MACRA Signed into Law by President; Reforms Medicare Payment Policy for Physician Services

On April 16, 2015, President Barack Obama signed into law the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA). The bill permanently transforms the structure of Medicare physician reimbursement and enacts several changes to Medicare payment, program integrity and policy provisions that will affect both health care providers and pharmaceutical/medical device manufacturers. The most notable change, according to a Reed Smith client alert written by Deb McCurdy, Elizabeth Carder-Thompson, Dan Cody, Gail Daubert, Tom Greeson, Paul Pitts, Trey Andrews, Katie Hurley and Rahul Narula, is the repeal of the Sustainable Growth Rate formula, ending an era in which Medicare physician fee schedule rates were subject to regular cuts and temporary adjustments by Congress. Under MACRA, physician payment updates will now pertain to quality, value and participation in alternative payment models.

Other changes under MACRA include a two-year extension of the Children’s Health Insurance Program (CHIP), a reduction of market basket updates for post-acute care providers, a revision of inpatient hospital payment rate updates, a restructuring of reductions under the Medicaid disproportionate share hospital program, an implementation of additional income-related adjustments for Medicare Part B and Part D premiums, and a ban on first-dollar Medigap coverage policies.

To read the full alert, click here.

CMS Discusses Medicare Implications of FDA Approval of First Biosimilar Product

This post was written by Deb McCurdy.

CMS has issued an educational article on “Food and Drug Administration Approval of First Biosimilar Product,” and the implications for Medicare coverage. CMS states that its policies “will ensure Medicare beneficiaries will have access to this new product, as it does for other drugs that receive FDA approval.” The document includes the following Q&A:

Question: How will a health care professional that administers this product get reimbursed under Medicare Part B?
Answer: Medicare Part B payment for newly approved drugs and biologicals is available once the product is approved by the FDA. CMS will incorporate biosimilars that are approved under the abbreviated biological approval pathway into the Average Sales Price (ASP) payment methodology, and issue additional guidance as necessary. Initially, once the manufacturer’s wholesale acquisition cost (WAC) is available, Medicare will pay 106 percent of the WAC for the product until ASP information is available. Once ASP information is available for this biosimilar product, Medicare payment will equal the ASP for the biosimilar product plus six percent of the ASP for the reference product.

Question: How soon will CMS be releasing coding information related to Part B reimbursement?
Answer: CMS anticipates including the approved biosimilar in the next quarterly Healthcare Common Procedure Coding System (HCPCS) tape release in the coming weeks, appearing in the claims processing system on July 1, 2015, effective retroactively to the FDA approval date.

Question: Will CMS be assigning unique codes to each biosimilar released?
Answer: CMS will create a separate code to distinguish the biosimilar from the reference biological. CMS is considering policy options for coding of additional biosimilars, and will release further guidance in the future.

Question: Will use of a distinguishing identifier to biological products make it harder to achieve Medicare reimbursement?
Answer: Distinguishing identifiers will have no bearing on coding and payment.

Question: How will CMS address providing access to biosimilars through Medicare Part D?
Answer: Although coverage for filgrastim will generally be provided through Part B, it could also be covered under Part D in certain circumstances (for example, nursing homes or Intermediate Care Facilities for Individuals with Intellectual Disabilities (ICF/IID)). CMS will be releasing guidance to plans confirming that biosimilars approved by the FDA will be subject to existing rules for prescription drugs under Part D.

To read the full article, 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.

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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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 


  • 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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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.


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.

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.

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. 

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 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.

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

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.

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.

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 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

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.


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.

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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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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Medicare, Medicaid, and SCHIP Extension Act of 2007 Enacted into Law

President Bush has signed into law S. 2499, the “Medicare, Medicaid, and SCHIP Extension Act of 2007." Most notably, the legislation postpones for six months a 10.1% across-the-board cut in Medicare physician payments that was scheduled to go into effect January 1, 2008.

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Expansion of Medicare DMEPOS Competitive Bidding Announced

This post was written by Debra McCurdy, Carol Loepere, and Elizabeth Carder-Thompson.


On January 8, 2008, CMS announced the second phase of Medicare competitive bidding for durable medical equipment (“DME”), prosthetics, orthotics, and supplies (“DMEPOS”). In this second round, competitive bidding will be implemented in 70 areas, including the nation’s largest cities. The complete list of areas can be found at Appendix 1. With very limited exception, only suppliers who are successful bidders in these regions and who meet program standards (including accreditation) will be eligible to furnish eight categories of DMEPOS to Medicare beneficiaries beginning next year. 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.

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