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 Comments to the ANPRM may be submitted in writing, or electronically at, 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
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].

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

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.

The Affordable Care Act is here to stay as a result of President Obama’s reelection. Even if Governor Romney had been elected, changes to the health system were inevitable. In some markets, accountability, transparency and greater integration is being driven as much by commercial payers as from the government. We don’t expect everyone to agree with the following comments, but this is how we see the short and mid-term time horizon:

  • Continuing Integration. CMS will continue to foster integration efforts via its shared savings program that calls for creation of accountable care organizations (ACOs) to coordinate care, encourage use of evidence-based measures, reduce costs and achieve betters outcomes for patients. Many of you practice in hospitals that want to be the drivers of ACOs and other integrated delivery systems. Although these organizations are centered around primary care providers, imaging is a necessary component of any ACO’s portfolio of services. The prudent group will try to find some way to “be at the table” to help shape the governance, appropriateness of the imaging service and especially, to shape the compensation model. While we expect these integration efforts to continue, we do not believe that employment by hospitals is the necessary fate of most radiologists. We feel it is critical for the group culture of radiologists to endure to allow radiologists to determine selection and retention of radiologists, scheduling of services and the compensation of individual radiologists. Employment is not necessary to achieve that group role. A carefully drawn contractual agreement can address a health system’s desire for integration while preserving the independence of a radiology practice. CMS requires all ACOs to be legal entities. Many radiology groups may want to consider taking an investment interest in the legal entity organized to operate as the ACO and strive to have key governance and committee roles in those organizations.
  • The Value Proposition. The challenge for the specialty may be a contest between commoditization of the professional services via teleradiology and the local delivery of those same services. The groups that succeed in offering a viable alternative to cost-based marketing of radiology services will learn to sell the value proposition for their services locally. Technology will play a key role, but so will the willingness of radiologists to truly offer consultative services that will be valued by local referring physicians, hospital administrators and payers. Radiologists can be the gatekeepers for appropriate care. There is a need for your role in controlling appropriateness and overall imaging costs in a manner that complies with the fraud and abuse laws and rules governing participation in Medicare.
  • Ventures. The efficiency and patient preference for free standing imaging is unlikely to change. It is even more likely, however, that such free standing facilities will be part of the offerings of an integrated delivery system. Hospitals, will likely have some ownership in an increasing percentage of the outpatient imaging that is delivered in this country. Not all of those facilities will be provider based. It is incumbent, therefore, that radiologists understand the Medicare enrollment rules and the options that are available as they work with their hospitals in organizing free standing imaging services. Here again, we recommend that radiologists work to “be at the table” and strive for ownership and participation in the governance and management of these facilities.
  • Regulatory Awareness. The government is likely to double down in its enforcement activities. Radiologists operate under a complex set of rules and guidelines. Radiology groups will have to remain vigilant to understand the rules that govern how your services are ordered, delivered and billed for Medicare patients. We anticipate those rules could apply to the delivery of certain non-Medicare patients as well.
  • Antitrust and Competition. As health systems continue their efforts to control costs through integration of all stages of care, we foresee greater competition in delivery of imaging services in the future and more disputes regarding whether health systems and large practices misuse their market power.
  • Curtailment of Self-Referral. After more than two decades of radiologists’ advocacy for retrenchment of self-referral, the regulatory climate appears more favorable than ever toward a roll back of in-office imaging. Both governmental and private payers appear now to perceive how the conflicts of interest caused by referral to a physician’s own imaging services is a driver in increased health care costs. The report of the General Accountability Office released last month contained specific policy suggestions for curbing self-referral. As payers adopt various strategies for steering patients away from centers that are higher priced and high utilizers of imaging services, centers owned and operated by radiologists or by radiologists and hospitals are likely to be very competitive in many markets.

Bottom line, we believe that the groups that prepare for these changes, and look for opportunities as a result of these changes, will not only survive but can thrive in the health care delivery system that will emerge.

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.

Amendments to the Massachusetts Marketing Code of Conduct

On July 6, 2012, the governor of Massachusetts signed into law, as part of the FY2013 State Budget, revisions to Massachusetts General Laws, Chapter 111N, the Pharmaceutical and Medical Device Manufacturer Code of Conduct or “Massachusetts Marketing Code of Conduct,” which restricts certain gifts and payments by manufacturers to Massachusetts HCPs.

The revisions to the Massachusetts law include the following:

  • Expenses related to technical training. In a much-needed development, manufacturers are now permitted to provide payment for reasonable expenses necessary for technical training on the use of medical devices, regardless of whether such expenses are covered by a pre-existing purchase agreement. Previously, the law restricted this practice to situations in which such expenses were part of a vendor’s actual purchase contract for the device.
  • Meals Permitted at Non-CME Educational Presentations. Previous Massachusetts law restricted manufacturers from directly providing meals to HCPs except in office or hospital settings. The recent revisions relax this requirement by allowing manufacturers to provide or pay for “modest meals and refreshments” in connection with non-CME educational presentations for the purpose of educating and informing HCPs about the benefits, risks and appropriate uses of prescription products, disease states or other scientific information. The new exception applies only to presentations occurring in a “venue and manner conducive to informational communication.” The term “modest meals and refreshments” is to be defined by the Department of Public Health (“DPH”) through regulations.
  • Detailed Quarterly Reporting of Meals at Non-CME Educational Presentations. To the extent that manufacturers avail themselves of this exception, they must file quarterly reports detailing all presentations at which meals or refreshments are provided. These reports must specify: (1) the location of the non-CME presentation; (2) a description of the products discussed at such presentation; and (3) the total amount expended on such presentation and an estimate of the amount expended for meals and refreshments per participants. This quarterly reporting requirement is in addition to manufacturers’ already-detailed annual reporting requirement with respect to payments or benefits of $50 or more provided to HCPs. However, while the annual reporting requires identification of HCPs, the new quarterly requirement does not appear to be HCP-specific, although amounts per HCP must be disclosed. The revisions make clear that the DPH may require manufacturers to pay a to-be-determined fee to cover the costs of administering this new section.
  • Duplicative Reporting Not Required. The revisions prohibit the DPH from requiring manufacturers to disclose information to the DPH that they have already disclosed to a federal agency pursuant to federal law, if DPH can obtain the federal information. Accordingly, once manufacturers begin disclosing information to CMS under the Physician Payment Sunshine Act, the same information will not need to be disclosed to Massachusetts.
  • Public Availability of Data. Pursuant to a newly added section, the DPH is required to make publicly available and easily searchable on its own website all disclosed data it receives from CMS in annual reports related to manufacturer disclosures pursuant to the Physician Payment Sunshine Act.

As passed on July 8, 2012, these amendments to the Massachusetts Marketing Code of Conduct do not specify an effective date, although the fiscal year of the state budget during which they were passed began July 1, 2012. The DPH has been charged with defining certain terms included in the amendments, and is also expected to make additional conforming amendments to the existing regulations, currently at 105 C.M.R. 970.000. Accordingly, manufacturers should continue to comply with the current regulations, even as they look toward taking advantage of the expanded opportunities for the provision to Massachusetts HCPs of certain meals and expenses consistent with the latest amendments.

Amendments Related to the Coupons, Vouchers, and other Reductions

Separate and apart from the revisions to the Massachusetts Code of Conduct, the FY2012 State Budget also relaxes the Massachusetts anti-kickback statute, which previously prohibited the provision of all coupons, vouchers, and other reductions for prescription medications.

The latest revision limits the prohibition to discounts, rebates, product vouchers or other reductions in an individual's out-of-pocket expenses, including co-payments and deductibles, only to those prescription drugs having an AB-rated generic equivalent. Accordingly, discounts, rebates, vouchers and other reductions can be offered for all drugs except for those with generic equivalents, provided that they are “provided directly or electronically to the individual or through a point of sale or mail-in rebate, or through similar means.” Moreover, manufacturers offering such coupons or reductions cannot exclude or favor any pharmacy for customer redemption

* * * * *

Device manufacturers need to be able to provide education to physicians and hospital staff regarding actual and contemplated equipment purchases, and permitting the common courtesy of a modest snack or meal in connection with such training is a needed improvement. At the same time, given how comprehensive the federal disclosure requirements will be once implemented, and with results published on the Internet, we question the need for states to impose their own complicated and more expansive prohibitions and disclosure requirements, considering the significant operational and recordkeeping burdens they impose on manufacturers, not to mention the sometimes absurd practices that result (e.g., complex signage at conference booths with differing instructions for practitioners from different states entering the booth). On balance, it seems that funds for such manufacturer activities would be better dedicated to needed research and development.

We continue to monitor developments with respect to state and federal manufacturer marketing reporting requirements and gift bans. Please contact Elizabeth Carder-Thompson (202 414 9213 or, Katie C. Pawlitz (202 414 9233 or, Nancy Bonifant (202 414 9353 or, 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.

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.

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. 

Upcoming MSP Improvements

Third, according to CMS, certain improvements to the MSP program can be expected within the next three to nine months, including:

  • The implementation of a Medicare Secondary Payer Recovery Contractor (MSPRC) web portal, where the beneficiary or representative can obtain information about Medicare's claim payments, demand letters, etc., and input information related to a settlement, disputed claims, etc.
  • The implementation of an option that allows for an immediate payment to Medicare for future medical costs that are claimed/released/effectively released in a settlement. 
  • The implementation of a process that discloses Medicare's conditional payment amount, prior to settlement in certain situations.

If implemented, these new options and processes could significantly improve the efficiency of the existing MSP system and provide greater certainty to all parties where settlements involve Medicare beneficiaries. More information can be found on CMS’s website. 

Narrow Exception for Qualified Settlement Funds Prior to October 1, 2011

Fourth, in an “Alert” dated September 20, 2011, a narrow exception has been announced for certain settlements that are paid into a qualified settlement fund (QSF) under Section 468B of the Internal Revenue Code (IRC) prior to October 1, 2011.  Specifically, each of the following criteria must be met in order for exception to apply:

  • The settlement, judgment, award, or other payment is a liability insurance (including self-insurance) TPOC amount, where no ongoing responsibility for medicals (ORM) is involved
  • The settlement, judgment, award, or other payment will be issued by a QSF under Section 468B of the IRC, in connection with a state or federal bankruptcy proceeding
  • The funds at issue were paid into the trust prior to October 1, 2011

New “Fixed Percentage Option”

Finally, for certain settlements that are less than $5,000, there is a new "fixed percentage option" for beneficiaries to satisfy Medicare's total MSP claim.  Details are provided on the MSPRC website and are reprinted below. Although this option is currently only available under narrow circumstances, it represents a significant departure from CMS’s historical and complicated approach to the MSP recovery process.  


Effective November 7, 2011, the Centers for Medicare & Medicaid Services has implemented a new and simple fixed percentage option that is available to certain beneficiaries. This option is available to beneficiaries who receive certain types of liability insurance (including self-insurance) settlements of $5,000 or less.

A beneficiary who elects this option will be able to resolve Medicare's recovery claim by paying Medicare 25 percent of his/her total liability insurance settlement instead of using the traditional recovery process. This means that a beneficiary will know what he/she owes and will be able to immediately pay Medicare.

In order to elect this option, the following criteria must be met:

  • The liability insurance (including self-insurance) settlement is for a physical trauma based injury. (This means that it does not relate to ingestion, exposure, or medical implant)
  • The total liability settlement, judgment, award, or other payment is $5,000 or less
  • The beneficiary elects the option within the required timeframe and Medicare has not issued a demand letter or other request for reimbursement related to the incident
  • The beneficiary has not received and does not expect to receive any other settlements, judgments, awards, or other payments related to the incident


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 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.

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.

Reed Smith Issues Major Analysis of the Patient Protection and Affordable Care Act, Focusing on Health Care Provider and Medical Product Manufacturer Impact

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

On March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care Act (PPACA), a sweeping measure designed to expand access to health insurance, reduce health care spending (particularly in the Medicare program); expand federal fraud and abuse authorities and transparency requirements; impose new taxes and fees on health industry sectors; and institute a variety of other health policy reforms. The President also signed a second bill into law on March 30, 2010, the Health Care and Education Reconciliation Act of 2010 (Reconciliation Act), which includes a series of “fixes” to the PPACA, including substantive changes to the PPACA’s provisions regarding Medicare prescription drug coverage, Medicare Advantage and fee-for-service payments, Stark law self-referral policy, and Medicaid matching payments, among many others. Within the thousands of pages of the new laws are numerous provisions that will have a direct and material impact on nearly every component of the health care delivery and financing systems in the United States, including health insurers, health care providers, and manufacturers of pharmaceuticals and medical devices, as well as employers, taxpayers, and patients. Moreover, the impact of some of these provisions will be felt immediately, as certain provisions are effective upon enactment, and some have January 1, 2010 effective dates. Reed Smith has prepared a major Alert concentrating on those PPACA provisions we believe are of most interest to health care providers and medical device and pharmaceutical manufacturers.

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.

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.

I.      Presentations and Trends

Leading the morning session, HHS Secretary Kathleen Sebelius vowed to “prevent, catch, and discourage fraudsters,” stating “Criminals – your days are numbered.” She promised an aggressive new fraud prevention focus, including enhanced Medicare Strike Force activities in a number of US cities, and continued coordinated, multi-agency initiatives under HEAT – the Health Care Fraud Prevention and Enforcement Action Team Secretary Sebelius also stated that, next week, the President’s budget likely will request an additional $1.7 billion in funding for fraud prevention and detection.

Attorney General Eric Holder disclosed that, in 2009, DOJ charged over 800 individuals in health care fraud cases, and obtained 580 convictions so far. DOJ also recovered billions of dollars in False Claims Act (qui tam) recoveries. He also promised that future fraud-busting efforts will include actively engaging the private sector (including Medicare beneficiaries recruited to serve on “Senior Medicare Patrols”), the insurance industry, and health care providers.

A panel comprised of representatives from CMS, FBI, OIG, DOJ, and others who have worked on what they call “the viral fraud cases in the Miami-Dade area” (i.e., spreading like a virus) told stories about the highly-aggressive and coordinated tactics and techniques they now employ. An Assistant United States Attorney who serves as the South Florida Health Fraud Coordinator, Luis Perez, said the days of prolonged subpoena productions, accountant analyses, extended research into cases, and deference to white collar defendants, are over: “We arrest everyone,” he said. His team of government agents and prosecutors seeks to bring the highest possible provable charges as offenses are committed, and then bring in additional evidence during the sentencing phase in order to seek upward adjustments under the Sentencing Guidelines to obtain maximum prison times.

The CEO of the Tufts Health Plan in Boston, James Roosevelt, highlighted anti-fraud tactics increasingly employed by private payers. For example, Tufts has hired Nick Messuri – formerly head of the Massachusetts Attorney General’s Medicaid Fraud Control Unit and a well-known, tough prosecutor in the state – as head of its antifraud group, which includes nine other attorneys. Tufts and other payers conduct their own clinical and other investigations relating to medical necessity, upcoding, miscoding, overutilization, outliers, illegal referrals, and more. Tufts currently has 128 open investigations, some of which are being conducted in cooperation with governmental entities to which it has made reports. 

II.      Investigative and Enforcement Predictions

During the afternoon, attendees were divided into discussion groups to consider such issues as effective law enforcement tactics, the role of states in fraud prevention, effective use of data, and more. A report on the break out-sessions will be published in the future, but some of the common themes I observed – and the future actions I predict – are as follows:

1) There will be heightened cooperation and more aggressive, coordinated enforcement in the public and private sectors to combat fraud, abuse, and waste. The main focus used to be Medicare fraud – now it is health care fraud across-the-board.

2) Increasingly, efforts will be directed at fraud and abuse prevention, and pre-payment scrutiny, rather than just focusing on “pay-and-chase” enforcement. CMS and private payers will be seeking to justify deviating from “prompt pay” requirements in the name of fraud and abuse prevention. A number of speakers commented that investment in health care fraud provides a multiple return – for DOJ, it was a $4 return for every dollar; for Tufts, a $7 return for every dollar; and for OIG, an $8 return for every dollar.

3) There will be increased attention paid to data coordination. Currently, Medicare, Medicaid, and private payers collect and maintain data in different ways, making utilization and other “pattern” comparisons difficult. This is going to change.

4) Governmental entities are directing their resources in a more data-driven and targeted way in order to identify fraudulent patterns. For example, they know that “fraudsters” who used to operate in Miami-Dade are moving up Route 95 into South Carolina and other states. Data shows that those who defrauded fee-for-service programs for a specific item or service, e.g., orthotics and diabetes supplies, are now moving to defraud Medicare Advantage plans. Providers sanctioned and excluded in one state are moving to another. Some of these schemes have worked in the past – but they will not in the future.

5) There will be greatly increased efforts to engage the general public – Medicare beneficiaries, their families, and others – in whistleblowing.

III.     What Does All of This Mean for the Future?

None of us committed to health care in America would countenance or want less than full punishment for “real” health care fraud. Unquestionably, many of the cases cited at the Summit fall in this category – billing for services not rendered, beneficiaries selling their Medicare numbers, false certifications by physicians for items of durable medical equipment, dental clinics pulling children’s teeth unnecessarily to obtain Medicaid payment, clinics billing for outmoded infusion therapy for HIV/AIDS patients, and more. I applaud aggressive and coordinated investigation and enforcement efforts to rid our system of these practices and their perpetrators, and the fraud-fighters in the government clearly are a very smart, very dedicated group 

I worry, however, that the zeal for health care fraud enforcement will inappropriately ensnare committed, compassionate health care providers, suppliers, and manufacturers. In our practice, we are increasingly seeing qui tam relators – whistleblowers – with dollar signs in their eyes, bringing questionable and even frivolous actions against their employers or former employers. We are seeing overburdened prosecutors taking years to make qui tam intervention decisions – while the relators continue to work and gather “data” at their employers’ places of business, to “support” their cases. 

I worry about Medicare contractors, eager to keep their contracts, trying a little too hard to prove to CMS that they are fraud-conscious. I have several supplier clients on 100% pre-pay Medicare review facing significant potential disallowances because a contractor decided for the first time to implement a technical Medicare manual provision about recording a specific date of service – when there is no question from the medical record that medically necessary, physician ordered, and readily documented services were in fact provided.

I worry about constitutional due process. One private insurance company representative at the Summit suggested that the government send announcements to all private payors when any qui tam cases are unsealed, so that the insurance companies can place “edits” on claims filed by the defendants, or at least pre-payment reviews – well before the case has been decided. I worry that the “arrest them all” enforcement mentality will harm the reputations and future livelihood of individuals not yet tried, who are later exonerated. 

There are no easy answers. At a minimum, though, in this rapidly-evolving investigative and enforcement environment, health care providers, suppliers, and manufacturers need to concentrate more than ever before on compliance. Moreover, their compliance efforts need to be real and not token ones, including comprehensive training, and internal auditing and monitoring with real consequences for employees and representatives falling short. The stakes are very high, and the so-called “radar screen” that companies used to joke about “flying under” now reaches all the way to the ground.

Reed Smith will continue to monitor developments with respect to health care fraud as the health care reform debate continues. In the interim, please contact Elizabeth Carder-Thompson in our Washington office if you have questions regarding this topic.

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.

HHS Rule Implements HITECH Act Changes to HIPAA Enforcement

On Friday, October 30, 2009, the U.S. Department of Health and Human Services ("HHS") published an interim final rule and request for comments that implements certain HIPAA enforcement changes made pursuant to the HITECH ActConsistent with the provisions of the HITECH Act, the new rule amends the HIPAA enforcement regulations applicable to violations of each of HIPAA's Administrative Simplification Rules (i.e., Privacy Rule, Security Rule, Transactions and Code Sets Rules, Standard Unique Identifier for Employers (EIN Rule), and the Standard Unique identifier for Health Care Providers (NPI Rule)) by instituting the below categories of violations and tiered penalty scheme to HIPAA violations that occur on or after February 18, 2009. 

  • Unknown violations (i.e., if a person did not know and by exercising reasonable due diligence would not have known that a violation occurred): The penalty shall be at least $100 for each violation not to exceed $25,000 for all such identical violations during a calendar year, but may be no more than $50,000 for each violation not to exceed $1.5 million for all such violations of an identical requirement or prohibition during a calendar year.
  • Violations due to reasonable cause and not to willful neglect: The penalty shall be at least $1,000 for each violation not to exceed $100,000 for all such identical violations during a calendar year, but may be no more than $50,000 for each violation not to exceed $1.5 million for all such violations of an identical requirement or prohibition during a calendar year.
  • Violations due to willful neglect (and the violations have been corrected): The penalty shall be at least $10,000 for each violation not to exceed $250,000 for all such identical violations during a calendar year, but may be no more than $50,000 for each violation not to exceed $1.5 million for all such violations of an identical requirement or prohibition during a calendar year.
  • Violations due to willful neglect (and the violations have not been corrected): The penalty shall be at least $50,000 for each violation not to exceed $1.5 million for all such violations of an identical requirement or prohibition during a calendar year.

Furthermore, the interim final rule generally amends a covered entity's ability to employ an affirmative defense against an action seeking civil monetary penalties if (i) the covered entity did not have knowledge or constructive knowledge of the violation, and (ii) the violation was not due to reasonable cause and not willful neglect. HHS is also given the authority to waive a civil monetary penalty for violations due to reasonable cause and not willful neglect if the covered entity corrects the violation within 30 days of having knowledge that the violation occurred. 

Comments on this interim final rule will be considered if received by December 29, 2009.

Senate Finance Committee Options for Expanding Health Care Coverage (Comment Deadline May 22, 2009)

On May 11, 2009, Senate Finance Committee Chairman Max Baucus (D‐Mont.) and Ranking Member Chuck Grassley (R‐Iowa) released their policy options for expanding health care coverage, including options for designing a government-run public health insurance plan. Members are scheduled to meet to discuss these options on May 14, and public comments will be accepted on the options through May 22, 2009. An overview of the document is reprinted after the jump. This is the second of three options papers scheduled for release by the Committee, with the third options paper on financing health care reform planned for release before a May 20 meeting of Finance Committee members.

For the full post, please see our sister blog,

Health Care Reform Proposal

On Tuesday, Senate Finance Committee Chairman Max Baucus and Ranking Member Chuck Grassley released a lengthy policy paper discussing for options for reducing health care costs and improving quality in the health care delivery system. The proposals are far-reaching, ranging from bundling of hospital and post-acute care, establishing appropriateness criteria for imaging services, and requiring drug/device manufacturers to report payments to physicians/physician investments. With regard to specialty hospitals, the “whole hospital” and rural exceptions to the general ban on self-referral would be eliminated, but a new exception would be created for hospitals that have physician ownership and a Medicare provider agreement in effect on July 1, 2009 and which meet certain criteria. The release is available at