OCR Releases Ebola Bulletin

This post was written by Jennifer Pike.

The recent Ebola outbreak has prompted the US Department of Health and Human Services, Office for Civil Rights (“OCR”), the agency responsible for enforcing the Health Insurance Portability and Accountability Act (“HIPAA”), to release a new bulletin for covered entities and business associates regarding their privacy obligations in emergency situations. The bulletin, entitled “HIPAA Privacy In Emergency Situations,” provides an overview of the limited ways in which covered entities and business associates may use and disclose protected health information in emergencies, such as the Ebola outbreak. The bulletin is available at http://www.hhs.gov/ocr/privacy/hipaa/understanding/special/emergency/hipaa-privacy-emergency-situations.pdf.

Insurance Coverage for False Claims Act Lawsuits?

The number of qui tam actions brought under the False Claims Act (FCA) has increased dramatically over the past several years, as the incentives for bringing such claims have grown.

Reed Smith attorneys Brian Himmel and Natalie Metropulos have authored “Insuring Against FCA Suits in the Health Care Industry” in Corporate Counsel discussing the steps that health care service providers should take to insure themselves against allegations of FCA violations. Recommendations include assessing current insurance coverage for defending and resolving such claims, and additional types of policies that can provide FCA coverage.

To read the article, click here.

Innocent Co-Insureds Coverage Not Void Under Fake Doctor's Application

Reed Smith’s Policyholder Perspective blog recently posted about an October 21, 2014 ruling in the U.S. District Court in South Carolina that sounds as if it came from a Hollywood film. In Evanston Insurance Company v. Agape Senior Primary Care, et al., 2014 WL 5365679, the court held that despite a false application for professional liability insurance submitted by an applicant pretending to be a doctor, the insurance afforded to the company and other doctors and nurses identified as named insureds under the policy remained in force, and was not void ab initio as to the innocent co-insureds. To read the full alert by Reed Smith attorneys Kevin Dreher and Natalie Metropulos, click here.

Insights About Future Use of Protected Health Information Under HIPAA

How will Protected Health Information (PHI) be used in the future? Reed Smith partner Brad Rostolsky strives to answer this question in “HIPAA Enforcement: The Next Step,” an interview and accompanying article that appeared on HealthcareInfoSecurity on October 14th. The article discusses a number of trends predicted for the near future stemming from the HIPAA Omnibus Rule introduced last year, such as an increase in the number of investigations by the Department of Health and Human Services’ Office for Civil Rights regarding the illegal use, disclosure, and sale of PHI without patient authorization, particularly when used for marketing and fundraising purposes. The article also provides recommendations for companies preparing for HIPAA compliance audits, privacy concerns related to the use of consumer health information on social media, and potential HIPAA privacy issues involving wearable consumer health devices.

To listen to the interview and read the article, click here.

Reed Smith Team Analyzes OIG's Proposed Rule Amending Anti-Kickback Safe Harbors, CMP Rules & Gainsharing Regulations

The Office of Inspector General (OIG) of the Department of Health and Human Services published a major proposed rule on October 3, 2014 amending the Anti-Kickback Statute (AKS) safe harbors and the Civil Monetary Penalty (CMP) rules to protect a number of payment practices not previously allowed under those regulations. The proposed rule and the effects it would have on the AKS safe harbors and CMP rules are analyzed in a client alert written by Reed Smith attorneys Elizabeth Carder-Thompson, Scot Hasselman, Bob Hill, Carol Loepere, Paul Pitts, Sal Rotella, Susan Edwards, Katie Hurley, and Katie Pawlitz, and senior health policy analyst Deb McCurdy.

Among the payment practices that would be covered by the amended AKS safe harbors are certain cost-sharing waivers, manufacturer discounts for drugs provided to Medicare Coverage Gap Discount Program beneficiaries, and certain free or discounted local transportation services incentives. In addition, the CMP rules would clarify the definitions of “remuneration” to allow for, among other things, decreased copayments for certain hospital outpatient services, certain retailer reward programs, and waivers of copayments for the initial fill of a generic drug. The proposed rule also includes a proposal to codify the “gainsharing” CMP rule, which prohibits certain hospitals from intentionally compensating physicians to reduce or limit services to Medicare or Medicaid patients.

The authors note that a rule of this nature appears to be an acknowledgment by the OIG that the evolution of health care delivery in the United States has required the agency to become more flexible in regards to enforcing certain aspects of fraud and abuse regulation.

Comments on the proposed rule are being accepted by the OIG through December 2, 2014.

To read the client alert, click here.

Omnicare's Appellate Victory Upheld by U.S. Supreme Court

The February 2014 decision (discussed in an earlier blog post) in which the U.S. Court of Appeals for the Fourth Circuit dismissed the False Claims Act (FCA) charges brought in United States ex rel. Rostholder v. Omnicare, Inc. was confirmed on October 6, 2014, when the U.S. Supreme Court declined to review the Rostholder decision. The case – in which Omnicare had been represented by Reed Smith – involved alleged violations of the FCA stemming from reimbursement claims for drugs that were purportedly improperly packaged according to federal guidelines. The Fourth Circuit ruled that approval of a drug is sufficient for reimbursement qualification and, as a result, reimbursement claims for approved drugs cannot be considered “false” under the FCA solely for being “processed in violation of FDA safety regulations."

To read the Reed Smith client alert about the Supreme Court’s dismissal, click here.

OIG Warns About Ineligibility of Health Care Program Beneficiaries for Pharmaceutical Coupon Programs

The Office of Inspector General (OIG) of the Department of Health & Human Services issued a Special Advisory Bulletin (SAB) on September 19, 2014 discussing the coupon programs employed by many pharmaceutical manufacturers to reduce or entirely eliminate patient copayments to obtain brand-name drugs. As mentioned on our Health Industry Washington Watch blog, the SAB cautions that there are several risks associated with manufacturers utilizing such coupon programs, and that the manufacturers must make efforts to prevent federal health care program beneficiaries from using the coupons if they wish to avoid these risks. Among the potential issues that can arise from an improperly-regulated coupon program are violations of the Anti-Kickback Statute (when programs – which qualify as remuneration – are purposely paid with the intent to encourage the use of items or services payable by a federal health care program) and False Claims Act (when a claim includes items or services resulting from a kickback violation). While the SAB’s focus is on manufacturer coupon practices, in a footnote, the OIG states that pharmacies accepting coupons for Part D copayments may also be subject to these sanctions.

To read the entire post, click here.

Academic Physician Compensation Plans Take a New "Curve" Towards Performance Incentives

Over the last several years, there has been a trend on the part of Academic Medical Centers (AMCs) to adopt more performance incentive-based faculty compensation plans for their physicians. AMCs must take several items into consideration when designing these plans, particularly in regards to financial allocation. As Reed Smith partner Karl Thallner and Ronald Vance, Managing Director at Navigant Consulting, point out in an American Health Lawyers Association member briefing entitled “Developing Progressive Academic Physician Compensation Plans for an Emerging ‘Curve 2’ Health Care Market,” most AMCs are demonstrating an increased reliance on clinical health care delivery revenue as a result of decreased funding for other pursuits, such as teaching and research. Such constraints present additional challenges for AMCs trying to construct viable financial models that will support incentive-based physician compensation plans.

To read the member briefing, click here.

U.S. Senator Schumer Calls for Increased Regulation of Wearable Electronic Devices to Avoid Data Privacy Issues

Reed Smith’s Global Regulatory Enforcement Law Blog features a post on the recent phenomenon of wearable electronic devices and the legal issues that may arise from these gadgets. "Wearable Device Privacy - A Legislative Priority?," written by Reed Smith attorneys Frederick Lah and Khurram Gore, discusses a recent press release issued by U.S. Senator Chuck Schumer of New York expressing concern that personal health data collected by wearable devices and fitness apps, including medical conditions, sleep patterns, calories burned, GPS locations, blood pressure, weight, and more, will be provided to third parties without the user knowing it. Schumer, citing this as a threat to personal privacy, has urged the Federal Trade Commission to mandate that device and app companies provide users with an explicit “opt-out,” allowing them to block the distribution of this information to any third parties.

As the authors note, with the rising popularity of these types of devices, we expect regulators, legislators, and companies to start paying closer attention to the data security and privacy risks associated with their use.

Recent Data Breaches Serve as Warning for Companies to Assess Their Cybersecurity Insurance Coverage

Earlier this week, numerous media outlets reported on the Russian crime ring which had managed to steal more pieces of Internet data than any other group of hackers in history – a whopping collection of at least 1.2 billion user name and password combinations and over 500 million email addresses. The magnitude of data that this group has managed to accumulate, coupled with several other recent high-profile hacking incidents, is a wake-up call for businesses that cybersecurity has become a major contemporary concern. Data breaches are increasing in frequency, severity, and cost, and the potential consequences for an affected company can be devastating.

This trend and its insurance implications are discussed in a client alert by Reed Smith partners Doug Cameron, David Weiss, Andy Moss, and Cristina Shea, who point out that companies must start being proactive with their cybersecurity efforts. Businesses should take the time to assess their current cybersecurity insurance coverage as well as their coverage needs. Cyber-related insurance is an evolving area, so extensive research and consulting with counsel may be necessary before a company can select an insurance policy that maximizes its coverage.
 

Law360 Article - U.S. and French Sunshine Laws Present Compliance Challenges for Manufacturers

In “From Sea to Shining Sea: French and US Sunshine Laws,” (Law360 subscription required), Reed Smith attorneys Elizabeth Carder-Thompson and Daniel Kadar discuss recent legislation from both sides of the Atlantic designed to increase the transparency of relationships between drug and medical device manufacturers on one hand and physicians and teaching hospitals on the other. While both the U.S. and French Sunshine Acts are intended to address the same general issue, there are several key differences between the two resulting from the respective environments in which they were passed. In addition to providing an overview of the legislation and its immediate effects, the article also discusses some of the compliance issues that have resulted from these laws, including determination of the extent to which non-U.S. headquartered entities or non-U.S. based physicians are subject to U.S. Sunshine Act requirements, and regulation of the amount, organization, and frequency of data disclosure required under the French Sunshine Act.

OIG Advisory Bulletin Addresses Independent Charity Patient Assistance Program Risks

Patient Assistance Programs (PAPs) provide important help to patients of limited means who do not have insurance coverage for drugs and need assistance covering drug costs, often for chronic illnesses. The Office of the Inspector General (OIG) of the Department of Health and Human Services has now issued an advisory bulletin, dated May 21, 2014, intended to expand existing OIG guidelines related to PAPs, which can give rise to anti-kickback statute issues in some circumstances.

The new advisory bulletin, which is summarized in a client alert by Reed Smith partner Joe Metro and summer associate Peter Vogel, focuses specifically on Independent Charity PAPs. Among the issues discussed are the relationship between donors and Independent Charity PAPs, Independent Charity PAPs’ definitions of disease funds and eligible recipients, and the potential illegality of donor actions in relation to support for their own products. The OIG has stated that it will be working with PAPs that previously received advisory opinions to identify potential changes that could provide some clarity to these issues.

The French Sunshine Act: Towards simplification and new deadlines?

This post was written by Daniel Kadar

Similar to the U.S. Sunshine Act (as has been explored before on this blog), the French Sunshine Act (“Loi Bertrand”) made mandatory the publication of benefits (in kind or in cash) granted by pharmaceutical laboratories to health professionals, as soon as they reach a certain amount.

An implementing decree published 21 May 2013 has set out in detail its conditions, quickly followed, in December, by a second regulatory text regarding the unique website where those benefits are supposed to be published.

Nevertheless, this body of rules might be amended again soon, with a new draft order released recently by the Ministry of Social Affairs and Healthcare. In view of the modifications it proposes, the regulation of these issues seems to be moving in three different directions:

  1. Simplification in both the form and substance of the applicable regulation, which concerns, essentially, the health care providers (HCPs) whose agreement(s) with a health care company have to be published: the new text shall simply refer to the current article L.1453-1 of the French Public Health Code, which provides a list substantially similar to the existing one. It also plans to remove some pieces of the information the laboratories are required to make public (qualification, title, college register number, event’s schedule…). In other words, same substance but less detail. It is important to keep in mind that the amount of the payments made to HCPs through these agreements does not need to be disclosed under French law.
  2. Regarding the website where the declaration of interests should be made, the Sunshine Act sets forth that personal data of the HCPs (data that would allow, according to EU regulation, the identification of HCPs either directly or indirectly) is to be protected against indexing on search engines. The draft order reduces the scope of such protection, maintaining only protections of the “directly identifying data” against this type of indexing.
  3. Last but not least, the main purpose of the draft is obviously to change the schedule initially set up to declare the benefits and the conventions: it removes the existing 15-day deadline after the signature of the convention, and allows the advent of a biannual schedule. The draft order goes even further by postponing the declarations regarding the benefits granted in 2012 and 2013 to August 2015, and its publication on the unique website to October 2015. In the meantime, rules are drafted to organize a publication on the personal websites of the companies.

Setting up the new transparency requirements in France obviously takes more time than expected…

OIG Proposes Amendment of Health Care Program Civil Monetary Penalty Regulations

The Office of Inspector General (OIG) of the Department of Health and Human Services has issued a proposed rule that would institute several changes to the health care program civil monetary penalty (CMP) regulations. Under the proposed rule, which is analyzed in a client alert prepared by Reed Smith lawyers Paul Pitts, Joe Metro, and Susan Edwards, the OIG would have the expanded authority to enforce significant CMPs on providers and suppliers in a variety of scenarios.

In addition, the rule proposes a reorganization and clarification of current CMP regulations, including the methods used to determine when and how a CMP should be issued and how a CMP should be calculated. The OIG estimates that enforcement of the proposed rule would result in an increase in CMP collections by the government. Comments on the rule are due by July 11, 2014.

Closing Time: Considerations and Hurdles in Completing Pennsylvania-Based Health Care Transactions

The health care industry has seen a recent shift towards consolidation, driven in part by legislation such as the Patient Protection and Affordable Care Act which encourages integration within the industry. As a result, health care entities are increasingly considering opportunities to merge with or acquire other companies. While this can be an exciting prospect for many organizations, the health care industry’s high level of both federal and state regulation has resulted in a myriad of potential legal issues that can stand in the way of a successful transaction. In particular, there are a number of regulatory hurdles that must be cleared in the state of Pennsylvania before a health care transaction can take place.

To address many of the potential issues that deal counsel must consider when involved in health care transactions in Pennsylvania, Reed Smith attorneys Karl Thallner and Zach Portin authored “Seal the Deal: Health Care Mergers and Acquisitions in Pennsylvania,” which was published in the April 2014 edition of the Pennsylvania Bar Association Quarterly. The article addresses a wide range of topics, including review by the state attorney general’s office and the Orphans’ Court; regulatory approvals at both the federal and state level; antitrust; the corporate practice of medicine doctrine; fiduciary duties; and other various matters for consideration.

Exclusion Rules For Those Who Receive Funds From Federal Health Care Programs May Get Even More Complicated

The Office of Inspector General (OIG) of the Department of Health and Human Services identifies the underlying purpose of its exclusion authority as to protect federal health care programs and their beneficiaries from “untrustworthy health care providers, i.e., individuals and entities who pose a risk to program beneficiaries or the integrity of these programs.” The OIG now has published a new proposed rule that would greatly expand the bases upon which it could affirmatively exclude an individual or entity from participation in federal health care programs, and Reed Smith lawyers Carol Loepere, Elizabeth Carder-Thompson, Scot Hasselman, Katie Hurley, and Erin Atkins have prepared a full summary of this proposed rule.

In particular, this summary examines the OIG’s position that there should be no statute of limitations applicable to when it may seek exclusion, because limitless look-back authority could place a tremendous burden on providers and suppliers if their conduct and compliance efforts are second-guessed many years into the future, when supporting documentation and witnesses are long gone. The proposed rule also revises relevant definitions, provides new grounds for exclusion, proposes procedures for early reinstatement, among other things, and is a by-product of provisions of the Affordable Care Act, which expanded the OIG’s exclusion authority and allowed for testimonial subpoenas in investigations of exclusion cases.

Recent OCR Enforcement Activities Cause Serious Case of Déjà Vu: Theft of Unencrypted Laptops Leads to Two Separate HIPAA Settlements

This post was written by Brad Rostolsky, Nan Bonifant and Jillian Riley

We have heard this story before: unencrypted laptop containing electronic protected health information (ePHI) is stolen. The covered entity’s subsequent breach self-report triggers not only an incident investigation by the Department of Health and Human Services, Office for Civil Rights (OCR), but a de facto HIPAA compliance audit as well. While the covered entities involved change, the consequences and enforcement message remain the same.

Now, two more covered entities have settled potential violations of the HIPAA Privacy and Security Rules arising from the theft of unencrypted laptops by paying a total of $1,975,220, and agreeing to continued oversight by OCR through Corrective Action Plans (CAPs). In both instances, the breaches were self-reported and the settlements resulted from OCR’s subsequent investigations.

On December 28, 2011, Concentra Health Services (Concentra), a national health care provider and subsidiary of Humana Inc., reported to OCR that an unencrypted laptop was stolen from one of its facilities. OCR’s subsequent investigation revealed that while Concentra previously recognized that a lack of encryption on laptops, desktops, medical equipment, and tablets presented a critical risk to ePHI, Concentra failed to fully implement necessary steps to address those vulnerabilities. OCR’s investigation further found that Concentra had insufficient security management processes in place to ensure proper safeguarding of patient information. Concentra paid OCR $1,725,220 to resolve these alleged HIPAA violations and will adopt a CAP to evidence their remediation efforts.

The second settlement, which resulted in a $250,000 payment to OCR, stemmed from the theft of an unencrypted, stolen laptop from an employee’s car on October 8, 2011. The laptop, belonging to a workforce member of QCA Health Plan, Inc. of Arkansas (QCA), contained the ePHI of 148 individuals. While QCA instituted company-wide device encryption following discovery of the breach, OCR’s subsequent investigation revealed that QCA had failed to comply with multiple requirements of the HIPAA Security Rule, beginning from the Rule’s compliance date in April 2005. In addition to the monetary settlement amount, QCA agreed to provide HHS with an updated risk analysis and corresponding risk management plan that includes specific security measures to reduce risks to vulnerabilities of its ePHI. QCA also agreed to retrain its workforce and document its ongoing compliance efforts.

Unfortunately, as the proliferation of portable devices in the health care industry increases, the question for most covered entities is not if a laptop or mobile device will be stolen, but when. Encryption not only provides a safe harbor under the Breach Notification Rule, but it has also become a practical necessity to HIPAA compliance. Failure to address encryption of portable devices in Security Rule risk analyses and, in most cases, failure to implement some form of encryption, will continue to expose covered entities (as well as business associates) to significant compliance risk.

Additional information about OCR’s enforcement activities can be found at http://www.hhs.gov/ocr/privacy/hipaa/enforcement/examples/index.html.

D.C. Circuit Rules in Favor of Providers in DSH Part C/Part A Appeal... Or Does it?

This post was written by Salvatore G. Rotella, Jr. and Zachary A. Portin

In a much-anticipated decision, the U.S. Court of Appeals for the District of Columbia Circuit last month affirmed the lower court’s ruling in favor of the hospital plaintiffs in Allina Health Services, et al. v. Sebelius (D.C. Cir., No. 13-5011, Apr. 1, 2014). The otherwise good news for providers, however, was called into question by the appellate court’s instructions as to the proper remedy in the case.

Allina involved a Part C/Part A issue challenge to the method that the Department of Health and Human Services (HHS) used to calculate the plaintiffs’ DSH payments for the 2007 cost year. Specifically, in undertaking the DSH calculation, HHS treated inpatient days of Part C beneficiaries (Part C Benefit Days) as days for which those patients were “entitled to benefits under Part A” of Medicare. HHS did so pursuant to a final rule it issued in 2004 (the 2004 Final Rule) and codified in a 2007 regulation.

Previously, the D.C. District Court had held in its Allina decision that the 2004 Final Rule was procedurally defective, and HHS was therefore required to treat Part C Benefit Days as days for which those patients were not entitled to benefits under Part A. That approach would generally have led to additional DSH reimbursement for hospitals. On appeal, the D.C. Circuit affirmed the lower court’s finding that the 2004 Final Rule was improper, but remanded the case for the Secretary to decide again, this time without relying on the 2004 Final Rule.

While the D.C. Circuit’s ruling nominally favored the hospital plaintiffs, it also effectively invited HHS to reach the same policy announced in the 2004 Final Rule, but this time through an administrative adjudication rather than a rulemaking. This is a troubling possibility for providers because adjudicatory findings, unlike most rulemakings, can be retroactively applied to previous cost years. In short, the D.C. Circuit’s Allina opinion is unlikely to be the last word on the Part C/Part A issue in particular, or on the fate of the many other pending DSH issue appeals in general.

FDA's Center for Devices and Radiological Health Publishes Draft Guidances on the Medical Device Premarket Approval Process

This post was written by Jillian W. Riley

Earlier this week, FDA’s Center for Devices and Radiological Health (CDRH) published two separate draft guidance documents to advance the dual goals of FDA and industry to provide pathways for medical devices to reach the market quickly while ensuring the safety and efficacy of the product.

The first guidance, entitled Balancing Premarket and Postmarket Data Collection for Devices Subject to Premarket Approval, clarifies FDA’s current thinking on creating an effective means to achieve “the right balance of premarket and postmarket data collection facilitates timely access to important new technology without undermining patient safety.” Greater reliance on postmarket data collection can help a new product reach the market – and patients – sooner. One key factor FDA considers when determining whether postmarket data collection is appropriate is the device’s potential impact on public health. For example, and as discussed more thoroughly in the separate guidance discussed below, FDA may accept greater pre-approval uncertainty regarding specific benefits and risks of devices where there is demonstrated potential to address unmet medical needs.

The second guidance, Expedited Access for Premarket Approval Medical Devices Intended for Unmet Medical Need for Life Threatening or Irreversibly Debilitating Diseases or Conditions, proposes a new expedited review program for medical devices that address unmet medical needs and are subject to premarket approval (PMA) applications. The program laid out in the draft guidance establishes opportunities for earlier and more active engagement between sponsors and FDA staff, including earlier involvement of senior management to ensure more consistency in messaging to industry. The early interactions aim to establish better plans for efficient collection of the scientific and clinical data necessary to support FDA’s approval determinations. The guidance also describes the criteria an applicant must meet in order to obtain an expedited access PMA designation.

FDA will be accepting comments regarding the draft guidances until July 23, 2014.

Reed Smith Hosts Multifaceted Conference on Post-Acute Care

As highlighted on our Health Industry Washington Watch blog, Reed Smith hosted a dynamic conference on post-acute care in Washington, D.C. in early April. Entitled "Reed Smith 2014 Washington Health Care Conference: Focus on Post-Acute Care," the conference brought together a panel of experts discussing episodic care, proposed bundling models, and alternative payment and delivery systems; a specialist in health care investment banking addressing the current climate and future outlook for post-acute investments and transactions; and a legal policy analyst providing a thorough overview of recent legislative action related to post-acute care. The conference concluded with a thought-provoking keynote speech from Dr. Norman Ornstein, Resident Scholar at the American Enterprise Institute, about the politically polarizing nature of health care policy in the United States today. To read the entire post, click here.

UK Government Addresses Lack of Regulation and Legislation in Cosmetics Industry

In April 2013, an independent review of the regulation of cosmetic interventions in the UK was published, highlighting an insufficient amount of regulation in this industry by the UK government, due in part to the rapid growth of cosmetic procedures in the United Kingdom. Cases such as unauthorized (and potentially defective) materials being used in procedures has forced the UK government to acknowledge that the level of regulation of cosmetic procedures must increase. The UK government responded to this review in February 2014 by unveiling a set of actions that will be taken to address the current dearth of cosmetic regulation and legislation, and ensure that the quality of care is improved. Among these actions are the introduction of a code of conduct, an ombudsman, and accredited qualification of practitioners. Some of these actions have already been initiated.

For more information on the government’s response and proposed changes, read the full alert written by Reed Smith lawyers John Wilkinson, Nicola Maguire, and Adam Lewington, and trainee Daryl Cue.

A Comparison of the U.S. and French Sunshine Reporting Requirements

This past year both the U.S. and France enacted substantial new reporting and disclosure requirements under their respective Sunshine Acts, which were designed to increase the transparency of the financial relationships between manufacturers and health care professionals and to allow patients to make more informed decisions regarding their health treatments. The U.S. and French Sunshine Acts are not identical, however, as indicated in this alert written by Reed Smith lawyers Elizabeth Carder-Thompson and Daniel Kadar. Their side-by-side review illustrates that the scope and focus of transparency differs between the U.S. and France. This alert includes a summary chart comparing and contrasting the differences in Sunshine Act reporting requirements in a number of areas including effective dates, who must report, what information must be reported, payment thresholds and categories of payments that must be reported as well as those that can be excluded. This information is especially relevant to global manufacturers working to comply with these provisions.

A copy of the full alert and comparison chart is available here.

Manufacturer, Group Payment Organization, and Physician Financial Information Slated For Disclosure, May Spur False Claims Act Activity

As mentioned on our Health Industry Washington Watch blog, pharmaceutical and medical device manufacturers and group purchasing organizations (GPO) are currently in the process of submitting detailed 2013 payment and investment interest data to the Centers for Medicare & Medicaid Services. The submission of this data, as dictated by the Physician Payment Sunshine Act, is intended to highlight certain financial relationships between the manufacturers and GPOs and physicians. With some exceptions, this data will become public by September 1, 2014, at which time the Department of Health and Human Services’ Office of the Inspector General, Department of Justice, and relators’ attorneys will likely analyze the data to initiate investigations and support complaints under the federal False Claims Act. To read the entire post, click here.

Reed Smith to Host April 4, 2014 Washington Health Care Conference on Post-Acute Care - Eight Days Left to Register

On April 4th, 2014, Reed Smith will host its inaugural Washington Health Care Conference at The Mayflower Renaissance Hotel in Washington, D.C. With a keynote from Dr. Norman Ornstein, this year’s conference will focus on post-acute care, bringing together leading industry professionals for a discussion on several important issues, including:

Governing in Polarized America: The Prospects for Policy in 2014 and Beyond (Keynote)

  • Dr. Norman Ornstein, Resident Scholar, American Enterprise Institute, and weekly columnist for National Journal and The Atlantic

Policy discussion on episodic care, bundling models, and alternative payment and delivery systems

  • Mike Cheek, Vice President for Medicaid and Long Term Care Policy, American Health Care Association
  • Judy Feder, Professor, Georgetown University McCourt School of Public Policy, and Urban Institute Fellow
  • Dr. Barbara Gage, Fellow, Managing Director, Engelberg Center for Health Care Reform, Brookings Institution
  • Dr. Vincent Mor, Ph.D., Florence Pirce Grant Professor of Community Health, Public Health Program, Brown University School of Medicine

Wall Street perspective: the current appetite for deals

  • Jay Barnes, Senior Vice President, Healthcare Investment Banking, Jefferies LLC

Hill briefing on Medicare legislation

  • Cate McCanless, Senior Policy Advisor, Brownstein Hyatt Farber Schreck

Limited seating is still available for this complimentary program. If you are interested in registering, please email Lindsay Korenich at lkorenich@reedsmith.com. For more information about this conference, click here.

Fourth Circuit dismisses False Claims Act case based on FDA cGMP Violations

Reed Smith Partner Larry Sher authored a post on the Drug and Device Law Blog about a recent decision in which the U.S. Court of Appeals for the Fourth Circuit affirmed the dismissal of a False Claims Act (“FCA”) case brought against Omnicare, United States ex rel. Rostholder v. Omnicare, Inc., No. 12-2431, 2014 WL 661351 (4th Cir. Feb. 21, 2014). Rostholder is significant for the pharmaceutical industry and FCA jurisprudence because it shows that the court of appeals will carefully review statutes and regulations when relators attempt to use violations to make out an FCA claim, and will prevent efforts such as Rostholder’s to turn regulatory violations into FCA violations.

Click here to read the Reed Smith client alert about the same decision.

FDA Takes First Step to Overhaul OTC Drug Review Process

As mentioned on our Health Industry Washington Watch blog, the Food and Drug Administration (FDA) has announced that it will hold a public hearing on March 25 and 26, 2014 to receive input on the current processes for reviewing over-the-counter (OTC) drugs. In the announcement, the FDA concedes that the current OTC drug review “needs a critical examination at this juncture to examine whether and how to modernize its processes and regulatory framework.” This hearing will be a major step in FDA’s long-standing plan to overhaul the OTC drug system. To read the entire post, click here.

Physician-Owned Distributor (POD) Update: Device Manufacturer's Challenge to OIG Fraud Alert Fails; OIG Finds PODs Increase Medicare Costs; and Hospitals Continue to Adopt Anti-POD Policies

This post was written by Elizabeth Carder-Thompson.

We have been reporting for some time on issues involving the Office of the Inspector General (OIG) scrutiny of physician-owned distributors (PODs).  In March 2013, we analyzed an OIG Special Fraud Alert on PODs and in October we reported on an interesting challenge to the Fraud Alert filed by a medical device manufacturer in the U.S. District Court for the Central District of California.  That suit argued that the Fraud Alert unfairly and unconstitutionally burdened the plaintiff’s First Amendment rights of free speech and due process. Below, we report on the disposition of that case, and several other related POD developments.

Reliance Medical Systems had described itself in its complaint as “a design company that collaborates with spine surgeons to design highly customized spinal implant devices and surgical tools.”  It stated that it had physician owners from its beginning in 2006, characterizing this as a business model that “maximizes and optimizes physician design input,” but it subsequently moved away from that model.  Among other things, the complaint argued that “Big Corporations” that had been forced to compete with small physician-owned entities undertook a multi-year lobbying crusade, resulting in the OIG’s issuance of Fraud Alert.  In a separate part of the complaint, Reliance allowed that “the OIG is currently investigating Reliance, and its physicians with whom Reliance previously communicated.”  It went on to explain that it now wished to return to a physician-owned business model, but that the Fraud Alert’s characterization of PODs as “inherently suspect” under the federal anti-kickback statute was chilling its ability to speak with prospective physician owners.  It also expressed concern about future OIG investigations, and about reluctance by hospitals and ambulatory surgical centers to enter contracts with it, for fear that they themselves may be “at risk” under the Fraud Alert for doing business with physician-owned entities.

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China Issues New Regulations Prohibiting Commercial Bribery in the Health Care Industry

This post was written by John Tan, Amy Yang, and Crystal Xu.

In late December, China’s National Health and Family Planning Commission (NHFPC), the successor organization to the Ministry of Health, issued two sets of anti-corruption regulations for the health care industry: the 2013 Regulations on the Establishment of a Commercial Bribery Blacklist for the Purchase and Sale of Medicines (关于建立医药购销领域商业贿赂不良记录的规定) (2013 Blacklist Regulations), and The 9 Prohibitions for Building a Healthy Medical Industry (加强医疗卫生行风建设"九不准) (The 9 Prohibitions). The 2013 Blacklist Regulations target pharmaceutical and medical device manufacturers and distributors. These regulations revise and update earlier blacklist regulations issued in 2007 (2007 Blacklist Regulations). In contrast, The 9 Prohibitions focus on health care providers and institutions, providing general principles for eliminating corruption in the Chinese health care industry.

These new regulations are part of the Chinese government’s ongoing focus on corruption in the health care industry, and significantly increase the risks faced by pharmaceutical and medical device manufacturers and distributors.

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CMS Seeks Public Comment on its Imposition of CMPs for Noncompliance with Medicare Secondary Payer Reporting Requirements; Opportunity for Clinical Trial Sponsors to Request Discretion

This post was written by Celeste Letourneau, Catherine Hurley and Jennifer Pike

The application of the Medicare Secondary Payer (MSP) law to clinical trial sponsors has long been a point of significant contention between sponsors and CMS, with CMS insisting (via subregulatory guidance, and a widely circulated letter) that clinical trial sponsors are like insurers, and thus subject to the law. In a positive development, however, Congress has now directed CMS to promulgate regulations addressing the circumstances under which CMS will exercise discretion not to impose civil monetary penalties (CMPs) for noncompliance with MSP insurer reporting requirements. This affords sponsors an important new opportunity to engage with CMS on this issue, and to request appropriate enforcement discretion.

On December 11, 2013, CMS released an advance notice of proposed rulemaking (ANPRM) soliciting comments on specific practices for which CMPs may or may not be imposed for failure to comply with MSP reporting requirements. Among other issues, CMS is seeking comments and proposals on mechanisms and criteria that it would employ to evaluate whether and when it would impose CMPs for noncompliance with MSP reporting requirements.

Although clinical trial sponsors are not mentioned in the ANPRM, CMS has expressly stated elsewhere that the MSP reporting requirements do apply to clinical trial sponsors.1 Specifically, CMS has taken the following position on clinical trial sponsors under the MSP reporting statute:

When payments are made by sponsors of clinical trials for complications or injuries arising out of the trials, such payments are considered to be payments by liability insurance (including self-insurance) and must be reported. The appropriate Responsible Reporting Entity (RRE) should report the date that the injury/ complication first arose as the Date of Incident (DOI). The situation should also be reported as one involving Ongoing Responsibility for Medicals (ORM).2

In sum, CMS views clinical trial sponsors, by virtue of any promise to pay for complications or injuries, as insurance companies, and subjects clinical trial sponsors to the same reporting obligations that liability insurers must meet. Failure to comply with the MSP reporting requirements can carry a CMP of $1,000 for each day of noncompliance, per individual, that should have been reported.3 Congress amended the MSP statute last year to afford CMS discretion with regard to whether to impose CMPs in instances of noncompliance.4 Prior to that, CMS had no such discretion. The purpose of the ANPRM is to solicit input for the circumstances under which CMS should exercise this discretion.

Clinical trial sponsors should consider whether they are prepared to comply with the MSP reporting requirements and face potential CMPs for failure to do so, or whether CMS should be urged not to impose CMPs on clinical trial sponsors. For example, clinical trial sponsors should consider whether they are prepared to:

  • Report to CMS all complications and injuries involving Medicare beneficiaries arising out of a clinical trial that they have agreed to pay for. This includes everything the sponsor has agreed to pay for; it is not limited to adverse events. For example, this could involve medications included in the study protocol and paid for by the sponsor that are intended to prevent or mitigate an anticipated adverse event.
  • For Medicare beneficiaries, collect and produce all of the data CMS requires to be reported, including identifiable information (such as patient name, social security number, date of birth, dates of incident, etc.), and all relevant ICD-9-CM/ICD-10-CM (International Classification of Diseases, Ninth/Tenth Revision, Clinical Modification) Diagnosis Codes describing the alleged injury/illness.
  • Potentially forgo Medicare reimbursement for routine costs associated with clinical trials, even though there is a national coverage determination (NCD) stating that CMS will pay.
  • Manage study subjects who are Medicare beneficiaries and who may be aggrieved because, as a result of the sponsor reporting their ICD-9-CM/ICD-10-CM codes to CMS pursuant to MSP, all their Medicare claims associated with those codes could be routinely denied during their participation in the study. 
  • Unblind clinical trials if necessary in order to satisfy reporting requirements.
  • Incur significantly increased administrative and financial costs to ensure compliance with MSP reporting. 
  • Incur the burden of complying with MSP reporting as both a clinical trial sponsor, and as a potential defendant in a product liability suit, if and when the investigational product is commercialized. This may include implementing complex and detailed processes in both the research and development, or the medical side of a company (for clinical trial sponsor reporting), and the legal department (for products liability reporting). Additionally, the former may be trial-specific, meaning that different internal processes for addressing MSP reporting may be needed for different trials. 
  • Refrain from offering to pay for research-related injuries in order to avoid triggering the MSP reporting requirements, even though this would likely result in the loss of Medicare beneficiaries as study subjects.
  • Pay a CMP of up to $1,000 per beneficiary per day for noncompliance.

The ANPRM presents the opportunity to explain to CMS that, because of the many complexities associated with imposing the MSP reporting requirements on clinical trial sponsors, CMS should not impose CMPs on clinical trial sponsors for failures to report.

The ANPRM is available at http://www.gpo.gov/fdsys/pkg/FR-2013-12-11/pdf/2013-29473.pdf. Comments to the ANPRM may be submitted in writing, or electronically at www.regulations.gov, on or before February 10, 2014.

_________________________________

1See CMS’ Office of Financial Management, Financial Services Group Director (Gerald Walters) to Holly Thames Lutz, Esq. of Gardner, Carton & Douglas, dated April 13, 2004.
2See CMS, MMSEA section 111 Medicare Secondary Payer Mandatory Reporting, Liability Insurance (Including Self-Insurance), No-Fault Insurance, and Workers’ Compensation USER GUIDE, Chapter III: POLICY GUIDANCE, Version 3.4 at 40 (July 3, 2012), available at http://www.cms.gov/Medicare/Coordination-of-Benefits-and-Recovery/Mandatory-Insurer-Reporting-For-Non-Group-Health-Plans/Downloads/New-Downloads/NGHPUserGuideVer40Ch3Policy.pdf.
342 U.S.C. § 1395y(b) (Social Security Act § 1862(b)).
4Medicare IVIG Access and Strengthening Medicare and Repaying Taxpayers Act of 2012 [Public Law No: 112-242].

FDA Issues Final Guidance on DHCP Letters

As mentioned on our Health Industry Washington Watch blog, the Food and Drug Administration issued a final guidance document on January 16, 2014 which provides specific recommendations on the content and format of Dear Health Care Provider (DHCP or “Dear Doctor”) letters. The recent guidance finalizes a draft guidance FDA published in November of 2010. To read the entire post, click here.

ONC Tiger Team Takes a Bite Out of the Proposed Access Report Rule

This post was written by Jennifer Pike and Brad Rostolsky

The Privacy and Security Tiger Team (“Tiger Team”), a subcommittee of the Office of the National Coordinator for Health IT’s HIT Policy Committee, has recommended that the Office for Civil Rights of U.S. Department of Health and Human Services (“OCR”) abandon its May 2011 proposed rule to require covered entities to provide patients with a list of workforce members who have accessed protected health information (“PHI”) contained in an electronic designated record set (“access reports”). The proposed rule was meant by OCR to implement a provision of the 2009 HITECH Act requiring HHS to expand the existing accounting of disclosures requirement to include disclosures of PHI for treatment, payment and health care operations through an electronic health record.

After months of study and a day-long hearing in September 2013, the Tiger Team concluded that the proposal, which was widely unpopular from its inception, is overbroad and lacks value. In a meeting held December 4, 2013, the Tiger Team stated that it “does not believe the proposed access report meets the requirements of HITECH to take into account the interests of the patient and administration burden on covered entities.”

The Tiger Team proposed an alternative for implementing the HITECH Act’s accounting of disclosure mandate, urging OCR “to pursue a more focused approach that prioritizes quality over quantity, where the scope of disclosures and related details to be reported to patients provide information that is useful to patients, without overwhelming them or placing undue burden on [covered entities].” The Team further recommended that OCR take a “step-wise” approach to implementing the HITECH Act, and focus on data disclosed outside of a covered entity or organized health care arrangement.

In the December 4 meeting, the Tiger Team also recommended that OCR add two new “addressable” standards to the HIPAA Security Rule related to audit controls:

  1. Audit controls must record PHI-access activities to the granularity of (i) the individual user (e.g., human) accessing PHI and (ii) the individual whose PHI is accessed.
  2. Information recorded by the audit controls must be sufficient to support the information system activity review required by section 164.308(a)(1)(ii)(D) and the investigation of potential inappropriate accesses of PHI.

How HHS will respond to the Tiger Team’s recommendations, and when a final rule will be released, remains to be seen.

Launch of the New French State Portal Allows for Electronic Information Disclosure by Health Care Companies

Reed Smith’s Global Regulatory Enforcement Law blog features a post on the recent launch of the new state portal in France. "The implementation of the French transparency regulation: first good news?," written by Reed Smith partner Daniel Kadar, discusses how the portal will allow health care companies to more easily disclose transparency information to the French government as required by the French Sunshine Act. The portal is thought to be “more customer friendly” for health care companies in that it provides three possible methods for the disclosure and transfer of information.

HHS Seeks to Reduce Gun Violence Via Modifications to the HIPAA Privacy Rule

This post was written by Nancy E. Bonifant and Jennifer L. Pike

After receiving more than 2,000 comments to its April 2013 Advance Notice of Proposed Rulemaking, the Department of Health & Human Services (“HHS”) has proposed to amend the HIPAA Privacy Rule to expressly permit certain covered entities to report to the National Instant Criminal Background Check System (“NICS”) the identities of individuals who are prohibited by federal law, for mental health reasons, from possessing firearms (commonly referred to as the “mental health prohibitor”).

The NICS is the system used to determine whether a potential firearms recipient is statutorily prohibited from possessing or receiving a firearm. The mental health prohibitor applies to individuals who have been (1) involuntarily committed to a mental institution; (2) found incompetent to stand trial or not guilty for reason of insanity; or (3) otherwise determined, through formal adjudication process, to have a severe mental condition that results in the individuals presenting a danger to themselves or others, or being incapable of managing their own affairs.

While most records related to involuntary commitments and mental health adjudications originate in entities affiliated with the criminal justice system (which are generally not subject to HIPAA), state entities outside the criminal justice system may also be involved. If these state entities are HIPAA-covered entities, or if a HIPAA-covered entity is the state repository for such records, then these records are subject to HIPAA.

Under the existing HIPAA Privacy Rule, there are circumstances where records subject to HIPAA may be reported to the NICS. For example, the Privacy Rule permits any covered entity to disclose information to the NICS to the extent such reporting is required by state law. In the absence of a state law requirement, however, reporting to the NICS is only permissible to the extent a covered entity designates itself as a hybrid-covered entity, and the relevant information is maintained and reported through the non-HIPAA regulated portion of that entity. As a result, OCR has cited concerns that the existing HIPAA Privacy Rule may be preventing some state entities (which likely perform both HIPAA-covered and non-covered functions) from reporting to the NICS the identities of individuals subject to the mental health prohibitor. Therefore, HHS has proposed to add to the Privacy Rule new provisions at 45 CFR § 164.512(k)(7), which would permit certain covered entities to disclose the minimum necessary demographic and other information for NICS reporting purposes.

Notably, this new permission would apply only to covered entities that function as repositories of information relevant to the federal mental health prohibitor on behalf of a state, or that are responsible for ordering the involuntary commitments or other adjudications that make an individual subject to the federal mental health prohibitor. Further, the new permission would strictly limit the information used or disclosed for NICS reporting purposes to the minimum necessary—HHS considers the minimum necessary information to include: (1) an individual’s name; (2) an individual’s date of birth; (3) an individual’s sex; (4) a code or notation indicating that the individual is subject to the federal mental health prohibitor; (5) a code or notation representing the reporting entity; and (6) a code identifying the agency record supporting the prohibition. The new permission would not permit the use or disclosure of clinical or diagnostic information.

HHS is seeking comments related to the proposed rule. Comments may be submitted in writing, or electronically at www.regulations.gov, on or before March 10, 2014.
 

OCR OUT OF COMPLIANCE? OIG Report Concludes OCR Slow To Enforce HIPAA Security Rule and To Comply with Federal Cybersecurity Requirements

This post was written Nancy E. Bonifant and Brad M. Rostolsky

According to a report published by the Office of the Inspector General (OIG) on November 21, 2013, the Department of Health & Human Services (HHS) Office for Civil Rights (OCR) is not adequately overseeing and enforcing the HIPAA Security Rule.

The OIG’s report, which followed an assessment of OCR’s Security Rule oversight and enforcement activities from July 2009 through May 2011, concluded that:

  • OCR failed to provide for periodic audits, as mandated by HITECH, to ensure that covered entities were in compliance with the Security Rule, and instead continued to follow the complaint-driven approach to assess the status of Security Rule compliance
     
  • OCR failed to consistently follow its investigation procedures and maintain documentation needed to support key decisions made during investigations conducted in response to reported violations of the Security Rule

To address these findings, the OIG recommended that OCR: (i) assess the risks, establish priorities, and implement controls for its HITECH auditing requirements; (ii) provide for periodic audits in accordance with HITECH to ensure Security Rule compliance at covered entities; and (iii) implement sufficient controls, such as supervisory reviews and documentation retention, to ensure policies and procedures for Security Rule investigations are followed.

Separately, the OIG also assessed OCR’s computer systems as of May 2011, and concluded that OCR had not fully complied with the cybersecurity requirements included in the National Institute of Standards and Technology (NIST) Risk Management Framework for its information systems used to process and store investigation data, because it focused on system operability to the detriment of system and data security. As a result, the OIG recommended that OCR implement the NIST Risk Management Framework for systems used to oversee and enforce the Security Rule.

In response, OCR generally concurred with the recommendations and described the actions it has taken to address the OIG’s concerns since May 2011. Notably, while OCR did initiate a pilot audit program in November 2011 and has subsequently audited 115 covered entities, OCR also explained that the funds used to support those audit activities are no longer available, and no funds have been appropriated for it to maintain a permanent audit program.

In consideration of the OIG’s report and OCR’s response, the looming questions that remain are how OCR will fund its statutorily required enforcement and compliance activities, and whether covered entities and business associates should expect increased enforcement to help subsidize OCR’s compliance going forward.

Physician Practice Caught in OCR Crossfire Following Theft of Unencrypted Flash Drive

This post was written by Brad M. Rostolsky and John E. Wyand

The theft of an unencrypted flash drive has led to an agreement by Adult & Pediatric Dermatology, P.C., of Concord, Mass. (APDerm), to pay $150,000 to the Department of Health and Human Services’ Office for Civil Rights (OCR) to settle potential violations of the Health Insurance Portability and Accountability Act of 1996 (HIPAA) Privacy, Security, and Breach Notification Rules. APDerm will also be required to implement a corrective action plan to correct deficiencies in its HIPAA compliance program. APDerm is a private practice that delivers dermatology services in four locations in Massachusetts and two in New Hampshire.

This case marks the first settlement with a covered entity for not having policies and procedures in place to address the breach notification provisions of the Health Information Technology for Economic and Clinical Health (HITECH) Act, passed as part of the American Recovery and Reinvestment Act of 2009. Significantly, it also marks one of the few instances where OCR has taken enforcement action against a smaller covered entity provider.

OCR opened an investigation of APDerm upon receiving a report that an unencrypted flash drive containing the electronic protected health information (ePHI) of approximately 2,200 individuals was stolen from a vehicle of one its staff members. The flash drive was never recovered, and the investigation revealed that APDerm had not conducted “an accurate and thorough analysis of the potential risks and vulnerabilities to the confidentiality of ePHI” as part of its security management process. In other words, OCR continues to target the failure of covered entities to conduct a risk assessment under the Security Rule. Furthermore, OCR focused on APDerm’s failure to maintain appropriate policies and procedures, as well as the associated training, pursuant to the requirements of the Breach Notification Rule.

In addition to a $150,000 settlement, OCR imposed a corrective action plan requiring APDerm to develop a risk analysis and risk management plan to address and mitigate any security risks and vulnerabilities, as well as to provide an implementation report to OCR.

A copy of the Resolution Agreement and Corrective Action Plan may be found here.
 

Something to Give Up for the New Year: Pennsylvania Hospitals May Forgo Some DOH Licensure Reviews

This post was written by Karl A. Thallner, Jr. and Zachary A. Portin

With the arrival of 2014, the Pennsylvania Department of Health (“DOH”) is now authorized to grant “deemed status” for licensure purposes to hospitals that have been accredited by national accreditation organizations, such as The Joint Commission. This past July, Governor Corbett signed Act 60 of 2013 (“Act 60”) into law, which amends the Health Care Facilities Act to require DOH to accept hospital surveys and inspections conducted by national accreditation organizations designated as acceptable to DOH in lieu of DOH’s regular licensure renewal surveys. In addition, Act 60 extends the term of licensure from two years to three years for all Pennsylvania hospitals.

Cutting red tape? Described by DOH as a “historic rewrite” of Pennsylvania hospital licensure requirements, Act 60 was championed to help eliminate the redundant nature of multiple and sometimes inconsistent licensing and accreditation surveys that Pennsylvania hospitals routinely undergo. In this regard, most Pennsylvania hospitals complete voluntary accreditation inspections conducted by national accreditation organizations, in addition to the required licensing inspections conducted by DOH. The Pennsylvania House Appropriations Committee predicted that Act 60 would eliminate approximately 55 percent of regular licensure renewal surveys that DOH conducts annually.

What is “deemed status”? “Deemed status” is a process under which a hospital may choose to be exempt from routine licensure renewal surveys conducted by DOH. Hospitals are exempted by securing accreditation from a national accreditation organization – an organization authorized by CMS to conduct hospital surveys to ensure compliance with the CMS conditions of participation.

Pursuant to Act 60, if a national accreditation organization’s final report finds a hospital to be in “substantial compliance” with the accreditation organization’s standards, DOH must accept the report as evidence that the hospital has met DOH’s licensure requirements. The hospital must furnish a copy of the report to DOH within 10 days of its receipt from the national accreditation organization, and then DOH will grant the hospital “deemed status.” If, however, a hospital receives “anything less than full accreditation” in the national accreditation organization’s final report, that hospital will be subject to a full licensure survey by DOH.

Even if a hospital is granted “deemed status,” DOH reserves the right to make unannounced visits for a number of reasons. For example, DOH may respond to complaints, follow up on concerns or events identified by the national accreditation organization, and validate that organization’s findings that the hospital is in compliance with the conditions of participation issued by CMS.

Accreditation organization standards. “Deemed” hospitals are required to comply with the standards established by the national accreditation organization that accredits the hospital. In order for an accreditation organization to be approved by DOH, DOH must determine that the accreditation organization’s standards are equal to or more stringent than DOH’s existing survey requirements, evaluate the integrity of the accreditation organization’s survey process, and require the accreditation organization to enter into a written agreement with DOH. DOH has thus far approved the following four national accreditation organizations: The Joint Commission, the AOA Healthcare Facility Accreditation Program, Det Norske Veritas and the Center for Improvement in Healthcare Quality. In practice, the national accreditation organization will be required to apply the more stringent standards during licensure surveys.

Facilities eligible for “deemed status.” In general, Act 60 provides that a “hospital” that has been licensed by DOH to operate for at least three years and has not been subject to a provisional or restricted license is permitted to request DOH to grant deemed status.

Accordingly, Act 60 applies to health care facilities licensed as a “hospital” under Pennsylvania law. DOH has clarified that general acute care hospitals, children’s hospitals, long-term acute care hospitals, rehabilitation hospitals, cancer hospitals and other specialty hospitals are eligible for “deemed status.” DOH has also opined that ambulatory surgical facilities, behavioral health hospitals, behavioral health units within hospitals, home health agencies and/or divisions, rural health clinics, and inpatient psychiatric hospitals licensed by the Department of Public Welfare are not eligible for “deemed status.”

“Deemed status” is voluntary. Pennsylvania law does not require hospitals to be accredited by a national accreditation organization. Even if a hospital has achieved such accreditation, it is not required to utilize “deemed status.” DOH has clarified that it will continue to perform regular licensure renewal surveys, as it currently does, for facilities that have not secured accreditation by a national accreditation organization or that do not choose to use “deemed status.” Hospitals that desire “deemed status” are required to notify DOH using a form posted on DOH’s website.

What aspects of licensure are not impacted by Act 60? All hospitals, including those obtaining “deemed status,” are still required to submit plans for new construction and renovation to DOH, and receive approval from DOH before providing services in the newly constructed or renovated areas. DOH will also continue to survey hospitals for compliance with occupancy requirements.

Conclusion. Act 60 enables hospitals to potentially streamline and simplify the survey process by conforming to a single set of requirements and avoiding DOH licensure renewal surveys. “Deemed status” will be particularly attractive to any Pennsylvania hospital that has already developed a productive relationship with an approved national accreditation organization and familiarity with its standards. At the same time, DOH has noted that hospitals that are concerned that the accreditation organizations’ reviews will be “more intense” may elect to forgo “deemed status.”
 

Sorry Just Might Cut It...Pennsylvania Enacts Benevolent Gesture Law

This post was written by Karl A. Thallner, Jr. and Zachary A. Portin

Pennsylvania physicians, hospital executives and other providers may now apologize and offer other benevolent gestures to patients, their families and representatives without such statements becoming evidence against them in medical malpractice suits. On October 23, 2013, Governor Corbett signed Senate Bill 379 into law which renders “benevolent gestures” inadmissible as evidence of liability in a malpractice suit.

This evidentiary rule has been championed as a type of medical tort reform intended to encourage frank discussions with patients and residents as well as their relatives and representatives. Commentators are divided, however, as to whether the measure will actually reduce the number of medical malpractice suits filed in the state.

Who can offer a benevolent gesture under the statute? The statute extends to benevolent gestures made by physicians, hospitals, nursing homes, assisted living residences, primary health care centers, personal care homes, birth centers, certified nurse midwives and their officers, employees and agents.

To whom can a benevolent gesture be offered under the statute? The law covers benevolent gestures to a patient, a patient’s relative, or a patient’s representative designated to make medical decisions under a power of attorney over health care matters. It is unclear at this time whether benevolent gestures to a patient’s same-sex partner are covered. The statute defines a “relative” as a spouse, parent, stepparent, grandparent, child, stepchild, grandchild, brother, sister, half-brother, half-sister, spouse’s parent or any person who has a “family-type” relationship with the patient.

What constitutes a benevolent gesture under the statute? A benevolent gesture includes any action, conduct, statement or gesture that conveys a sense of apology, condolence, explanation, compassion or commiseration emanating from humane impulses. In addition, the benevolent gesture must pertain to the patient’s discomfort, pain, suffering, injury or death and result from any treatment, consultation, care or service provided by the provider or omission thereof. The statute does not apply to communications, including excited utterances, that also include a statement of negligence or fault pertaining to an accident or an event.

When are benevolent gestures covered under the statute? The law only shields benevolent gestures that are made prior to the commencement of a medical professional liability action, liability action, administrative action, mediation or arbitration from admissibility in a medical malpractice suit. Therefore, it is incumbent on providers to make benevolent gestures as close in time to the triggering event as possible to ensure that the statement is covered under the statute.

Conclusion. By affording malpractice liability protection, the new law encourages providers to apologize and make other benevolent gestures in response to patient injuries and other adverse events. Such expressions, if perceived to be meaningful and sincere rather than empty or self-serving, may well reduce the likelihood of some malpractice lawsuits. This law will create some challenges, however, as providers should exercise care to ensure that their communications fall within the scope of the statutory protections. Given the potential fine line between an apology and an admission of fault, the articulation of these statements will need to be carefully crafted to ensure that they do not backfire so as to increase potential liability.
 

Device Manufacturer Files Federal Challenge to OIG Special Fraud Alert on Physician-Owned Distributors

Suit argues Fraud Alert violates its First Amendment rights; alleges Alert stemmed from multi-year lobbying crusade by “Big Corporations” forced to compete with small physician-owned entities.

This post was written by Elizabeth Carder-Thompson.

On October 8, 2013, Reliance Medical Systems, LLC, filed a complaint in the U.S. District Court for the Central District of California, seeking a declaration that an Office of Inspector General (OIG) Special Fraud Alert on physician-owned distributors (PODs) unfairly and unconstitutionally burdens First Amendment rights of free speech and due process.  (See our March 2013 analysis of the Fraud Alert.)

Reliance describes itself as “a design company that collaborates with spine surgeons to design highly customized spinal implant devices and surgical tools.”  It states it had physician owners from its beginning in 2006, characterizing this as a business model that “maximizes and optimizes physician design input.”  However, in 2012, before issuance of the Fraud Alert, it “moved away from the physician-owned entity business model, after careful consideration and out of an abundance of caution.”  Interestingly, in a separate part of the complaint, Reliance allows that “the OIG is currently investigating Reliance, and its physicians with whom Reliance previously communicated.”  The Complaint goes on to explain that it now wishes to return to a physician-owned business model, but that the Fraud Alert’s characterization of PODs as “inherently suspect” under the federal anti-kickback statute is chilling its ability to speak with prospective physician owners.  It also expresses concern about future OIG investigations, and about reluctance by hospitals and ambulatory surgical centers to enter contracts with it, for fear that they themselves may be “at risk” under the Fraud Alert for doing business with physician-owned entities.

The complaint provides a colorful chronology of events leading up to the OIG’s issuance of the POD Fraud Alert.  First, it cites to the Ninth Circuit’s 1995 decision in Hanlester1 as the “leading case considering the limitations that the anti-kickback statute imposes on physician-owned entities,” concluding based on that decision that many physician-owned models are lawful.  It further cites to a 2006 California Attorney General Opinion2 finding it appropriate under certain enumerated circumstances for a physician to prescribe medical devices distributed by a company in which the physician has an ownership interest.  At that point, the account turns to describing a veritable crusade undertaken by “Big Corporations” – large entities also in the business of manufacturing medical devices – that the complaint alleges found their market share diminishing in the face of competition from the smaller physician-owned entities permitted by Hanlester and the California opinion.  These Big Corporations are alleged to have mounted a campaign to influence the OIG to issue the POD Fraud Alert.

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Supreme Court Invites Solicitor General Weigh In on Cert Petition Involving Specificity of False Claims Act Complaints

This post was authored by Daniel A.Cody

On October 7, 2013, in evaluating a pending cert petition, the U.S. Supreme Court invited the Office of Solicitor General to provide its views regarding the level of specificity required when alleging activities in violation of the civil False Claims Act (FCA) (United States ex rel. Nathan v. Takeda Pharmaceuticals North America, No. 12-1349, order 10/7/13).

On May 10, a pharmaceutical sales manager petitioned the Supreme Court to reinstate his whistleblower lawsuit alleging that Takeda defrauded the government by presenting false claims in connection with its marketing of the drug Kapidex, a proton pump inhibitor. The United States and multiple states’ attorneys general have declined to intervene in the action which generally alleges that Takeda engaged in a marketing/sales program to promote off-label use of Kapidex resulting in the improper presentation of claims for reimbursement to government health care programs. While having been granted three opportunities to allege specific examples of submission of such false claims, the Fourth Circuit in January unanimously affirmed the district court’s dismissal of the Third Amended Complaint for failure to plead fraud with particularity as required by Federal Rule of Civil Procedure 9(b).

Highlighting a split in the circuit courts regarding the level of specificity required for FCA complaints under Rule 9(b), Nathan asserts that the more lenient standards of the First, Fifth, Seventh, and Ninth Circuits should apply as he sufficiently alleged a “scheme” to submit false claims. Takeda argues that Nathan’s failure to identify any actual false claims or to reliably demonstrate that such a false claim was presented (rather than may have been presented) to the government fails under any reasonable interpretation of the Rule 9(b) requirements.

This year, the First, Fifth, and Ninth Circuits have reaffirmed their respective positions regarding 9(b)’s specificity requirements in FCA cases, and we will continue to monitor this case and further developments on this important threshold issue.

China's Life Sciences Regulatory Crackdown: September 10 Update

The regulatory enforcement environment in China remains tense, as both the Chinese government and media bring new actions and allegations against life sciences manufacturers in both the pharmaceutical and device sectors. We are seeing:

  • Increased attention to medical device sector
  • Enforcement actions spreading to smaller cities
  • Continued pressure on pharmaceutical sector
  • Reports of misconduct by local manufacturers
  • Questionable vendors named

Reed Smith continues to monitor the life sciences regulatory and media environment in China and has prepared a summary of recent developments. For additional information, please contact Reed Smith lawyer John Tan at jtan@reedsmith.com.

France: All Bodies Hosting Personal Medical Data Must Apply for Official Accreditation or Work With An Officially Accredited Data Host

This post was written by Daniel Kadar.

As a champion for the protection of personally identifiable information and with broad definitions for the concepts of personal and medical data, France has established a very specific set of policies requiring that all bodies hosting medical data must apply for official accreditation or work with an accredited medical data host. When medical data is hosted during a prevention, diagnosis or treatment activity – the scope of which covers most of the activities of the health care industry, which is experiencing and will experience a considerable development with telemedicine in the broad sense – the issue of the accreditation of the hosting services will be raised. To learn more about situations requiring the use of authorized hosting services in France, read our client alert.

French Ministry of Health Publishes Application Decree for "French Sunshine Act"; Requires Disclosure of Agreements With and Payments to Health Care Practitioners Dating Back to January 1, 2012

Reed Smith’s Global Regulatory Enforcement Law blog features a post on the recent publication of the application decree to the “French Sunshine Act” by the French Ministry of Health.  “A Brave New World? The ‘French Sunshine Act’ imposes online disclosure of contracts with HCPs, as well as of payments of ‘advantages’ to HCPs, dating back to 01 January 2012,” written by Daniel Kadar, discusses the specific ways and means that health care companies must disclose agreements with and “advantages” (payment or hospitality, including payment of a contractual fee) provided to health care practitioners ("HCPs") in order to comply with the application decree.  Information to be disclosed dates back 18 months, to January 1, 2012, and the first disclosure requirement is set for June 1, 2013.  According to Mr. Kadar, this tight timeframe raises compliance issues and has industry calling for reconsideration.

HHS Considers Amending the HIPAA Privacy Rule to Encourage Reporting of Mental Health Information to the National Instant Criminal Background Check System

This post was written by Jennifer L. Pike and Nancy E. Bonifant.

The Department of Health and Human Services (“HHS”) is seeking comments on a proposal to amend the HIPAA Privacy Rule to expressly permit covered entities to disclose certain mental health information to the National Instant Background Check System (NICS), the federal government’s background check system for the sale or transfer of firearms by licensed dealers.

Federal law prohibits the following persons from possessing or receiving firearms: (1) individuals who have been involuntarily committed to a mental institution; (2) individuals who have been found incompetent to stand trial or not guilty for reason of insanity; and (3) individuals who have been otherwise determined, through formal adjudication process, to have a severe mental condition that results in the individual presenting a danger to themselves or others or being incapable of managing their own affairs (collectively referred to in the proposed rule as the “mental health prohibitor”).  Federal agencies are required by the NICS Improvement Amendments Act of 2008 to report to NICS the identities of individuals who are subject to the mental health prohibitor.  The Act also authorizes incentives for States to provide such information when it is in their possession.  

HHS issued the proposed rule to address concerns that the HIPAA Privacy Rule may be preventing some States from reporting to NICS the identities of individuals subject to the mental health prohibitor.  Records related to involuntary commitments and mental health adjudications generally originate in entities in the criminal justice system.  Such entities are not HIPAA covered entities, and the records are therefore not subject to HIPAA.  However, there may be State entities outside the criminal justice system that are involved in some involuntary commitments or mental health adjudications, and these entities may be HIPAA covered entities.  Where a record of involuntary commitment or mental health adjudication originates with a HIPAA covered entity, or the HIPAA covered entity is the State repository for such records, those records are subject to HIPAA.  Therefore, the concern is that the individuals identified in such records are not being reported to NICS due to HIPAA compliance considerations.

To address these concerns, HHS is considering whether to amend the Privacy Rule to expressly permit covered entities to disclose limited information to NICS about the identities of individuals who are subject to the mental health prohibitor.  Pursuant to the HHS request for comments, the potential exception may limit the information disclosed to the minimum data necessary for NICS purposes, and limit permission to disclose to covered entities that order involuntary commitments, perform relevant mental health adjudications, or are otherwise designated as State repositories for NICS reporting purposes.

HHS is seeking comments on specific questions related to the proposal.  These questions are listed in HHS’ Advance Notice of Proposed Rulemaking, which is available here.  Comments should be submitted in writing, or electronically at www.regulations.gov, on or before June 7, 2013.

CMS Releases List of Teaching Hospitals; Educational Efforts and Requests for Additional Clarification Regarding the Physician Payment Sunshine Final Rule Continue

This post was written by Elizabeth Carder-Thompson, Katie C. Pawlitz and Nancy E. Bonifant.

In preparation for data collection to begin under the Physician Payment Sunshine Act Final Rule on August 1, 2013, the Centers for Medicare & Medicaid Services (CMS) released yesterday the list of teaching hospital covered recipients to which payments and other transfers of value must be reported by applicable drug and device manufacturers.  The list, which will be updated annually by CMS at least 90-days before the beginning of a reporting year, can be found on CMS’ National Physician Payment Transparency Program: OPEN PAYMENTS website and includes approximately 1,100 legal business names that are organized by state and tax identification number.

CMS also announced this week that it will be holding a National Provider Call on Wednesday, May 22, 2013 at 2:30 PM EST, directed at physicians and teaching hospitals.  The agenda for the call includes an overview of the Final Rule, key dates, the role of covered recipients and resources available to covered recipients.

Meanwhile, stakeholders and their representatives, including the American Medical Association (AMA) and the Advanced Medical Technology Association (AdvaMed), have continued to seek additional clarification from CMS on a variety of outstanding questions.  These questions include whether journal reprints provided by a manufacturer to a physician or teaching hospital have a discernible economic value that triggers reporting requirements, what constitutes a payment or transfer of value to a teaching hospital as opposed to payments or transfers of value to an employee of the teaching hospital, and more.  Ideally, CMS will issue further guidance on these issues in sufficient time for applicable manufacturers to prepare for the data collection deadline this summer.

The Scope of HIPAA Preemption in Florida: More Questions than Answers

This post was written by Nancy E. Bonifant and Zachary A. Portin.

On April 9, 2013, the Eleventh Circuit held that HIPAA preempts a Florida statute that requires nursing homes to release medical records of deceased residents to their spouses, attorneys-in-fact and other enumerated parties who request them.  In Opis Management Resources LLC v. Secretary Florida Agency for Health Care Administration, the Florida agency that oversees nursing homes cited Opis Management, an operator of nursing homes, for refusing to release medical records to deceased residents’ spouses and attorneys-in-fact.  Opis Management challenged the citations arguing that the requesting parties were not “personal representatives” under HIPAA.

The HIPAA Privacy Rule requires disclosures of PHI in only two situations: (1) to the individual, and (2) to the Secretary of HHS.  Covered entities must also treat a deceased individual’s “personal representative,” who has authority to act on behalf of the deceased individual or his/her estate, as the individual for purposes of disclosures under the HIPAA Privacy Rule.  While HIPAA does not preempt “more stringent” state laws, it sets a floor for privacy protections and supersedes any contrary provision of state law.

The Eleventh Circuit held that HIPAA preempts the Florida statute because it “impedes the accomplishment and execution of the full purposes and objectives of HIPAA and the Privacy Rule,” particularly keeping an individual’s PHI confidential.  According to Judge Black, the Florida statute authorizes “sweeping disclosures” that made a deceased resident’s PHI available to certain individuals upon request without any need for authorization and “without regard to the authority of the individual making the request to act in the deceased’s stead.”  Interestingly, because the Florida agency failed to timely raise the argument, the court did not consider whether compliance with both laws was possible because HIPAA permits covered entities to disclose PHI as “required by law.”

Opis Management Resources highlights one of the many challenges that covered entities face in trying to achieve compliance under HIPAA and state privacy law.  Although the holding suggests that analogous Florida statutes mandating disclosures may too be preempted, the ruling is limited to licensed Florida nursing homes.  Clearly, the scope of HIPAA preemption remains unsettled and the issue will likely continue to be determined on a case-by-case basis.

Loose Lips Sink... Providers?

This post was written by Zachary A. Portin and Nancy E. Bonifant.

Can a medical corporation be directly liable under New York law for breaching its common law fiduciary duty of confidentiality when a non-physician employee acted outside the scope of his or her employment by making an unauthorized disclosure of an individual’s confidential health information?  This is the question that the U.S. Court of Appeals for the Second Circuit posed to the New York State Court of Appeals last month when it requested an advisory opinion from the state’s highest court in order to resolve Doe v. Guthrie Clinic Ltd. 

Plaintiff Doe sued various Pennsylvania-based entities (the “Guthrie Defendants”) that owned and operated the Guthrie Clinic Steuben (the “Clinic”) located in New York after one of the Clinic’s nurses sent six text messages to Doe’s girlfriend informing her that Doe was being treated for sexually transmitted diseases.  Plaintiff Doe brought several tort claims against the Guthrie Defendants, including a novel claim that the common law cause of action for breach of the fiduciary duty to keep medical records confidential runs directly against medical corporations, even when the employee responsible for the breach is not a physician and acted outside the scope of her employment.

Although HIPAA does not create a private right of action under federal law, an aggrieved patient may avail himself or herself to state law causes of action.  For example, New York imposes a general duty to maintain the confidentiality of personal health information as well as a specific common law cause of action against a physician who improperly discloses confidential information.  In 2000, the Appellate Division of the New York State Supreme Court also held that a patient was permitted to sue a health insurer whose records clerk wrongfully disclosed treatment information.  Nevertheless, the Second Circuit elected to certify the question to the Court of Appeals with regard to the Guthrie Defendants after it concluded that no controlling precedent existed. 

A favorable ruling for Plaintiff Doe threatens to vastly expand the scope of liability faced by providers and other entities involved in the delivery of healthcare.  Perhaps most concerning from the perspective of providers is the prospect of such entities facing liability under New York law for unforeseeable misconduct committed by non-physician employees.  Regardless of the Second Circuit’s ultimate disposition of this legal question, the case underscores the importance of developing and maintaining a robust compliance program to combat such misconduct.

Proposed Rule Would Reward Medicare Fraud Tipsters up to $9.9 Million, Revise Medicare Provider Enrollment Regulations

This post was written by Scot T. Hasselman, Andrew C. Bernasconi, Susan A. Edwards and Debra A. McCurdy.

Yesterday the Centers for Medicare & Medicaid Services (CMS) issued a proposed rule that would dramatically increase the potential reward to an individual who provides a tip leading to the recovery of Medicare funds from a current maximum of $1,000 to a maximum of $9.9 million under the Medicare Incentive Reward Program.  Since 1998, an individual providing information regarding potential Medicare fraud and abuse to the Department of Health & Human Services’ Office of the Inspector General or the Medicare contractor with jurisdiction over the suspected fraudulent provider or supplier may be eligible to receive 10 percent of the Medicare funds ultimately collected from the tip, or $1,000, whichever is less.  Pursuant to the proposed rule CMS issued yesterday, an individual furnishing information that otherwise satisfies the requirements set forth in 42 C.F.R. § 420.405 would be eligible to receive 15 percent of a recovery up to $66 million.  Therefore, a tipster could receive up to a $9.9 million reward for any information provided regarding suspected Medicare fraud and abuse.

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Part B Inpatient Billing in Hospitals

This post was written by Daniel A. Cody, Rachel M. Golick and Susan A. Edwards.

On March 13, 2013, the Centers for Medicare & Medicaid Services (CMS) concurrently issued CMS Ruling Number CMS-1455-R (the Administrator’s Ruling) and a proposed rule, “Part B Inpatient Billing in Hospitals” (the Proposed Rule). The Administrator’s Ruling and Proposed Rule address the submission of Medicare Part B inpatient claims where a Medicare Part A claim for a hospital inpatient admission is denied by a Medicare review contractor on the grounds that the inpatient admission was not “reasonable and necessary.” The Proposed Rule also would apply to situations where a hospital determined, through a self-audit, that an inpatient admission was not “reasonable and necessary.” The Administrator’s Ruling, effective as of the issuance date, establishes an interim policy to handle payment for Medicare Part B inpatient claims until CMS finalizes the Proposed Rule. The Proposed Rule would set forth a permanent regulatory scheme to permit hospitals to rebill Medicare for a wider range of Part B services than is currently permitted following denial of a Part A claim.

The impact and utility of the Proposed Rule is substantially diminished by the timeframe in which providers are allowed to resubmit Part B claims – one year after the date of service. In many cases, providers do not receive denials of Part A claims within one year of the date of service. Consequently, the one year deadline would restrict some providers wanting to resubmit Part B claims from taking advantage of the more permissive Part B resubmission framework contemplated by the Proposed Rule. In addition, pursuant to the Proposed Rule, hospitals would be able to either: (1) appeal the denied Part A claim; or (2) resubmit Part B claims. Because a hospital’s resubmission of Part B claims would bar a Part A appeal, the Proposed Rule may deter hospitals, eager for a successful Part A appeal, from resubmitting Part B claims.

Reed Smith’s Client Memo provides background and analysis of the Administrator’s Ruling and the Proposed Rule as well as a summary of potential implications for hospitals.

Click here to read the full alert.

France: Code of Conduct Compliance Breach Not Automatically a Sufficient Reason for Employee Termination - Employers Should be Cautious of Proper Local Implementation of Compliance Guidelines

Reed Smith's Global Regulatory Enforcement blog features a post on a December 2012 French Supreme Court ruling in a case involving a French Director in a health care company who had been dismissed on the grounds of a clear breach of health care compliance obligations as set forth in the French Public Health Code. The outcome: even though a company is acting in a highly regulated environment such as health care, compliance breaches must be integrated in the employer-employee relationship if they are to justify termination in France. As Reed Smith Partner Daniel Kadar notes, this case serves as a reminder to any international health care organization that the worldwide adoption of compliance guidelines and of a Code of Conduct is not in itself a sufficient protection against compliance breaches – everything depends on how these tools are implemented locally.

OIG Views PODs As "Inherently Suspect" Under the Anti-Kickback Statute

This post was written by Elizabeth B. Carder-Thompson, Catherine A. Hurley, Joseph W. Metro and Elizabeth Doyle O'Brien.

Referencing what it deems a “proliferation” of physician-owned distributors (PODs), on March 26, 2013, the Department of Health and Human Services (HHS) Office of Inspector General (OIG) released a Special Fraud Alert identifying significant concerns with such entities under federal anti-kickback principles.1 For purposes of the Alert, the OIG defines a POD as “any physician-owned entity that derives revenue from selling, or arranging for the sale of, implantable medical devices,” including “physician-owned entities that purport to design or manufacture, typically under contractual arrangements, their own medical devices or instrumentation.” Specifically, the OIG describes in somewhat unusual detail the multiple “attributes and practices” of PODs that the OIG believes “produce substantial fraud and abuse risk and pose dangers to patient safety.”

Notably, the Alert is focused on PODs that derive revenue from selling, or arranging for the sale of, implantable medical devices that are ordered by physician-owners for use in procedures that physician-owners “perform on their own patients at hospitals or ambulatory surgical centers (ASCs).” However, the OIG states that “the same principles would apply when evaluating arrangements involving other types of physician-owned entities.”

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Seeing the Light With the Physician Payment Sunshine Act

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On February 1, 2013, the Centers for Medicare & Medicaid Services released the long-awaited final rule implementing the physician payment transparency provisions, commonly referred to as the Physician Payment Sunshine Act, in the Obama administration's 2010 health care reform legislation. The Sunshine Act joins the list of significant federal laws addressing potential conflicts of interest in health care, including the Anti-Kickback Statute and the Stark Law. With implementation of the Sunshine Act now in sight, stakeholders face the real challenge of complying with, and practicing under the shadow of, the Sunshine Act and its complex and detailed regulations.

To read the full article "Seeing the Light With the Physician Payment Sunshine Act," please visit law.com.

Sunshine Physician Payment Final Rule Overview and Analysis

This post was written by Elizabeth B. Carder-Thompson, Katie C. Pawlitz and Nancy E. Bonifant.

On February 1, 2013, the Centers for Medicare & Medicaid Services (CMS) of the Department of Health and Human Services (HHS) released the long-awaited Final Rule to implement the “Sunshine” provisions of the Affordable Care Act of 2010 (ACA). The Sunshine provisions - intended to provide increased transparency on the scope and nature of financial and other relationships among manufacturers, physicians, and teaching hospitals - require that certain manufacturers of drugs, devices, biologicals, and medical supplies covered by Medicare, Medicaid and CHIP report annually to HHS identified payments or transfers of value they have made to physicians and teaching hospitals. In addition, they require manufacturers and certain group purchasing organizations (GPOs) to report to HHS information on physician ownership and investment interests.

The Final Rule provides needed clarity on some troubling aspects of the proposal, however, it leaves a number of questions unanswered. Please click here to read our detailed analysis of the Sunshine provisions, including an overview and summary of the Rule as well as discussion of the important issues that stakeholders should be considering as they prepare for Sunshine implementation.

Medicare and Sequestration

Continuing budget gridlock in Washington has triggered sequestration and automatic budget cuts to a wide range of federal programs have gone into effect, including Medicare payments to providers and health plans. Reed Smith's Health Industry Washington Watch blog post answers some basic questions about sequestration, including what Medicare spending is impacted, when the Medicare cuts start, and how long sequestration will last.

OCR Announces Expansion of its Health Information Privacy Enforcement Team

This post was written by Brad M. Rostolsky and Jennifer Pike.

On February 27, 2013, the HHS Office for Civil Rights (“OCR”) announced the availability of several Health Information Privacy Specialist positions. This expansion of OCR’s health information privacy enforcement team signals that OCR’s increased enforcement activity during 2012 will continue in 2013. In 2012, OCR announced several enforcement actions resulting from a breach self-report required by HITECH’s Breach Notification Rule, including the $1.7 million settlement in June with the Alaska Department of Health and Social Services and the Massachusetts Eye and Ear Infirmary’s $1.5 million settlement in September. OCR’s 2012 enforcement actions, and OCR leadership comments subsequent to the release of the HITECH Final Rule, suggest that the agency’s focus will be on Security Rule compliance (specifically with regard to the whether a regulated entity has conducted a Security Rule Risk Assessment), the lack of overall HIPAA compliance that may lead to a breach (as opposed to the breach itself), and issues involving marketing or the sale of Protected Health Information. Covered entities and business associates should expect OCR enforcement, including audits, to continue to increase over the next year.

More information on these positions is available at usajobs.gov

Additional information about OCR’s enforcement activities can be found at hhs.gov

New Development Regarding MSP Private Enforcement Provision

This post was written by Eric Buhr, Catherine Hurley and Michael Mandell.

A recent case out of a district court in Michigan suggests medical providers may have a new method to obtain payment for bills that were denied by an insurance company – Medicare Secondary Payer Act’s (MSP) private enforcement provision. Mich. Spine & Brain Surgeons, PLLC v. State Farm Mut. Auto. Ins. Co., No. 12cv11329, 2013 U.S. Dist. LEXIS 17721, *1 (E.D. Mich. Feb. 11, 2013).

In Michigan Spine, an insured covered by Medicare and State Farm automobile insurance was involved in a severe car accident. Id. at *2. Following the accident, the insured underwent extensive neurosurgery performed by Michigan Spine and Brain Surgeons, PLLC ("Michigan Spine"). Id. at *5. Michigan Spine submitted its charges to State Farm, but Sate Farm refused to cover the individual claiming that her injuries were from preexisting conditions and unrelated to the car accident. Id. at *5-*6. The insured then submitted her claim to Medicare which made a partial payment to Michigan Spine. Id. at *6.

Michigan Spine then sued State Farm under the MSPA’s private enforcement provision, 42 U.S.C. Section 1395y(b)(3)(A), which allows private actions, on Medicare’s behalf, for reimbursement from primary payers who wrongfully denied coverage. Id. at *6-*7. State Farm argued that Michigan Spine had no standing to sue under the provision because the claim had not yet "materialized" – i.e. no court had determined State Farm was liable for the insured’s medical treatment. Id. at *10.

The district court found otherwise. The court, reiterating a previously determined ruling by the Sixth Circuit, held that the showing of "materialization" or "demonstrated responsibility" only applies to a "lawsuit brought by Medicare for reimbursement for medical expenses caused by tortfeasors." Id. at *15 (quoting Bio-Medical Applications of Tenn., Inc. v. Cent. States Southeast & Southwest Areas Health & Welfare Fund, 656 F.3d 277, 279 (6th Cir. 2011)). In contrast, "a healthcare provider need not previously demonstrate a private insurer’s responsibility to pay before bringing a lawsuit under the Act’s private cause of action." Id. at *15 (quoting Bio-Medical, 656 F.3d at 279)). Thus, the district court denied State Farm’s motion to dismiss.

While Michigan Spine may relax the requirements for MSP private causes of action against primary insurance providers, the holding does not apply in the context of medical device and drug manufactures (even if self-insured); rather, that avenue remains restricted to a showing of "demonstrated responsibility."

The HITECH Final Rule: The New Privacy/Security Rules of the Road Have Finally Arrived

This post was written by Brad M. Rostolsky, Nancy E. Bonifant, Salvatore G. Rotella, Jr., Elizabeth D. O’Brien, Jennifer Pike and Zachary A. Portin.

On January 25, 2013, the Office for Civil Rights of the United States Department of Health and Human Services published the long-awaited final regulation implementing much of the amendments and additions to the HIPAA Privacy, Security, Breach Notification, and Enforcement Rules directed by the 2009 Health Information Technology for Economic and Clinical Health Act (“HITECH Act”).

Noteworthy provisions of the HITECH Final Rule include:

  • Making Business Associates directly liable for compliance with certain requirements of the HIPAA Privacy and Security Rules;
  • Converting subcontractors of Business Associates that create, receive, maintain, or transmit PHI on behalf of the Business Associate into Business Associates themselves;
  • Requiring authorizations for all treatment and health care operations communications where the Covered Entity receives financial remuneration for making the communications from a third party whose product or service is being marketed;
  • Replacing the Breach Notification Rule’s “harm” threshold with a presumption that an impermissible use or disclosure of PHI is a Breach unless the Covered Entity or Business Associate demonstrates that there is a low probability that the PHI has been compromised; and
  • Mandating compliance by Covered Entities and Business Associates with applicable requirements by September 23, 2013.

Please click here to read our detailed analysis of the HITECH Final Rule. As always, please contact Brad M. Rostolsky (215-851-8195 or brostolsky@reedsmith.com), Nancy E. Bonifant (202-414-9353 or nbonifant@reedsmith.com), Salvatore G. Rotella, Jr. (215-851-8123 or srotella@reedsmith.com), or any other member of the Reed Smith Health Care Group with whom you work, if you would like additional information or if you have any questions.

 

New Law Spells MSP Relief For Private Sector

This post was written by Catherine A. Hurley and Jouya Rastegar.

There seems to be growing awareness that engaging in a “business, trade, or profession,” can easily subject any person or entity to what is known as the Medicare secondary payer ("MSP") law—a series of provisions in Title XVIII of the Social Security Act, governing the hierarchy of who pays first among applicable insurers. Given its scope and complexity, understanding and complying with the MSP law can be overwhelming. Further, although failure to comply carries obvious risk, conforming to what the law requires may also trigger certain risks of its own.

Amid consensus that the existing situation demands improvement, Congress recently passed the Medicare IVIG Access and Strengthening Medicare and Repaying Taxpayers Act of 2012, commonly referred to as the SMART Act provisions—new legislation signed January 10, 2013 that addresses at least of few of the acute challenges presented under the existing MSP system.  

Although it does not change the basic premise that a promise to pay an injured beneficiary is tantamount to a plan of liability insurance that is primary to Medicare, or generally relieve parties from their reporting obligations under section 111 of the Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA), the Act should give parties that make payments to Medicare beneficiaries at least some opportunity to control the process and the outcome, and alleviate some of the more draconian qualities of the current system.

Among other things, the Act:

  • Requires the agency to make up-to-date conditional payment information available on a website;
  • Requires the agency to provide a process for parties to liability settlements to dispute Medicare’s alleged MSP refund amount;
  • Ensures greater certainty to settling parties, before the settlement, with respect to the total amount Medicare is owed;
  • Requires the agency to establish an appeals process for plans to challenge MSP collections actions;
  • Requires the agency to establish minimum dollar thresholds in certain circumstances, below which refunds to Medicare are not required and payments need not be reported;
  • Requires the agency to establish safe harbors to the MMSEA section 111 reporting obligations for liability insurance and similar types of primary payers;
  • Makes civil money penalties (CMPs) for failure to comply with MMSEA section 111 reporting obligations discretionary rather than mandatory;   
  • Alleviates the existing burden to collect and report beneficiary social security numbers or health insurance claim (HIC) numbers as part of the MMSEA section 111 reporting process; and
  • Establishes a three-year statute of limitations for commencing an action against any type of primary payer to recover conditional payments and/or double damages.

Reed Smith's full analysis of the SMART Act is available here.

A SMART Change for Tort Defendants?

This post was written by Michael Mandell and Eric J. Buhr.

President Obama recently signed the Medicare IVIG Access and Strengthening Medicare and Repaying Taxpayers Act (commonly referred to as the SMART Act) to alleviate some of the confusion surrounding the Medicare Secondary Payer Act (MSP), which allows Medicare to seek reimbursement, and potential penalties, from “responsible” parties. These “responsible” parties include tort defendants, such as drug and medical device manufacturers, who become primary payers once they settle or have a judgment awarded against them in a case involving a Medicare beneficiary. The SMART Act will, among other things, introduce a three-year statute of limitations for which the government may bring an action for reimbursement and create a minimum settlement/judgment threshold below which the government will not seek reimbursement.

One of the most significant aspects of the SMART Act is that it creates a new process for obtaining final Medicare lien demands, which is meant to give some closure to defendants and plaintiffs by providing them with Medicare’s final lien amount prior to settlement. Under current practice, Medicare only issues a final lien demand after there is a settlement, judgment, award or other payment resolving the Medicare beneficiary’s liability claim against a tortfeasor. This leaves parties uncertain over what Medicare’s piece of the settlement will be and in turn hinders the settlement process. Under the SMART Act, Medicare must now create a website where the claimant or applicable plan can obtain Medicare’s “final conditional reimbursement amount” prior to settlement. Armed with this information, parties will be able to make more informed settlement decisions.

Although the Act will remove some of the ambiguity surrounding Medicare’s lien demands, the multistep process for acquiring Medicare’s final lien amount may prove too rigid. To satisfy the requirements for a finalized lien demand, individuals must pay careful attention to the SMART Act’s numerous deadlines.

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It's Here: OCR Releases Long Awaited HIPAA/HITECH Final Rule

This post was written by Brad M. Rostolsky and Nancy E. Bonifant.

The Office for Civil Rights (“OCR”) of the Department of Health and Human Services released today the long awaited, and much anticipated, omnibus final rule modifying the HIPAA Privacy, Security, Breach and Enforcement Rules.  The final rule, which implements the statutory requirements of the Health Information Technology for Economic and Clinical Health Act (“HITECH”) and the Genetic Information Nondiscrimination Act (“GINA”), is comprised of four final rules and addresses the July 2010 HITECH proposed rule, the Breach Notification and Enforcement interim final rules, as well as the October 2009 GINA proposed rule (collectively, the “HITECH Final Rule”).  Notably, the HITECH Final Rule does not address the May 2011 proposed accounting and access report rule.

Noteworthy provisions of the HITECH Final Rule include:

  • Making Business Associates directly liable for compliance with certain requirements of the HIPAA Privacy and Security Rules;
  • Converting subcontractors of Business Associates that create, receive, maintain, or transmit PHI on behalf of the Business Associate into Business Associates themselves;
  • Requiring authorizations for all treatment and health care operations communications where the Covered Entity receives financial remuneration for making the communications from a third party whose product or service is being marketed;
  • Replacing the Breach Notification Rule’s “harm” threshold with a presumption that an impermissible use or disclosure of PHI is a Breach unless the Covered Entity or Business Associate demonstrates that there is a low probability that the PHI has been compromised; and
  • Mandating compliance by Covered Entities and Business Associates with applicable requirements by September 23, 2013.

We are in the process of conducting a full review of the HITECH Final Rule and will release shortly a Client Alert providing a detailed analysis of the Rule.  In the meantime, please contact Brad M. Rostolsky (215-851-8195 or brostolsky@reedsmith.com), Nancy E. Bonifant (202-414-9353 or nbonifant@reedsmith.com), Salvatore G. Rotella, Jr. (215-851-8123 or srotella@reedsmith.com), or any other member of the Reed Smith Health Care Group with whom you work, if you would like additional information or if you have any questions.

OCR Continues Increased Focus on Enforcement, Announces First HIPAA Breach Settlement Involving Less than 500 Individuals

This post was written by Brad M. Rostolsky and Nancy E. Bonifant.

On January 2, 2013, the HHS Office for Civil Rights (“OCR”) announced its first settlement and corrective action plan following a breach affecting fewer than 500 individuals. The Hospice of North Idaho (“HONI”) has agreed to pay $50,000 to settle potential violations of the HIPAA Security Rule following the theft of an unencrypted laptop containing electronic Protected Health Information (“ePHI”) for 441 patients. Significantly, this is the third settlement in six months involving unencrypted portable devices.

In addition to the requirement to report breaches affecting more than 500 patients “without unreasonable delay and in no case later than 60 calendar days after discovery of the breach,” which are publicized on OCR’s website, Covered Entities must also maintain a log of all breaches affecting less than 500 patients and submit this information to OCR within 60 calendar days after the end of each calendar year. On February 16, 2011, HONI reported the theft to OCR, which commenced an OCR investigation on July 22, 2011. According to OCR, its investigation revealed that HONI had failed to conduct a risk analysis to safeguard ePHI and did not have in place policies and procedures to address mobile device security as required by the HIPAA Security Rule.

Following the $1.7 million settlement in June with the Alaska Department of Health and Social Services and the Massachusetts Eye and Ear Infirmary’s $1.5 million settlement in September, this settlement reinforces the practical necessity of encryption, which Leon Rodriguez, Director of OCR, describes as “an easy method for making lost information unusable, unreadable and undecipherable.” Easy or not, as providers face a health care environment that increasingly relies upon portable devices, encryption remains the primary answer to security risks. Furthermore, it remains the best first defense against the expensive and reputation damaging reality of notifying patients and OCR that a breach has occurred.

Beyond emphasizing the importance of encryption, OCR’s recent enforcement trends also make it clear that Covered Entities (and given the import of the forthcoming final HITECH regulation, Business Associates) should consider the Security Rule risk analysis to be the central component to Security Rule compliance. Although a risk analysis may require Covered Entities and Business Associates to spend significant resources, OCR plainly views it to be critical.

In addition to the $50,000 settlement, the Resolution Agreement between HONI and OCR included a corrective action plan, which requires HONI to investigate any report that a workforce member may have failed to comply with HONI’s Privacy and Security policies and procedures and report actual violations to OCR within 30 days. HONI did not admit any liability in the agreement and OCR did not concede that HONI was not liable for civil monetary penalties.

Additional information about OCR’s enforcement activities can be found here.

Preparing for the HITECH Final Rule Release: HURRY UP AND WAIT!

This post was written by Brad M. Rostolsky and Nancy E. Bonifant.

It has been almost two and half years since the Department of Health and Human Services, Office for Civil Rights (“OCR”), published a notice of proposed rulemaking to implement the statutory requirements of the Health Information Technology for Economic and Clinical Health Act (“HITECH”) and amend the HIPAA Privacy and Security Rules, and almost nine months since the final rule was submitted to the Office of Management and Budget (“OMB”) for final regulatory clearance. While industry speculation, fueled by comments made by Leon Rodriguez, the Director of OCR, at the annual Safeguarding Health Information: Building Assurance through HIPAA Security Conference, suggested that an omnibus final rule would be released by the end of summer, OMB had different ideas.

Now, as we approach HITECH’s four year anniversary in February, the industry is again speculating that release of the final rule will be before year end. As the regulation’s title makes clear, “Modifications to the HIPAA Privacy, Security, Enforcement and Breach Notification Rules,” it is expected that this rule will address the July 2010 proposed rule, as well as the interim final rules (regarding both breach notification and enforcement) and, hopefully, the May 2011 proposed accounting and access report rule. Therefore, regardless of the ultimate release date, it remains important for Covered Entities and Business Associates to prepare for the forthcoming changes.

The following is a brief review of some key considerations in anticipation of the publication of the final HITECH omnibus rule.

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China Life Sciences and Health Industry Client Briefing - November 2012 (December 13, 2012)

This post was written by Jay J. Yan, Hugh T. Scogin, Jr., John J. Tan, Mao Rong, Katherine Yang, May Wong, Amy Yin and Gordon B. Schatz.

Reed Smith’s China Life Sciences and Health Industry Client Briefing provides a summary of the monthly news and legal developments relating to China's Pharmaceutical, Medical Device, and Life Sciences/ Health Care Industries.

Some important developments during November include:

  • Priorities, Practical Tips and Lessons Learned from Reed Smith’s China Device Regulatory Briefing on December 4, 2012
  • Drug Firms Pursue Joint R&D
  • Drug Makers and the Unpredictability of Drug Development; New Draft Regulations on Stem Cell Industry to be Issued
  • SFDA Approval concerning Drug Registration and Appraisal Reform on Pilot Basis in Guangdong Food and Drug Administration
  • MOH Stresses Monitoring Medical Costs in New Announcement; PRC to Allocate RMB 27.26 Billion to Support Public Health Services for 2013
  • Nestlé in Chinese Medicine Deal with Li Ka-Shing's Firm

To read the full briefing by Reed Smith China team members, click here.

OCR Releases Overdue Guidance on De-identifying Protected Health Information

This post was written by Brad M. Rostolsky and Nancy E. Bonifant.

The Office of Civil Rights (OCR) released guidance on Monday, November 26, 2012, regarding methods to de-identify protected health information in compliance with the HIPAA Privacy Rule.  This guidance, which followed a June 2012 Government Accountability Office Report criticizing the delayed publication of this and related guidance, is aimed to assist covered entities and business associates in understanding what de-identification is and how de-identified information is created.

Because the HIPAA Privacy Rule does not restrict the use or disclosure of de-identified health information, the process of de-identification allows researchers and policy workers to have access to critical health information while mitigating privacy risks to the individual.  To mitigate privacy risks, the HIPAA Privacy Rule outlines two de-identification methods that ensure the health information does not identify an individual and that an associated covered entity has no reasonable basis to believe the information can be used to identify an individual: (1) The Expert Determination and (2) The Safe Harbor. 

The Expert Determination method requires the services of an expert in statistical and scientific principles and methods to determine that the risk of re-identification is “very small” and document that determination.  This method involves a three-step process of (i) working with the covered entity to determine appropriate statistical or scientific methods of mitigate risk of identification, (ii) applying those methods to mitigate risk, and (iii) assessing the risk.  The guidance also addresses the expert’s qualifications, methods for de-identifying information, and approaches to assessing risk.

The Safe Harbor method involves removing 18 categories of identifiers of the individual or of the individual’s relatives, employers, and household members.  These identifiers include, for example, names, dates (other than year), geographic subdivisions smaller than a State (as well as ZIP codes depending on the population of a particular area), social security number, health plan and account numbers, IP addresses, and “any other unique identifying number, characteristic, or code.”  A covered entity must also not have “actual knowledge” that the remaining information could be used to re-identify the individual.  In addition to considering specific identifiers and providing examples, the guidance explains this “actual knowledge” standard as “clear and direct knowledge” that the information could be re-identified or awareness that the information is not actually de-identified.

While this subregulatory guidance does not have the force of law, it is important to remember that Section 13424(c) of the HITECH Act mandated the guidance’s release.  Therefore, covered entities, and business associate who de-identify protected health information on behalf of covered entities, are advised to consider the guidance carefully and amend their processes to align its requirements.

A copy of the guidance can be found here.

Massachusetts Releases Final Regulations, Restores Annual "Sunshine" Reporting Requirement for Drug/Device Manufacturers

This post was written by Elizabeth B. Carder-Thompson, Katie C. Pawlitz and Nancy E. Bonifant.

On Wednesday, November 21, 2012, Massachusetts’ Public Health Council (“Council”) approved amendments to the State’s Marketing Code of Conduct, which restricts certain gifts and payments by pharmaceutical and medical device manufacturers to Massachusetts health care practitioners (“HCPs”) and requires disclosure of payments and transfers of value to HCPs. The final regulations, effective as of December 7, 2012, primarily adopt the emergency regulations issued by the State in September but make a few substantive changes.

Importantly, the final regulations do not include language from the emergency regulations that eliminated the requirement that manufacturers report annually specific information regarding payments in connection with sales and marketing activities after calendar year 2012 reports. Instead, the final regulations only prohibit duplicative reporting to Massachusetts if manufacturers have already reported the same information pursuant to federal law (for example, the federal Physician Payment Sunshine Act), and such information is available to the Massachusetts Department of Public Health (“DPH”).

The Council also adopted the revised provisions regarding modest meals substantially as written in the emergency regulations. Under the revision, manufacturers are allowed to provide modest meals and refreshments to HCPs at non-CME educational presentations, as long as manufacturers file quarterly reports detailing such meals. Notably, the Council declined to define “modest” with a clear monetary limit or specifically to ban alcohol at industry-funded events and presentations, as requested by public commenters. With regard to the required quarterly reports, the Council did include a new, open-ended category of information that must be reported: “such other information as determined necessary by the Commissioner.” It is not clear whether this requirement will be clarified in further regulations or guidance that DPH is expected to issue.

Looking forward, the full effect of Massachusetts’ final regulations will not be clear until the release of the final rule for the federal Physician Payment Sunshine Act, because that rule will determine the extent to which Massachusetts’ annual reporting requirement will be preempted. Based on Massachusetts’ final regulations, however, it appears the quarterly reports regarding meals at non-CME educational presentations will not be subject to preemption. Massachusetts’ final regulations are available here.
 

Affordable Care Act and the Post-Election Implications for Radiology

This post was written by Thomas W. Greeson and Paul W. Pitts.

As the dust settles from Tuesday’s election, pundits and prognosticators are predicting the future of the world based on highly charged and deeply polarized perspectives. Those predictions are sweeping in scope and many we have seen tend toward dire scenarios - even for the diagnostic imaging industry. The more prudent course is to step back for a moment and assess the situation in a more pragmatic and dispassionate way. With this in mind, we wanted to take this opportunity to describe what we expect to see as health reform efforts continue.

In planning for the future, it is vital to take into account that there are things we know for certain, things that are unknown at the moment and things that are simply unknowable. We have to do planning, preparation and decision making taking those factors into consideration. In every situation where change happens (and change happens constantly) there are threats and opportunities. Often we miss the opportunities because we are so focused on the loss of the known and familiar. The well-known adage, “Success is where preparation meets opportunity” applies here. The radiology practice that carefully considers how to position itself for a future that has not fully revealed itself is more likely to be ready to seize the opportunities that come with change.

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Massachusetts Signals Potential Elimination of HCP Payment Reporting Requirement Through Emergency Regulatory Amendments

This post was written by Elizabeth Carder-Thompson, Katie C. Pawlitz and Nancy E. Bonifant.

On September 19, 2012, the Massachusetts Public Health Council approved emergency amendments to the State’s Marketing Code of Conduct regulations, 105 CMR 970.000, which restrict certain gifts and payments by pharmaceutical and medical device manufacturers to Massachusetts health care practitioners (“HCPs”) and require disclosure of payments and transfers of value to HCPs. The regulations, effective as of September 19, 2012, follow amendments to the underlying statute, Massachusetts General Laws, Chapter 111N, signed into law in July by Governor Deval Patrick as part of the FY2013 State Budget. The July statutory amendments are further discussed here in our earlier Client Alert.

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How to Mitigate Compliance Requirements and Code of Conduct Obligations with Data Protection Regulation: Reed Smith Paris Provided Some Illustrative Examples

As reported on our Global Regulatory Enforcement Blog, Reed Smith Paris partner Daniel Kadar and counsel Séverine Martel hosted on 25 October 2012, a new edition of the conference cycle organized by Reed Smith Paris with the European American Chamber of Commerce, dedicated to the mitigation of Compliance obligations, particularly as set forth in Codes of Conduct, with data protection requirements.

The panel, which included compliance directors of French health care giant SANOFI and General Electric Health, brought examples of how to mitigate compliance obligations, in particular as set forth in Codes of Conduct most International organisations have now adopted, with applicable data protection regulation.  The first example was dedicated to the New French Health Care Regulation and its transparency and disclosure requirements as to the existence (and the financial range) of agreements between the health care and cosmetics industry with health care professionals (including Medicine students), showing that the disclosure of financial and private information (such as the home address for the medicine students) had to be managed carefully with respect to the data owner’s information and access rights.  To read the full post, click here.

OCR Continues to Use Breach Self-Reports as an Invitation to Audit General HIPAA Compliance

Massachusetts Provider Becomes Third Seven-Figure Settlement Since March

This post was written by Nancy E. Bonifant and Brad M. Rostolsky.

On September 17, 2012, the HHS Office of Civil Rights ("OCR") announced another settlement and corrective action plan following an entity’s breach self-report required by HITECH’s Breach Notification Rule. Massachusetts Eye and Ear Infirmary and Massachusetts Eye and Ear Associates, Inc. (collectively "MEEI") have agreed to pay $1.5 million to settle potential violations of the HIPAA Security Rule following the theft of a physician’s unencrypted, but protected, laptop, providing additional evidence that: (1) OCR will likely view any breach notification as an opportunity to conduct a de facto audit of an entity’s general HIPAA compliance; and (2) encryption of all portable devices containing electronic protected health information ("ePHI"), though not technically "required," is a critical compliance consideration.

The information contained on the laptop, which was stolen while the physician was lecturing in South Korea in 2010, included prescriptions and clinical information for approximately 3,600 patients and research subjects. According to MEEI, although unencrypted, the laptop was password protected and contained a tracking device commonly referred to as "LoJack." Using LoJack, MEEI determined that a new operating system was installed on the computer and that the software needed to access the ePHI was not reinstalled. After concluding that retrieval of the laptop was unlikely, MEEI remotely permanently disabled the hard drive and rendered any ePHI unreadable.

Although OCR’s subsequent investigation revealed no patient harm as a result of the breach, the agency did find that the breach indicated a long-term, organizational disregard for the requirements of the Security Rule. More specifically, over an extended period of time, MEEI failed to:

  • Conduct a thorough analysis of the risk to the confidentiality of ePHI maintained on portable devices;
  • Implement security measures sufficient to ensure the confidentiality of ePHI that MEEI created, maintained, and transmitted using portable devices;
  • Adopt and implement policies, and procedures to restrict access to ePHI to authorized users of portable devices; and
  • Adopt and implement policies and procedures to address security incident identification, reporting, and response.

Following on the heels of the Alaska Department of Health and Social Services’ $1.7 million settlement in June, which also followed a breach that affected a relatively small number of individuals, OCR’s recent enforcement actions suggest that its focus is on the lack of overall HIPAA compliance that may lead to a breach and not the breach itself. This settlement also reaffirms the practical necessity of encrypting all ePHI on portable devices. According to Leon Rodriguez, Director of OCR,  "[i]n an age when health information is stored and transported on portable devices such as laptops, tablets, and mobile phones, special attention must be paid to safeguarding the information held on these devices."

In addition to the $1.5 million settlement, the Resolution Agreement between MEEI and OCR included a corrective action plan, which requires MEEI to review, revise, and maintain policies and procedures to ensure compliance with the Security Rule, and retain an independent monitor who will conduct assessments of MEEI’s compliance with the corrective action plan and render semi-annual reports to HHS for a 3-year period. MEEI did not admit any liability in the agreement and OCR did not concede that MEEI was not liable for civil monetary penalties.

Additional information about OCR’s enforcement activities can be found at hhs.gov.

China Life Sciences and Health Industry Client Briefing - August 2012 (September 18, 2012)

This post was written by Jay J. Yan, Hugh T. Scogin, Jr., John J. Tan, Mao Rong, Katherine Yang, May Wong, Amy Yin and Gordon B. Schatz.

Reed Smith’s Life Sciences Health Industry China Briefing provides a summary of the monthly news and legal developments relating to China's Pharmaceutical, Medical Device, and Life Sciences/ Health Care Industries.

Some important developments during August include:

  • New Regulations Concerning Hospital Procurement of Class-A Large-Scale Medical Equipment
  • MOH to Investigate Infection Events in Hospitals
  • Wenzhou Develops New Plans to Attract Private Medical Investors
  • Notice Concerning Public Hospital Reform in 2012
  • MOH to Establish EDLs for Secondary and Tertiary Hospitals
  • Pricing Developments for Drugs of Foreign Companies
  • Revised Regulations on Criminal Prosecutions for Leaks of Confidential Patient Information
  • State Council to Release Regulation Permitting Local Governments to Buy Commercial Insurance on for Serious Illnesses

To read the full briefing by Reed Smith China team members, click here.

Vermont Offers Limited Amnesty to Device and Biologic Manufacturers who Failed to Report Payments to Health Care Providers

This post was written by Katie C. Pawlitz.

Today the Office of the Vermont Attorney General announced that the Vermont Attorney General is offering limited amnesty to medical device and biologic manufacturers who have failed to report pursuant to Vermont’s Prescribed Products Gift Ban and Disclosure Law. The offer will remain open until October 1, 2012. In order to take advantage of the offer, manufacturers must email prescribedproducts@atg.state.vt.us with the following information: (1) manufacturer name; (2) reporting periods not reported; and (3) name, address, email, and phone number of the representative with whom Vermont should communicate.

The reporting obligation under the Vermont Law became effective July 1, 2009 and, to date, manufacturers have been required to report to Vermont with respect to three reporting periods. The amnesty offer is limited to financial penalties authorized under the Law and does not apply to back-payment of registration fees or penalties for violations of other aspects of the Law, such as gift ban violations. The Office of the Attorney General has indicated that it does not anticipate seeking full disclosure for unreported activity, but that it does anticipate requiring at a later date, disclosure of aggregate information regarding the activity.

China Life Sciences and Health Industry Client Briefing - July 2012 (August 8, 2012)

This post was written by Jay J. Yan, Hugh T. Scogin, Jr., John J. Tan, Katherine Yang, May Wong and Gordon B. Schatz.

Reed Smith’s Life Sciences Health Industry China Briefing provides a summary of the monthly news and legal developments relating to China's Pharmaceutical, Medical Device, and Life Sciences/ Health Care Industries

Some important developments during July include:

  • Counterfeit Drug Crackdown in China
  • China Agencies Drafting Policies to Accelerate Development of Medical Devices
  • Mindray Medical Completes Acquisition of Dragonbio's Orthopedics Business
  • Multinational Medical Device Companies Focus on Grassroots Market
  • J&J Plans Training Center in China
  • New Round of Drug Price Cuts Expected
  • MOH Enhances Planning of Private Medical Institutions and Further Relaxes Threshold for Private Investors

To read the full briefing by Reed Smith China team members, click here.
 

Government Investigations: Don't Forget About D&O Insurance When That Subpoena Arrives

This post was written by Mark S. Hersh and Paul E. Breene.

Government investigations can be both time-consuming and hugely expensive. Earlier this year, the U.S. Department of Justice and the U.S. Department of Health and Human Services announced that its 2011 health care fraud prevention and enforcement efforts resulted in record-breaking recoveries totaling more than $4 billion -- the largest sum ever recovered in a single year. With health care fraud and abuse as a top priority for the current administration, life sciences and health care organizations would benefit from reviewing their insurance policies to ensure they are protected in the event of an investigation.

When an investigation is commenced by a federal or state government entity, a company should have two standard operating procedures: first, hire experienced counsel to respond to the investigation or subpoena; and second, determine whether insurance coverage may be available to pay for what are frequently significant defense costs that may be incurred in connection with the investigation. Securing insurance coverage for subpoenas and informal investigations, both civil and criminal, can be an arduous process, but policyholders who plan ahead and know the pitfalls can give themselves a significant advantage by having coverage to pay for the defense and cost of responding to such an investigation. Failing to secure coverage for an investigation can mean that there will be no coverage if the investigation leads to lawsuits or other legal proceedings.

To learn more about how your life sciences or health care company can secure coverage to protect against costly government investigations, read the full alert.

Life Sciences Health Industry China Briefing - June 2012 (July 20, 2012)

This post was written by John Tan, Jay J. Yan, Mao Rong, Katherine Yang, and Gordon B. Schatz.

Reed Smith’s Life Sciences Health Industry China Briefing provides a summary of the monthly news and legal developments relating to China's Pharmaceutical, Medical Device, and Life Sciences/ Health Care Industries.

Pharmaceuticals, Medical Devices, Health Care & Life Sciences 

News

  • China's Compulsory License Rule Has Drug Companies On Edge (Law360 2012-06 12) — June 14, 2012

China's new patent regulations allowing the government to force drug companies to grant compulsory licenses for generic versions of their products if it is deemed to be in the "public interest" has the pharmaceutical industry worried about where China will draw the line, attorneys said. The new regulations issued by China's State Intellectual Property Office last month say the government can order compulsory licenses for generic drugs when there is a "national emergency or any extraordinary circumstances, or for public interest purposes." What constitutes the public interest is very much open to interpretation and appears to give the Chinese government broad leeway to order drug companies to allow generic versions of drugs that are still covered by patents.

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Supreme Court Rules That Juries - Not Judges - Must Determine Facts Supporting Large Criminal Fines

The Reed Smith Global Regulatory Enforcement Law blog has an interesting post about a recent U.S. Supreme Court ruling that protects the Sixth Amendment rights of defendants in high-stakes criminal cases. In Southern Union Co. v. United States, the Court ruled that any fact supporting a "substantial" criminal fine must be found by a jury applying the "beyond a reasonable doubt" standard. In this post, Efrem M. Grail and Kyle R. Bahr explain the opinion and discuss the wide impact it will have on criminal actions, from investigation to sentencing.

As Federal Sunshine Looms, Massachusetts Loosens Manufacturer Gift Ban and Disclosure Law, and Allows Certain Drug Coupons and Vouchers

This post was written by Elizabeth Carder-Thompson, Katie C. Pawlitz and Nancy E. Bonifant.

As drug and device manufacturers continue to await final regulations and subsequent implementation of the federal Physician Payment Sunshine Act, passed as part of the Affordable Care Act, Massachusetts has relaxed its similar state law banning the provision by manufacturers of gifts to health care practitioners (“HCPs”) and requiring disclosure of payments and transfers of value to HCPs. The revisions are intended to loosen certain restrictions related to providing meals and other expenses to HCPs, and also expressly to relieve manufacturers of the duty to report to Massachusetts information that has already been disclosed to federal agencies, such as data reported to the Centers for Medicare & Medicaid Services ("CMS") pursuant to the Physician Payment Sunshine Act. In addition, Massachusetts will now permit pharmaceutical manufacturers to offer drug coupons and other reductions to Massachusetts residents, as long as certain conditions are met.

The Massachusetts gift ban and disclosure amendments come at a time when manufacturers continue to consider how the new federal disclosure requirements will impact state reporting requirements. Massachusetts’ revisions also represent a growing shift in states’ willingness to defer to federal reporting, in lieu of requiring their own reporting.

Notwithstanding this shift, state laws continue to impose their own differing restrictions on certain payments and gifts to HCPs, an issue that is not addressed by the federal law. The Physician Payment Sunshine Law requires manufacturers to disclose to CMS information related to payments and transfers of value to physicians and teaching hospitals, but does not otherwise restrict the types or levels of payments and benefits that may be provided to physicians and teaching hospitals. Multiple states, including Massachusetts, have more prescriptive laws that dictate the types of payments or benefits pharmaceutical and medical device manufacturers can provide to HCPs, including physicians. CMS has indicated that manufacturers may be required to begin tracking reportable payments and other transfers of value for purposes of the Physician Payment Sunshine Act as soon as January 1, 2013.

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Pennsylvania Revises Review Process for New Medicaid Nursing Facility Beds: The Uphill Battle Continues

This post was written by Karl Thallner and Susan Edwards.

On June 30, 2012, the Pennsylvania Department of Public Welfare (“DPW”) issued final regulations revising its process and standards for reviewing requests to enroll new nursing home beds in Pennsylvania’s Medical Assistance (“MA”) (i.e., Medicaid) program, and transfers of MA beds between existing nursing facilities. The new regulations suggest that DPW’s restrictive approach to gaining approval for new MA beds will continue.

Background. The Pennsylvania Certificate of Need program, which had required approval for the establishment of new health care facilities or the expansion of existing facilities, sunsetted in 1996. As a result, in the same year, DPW issued a Statement of Policy providing that DPW would not permit MA enrollment or expansion of certain types of providers, including nursing facilities, unless DPW grants an exception following its review. In 2006, the Commonwealth Court of Pennsylvania determined that the Statement of Policy was merely an “unpromulgated regulation,” and overturned DPW’s rejection of nursing facility’s exception request. Eastwood Nursing and Rehabilitation Center v. Department of Public Welfare, 910 A.2d 134 (Pa. Commw. Ct. 2006). In response, in 2007, the Pennsylvania legislature enacted revisions to the Public Welfare Code requiring DPW to propose regulations establishing a process and criteria to be used to review and respond to requests for increases in MA certified nursing facility beds. 62 Pa. Cons. Stat. § 443.1(8). In the meantime, the legislation authorized DPW to continue review of increases in MA certified beds under the Statement of Policy (with permitted amendments), but only until June 30, 2012. DPW published the proposed regulations on November 6, 2010.

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Supreme Court Rules on ACA

As reported by Health Industry Washington Watch, today the Supreme Court ruled that the Affordable Care Act’s (ACA) individual health insurance mandate does not violate the Constitution because it may be viewed as a permissible tax on individuals who do not obtain health insurance.  The only provision of the law that the Court invalidated is a Medicaid provision that threatened states with the loss of existing Medicaid funding if they decline to comply with the ACA’s Medicaid coverage extension.  By preserving the vast majority of the landmark health reform law, the Court avoided the policy chaos that would have resulted from striking down the ACA in its entirety.  There is now legal certainty for state and federal governments, health care providers, manufacturers, and individuals.  The focus in Washington will return to continuing implementation of the law.  While the legal battle is over, however, the political fight will remain, and will likely reverberate through the coming Presidential and Congressional election campaigns. 

Reed Smith has been closely covering ACA developments. For more information on today's ruling, see "Supreme Court Upholds ACA Insurance Mandate, Limits Withholding of Medicaid Funds to States" on the Health Industry Washington Watch blog.
 

Life Sciences Health Industry China Briefing - May 2012 (June 14, 2012)

This post was written by John Tan, Jay J. Yan, Mao Rong, Katherine Yang, and Gordon B. Schatz.

Reed Smith’s Life Sciences Health Industry China Briefing provides a summary of the monthly news and legal developments relating to China's Pharmaceutical, Medical Device, and Life Sciences/ Health Care Industries.

Some important developments during May include:

  • Introduction of Administrative Measures on Clinical Application of Antimicrobial Drugs
  • Two Agencies Crack Down on Violent Crime Against Medical Personnel
  • Medical Insurance Reimbursement for Hospitalization to Reach 75% of Total Expenses During 12th Five-Year Plan
  • Foreign Medical Workers to Receive TCM Training in Shanxi 
  • MOH Requires Class B and Higher Hospitals to Establish Security Offices
  • China to Expand Medical Payment Reform
  • SFDA Campaign to Regulate TCM Raw Material Market
To read the full briefing by Reed Smith China team members, click here.

 

Massachusetts Attorney General Strikes: South Shore Hospital Settles Data Breach Allegations for $750,000

This post was written by Brad M. Rostolsky and Nancy E. Bonifant.

On May 24, 2012, the Attorney General of Massachusetts announced that South Shore Hospital of South Weymouth, Massachusetts (South Shore) agreed to settle allegations that it failed to protect the personal and protected health information of more than 800,000 individuals.  The settlement resulted from the hospital’s data breach report to the Attorney General in July 2010, which was also reported to the HHS Office of Civil Rights in accordance with the HIPAA Breach Notification Rule.  Although the Attorney General reported a $750,000 settlement, South Shore was credited $275,000 for new security measures taken after the breach, bringing the actual amount to $475,000, of which $250,000 is a civil penalty and $225,000 shall be paid to an education fund to be used by the Attorney General’s Office to promote education concerning the protection of personal and protected health information.  South Shore also agreed to undergo a review and audit of its security measures and report the results to the Attorney General.

In February 2010, South Shore contracted with Archive Data Solutions (Archive Data) to erase and re-sell 473 data tapes.  According to the Attorney General, South Shore did not inform Archive Data that the tapes contained personal and protected health information, including individuals’ names, Social Security numbers, financial account numbers, and medical diagnoses.  The tapes were then shipped to a Texas subcontractor, but in June 2010, South Shore learned that only one of the three boxes of tapes arrived.  The two missing boxes were never recovered and there have been no reports of unauthorized use of the information.

Following its investigation of South Shore’s breach report, the Attorney General filed a lawsuit under the Massachusetts Consumer Protection Act and HIPAA.  State Attorney Generals have the authority to bring civil actions on behalf of state residents for violations of the HIPAA Privacy and Security Rules, which includes obtaining damages and enjoining further violations, pursuant to HITECH, enacted as part of the American Recovery and Reinvestment Act of 2009.  In the lawsuit, the Attorney General alleged that South Shore failed to implement appropriate safeguards, policies, and procedures to protect the information, failed to have a Business Associate Agreement in place with Archive Data, and failed to properly train its workforce.

House Leaders Plan June Vote on ACA Medical Device Tax Repeal

This post was written by Debra A. McCurdyRuth N. Holzman, and Angelo Ciavarella

A vote on legislation to repeal the ACA’s medical device excise tax could come in June, House Majority Leader Eric Cantor announced today.  The ACA imposes a 2.3% excise tax on the sale price of medical devices sold by the manufacturer, producer, or importer of the device after December 31, 2012. Citing the negative impact of this “draconian tax” on jobs in the medical device industry, Cantor plans a vote on H.R. 436, which would repeal the medical device tax, as early as the week of June 4, 2012. The bill would then await Senate action.

Life Sciences Health Industry China Briefing - April 2012 (May 21, 2012)

Reed Smith’s Life Sciences Health Industry China Briefing provides a summary of the monthly news and legal developments relating to China's Pharmaceutical, Medical Device, and Life Sciences/ Health Care Industries.  Some developments during April include:

  • Chinese Government to Review Drug Pricing Differences Between Ex-factory and Bid Prices
  • Heightened Attention to Hospital Mark-ups of Drug Prices
  • State Council to Cancel Drug Price Addition and Raise Medical and Surgery Fees
  • Cessation Drugs to be Included in Medical Insurance: Multinational Pharmaceutical Companies Play a Large Role in Government Procurement
  • 13 Products of 9 Pharmaceutical Companies Using Capsules Suspected of Excessive Chromium Contamination
  • Growth in Home Care Medical Devices

To read the full briefing by Reed Smith China team members, click here.

Update: New Hampshire State Senate Hearing on Prohibition of Certain Physician Relationships with Medical Device Companies

This post was written by Elizabeth Carder-Thompson and Nancy E. Bonifant.

The New Hampshire State Senate held a hearing on April 19, 2012 regarding HB 1725, a new measure that would prohibit all health care practitioners from prescribing or referring any U.S. Food and Drug Administration class II or class III implantable medical device if the practitioner stands to “profit indirectly or directly from the sale of [the] medical device by any supplier in which the health care practitioner has a direct or indirect ownership interest.” The testimony from supporters and opponents at the hearing, as well as recent commentary on the bill, indicate that there is significant disagreement over the reach of the measure and in particular whether the definition of “ownership interest” will include “royalty arrangements” between practitioners and medical device manufacturers.

As currently drafted, HB 1725 incorporates the following broad definition of “ownership interest”:

Any and all ownership interest by a healthcare practitioner or such person’s spouse or child, including, but not limited to, any membership, proprietary interest, stock interest, partnership interest, co-ownership in any form, or any profit-sharing arrangement. It shall not include ownership of investment securities purchased by the practitioner on terms available to the general public and which are publicly traded.

At the hearing, supporters of the bill clearly stated that the bill’s purpose is to address growing concerns regarding physician-owned distributors (“PODs”), which can implicate state and federal anti-kickback prohibitions. Opponents, however, argued that the current definition of “ownership interest” could reach much further. On the one hand, “royalty arrangements” between practitioners and medical device manufacturers could arguably be deemed “compensation arrangements” involving the transfer of intellectual property rather than “ownership interests,” and hence fall outside of the bill’s proscriptions. At the same time, the broad definition in the proposed legislation of “any and all ownership interests” followed by a non-exclusive list of examples, and the current significant disagreement over the measure’s reach, suggest that the bill would benefit from additional drafting for clarity.

We will continue to monitor developments in this area. To view our previous post on this topic, click here.
 

Small Cardiology Practice to Pay $100,000 to Settle Allegations of HIPAA Violations

This post was written by Nancy E. Bonifant and Brad M. Rostolsky.

On April 17, 2012, the HHS Office of Civil Rights (OCR) announced a settlement and corrective action plan with Phoenix Cardiac Surgery, P.C. (Phoenix), a small cardiology practice based in Phoenix and Prescott, Arizona. More specifically, Phoenix has agreed to pay $100,000 to settle allegations of HIPAA violations arising out of an investigation conducted by OCR.

OCR’s investigation of Phoenix followed a report that Phoenix was posting clinical and surgical appointments for its patients on an Internet-based calendar that was publicly accessible. On further investigation, OCR discovered the following issues:

  • Phoenix failed to implement adequate policies and procedures to appropriately safeguard patient information;
  • Phoenix failed to document that it trained any employees on its policies and procedures on the Privacy and Security Rules;
  • Phoenix failed to identify a security official and conduct a risk analysis; and
  • Phoenix failed to obtain business associate agreements with Internet-based email and calendar services where the provision of the service included storage of and access to its electronic protected health information.

This settlement serves as additional evidence of OCR’s increased focus on enforcement actions for alleged HIPAA violations, following just one month after the first enforcement action resulting from a breach self-report under the Breach Notification Rule. According to Leon Rodriguez, Director of OCR, he “hope[s] that health care providers pay careful attention to this resolution agreement and understand that the HIPAA Privacy and Security Rules have been in place for many years, and OCR expects full compliance no matter the size of a covered entity.” Additionally, the settlement provides further evidence that OCR will likely view any investigation of an alleged Privacy or Security Rule infraction as an opportunity to conduct a de facto audit of the entity’s general compliance with HIPAA.

In addition to the $100,000 settlement, the Resolution Agreement between Phoenix and OCR requires Phoenix to develop and maintain written Privacy and Security policies, which will set forth, at a minimum, administrative safeguards, technical safeguards, and training of all Phoenix’s workforce members. In addition, Phoenix will provide specific training on the Privacy and Security policies within 60 days of OCR’s approval to all workforce members who use or disclose protected health information and will report any violations of those policies and procedures by a workforce member to OCR within 30 days. Phoenix did not admit any liability in the agreement and OCR did not concede that Phoenix was not liable for civil monetary penalties.

Additional information about OCR’s enforcement activities can be found at http://www.hhs.gov/ocr/privacy/hipaa/enforcement/examples/index.html.

 

New Hampshire Quietly Considers Prohibition Of Physician Relationships With Medical Device Companies

This post was written by Elizabeth Carder-Thompson and Nancy E. Bonifant.

On March 29, 2012, the New Hampshire House of Representatives recommended for passage HB 1725.  If passed, HB 1725 would prohibit all health care practitioners from prescribing or referring any U.S. Food and Drug Administration class II or class III implantable medical device if the practitioner stands to profit, directly or indirectly, from the sale of the device, or from performing any procedure involving the device.

Proponents of the bill assert that it is necessary to address growing concerns regarding physician-owned distributors (“PODs”).  As drafted, however, the bill reaches much further than PODs by incorporating the definition of "ownership interest" from Sections 125:25-a to 125:25-c of the New Hampshire Revised Statutes, which requires practitioners to disclose to patients and licensing authorities “any and all ownership interests” the practitioner has in entities that provide diagnostic and therapeutic services.  A relationship that triggers the disclosure requirements, therefore, is not limited to PODs.  As a result, HB 1725 could prohibit legitimate intellectual property relationships between practitioners and medical device companies that exist to develop and promote life-saving medical devices.  Thus, the bill could significantly affect a practitioner’s ability to continue practicing in his or her specialty in New Hampshire if that practitioner has an ownership interest in a medical device related to his or her practice.

In addition to constituting an unfair or deceptive act or practice in violation of New Hampshire law, failure to comply with the prohibition would expose practitioners to a $5,000 fine per procedure for a first offense and potential suspension or loss of professional licensure, and up to a $10,000 fine, for a second offense.

HB 1725 has been fast-tracked to the New Hampshire Senate, where it is expected to meet with approval.  A hearing has been scheduled for this Thursday, April 19.
 

Life Sciences Health Industry China Briefing - March 2012 (April 13, 2012)

Reed Smith’s Life Sciences Health Industry China Briefing provides a summary of the monthly news and legal developments relating to China's Pharmaceutical, Medical Device, and Life Sciences/ Health Care Industries.  Some developments during March include:

  • American Medical Device Maker Accused of Bribery to Doctors in China and other Countries
  • Qiagen Inks HPV Screening Deal with China's KingMed Diagnostics
  • Medical Care Administration to Improve through Health Cards
  • Cuts in Drug Prices
  • Notice Concerning Registration after Adjustment of Classification of Medical Devices
  • MOH Encourages Private Capital into Medical Rehabilitation Services

To read the full briefing by Reed Smith China team members, click here.
 

10-Year 'Look Back' Proposed for Identification and Return of Medicare Part A and B Overpayments

This post was written by Scot T. Hasselman, Julia Krebs-Markrich, Thomas W. Greeson and Paul W. Pitts.

Providers and suppliers have until April 16, 2012 to comment on the proposed rule to implement provisions of Section 6402(a) of the Affordable Care Act that require “persons” receiving Medicare and Medicaid funds to report and return overpayments no later than 60 days after the date on which the overpayment was identified or, if applicable, the date any corresponding cost report is due.

The proposed rule, which is currently limited to Medicare Part A and B providers and suppliers, is important because it clarifies when and how an overpayment must be returned. If promulgated in final form as currently drafted, the rule would also subject providers and suppliers to a 10-year “look back” period, meaning providers and suppliers would have liability for the 10 years preceding the date an overpayment is received. The proposed rule has serious implications for provider and supplier operations if adopted as proposed. Providers and suppliers should consider using the public comment period to voice their concerns while it might still make a difference.

To learn more about the proposed rule and its implications, read the full alert.

FCA Qui Tam Relator Sanctioned for Destroying Evidence on Company-Issued Laptop

This post was written by Andrew Bernasconi and Nathan Fennessy.

In yet another reminder about the importance of maintaining evidence on company-issued laptops, blackberries, or other electronic devices; the United States District Court for the Northern District of California recently sanctioned a qui tam relator for destroying more than 10,000 documents on his company-issued laptop. Moore v. Gilead Sciences, Inc., No. C 07-03850 SI, 2012 WL 669531 (N.D. Cal. Feb. 29, 2012).

To read the full post on Reed Smith's Global Regulatory Enforcement Law Blog, click here.
 

OCR Announces First Enforcement Action Resulting From a Breach Self-Report

This post was written by Nancy E. Bonifant and Brad M. Rostolsky.

On March 13, 2012, the HHS Office of Civil Rights (OCR) announced the first enforcement action resulting from a breach self-report required by HITECH’s Breach Notification Rule. Blue Cross Blue Shield of Tennessee (BCBST) has agreed to pay HHS $1,500,000 to settle potential violations of the HIPAA Privacy and Security Rules and has entered into a corrective action plan to address gaps in its HIPAA compliance program.


The HIPAA/HITECH Breach Notification Rule requires covered entities to report a breach (e.g., an impermissible use or disclosure of protected health information that compromises the security or privacy of the protected health information) to the affected individual(s), HHS and, at times, the media. OCR’s investigation of BCBST followed a breach report submitted by BCBST informing HHS that 57 unencrypted computer hard drives were stolen from a leased facility in Tennessee. The hard drives contained the protected health information of more than 1 million individuals, including member names, social security numbers, diagnosis code, dates of birth, and health plan identification numbers.


According to OCR’s investigation, BCBST failed to implement appropriate administrative and physical safeguards as required by the HIPAA Security Rule. More specifically, BCBST failed to perform the required security evaluation in response to operational changes and did not have adequate facility access controls.


In addition to the $1,500,000 settlement, the Resolution Agreement between BCBST and OCR requires BCBST to revise its Privacy and Security policies, conduct robust trainings for all employees, and perform monitor reviews to ensure compliance with the corrective action plan. BCBST did not admit any liability in the agreement and OCR did not concede that BCBST was not liable for civil monetary penalties.

Additional information about OCR’s enforcement activities can be found at http://www.hhs.gov/ocr/privacy/hipaa/enforcement/examples/index.html.

Life Sciences Health Industry China Briefing - February 2012 (March 13, 2012)

This post was written by Jay J. Yan, Mao Rong, Zack Dong, Katherine Yang, Joyce Sun, Sara Lai and Gordon B. Schatz.

Reed Smith’s Life Sciences Health Industry China Briefing provides a summary of the monthly news and legal developments relating to China's Pharmaceutical, Medical Device, and Life Sciences/ Health Care Industries.

Some important developments during February include:

  • Release of the 12th Five-Year Plan on Drug Safety and Standards
  • SFDA: Concentrated Rectification Action in National Drug Manufacturing and Distribution Sectors
  • Twelve Ministries: Crackdown on Serious Illegal Advertisement Broadcasting
  • SFDA: Electronic Drug Supervision Plan from 2011 – 2015
  • MOH: Administrative Measures on Health Card for Residents (for Trial Implementation)
  • MOH: Revised Diseases Classification and Code

To read the full briefing by Reed Smith China team members, click here.
 

In-House Relator? The 2nd Circuit Considers Whether To Put the False Claims Act Between Attorneys and Their Clients

This post was written by Matthew R. Sheldon and Alexander Y. Thomas.

The Second Circuit Court of Appeals is reviewing a lower court decision disqualifying a former in-house attorney from acting as a False Claims Act qui tam relator against his former employer. The relator was formerly general counsel to Unilab, a subsidiary of Quest Diagnostics Inc. The qui tam suit alleged that Unilab violated the Federal Health Care Anti-Kickback Act by engaging in a fraudulent scheme to increase medical testing referrals under the Medicare and Medicaid programs. To read the full post on Reed Smith's Global Regulatory Enforcement Law Blog, click here.

 

Life Sciences Health Industry China Briefing - January 2012 (February 13, 2012)

This post was written by Jay J. Yan, Mao Rong, Zack Dong, Katherine Yang, Joyce Sun, Sara Lai and Gordon B. Schatz.

Reed Smith’s Life Sciences Health Industry China Briefing provides a summary of the monthly news and legal developments relating to China's Pharmaceutical, Medical Device, and Life Sciences/ Health Care Industries.

Some important developments during January include:

  • Outline of China's Nursing Development Plan from 2011 to 2015
  • Promulgation of Eight Recommended Medical Product Industry Standards
  • Strengthening Implementation of 2010 GMP Amendment
  • Circulation of the 12th Five-Year Plan for Medical Device Technology Industry

To read the full briefing by Reed Smith China team members, click here.
 

CMS Releases Long-Awaited Proposed Rule to Implement ACA Medicaid Manufacturer Rebate and Pharmacy Reimbursement Provisions

This post was written by Joseph W. Metro, Robert J. Hill, and Vicky G. Gormanly.

On Friday, January 27, 2012, the Centers for Medicare & Medicaid Services (“CMS”) released its long-awaited proposed rule to implement the provisions of the Affordable Care Act (“ACA”) relating to pharmaceutical manufacturer payment of Medicaid rebates and limits on Medicaid reimbursement to pharmacies. The proposed rule addresses a number of important policy issues relevant to pharmaceutical manufacturers, pharmacies, and other providers, and also would pose significant operational challenges for pharmaceutical manufacturers with respect to the Medicaid Drug Rebate Program (“MDRP”).

The official version of the proposed rule, titled “Medicaid Program; Covered Outpatient Drugs” (the “Proposed Rule”), will be published in the Federal Register on February 2, 2012. Comments on the Proposed Rule are due no later than 5:00 PM EST on April 2, 2012. Notably, the CMS Press Release indicates that CMS plans to issue a final rule in 2013.

We have identified below some of the key items addressed in the Proposed Rule on our sister blog, Reed Smith Health Industry Washington Watch, and we will be issuing a more detailed health care client bulletin in the near future.
 

Life Sciences Health Industry China Briefing - December 2011 (January 12, 2012)

This post was written by Jay Yan, Mao Rong, Zack Dong, Gordon Schatz, and Katherine Yang.

Reed Smith’s Life Sciences Health Industry China Briefing provides a summary of the monthly news and legal developments relating to China's Pharmaceutical, Medical Device, and Life Sciences/ Health Care Industries.

Some important developments during December include:

  • SFDA Issues Catalogue of Class II Medical Devices Exempted from Submitting Clinical Trial Materials
  • SFDA Issues Notice Concerning Circulation of Guiding Principles of Phase I Clinical Trial Management of Drugs
  • SFDA Issues Notice on Soliciting Comments on Revisions of the Good Supply Practice for Pharmaceutical Products
  • China Adopts Drug Safety Plan: All Drugs to be Qualified by 2015
  • NDRC Issues Rules on Drug Price Parity to Prevent Disguised Price Hikes
  • Guangdong Issues Drug Price Adjustment Program: 307 Western Drugs’ Price have a 22 percent Reduction in Average
  • Shenzhen Public Hospitals to Revoke Drug Price Addition by the End of 2012

To read the full briefing by Reed Smith China team members, click here.

Health Care Companies Operating in France to be Subject to New Sunshine/Transparency Rules

This post was written by Marina Cousté, Benoît Charot, François Jonquères and Daniel Kadar.

Health care and cosmetic companies operating in France are subject to new transparency requirements, comparable to the U.S. "Sunshine Act," that were adopted in December 2011. As discussed in a recent posting on Reed Smith's Global Regulatory Enforcement Law Blog, in addition to imposing a general disclosure obligation on any company manufacturing or commercializing products with a medical or cosmetic purpose, the new law sets forth new pharmacovigilance requirements and provides more stringent rules concerning the advertisement of drugs and medical and diagnostics devices.
 

Life Sciences Health Industry China Briefing - November 2011 (December 6, 2011)

This post was written by Jay Yan, Mao Rong, Zack Dong, Zhao Hong, Gordon Schatz, Dr. David Kan and Katherine Yang.

Reed Smith’s Life Sciences Health Industry China Briefing provides a summary of the monthly news and legal developments relating to China's Pharmaceutical, Medical Device, and Life Sciences/ Health Care Industries.

Some important developments during November include:

  • Beijing Hospital Requirements: Overuse of Antibiotics
  • SFDA Issues Second Batch of Class II Medical Devices, For Which Distributors Do Not Need to Apply for Medical Devices Distribution License
  • Interim Measures on Appraisal of Traditional Chinese Medicine Hospitals: Request for Comments 
  • Two Pharmaceutical Companies Fined for Monopolizing Compound Reserpine API
  • China to Build ADR Monitoring System
  • NDRC to Investigate Ex-factory Prices of Drugs
  • China Finalizes Healthcare Reform 12th FYP
  • China to Launch Massive Survey on TCM Resources
  • Notice Concerning Circulation of the 12th Five-year Plan of Biotechnology Development

To read the full briefing by Reed Smith China team members, click here.

Life Sciences Health Industry China Briefing

This post was written by Jay Yan, Mao Rong, Zack Dong, Zhao Hong, Gordon Schatz, Dr. David Kan and Katherine Yang.

Reed Smith’s Life Sciences Health Industry China Briefing provides a summary of the monthly news and legal developments relating to China's Pharmaceutical, Medical Device, and Life Sciences/ Health Care Industries.

Some important developments during October include:

  • SFDA Issues 2010 Annual Report on Drug Registration and Approval
  • CCTV to Restrict Advertisement of Alcohol, Medical Institutions
  • MOH Requires Improvement of the Reward and Penalty System for Antibacterial Drug Administration
  • Draft Mental Health Law Submitted to NPC Standing Committee for First Deliberation
  • SFDA: All Drugs on Market to Have E-ID by End of 2015
  • SFDA Releases 3rd Batch of Illegal Drugs, Medical Devices and Health Food Advertisements in 2011
  • SFDA issues Notice on Release and Delivery of GMP Certification Announcement
  • SFDA issues Notice concerning Circulation of the Administrative Measures on Drug Supervision in Medical Institutions
  • Detailed Summary of SFDA 2010 Annual Report on Drug Registration and Approval

To read the full briefing by Reed Smith China team members, click here.

Increased Scrutiny for the 510(k) Process

This post was written by Michelle Lyu Cheng.

On November 14, 2011, the Senate Health, Education, Labor and Pensions Committee held a hearing called "Medical Devices: Protecting Patients and Promoting Innovation." The hearing focused on the continued viability of a medical device clearance process that clears for market medical devices that are "substantially equivalent" devices to previously cleared devices (also known as the "510(k) process," in reference to the statutory provision governing this process). Class III medical devices not cleared through this process must undergo the more rigorous and time-consuming Premarket Approval process. Among the issues considered were whether the 510(k) process sufficiently evaluated the safety of devices when clinical data is not necessarily always considered or part of the submission; whether high-risk medical devices should always be considered for the 510(k) process; the user fees for medical device applications; strengthening post-approval monitoring requirements; and the resources and needs for the FDA and the Center of Devices and Radiological Health (CDRH) in reviewing, clearing and approving medical devices. 

Testifying witnesses before the panel were as follows: Jeffrey Shuren, Director of the CDRH of the Food and Drug Administration; Ralph Hall, Professor of Practice, University of Minnesota, Minneapolis; David R. Challoner, M.D., Vice President (emeritus) of Health Affairs, University of Florida, and Chair, IOM Committee on the Public Health Effectiveness of the FDA 510(k) Clearance Process, Gainesville, Fla.; and Gregory Curfman, M.D., Executive Editor, New England Journal of Medicine, Boston. 

The first discussion panel centered on Dr. Shuren and his work with CDRH. In late 2009, the CDRH initiated a review of the 510(k) process, among others, and in 2010, released two reports concluding that the FDA had not managed its premarket programs sufficiently, with the most dire problem being unpredictability in the 510(k) and other premarket processes. This led to other increases in costs to the industry and delays in bringing innovation to the market. The root causes were determined to be the lack of personnel resources in CDRH, as compared with the center for drugs and biologics, insufficient reviewer training, insufficient managers and frontline reviewers, rapidly growing workload caused by increased complexity of devices and number of admissions, insufficient guidance for FDA, and poorly drafted submissions by the industry. In 2011, Dr. Shuren testified that concrete steps for improving the transparency, predictability and consistency of the premarket programs were outlined and evaluated. The Committee members generally focused on the sufficiency of CDRH/FDA's resources and an increase in review times for both the 510(k) and the Premarket Approval processes. One suggestion from Sen. Harkin (D-Iowa) was that the user fees for these submissions should be increased, although later it was conceded that the optimal solution would be if the FDA was independently funded. 

The second discussion panel with Mr. Hall and Drs. Challoner and Curfman focused on the 510(k) process and the National Academies of Science, Institute of Medicine (IoM) report that heavily criticized the 510(k) process. Mr. Hall started first, outlining that the drug and medical device sectors are very different, including because medical device development is an iterative process that builds upon previously created devices, and clinical testing is not necessarily an optimal or feasible method of measuring safety and effectiveness for medical devices compared with drugs. In response to Sen. Harkin's question about 510(k) devices bearing little resemblance to each of its predicate devices that may compromise patient safety, Mr. Hall noted the FDA has resources and regulatory powers at its disposal to satisfy itself for any issues relating to safety and effectiveness. Mr. Hall also stated in response to Sen. Blumenthal's (D-Conn.) question that post-market surveillance should be improved but that currently, FDA does have controls and regulatory systems in place for monitoring. Mr. Hall also emphasized that the 510(k) process does control for safety and effectiveness.

The discussion with Dr. Challoner primarily focused on IoN's report, as he chaired the committee that drafted it. The IoN report concluded that the 510(k) process generally does not evaluate safety and effectiveness, but only evaluates whether it is substantively equivalent to prior devices previously cleared. He stated that the IoN committee concluded that overhauling the 510(k) process was an optimal scenario, but per Sen. Mikulski's (D-Md.) question, Dr. Challoner stated that he did not expect the 510(k) process be eliminated overnight. He considered the IoN report to be a conversation starter. Dr. Challoner also testified that since the 510(k) process will not be immediately overhauled, it may be necessary to evaluate and strengthen the post-market processes and improve quality control. Dr. Curfman provided testimony similar to Dr. Challoner, namely that post-market surveillance controls would be helpful in monitoring the safety and effectiveness of devices. One potential way of doing so would be to institute a uniform device identification system so that a device can be tracked over its lifetime.

Sen. Harkin, the Committee Chair, concluded that this hearing was helpful in illustrating the need to take a more intense look at the approval process and post-surveillance controls, especially for certain higher-risk devices. While Sen. Harkin conceded that user fees may not be the optimal solution to compensate for the FDA's lack of resources, he did not consider that any changes to this would be feasible in light of the current climate. Based on some of the discussion points raised during this hearing, the 510(k) process and the post-market surveillance requirements may see increased scrutiny.

A link to the videotaped hearing is here.

MMSEA Section 111 Mandatory Insurer Reporting Updates

This post was written by Catherine A. Hurley.

The Centers for Medicare & Medicaid Services (CMS) has recently updated the information on its website with respect to the Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA), Section 111 “Mandatory Insurer Reporting” requirements. The recent updates cover (1) a revised implementation timeline for certain liability insurance (including self-insurance) total payment obligation to claimant settlements, (2) revised guidance on claims involving exposure, ingestion, and implantation issues, (3) upcoming improvements to the Medicare Secondary Payer (MSP) program, (4) a new exception for certain settlements paid into a qualified settlement fund and (5) a new way for certain injured Medicare beneficiaries to satisfy their past and future MSP obligations.

Revised Implementation Dates

First, CMS has delayed Section 111 reporting for certain liability insurance (including self-insurance) total payment obligation to claimant (TPOC) settlements, judgments, awards, or other payments. The revised implementation date for reporting will be based on the TPOC amount. A schedule of the new dates is provided here.

Exposure, Ingestion, and Implantation – Revised Guidance

Second, CMS has posted revised guidance pertaining to liability insurance (including self-insurance) responsible reporting entities (RREs) where the claims involve exposure, ingestion, and implantation issues. In the guidance, CMS explains its policies for claims involving exposure, ingestion, and implantation. Specifically, CMS discusses when Medicare will, and will not, assert a recovery claim against the settlement, judgment, award, or other payment, and when the MMSEA, Section 111 mandatory reporting rules must (or need not) be followed. CMS also provides examples of various factual scenarios involving exposure, ingestion, and implantation, and discusses how its policies will be applied to each. 

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OCR Launches Privacy and Security Audits

This post was written by Brad M. Rostolsky and Nancy E. Bonifant.

To implement the HITECH Act’s mandate for the Office for Civil Rights (OCR) to perform HIPAA audits, OCR has just announced that it is piloting a program to perform up to 150 audits of covered entities to assess privacy and security compliance. Audits conducted during the pilot phase are planned to begin with an initial 20 audits between November 2011 and April 2012. The remaining audits are scheduled to conclude by December 2012. All covered entities and business associates are eligible for audits; however, OCR has indicated that it is focusing on covered entities (range in type and size) in the initial phase. Business associates will be included in future audits.

During the pilot, every audit will include a document production and onsite visit, and will result in an audit report. OCR will notify a selected covered entity in writing and request documentation of the covered entity’s privacy and security compliance efforts. The covered entity must comply within 10 business days. OCR expects to notify selected covered entities between 30 and 90 days prior to the anticipated onsite visit. Onsite visits may take between three and 10 business days, and after fieldwork is completed, the auditor will provide the covered entity with a draft final report. Selected covered entities will then have 10 business days to review and provide written comments back to the auditor. The auditor will complete a final audit report within 30 business days after the covered entity’s response and submit it to OCR.

Should an audit report indicate a serious compliance issue, OCR may initiate a compliance review to address the problem. Significantly, OCR will not post a listing of audited entities or the findings of an individual audit that clearly identifies the audited entity.

A description of the pilot program is available at http://www.hhs.gov/ocr/privacy/hipaa/enforcement/audit/index.html

 

Life Sciences Health Industry China Briefing

This post was written by Jay Yan, Mao Rong, Zack Dong, Zhao Hong, and Gordon Schatz.

Reed Smith’s Life Sciences Health Industry China Briefing provides a summary of the monthly news and legal developments relating to China's Pharmaceutical, Medical Device, and Life Sciences/ Health Care Industries.

Some important developments during September include:

  • SFDA Circulates Guidelines for Monitoring Adverse Events Involving Medical Devices
  • SFDA Issues Letter Soliciting Public Comments on Communication Methods for Responsible Food and Drug Safety
  • Swiss Drugmaker Novartis Expands in China
  • China to Divide Emergency Patients into Four Classes for Medical Treatment
  • China’s Biopharmaceutical Industry to Accelerate Internationalization
  • MOH surveys Clinical Application of Antimicrobials
  • Medtronic Opens Orthopedic R&D Center with Weigao
  • DHL Establishes Second Life Science and Health Care Logistics Center in Beijing

To read the full briefing by Reed Smith China team members, click here.

Transcending the Cloud: A Legal Guide to the Risks and Rewards of Cloud Computing - Health Care in the Cloud

This post was written by Vicky G. Gormanly and Joseph I. Rosenbaum.

The interest level in storing health records in digital format has grown rapidly with the lower cost and greater availability and reliability of interoperable storage mechanisms and devices. Health care providers like hospitals and health systems, physician practices, and health insurance companies are among those most likely to be considering a cloud-based solution for the storage of patient-related health information. While lower cost, ubiquitous 24/7 availability, and reliability are key drivers pushing health care providers and insurers to the cloud, a number of serious legal and regulatory issues should be considered before releasing sensitive patient data into the cloud. The issues are highlighted in the Health Care chapter  of our Cloud Computing White Paper.

Prospects Unclear for CMS/FDA Proposed Parallel Review of Medical Products

This post was written by Susan A. Edwards, Elizabeth B. Carder-Thompson, Gail L. Daubert and Celeste A. Letourneau.

Notably absent from last month’s Department of Health and Human Services Semiannual Regulatory Agenda was any indication of where the Centers for Medicare and Medicaid Services ("CMS") and the Food and Drug Administration ("FDA") stand with respect to their notice with request for comments, issued last fall, on the proposed parallel review process for medical products. While CMS and FDA officials confirmed that they are currently reviewing comments submitted during the review period, they declined to speculate on when they intend to act. The comments submitted, however, provide insight into industry views on this important issue, including widespread discontent with the approval mechanisms currently available. We have undertaken a review of all of the comments submitted and extracted the eight main concerns cited in the following analysis.

CMS Awards "Survey Of Retail Prices" Contract To Myers and Stauffer - Moves One Step Closer To Average Acquisition Cost

On July 8, 2011, Centers for Medicare & Medicaid Services (CMS) announced that it had awarded Myers and Stauffer, LC a contract to prepare a monthly survey of retail community pharmacy ("RCP") prescription drug prices. The contract is in furtherance of CMS’s commitment to develop and publish “Average Acquisition Cost” ("AAC") data reflecting RCPs’ purchase costs for all covered outpatient drugs, for potential use by State Medicaid agencies in rate-setting. The details regarding how AAC will be collected, calculated and reported could be significant for pharmacies, manufacturers and other industry participants. 

To learn more about this development regarding AAC, please see the full post written by Bob Hill, Joe Metro, Dan Cody, Vicky Gormanly on Reed Smith's Health Industry Washington Watch.
 

Life Sciences Health Industry China Briefing

This post was written by Jay Yan, Mao Rong, Gordon Schatz and Abraham Sorock.

Reed Smith’s Life Sciences Health Industry China Briefing provides a summary of the monthly news and legal developments relating to China's Pharmaceutical, Food & Health Care Industries.
Some important developments during June include:

  • Chinese drug company to build production and training center in U.S.
  • Drug company challenged for environmental contamination in China
  • China's national biomedical plan to be released soon
  • Issuance of administrative measures for device recalls
  • Designation of four professional associations to examine Class III medical technology
  • Extension of Drug GMP certificates
  • Recall of an antibiotic

To read the full briefing by Reed Smith China team members, click here.

Senate Finance Committee Report Inquires into Physician-Owned Distributors

This post was written by Joseph W. Metro, Gina M. Cavalier and Jouya Rastegar.

On June 9, 2011, Senator Orrin Hatch released a report by the Senate Finance Committee Minority Staff that outlines key concerns about Physician-Owned Distributors (“PODs”), specifically regarding the lack of regulatory oversight and clear guidance from the Department of Health and Human Services Office of Inspector General (“OIG”). The Committee Minority’s report, Physician Owned Distributors (PODs): An Overview of Key Issues and Potential Areas for Congressional Oversight, set forth findings of committee staff who spoke to over fifty people and reviewed thousands of pages of documents. In addition to the report, the Chairman and Ranking Members of the Senate Financial Committee, Special Committee on Aging, and Judiciary Committee sent letters on the same day to the Administrator for Centers for Medicare & Medicaid Services (“CMS”)and the Inspector General of Health and Human Services (“HHS”) requesting further inquiry into the concerns set out in the Senator Hatch’s report.

The crux of the Committee’s concern with PODs is the potential for fraud and abuse the Committee believes to be inherently found in PODs. Historically, implantable medical devices (these are what the report focuses on) have been sold to hospitals and surgery centers directly from the device manufacturers or through independent distributors. More recently, PODs have come into existence to buy the devices from manufacturers and sell them to hospitals or surgery centers. PODs are mostly comprised of small groups of physicians who create companies to distribute, and in some cases manufacture, medical devices for implantation in surgeries. The large majority of products sold by PODs are sold to hospitals where their own physician investors practice. This is where the concern stems from—physicians’ potential ability to profit through distribution markups on products they are selling through the PODs in which they are owners or investors, particularly where the PODs likewise solicit discounts from manufacturers based on preferred positioning or other “captive” volume.

The report: (1) explains the history of PODs and their business models; (2) describes the concerns for fraud and abuse; (3) highlights the regulatory environment in which they exist; and (4) concludes by outlining what the should happen to address concerns. The nature of PODs creates financial incentives for physician owners to use devices that yield personal financial return, which may implicate the federal anti-kickback statute’s prohibition on inducements to purchase or order items covered under federal health care programs. The report listed anecdotal and evidence-based reasons for concern, such as instances of surgeons performing eight to ten procedures on elderly patients despite the serious health risks, stories of surgeons redoing previous surgeries to use their own POD products, an analysis from the Quality Implant Coalition, a coalition of manufacturers of implantable medical devices, which showed claims data from one hospital indicating a 300 percent increase in spinal fusion surgery after a spinal product POD moved into the hospital’s area, and an April 2010 Journal of the American Medical Association study that found a fifteen-fold increase in the number of spinal fusion surgeries for Medicare patients from 2002-2007, the period during which PODs became a more prevalent business model. On the other hand, the report mentioned a paper written by a POD, which was presented at the American Association of Orthopedic Surgeons 2009 annual meeting, in which the POD asserted that its business model helped saved the hospital with which it was affiliated thirty-four percent over a two year-period—a total savings of over one million dollars.

The legal implications of the business of PODs have not been entirely clear because the regulatory environment in which they find themselves is murky. As highlighted in the Senate Finance Committee report, the OIG issued written guidance on the issue of PODs and expressed the need to carefully review and closely scrutinize these entities under fraud and abuse laws and its Special Fraud Alert relating to joint venture arrangements. Similarly, CMS has declined to regulate PODs under the Stark law. However, the Senate Finance Committee report indicated that there has been a lack of any recent or more specific guidance on this topic. Further the report noted that POD arrangements might implicate the Sunshine Act’s reporting requirements relating to manufacturer financial arrangements with physicians, for which HHS has not yet issued guidance.

The report, as well as the letters to the HHS Inspector General and CMS Administrator, call for several measures to address concerns: (1) further inquiring into and closely examining PODs and their current structures and activities; (2) providing additional regulatory guidance from OIG and/or Congress; (3) including the distribution model of PODs into CMS’ final definition of “applicable manufacturers,” in order to require PODs to fall under the Sunshine Act financial reporting requirements; (4) accounting for the POD business model when CMS promulgates the final Accountable Care Organization regulation to protect against abuses posed by PODs; and (5) developing recommendations for further actions.
 

California Awaits Supreme Court Decision About Whether Personal Injury Plaintiffs Can Recover The Face Amount Of Their Medical Bills, Or Only The Lesser Amount Negotiated By Their Health Insurer

This post was written by Farah Tabibkhoei.

The California Supreme Court soon will render its long-awaited decision in Howell v. Hamilton Meats & Provisions, Inc., No. S179115 (review granted March 10, 2010) and declare whether personal injury plaintiffs can recover the full amount of their medical bills versus the lesser amount actually paid by insurers. The Howell decision has garnered national attention as has the potential to dramatically affect personal injury litigants, the insurance industry, large corporations, and consumers.

Howell arose out an automobile collision between the driver of a Hamilton Meats & Provisions truck and motorist Rebecca Howell. A jury awarded Howell the full $130,000 face amount of her medical bills, but the trial court reduced the award to $60,000, the amount actually paid by Howell’s private health insurance. The Fourth District, Division 1 reversed, holding that pursuant to the collateral source rule, Howell was entitled to recover the full amount of her past medical expenses as billed. See Howell v. Hamilton Meats & Provisions, Inc., 179 Cal. App. 4th 686 (2009).

Prior to Howell, California courts traditionally limited personal injury recoveries to the amount actually paid for medical care – not the amount initially billed. For example, in Hanif v. Housing Authority, 200 Cal. App. 3d 635 (1988), the Third District limited recovery to the amount Medi-Cal paid for medical care, even though the reasonable value of the services plaintiff received turned out to be greater and had simply been written off by the hospital. And three years later, in Nishihama v. City and County of San Francisco, 93 Cal. App. 4th 298 (2001), the First District followed Hanif and limited plaintiff’s damages to the amount the insurer contracted to pay instead of damages based on the medical center’s customary rate.

In Howell, however, the court approved an award based on the full amount of the plaintiff’s medical bills rather than what insurance had paid, and thus created a conflict ripe for resolution by the California Supreme Court. Howell first distinguished Hanif on the basis that the plaintiff in Hanif was a minor who had not assumed any personal liability for his medical expenses, and had Medi-Cal insurance, as opposed to private health insurance. The plaintiff in Howell, by contrast, had incurred “pecuniary detriment” by executing financial responsibility agreements with her healthcare providers pursuant to which she became contractually obligated to pay for the costs of the medical care provided to her (notwithstanding that her medical providers later extinguished a portion of her medical bills by agreeing to accept the insurer’s payment of part of the bills as payment in full). The court also distinguished Nishihama, which did involve private health insurance, on the basis that it was decided based on plaintiff’s statutory lien rights as opposed to the collateral source rule.

Depending on which way the California Supreme Court rules, successful plaintiffs stand to lose out on substantial sums of money depending on how skilled their insurers are when they negotiate reimbursement rates with hospitals or other medical providers, and there are arguments on both sides of the issue.

Denying plaintiffs the monetary benefits of having insurance seemingly violates the public policy behind the collateral source rule, which is that injured plaintiffs should recover their medical care costs on an objective basis, determined by the reasonable value of services – usually, the amount that was billed. Otherwise, where two injured plaintiffs each break a hip and are billed $16,000 for the repair, the plaintiff without insurance would be eligible to recover $16,000 while the insured plaintiff’s recovery would be limited to the lesser amount actually paid by the insurance company, thus punishing those who had the foresight to protect themselves by buying insurance.

On the other hand, injured plaintiffs should be made whole, not given a windfall. To the extent medical providers agree to accept less than the amount billed, awarding injured plaintiffs the full amount of their medical bills gives them a windfall at the expense of defendants. Moreover, for insured plaintiffs who pay nothing out-of-pocket for medical care, limiting their recovery to amounts paid by their insurers arguably will not put them in any worse position financially.

Should the California Supreme Court rule that injured plaintiffs are entitled to recover the full billed amount of medical care costs, the prospect of higher jury awards may trigger the filing of more personal injury lawsuits – something unlikely to benefit California businesses. It also may leave defendants with less leverage in settlement negotiations with personal injury plaintiffs. For now, all eyes are on the Supreme Court pending its decision in Howell.

HHS Issues Notice of Proposed Rulemaking Regarding the HIPAA Privacy Rules Standard for Accounting of Disclosures Requirements and Access Report

This post was written by Gina M. Cavalier and Brad M. Rostolsky.

Today the Department of Health and Human Services (HHS) issued a Notice of Proposed Rulemaking implementing provisions of the HITECH Act related to accounting for disclosures of protected health information (PHI). Pursuant to the HITECH Act and its more general authority under HIPAA, HHS proposed to divide the Privacy Rule provisions related to an accounting into two separate individual rights: (1) an accounting and, (2) an access report.

With respect to an accounting, HHS proposes that individuals have a right to an accounting of disclosures of PHI in a designated record set made by a covered entity or a business associate: (i) for impermissible purposes, (ii) for public health activities, (iii) for judicial and administrative proceedings, (iv) for law enforcement purposes, (v) to avert a serious threat to health or safety, (vi) for military and veterans activities, and (vii) for workers compensation. The proposed compliance date for this provision is 180 days after the effective date of the final rule.

With respect to the access report, HHS proposes to provide individuals with the right to receive a report detailing who has accessed their electronic PHI in a designated record set maintained by a covered entity or its business associates. HHS proposes that covered entities and business associates provide individuals with a right to an access report beginning January 1, 2013, for electronic designated record set systems acquired after January 1, 2009, and beginning January 1, 2014 for electronic designated record set systems acquired as of January 1, 2009.

The proposed rule is posted here.

Comments are due in 60 days - August 1, 2011.

HHS Issues Notice of Proposed Rulemaking Regarding the HIPAA Privacy Rules Standard for Accounting of Disclosures Requirements

This post was written by Gina M. Cavalier, Vicky G. Gormanly and Brad M. Rostolsky.

Pursuant to the HITECH Act, covered entities and business associates must account for disclosures of PHI for treatment, payment and health care operations if the disclosures are through an electronic health record. This represents a significant change to the requirements under the current HIPAA Privacy Rule. The Department of Health and Human Services (HHS) will shortly publish a notice of proposed rulemaking to modify the Privacy Rule’s standard for accounting of disclosures of protected health information. An advance copy of the proposed rule is available here.

HHS proposes to expand the accounting requirements of the Privacy Rule to provide individuals with the right to receive an access report detailing who has accessed their electronic PHI in a designated record set. Accordingly, HHS proposes to revise an individual’s right to an accounting under the Privacy Rule by separately setting forth an individual’s right to (a) an accounting of disclosures and (2) an access report. HHS has also proposed other changes designed to improve the workability and effectiveness of the existing accounting of disclosures requirements.

 

Comments are due 60 days after the proposed rule is published in the Federal Register.

 

More to come...

HRSA Publishes Proposed Rule Regarding the Exclusion of Orphan Drugs for Certain 340B Covered Entities

This post was written by Joseph W. Metro and Vicky G. Gormanly.

On May 19, 2011, the Health Resources and Services Administration (“HRSA”) released a proposed rule concerning the exclusion of orphan drugs for certain covered entities under the 340B Program. The 340B Program, enacted pursuant to the Veterans Health Care Act of 1992 (“VHCA”), limits the prices that participating manufacturers may charge for outpatient drugs purchased by certain “covered entities” that act as “safety net” providers of services to low-income individuals.

Health care reform included significant changes for the 340B program, including expanding the types of covered entities eligible to participate in the Program. New classes of covered entities include certain freestanding cancer hospitals, rural referral centers, sole community hospitals, critical access hospitals, and children’s hospitals. However, under the amendments, 340B prices are not available for “orphan drugs” purchased by freestanding cancer hospitals, rural referral centers, sole community hospitals and critical access hospitals. This limitation applies to protect financial incentives for manufacturers to bring to market such drugs.

Under the proposed rule, however, such covered entities may in fact purchase orphan drugs at the 340B price so long as the drug is not transferred, prescribed, sold, or otherwise used for the rare condition or disease for which the orphan drug was designated. In other words, covered entities can purchase the drugs for approved non-orphan uses, as well as potentially unapproved, off-label uses. This proposal potentially “guts” the ineligibility provisions of the statute, as the rule provides no guidance as to how manufacturers can determine what indications (or non-indicated off-label uses) their orphan drugs are used for, and emphasizes that manufacturers may not condition the offer of 340B pricing upon an entity’s assurance that the drug will be used for its orphan indication.

The proposed rule is also somewhat unusual in its specificity, in that HRSA has not previously issue a rule that more generally governs the 340B program. Thus, manufacturers may wish to consider whether it is appropriate to comment on some of the general defined terms (e.g., “covered entity,” “covered outpatient drug”) contained in the proposed rule.

The proposed rule may be viewed here.  Comments are due July 19, 2011.
 

CMS' Oversight of Security Rule "Not Sufficient" According to the OIG

This post was written by Gina M. Cavalier, Vicky G. Gormanly and Brad M. Rostolsky.

On May 16, 2011, the Office of Inspector General (“OIG”) published a report with the results from its nationwide review of the Centers for Medicare and Medicaid Services (“CMS’”) oversight of the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”). In its review, the OIG sought to determine the sufficiency of CMS’ oversight and enforcement actions pertaining to hospitals’ implementation of the HIPAA Security Rule. Pursuant to the Security Rule, covered entities, such as hospitals, must implement technical, physical, and administrative safeguards for the protection of electronic protected health information (“ePHI”). According to the OIG, CMS’ oversight and enforcement actions were “not sufficient,” leaving limited assurance of the security of hospitals’ ePHI.

The report details the results from the OIG’s audits of seven hospitals. The audits disclosed “numerous internal control weaknesses.” Specifically, the OIG identified 151 vulnerabilities in the systems and controls intended to protect ePHI. Of these vulnerabilities, 124 were categorized as “high impact.” These vulnerabilities placed the confidentiality, integrity, and availability of ePHI at risk. The consequences of the high impact vulnerabilities is that it (1) may result in the highly costly loss of major tangible assets or resources; (2) may significantly violate, harm, or impede an organization’s mission, reputation, or interest; or (3) may result in human death or serious injury. 

IRS Issues Guidance on the Dispute Resolution Process for the Preliminary Fee Calculation of the 2011 Fee Imposed on Manufacturers and Importers of Branded Prescription Drugs

This post was written by Ruth N. Holzman, Angelo Ciavarella and Joseph W. Metro.

On May 2, 2011, the Internal Revenue Service (the "IRS") issued Revenue Procedure 2011-24 (the "Revenue Procedure"), which establishes a dispute resolution process for the preliminary fee calculation for the 2011 fee imposed on certain manufacturers and importers of branded prescription drugs pursuant to the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the "ACA"). As further explained below, in order to participate in the dispute resolution process, a "covered entity" must submit a written error report to the IRS that is postmarked no later than June 1, 2011.

This Tax Alert provides background on the annual fee and a summary of the dispute resolution process established by the Revenue Procedure.

Three Years Later, FDA Finalizes Medical Device Data Systems Rule

This post was written by Catherine A. Hurley and Areta L. Kupchyk.

On February 15, 2011, the Food and Drug Administration (“FDA”) published a final rule reclassifying Medical Device Data Systems (“MDDS”) as Class I medical devices exempt from 510(k) premarket notification requirements. FDA defined MDDS as medical devices that are intended to transfer, store, convert from one format to another according to preset specifications, or display “medical device data.” FDA explicitly excluded electronic health record (“EHR”) and computerized physician order entry (“CPOE”) systems from the MDDS Final Rule. Because MDDS do not “provide new or unique algorithms or functions,” FDA concluded that general controls, such as the Quality System Regulations are sufficient to mitigate any risks associated with MDDS.

The final MDDS rule will become effective April 18, 2011. By May 18, 2011, all manufacturers of MDDS must register their establishments and list their MDDS products with FDA. No later than April 18, 2012, all manufacturers of MDDS must develop and implement procedures to ensure compliance with the QSRs and the Medical Device Reporting requirements. FDA does not intend to enforce design control requirements retroactively to any currently marketed device that is classified as “MDDS” under the final rule. However, FDA stated that it will enforce design control requirements for design changes made after the April 18, 2011 effective date to currently-marketed MDDS.

For more information, read our full alert.

New Jersey Seeks General Assistance Rebate Payments From Non-Participating Pharmaceutical Manufacturers

This post was written by Joseph W. Metro and  David E. Dopf .

The New Jersey Department of Human Services (“Department”) has sent letters to numerous pharmaceutical manufacturers demanding rebate payments under the Work First New Jersey General Public Assistance/Medicare Part D Wraparound Drug Rebate Program (“GA Rebate Program”). The Department is seeking to collect payments from manufacturers that have chosen not to participate in the GA Rebate Program and thus never entered into a GA Rebate Program agreement with the Department (“Rebate Agreement”). In addition, for some manufacturers that have entered into Rebate Agreements, the Department is now seeking payments for time periods prior to the effective dates of those Rebate Agreements.

The Department’s demand letters have uniformly provided the manufacturers with the option of requesting, within twenty (20) days from their receipt of the letter, either a pre-hearing conference for purposes of trying to resolve the payment dispute or a formal hearing before the New Jersey Office of Administrative Law (“OAL”). Manufacturers choosing to pursue a pre-hearing conference can still request a hearing before the OAL within twenty (20) days from the date of the pre-hearing conference if the dispute is not resolved.

We believe there are very strong arguments in support of the position that a manufacturer cannot be liable for payments under the GA Rebate Program in the absence of a Rebate Agreement covering the time period for which the payments relate. Please contact Joe Metro or David Dopf if you have any questions regarding the Department’s actions or would like assistance challenging the Department’s demand for payment.
 

Pharmaceutical Executives and In-House Counsel Beware: U.S. District Court Affirms Exclusion of Former Purdue Executives Under "Responsible Corporate Officer" Doctrine

This post was written by Elizabeth B. Carder-Thompson and Katie C. Pawlitz.

On December 13, 2010, the United States District Court for the District of Columbia affirmed the decision of Kathleen Sebelius, Secretary of the Department of Health and Human Services (the “Secretary”) excluding three former pharmaceutical executives for twelve years from participation in Medicare, Medicaid, and all other federal health care programs. The exclusion – the latest weapon in governmental assaults on pharmaceutical company wrongdoing – was imposed by the Office of Inspector General of the Department of Health and Human Services (“OIG”). The executives, who included the company’s former general counsel, were excluded notwithstanding the fact that they asserted no knowledge of the misbranding conduct for which their former employer, Purdue Frederick Company (“Purdue”), previously settled with the government.

The decision illustrates the government’s enhanced focus on individual liability and punishment in the context of fraud and abuse by health care entities, and it represents a significant development in enforcement activity in this area.

Now more than ever, we urge our health care clients – providers, suppliers, and manufacturers alike – to consider the potential impact of the OIG’s permissive exclusion authority when defending against allegations of fraud or abuse involving federal health care programs. To read our full alert, summarizing the court’s opinion and related background, click here.

Medicare Secondary Payer (MSP) Mandatory Insurer Reporting: MMSEA section 111--Delay Announced for Liability Insurance (Including Self Insurance) Mandatory Reporters

This post was written by Carol C. Loepere and Catherine A. Hurley.

In an “Alert” dated November 9, 2010, the Centers for Medicare and Medicaid Services (CMS) has published a revised implementation timeline applicable to liability insurance (including self-insurance) “responsible reporting entities” (RREs) under Section 111 of the Medicare, Medicaid and SCHIP Extension Action of 2007 (MMSEA). Specifically, the obligation to report “total payment obligation to claimant” (TPOC) amounts subject to the reporting requirement has been extended from the first calendar quarter of 2011 to the first calendar quarter of 2012. Moreover, under the revised implementation timeline, only TPOC amounts established on or after October 1, 2011 (instead of October 1, 2010) must be reported. Earlier reporting (i.e., reporting prior to the first calendar quarter of 2012), and reporting of TPOC amounts established prior to October 1, 2011 is now optional. CMS has also delayed the staggered phase-out of its interim threshold dollar amounts for TPOC amounts that liability insurance (including self-insurance) and workers’ compensation RREs must report by one year. 

Mandatory reporting of ongoing responsibility for medicals (ORM) by liability insurance (including self-insurance) RREs has not been delayed. Similarly, mandatory reporting by other types of RREs (such as group health plans, no-fault insurance, and workers’ compensation) has not been delayed. Finally, this implementation delay does not affect liability insurance (including self insurance) RREs’ status as “primary payers” under section 1862(b) of the Social Security Act.

According to CMS, this Alert will be incorporated into a forthcoming revision to CMS’s MMSEA Section 111 Medicare Secondary Payer Mandatory Reporting “User Guide” for Liability Insurance (Including Self-Insurance), No-Fault Insurance, and Workers’ Compensation. 

New Guidance on the OIG's Ability To Exclude Owners, Officers and Managing Employees; Related FDA Statements on Pharmaceutical Executives

This post was written by Elizabeth B. Carder-Thompson, Jennifer A. Goldstein, Thomas W. Greeson, Laura A. Mastrangelo, Katie C. Pawlitz, and Paul W. Pitts.

On October 20, 2010, the Office of Inspector General (OIG) of the Department of Health and Human Services issued significant new guidance for implementing its permissive exclusion authority under section 1128(b)(15) of the Social Security Act. Section 1128(b)(15) specifically authorizes the OIG to exclude an owner, officer or managing employee of a sanctioned entity, i.e., health care provider, supplier, or manufacturer, from participation in federal health care programs. The OIG’s new guidance sets out non-binding factors that the OIG intends to consider in deciding whether to impose exclusion on owners, officers and managing employees.

In addition, there have been recent statements by officials of the Food & Drug Administration concerning the bringing of misdemeanor charges against executives of entities that promote off-label uses of their products. Taken together, these OIG and FDA developments clearly signal that increasing investigative and enforcement activity is forthcoming regarding the owners, officers and managing employees of providers, suppliers, and manufacturers alike.

For a more detailed summary of the OIG’s new guidance and the need to take proactive measures against potential abuses and misconduct, read our full alert.

Final HITECH Privacy and Security Rule Expected Soon

According to a senior health information technology and privacy specialist at HHS Office for Civil Right (OCR), regulations finalizing the July 14, 2010, proposed rule implementing many of the HITECH Act's privacy, security, and enforcement requirements could be published by the end of 2010 or in early 2011.   Additionally, OCR, developing a HITECH Act required "periodic audit" plan, which will be targeted to ensure that covered entities and business associates comply with the requirements of  the Privacy and Security Rules. 

We'll keep you posted as things progress . . .

Stark Law Developments Will Challenge Health Care Attorneys

Despite the many years since enactment, counseling health care clients on the broad and complex federal physician self-referral law, commonly called the Stark Law, will become increasingly difficult. Although originally enacted in 1989 to create "bright line" to demark improper physician self-referred laboratory services, and expanded in 1993 to cover a wide range of "designated health services" reimbursable under Medicare, the contours of the Stark Law continue to evolve and new uncertainties emerge.

The significant damages that can result from a Stark Law violation — most particularly the prospect under the False Claims Act for recovery of three times the Medicare reimbursement paid as a result of a prohibited referral — has caused the Stark Law to attract increasing attention from U.S. Attorneys offices and the private qui tam relator bar.

In his article "Stark Law Developments Will Challenge Health Care Attorneys," published in The Legal Intelligencer, Reed Smith Partner Karl Thallner discusses recent developments demonstrating the difficulties in counseling health care clients on the application of the Stark Law, as well as with selecting a course of action when a Stark Law violation has been discovered.

CMS Proposes Broad Expansion of Medicare/Medicaid/CHIP Provider and Supplier Screening Requirements Under Affordable Care Act Authority

This post was written by Daniel A. Cody, Scot T. Hasselman, Carol C. Loepere and Debra A. McCurdy.

On September 23, 2010, the Centers for Medicare & Medicaid Services (CMS) published a proposed rule that would implement provisions of the Affordable Care Act (ACA) designed to strengthen provider and supplier screening requirements under the Medicare, Medicaid, and Children’s Health Insurance Program (CHIP). According to CMS, the Proposed Rule is intended to ensure "that only legitimate providers and suppliers are enrolled in Medicare, Medicaid, and CHIP, and that only legitimate claims will be paid."

Among many other things, the Proposed Rule would: apply screening tools, including unannounced site visits, background checks, and fingerprinting, based on the level of risk associated with different provider and supplier types; impose a $500 application fee on certain providers and suppliers; authorize temporary moratoria on enrollment of certain types of new providers and suppliers; require Medicare and Medicaid payments to be suspended upon credible allegations of fraud; and update various Medicaid screening requirements. Comments on the proposed rule will be accepted until November 16, 2010.

Our full alert provides an analysis of the proposed rule.

FDA to Hold Public Meeting on ACA Biosimilars Pathway - November 2-3, 2010

Today the FDA published a notice announcing public hearings on November 2 and 3, 2010 on implementation of the Biologics Price Competition and Innovation Act of 2009 (BPCI Act), which was enacted as part of the Affordable Care Act (ACA). The BPCI Act establishes an abbreviated approval pathway for biological products that are demonstrated to be “highly similar” (biosimilar) to, or “interchangeable” with, an FDA-licensed biological product. The notice outlines many implementation issues on which the agency seeks stakeholder feedback. In particular, the FDA raises a series of questions in the following areas: scientific and technical factors related to a determination of biosimilarity or interchangeability; the type of information that may be used to support a determination of biosimilarity or interchangeability; development of a framework for optimal pharmacovigilance for biosimilar and interchangeable biological products; scope of the revised definition of a “biological product”; priorities for guidance development; scientific and technical factors related to reference product exclusivity; scientific and technical factors that may inform the agency’s interpretation of “product class” as it relates to available regulatory pathways for certain protein products during the 10-year transition period following enactment of the BPCI Act; and the establishment of a user fee program for biosimilar and interchangeable biological products (the FDA seeks information about particular companies and trade associations that would be potential participants in any negotiations regarding user fee programs for biosimilars). Attendance will be on a first come-first served basis, although the meeting also will be webcast. Individuals who wish to present at the public hearing must register by October 11. Electronic or written comments also will be accepted until December 31, 2010.

CMS Proposes Withdrawal of AMP Regulations

On September 3, 2010, the Centers for Medicare & Medicaid Services (“CMS”) published a Proposed Rule withdrawing certain provisions of the July 17, 2007 AMP Final Rule, and withdrawing the October 7, 2008 Final Rule defining “Multiple Source Drug.” Specifically, the rule proposes to withdraw 42 C.F.R. § 447.504, “Determination of AMP,” § 447.514, “Upper limits for multiple source drugs,” and the definition of “Multiple Source Drug” in § 447.502. Conforming amendments are also proposed to other sections of the AMP Final Rule, generally by replacing references to the regulatory definition of AMP which is being deleted, with references to the statutory definition of AMP. As the rule explains, the withdrawal is being proposed in light of retail pharmacies’ legal challenges to the definition of AMP and the multiple source drug provisions, and the passage of health care reform amendments which have effectively superseded the AMP provisions. 

In the absence of regulatory guidance governing the AMP calculation, CMS advises pharmaceutical manufacturers to base their AMP calculations on the definitions set forth in the statute, as amended by the Patient Protection & Affordable Care Act, the Health Care and Education Reconciliation Act, and the FAA Air Transportation Modernization & Safety Improvement Act (“Transportation Bill”). This presents challenges to manufacturers as they prepare to submit their monthly AMP pricing for October 2010 – the first submission based on the new legislation. The proposed rule notes that CMS expects to develop implementing regulations, but it is unclear whether manufacturers will receive guidance in time for the October submission, which is due on November 30, 2010.

Manufacturers modifying their AMP calculations would be prudent to carefully review the statute as amended, and document their assumptions accordingly. Particular attention should be paid to the “alternate calculation” for “inhalation, infusion, instilled, implanted, and injectable” drugs that are, “not generally dispensed through a retail community pharmacy.”

Comments must be received by CMS no later than 5 p.m., on October 4, 2010. Please contact Vicky G. Gormanly, Joseph W. Metro or Robert J. Hill if you would like further information regarding this Proposed Rule.

New UK Government Announces Major Healthcare Reforms

This post was written by Edward S. Miller, Eugene Tillman, Cynthia O'Donoghue and Leon Stephenson.

The new UK Coalition Government has released its much publicized White Paper "Equity and excellence: Liberating the NHS", outlining far reaching proposals to reform the health care system in the UK over the next four years.

With further consultations, reports and primary legislation promised and set out step by step in a formal structural reform plan, the detail of the proposals is currently very high level. The stated objectives are ambitious and if instituted will have a far reaching effect on both the way the British public access the health system and the role of the private sector in UK health care, increasing opportunities for involvement of private providers of both clinical and support services in the provision of health care to NHS patients.

To read the full alert, click here.

Pennsylvania Assisted Living Residences Final Regulations

This post was written by Karl A. Thallner and Amie E. Schaadt.

On July 17, 2010, the Pennsylvania Department of Public Welfare (DPW) published its final regulations for assisted living residences (ALRs) operating within the Commonwealth  40 Pa.B. 4073. The final-form regulations were drafted to fulfill the statutory requirements of Act 56, which was enacted by the Pennsylvania General Assembly on July 25, 2007 and amended the statute regulating and licensing personal care homes by creating, defining and providing for the licensing and regulation of ALRs.

DPW had published proposed ALR regulations on August 9, 2008. While much has remained the same, Act 56 and the final regulations for ALRs represent a significant change in the manner in which the Commonwealth views the continuum of care for seniors and individuals with chronic disabilities.  The final ALR regulations incorporate some significant changes from the proposed regulation and ALRs will need to comply with DPW’s new regulatory requirements.

To learn about the important differences between the proposed and final regulations, read our full alert.

New HITECH/HIPAA Proposed Rule Released Today

HHS has just released its proposed rule modifying the HIPAA Privacy, Security, and Enforcement Rules to implement the privacy, security, and certain enforcement provisions of subtitle D of the Health Information Technology for Economic and Clinical Health Act (Title XIII of the American Recovery and Reinvestment Act of 2009).  The advance version of the rule can be accessed here; the official version will be published July 14.  A press release should be available later this morning.

Pursuant to the announcement of the proposed rulemaking on the HHS Privacy website, the proposed modifications to the HIPAA Rules include provisions extending the applicability of certain of the Privacy and Security Rules’ requirements to the business associates of covered entities, establishing new limitations on the use and disclosure of protected health information for marketing and fundraising purposes, prohibiting the sale of protected health information, and expanding individuals’ rights to access their information and to obtain restrictions on certain disclosures of protected health information to health plans. In addition, the proposed rule adopts provisions designed to strengthen and expand HIPAA’s enforcement provisions.

Importantly, HHS has stated that the new HIPAA regulations will not be enforced until 180 days after the final rule has become effective. Comments will be due on or about September 13, 2010.

More to come . . . 

Reed Smith Health Care Reform Review: The Affordable Care Act - Analysis and Implications for DMEPOS Suppliers

This post was written by Debra A. McCurdy

In April 2010, Reed Smith provided an extensive analysis of the recently-enacted health reform legislation, H.R. 3590, the Patient Protection and Affordable Care Act (PPACA), as amended by H.R. 4872, the Health Care and Education Reconciliation Act of 2010 (Reconciliation Act).  In this analysis, we concentrate on those provisions in the new law that will affect suppliers and manufacturers of durable medical equipment (DME), prosthetics, orthotics, and supplies (DMEPOS).

To read the full alert, click here.

VA Seeks to Regulate Promotional Activities by Pharmaceutical Sales Representatives

This post was written by Lorraine Campos and Joelle Laszlo.

The Department of Veterans Affairs ("VA") has issued a Notice of Proposed Rulemaking on pharmaceutical sales representatives' access to and activities in VA medical facilities.  Drug and Drug-Related Supply Promotion by Pharmaceutical Company Sales Representatives at VA Facilities, 75 Fed. Reg. 24,510 (May 5, 2010).

The proposed rule is designed to "reduce or eliminate any potential for disruption in the patient care environment, manage activities and promotions at VA facilities, and provide sales representatives with a consistent standard of permissible business activities at VA facilities."  One way the proposed rule endeavors to meet those aims is by requiring that any drug or drug-related promotion at a VA medical facility (broadly defined to include any VA-run source of medical services or benefits) is consistent with the published "criteria-for-use" of the subject drug or drug-related supply, which itself must not have been classified as "non-promotable."  The proposed rule also requires: (1) that any corporate-furnished educational program or materials be approved in advance by the target VA facility's Chief of Pharmacy (or equivalent official); (2) that sales representatives make appointments in advance of VA facility visits; and (3) that gifts (of anything but drugs and food) and donations of drugs and drug-related supplies comply with current restrictions, and, with respect to the latter, be approved for acceptance and subject to proper storage, documentation, and dispensing.  Potential penalties for non-compliance will include limitations on VA facility access, though the VA notes that since most sales representatives are generally well-behaved, it "do[es] not envision that the proposed paragraph [on penalties for non-compliance] will be invoked with regularity." 

The VA asserts that the proposed rule will largely formalize what are currently informal practices and therefore, if anything, the rule will make it easier for pharmaceutical representatives to act, knowing that they will not be subject to some unwritten code.  This may be true insofar in many respects.  But the proposed rule's pre-approval requirements for “educational programs and materials,” may create confusion. For example, it is unclear whether the VA would (or could) apply the VA’s distinction between promotional programs and “educational” (non-promotional) programs. Moreover, the requirement for prior content approval might create FDA compliance concerns or even raise First Amendment issues. 

Comments on the proposed rule must be received by the VA on or before July 6, 2010.  Click here to read the full text of the notice.

FDA Launches "Bad Ad Program" to Help Health Care Providers Detect, Report Misleading Drug Ads

This post was written by Areta Kupchyk and Kevin Madagan.

On May 11, 2010, the U.S. Food and Drug Administration (FDA) launched a new initiative – the “Bad Ad Program” – designed to educate health care practitioners about their role in ensuring that prescription drug advertising and promotion is truthful, and not misleading. With the launch of this program, FDA, through the Division of Drug Marketing, Advertising, and Communications (DDMAC), a division within FDA’s Center for Drug Evaluation and Research, is now actively seeking to “collaborate with health care professionals” to increase the effectiveness of the agency’s marketing and advertising surveillance program. DDMAC is responsible for assuring prescription drug information is truthful, balanced, and accurately communicated, and guarding against false and misleading advertising and promotion through comprehensive surveillance, enforcement, and educational programs.

FDA introduced the Bad Ad Program through a dedicated website, an educational brochure for practitioners (Truthful Prescription Drug Advertising and Promotion: The Prescriber’s Role), and a letter from FDA Commissioner, Dr. Margaret Hamburg, introducing practitioners to the program.

“I am asking you to help FDA in our efforts to stop misleading prescription drug promotion,” states the Commissioner in her letter. “The Bad Ad Program can only succeed with your collaboration. Your help in this effort will be most beneficial to FDA in helping to ensure that prescription drug promotional information is accurately communicated to the medical community.” 

The Bad Ad Program website encourages health care practitioners to “play an important role” for FDA by “recognizing and reporting” misleading advertising and promotion. FDA wants practitioners to be “aware of the many advertisements and promotions that [they] see every day,” and help FDA stop violations by “reporting activities and messages” that may be false or misleading. 

The Bad Ad Program will be rolled out in three phases. In Phase 1, DDMAC will engage health care practitioners at specifically-selected medical conventions in 2010 and partner with specific medical societies to distribute educational materials. At these conferences, DDMAC reviewers will be speaking with practitioners regarding how to recognize misleading prescription drug promotion and how to report any potential violations to FDA. Phases 2 and 3 will expand the FDA’s collaborative efforts and update the educational materials developed for Phase 1. 

Caution Lights Ahead for Pharmaceutical Settlements? Impact of Medicaid Exclusion Provisions of PPACA

This post was written by Elizabeth B. Carder-ThompsonCarol LoepereJoseph W. Metro, and Scot T. Hasselman.

We want to alert our manufacturer clients to the potential importance of a specific provision included in our analysis of the recent health care reform legislation. As we note at page 108 of our memorandum:

Medicaid Exclusion from Participation Relating to Certain Ownership, Control, and Management Affiliations (Sec. 6502)

[T]his provision requires Medicaid agencies to exclude individuals or entities from participating in Medicaid for a specified period of time if the entity or individual owns, controls, or manages an entity that: (1) has failed to repay overpayments during the period as determined by the Secretary; (2) is suspended, excluded, or terminated from participation in any Medicaid program; or (3) is affiliated with an individual or entity that has been suspended, excluded, or terminated from Medicaid participation.

In recent years, a number of pharmaceutical and device manufacturers that have been subject to investigation and enforcement activity by the Office of Inspector General, the Department of Justice, and/or state entities, have opted to have subsidiaries -- sometimes all but defunct ones -- plead guilty to a criminal kickback charge for which they are excluded from participation in Medicare and Medicaid under the mandatory exclusion provisions of 42 U.S.C. 1320a-7(a). The parent organization or another subsidiary then has continued to conduct business as usual, though typically subject to a Corporate Integrity Agreement.

The cited provision in the PPACA legislation could be interpreted to mean that, if a pharmaceutical manufacturer's subsidiary or affiliate takes a plea and is excluded, then state Medicaid programs must exclude the parent company from Medicaid participation. This in turn means that the parent's products will not be reimbursed by Medicaid programs -- in effect, that patients will not have access to that manufacturer's products. This is a draconian measure not previously contemplated as a mandatory matter. Further, such an action could be a predicate for Medicare exclusion as well. There remain some undefined terms in the legislation (for example, the period of exclusion), and it is unclear whether state Medicaid agencies might interpret the provision to allow them to adopt some type of "permissive exclusion" process, rather than having exclusions be automatic.

While at first blush this provision appears to be adverse to manufacturers in the sense that it authorizes additional sanctions, its practical implications in the context of global resolutions of dual track criminal-civil investigations are less clear. On the one hand, it could arguably provide even greater leverage to prosecutors than already exists. On the other hand, since the exclusion implications of a criminal kickback plea would likely be wholly unacceptable to a manufacturer, it could either act as a barrier to global resolutions or alternatively might force the parties to consider other sorts of pleas that are not subject to mandatory exclusion (e.g., pleas to FDA violations).

Interview with Dr. Donald Berwick

As you may have read, President Obama plans to nominate Dr. Donald Berwick to head the Centers for Medicare & Medicaid Services at HHS. We thought you might be interested in seeing an interview (.PDF) that Reed Smith partner Elizabeth Carder-Thompson conducted with Dr. Berwick several months ago, for the American Health Lawyers Association. The interview was published in the November 2009 edition of AHLA Connections.

HITECH Privacy and Security Regulations Currently Being Drafted

The Health Information Privacy page of the U.S. Department of Health and Human Services (HHS) website has formally announced that regulations implementing the privacy and security provisions of the Health Information Technology for Economic and Clinical Health (HITECH) Act will soon be published (along with a comment period) relating to (1) business associate liability; (2) new limitations on the sale of protected health information, marketing and fundraising communications; and (3) stronger individual rights to access electronic medical records and restrict the disclosure of certain information.  Although this posting is certainly welcome news, from a timing perspective the announcement only indicates that "OCR continues work on a Notice of Proposed Rulemaking (NPRM) regarding these provisions." 

Providing further evidence that the HITECH Act provisions relative to covered entities and business associates will not be enforced until after these forthcoming regulations have been finalized, HHS stated that "[a]lthough the effective date (February 17, 2010) for many of these HITECH Act provisions has passed, the NPRM and the final rule that follows will provide specific information regarding the expected date of compliance and enforcement of these new requirements."  The HITECH Act, however, is currently effective, and questions about the effective date for enforcement of the Act's privacy and security requirements may remain until published regulations specifically postpone enforcement.  Additionally, HHS reminds us that the Breach Notification Rule and the revised Enforcement Rule are currently in effect, and that covered entities and business associates must comply now with breach notification obligations for breaches that are discovered on or after September 23, 2009.

Office of Pharmacy Affairs Publishes Final Notice Allowing Covered Entities to Use Multiple Contract Pharmacies

This post was written by Elizabeth O’Brien and Joseph W. Metro.

On March 5, 2010, the Office of Pharmacy Affairs published a Final Notice allowing covered entities to use multiple contract pharmacies in order to supplement “in-house” pharmacy services or to increase patient access to 340B drugs. This Final Notice replaces “Notice Regarding Section 602 of the Veterans Health Care Act of 1992; Contract Pharmacy Services (61 Fed. Reg. 43,549) and all other previous 340B Program guidance regarding non-network contract pharmacy services.

Under the Public Health Service Act’s Section 340B drug pricing program, manufacturers who sell covered outpatient drugs to specific federal grantees, federally-qualified health center look-alikes and qualified disproportionate share hospitals (“covered entities”) must agree to charge less than the statutorily-prescribed maximum price for those drugs, which results in significant savings on drugs for the covered entities. Previously, the Health Resources and Services Administration ("HRSA") Office of Pharmacy Affairs had specified procedures under which discounts could be made available to covered entities engaging a single contract pharmacy, and had conducted an Alternative Methods Demonstration Project program in which HRSA approved a limited number of covered entities using multiple contract pharmacies.

Effective April 5, 2010, the Final Notice permits all covered entities to use multiple contract pharmacies. The guidelines in the Final Notice give covered entities and contract pharmacies a great deal of freedom in structuring their contract pharmacy services agreements, so long as they implement and maintain mechanisms to ensure compliance with 340B Program rules, especially against diversion of drugs. To learn more about the Final Notice, including compliance guidelines, potential alternatives to the single location/single pharmacy model and suggested contract provisions, read the full alert

CMS Clarifies Telemarketing Rules for DME Suppliers

This post was written by Elizabeth B. Carder-Thompson and Debra A. McCurdy.

The Centers for Medicare & Medicaid Services (CMS) has issued new "Telemarketing FAQs" to supplement the Office of Inspector General's (OIG) recent revisions to its Special Fraud Alert on Telemarketing by Durable Medical Equipment Suppliers. As you may recall, in January 2010, the OIG amended the Special Fraud Alert to add a warning about suppliers contacting a beneficiary before the supplier receives written beneficiary consent, as it may violate the statutory provision that prohibits Durable Medical Equipment (DME) suppliers from making unsolicited telephone calls to Medicare beneficiaries regarding the furnishing of a Medicare-covered item. Specifically, the OIG stated that it "has also been made aware of instances when DME suppliers, notwithstanding the clear statutory prohibition, contact Medicare beneficiaries by telephone based solely on treating physicians’ preliminary written or verbal orders prescribing DME for the beneficiaries." According to the OIG, the "physician’s preliminary written or verbal order is not a substitute for the requisite written consent of a Medicare beneficiary."

In response to this new language, Reed Smith contacted the OIG to discuss the adverse impact this policy would have on timely beneficiary access to medically necessary equipment ordered by a physician, since some suppliers call a beneficiary to arrange for equipment deliveries upon receiving an initial physician verbal order. The OIG has just sent us a copy of new CMS Telemarketing FAQs that seek to clarify certain aspects of the revised Special Fraud Alert. Notably, CMS clarifies that there are circumstances in which a supplier may contact a beneficiary based on receipt of a physicians' order if the physician contacts the supplier with the beneficiary's knowledge:

Question 3: Is a supplier contacting the beneficiary based on the receipt of a physician order considered an “unsolicited” contact?

Answer 3: If a physician contacts a supplier on behalf of a beneficiary with the beneficiary’s knowledge, and then a supplier contacts the beneficiary to confirm or gather information needed to provide that particular covered item (including delivery and billing information), then that contact would not be considered “unsolicited.” Please note that the beneficiary need only be aware that a supplier will be contacting him/her regarding the prescribed covered item, recognizing that the appropriate supplier may not have been identified at the time of consultation.

On the other hand, if the beneficiary is not aware that the physician would be contacting the supplier on the beneficiary's behalf, the contact may be prohibited.

Question 4: What if a supplier contacts the beneficiary based solely on the physician order (and therefore the contact is without the beneficiary’s knowledge that the physician would be contacting a supplier on the beneficiary’s behalf)?

Answer 4: Then that contact would be considered “unsolicited” and, depending on the facts and circumstances of the particular case, may be prohibited.

New Regulations Expand Mental Health Parity Requirements for Group Health Plans

This post was written by Rachel Cutler Shim, John D. Martini, Dennis R. Bonessa, William H. Nichols and Laurie S. DuChateau.

On January 29, 2010, the U.S. Departments of Labor, Health and Human Services and the Treasury jointly issued interim final regulations implementing the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 ("MHPAEA"). The MHPAEA, as implemented by the interim final regulations, greatly expands the parity standards of its predecessor, the Mental Health Parity Act of 1996 ("MHPA 1996").

The MHPAEA, as implemented by the interim final regulations, expands on the requirements of the MHPA 1996 and introduces new rules that prohibit group health plans from creating disparities between medical/surgical benefits and mental health benefits, as well as substance-use disorder benefits. To learn more about how MHPAEA impacts group health plans, read our full alert.

For more information, please contact one of the authors: Rachel Cutler Shim, John D. Martini, Dennis R. Bonessa, William H. Nichols and Laurie S. DuChateau.

Notes on the National Summit on Health Care Fraud

This post was written by Elizabeth Carder-Thompson.

Last week, in my capacity as president of the American Health Lawyers Association, I attended the first National Summit on Health Care Fraud, a joint undertaking by the U.S. Department of Health and Human Services and the U.S. Department of Justice. The conference brought together private sector leaders, law enforcement personnel, and health care experts as part of the Obama Administration’s coordinated effort to fight health care fraud. This was the first national gathering on health care fraud between law enforcement and the private and public sectors.

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FCC Proposes Tougher Rules on Telemarketing

This post was written by Robert H. Jackson.

The Federal Communications Commission (“FCC”) has proposed changes to its Telephone Consumer Protection Act (“TCPA”) rules that would conform to the Federal Trade Commission’s Telemarketing Sales Rule (“TSR”). The primary change in the regulations would affect the sending of prerecorded messages (a/k/a “robocalls”) by barring them even to existing customers without first obtaining prior written consent. At first blush, this seems routine, but because of differences in the FCC’s and FTC’s statutory jurisdiction, there are complicated implementation issues that could trap unsuspecting companies. Other key issues for the health care industry is whether the FCC should create an exemption for prerecorded messages that are subject to Health Insurance Portability and Accountability Act (“HIPAA”) and, if so, how such exemption should be implemented. For more information about these changes, please read our client alert written by Robert Jackson.

Drugs for the Masses: Taking a Closer Look at China's Healthcare Reform and Its Impact on Pharmaceutical Manufacturers

As noted in our September 2009 post discussing China’s new National Essential Drug System (NEDS), China continues to make progress in its healthcare reform efforts. However, new national drug lists and price caps designed to provide low-cost drugs to the masses, have at the same time raised questions about the program’s economic impact on local and multinational pharmaceutical manufacturers.

To learn more about how China’s healthcare reform package and how it may affect your company, we invite you to read Reed Smith Life Sciences Partner Gordon Schatz and ZS Associates Inc. consultant Patrick Nowlin’s “Drugs for the Masses,” recently published by China Business Review.

California Health Care Update: New Laws Adopted in 2009 and Effective in 2010

This post was written by Daniel A. Cody, Paul W. Pitts and Alison B. Riddell.

Although California legislators devoted a significant amount of time and resources to addressing the state’s budget shortfall and the economic recession, the 2009 legislature debated and passed a surprising number of bills related to health care, many of which will become effective January 1, 2010. New laws impacting California health care providers include:

  • Amendments to the 2008 law requiring certain health care providers to disclose unlawful and unauthorized uses or disclosure of medical information
  • Laws requiring the Department of Public Health [www.cdph.ca.gov] to more timely process and approve applications for new or modified hospital outpatient services
  • Provisions impacting the delivery of radiologic and diagnostic imaging services, such as permitting physician assistants to provide fluoroscopy services under the supervision of a physician
  • Amendments to California’s False Claim Act that expand the types of claims subject to the law, extend the state’s prosecutorial authority, and increase the penalties for violating the statute
  • Laws stating that long-term care providers will be subject to new ownership disclosure requirements
  • Passing Assembly Bill 215, which makes California one of the first states to recognize and incorporate the controversial Five-Star Quality Rating for nursing facilities as created by the Centers for Medicare & Medicaid Services

For the full summary of major legislation impacting California physicians, hospitals, nursing facilities, and other licensed health care facilities, read our client alert.

FDA Announces New Chief Counsel

Ralph Tyler has been appointed the new FDA General Counsel. The announcement was made today by FDA Commissioner, Dr. Margaret A. Hamburg. Mr. Tyler will join the Office of the Chief Counsel in Rockville, MD on January 19, 2010. Stepping down will be Acting Chief Counsel Michael Landa, who will return to the Center for Food Safety and Nutrition (CFSAN) as Deputy Director for Regulatory Affairs.

Mr. Tyler is currently the Insurance Commissioner of the State of Maryland. Previously he served as Chief Legal Counsel to Maryland Governor Martin O’Malley. Prior to that, Mr. Tyler served as the Deputy Attorney General, the Chief of Litigation, and Assistant Attorney General in the Maryland Attorney General’s office between 1982 and 1996. Mr. Tyler also spent several years as a partner at Hogan & Hartson, LLP. He holds a B.A. from the University of Illinois, a J.D. from Case Western Reserve University, and a LL.M. from Harvard University. 

Pennsylvania Issues Licensing Regulations for Home Care Agencies and Registries

This post was authored by Karl A. Thallner, Jr., Amie E. Schaadt and Jacqueline B. Penrod.

On December 12, 2009, the Pennsylvania Department of Health published final regulations governing home care agencies and registries operating in the Commonwealth. The regulations, which became effective on December 12, 2009, require home care agencies and registries to obtain a license to operate. They also address the qualifications and competence of home care workers. Read our full alert to learn more about Pennsylvania's new licensing and consumer protection regulations as well as the new requirements for hiring home care personnel.

FDA Discusses Social Media Advertising Regulation for the Life Sciences Industry

This post was written by Dana Blanton.

On November 12 and 13, 2009, the FDA hosted public hearings to vet the potential need for regulation of prescription pharmaceutical and medical device marketing on social media outlets such as YouTube, Wikipedia, Facebook, and Twitter. The FDA specifically sought input on these five questions: (1) For what online communications are manufacturers, packers or distributors accountable? (2) How can manufacturers, packers, or distributors fulfill regulatory requirements in their Internet and social media promotion, particularly when using tools that are associated with space limitations and tools that allow for real-time communications? (3) What parameters should apply to the posting of corrective information on Web sites controlled by third parties? (4) When is the use of links appropriate? and (5) Questions specific to Internet adverse event reporting.

The hearings attracted both internet and ethical drug and device industry giants, as well as nonprofit organizations seeking to gain a better understanding of what will certainly be a new frontier for advertising these regulated products. The FDA's existing regulations for print and television advertising are widely considered unsuitable for social media outlets, some of which allow for no more than 140 characters per post--far too few to include FDA-mandated safety information--and most of which allow for uncensored layperson commentary sometimes indistinguishable from manufacturer content. As a result, pharma and medical device representatives reported, drug and device companies have been reluctant to venture into the social media advertising field. Meanwhile, media and marketing firms offered pre-packaged advertising solutions and industry critics suggested that the FDA and pharmaceutical and device companies should bear the burden of correcting misinformation on third party websites and blogs. The FDA will consider the commentary and determine whether guidelines should be promulgated.

Information on the hearing, including background, further information regarding the five issues presented, a link to transcripts of the FDA's 1996 hearing on internet advertising and other information may be found in the Federal Register Notice for the hearing and transcripts of the November 12 and 13, 2009 hearings will be available by approximately December 13, 2009.

Health Care Facilities Targeted in Wage and Hour Lawsuits

Across the country, plaintiffs’ attorneys are targeting health care facilities over their alleged failure to comply with meal break rules. These suits claim that employers have automatically deducted 30 to 60 minutes of time for employees’ meal periods, even if employees never took the breaks. Because employees can recover for violations that took place as many as three years before suit is filed, damages in these cases can be substantial.

For more information, including steps you can take to minimize exposure to these types of lawsuits, please see Reed Smith’s Employment Watch Blog.

Health Reform Update: Focus On Prescription Drug Price Regulation

While Congress continues to debate the “big picture” issues of broad-scale health care reform, pending bills in both the House of Representatives and Senate contain proposals to amend federal prescription drug price regulation programs such as the Medicaid rebate statute, the Public Health Service Act’s Section 340B program, and Medicare Part D.

For an overview of current proposals in this area and highlights of important issues for prescription drug manufacturers, distributors and dispensers, read the full alert, which also includes a chart comparing the drug pricing provisions in the key current bills.

Sebelius Issues Section 1135 Waiver

This post was written by Kevin Madagan and Paul Sheives.

On October 24, 2009, President Obama signed a proclamation declaring the 2009 H1N1 influenza pandemic a National Emergency to facilitate the nations ability to respond to the H1N1 pandemic by enabling – if warranted – the waiver of certain statutory federal requirements for medical treatment facilities.  

This proclamation provided Kathleen Sebelius, the Secretary of the U.S. Department of Health & Human Services, the ability under section 1135 of the Social Security Act [42 U.S.C. § 1320b–5] to waive certain legal requirements that could otherwise limit the ability of the nation’s healthcare system to respond to the surge of patients with the 2009 H1N1 influenza virus. 

Secretary Sebelius recently issued a Section 1135 waiver that becomes effective at 5:00 p.m. today but is retroactive to October 23, 2009.  

Accordingly, healthcare facilities may now petition the Department for 1135 waivers to ensure that sufficient healthcare items and services are available to meet the needs of Medicare, Medicaid, and CHIP beneficiaries. Listed below are a few examples of when 1135 waivers may be necessary:

  • Hospitals request to set up an alternative screening location for patients away from the hospital’s main campus (requiring waiver of sanctions for certain directions, relocations or transfers under EMTALA).
  • Hospitals request to facilitate transfer of patients from ERs and inpatient wards between hospitals (requiring waiver of sanctions under EMTALA regulations).
  • Critical Access Hospitals requesting waiver of 42 C.F.R. § 485.620, which requires a 25-bed limit and average patient stays less than 96 hours.
  • Skilled Nursing Facilities requesting a waiver of 42 C.F.R. § 483.5, which requires CMS approval prior to increasing the number of the facility’s certified beds.

White House Announces Funding for Medical Tort Reform Demonstration Projects

On September 17, 2009, the White House released a “Patient Safety and Medical Liability Reform Demonstration” Fact Sheet, which outlines a new $25 million Department of Health and Human Services initiative designed to help states and health care systems identify new models for managing medical liability claims. The three-pronged initiative will support competitive grants to states and health systems with a focus on the development, implementation and evaluation of alternatives to improve health care quality and patient safety while reducing medical liability.

The Funding Opportunity Announcement will be available within 30 days. The Agency for Healthcare Research and Quality will review applications and make award decisions in early 2010.

The evaluation of the initiative will be released publicly within 18 months of the end of the initiative. The evaluation will focus on short-term improvements in both patient safety and medical liability systems with an allowance for long-term assessment of improvements as well.

New Developments in Nanotechnology

A recent study suggests that exposure to nanoparticles may have caused the death of two female workers and the illnesses of five others in China. Life science health industry companies that manufacture, integrate, sell or buy products that contain nanomaterials may want to monitor reaction to this report, which may garner attention from media outlets, scientists, regulators and the plaintiffs' bar. For a full discussion of these issues, review the full Client Alert written by Reed Smith attorneys Antony Klapper, Jesse Ash and David Wagner.

Reed Smith Global Regulatory Enforcement Alert, "Significant Regulatory Changes to U.S./Cuba Sanctions to Benefit U.S. Telecommunications, Health Care, and Agriculture Companies"

Health care companies interested in doing business in Cuba may want to learn more about recent regulatory changes to U.S. economic sanctions promulgated by the U.S. government. Due to the difficult political situation on the island, doing business in Cuba remains challenging; however, U.S. sanctions have traditionally allowed for food, medicine, and other forms of humanitarian travel. The new regulations, in part, allow U.S. persons to travel to the island for "transactions that are directly incident to the commercial marketing, sales negotiation, accompanied delivery, or servicing in Cuba" of medicine and medical devices. Finally, U.S. companies interested in engaging the Cuba market should also assess the U.S. domestic political considerations that may come with Cuba sales.

To read the full Client Alert, written by Reed Smith attorneys Leigh T. Hansson and Jason I. Poblete, please click here.

AHLA Stark Reform Proposals

The American Health Lawyers Association released a white paper on August 10, 2009, which analyzes the problems and benefits of the Stark Law and challenges amidst pending health care reform. In light of these significant policy discussions, many are wondering whether Congress will take action. Reed Smith's Karl Thallner was quoted in BNA's Health Law Reporter article discussing difficulties of the Stark law and the proposed improvements suggested by AHLA Committee. The article, "AHLA Stark Reform Proposals Welcome, Have Little Chance of Success, Attorneys Say" is reproduced with permission from BNA's Health Law Reporter, 18 HLR 1105 (Aug. 20, 2009). Copyright 2009 by The Bureau of National Affairs,Inc. (800-372-1033).

Stark Law Changes Will Go Into Effect October 1, 2009

As as an update to our last post on the Stark Law changes adopted in the 2009 Hospital Inpatient Prospective Payment System final rule, additional changes to the Stark Law regulations will go into effect on October 1, 2009, causing many “under arrangements” relationships between hospitals and physician-owned, third party service providers to fall out of compliance. In addition, new rules governing the compensation terms of lease agreements involving physicians will become effective on the same date. As existing arrangements will not be grandfathered, the final rule’s new restrictions will force many arrangements between physicians and hospitals, particularly hospital/physician joint ventures, to be restructured or noncompliant arrangements abandoned. Parties are encouraged to revise potentially noncompliant arrangements. To read the full alert written by Reed Smith attorneys Daniel Cody and Paul Pitts, click here.

CMS Prepares to Re-Launch Medicare DMEPOS Competitive Bidding -- Tips for Potential Bidders

CMS is preparing to re-launch its controversial competitive bidding program for Medicare suppliers of certain types of durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS). Under competitive bidding, only suppliers who are successful bidders will be eligible to furnish certain categories of DMEPOS to Medicare beneficiaries in certain geographic areas (with very limited exception). Under competitive bidding, successful bidders will be paid based on the median of the winning suppliers’ bids for each of the selected items in the region, rather than the Medicare fee schedule or supplier bid amount. This will be CMS’s second attempt to institute DMEPOS competitive bidding, after the first round of bidding was blocked by Congress last year because of widespread concerns about how the program was implemented. Reed Smith’s Life Sciences Health Industry Alert, “CMS Prepares to Re-Launch Medicare DMEPOS Competitive Bidding—Tips for Potential Bidders,” highlights seven steps suppliers can take now to prepare for the coming bidding period based on the lessons learned during the first round of bidding.

Senators Seek June 2009 Markup of Health Reform Legislation

On April 20, 2009, Senate Finance Committee Chairman Senator Max Baucus and Senate Health, Education, Labor, and Pensions Committee Chairman Edward M. Kennedy reaffirmed their intention to move forward on major health care reform this year. In a letter to President Barack Obama, Baucus and Kennedy announced that their committees will mark-up comprehensive health care reform legislation in early June. 

IRS Final Hospital Study and its Implications for Tax Reporting

This post was written by Carolyn D. Duronio and Kristen M. Gurdin.

On February 12, 2009, the Internal Revenue Service (the “Service”) released its long–awaited Hospital Compliance Project Final Report (the “Report”). The Service commenced the Hospital Compliance Project in 2006 by sending out comprehensive questionnaires to 544 tax-exempt hospitals. The questionnaires focused primarily on hospitals’ current practices with respect to community benefits and executive compensation. The Report details the data the Service compiled from the 487 respondent hospitals and the 20 hospitals selected for examination from that group. The Report did not provide any conclusions on whether the federal tax rules regarding community benefits and executive compensation should be changed. IRS officials’ and lawmakers’ initial interpretation of the Report and its findings, however, suggests that exempt hospitals should expect significant scrutiny of the community benefit and compensation information that they provide on the revised IRS Form 990 and that stricter requirements may be forthcoming.

For additional information, please see Reed Smith's full alert.

TRICARE Retail Pharmacy Program Subject To Federal Ceiling Prices Under New DoD Rule

This post was written by Joseph W. Metro and Lorraine Mullings Campos.

On March 17, 2009, the Department of Defense (DoD) issued a final rule to implement a provision of the 2008 National Defense Authorization Act (NDAA). In the final rule, the DoD takes the position that the NDAA requires pharmaceutical manufacturers to provide discounted drug prices based on the Veterans Health Care Act’s (VHCA’s) Federal Ceiling Price (FCP), for covered drugs sold by retail pharmacies to TRICARE beneficiaries on or after Jan. 28, 2008 (the date of enactment of the NDAA). DoD further establishes a process whereby manufacturers’ satisfaction of this obligation will be a condition to a product’s continued Tier 2 status on the TRICARE uniform formulary. Finally, however, DoD indicates that it will consider, pursuant to its authority under the Federal Debt Collection Act, proposals to settle outstanding "refund" claims for periods prior to the effective date of the rule.

Further discussion and commentary by the authors is included after the jump. For additional background information, please see Reed Smith’s full alert.

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FCC Allocates More Spectrum to Wireless Medical Devices and Proposes Even More Spectrum for Implanted Neuromuscular Stimulators

This post was written by Judith L. Harris and Amy S. Mushahwar.

The Federal Communications Commission (“FCC”) recently released an Order allocating 2 MHz of new spectrum for advanced wireless implanted devices, which may enable the certification of new devices by the FCC’s Office of Engineering and Technology.

The FCC also seeks comment on a proposal to allocate up to 20 MHz of spectrum for implanted neuromuscular micro stimulators. This additional allotment for electronic stimulation technologies could be used to develop devices for the medical treatment for millions of people living with brain and spinal cord injuries and neuromuscular disorders.

Parties interested in registering new devices under the FCC’s Order or in commenting on the additional spectrum allotment for electronic stimulation technologies are encouraged to contact Judith L. Harris or Amy S. Mushahwar.

For additional information, please see Reed Smith's full alert.

China's Premier Wen Jiabao Confirms Major Healthcare Reform

This post was written by Sharon J. Mann, Hugh Scogin, Gordon B. Schatz and Amanda Yang.

At the 2nd Session of the 11th National People’s Congress (NPC) convened on March 5, 2009, China’ Premier Wen Jiabao confirmed the major contents of the healthcare reform in the 2009 Government Work Report. On January 21, 2009, the State Council approved the Opinions on Advancing Healthcare Reform and the Implementation Plan on Advancing Healthcare Reform 2009-2011 in principle. The opinions and the plan are expected to be published after the NPC session, with the Government Work Report representing the first government document that confirms work focuses in the coming healthcare reform program.

According to the Work Report, the Chinese government will spend US$124 billion (850 billion RMB) on healthcare reform between 2009 and 2011, including 331.8 billion RMB from the central government. The funds will be used in five primary areas 1) medical insurance, 2) essential medications, 3) basic healthcare service systems, 4) equal access to basic public health services, and 5) reform of public hospitals.

For additional information, please see Reed Smith’s full alert.

Health Information Privacy and Incentives, Medicaid Funding, and Other Health Care Provisions in the American Recovery and Reinvestment Act

This post was written by Karl A. Thallner, Jr., Carol C. Loepere, Debra A. McCurdy, Brad M. Rostolsky, Jacqueline B. Penrod, and Amie E. Schaadt.

On February 17, 2009, President Obama signed into law H.R. 1, the American Recovery and Reinvestment Act (the “ARRA”). The sweeping $790 billion economic stimulus package includes a number of health care policy provisions. Reed Smith's Health Care Memorandum summarizes the major health policy provisions of the Act.

HIPAA Privacy and Security Changes in the American Recovery and Reinvestment Act

This post was written by Brad M. Rostolsky, Gina M. Cavalier, Debra L. Hutchings, Kerry A. Kearney, and Mark S. Melodia.

On Feb. 17, 2009, President Obama signed into law H.R. 1, the American Recovery and Reinvestment Act (the “ARRA”).1 This memorandum outlines significant changes and additions to the landscape of federal privacy and security law set forth in Subtitle D of the ARRA. In general, the privacy and security portions of the ARRA become effective 12 months after the enactment of the ARRA, which is approximately February 2010. It is also important to note that the ARRA directs the Secretary of the U.S. Department of Health & Human Services (“HHS”) to amend the HIPAA Privacy and Security Rules to implement the legislative changes. As such, the effective dates associated with the rulemaking process will vary.

Click here to read the full alert.

RAC Protest Resolved: Audit Work Will Now Resume

This post was written by Jason M. Healy.

Centers for Medicare & Medicaid Services ("CMS") states that on February 4, 2009 the parties involved in the protest of the award of the Recovery Audit Contractor ("RAC") contracts settled the protests filed with the GAO.

The settlement means that the stop work order has been lifted and CMS will now continue with the implementation of the RAC program.

Under the program, the four RACs will contract with subcontractors to supplement their efforts. PRG-Schultz, Inc. will serve as a subcontractor to HDI, DCS and CGI in regions A, B and D. Viant Payment Systems, Inc. will serve as a subcontractor to Connolly Consulting in region C. Each subcontractor has negotiated different responsibilities in each region, including some claim review.

According to the CMS Notice, the RAC in each jurisdiction is as follows:

Region A: Diversified Collection Services (DCS)
Region B: CGI
Region C: Connolly Consulting, Inc.
Region D: HealthDataInsights, Inc.

All correspondence, websites and call centers will be in the name of the RACs listed above. 

Pharmaceutical Package: Safe, Innovative and Accessible Medicines and A Renewed Vision For the Pharmaceutical Sector

This post was written by Paule Droualt-Gardrat, Juliette Peterka and Julie Gottenberg.

On December 10, 2008, the European Commission published a series of political measures and legislative proposals, the so-called “Pharmaceutical Package.” This series included the “Communication on a renewed vision for the pharmaceutical sector,” which reflected on ways to improve market access and develop initiatives to boost European Union (“EU”) pharmaceutical research. Through the Pharmaceutical Package, the European Commission aims to make pricing and reimbursement more transparent, increase the development of pharmaceutical research within the EU, improve the safety of medicines worldwide, and reinforce cooperation with international partners.

The European Commission has published three separate sets of proposals amending Directive 2001/83/EC on the Community Code of medicinal products and Regulation 726/2004 on medicinal products obtained through centralized procedures:

1.  A proposal amending Directive 2001/83 as “regards information to the general public on medicinal products subject to medical prescription” (Information to patient);
2.  A proposal amending Directive 2001/83 and a proposal amending Regulation 726/2004 as “regards pharmacovigilance” (The EU pharmacovigilance system); and,
3.  A proposal amending Directive 2001/83 as “regards the prevention of the entry into the legal supply chain of medicinal products which are falsified in relation to their identity, history or source” (Counterfeit Medicines).

Read Reed Smith's full alert outlining proposed amendments to Directive 2001/83/EC and Regulation 726/2004.

Recovery Audit Contractor (RAC) Program To Resume In February 2009: What Every Medicare Provider and Supplier Should Know

This post was written by Jason M. Healy.

By now, most Medicare providers have heard about the Medicare Recovery Audit Contractor (RAC) demonstration and that it is currently being rolled out nationwide as a permanent program. On November 4, 2008, however, CMS imposed an automatic stay on the RAC program after two unsuccessful bidders for RAC contracts filed protests with the Government Accountability Office (GAO). GAO has 100 days to issue its decision, which means that all RAC program work is on hold until early February 2009.

Because the three-year demonstration program that ended in March of last year was limited to six states (New York, Florida, California, Massachusetts, South Carolina, and Arizona), it may not be obvious to all providers and suppliers that RACs pose a threat when the RAC program resumes. To understand that threat and how best to address it, it is important to understand where RACs will operate; what RAC auditors are designed to do and how they audit; where your claims fit within a RAC’s set of priorities; and your rights as a Medicare provider or supplier to challenge RAC overpayment determinations through appeal.

Read Reed Smith’s full alert, "What Every Medicare Provider and Supplier Should Know About RAC Audits and Appeals."

Hospital Agrees to Pay $700,000 To Texas AG For Allegedly Orchestrating an Insurer Boycott of Competitor

This post was written by Diane Green-Kelly and Karl A. Thallner.

In a time of economic crisis, when hospitals, like most other businesses, are struggling to operate within a constrained budget, Memorial Hermann Healthcare System (“Memorial Hermann”) agreed Jan. 26, 2009 to pay $700,000 to settle claims of the Texas Attorney General alleging that Memorial Hermann orchestrated an agreement among health plans not to do business with a new competitor, Town and County Hospital (“Town and Country”).  According to the complaint, Memorial Hermann, which owns and operates acute care hospitals furnishing inpatient care, is the largest hospital system in the Houston area.  Town and County, a physician-owned hospital, opened in November 2005.  Before opening, Town and County approached insurers to enter into contracts to be included in those insurers’ hospital networks.  Memorial Hermann allegedly took steps to discourage insurers from entering into contracts with Town and Country, including sending notification of an intent to terminate its contract with one insurer as to all Memorial Hermann facilities, and subsequently renegotiating a contract with the insurer for substantially higher rates. 

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Federal Acquisition Regulation Council Final Rule Affects Life Sciences Government Contracts

This post was written by Lorraine Mullings Campos and Steven D. Tibbets.

On December 12, 2008 the Federal Acquisition Regulation (“FAR”) Council’s Final Rule – which applies to all federal government contracts in amounts greater than $5 million and more than 120 days in duration, including small business and commercial item contracts -- went into effect, requiring all federal contractors to disclose wrongdoing to the federal government, including certain violations of federal law, and violations of the False Claims Act. Specifically, contractors must “timely” disclose, in writing and to the Inspector General and the contracting officer (in that order), whenever, in connection with the award, performance, or closeout of a contract, the contractor has “credible evidence” that a principal, employee, agent, or subcontractor has committed a violation of federal criminal law involving fraud, conflict of interest, bribery or gratuity violations under Title 18 of the U.S. Code, or a violation of the False Claims Act.

In addition, the rule requires contractors to establish a “business ethics awareness and compliance program,” as well as an “internal control system” with certain attributes. In addition, significant overpayments by the government must be disclosed to the contracting officer. Failure to disclose violations of federal criminal law or violations of the False Claims Act may lead to criminal sanctions, civil penalties, suspension, or debarment.

Click here to view an an alert highlighting this and other major issues likely to impact government contracts businesses in the coming months and years.

Current Issues Under The Civil False Claims Act: Worthless Services, Off-Label Use, and More

This post was written by Elizabeth Carder-Thompson and Andrew L. Hurst.

A dizzying array of civil and criminal provisions address false or fraudulent representations made to, and false claims filed with, Medicare, Medicaid, and state and federal health care programs. This attached article, first published by the American Health Lawyers Association, briefly identifies relevant criminal and civil provisions relating to these issues, and then focuses more closely on recent uses of the civil False Claims Act (“FCA”) in government investigations of health care providers, suppliers, and manufacturers, including a section on state false claims legislation. Finally, it discusses the issue of distinguishing overpayments from false claims and provide information on the voluntary disclosure program of the Office of the Inspector General (“OIG”) of the Department of Health and Human Services (HHS).

Life Sciences Industry Members Who Contract With Government Should Note Recent Amendment to the Federal Acquisition Regulation

This post was written by Lorraine M. Campos, Gregory S. Jacobs and Brett D. Gerson.

On November 12, 2008, the Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council issued an amendment to the Federal Acquisition Regulation (“FAR”) to establish: (1) mandatory disclosure requirements for certain violations of federal criminal law and the False Claims Act; (2) requirements for contractors to establish and maintain specific internal controls to detect, prevent, and disclose improper conduct in connection with the award or performance of any government contract or subcontract; and (3) new causes for suspension and debarment. See 73 Fed. Reg. 219, 67,064 (Nov. 12, 2008). The final rule went into effect December 12, 2008, and applies to all federal government contracts in amounts greater than $5 million and more than 120 days in duration, including small business and commercial item contracts. Certain exceptions are discussed in the attached.

FDA Proposes Guidance for Meeting Clinical Trial Registration Requirements

The Food and Drug Administration Amendments Act of 2007 (FDAAA) expanded the public reporting requirements for “applicable clinical trials” involving certain drugs, biologicals, and devices. In December 2008, the Food and Drug Administration (FDA) issued a draft guidance document proposing, among other things, definitions that would affect who would be required to register certain clinical trials under the FDAAA. In some cases, FDA's proposal would require manufacturers who make grants to investigators to be the responsible party required to register. In addition, FDA elaborates on the circumstances under which clinical investigations designed to demonstrate bioequivalency would be subject to reporting. Additional background information is available at the clinicaltrials.gov web site. Reed Smith is reviewing the draft guidance. Please contact Areta Kupchyk at akupchyk@reedsmith.com for more information.

FDA Finalizes Guidance Document on Evidence Needed to Substantiate Dietary Supplement Claims

The FDA has released final guidance on “Substantiation for Dietary Supplement Claims Made Under Section 403(r)(6) of the Federal Food, Drug, and Cosmetic Act,” which discusses the amount, type, and quality of evidence that FDA recommends a dietary supplement manufacturer have to substantiate a nutritional deficiency, structure/function, or general well-being claim. FDA has adopted the FTC standard for substantiation and, among other things, will expect statistically significant clinical studies to support structure/function claims. For more information, contact Areta Kupchyk at akupchyk@reedsmith.com.

FDA Finalizes Guidance Document on OTC Drug Labeling

The FDA has issued final guidance on “Labeling OTC Human Drug Products—Questions and Answers.” This document is intended to assist manufacturers, packers, and distributors of over-the-counter (OTC) drug products in complying with the agency’s regulation on standardized content and format requirements for the labeling of OTC drug products, including the use of toll-free numbers and compliance with adverse event reporting requirements.

FDA Proposes Guidance Document on Assay Migration Studies for In Vitro Diagnostic Devices

The FDA has released draft guidance entitled “Assay Migration Studies for In Vitro Diagnostic Devices,” which is designed to present a least burdensome regulatory approach to gaining FDA approval of Class III or certain licensed in vitro diagnostic devices in cases when a previously-approved assay is migrating to a new system for which the assay has not been previously approved or licensed. FDA will accept comments on the draft guidance until April 6, 2009. 

FDA Training Program

The FDA is inviting pharmaceutical companies to participate in the FDA’s Regulatory Project Management Site Tours and Regulatory Interaction Program, through which FDA personnel observe operations of pharmaceutical manufacturing and/or packaging facilities, pathology/toxicology laboratories, and regulatory affairs operations. The goals of the program are to provide FDA regulatory project managers with first-hand exposure to industry’s drug development processes, and to offer a venue for sharing information about project management procedures (but not drug-specific information) with industry representatives.  Interested companies may submit proposed agendas to FDA by March 6, 2009. 

FDA Notice on Electronic Submissions

FDA is soliciting comments on the paperwork burden associated with its plan to require drug establishment registration and drug listing submissions in electronic format. Comments will be accepted until February 9, 2009. 

New Postings on the Reed Smith Health Industry Washington Watch Blog

The Reed Smith Health Industry Washington Watch blog has been updated to discuss a variety of regulatory and other developments impacting health policy, including the following:

  • Regulatory Developments -- CMS has published regulations regarding Medicaid disproportionate share hospital payments, Medicaid non-emergency medical transportation services, and Medicare home health agency rates. HHS has published a final rule designed to protect the conscience rights of health care providers. The OIG has published its annual solicitation of ideas for new anti-kickback safe harbor provisions. The FDA is seeking comments on a planned study regarding coupons used in direct-to-consumer prescription drug print advertisements, and it has announced grants to support the clinical development of “orphan products.” Finally, and IRS proposed rule would require government entities to withhold income tax when making certain payments, including certain Medicare payments.
  • Other CMS Developments -- CMS has posted first quarter 2009 Medicare Part B drug and biological average sales price amounts; released details on the 2009 Physician Quality Reporting Initiative; posted nursing home quality ratings; and announced medical necessity reviews of long term care hospital stays. CMS also has provided guidance on accreditation of durable medical equipment suppliers, requirements for entities providing mobile diagnostic testing services; and how the HIPAA Privacy Rule can facilitate electronic health information exchange in a networked environment.
  • FDA Guidance Documents -- The FDA has issued a number of guidance documents dealing with such issues as labeling of nonprescription human drug products and dietary supplements, genotoxic and carcinogenic impurities in drugs, modification of devices subject to premarket approval, and orally disintegrating tablets.
  • Obama Transition -- President-elect Barack Obama has nominated former Senator Tom Daschle as HHS Secretary and Director of a new White House Office on Health Care Reform. Obama’s transition team also is calling on individuals to hold “Health Care Community Discussions” this month to make recommendations on health care policy. In addition, President-elect Obama has named Eric Holder as his Attorney General.
  • OIG & GAO Reports -- The HHS OIG has issued reports on adverse events in hospitals, Medicare drug prices, and special needs plans. The GAO has reported on Medicare Part D enrollment issues, Medicare Advantage plan profits and expenses, and characteristics of private fee-for-service plans.
  • Odds & Ends -- The Congressional Budget Office has released major reports on health care system reform and insurance reform. Congress has approved technical corrections to the new mental health parity law. The Agency for Healthcare Research and Quality (AHRQ) is seeking participation in a symposium on clinical and comparative effectiveness research methods.
  • Looking Ahead -- CMS is hosting meetings in February on applications for Medicare inpatient prospective payment system new technology add-on payments, hospital outpatient ambulatory payment classification groups, and genomic testing.

For details on these and other health industry developments, please visit healthindustrywashingtonwatch.com.
 

California Update: New Laws on Patient Privacy, Billing Diagnostic Imaging Services, and Bacterial Infection Monitoring and Reporting

This post was written by Daniel A. Cody, Paul W. Pitts, and Rachel M. Golick.

During 2008, the California legislature passed numerous bills impacting health care providers and debated several high-profile bills touting universal health insurance. In this memorandum, we bring to your attention four new laws (each becoming effective Jan. 1, 2009) impacting hospitals and other licensed health care facilities. These laws address patient privacy, diagnostic imaging services, infection control and health care reporting.

Click here to read the full Client Alert.

AdvaMed Issues Revised Code of Ethics on Interactions

This post was written by Elizabeth Carder-Thompson, Gina M. Cavalier, Matthew E. Wetzel.

On December 18, 2008, the Advanced Medical Technology Association (“AdvaMed”), the national trade association of medical technology manufacturers, issued a revised Code of Ethics on Interactions with Health Care Professionals (the “AdvaMed Code” or “Code”). The revised AdvaMed Code, which becomes effective July 1, 2009, contains several changes that will significantly impact the medical device industry. These include:

  • The addition of guidelines for the payment of royalties to health care professionals;
  • The inclusion of a new section on the provision of evaluation and demonstration products to customers at no charge;
  • More comprehensive guidelines for furnishing reimbursement and health economics information to health care professionals;
  • A prohibition on the provision of entertainment and recreation;
  • A prohibition on the provision of non-educational branded promotional items such as pens, notepads, mugs and similar items; and
  • Increased restrictions on the provision of restaurant meals or meals at other off-site venues.

The Client Alert discusses the principal changes to the AdvaMed Code, highlights several compliance considerations that medical device companies should consider when implementing the revised Code and includes a chart detailing the original and revised AdvaMed Codes and highlighting the new provisions that will become effective in July 2009.

Reed Smith was honored to serve as outside counsel to AdvaMed in connection with drafting both the current and the revised Code and would be pleased to answer any questions or provide additional information.

Health Care Reform During the Obama Presidency: The Impact on Hospitals

Reed Smith partner Karl Thallner just published "Health Care Reform During the Obama Presidency: The Impact on Hospitals" in BNA's Health Care Policy. Karl discusses several aspects of the Obama plan, including access to coverage, individual mandates, delivery and payment, and transparency. As the article notes, "[t]o the extent that health care reform reduces the uninsured population, hospitals could benefit through a reduction in uncompensated care and bad debts. In addition, hospitals may see increases in patient volumes with the reduction in the uninsured."

New Postings on the Reed Smith Health Industry Washington Watch Blog

The Reed Smith Health Industry Washington Watch blog has been updated to discuss a variety of regulatory and other developments impacting health policy, including the following:

  • Regulatory Developments. CMS has issued rules providing states with increased flexibility to define the scope of covered Medicaid services and revising Medicare hospital wage indices. HHS has published the federal medical assistance percentages and enhanced federal medical assistance percentages for FY 2010. In addition, HHS is requesting public comments on its draft “Guidance on Important Considerations for When Participation of Human Subjects in Research is Discontinued,” and the FDA has issued related guidance on “Data Retention When Subjects Withdraw from FDA-Regulated Clinical Trials.” The FDA also is accepting comments on a planned FDA study examining consumer comprehension of inclusion of a toll-free number to report side effects in direct-to-consumer prescription drug television advertisements.
  • Other CMS Developments. CMS has released an “Issues Paper” on its Medicare value-based purchasing program for physician and other professional services; proposed three national coverage determinations to ensure that Medicare does not cover certain types of preventable surgical errors; announced the technical specifications for a new incentive program to promote electronic prescribing; updated physicians on the suspension of the Medicare Part B drug competitive acquisition program for 2009; and released the 2009 Medicare durable medical equipment, prosthetics, orthotics, and supplies fee schedule.
  • Other FDA Developments. The FDA has released guidance documents on “Cooperative Manufacturing Arrangements for Licensed Biologics” and “Submission of Patent Information for Certain Old Antibiotics.” In addition, the FDA has announced that it is teaming with WebMD to expand consumer access to FDA safety alerts and other public health information.
  • OIG Developments. The HHS OIG has released the Health Care Fraud and Abuse Control (HCFAC) Program Annual Report for FY 2007 and its Semiannual Report to Congress for the second half of FY 2008. The OIG also has issued an “early alert memo” on “Payments to Medicare Suppliers and Home Health Agencies Associated With ‘Currently Not Collectible’ Overpayments.”
  • Health Industry Events. CMS is hosting listening sessions on electronic prescribing, the Physician Quality Reporting Initiative, hospital-acquired conditions, and Medicare inpatient PPS add-on payments for new medical services and technologies. AHRQ is hosting a meeting on kidney disease education.

For details on these and other health industry developments, please visit healthindustrywashingtonwatch.com.

New Postings on the Reed Smith Health Industry Washington Watch Blog

The Reed Smith Health Industry Washington Watch blog has been updated to discuss a variety of legislative and regulatory developments, including the following:

  • Regulatory Developments. HHS has published a final rule to implement certain aspects of the Patient Safety and Quality Improvement Act of 2005 (Patient Safety Act). In addition, HHS has published its semiannual regulatory agenda, outlining planned regulatory initiatives in a number of health policy areas. CMS has issued an interim final rule with comment period making technical changes to the methodology used to compute each state's preliminary and final allotments available to pay the Medicare Part B premiums for qualifying individuals, along with a separate final rule on Medicaid premiums and cost sharing requirements. The FDA has published draft guidance documents on “Contents of a Complete Submission for the Evaluation of Proprietary Names” and “Process Validation: General Principles and Practices.”
  • Legislative Developments. Key lawmakers have released for public comment a discussion draft of legislation that would establish a value-based purchasing program for Medicare inpatient hospital care. In addition, the Senate Finance Committee has held a hearing on health care reform, and the Senate has approved technical corrections to the new mental health parity law.
  • Other CMS & DOJ Developments. CMS is accepting comments on a preliminary set of outpatient imaging efficiency measures. CMS also has released a document entitled “Medicare’s Practical Guide to the E-Prescribing Incentive Program.” In addition, CMS has announced the improper payment rate for the Medicare, Medicaid and SCHIP for FY 2008. The U.S. Department of Justice also has released updated statistics on federal False Claims Act recoveries, including a discussion of significant health care fraud enforcement activities.
  • Health Care Industry Events. CMS is holding forums on the Part B drug competitive acquisition program, value-based purchasing for physician and other professional services, hospital-acquired conditions, and IPPS new technology applications. The HHS Secretary's Advisory Committee on Genetics, Health, and Society is meeting to discuss whether gene patents and certain licensing practices are affecting patient access to genetic tests, and the Practicing Physicians Advisory Council is holding its quarterly meeting to discuss Medicare policy changes related to physicians’ services. AHRQ is hosting a meeting on kidney disease education.

For details on these and other health industry developments, please visit healthindustrywashingtonwatch.com.

Drug Company Disclosure Bill Introduced in Texas State Legislature

This post was written by Matt Wetzel and Katie Hurley.

On Nov. 10, 2008, a bill was introduced in the Texas Senate that would require drug companies to provide annual disclosures of gifts, payments and other economic benefits to health care providers. If passed, Texas would join the ranks of other jurisdictions (the District of Columbia, Maine, Minnesota, Vermont, West Virginia, and, most recently, Massachusetts), to require such disclosure.

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New Postings on the Reed Smith Health Industry Washington Watch Blog

The Reed Smith Health Industry Washington Watch blog has been updated to discuss a variety of legislative and regulatory developments, including the following: 

  • Legislative Developments. Senate Finance Committee Chairman Max Baucus has released a white paper entitled "Call to Action: Health Reform 2009," which details Senator Baucus’ goals for health care reform in the broad areas of coverage, quality, and cost. The broad scope of the Baucus white paper suggests that Congress intends to focus beyond access to insurance or the immediate problem of fixing the Medicare physician fee schedule and examine fundamental policy questions concerning how to promote quality and value throughout the health system at a time of limited federal resources.
  • Regulatory Developments.   CMS has published an interim final rule with comment period revising marketing requirements for Medicare Advantage plans and Medicare Part D prescription drug plans in order to limit incentives for brokers to switch beneficiaries between plans. CMS also has published a final rule clarifying the definition of outpatient hospital services under Medicaid to align it more closely with the Medicare definition of such services. The FDA has issued regulations to adjust for inflation the maximum civil money penalty amounts under certain FDA authorities, and it has published a notice regarding nonvoting industry representatives on Center for Biologics Evaluation and Research public advisory committees.  
  • Other HHS Developments. CMS has announced the chronic conditions certain Medicare Advantage special needs plans must use to identify the beneficiary populations eligible for enrollment, beginning in 2010. CMS also has released the 2009 update of the Healthcare Common Procedure Coding System (HCPCS) code set, and has updated the Medicare Benefit Policy Manual to reflect CMS policy regarding medically-accepted indications of drugs and biologicals used off-label in an anti-cancer chemotherapeutic regimen. In addition, CMS has released information for state officials regarding the refunding of the federal share of state Medicaid recoveries under state False Claims Acts, and regarding the upcoming “Medicare Nursing Home Value-Based Purchasing" demonstration. Moreover, the HHS Secretary has submitted to Congress the Department's annual report on national Medicare coverage determinations.
  • GAO & OIG Reports.  The HHS OIG has issued reports on CMS enforcement of the HIPAA security rule, and appeals of DME supplier revocations. Both the OIG and GAO also have issued reports regarding the Medicare Part D drug program. 
  • Health Care Industry Events. CMS is holding forums on electronic prescribing, the Part B drug competitive acquisition program, value-based purchasing for physician and other professional services, and hospital-acquired conditions. The HHS Secretary's Advisory Committee on Genetics, Health, and Society is meeting to discuss whether gene patents and certain licensing practices are affecting patient access to genetic tests, and the Practicing Physicians Advisory Council is holding its quarterly meeting to discuss Medicare policy changes related to physicians’ services.

Toll-Free Number for Reporting Adverse Events on Labeling for Human Drug Products

On October 28, 2008, the Food and Drug Administration (FDA) published a final rule requiring a statement to be included on certain human drug product labeling that provides a toll-free number for reporting side effects and specifies that the number is not intended to be used for medical advice. The rule, which confirms a January 3, 2008 interim final rule on this issue, implements provisions of the Best Pharmaceuticals for Children Act and the Food and Drug Administration Amendments Act of 2007. The compliance date for the final rule is July 1, 2009 (rather than the January 1, 2009 compliance date anticipated under the interim final rule). 

D.C.'s "Safe RX Amendment Act" and the Licensing of Sales Reps

This post was written by Matthew E. Wetzel.

In early 2008, the District of Columbia City Council passed the SafeRX Amendment Act (the “Act”), introduced by Council Member David Catania.1 The Act requires pharmaceutical “detailers,” which includes both employees and independent contractors of pharmaceutical manufacturers, to be licensed by the District of Columbia Board of Pharmacy (the “Board”) by April 1, 2009. Pursuant to the Act and regulations issued by the Board Aug. 29, 2008,2 once a pharmaceutical detailer has been licensed by the Board, he or she must, among other things, (1) comply with the PhRMA Code on Interactions with Healthcare Professionals (“the PhRMA Code”), as well as additional requirements; (2) earn continuing education credits; and (3) follow stringent document retention requirements. This Client Alert summarizes the Act and the Board’s regulations, and includes a list of considerations for manufacturers whose employees and independent contractors must be licensed to work in the District of Columbia.

Wisconsin Medical Society's Physician Gift Ban

This post was written by Matthew E. Wetzel.

On Oct. 11, 2008, the Wisconsin Medical Society (WMS)--an association of more than 11,000 medical doctors in the state of Wisconsin--implemented a full ban on gifts to physicians. Specifically, the WMS policy prohibits physicians from accepting gifts from any provider of products that they prescribe to their patients. This includes personal items, office supplies, food, travel and time costs, or payment for participation in online continuing medical education (CME).

According to WMS, the goal is to restore patient trust in physicians' unbiased decision-making by eliminating any actual or potential conflicts between a physician' s medical judgment and a physician's interest in continuing to receive gifts from manufacturers and wholesalers. According to WMS President Steven Bergin, MD, the new policy establishes the principle that "individual physicians should take a bright line approach to accepting items from companies that make products or drugs that the physician might end of prescribing or recommending to his or her patients." He further states that "physicians have the responsibility to make sure nothing gets in the way of [the physician-patient] relationship--or even appears to get in the way."

In addition to the gift ban, the new Wisconsin policy includes the following items:

  • The direct provision of drug samples to patients should be limited. (The policy also suggests that samples should be replaced by vouchers.)
  • Physicians serving on formulary committees must disclose any commercial relationship with a "health product company," and recuse themselves from the formulary process.
  • CME providers cannot accept support directly from health product companies. Rather, the policy suggests that CME providers should create a medical education fund to accept unrestricted donations that would be dispersed according to the CME provider's policies. CME contributions would be required to be disclosed as public information by the CME provider on the Internet.
  • Physicians are prohibited from serving on speaker bureaus for health product companies, and from "ghostwriting" (e.g., the practice whereby physicians permit their names to be listed as authors for articles actually written by manufacturers).
  • Consulting arrangements must be subject to contracts that require physicians to provide specific "deliverables" in exchange for compensation.

These new rules can be found in WMS Policy ETH-004, "The Relationship of the Profession to the Health Product Industry."

New Postings on the Reed Smith Health Industry Washington Watch Blog

The Reed Smith Health Industry Washington Watch blog has been updated to discuss a variety of regulatory and legislative developments of interest to the life sciences and health industry, including the following:

  • Legislative Developments: President Bush signed into law mental health parity legislation and funding for HHS and other federal agency programs through March 6, 2009. Congress also has cleared online pharmacy and organ transplant bills that now await the President's signature.
  • CMS Developments: A new CMS initiative to combat Medicare DMEPOS and home health fraud and abuse; CMS guidance on Medicare payment of certain routine costs associated with clinical trials; CMS release of “Medically Unlikely Edits” used by Medicare contractors to prevent payment for excessive services; and waiver of certain hospital quality reporting requirements in hurricane areas.
  • Regulatory Developments: Revised FY 2008 Medicare hospital inpatient PPS rates; solicitation of members for the DMEPOS competitive bidding advisory committee; a final rule on Medicaid self-directed personal assistance services; a final rule revising the Medicaid definition of "multiple source drug"; and FDA reporting requirements for authorized generics.
  • OIG and GAO Developments: The OIG has released its FY 2009 Work Plan, supplemental compliance program guidance for nursing facilities, and reports on nursing home deficiencies. The GAO has issued reports on trends in Medicare imaging services and hospital-associated infections.
  • Upcoming Events: CMS is hosting a conference on DMEPOS supplier accreditation and provider calls on adoption of the ICD-10 coding system.

For details on these and other health industry developments, please visit healthindustrywashingtonwatch.com.

More On the DOJ's Revised Principles of Federal Prosecution of Business Organizations

We previously wrote about how the Department of Justice (DOJ) revised its Principles of Federal Prosecution of Business Organizations, which govern how federal prosecutors investigate, charge, and prosecute corporate crimes, including health care fraud. Reed Smith's Matthew R. Sheldon, Alexander “Sandy” Y. Thomas, and Richard D. Kelley have written more on the subject.

Panel Approves Health Care Bills, including FDA Drug/Device Requirements, Internet Pharmacy Rules

On September 17, 2008, the House Energy and Commerce Committee unanimously approved more than 7 health policy bills addressing such issues as FDA drug and device approvals, internet pharmacy regulation, health care workforce issues, insurance coverage, and medical treatment, including:

  • H.R. 1014, the "Heart Disease Education, Analysis Research, and Treatment (HEART) for Women Act"; would require new drug, biologics, and device applications submitted to FDA to include specific data on the drug's safety and effectiveness by gender, age and race. This information would be posted on the internet. The bill as amended also would authorize research and public health activities to reduce cardiovascular disease in women.
  • H.R. 6353, the “Ryan Haight Online Pharmacy Consumer Protection Act of 2008,” would prohibit the sale of controlled substances over the Internet without a valid prescription and subject on-line pharmacies to a series of new restrictions.
  • H.R. 758, the “Breast Cancer Patient Protection Act,” would require health insurers to cover minimum lengths of stay and secondary consultations for patients undergoing procedures to treat and diagnose breast cancer.
  • H.R. 2994, the “National Pain Care Policy Act of 2007,” would direct the Department of Health and Human Services to establish a national pain care education outreach and awareness campaign.
  • H.R. 5265 the “Paul D. Wellstone Muscular Dystrophy Community Assistance, Research, and Education Amendments of 2008,” would promote research into the causes and treatments of various forms of Muscular Dystrophy.
  • H.R. 2583, the “Physician Workforce and Graduate Medical Education Enhancement Act of 2007,” would authorize a loan repayment program for hospitals to start a residency training program.
  • H.R. 6908, the “HIPAA Recreational Injury Technical Correction Act,” would require timely disclosure of limitations and restrictions on coverage under group health plans.

The legislation now moves to the full House for further consideration.

Corporate Crime Prosecution Guidance

The Department of Justice (DOJ) has revised its Principles of Federal Prosecution of Business Organizations, which govern how federal prosecutors investigate, charge, and prosecute corporate crimes, including health care fraud. A number of the revisions address the area of cooperation credit, including providing that credit for cooperation will not depend on a corporation’s waiver of attorney-client privilege or work product protection, but rather on the disclosure of relevant facts. The guidelines also instruct prosecutors not to consider a corporation’s advancement of attorneys’ fees to employees when evaluating cooperativeness, and specify that the mere participation in a joint defense agreement will not render a corporation ineligible for cooperation credit. Moreover, prosecutors may not consider whether a corporation has sanctioned or retained culpable employees in evaluating whether to assign cooperation credit to the corporation.

Reed Smith's Health Industry Washington Watch blog has new posts about these guidelines as well as new FDA initiatives; Medicare DMEPOS accreditation requirements; the Medicare Part B drug CAP program; Congressional hearings and markups; OIG and GAO reports; upcoming health care industry events; and other policy developments.

Protection For The Attorney-Client Privilege?

In-house lawyers in many industries--including life sciences and health care--repeatedly confront hard questions about the attorney-client privilege. As Reed Smith lawyers Matthew Sheldon and Sandy Thomas explain in the PrivilEdge Newsletter, a number of recent developments warrant attention. These include "The Attorney-Client Privilege Protection Act of 2007"--pending legislation that would curb demands for waiver of the privilege during corporate investigations and a recent case addressing attorney-client privilege issues such as the "joint client" exception, protection for tax advice and internal audits, and corporate ratification of a lower-level employee's disclosure of privileged information. Their article also discusses proposed Rule of Evidence 502 (S. 2450) regarding inadvertent disclosure of privileged information. As of Monday, that bill is awaiting the President's signature.

Ninth Circuit Allows Section 340B Covered Entity Pricing Lawsuit Against Pharmaceutical Manufacturers

In a significant--and likely to be controversial--decision, the Ninth Circuit yesterday reinstated a putative class action filed by Santa Clara County, Calif., against more than 10 pharmaceutical manufacturers for allegedly overcharging hospitals for their medications. 

In County of Santa Clara v. Astra USA, Inc., __ F.3d __, 2008 WL 3916268 (9th Cir. Aug. 27, 2008), the question addressed was whether "Section 340B covered entities"--certain federally funded medical clinics--were intended direct beneficiaries of drug discount pricing agreements between the federal government and manufacturers. Section 602 of the Veterans Health Care Act of 1992, Pub. L. No. 102-585, 106 Stat. 4943, 4967, entitled “Limitations on Prices of Drugs Purchased by Covered Entities,” directs the Secretary of Health and Human Services to enter agreements with pharmaceutical manufacturers capping the price at the "average manufacturer price," as defined. 42 U.S.C. § 256b(a)(1). Pursuant to that statute, the Secretary entered into a standard Pharmaceutical Pricing Agreement ("PPA") with several manufacturers. The putative class action alleged, under federal contract law, that the County and several of its federally funded medical clinics were charged more than the PPAs allowed. The Ninth Circuit panel concluded that Section 340B covered entities are intended third-party beneficiaries of the PPAs with enforceable rights (even in the absence of a contractual right to sue, and the absence of a statutory private right of action), and rejected the argument that the primary jurisdiction doctrine required referral of the matter to the Secretary for agency resolution.

Significant Stark Law Changes Adopted in the 2009 IPPS Final Rule

This post was written by Heather M. Zimmerman, Karl A. Thallner, Jr, Thomas W. Greeson, Gina M. Cavalier, Daniel A. Cody, Brad Rostolsky, and Paul Pitts.

I.  INTRODUCTION

On Aug. 19, 2008, the Centers for Medicare & Medicaid Services (“CMS”) published a final rule to implement the Fiscal Year 2009 Hospital Inpatient Prospective Payment System (the “2009 IPPS final rule”). 73 Fed. Reg 48433. The IPPS final rule includes significant changes to the federal Physician Self-Referral Law, or “Stark Law,” regulations. Under the Stark Law, if a physician or a member of a physician’s immediate family has a financial relationship with an entity, the physician may not make referrals to that entity for the furnishing of certain “designated health services” (“DHS”) under Medicare, unless an exception applies. If a physician makes a prohibited referral for DHS, the entity is prohibited from seeking or keeping payment from Medicare for the DHS. The IPPS final rule adopts as final, numerous changes to the Stark Law regulations that were proposed in the 2009 Hospital Inpatient Prospective Payment System proposed rule (“2009 IPPS proposed rule”), as well as changes that were proposed in the 2008 Medicare Physician Fee Schedule proposed rule (“2008 MPFS proposed rule”) and adopted as final in the September 2007 Stark Law, Phase III regulations (“Phase III”).

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EPA Moves Towards Possible Regulation of the Disposal of Unused Pharmaceuticals in Sanitary Sewer Systems

This post was written by Louis A. Naugle and Mark A. Mustian.

On Aug. 12, 2008, EPA announced its intention to submit an Information Collection Request (“ICR”) to the Office of Management and Budget, for collection of information from the Health Services Industry. 73 FR 46903 This ICR is the first step by EPA toward possible regulation of the disposal of unused pharmaceuticals, and the implementation of effluent limitations for disposal of unused pharmaceuticals to sanitary sewer systems.

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Joint Commission Introduces New Standards Requiring Health Care Organizations to Create a "Code of Conduct" for Appropriate Workplace Behavior

On July 9, 2008, The Joint Commission, the nation's standards-setting and health care accreditation body, issued a Sentinel Event Alert, which warns that intimidating and disruptive behavior can result in medical errors and adverse outcomes for patients. As a result of these findings, The Joint Commission is introducing new standards, which require accredited health care organizations to create codes of conduct that define acceptable, disruptive and inappropriate behaviors, and to create and implement procedures for managing disruptive and inappropriate behaviors. The new standards, which apply to hospitals, nursing homes, home health agencies, laboratories, ambulatory care facilities, and behavioral health care facilities in the United States, take effect Jan. 1, 2009.

Reed Smith's Bethany A. Pelliconi has written an informative article discussing these new standards.

 

Pennsylvania Proposes Regulations for a New Provider Type: Assisted Living Facilities

This post was written by Karl A. Thallner, Jacqueline B. Penrod, Amie E. Schaadt and Brad M. Rostolsky.

I.  INTRODUCTION

On Aug. 9, 2008, the Pennsylvania Department of Public Welfare (“DPW”) published its proposed regulations for assisted living facilities operating within the Commonwealth. (Pennsylvania Bulletin, Vol. 38, No. 32, Aug. 9, 2008.)  The proposed regulations were drafted in response to the Pennsylvania General Assembly’s enactment of Act 56 on July 25, 2007. Act 56 amended the statute regulating and licensing personal care homes by creating, defining, and providing for the regulation of a new form of facility to provide long-term care services within the state: the assisted living facility. 

The development of the assisted living facility is a significant change in the current continuum of care and should be of interest to all owners, developers, and administrators of personal care homes and nursing homes operating within the Commonwealth. By obtaining licensure for assisted living, both nursing homes and personal care homes will have the ability to attract a greater range of individuals who wish to remain in a single facility and avoid undergoing transfers when their conditions improve or worsen. The change is also relevant to continuing care retirement communities (“CCRC”) that wish to provide, and advertise that they provide, the full continuum of care. Furthermore, the change is relevant to hospitals because assisted living facilities may provide a new option for discharging patients who need a higher level of residential care, but who do not require around-the-clock skilled nursing care. Of course, the alternative of assisted living is significant to patients and prospective patients who may require residential care. Parties interested in submitting comments, questions, and suggestions to the DPW must do so by Sept. 15, 2008. 

As noted above, the newly enacted legislation and its implementing regulations represent a significant change in the Commonwealth with regard to the provision of long-term care services. The central focus of the Act is the concept of “aging in place,” which is defined as the receipt of “care and services at a licensed assisted living residence to accommodate changing needs and preferences in order to remain in the assisted living residence.” Under the Act, the assisted living facility is defined as “any premises in which food, shelter, personal care, assistance or supervision and supplemental health care services are provided for a period exceeding twenty-four hours for four or more adults.” Thus, an assisted living facility essentially functions as a natural extension of the personal care home setting, and thereby allows an individual to remain in one place while receiving a heightened level of service and care as physical needs increase.

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Under Construction: The Medicare Clinical Trial Policy

A lesser-known provision in the Medicare Program allows payment for "reasonable and necessary" items or services provided through clinical trials. At the same time, even for traditional reimbursement, the Centers for Medicare & Medicaid Services (CMS) increasingly is demanding evidence of effectiveness in the Medicare population, rather than simply in the general population, to support a coverage decision. The federal government has sought, often without much success, to increase participation by Medicare recipients in clinical trials, because Medicare recipients traditionally have been underrepresented in research populations--meaning the very evidence CMS seeks for traditional reimbursement often does not exist. Developments regarding these reimbursement policies by CMS are the subject of an informative and timely article for the FDLI UPDATE by Reed Smith attorney Kathleen McGuan.

The "Medicare Improvements for Patients and Providers Act of 2008": Delay and Reform of the Medicare DMEPOS Competitive Bidding Program

This post was written by Debra A. McCurdy, Carol Loepere, Elizabeth Carder-Thompson, Robert J. Hill and Kathleen McGuan.

I.  INTRODUCTION

On July 15, 2008, the House and Senate overrode President Bush’s veto of H.R. 6331, the “Medicare Improvements for Patients and Providers Act of 2008” (“MIPPA”).1  Among many other things, MIPPA delays and reforms the Centers for Medicare & Medicaid Services’ (“CMS”) controversial competitive bidding program for certain categories of durable medical equipment, prosthetics, orthotics and supplies (“DMEPOS”), which had already gone into effect in 10 geographic areas on July 1, 2008. 

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A Media Campaign Questions the French Monopolistic Sale of Pharmaceutical Products

This post was written by Paule Drouault-Gardrat and Julie Gottenberg.

Under French Law, pharmacies benefit from a monopoly on the sale of medicinal products. This monopoly covers reimbursed and non-reimbursed pharmaceutical products. Once they are de-reimbursed, the price setting is free. This is indeed a very important market for the approximately 23,000 French pharmacies, as the current government follows a policy of dereimbursement.

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PhRMA Issues Revised Code on Interactions with Healthcare Professionals

This post was written by Christine E. BloomquistGina M. Cavalier, and Matthew E. Wetzel.

INTRODUCTION

On July 10, 2008, the Pharmaceutical Research and Manufacturers of America (“PhRMA”) issued a revised Code on Interactions with Healthcare Professionals (“HCPs”) (the “PhRMA Code”). The revised PhRMA Code, which becomes effective January 2009, contains several key changes that will impact significantly the sales and marketing efforts of pharmaceutical companies that choose to comply. The most important revisions are those relating to sales representatives’ ability to provide meals and logo items to HCPs. Specifically, the revised Code prohibits sales representatives from paying for off-site or restaurant meals for HCPs and their staff and prohibits the use of branded “reminder” items, such as mugs, notepads or pens. The following memorandum contains a description of these and other revisions and also details the potential impact of the revised Code on the pharmaceutical industry. In addition, attached to this memorandum is a chart summarizing the original and revised PhRMA Codes and highlighting the new provisions that will become effective next year.

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Health Law Monitor

Articles in This Issue:

  • Provider Networks and Joint Ventures: Avoiding Antitrust Scrutiny Through Clinical Integration
  • Stark II, Phase III Final Rule
  • In the Spotlight:  Fraud and Abuse
  • Health Law 101:  Fraud and Abuse
  • Recent Reed Smith Publications

Click here to read the Spring 2008 issue of Health Law Monitor.

Proposed Stark Law Changes in CMS's 2009 IPPS Proposed Rule

This post was written by Karl A. Thallner, Jr., Gina M. Cavalier, and Daniel A. Cody.

I. INTRODUCTION

On April 30, 2008, the Centers for Medicare & Medicaid Services (“CMS”) published a proposed rule to implement the Fiscal Year 2009 Hospital Inpatient Prospective Payment System (the “IPPS proposed rule”). 73 Fed. Reg. 23528. The IPPS proposed rule includes possible changes to certain provisions of the federal Physician Self-Referral Law, or “Stark Law,” regulations. Under the Stark Law, if a physician or a member of a physician’s immediate family has a financial relationship with an entity, the physician may not make referrals to that entity for the furnishing of certain “designated health services” (“DHS”) under Medicare, unless an exception applies. A DHS entity is prohibited from seeking or keeping payment for services furnished as a result of a prohibited referral. The IPPS proposed rule’s changes to the Stark Law regulations come on the heels of two other significant Stark Law regulatory developments – the July 2007 proposed Stark Law changes contained in the proposed 2008 Medicare Physician Fee Schedule (“2008 proposed MPFS”) regulations and the September 2007 final Phase III Stark Law regulations1. CMS will accept comments from the public on these proposed regulations until June 13, 2008.

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Operating Notes: Developments Surrounding Outpatient Surgical Facilities Continue to Unfold in 2008

Calendar year 2008 has begun where 2007 ended, by presenting us with a number of legal developments impacting the provision of outpatient surgical care. Keeping up with such developments is a challenge for those of us whose careers revolve around representing outpatient surgical facilities. Keeping up for those who actually own and/or operate such facilities as part of their practices may simply be impossible.

Accordingly, this post details our discussion of selected recent developments in the outpatient surgery arena to be useful. This alert and others that we will forward do not purport to be exhaustive accounts of legal developments impacting ASCs or physician-owned hospitals nationally. Rather, we have identified developments that we found particularly interesting in that they address common themes or questions that we frequently encounter.

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