States.

The Second Superseding Indictment alleges the defendants (four Russian nationals and one Ukrainian national) and other uncharged co-conspirators targeted corporate victims’ networks using “SQL [Structured Query Language] Injection Attacks,” meaning the hackers identified vulnerabilities in their victims’ databases and exploited those weaknesses to penetrate the networks.  Once the defendants had access to the networks, they used malware to create “back doors” to allow them continued access, and used their access to install “sniffers,” programs designed to identify, gather and steal data.

Once the defendants obtained the credit card information, they allegedly sold it to resellers all over the world, who in turn sold the information through online forums or directly to individuals and organizations.  The ultimate purchasers encoded the stolen information on blank cards and used those cards to make purchases or withdraw cash from ATMs.

The defendants allegedly used a number of methods to evade detection.  They used web-hosting services provided by one of the defendants, who unlike traditional internet service providers, did not keep records of users’ activities or share information with law enforcement.  The defendants also communicated through private and encrypted communication channels and tried to meet in person.  They also changed the settings on the victims’ networks in order to disable security mechanisms and used malware to circumvent security software.

Four of the defendants are charged with unauthorized access to computers (18 U.S.C. §§ 1030(a)(2)(C) and (c)(2)(B)(i)) and wire fraud (18 U.S.C. § 1343).  All of the defendants are charged with conspiracy to commit these crimes.

Two of the defendants have been arrested, with one in federal custody and the other awaiting an extradition hearing.  The other three defendants, two of whom have been charged in connection with hacking schemes, remain at large.

This conspiracy is noteworthy for its massive scale, and for the patience the hackers demonstrated in siphoning data from the networks.  The U.S. Attorney “conservatively” estimates more than 160 million credit card numbers were compromised in the attacks, and alleges that the hackers had access to many victims’ computer networks for more than a year.  Many prominent retailers were targets, including convenience store giant 7-Eleven, Inc.; multi-national French retailer Carrefour, S.A.; American department store chain JCPenney, Inc.; New England supermarket chain Hannaford Brothers Co.; and apparel retailer Wet Seal, Inc.  Payment processors were also heavily targeted, including one of the world’s largest credit card processing companies, Heartland Payment Systems, Inc., as well as European payment processor Commidea Ltd.; Euronet, Global Payment Systems and Ingenicard US, Inc. The hackers also targeted financial institutions such as Dexia Bank of Belgium, “Bank A” of the United Arab Emirates; the NASDAQ electronic securities exchange; and JetBlue Airways.  Damages are difficult to estimate with precision, but they total several hundred million dollars at least.  Just three of the corporate victims suffered losses totaling more than $300 million.

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Complete Your Non-Compete Agreement: Helpful Drafting Tips

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Perhaps you consider your non-compete agreement just one form in a stack of many? When it is time to use it there is not much to the process: you retrieve it from the HR office, briefly discuss it with the employee, and he willingly signs it. But such a practice is a perilous one because non-compete agreements are not meant to be “one-size-fits-all.” Rather, they should be thoughtfully tweaked to each specific employee and situation. By relying on boilerplate language and fill-in-the-blank forms, you are risking the chance that a court will find your agreement unenforceable.

Unfortunately, there are no bright-line rules that employers can abide by to ensure the legality of agreements, but there are some factors that you should consider when drafting these agreements that should assist employers in enforcing their agreements when the time comes to do so, including:

1) The nature of the industry

The higher the competition in the industry, the more likely a non-compete will be upheld. If the industry is such where an individual may gain sensitive or secretive data, strategies, or business models, then a strict non-compete makes much more sense. On the other hand, if succeeding in the industry primarily results from people relying on their own strengths (good service, knowledge, etc.), then there is less of a reason to restrict them from competing against their former employer because they will not be relying on what was gained at their previous employment. Compare the industry of a Silicon Valley technology start-up versus that of a general family physician; a non-compete agreement makes much more sense in the former rather than the latter. Lesson – explain clearly the reason why the agreement is necessary. 

2) The relevant characteristics of the employer

Is the business local or global? Are there a handful of employees or thousands? Does the employer dominate the industry or is competition fierce? As a general rule, the larger the employer’s geographical reach, the larger the geographical restriction can be. Yet, the geographic reach of the employer is just one of many considerations and must be viewed in light of the entire non-compete. For example, a court may uphold a one-year restriction of competing nationally, if the business is global. On the other hand, if the business is unique to one state (say, breeding racing thoroughbreds) then a five-year, state-wide restriction could be held unenforceable. Take time to understand your business and catalogue its characteristics. Lesson –limit the geographic and durational scope of the restriction as much as is reasonable – and explain the reasons for each.

There are some additional tips worth sharing; check back on Wednesday and I’ll discuss what else you can do to improve your non-compete agreements.

Best Practices in Business to Business (B2B) Content Marketing [INFOGRAPHIC]

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Content provider ContentCrossroads.com recently developed an infographic about best practices for B2B marketers, including the most popular, most profitable and easiest content to develop for B2B marketers looking to gain the attention of prospects:

legal marketing social media internet law firm management

 

Unpaid Internships – Opportunity or Liability for Businesses?

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Unpaid internships have long been viewed by students, recent graduates and industry newcomers as a chance to gain experience that might help them select or launch a career, and to some, a chance to eventually land a paying job.  Employers can capitalize on this to teach their trade or profession and find new talent; but, they should not use interns just to cut labor costs.

The United States Department of Labor and many states use six criteria to determine whether internships in for-profit company operations can lawfully be unpaid: 1) the internship must be similar to training given in an educational institution; 2) regular paid workers are not displaced; 3) the intern works under close observation; 4) the employer derives no immediate advantage from intern activities; 5) there is no guaranty of employment upon internship completion; and 6) it is clear up front that there is no expectation of payment.  The overarching theme is that unpaid internships must be educational and predominantly for the benefit of the intern, not the employer.

Some employers have no idea the criteria exist and unwittingly expose themselves to expensive single-plaintiff, class action and regulator’s claims to reclassify interns as employees and to recover unpaid minimum wages, overtime pay, interest, multiple penalties and attorneys fees.  [For more on this see our post on Unpaid Interns Deemed Employees Under the FLSA].  Add to that, there are potential employer and decision maker risks for failure to withhold income and employment taxes.

“Warning bell” examples of internship programs that may be subject to reclassification include, use of unpaid internships to simply minimize labor costs or merely as an extended job interview to see if interns can make the cut later for a paid job; no real, supervised education and training, beyond what the intern might happen to observe; and a predominance of work assigned to interns that paid employees would normally do to generate or support the business.  Likewise, interns whose work is primarily running errands, answering phones, filing, organizing documents, data entry, scanning or coping images, or cleaning – even though they arguably have good exposure to work going on around them – tend to look like they are merely doing what paid support staff employees ought to be doing.

By contrast, if the intern is closely supervised and taught learning objectives that can be applied to multiple different employers, with occasional support staff type work incidental to the learning, with no guaranty of employment, and a writing that specifies a limited duration of an internship without pay, odds are better that intern can lawfully be unpaid.  As a practical matter, if a school or college will give the intern course credit, the odds of legal compliance increase.

A safe path to avoid classification risks is to pay interns at least minimum wage and for any overtime worked, afford meal and rest breaks, and manage their work assignments to reduce overtime needed.   Depending on employer policies and applicable laws, an intern who is part-time or a short-term temporary employee may not be eligible for certain employee benefits.

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Observations on a Milestone Bribery Investigation and Increased Scrutiny of Foreign Companies in China

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The Chinese government’s recent crackdown on alleged bribery and corruption of local officials by multinational pharmaceutical companies could signal a broad trend toward elevated scrutiny of all foreign corporations operating in the country—and provides an even greater incentive for companies to identify and implement anti-corruption practices focused on China’s unique business and legal culture.

Elevated Compliance Risks, Elevated Compliance Duties

The international pharmaceutical industry is the latest commercial sector to face increased scrutiny in China.  A major investigation of a leading pharmaceutical company has allegedly uncovered evidence of what Chinese authorities have characterized as “widespread, prolonged corruption” and has generated considerable publicity.  The investigation marks the latest in a recent surge of aggressive inquiries by the Chinese government into foreign companies, targeted at alleged violations ranging from bribery to price-fixing.

This new trend is a worrying development for international companies operating in China, and a signal that the sporadic crackdowns may finally be coalescing into a new reality of permanently elevated scrutiny by the central Chinese government.  This “new normal” will increase the need for proactive policies, procedures and diligence by international companies, which have traditionally faced significant compliance pressures and risks, mainly from non-Chinese laws such as the United States’ Foreign Corrupt Practices Act and the United Kingdom’s Bribery Act.

Background

In early July 2013, the government of the People’s Republic of China (PRC) announced a milestone investigation into GlaxoSmithKline Plc. (GSK) that has allegedly uncovered bribery involving millions of U.S. dollars that were funneled through more than 700 travel agents and other third parties over the last six years.  More than 20 GSK employees, including high-level executives, have been detained by the police, and international travel restrictions have been imposed on at least one foreign executive.  Notably, the government has indicated that the investigation uncovered signs that other pharmaceutical companies may have illegally given incentives to doctors and other hospital staff, or bribes to government officials and medical associations.

The exact trigger for the GSK inquiry is currently unknown, but there has been wide speculation about a variety of motives for the timing and targets of the case including a desire to reduce healthcare costs.  Regardless of the cause of the investigation, the case is expected to spawn a significant, industry-wide investigation and crackdown, in which the PRC government will be targeting foreign pharmaceutical companies with official “requests,” unannounced visits and dawn raids.  Indeed, at least one other company has acknowledged being visited recently by government investigators in connection with this investigation.

Our Observations

Concealed From the Government, Hidden From the Home Office

GSK’s response to the investigation has been clear and public.  The company has stated that its global headquarters was not aware of the bribery in China, and has reaffirmed its zero tolerance policy for compliance violations.

Certainly, the PRC—as evidenced by the statements of Gao Feng, a top official in China’s Ministry of Public Security—seems to believe “bribery is part of the strategy” of pharmaceutical companies and has expanded its investigations to other multinationals in China.  This raises concern that a culture of compliance may not be as strongly embedded in companies as one would hope, or, at minimum, such a culture is not perceived as strongly embedded.  The China operations of multinationals often experience significant turnover and have increasingly shifted to a local-hire model.  The shift to local hires is due to a variety of factors, including new social security requirements, food safety concerns, increasing pollution and a rise in perceived hostility towards foreigners.  As key positions change hands for whatever reason, multinational companies can expect that local teams, in their efforts to impress corporate leaders, may be guided more by sales results than compliance with regulations, supervisory controls and policies dictated by global headquarters.

Recommendations

In the wake of the Chinese government’s launch of a new round of aggressive investigations, multinational companies should begin scrutinizing their operations more carefully to ensure that their policies are well understood, and look for signs of potential bribery being carried out by their employees.  To do so, they should truly localize their global compliance policy and program to specifically address their local operations in China, including the development and implementation of the following:

  1. Thorough and complete Foreign Corrupt Practices Act (FCPA) risk-based due diligence for mergers with, and acquisitions of, Chinese local companies
  2. Thorough due diligence review of third-party business partners, including but not limited to agents, distributors, consultants and travel agents
  3. A robust compliance program covering all critical functions, including sales and marketing personnel as well as compliance, legal, finance and human resources staff
  4. A well-run ethics helpline with active follow-up to all complaints and queries
  5. Ongoing compliance training for local management as well as employees
  6. Periodic compliance audits and immediate remediation as necessary

To fully benefit from these compliance efforts, multinationals should consider engaging professionals with the following skills and strengths:

  1. Familiar not only with FCPA requirements but also PRC anti-corruption laws and regulations
  2. Possess a deep understanding of Chinese business culture, along with a command of the unique nuances of compliance challenges in China, and able to to identify and formulate effective responses to new and innovative forms of bribery and corruption
  3. Specialized in dealing with Chinese government investigations appropriately and licensed in China

The insights of such professionals would be helpful in minimizing risk and potential consequences, including reputational damage and executives’ liability.

Ultimately, as the current anti-corruption campaign illustrates, global compliance measures superimposed upon China’s unique business environment are not enough.  A truly effective compliance program for China needs to be one that identifies and addresses the issues arising out of local business and legal culture.

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Centers for Medicare and Medicaid Services (CMS) Spells Out Requirements in New Rule for Consumer Helpers in Insurance Exchanges

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Amid ongoing political debate about implementation of the Affordable Care Act and the ability of average Americans to understand the complexities of the health reform law, the Centers for Medicare and Medicaid Services on July 12, 2013 released a final rule that sets forth requirements for different types of entities and individuals who will aide consumers in learning about and enrolling in health coverage plans on insurance marketplaces created by the law, called exchanges.

The rule distinguishes between three categories of consumer helpers: “navigators,” “non-navigator assistance personnel,” and “certified application counselors.” All three types, which may include community nonprofit organizations and their staffs, and other entities and individuals, will perform similar functions, such as helping consumers establish their eligibility for coverage on an exchange and enrolling them where eligible. The primary differences lie in how they are funded and in the exchanges in which they will provide assistance. Navigators will provide assistance in all exchanges—federal exchanges, state exchanges, and federal-state partnership exchanges—and will be funded by federal and state grants. Non-navigator assistance personnel will provide assistance in federal-state partnership exchanges and optionally in state exchanges, and will be funded through separate state-administered grants or contracts. Certified application counselors will provide assistance in all exchanges and will not receive exchange-related funds (although they may receive funds from other federal programs).

The rule lays out standards with which navigators and non-navigator assistance personnel must comply. These standards include conflict-of-interest standards that limit affiliations with insurance companies and standards governing certification, recertification, and training in particular subjects. The rule establishes additional standards to ensure that the services of navigators and non-navigator assistance personnel are culturally and linguistically appropriate and also accessible to the disabled.

As to certified application counselors, the rule authorizes exchanges to designate an organization to certify its staff members or volunteers as application counselors, or to directly certify these individuals, who in both cases must comply with certification standards similar to those applicable to navigators and non-navigator assistance personnel. Correspondingly, the rule requires withdrawal of an organization’s designation or a counselor’s certification in the event of noncompliance with the rule. Finally, the rule requires that certain information about certified application counselors be available to health coverage applicants, and it prohibits the imposition of any charge on applicants for application or other exchange-related assistance.

The rule takes effect on August 12, 2013.

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