Tag: regulation

President Biden Nominates Three FERC Commissioners

On February 29, 2024, President Biden nominated three new commissioners of the Federal Energy Regulatory Commission (“FERC”). The nominations will be reviewed and voted on by the Senate Energy and Natural Resources Committee and are subject to confirmation by the full Senate. If approved, the nominees will provide FERC with a full slate of five commissioners, including three Democrats and two Republicans.

Judy Chang is the Managing Principal of the Analysis Group in Boston and former Undersecretary of Energy and Climate Solutions of the Massachusetts Department of Energy Resources. She is a Democrat and will succeed Commissioner Allison Clements with a term ending June 30, 2029. Commissioner Clements has announced that she would not serve a second term, but she may remain on FERC after June 30, 2024, until replaced or through December 31, 2024. Ms. Chang was the keynote speaker at Pierce Atwood’s 2022 Energy Infrastructure Symposium.

Lindsay See is the Solicitor General of the State of West Virginia. Ms. See is a Republican, recommended to the President by Senate Minority Leader Mitch McConnell, and will succeed former Commissioner James Danly with a term ending June 30, 2028. Ms. See has represented West Virginia in many multi-state legal coalitions on a variety of national issues, including energy and environmental rules and policies.

David Rosner is a member of the FERC staff, an energy industry analyst who has been on loan to the majority staff of the Senate Energy and Natural Resources Committee, which is chaired by Senator Joe Manchin of West Virginia. Mr. Rosner will succeed former Chairman Richard Glick with a term ending June 30, 2027.

All three nominations have been received by the Senate and referred to the Energy and Natural Resources Committee, which will hold a hearing on each nominee. The Committee has not yet scheduled any hearings.

FERC Chairman Willie L. Phillips was designated as chairman on February 9, 2024. He was previously acting chairman. His term ends June 30, 2026. Commissioner Mark C. Christie’s term ends on June 30, 2025.

©2024 Pierce Atwood LLP. All rights reserved.

EPA Emphasizes its Criminal Enforcement Program

This Alert Update supplements a recent VNF alert analyzing the Environmental Protection Agency’s (EPA’s) enforcement priorities for fiscal years (FY) 2024-2027. EPA recently announced that its criminal program helped to develop the Agency’s national enforcement compliance initiatives and strongly suggested that it would look to pursue criminal cases under each initiative.

Previously announced National Enforcement and Compliance Initiatives (NECIs) for FY 2024-2027 include climate change, coal ash landfills and impoundments, a new focus on contaminants such as per- and polyfluoroalkyl substances (PFAS), and environmental justice initiatives. Current NECIs address aftermarket defeat devices for mobile sources, hazardous air pollutant (HAP) emissions, and compliance with the National Pollutant Discharge Elimination System (NPDES) permit program.

EPA’s head of the Office of Enforcement and Compliance Assurance (OECA), David Uhlmann, stated the agency is “promoting far greater strategic coordination between our criminal and civil enforcement programs” when speaking to the American Legal Institute-Continuing Legal Education’s (ALI-CLE) Environmental Law 2024 meeting on February 22, 2024.

Uhlmann highlighted that some prior cases handled civilly should have been potentially handled criminally, and that this may change moving forward. The practical implications for companies of the shift to a more active EPA criminal program may include significantly higher penalties and potential jail time for violations. Uhlmann also noted that “EPA will continue to reserve criminal enforcement for the most egregious violations.” His comments suggest that “egregiousness” will be evaluated based on the adverse effects of the violation, particularly on disproportionately overburdened communities, and the degree of intent. Uhlmann also added that companies could avoid criminal prosecution if they are “honest with the government” and have “strong ethics, integrity, and sustainability programs.”

The U.S. Justice Department’s Environment and National Resources Division (ENRD) litigates both civil and criminal cases for EPA and closely coordinates on enforcement initiatives. The Assistant Attorney General of ENRD, Todd Kim, also spoke during the February 22 ALI-CLE panel, and focused some of his remarks on the enforcement of environmental laws in the online marketplace. He cautioned that “online companies, just like brick-and-mortar companies, would do well to take pains to ensure that they are complying with environmental laws in selling and distributing products,” because EPA and the Department of Justice (DOJ) will enforce such laws in all market settings.

Both Uhlmann and Kim highlighted “21st century” challenges and opportunities, with NECIs addressing challenges and new opportunities such as data availability and analysis allowing EPA and DOJ to better enforce environmental laws and regulations in a targeted and effective manner. Some of the newest data and data analytics are being used to advance EPA’s environmental justice priorities. “So again, companies would do well to think about the ways we use data and to be talking with their neighbors to ensure that they’re doing what they can to ensure that disproportionately overburdened communities are getting the help they need,” Kim stated.

These EPA and DOJ statements clearly signal a potential increase in criminal environmental enforcement actions, creating additional risks for companies that run afoul of regulatory requirements. These corporate risks, which also may also be borne by executives and other employees, may be mitigated through the prompt detection and reporting of non-compliant conduct and through the development and maintenance of robust compliance programs. The ability to conduct prompt and thorough internal investigations and compliance audits should be a central part of an effective corporate compliance program.

© 2024 Van Ness Feldman LLP
by: Arthur “A.J.” Singletary , Paul Libus , Britt Speyer Fleming , Michael D. Farber of Van Ness Feldman LLP

For more news on Environmental Protection Enforcement, visit the NLR Environmental, Energy & Resources section.

New Cosmetic Regulatory Requirements: What Cosmetic Manufacturers Need to Know

On December 29, 2022, President Biden signed into law the “Modernization of Cosmetic Regulation Act of 2022,”1 which requires increased Food and Drug Administration (FDA) oversight of cosmetics and the ingredients in them. This GT Alert outlines the law’s key provisions, including timelines for FDA actions and enforcement. The law creates new requirements that may generate increased consumer litigation. This GT Alert summarizes the Act’s provisions and does not constitute legal advice. Many provisions are subject to regulatory implementation by a date provided for in the Act.

The new law also includes amendments modifying other FDA requirements. In particular, the law modifies the law as to issues such as improvements and innovations in drug manufacturing, reauthorization of key FDA programs such as the Humanitarian Device Exemption Incentive, the Best Pharmaceuticals for Children Program, and Reauthorization of Orphan Drug Grants. There are also modifications to biologics and drugs, as well as modifications of the Save Medical Device amendments. For information on the potential litigation impacts of the new law, please see this GT Alert published by the Pharmaceutical, Medical Device & Health Care Litigation Practice.

Modernization of Cosmetic Regulation Act of 2022 (MoCRA)

MoCRA, the new cosmetic regulation law, establishes a process, similar to those for other FDA-regulated products, that ensures the cosmetic manufacturers provide assurances that the cosmetic products are safe. This GT Alert provides general information on these new requirements, with effective dates for certain regulatory and other requirements. The law establishes obligations on the “responsible person” that is, the manufacturer, packer, or distributor of a cosmetic and those whose name appears on the products label.

MoCRA is only applicable to importers and entities that manufacture or process cosmetic products. It does not apply to the following entities if they do not import, manufacturer, or process cosmetics: beauty salons; cosmetic product retailers; distribution facilities; pharmacies; hospitals; physicians offices; health care clinics; public health agencies and other nonprofit entities; entities that provide complimentary cosmetic products; trade shows and others giving free samples; entities that are only doing research; and entities that prepare labels, relabel, package, repackage, hold, and/or distribute cosmetic products.

Key Terms

Good Manufacturing Practices: The secretary of the Department of Health and Human Services (HHS) (through the FDA) will propose and finalize regulations to establish good manufacturing practices. The key is to ensure that products are not adulterated and will allow FDA to inspect records to ensure compliance. The proposed rulemaking shall be no later than two years after date of enactment (December 29, 2022) with final regulations no later than three years after date of enactment (December 29, 2022).

Adverse Events: Any health-related event associated with the use of a cosmetic product.

Serious Adverse Event: Any event that is a result of death, life-threatening experience; inpatient hospitalization; persistent or significant disability or incapacity; a congenital anomaly or birth defect; and infection or significant disfigurement OR requires, based on reasonable medical judgment, a medical or surgical intervention to prevent an outcome described in the first definition of serious adverse event.

Process for Reporting Adverse Events: In compliance with the HHS secretary’s regulations, the responsible person shall file a report within 15 days and may supplement the report within one year. A serious adverse event report is similar to other safety reports and can include a statement released to the public (without any personal health information). The HHS secretary may exempt certain reports that do not involve a significant public health issue. Records must be kept by the responsible person for six years; three years for small businesses. There is a Rule of Construction that the submission of any report shall not be construed as an admission that the cosmetic product involved, caused, or contributed to the relevant adverse event.

  • Fragrance and Flavor Ingredients: If an ingredient(s) has caused or contributed to a serious adverse event, the HHS secretary may request a list of such ingredients, and such list must be provided within 30 days of the request.

  • Safety Substantiation: Records must be maintained that demonstrates adequate substantiation of the safety of the cosmetic product. Adequate substantiation means tests, studies, or other evidence to support a reasonable certainty that the product is safe.

Inspection: The responsible person shall permit an officer or HHS employee (with credentials) to have access to inspect records, manufacturing and other issues.

Registration and Product Listing: Cosmetic manufacturers must submit a registration no later than ONE YEAR AFTER ENACTMENT (December 29, 2022). New facilities must register within 60 days (or 60 days after deadline). Renewal is every two years. Updates or changes must be submitted within 60 days of the change. The content of the information required for registration is outlined in the law. The registering company must also list all cosmetic products it imports, manufactures, or processes and include product category or categories, list of ingredients (fragrances, flavors, or colors), and product listing number (if previously assigned). Flexibility is given to the listing of multiple products with identical formulations or those that differ only to colors, fragrances, flavors, or quantity. Annual updates are to be submitted. FDA will withhold confidential information included in a listing when a request for information is filed.

The HHS secretary may suspend a cosmetic entity’s registration if there is a reasonable probability that a product is causing serious adverse health or deaths, and the secretary has reasonable belief that other products made or processes may also be affected and for which health concerns are raised about the products manufactured. Notice of suspension is to be provided and an opportunity within five days to provide corrective action; or a hearing may be held. The secretary may conclude (a) the suspension remains necessary or (b) the registrant must submit a corrective action plan to demonstrate remediation of the problem conditions. The plan will be reviewed not later than 14 business days or such other time agreed upon by the parties. If the secretary vacates the suspension, FDA will then reinstate the registration. If the facility is suspended, no person shall introduce or deliver in the United States cosmetic products from such facility. The secretary can only delegate this authority to the FDA Commissioner.

Labeling: Each cosmetic product shall have a label that includes a domestic address, domestic phone number, or electronic contact information. In addition, the following applies to labeling.

  • Fragrance Allergens: The responsible person shall identify on the label each fragrance allergen included. The secretary shall propose a rule on June 29, 2024 (18 months after date of enactment) and final rule 180 days after the public comment period closes. The secretary shall consider international, state, and local requirements for allergen disclosure and threshold amount levels.

  • Cosmetic Products for Professional Use: A professional is an individual licensed by a state authority to practice in the field of cosmetology, nail care, barbering, or esthetics.

  • Professional Use Labeling: A cosmetic product introduced into interstate commerce and intended to be used only by a professional shall bear a label that contains a clear and prominent statement that the product shall be administered for use only by a licensed professional; and is in conformity with the requirements for cosmetics labeling.

Records: Records are to be available to authorized personnel to examine products if there is reason to believe a cosmetic product is adulterated or an ingredient could cause harm or run afoul of other standards. The authorized personnel must provide written notice to have access to records at a reasonable time to determine whether the product poses a threat. The records to be reviewed do not include recipes or formulas for cosmetics, financial data, pricing data, personnel data (except qualifications) research data (other than safety substantiation) or sales data (other than shipment data regarding sales).

  • Rule of Construction: Nothing in this section shall be construed to limit the secretary’s ability to inspect records or require establishment and maintenance of records under any other provision of the law.

Mandatory Recall Authority: If the secretary determines there is a reasonable probability that a cosmetic is adulterated or misbranded and the use or exposure will cause serious adverse health consequences or death, the secretary shall provide the cosmetic manufacturer an opportunity to voluntarily cease distribution and recall such article. If the entity refuses or does not recall the cosmetic within the time and manner prescribed, the secretary may order that the product not be distributed.

  • Hearing: A hearing may be held, no later than 10 days after the date of issuance. A process for resolution is provided by the law to either recall the product and cease distribution based on evidence provided or permit the product to continue distribution. Notice to affected individuals may be required.

  • Public Notification: If a recall is required, a press release is to be published, and alerts and public notices are to be issued, as appropriate. The materials must include the name of the cosmetic; a description of the risk; to the extent practicable, information for consumers about similar cosmetics that are not affected by the recall and ensure publication on the FDA website of the image of the cosmetic. The secretary can only delegate this authority to the Commissioner of the FDA.

  • Rule of Construction: Nothing in this section shall affect the authority of the secretary to request or participate in a voluntary recall or to issue an order to cease distribution or to recall under any other provision of this chapter.

Small Businesses: Responsible persons and owners and operators of facilities whose gross annual sales in the United States of cosmetic products for the previous three-year period is less than $1,000,000 shall be considered small business and not subject to Good Manufacturing Practices, registration, and listing requirements.

  • Exemptions: The small business exceptions do NOT apply to (1) cosmetic products that contact the mucus membrane of the eye under conditions of use that are customary or usual; (2) products that are injected; (3) products that are intended for internal use; or (4) products that are intended to alter appearance for more than 24 hours under conditions of use that are customary or usual, and removal by the consumer is not a part of such conditions of use that are customary or usual.

Preemption. No state or political subdivision of a state may establish any law, regulation, order, or other requirement for cosmetics that is different for registration and product listing, good manufacturing practice, records, recalls, adverse event reporting or safety substantiation. Nothing prevents any state from prohibiting the use of an ingredient in a cosmetic product, or continuing requirement of any state in effect at time of enactment.

  • Savings Clause: Nothing in the amendments shall be construed to modify, preempt, or displace any action for damages or the liability of any person under the law of any state, whether statutory or based in common law.

Talc-containing cosmetics: The HHS secretary shall propose regulations one year after December 29, 2022 and finalize the rules 180 days after the comment period to establish testing for detecting asbestos in talc products.

(1) Not later than one year after date of enactment of this act, the secretary shall promulgate proposed regulations to establish and require standardized testing methods for detecting and identifying asbestos in talc-containing cometic products and

(2) Not later than 180 days after the date on which the public comment period on the proposed regulations closes, the secretary shall issue such final regulations.

PFAS in Cosmetic. The HHS secretary shall assess the use of perfluoroalkyl and polyfluoroalkyl substances (PFAS) in cosmetic products and the scientific evidence regarding the safety in cosmetic products, including risks. The secretary may consult with the National Center for Toxicological Research. Report must be issued not later than three years after enactment summarizing the results of the assessment conducted.

Sense of the Congress on animal testing: It is the sense of the Congress that animal testing should not be used for the purposes of safety testing on cosmetic products and should be phased out except for appropriate allowances.

Funding: $14,200,000 for 2023, 25,960,000 for 2024, and $41,890,000 for 2025-2027 have been identified for these activities. The new law provides no industry user fees.

FOOTNOTES

1 This legislation was included in H.R. 2617, the “Consolidated Appropriations Act, 2023,” as part of a year-end bill.

Article By Nancy E. Taylor and Eleanor (Miki) A. Kolton of Greenberg Traurig, LLP

For more biotech, food, and drug legal news, click here to visit the National Law Review.

©2022 Greenberg Traurig, LLP. All rights reserved.

Companies Gear Up For Mass Production of Cultured Meat

Could cultured meat be available in your U.S. grocery store in the new year? A previous article focused on the topic of “cultured meat” – meat made from the cells of animals and grown in a nutrient medium. While no cultured meat has yet been approved for sale in the U.S., companies are positioning themselves for mass production once needed approvals, licensing, inspections, etc., are obtained.

Earlier this month, Believer Meats broke ground on a $123 million plus facility in Wilson, North Carolina. The facility will be able to produce 10 metric tons of meat a year and will be the largest cultured meat facility in the world. The new facility will be Believer Meats’ second production facility. Last year it opened its first facility in Rehovot, Israel, with the capacity to make 500 kilograms of cultured meat a day. Believer Meats has developed processes to create cultured chicken, beef, pork, and lamb.

Investment in the cultured meat industry has been massive. For example, Believer Meats has $600 million in funding, and its investors include ADM Ventures, part of Archer-Daniels-Midland Co., and Tyson Foods.

Investment in the cultured meat industry has been massive.

So, with all of the investment and building of facilities, is the sale of cultured meat in the U.S. imminent? Cultured meat was first introduced in 2013. The eventual sale of cultured meat in the U.S. seems inevitable, but the timing is not yet clear. Before any cultured meat can be sold in the U.S., the FDA and USDA must approve the processes, license the facilities, inspect the facilities, inspect the meat, and approve labeling for the meat. Recognizing the rapid development of cultured meat products, the FDA established a premarket consultation process for companies to work with the FDA to start the process of regulatory approval for their cultured meat products. This premarket consultation process permits the companies to, voluntarily, work with the FDA, and to share information about their processes. The FDA premarket consultation does not, itself, “approve” the products, but evaluates the information shared by the companies – in order to determine if the meat is safe for human consumption. Specifically, as part of the premarket consultation, the FDA considers the cells used to make the cultured meat, the processes and materials used to create the cultured meat, and the manufacturing controls under which the cultured meat is created.

Recently, UPSIDE Food Inc. became the first cultured meat company to complete the FDA’s premarket consultation process. In November of this year, the FDA issued a No Questions letter to UPSIDE Food Inc. for its cultured chicken. The letter stated that information provided by UPSIDE Food Inc. to the FDA demonstrated that UPSIDE Food Inc.’s cultured chicken is safe and its production process prevents the introduction of contaminants that would adulterate the product. Last year, UPSIDE Food Inc opened a facility in Emeryville, California capable of producing 50,000 pounds of meat per year.

UPSIDE Food Inc.’s No Questions letter from the FDA is just the first step in the regulatory process. Pursuant to a 2019 agreement between the FDA and USDA, the FDA and the USDA will share oversight of the production of cultured meat. In addition to the premarket consultation, FDA will oversee the creation of the cultured meat up until the time of harvest, including licensing facilities, and inspecting the creation of the cultured meat. Inspections will ensure approved processes are being used and that the cultured cells are grown in a fashion that complies with Good Manufacturing Processes and food safety regulations.

When the cultured meat is harvested and processed into its final form, regulatory oversight will shift to the Food Safety Inspection Service (FSIS) of the USDA. As with traditional meat producers, cultured meat producers will have to apply for Grants of Inspection and be subject to similar inspections and food safety requirements. Labels for the cultured meat will also have to be preapproved by FSIS.

Before Believer Meats can sell any of its products manufactured in the North Carolina facility, Believer Meats will have to navigate the regulatory hurdles necessary to obtain approval of its products for sale to consumers. Believer Meats has indicated that it has been working with the FDA, but the FDA has not yet issued any statement on Believer Meats’ processes or products. However, with the start of construction on the world’s largest cultured meat facility, Believer Meats will be well-positioned to begin commercial production when regulatory approvals are obtained. We will be following this emerging new market and the regulatory rubric designed to oversee these cutting-edge food products.

Article By L. Christine Lawson of Womble Bond Dickinson (US) LLP

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Copyright © 2022 Womble Bond Dickinson (US) LLP All Rights Reserved.

Medicare CERT Audits and How to Prepare for Them

CERT audits are an unfortunate part of doing business for healthcare providers who accept Medicare. Failing the audit can mean the provider has to pay back overcharges and be subjected to increased scrutiny in the future. 

The best way to be prepared for a CERT audit is to have a compliance strategy in place and to follow it to the letter. Retaining a healthcare lawyer to craft that strategy is essential if you want to make sure that it is all-encompassing and effective. It can also help to hire independent counsel to conduct an internal review to ensure the compliance plan is doing its job.

When providers are notified of a CERT audit, hiring a Medicare lawyer is usually a good idea. Providers can fail the audit automatically if they do not comply with the document demands.

What is a CERT Audit?

The Comprehensive Error Rate Testing (CERT) program is an audit process developed by the Centers for Medicare and Medicaid Services (CMS). It is administered by private companies, called CERT Contractors, which work with the CMS. Current information about those companies is on the CMS website.

The CERT audit compares a sampling of bills for Medicare fee-for-service (FFS) payments, which were sent by the healthcare provider to its Medicare Administrative Contractor (MAC), against medical records for the patient. The audit looks at whether there is sufficient documentation to back up the claim against Medicare, whether the procedure was medically necessary, whether it was correctly coded, and whether the care was eligible for reimbursement through the Medicare program.

Every year, the CERT program audits enough of these FFS payments – generally around 50,000 per year – to create a statistically significant snapshot of inaccuracies in the Medicare program.

The results from those audits are reported to CMS. After appropriately weighing the results, CMS publishes the estimated improper payments or payment errors from the entire Medicare program in its annual report. In 2021, the CMS estimated that, based on data from the CERT audits, 6.26 percent of Medicare funding was incorrectly paid out, totaling $25.03 billion.

The vast majority of those incorrect payments, 64.1 percent, were marked as incorrect because they had insufficient documentation to support the Medicare claim. Another 13.6 percent were flagged as medically unnecessary. 10.6 percent was labeled as incorrectly paid out due to improper coding. 4.8 percent had no supporting documentation, at all. 6.9 percent was flagged as incorrectly paid for some other reason.

The CERT Audit Process

Healthcare providers who accept Medicare will receive a notice from a CERT Contractor. The notice informs the provider that it is being CERT audited and requests medical records from a random sampling of Medicare claims made by the provider to its MAC.

It is important to note that, at this point, there is no suspicion of wrongdoing. CERT audits examine Medicare claims at random.

Healthcare providers have 75 days to provide these medical records. Failing to provide the requested records is treated as an audit failure. In 2021, nearly 5 percent of failed CERT audits happened because no documentation was provided to support a Medicare claim.

Once the CERT Contractor has the documents, its team of reviewers – which consists of doctors, nurses, and certified medical coders – compares the Medicare claim against the patient’s medical records and looks for errors. According to the CMS, there are five major error categories:

  • No documentation

  • Insufficient documentation

  • Medical necessity

  • Incorrect coding

  • Other

Errors found during the CERT audit are reported to the healthcare provider’s MAC. The MAC can then make adjustments to the payments it sent to the provider.

Potential Repercussions from Errors Found in a CERT Audit

CERT audits that uncover errors in a healthcare provider’s Medicare billings lead to recoupments of overpayments, future scrutiny, and potentially even an investigation for Medicare fraud.

When the CERT audit results are brought to the MAC’s attention, the MAC will adjust the payments that it made to the provider. If the claims led to an overpayment, the MAC will demand that money back.

But Medicare Administrative Contractors (MACs) can go further than just demanding restitution for overpayments. They can also require prepayment reviews of all of the provider’s future Medicare claims, and can even suspend the provider from the program, entirely.

Worse still, CERT audits that uncover indications of Medicare fraud may be reported to a law enforcement agency for further review. This can lead to a criminal investigation and potentially even criminal charges.

Appealing a CERT Audit’s Results

With penalties so significant, healthcare providers should seriously consider hiring a lawyer to appeal the results of a CERT audit.

Appeals are first made to the MAC, requesting a redetermination of the audit results. The request for redetermination has to be made within 120 days of receiving notice of the audit results. However, if the provider wants to stop the MAC from recouping an overpayment in the meantime, it has to lodge the request within 30 days.

Providers can appeal the results of the redetermination, as well. They can request a reconsideration by a Qualified Independent Contractor within 180 of the redetermination, or within 60 days to stop the MAC’s recoupment process.

Providers who are still dissatisfied can appeal the case to an administrative law judge, then to the Medicare Appeals Council, and finally to a federal district court for review.

How to Handle a CERT Audit

The best way to handle and to prepare for a CERT audit is to hire Medicare audit attorneys to guide you through the process. It would also help to start internal audits within the company.

For providers who have been notified that they are under an audit, getting a lawyer on board immediately is essential. An experienced healthcare attorney can conduct a thorough internal investigation of the claims being audited. This can uncover potential problems before the audit points them out, giving the healthcare provider the time it needs to prepare its next steps.

Providers who are not currently being audited can still benefit from an attorney’s guidance. Whether by drafting a compliance plan that will prepare the provider for an inevitable CERT audit or by conducting an internal investigation to see how well a current compliance plan is performing, a lawyer can make sure that the provider is ready for an audit at a moment’s notice.

Taking these preventative steps soon is important. CMS put the CERT audit program on halt for the coronavirus pandemic, but that temporary hold was rescinded on August 11, 2020. While the CMS has reduced the sample sizes that will be used for its 2021 and 2022 reports, it will likely go back to the original numbers after that. Healthcare providers should prepare for this increased regulatory oversight appropriately.

Article By Dr. Nick Oberheiden of Oberheiden P.C.

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Oberheiden P.C. © 2022

Supreme Court Signals Move Away from Judicial Deference to Administrative Agencies

KEY TAKEAWAYS

In a unanimous decision on June 15, 2022, the Court in American Hospital Association v. Becerra[2] examined a Medicare reimbursement formula reduction that affected certain hospitals. While rejecting the DHHS agency interpretation of the reimbursement statute, the Court made no mention of Chevron deference even though the parties extensively briefed this doctrine. Instead, the Court focused solely on the relevant language of the statute. In particular, the Court held that the “text and structure” of the statute demonstrated that the Medicare reimbursement cut was not consistent with the statute.

In a 5-4 decision a few weeks later, the Court in Becerra v. Empire Health Foundation[3] again made no mention of Chevron deference even though the majority noted that the underlying statute’s “ordinary meaning … [did] not exactly leap off the page.” Despite its initial conclusion that the ordinary meaning of the statutory language was unclear, the Court continued its recent pattern of (a) choosing to not apply Chevron deference directly and (b) instead performing textural and structural analysis of its own. Based on this statutory analysis, the Court in Empire Health concluded that the statute was “surprisingly clear” if read as technical provisions for specialists and that the language of the statute supported the agency’s implementing regulation.

Finally, in West Virginia v. EPA,[4] the Supreme Court in a 6-3 decision again refused to give any deference to the EPA’s interpretation of a Clean Air Act provision which the EPA claimed as the statutory basis to regulate greenhouse gas emissions by power plants. The Court concluded that the EPA had violated the “Major Questions” Doctrine when the EPA used this provision to regulate carbon emissions. Under the “Major Questions” Doctrine, an agency cannot make decisions of vast economic and political significance without Congress expressly giving the agency the power to do so. Since the EPA’s effort to regulate greenhouse gases by making industry-wide changes was a decision of “vast economic and political significance,” the Court concluded that the EPA lacked the authority to do so in light of the overall nature and structure of the statute. Thus, even though there was some textual support for the EPA’s position, the Court again refused to defer to the agency and its interpretation of a statute.

Read together, these three decisions show an increased skepticism by the Court of agency interpretations of statutes and signal that going forward, the federal courts will more closely scrutinize administrative agency decisions in general. Businesses that have, to date, relied on an administrative agency interpretation may need to reassess their reliance if the interpretation relies on a broad or strained reading of a statute. Conversely, businesses currently restrained by agency interpretations which were shown deference by courts may now have an opening to challenge those interpretations.

FOOTNOTES

[1] Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984).

[2] Am. Hosp. Ass’n v. Becerra, 142 S. Ct. 1896 (2022).

[3] Becerra v. Empire Health Found., for Valley Hosp. Med. Ctr., 142 S. Ct. 2354 (2022).

[4] W. Virginia v. Env’t Prot. Agency, 142 S. Ct. 2587 (2022).

Article By Andrew T. Blum, Matthew J. Greenberg, and Larry J. Saylor of Miller Canfield

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© 2022 Miller, Canfield, Paddock and Stone PLC

U.S. Supreme Court Agrees with HHS Payment Methodology for Disproportionate Share Hospitals

The fight about how Medicare compensates disproportionate share hospitals (“DSH”) is one of the longest-running reimbursement disputes of recent years, and it has generated copious work for judges around the country.  In a 5-4 decision, the U.S. Supreme Court settled one piece of the conflict:  the counting of “Medicare-entitled” patients in the Medicare fraction of the “disproportionate-patient percentage.”  Becerra v. Empire Health Found., 597 U.S. ___ (2022) (slip op.).  The Supreme Court concluded that the proper calculation, under the statute, counts “individuals ‘entitled to [Medicare] benefits[,]’ . . . regardless of whether they are receiving Medicare payments” for certain services.  Id. (slip op., at 18) (emphasis added).

DSH payments are made to hospitals with a large low-income patient mix.  “The mark-up reflects that low-income individuals are often more expensive to treat than higher income ones, even for the same medical conditions.”  Id. (slip op., at 3).  The federal government thus gives hospitals a financial boost for treating a “disproportionate share” of the indigent population.

The DHS payment depends on a hospital’s “disproportionate-patient percentage,” which is basically the sum of two fractions: the Medicare fraction, which reflects what portion of the Medicare patients were low-income; and the Medicaid fraction, which reflects what portion of the non-Medicare patients were on Medicaid.  Historically, HHS calculated the Medicare fraction by including only patients actually receiving certain Medicare benefits for their care.  In 2004, however, HHS changed course and issued a new rule.  It counted, in the Medicare fraction, all patients who were eligible for Medicare benefits generally (essentially, over 65 or disabled), even if particular benefits were not actually being paid.  For most providers, that change resulted in a pay cut.

The new rule sparked several lawsuits.  Hospitals challenged HHS’s policy based on the authorizing statutory language.  These hospitals essentially argued in favor of the old methodology.  Appeals led to a circuit split, with the Sixth and D.C. Circuits agreeing with HHS, and the Ninth Circuit ruling that HHS had misread the statute.

The Supreme Court has now resolved the issue.  The majority opinion, authored by Justice Kagan, sided with HHS.  The majority concluded that, based on the statutory language, “individuals ‘entitled to [Medicare] benefits’ are all those qualifying for the program, regardless of whether they are receiving Medicare payments for part or all of a hospital stay.”  Id. (slip op., at 18).  The majority also explained that if “entitlement to benefits” bore the meaning suggested by the hospital, “Medicare beneficiaries would lose important rights and protections . . . [and a] patient could lose his ability to enroll in other Medicare programs whenever he lacked a right to [certain] payments for hospital care.”  Id. (slip op., at 11).

Justice Kavanaugh dissented, joined by Chief Justice Roberts and Justices Gorsuch and Alito.  The dissent argued that those lacking certain Medicare coverage should be excluded from HHS’s formula, based on “the most fundamental principle of statutory interpretation: Read the statute.”  Id. (Kavanaugh, J., dissenting) (slip op., at 2).  According to the dissent, the majority’s ruling will also restrict hospitals’ ability to provide care to underprivileged communities.  “HHS’s misreading of the statute has significant real-world effects: It financially harms hospitals that serve low-income patients, thereby hamstringing those hospitals’ ability to provide needed care to low-income communities.”  Id. (slip op., at 4).

There was one point of agreement among the majority and dissenting justices: the complexity of the statutory language for DSH payments.  Echoing the thoughts often held by healthcare advisors, Justice Kagan found the statutory formula to be “a mouthful” and “a lot to digest.”  Id. (majority opinion) (slip op., at 4).  And in his dissent, Justice Kavanaugh called the statute “mind-numbingly complex,” and resorted to an interpretation that he found “straightforward and commonsensical”: that patients cannot be “simultaneously entitled and disentitled” to Medicare benefits.  Id. (Kavanaugh, J., dissenting) (slip op., at 1, 3).

Article By Jeffrey DeBeer and Keith Bradley of Squire Patton Boggs (US) LLP

For more Supreme Court and litigation legal news, click here to visit the National Law Review.

© Copyright 2022 Squire Patton Boggs (US) LLP

Minnesota Inadvertently Allows Unregulated Intoxicating Cannabis Edible Products

As of July 1, 2022, unregulated intoxicating THC products derived from hemp have been legalized in Minnesota, apparently as the result of confusion by state legislators about the new law’s actual effect. Although the express intent of the statute is to allow the sale of products that contain so-called “non-intoxicating cannabinoids” to consumers in Minnesota, the new law contains a massive loophole that effectively legalizes all forms of THC sold in edible products at levels that intoxicate with only a bare minimum of regulatory oversight.

This surely cannot have been the goal of many Minnesota legislators who voted for the bill. In fact, the Minneapolis Star Tribune has reported that at least one senator in the state’s Republican-controlled Senate confirmed that he did not realize that the new law would legalize edible products with all forms of THC. 

The Loophole

The new law changes section 151.72 of the Minnesota Statutes by defining “non-intoxicating cannabinoid” as “substances extracted from certified hemp plants that do not produce intoxicating effects when consumed by any route of administration.” The bill then incongruously allows for cannabinoid edible products to be sold to consumers in the state so long as the product contains no more than 0.3 percent of any THC and no more than 5 mg of any THC in a single serving, or more than a total of 50 mg of any THC per package.

Most states are now being forced to grapple with how to respond effectively to the problem of unregulated intoxicating hemp cannabinoids being sold openly and online. Edible products with intoxicating levels of hemp-derived delta-8 THC, delta-9 THC, delta-10 THC and THC-O Acetate are sold widely as legal and less-expensive alternatives to regulated marijuana products. States have employed various strategies to, by varying degrees, limit, regulate or prohibit intoxicating hemp cannabinoids, and lawsuits on the subject have been initiated in several states.

No state has created a loophole quite like what exists in Minnesota’s new law. Although Minnesota seeks, at least nominally, to only allow the sale of products that contain “non-intoxicating cannabinoids,” food and beverages that contain less than 0.3 percent THC concentration may nevertheless be intoxicating due to the large amounts that may be consumed easily.

To illustrate the problem of hemp products that contain less than 0.3 percent delta-9 THC concentration but are nevertheless intoxicating, consider this:

  • A typical energy bar of 60 grams would be allowed to have up to 180 mg THC if limited to 0.3 percent THC concentration by weight.
  • Regulated cannabis edible products, by comparison, typically may be sold only in a serving size of no more than 10 mg, with a limit of up to 100 mg per package.
  • A four-gram hemp gummy product, however, could have 10 mg of THC and still fall below the allowable concentration threshold.
  • Minnesota’s new law allows up to 5 mg THC per serving and 50 mg THC per package.

The intoxicating potential here is evident. One need only consume two servings to ingest the same amount of THC allowed in a standard regulated marijuana product serving. Ingesting 50 mg of THC will heavily intoxicate all but the most jaded stoner. Nowhere in the new law, however, is there any requirement to warn that the cannabis edible product may cause intoxication when consumed as suggested.

The Goal Informs the Solution

States should focus on the goal of prohibiting or properly regulating intoxicating hemp products that are currently sold as an unregulated and less-expensive alternative to regulated cannabis. We have previously warned that any state that decides to allow hemp-derived THC in edible products must necessarily grapple with tricky questions over how to regulate maximum serving size, active cannabinoid concentration per serving size, the number of servings per container, consumer warnings and similar questions to mitigate the risk to public health and safety. Cannabis and hemp industry leaders have likewise warned against “percentage” thresholds of cannabinoids as an appropriate measure for foods and beverages for the reasons described above.

In comparison to Minnesota, other states are proceeding in a more cautious manner. California’s recent Assembly Bill 45, for example, draws attention to the above-mentioned issues but acknowledges that more study is needed by the California Department of Public Health (CDPH) before implementing regulations are issued. The bill provides that CDPH “may regulate and restrict the cap on extract and may cap the amount of total THC concentration at the product level based on the product form, volume, number of servings, ratio of cannabinoids to THC in the product, or other factors, as needed.”

Analysis

Exacerbating the problem is the fact that product contamination, label inaccuracies and outright fraud are pervasive within the hemp cannabinoid market. Products often are marketed with misleading or false claims, and many fail to incorporate any explicit warning of intoxicating effects. Because the Minnesota statute incorrectly assumes that consumers will not become intoxicated from compliant cannabis edible products, no such warnings are mandated. This is a mistake.

It appears that better education around hemp-derived edible products could have led to more thoughtful legislation in Minnesota. This example may nevertheless provide a learning opportunity for other states that are studying how to regulate intoxicating hemp products.

Article By Ian A. Stewart of Wilson Elser Moskowitz Edelman & Dicker LLP

For more biotech, food, and drug legal news, click here to visit the National Law Review.

© 2022 Wilson Elser

Health Care Providers on Alert: Two Hospitals Penalized for Continuous Noncompliance with the Hospital Price Transparency Rule

We previously discussed the requirements of the Hospital Price Transparency Rule (“Rule”) on health care providers and health plans, as well as CMS’s proposal to increase penalties for a hospital’s failure to comply with the Rule.  About a year and a half after the Rule became effective, CMS has now imposed its first set of civil monetary penalties (“CMPs”) on Northside Hospital Atlanta and Northside Hospital Cherokee, which have been fined $883,180 and $214,320, respectively.

The Rule requires, in part, hospitals to make public a machine-readable file containing a list of all standard charges for all items and services, such as, e.g., supplies, room and board, and use of the facility, among other items.  See 45 C.F.R. § 180.40(a); id. at § 180.20.  The Rule also requires hospitals to display shoppable services in a consumer-friendly manner.  See id. at § 180.60(d)(2); id. at § 180.60(b).  The goal of these specific requirements, in addition to those set forth in the remainder of the Rule, is to provide consumers with sufficient information about the charges for certain items and services by requiring health care providers and health plans to be publicly transparent about such charges.

Based on CMS’s CMP letters, dated June 7, 2022, Northside Hospital Atlanta and Northside Hospital Cherokee were non-compliant with the aforementioned specific requirements of the Rule.  The chronology of events is important to understand how CMS ended up issuing its CMP letters.

Northside Hospital Atlanta

For Northside Hospital Atlanta:

  • CMS documented the hospital’s non-compliance since March 24, 2021.
  • CMS issued a Warning Letter, dated April 19, 2021, to the hospital and provided it the opportunity to respond and to provide supporting documentation to CMS.
  • Northside Hospital Atlanta did not respond.
  • On September 2, 2021, CMS reviewed the hospital’s website and determined that the non-compliance persisted.
  • On September 30, 2021, CMS issued a Request for Corrective Action Plan (CAP) to the hospital, stating that it was non-compliant with the aforementioned specific requirements of the Rule.
  • On November 15, 2021, in response to the Request for CAP, the hospital stated that patients could request specific price estimate quotes by calling or emailing Northside Hospital Atlanta, which CMS determined was insufficient in response to its Request for CAP and to comply with the Rule.
  • On December 20, 2021, CMS requested a revised CAP from the hospital.
  • Northside Hospital Atlanta did not respond.
  • On January 11, 2022, CMS conducted a technical assistance call with the hospital, during which the hospital confirmed that it was non-compliant with the Rule and explained that it had intentionally removed all previously posted pricing files.
  • On January 24, 2022, CMS, again, requested a revised CAP from the hospital.
  • Northside Hospital Atlanta did not respond.

Based on the foregoing, CMS imposed an $883,180 CMP on Northside Hospital Atlanta, calculated as follows, pursuant to 45 C.F.R. § 180.90:

  • $36,300
    • $300 per day of non-compliance times 121 days.
    • 121 days represents the number of calendar days during 2021 that Northside Hospital Atlanta was non-compliant with the Rule (September 2, 2021 through December 31, 2021), pursuant to 45 C.F.R. § 180.90(2)(i).

 plus

  • $846,880
    • $10 per bed per day times 536 beds times 158 days.
    • 158 days represents the number of calendar days during 2022 that Northside Hospital Atlanta was non-compliant with the Rule (January 1, 2022 through the date of CMS’s CMP letter, June 7, 2022), pursuant to 45 C.F.R. § 180.90(2)(ii).

Northside Hospital Atlanta has until 60 calendar days from the date of CMS’s CMP letter to pay.  Until the hospital notifies CMS that all non-compliance has been corrected, CMPs will continue to accrue.

Northside Hospital Cherokee

For similar reasons as Northside Hospital Atlanta, Northside Hospital Cherokee was fined $214,320.  CMS noted that Northside Hospital Cherokee was non-compliant since April 16, 2021, and notified the hospital by Warning Letter, dated May 18, 2021.  CMS reviewed the hospital’s website on September 9, 2021, and issued a Request for CAP on October 27, 2021—to which the hospital did not respond.  Similar to Northside Hospital Atlanta, CMS held a technical assistance call on January 11, 2022, during which Northside Hospital Cherokee notified CMS that it had intentionally removed all previously posted pricing files.  CMS requested a Request for CAP on January 24, 2022—to which the hospital did not respond.

Similar to Northside Hospital Atlanta, Northside Hospital Cherokee was penalized $214,320, calculated as follows:

  • $34,200
    • $300 per day of non-compliance times 114 days.
    • 114 days represents the number of calendar days during 2021 that Northside Hospital Cherokee was non-compliant with the Rule (September 9, 2021 through December 31, 2021), pursuant to 45 C.F.R. § 180.90(2)(i).

plus

  • $180,120
    • $10 per bed per day times 114 beds times 158 days.
    • 158 days represents the number of calendar days during 2022 that Northside Hospital Cherokee was non-compliant with the Rule (January 1, 2022 through the date of CMS’s CMP letter, June 7, 2022), pursuant to 45 C.F.R. § 180.90(2)(ii).

Similar to Northside Hospital Atlanta, CMS noted that Northside Hospital Cherokee continues to be non-compliant and, thus, CMPs will continue to accrue.

Takeaways

These fines reflect CMS’s willingness to take material enforcement action where the Rule’s regulatory requirements are largely ignored and CMS’s subsequent efforts to obtain compliance are rejected.  Non-compliance carries heavy fines that are calculated, in part, by the number of days of non-compliance and by bed count.  Health care providers should take notice and ensure that they are compliant or, at least, making efforts towards compliance with the Rule’s requirements.  Critically, CMS will not accept a refusal to comply, as reflected in CMS’s responses to Northside Hospital Atlanta’s and Northside Hospital Cherokee’s refusals to submit CAPs.  As noted in CMS’s CMP letters to these providers, CMS is scanning websites and subsequently notifying providers that appear to be non-compliant with the Rule—which are ignored at the provider’s peril.

Article By Edward S. Kornreich and Matthew J. Westbrook of Proskauer Rose LLP

For more health law legal news, click here to visit the National Law Review.

© 2022 Proskauer Rose LLP.