French Sunshine Act's Scope Expands with Recent French Supreme Administrative Court Decision

Reed Smith’s Global Regulatory Enforcement Law Blog features a post on a recent decision by the French Supreme Administrative Court (Conseil d’Etat) that expands the scope of the French Sunshine Act. “French Supreme Administrative Court Decision Significantly Broadens the Scope of the French Sunshine Act,” written by Reed Smith attorneys Daniel Kadar and Caroline Gouraud, highlights two major changes to the current French Sunshine Act provisions: (1) health care companies will now be required to disclose the contractual remuneration paid to health care providers, and (2) manufacturers and marketers of non-corrective contact lenses, cosmetics and tattoo products will now be held to the same transparency standards as manufacturers and marketers of pharmaceuticals and medical devices. As to the former change, the French Ministry of Health must now decide whether or not the remuneration disclosure requirement should be retroactively applied – potentially back to January 1, 2012, the date of the first reporting requirements.

To read the full post, click here.

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.

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.

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.

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.

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.

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.

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.

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'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

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.

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.

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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Seeing the Light With the Physician Payment Sunshine Act


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

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.

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.

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.

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.


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.

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.

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.

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.

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.

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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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).

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.

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.

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.

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.