The Hart-Scott-Rodino Antitrust Improvements Act of 1976 (“HSR”), as amended, requires all persons contemplating certain mergers or acquisitions that meet or exceed the jurisdictional thresholds (shown below) to file notification with the Federal Trade Commission (“FTC”) and Department of Justice (“DOJ”) Antitrust Division and to wait a period of time before consummating the transaction.
Each fiscal year, the jurisdictional filing thresholds are adjusted to reflect the percentage change in the gross national product. The FTC announced the new jurisdictional filing thresholds on January 28, 2020. The newly revised thresholds apply to transactions that will close on or after February 27, 2020.
Filing Thresholds
Parties must analyze their transactions against the “Size of Transaction” and “Size of Person” reporting thresholds. The “Size of Transaction” test is concerned with the value (through voting securities, NCI, assets or a combination thereof being transferred) of what is being acquired, whereas the “Size of Person” test generally measures a company based on its last regularly prepared annual statement of income and expenses and its last regularly prepared balance sheet. To determine whether an HSR filing is needed, parties should analyze the transaction utilizing the following steps.
Will an acquiring person hold an aggregate amount of voting securities and assets less than $94 million? If yes, then no HSR filing is needed. If no, move to Step 2.
Will an acquiring person hold in excess of $94 million but not in excess of $376 million? If yes, then move to Step 3. If no, then move to Step 4.
Does one person to the transaction have sales or assets of at least $18.8 million? If yes, then an HSR filing is needed. If no, then no HSR filing is needed.
Will an acquiring person hold in excess of $376 million? If yes, an HSR filing is needed.
For purposes of this analysis, the value of any assets under consideration is the fair market value of the entity’s non-cash assets without regard to whether those assets are subject to a mortgage or how the assets might have depreciated for accounting purposes. The table below summarizes the 2020 reporting thresholds under the HSR Act.
Filing Required
2019 Threshold
2020 Threshold
Size of Transaction Test
No
X ≤ $90 million
X ≤ $94million
Size of Transaction Test AND Size of Person Test
Yes
$90 million < X ≤ $359.9 million
AND
Person 1: ≥ $18 million
Person 2: ≥ $180 million
$94 million < X ≤ $376 million
AND
Person 1: ≥ $18.8 million
Person 2: ≥ $188 million
Size of Transaction Test
Yes
X > $359.9 million
X > $376 million
Filing Fee
In connection with an HSR filing, the acquiring person must pay a filing fee at the time of filing by electronic wire transfer. The amount of the filing fee depends upon the size of the transaction as follows.
Value of Holding Securities and Assets to Be Held
Fee Amount
2019 Threshold
2020 Threshold
$94 million < X < $180 million
$94 million < X < $188 million
$45,000
$180 million < X < $899.8 million
$188 million < X < $940.1 million
$125,000
X ≥ $899.8 million
X ≥ $940.1 million
$280,000
Penalty
Any person (or officer, director or partner) who fails to notify the FTC and DOJ of a reportable transaction faces a civil penalty of $43,280 for each day on noncompliance.
If you have any questions or would like additional information about this topic, please contact one of the following members of Hall Render’s Antitrust Practice Group:
For more information about Hall Render’s Antitrust services, click here. For more information on Hall Render’s Mergers & Acquisitions services, click here.
Surprise Billing Continues to Be Hot as More Committees Weigh In
The House Ways & Means Committee plans to release its surprise billing legislation this week in preparation for a markup on February 12. The Ways and Means proposal will rely on arbitration for resolving out of network claims and will have to be reconciled with the bipartisan, bicameral proposal from the Energy and Commerce and Senate Health Education Labor and Pensions (“HELP”) Chairman Lamar Alexander (R-TN). House leadership is pushing committees to finish working on surprise billing measures by February 13 so they can shift focus to drug pricing.
House Education and Labor Committee Chairman Bobby Scott (D-VA) said his committee is also planning to mark up new legislation on surprise billing. Rep. Scott said a new bill will be drafted, as opposed to taking up a bill from the House Energy and Commerce Committee. Scott included that his office is working with the Senate HELP Committee for a “bipartisan, bicameral” deal that could win over Chairman Lamar Alexander.
House Vote Coming on Medicaid Block Grant Proposal
On Friday, House leadership announced a plan to vote on a resolution to disapprove of the administration’s proposed Medicaid block grant program. The vote is scheduled for Thursday, February 6. In a statement, House Speaker Nancy Pelosi (D-CA) and Majority Leader Steny Hoyer (D- MD) said, “The goal of this new waiver is clear: reduce access to health care for millions of low-income Americans, including access to affordable prescription drugs. The Democratic-led House will not allow this challenge to health care access in our country to go unanswered.”
CMS announced a much-anticipated Medicaid guidance policy last week that would allow states to receive a lump sum to spend on Medicaid instead of the currently unlimited amount of funding, which grows and shrinks based on state needs. The Trump administration believes this will lead to lower spending over time. While this would require a minimum level of coverage based on the Affordable Care Act’s ten categories of “essential health benefits,” states could decide who exactly to cover and omit traditional Medicaid benefits like long-term care and transportation to medical appointments. A legal challenge of this guidance is inevitable.
HHS and Congress Working to Stop Virus Outbreak
Now considered an official public health emergency, Congress will hold its first hearing on the coronavirus this week in the House Foreign Affairs Committee. The State Department issued its highest alert as it advised Americans to avoid traveling to China.
Last week, House Energy and Commerce Committee members were briefed by the Administration on the emerging threat. Members expressed concerns that China may not be providing enough information about the outbreak and worried that a severe flu season could strain the U.S. response if coronavirus spreads. Lawmakers expressed a willingness to provide more resources if necessary.
Health-Related Bills Introduced Last Week
Rep. Ron Kind (D-WI) introduced H.R. 5693, the Primary Health Services Enhancement Act.
Rep. Cynthia Axne (D-IA) introduced H.R. 5688 to amend the Public Health Service Act to provide for grants to enable states to carry out activities to reduce administrative costs and burdens in health care.
Rep. Brendan Boyle (D-PA) introduced H.R. 5681, the Protecting Communities from Hospital Closures Act of 2020.
The Week Ahead
President Trump will deliver the State of the Union address on Tuesday. He is expected to discuss health care issues at length in his speech. This includes criticism of Medicare-for-All and calling out Congress for failing to pass a bipartisan drug-pricing bill supported by the White House.
On Wednesday, the House Committee on Foreign Affairs holds a hearing: the Unique Challenges Women Face in Global Health.
Also on Wednesday, the House Ways and Means Health subcommittee holds a hearing, “More Cures for More Patients: Overcoming Pharmaceutical Barriers.”
The House Energy and Commerce Oversight and Investigations subcommittee holds a hearing on Wednesday to discuss vaping and the impact on public health.
On February 7, two House panels released measures aimed at fixing surprise medical bills. The House Ways and Means Committee and the House Education and Labor Committee plan to vote on their bills this week. Lawmakers are trying to move quickly as they hope to include surprise billing legislation in a package that would extend funding for public health programs that expire on May 22. While there is disagreement on what mechanism should be used to settle payment disputes, there is widespread motivation in Congress to get something done on this issue ahead of the 2020 election.
The Ways and Means draft legislation proposes to resolve payment disputes for out-of-network medical care at an in-network facility, or when receiving emergency care, through a dispute resolution process. Both sides would first have 30 days to negotiate payment on their own, during which they would be required to share some information about payments to facilitate an agreement. If the parties still disagree, either party could initiate a 30-day arbitration process in which both sides would propose their last, best offer to an independent mediator. Unlike the legislation put forth by the House Energy and Commerce and Senate HELP committees where the agreement specifies that the medical bill must be over $750 to enter arbitration, the Ways and Means proposal does not set a minimum threshold. The measure would take effect starting in 2022.
By contrast, the Education and Labor Committee proposal is very similar to the House Energy and Commerce and Senate HELP proposal. Insurers would pay out-of-network providers the median in-network rate for that geographic area for amounts up to $750 and either side could request an arbitration process for larger amounts. Notably, this proposal includes mechanisms to address both air ambulance and ground ambulance surprise medical bills.
A summary of the Ways and Means proposal can be found here. A summary of the Education and Labor Proposal can be found here.
President Trump Slashes Health Care Spending in FY 2021 Budget Request
President Trump unveiled his $4.8 trillion budget proposal today requesting significant cuts to health care programs. The administration is proposing a 9 percent or $9.5 billion discretionary spending cut to HHS from the $106 billion fiscal 2020 enacted level. Additionally, the budget proposes around $770 billion in mandatory funding reductions for HHS programs over the next 10 years.
While Congress is very unlikely to adopt most of the proposals in this budget request, it is a good indicator of where the administration’s priorities stand for the next year. Of all its proposals, the administration is most optimistic about reaching a deal with Congress on prescription drug pricing. The proposal anticipates significant savings through cuts to domestic spending. The savings include $135 billion in drug pricing reform, $292 billion from adding a work requirement to welfare programs, $70 billion from reforming disability programs and $266 billion from “site neutrality” rules.
While HHS Secretary Alex Azar will testify on the budget request before the Senate Finance Committee on Thursday, it is very important to note that lawmakers aren’t expected to pass spending bills until after the November election.
Health-Related Bills Introduced This Week
Reps. Anna Eshoo (D-CA) and Greg Gianforte (R-MT) introduced H.R. 5763, the National Telehealth Strategy and Data Advancement Act. Their bill eliminates many barriers to telehealth and reauthorizes $40 million in federal telehealth grant programs.
Rep. Devin Nunes (R-CA) introduced H.R. 5817 to amend Title XXVII of the Public Health Service Act, the Internal Revenue Code of 1986 and the Employee Retirement Income Security Act of 1974 to require health plans to provide to participants, beneficiaries and enrollees an advanced explanation of benefits with respect to items and services scheduled to be received from providers and facilities and to amend Title XI of the Social Security Act to require health care providers and health care facilities to provide good faith estimates of the expected charges for furnishing such items and services.
Rep. Gwen Moore introduced H.R. 5816 to amend Title XXVII of the Public Health Service Act, the Internal Revenue Code of 1986, the Employee Retirement Income Security Act of 1974 and title XI of the Social Security Act to require group health plans and health insurance issuers to provide for certain coverage in the case of a change in a provider’s network status.
Rep. Jodey Arrington (R-TX) introduced H.R. 5808 to amend Title XVIII of the Social Security Act to provide for coverage of rural emergency medical access services under the Medicare program.
Rep. John Lewis (D-GA) introduced H.R. 5806 to amend Title VII of the Public Health Service Act to provide for a loan repayment program for the HIV clinical and dental workforce.
Rep. Terri Sewell (D-AL) introduced H.R. 5741, the Strengthening Innovation in Medicare and Medicaid Act.
The Week Ahead
On Wednesday, the House Energy and Commerce Health Subcommittee will hold a hearing “Protecting Women’s Access to Reproductive Health Care.”
The House Education and Labor Workforce Protections Subcommittee will discuss expanding the Family and Medical Leave Act on Tuesday.
Also on Tuesday, the Senate Judiciary Committee will hold a hearing ensuring appropriate medical care for children.
House panels are expected to hold mark-ups on surprise billing legislation. Details on the hearings TBD.
Mergers and acquisitions in the health care industry present unique challenges that are not often present when undertaking similar transactions in other industries. Because of health care’s highly regulated nature, parties may falter if a health care transaction is not reviewed and negotiated carefully with respect to the distinct concerns that health care presents. This article discusses certain key considerations related to real estate that parties to a health care M&A deal should keep in mind as they contemplate and negotiate a transaction.
Almost all health care mergers and acquisitions involve a real estate component, and in many cases, real property may be the most significant asset conveyed to the purchaser. Yet despite its value, real estate is frequently not at the forefront of the parties’ discussions and negotiations with respect to a transaction. Parties on both sides of a deal should be careful not to overlook the real estate component, as this can result in unintended delays or liabilities. Accordingly, each party should consider the following at the outset of a transaction:
Determine the Importance of Real Estate in Light of the Overall Transaction. If there is one decision that can make or break the success of the real estate component of a transaction, it is weighing the relative importance of real estate in relation to the broader transaction. In an asset purchase where real estate is the most valuable asset, additional attention to real estate issues during the due diligence phase will naturally be required. In a merger or membership substitution, real estate might be afforded less importance, but the acquirer will still want to know the status of title and the scope of the obligations and encumbrances it is stepping into. Determining the relative value of the real estate will help real estate counsel and deal counsel work together to determine the appropriate scope of due diligence and the kinds of provisions that will be preferred in the purchase agreement. While the real estate team may not need intimate knowledge of every aspect of the purchase agreement, providing adequate information about the deal’s structure and size, as well as the relative bargaining power of the parties, helps the team discern which issues to quickly elevate to the attention of deal counsel and which issues can likely be ignored or reported in a more routine manner.
Review Lease Arrangements for Regulatory Compliance. Although any transaction involving real estate requires an assessment of real estate title, an ALTA survey and an environmental site assessment, in the health care context, leasing compliance issues can be an enormous source of unforeseen risk. A careful review of lease language surrounding referrals, measurement of space and calculation of fair market rent will give the acquiring party the tools and knowledge needed to proceed in an informed manner that best mitigates those risks. When it comes to regulatory due diligence on leases and other assets to be assigned or transferred to the purchaser, familiarity with the structure of the transaction and the legal and ownership structure of the parties will also be critical in determining whether Stark, Anti-Kickback or federal tax-exemption laws apply.
Count the Costs in Time and Money. Transfers of real estate can be fraught with taxes and fees, particularly if the purchaser will be financing all or a portion of the purchase price. Environmental review, permitting, approvals and state and local governmental verifications can take time and delay closing. Early and open communication between real estate counsel and deal counsel can help determine the scope of necessary closing deliverables and set expectations as to timing and costs to avoid surprises.
Hall Render’s health care real estate team has experience handling the real estate component of various transaction types in numerous states around the country. The real estate team prides itself on open and direct communication and has the capabilities and bandwidth to tackle complex deals in varying jurisdictions around the country. For more information on Hall Render’s Real Estate services, click here.
Throughout 2020, Hall Render’s Mergers & Acquisitions Service Line will be publishing a series of articles identifying important, and often unique, aspects of health care transactions that should not be overlooked. Ranging from Real Estate to Reimbursement, this series is designed to highlight key issues and considerations relating to niche components of health care transactions.
Part 1: Real Estate in Health Care Transactions
NEXT: Information Technology in Health Care Transactions
For more information on Hall Render’s Mergers & Acquisitions services, click here.
States and the federal government are currently expanding laws intended to protect health care workers against workplace violence or raise the penalties for causing harm to health care workers.
Workplace Violence
Workers in health care settings often face the risk of workplace violence as a result of their interaction with patients and clients. While patients/clients cause most of the violence, health care workers may also experience a heightened risk of violence due to the actions of family members and associates, jobs that may require close contact with individuals who are unstable due to substance abuse or weapons, stressful work environments that may trigger or impact coworkers negatively and work settings that have greater public access and less security in terms of physical barriers and security personnel. In fact, according to the Occupational Safety and Health Administration (“OSHA”) of the U.S. Department of Labor, the rate of reported workplace violence incidents that required a worker to take days off to recuperate after suffering injuries was more than four times greater in the health care industry compared to the average in all private industries combined.[1]
Because of these significant risks, health care workers, professional associations and policymakers are looking for ways to curb violence against health care workers.
National Developments
While many state occupational and health agencies already require employer training addressing workplace violence, there is currently no federal mandate. However, in November 2019, the House of Representatives passed H.R. 1309, the “Workplace Violence Prevention for Health Care and Social Service Workers Act.”[2] If it passes, the law would give OSHA 42 months to issue requirements to health care employers to implement comprehensive workplace violence prevention plans. The proposed legislation defines covered health care facilities very broadly and includes all employees of all medical, correctional, residential/long-term care and non-residential facilities and even social service settings.
State Developments
At the state level, legislatures, professional associations and others are also making strides in expanding protections for health care workers. Approximately 36 states impose higher penalties on workplace violence against nurses and currently, at least five states (California, Delaware, Florida, Oklahoma and South Carolina) have proposed legislation creating or expanding protections related to violence against health care workers.[3]
For example, in early February, Wisconsin passed a new law increasing penalties for harm to nurses and other health care providers in certain circumstances. The new law makes it a felony to intentionally cause physical harm to a nurse, someone acting under a nurse’s supervision, to a health care provider who works in a hospital or to an individual who works in an emergency services role or setting such as an ambulance driver, emergency medical responder or emergency department worker.[4]
Privacy Considerations when Health Care Employees Experience Violence in the Workplace
In the event that a health care employee is assaulted in his or her workplace or while he or she is operating in a professional capacity, the employee may report the crime to law enforcement officials. However, the information that may be provided to law enforcement is likely limited under HIPAA, 42 CFR Part 2 (the Substance Use Disorder rules) if applicable, and/or state privacy rules.
While HIPAA, many state laws and 42 CFR Part 2 permit the disclosure of limited information to report a crime on the premises, the exceptions are generally limited to making the initial report. Additional information beyond that specifically identified in the laws as being acceptable in an initial report cannot be provided to law enforcement absent written authorization from the patient/client or another applicable exception in the privacy laws. Remember – the key consideration when determining the applicability of this exception is who is initiating the disclosure. The crime on the premises exception permits the victim (or employer of the victim) to initiate a disclosure to law enforcement to report the crime using the minimum necessary information permitted by the applicable law. It does not extend to responding to requests for information from law enforcement, even where such requests are made in order to investigate the reported crime on the premises.
Human Resource Considerations when Health Care Workers Face Violence
The employer’s leave of absence policies, and state law impacting crime victims, may take on a greater meaning as the laws representing health care workers expand. In addition to the federal Family and Medical Leave Act (“FMLA”), employees may have protection for absences under state FMLA laws and/or state victim leave laws.[5]
For assistance in the development or presentation of training or policies addressing workplace violence, please contact:
Most skilled nursing facilities are not correctly complying with life safety requirements or emergency preparedness requirements, according to three recent reports by the Office of the Inspector General (“OIG”) of the U.S. Department of Health and Human Services.
OIG recently issued three reports on its audits of life safety requirements or emergency preparedness requirements: (1) Life Safety and Emergency Preparedness Deficiencies Found at 18 of 20 Texas Nursing Homes (“Texas Report”); (2) New York Should Improve Its Oversight Of Selected Nursing Homes’ Compliance With Federal Requirements For Life Safety And Emergency Preparedness (“New York Report“); and (3) California Should Improve Its Oversight Of Selected Nursing Homes’ Compliance With Federal Requirements For Life Safety And Emergency Preparedness (“California Report“).
Detailed Analysis
In 2016, the Centers for Medicare & Medicaid Services (“CMS”) updated its life safety and emergency preparedness regulations to improve protections for all Medicare and Medicaid beneficiaries, including those residing in skilled nursing facilities (“facilities”). 42 CFR § 483.73 requires that facilities comply with all applicable federal, state and local emergency preparedness requirements. These requirements call for facilities to have expanded sprinkler systems and smoke detector coverage. Under these rules, facilities are required to have an emergency preparedness plan that is reviewed, trained on, tested and updated at least annually and provisions for sheltering in place and evacuation.
Federal regulations on life safety (42 CFR § 483.90) require facilities to comply with standards set forth in the Life Safety Code (National Fire Protection Association (NFPA) 101) and Health Care Facilities Code (NFPA 99).
OIG Review – Texas
OIG reviewed a nonstatistical sample of 20 Texas facilities for the OIG audit based on proximity to the Gulf of Mexico and the highest number of deficiencies previously in those nursing homes identified by Texas surveyors. OIG then conducted unannounced site visits to check for life safety violations and review the facilities’ emergency preparedness plans.
OIG identified deficiencies in life safety or emergency preparedness areas at 18 of the 20 facilities. OIG found 235 deficiencies with life safety requirements related to building exits and smoke partitions, fire detection and suppression systems, hazardous storage areas, fire drills and smoking policies, and electrical equipment and elevator inspection and testing. OIG also found 55 deficiencies with emergency preparedness requirements related to written emergency plans, emergency supplies and power, emergency communications plans and emergency plan training.
OIG’s Texas Report concluded that these deficiencies occurred because management oversight at facilities was inadequate, and facilities had high maintenance and administrative staff turnover. In addition, maintenance personnel at some of the facilities indicated that building maintenance is challenging because of the advanced age of some buildings.
OIG Review – New York
OIG reviewed a sample of a nonstatistical sample of 20 New York facilities based on the highest number of deficiencies in those facilities. OIG then conducted unannounced site visits to check for life safety violations and review the facilities’ emergency preparedness plans.
OIG identified deficiencies in life safety or emergency preparedness areas at all 20 facilities. OIG found 205 areas of noncompliance with life safety requirements related to building exits and fire barriers, fire detection and suppression systems, carbon monoxide detectors, hazardous storage, smoking policies and fire drills, and elevator and electrical equipment testing and maintenance. OIG also found 219 areas of noncompliance with emergency preparedness requirements related to written emergency plans; emergency supplies and power; plans for evacuation, sheltering in place and tracking residents and staff; emergency communications; and emergency plan training.
OIG’s New York Report concluded that these deficiencies occurred because management oversight was inadequate, and facilities had high staff turnover. In addition, the state agency did not have a standard life safety training program for all facility staff, generally performed comprehensive life safety surveys no more frequently than once every 9 to 15 months and did not check to see whether carbon monoxide detectors were installed.
OIG Review – California
OIG reviewed a nonstatistical sample of 20 California facilities based on the highest number of deficiencies in those facilities. OIG then conducted unannounced site visits to check for life safety violations and review the facilities’ emergency preparedness plans. The California Report includes results for only 19 facilities because one of the 20 facilities selected was destroyed by a wildfire after the OIG site visit.
OIG identified deficiencies in life safety or emergency preparedness areas at all 19 facilities. OIG found 137 instances of noncompliance with life safety requirements related to building exits, smoke barriers and smoke partitions; 10 fire detection and suppression systems; hazardous storage areas; smoking policies and fire drills; and electrical equipment testing and maintenance. OIG also found 188 areas of noncompliance with written emergency plans; emergency power; plans for evacuation, sheltering in place and tracking residents and staff during and after an emergency; emergency communications plans; and emergency plan training and testing.
OIG’s California Report concluded that these deficiencies occurred because facilities lacked adequate management oversight and had high staff turnover. In addition, the state agency did not adequately follow up on deficiencies previously cited, ensure that surveyors were consistently enforcing CMS requirements or have a standard life safety training program for all facility staff.
OIG Recommendations
OIG recommended that each state take specific actions to:
Follow up with the facilities to verify that corrective actions have been taken regarding the life safety and emergency preparedness deficiencies identified in this report;
Conduct more frequent surveys at facilities with a history of multiple high-risk deficiencies;
Ensure that all surveyors consistently enforce CMS requirements; and
Work with CMS and other states’ survey agencies to develop standardized life safety training for facility staff.
Next Actions: Policy, Practices and Training Reviews Needed
Skilled nursing facilities should expect that state survey agencies will pay increased attention and take actions to confirm that life safety and emergency preparedness practices exist and are followed.
Facilities should carefully review and revise their life safety and emergency preparedness practices.
Skilled nursing facilities should review and update training for staff on how to life safety and emergency preparedness areas.
Should you have any questions about this or how to update your policies, practices and staff training, please contact:
Congress returns this week after its President’s Day district work period. HHS Secretary Azar is testifying before four different congressional committees on the administration’s Fiscal Year (“FY”) 2021 budget request. Also, the White House is expected to submit a formal request for emergency funding for the Coronavirus. The funding is unlikely to become a catch-all for unrelated health care program funding but will create a “must-pass” legislation opportunity for Congress.
A Look at the Week Ahead
Tuesday: HHS Secretary Azar testifies before the Senate Labor-HHS Appropriations subcommittee on the president’s FY 2021 budget request to Congress. Expect Azar to get pushback from Democrats and even some Republicans on Medicaid, regarding the recent transparency rule and their January 30 block grant proposal. Azar may also begin lobbying appropriators on emergency funding for the Coronavirus and weigh in with support for Senator Grassley’s drug pricing legislation. Two weeks ago, Azar said he supports the Grassley Drug Pricing bill, S. 2543. The Finance Committee is still working on changes to the legislation.
The full House convenes at 2:00 PM with five suspension votes at 6:30 PM. All five are Veterans Affairs. The Senate is expected to hold procedural votes on two abortion bills. S. 3275 would ban abortion after 20 weeks. S. 311 would provide protections for an infant born alive after an attempted abortion. Neither bill is likely to receive 60 votes to overcome an expected filibuster.
Wednesday: Secretary Azar testifies before the House Labor-HHS Appropriations subcommittee in the morning. In the afternoon, he testifies for the House Energy and Commerce Committee. Expect House Democrats to put the administration’s actions on Medicaid under the microscope.
On the floor, the full House has eight bills on the suspension calendar; all are natural resources bills.
Thursday: Secretary Azar testifies before the House Ways and Means Committee. The major House floor vote this week will be H.R. 2339, regarding youth tobacco legislation. This bill targets youth vaping and flavored cigarettes marketed towards teenagers.
Friday: Last House votes are expected early afternoon.
Other notes: On Friday, February 21, HHS issued its Strategy on Reducing Regulatory and Administrative Burden Relating to the Use of Health IT and EHRs. The report describes examples of EHR related burdens, as well as recommendations that HHS and other stakeholders can use to help providers. The report was required under the 21st Century Cures Act.
In case you missed it, the House Ways and Means Committee introduced their comprehensive Surprise Medical Billing legislation prior to Valentine’s Day. A bulk of the committee is co-sponsoring the bipartisan measure, both Republicans and Democrats.
Health-Related Bills Recently Introduced
Rep. David McKinley (R-WV) introduced H.R. 5924. The bill seeks to amend the Public Health Service Act to authorize a loan repayment program to encourage specialty medicine physicians to serve in rural communities experiencing a shortage of specialty medicine physicians.
Rep. Mike Gallagher (R-WI) introduced H.R. 5916, the transparent Health Care Pricing Act. The bill would require that all providers publicly disclose on the internet and in print, point-of-sale cash prices of health care products and services. On the Senate side, Sen. Bill Cassidy (R-LA) introduced the companion measure, S. 3318.
Rep. Sharice Davids (D-KS) introduced H.R. 5894, the transparency in the Prescription Drug Advertising Act. The bill would require CMS and FDA issue guidelines requiring the list prices of drugs to be included in all advertising of drugs.
Rep. Kurt Schrader (D-OR) introduced H.R. 5882. The bill amends Title XIX of the Social Security Act to provide states with the option under Medicaid to pay for covered outpatient drugs through risk-sharing value-based agreements.
Sen. Rick Scott (R-FL) introduced S. 3290. The bill amends Title XI of the Social Security Act to require HHS to verify whether a health care provider is licensed in good standing before issuing the provider a unique health identifier.
Last Wednesday, the United States Court of Appeals for the First Circuit issued an opinion creating a national divide on when a relator is an “original source” of an FCA claim, finding that a relator’s secondhand knowledge of fraud was “direct” knowledge.
Facts of the Case
In United States ex rel. Banigan v. PharMerica, Inc.[1], a former employee of drug manufacturer Organon, James Banigan, alleged that PharMerica, Inc. one of the largest long-term care pharmacy companies in the United States, accepted illegal kickbacks from Organon in exchange for having Medicaid patients switched from their originally prescribed antidepressants to Organon’s antidepressant Remeron.
Banigan had worked in the same department as two Organon executives who conceived the scheme. Though he was not directly involved in the transactions, Banigan received emails about them, and both executives had spoken to him directly about their plot to induce prescription switches through heavy discounting and cost-saving opportunities.
The Court found that Banigan’s lawsuit, filed in 2007, stated claims that were “substantially similar” to” those alleged by a New Orleans based long-term care physician in a settled 2002 lawsuit against PharMerica. Consequently, Banigan was barred from bringing suit, unless he was an “original source” of the information.
Notably, the district court previously held that Banigan’s claims were not subject to the first-to-file bar, which is designed to prevent duplicative qui tam actions where the government has already learned of the alleged fraud from a previously filed action.[2] Applying the Supreme Court’s holding in Kellogg Brown & Root Servs., Inc. v. U.S. ex rel. Carter[3]—that the bar applied only where the first suit was still “pending”—the district court held that because the 2002 lawsuit was settled and dismissed, Banigan’s 2007 suit could proceed.[4]
The Public Disclosure Bar and the Original Source Exception
The public disclosure bar is designed to prevent opportunistic relators, enticed by the financial incentives that the FCA provides, “from bringing “parasitic qui tam actions,”[5] that is, suits that are “based upon a prior, public disclosure of fraud” in a civil proceeding.”[6] A lawsuit is “based upon” a public disclosure if the relator’s allegations are “substantially similar to” the information already in the public domain and “ultimately target the same fraudulent scheme.”[7]
Prior to 2010, the public disclosure bar no longer applied when “the person bringing the action is an original source” who has “direct and independent knowledge of the information on which the allegations are based.” (Emphasis added).[8] The 2010 amendments to the FCA, which post-date the allegations in this case, removed the word “direct” from the original source exception. The Judiciary Committee’s report on the 2010 amendments reflected frustration with courts interpreting the term too narrowly, creating a chilling effect on potential relators and leading to the dismissal of meritorious cases.[9]
With the benefit of this hindsight, the First Circuit departed from its sister circuits’ narrow construction of “direct” knowledge,[10] finding that Banigan’s secondhand knowledge of the fraud, learned from the executives who concocted the scheme, was sufficient to meet the original source exception. The Court specifically criticized[11] the Eleventh Circuit’s holding in United States ex rel. Saldivar v. Fresenius Med. Care Holdings, Inc., that an employed technician was not an original source because his “firsthand knowledge related to inventory and administration of [medications], not costs and billing[.]”[12] Echoing the Judiciary Committee’s concerns, the First Circuit found that such a narrow interpretation of direct knowledge was “incompatible with a core purpose of the FCA — to incentivize disclosures of fraudulent activity underlying claims for reimbursement from the government.”[13]
Practical Takeaways
Though this decision interprets the term “direct” in the pre-2010 language of the original source exception to the public disclosure bar, relators with only secondhand knowledge of their alleged fraud may nevertheless assert it as persuasive authority for courts interpreting the relaxed knowledge requirement under the current language.
The First Circuit’s broad interpretation of the term “direct” may also influence other circuits who have not already construed the term in cases where the pre-2010 language still applies.
This case further serves as a harsh reminder of the effect of the Supreme Court’s decision in Kellogg,[14] which interpreted the first-to-file rule narrowly. Where a second relator revives previously litigated claims, the Kellogg Court offered defendants cold comfort in the form of ‘issue preclusion,’ applicable only if the first action was decided on the merits rather than the relative norm of settlement, as occurred in this case.
On February 20, 2020, the Centers for Medicare and Medicaid Services (“CMS”) issued proposed revisions (“Proposed Rule”) to the regulations governing the Comprehensive Care for Joint Replacement (“CJR”) program. Among other things, the Proposed Rule would extend mandatory participation in the CJR program an additional three years for certain current participants, revise the reconciliation and target price calculation processes, eliminate one of the caps on gainsharing payments between CJR hospitals and their collaborators and add outpatient procedures to the program.
The CJR program began on April 1, 2016, as a mandatory retrospective bundled payment program covering inpatient lower extremity joint replacement procedures, including total knee arthroplasty (“TKA”), total hip arthroplasty (“THA”) and total ankle replacement. Effective January 1, 2018, CMS made participation in the CJR program voluntary for participants in roughly half of the Metropolitan Statistical Areas (“MSAs”) that were previously covered by the program. After that date, hospitals located in voluntary MSAs, as well as low-volume and rural hospitals located in mandatory MSAs, were required to opt-in for continued participation in the program. The program currently covers five performance periods, the last of which is scheduled to end on December 31, 2020.
Material provisions of the Proposed Rule would do the following:
Extend mandatory participation in the CJR program for three additional years for certain current participants in mandatory MSAs only. CJR performance years 6-8 would cover CJR episodes beginning January 1, 2021 and ending December 31, 2023. Importantly, no hospital currently participating in the CJR program on a voluntary basis would be permitted to continue its participation in the program after December 31, 2020. In other words, participation for low-volume and rural hospitals in mandatory MSAs, and participation for all hospitals in voluntary MSAs, would still terminate on December 31, 2020.
Eliminate the current two-step reconciliation process for each CJR performance year in favor of a single reconciliation for each performance year. Currently, each CJR performance year is subject to an initial reconciliation that begins two months after each performance year, as well as a second reconciliation that begins 14 months after the end of each performance year. The Proposed Rule would eliminate the two-step process in favor of a single reconciliation using data available six months after the end of each performance year.
Revise the current methodology for setting annual target prices to, among other things, allow additional reductions in the annual discount factor for hospitals with excellent or good quality scores, and revise the basis for calculating target prices from three years of claims data to one year of claims data. In addition, CMS states that the proposed revised target price calculations will take into account CMS’s decisions to remove both TKA and THA from the inpatient-only list. Many CJR hospitals had expressed concern that these decisions, which permitted TKA and THA to be covered by Medicare when appropriately performed in the outpatient setting, removed healthier patients from the CJR program, leaving only those more complex patients whose care was more expensive in the program. In the Proposed Rule, CMS states that the updated target pricing methodology is intended in part to address this concern; however, the updated target pricing methodology will apply only to those CJR episodes that begin January 1, 2021. As a result, the updated target pricing methodology will not address the concerns of hospitals whose financial performance in 2018 through 2020 was adversely affected by the removal of TKA and THA from the inpatient-only list.
Remove the 50 percent cap on collaborator gainsharing payments and distribution payments for CJR performance years 6-8. Currently, a CJR hospital is permitted to make gainsharing payments to certain other providers (referred to as “collaborators”) that participate with the hospital in the CJR program. In turn, collaborators such as physician group practices are permitted to make downstream payments (referred to as “distribution payments”) to individual physicians or non-physician practitioners. Under the current CJR regulations, such gainsharing payments and distribution payments are limited to 50 percent of the total physician fee schedule payment the physician group practice or individual practitioner received for the care of patients in the CJR program. The Proposed Rule would eliminate the 50 percent cap, thus bringing the CJR program into alignment with other bundled payment programs, such as the Bundled Payments for Care Improvement Advanced program.
Add lower extremity joint replacement procedures performed in hospital outpatient settings to the CJR program for program years 6-8. Currently, only procedures performed in inpatient settings are included in the CJR program. When the CJR program began in April 2016, CMS required that all lower extremity joint replacements be performed as inpatient procedures; this meant that nearly all lower extremity joint replacements performed in participating hospitals were included in the CJR program. However, as mentioned above, CMS removed TKA and THA procedures from the inpatient-only list effective January 1, 2018 and January 1, 2020, respectively. The Proposed Rule would in effect add back to the CJR program the less complex (and generally less expensive) TKA and THA procedures that have migrated to the outpatient setting, thereby allowing CMS to evaluate the effect of those episodes on the program overall.
The Proposed Rule solicits comments on a wide range of matters related to the CJR program. In addition, CMS requests comments on a potential bundled payment program focused on lower extremity joint replacement procedures performed in the ambulatory surgery center setting. Comments must be received by CMS no later than 5 PM EST on April 24, 2020.
If you have questions on the Proposed Rule or would like to submit comments on the Proposed Rule to CMS, please contact:
It is no secret why the novel coronavirus (“2019-nCoV”) outbreak in Wuhan City, Hubei Province, China quickly raised health concerns on an international scale. The coronavirus family contains member viruses with a similarly sinister and deadly past; viruses that seemingly appeared out of nowhere and rapidly spread. For example, two betacoronaviruses were the culprits behind the severe acute respiratory syndrome (“SARS”) and the Middle East respiratory syndrome (“MERS”) outbreaks that led to more than 10,000 confirmed cases of severe respiratory illness in humans.[i] Now, fears of an emerging global pandemic have understandably quickened as a result of mounting case infections, rising regional and global death tolls and limited knowledge as to this novel pathogen’s epidemiology and origin.[ii] In fact, the statistics paint a stark new reality as the virus has been observed in 32 countries/territories across five continents with over 80,000 confirmed cases as of this writing.[iii]
The Issue
As the world’s top researchers chase answers to aid in the diagnosis, treatment and prevention of 2019-nCoV in what has exploded into a veritable sprinter’s-paced marathon race, officials at the U.S. Food & Drug Administration (“FDA”) have also undertaken significant measures. On February 4, 2020, the Agency issued an Emergency Use Authorization (“EUA”) for a real-time, though unapproved, in vitro diagnostic panel developed by the Centers for Disease Control and Prevention (“CDC”) for the rapid,[iv] qualitative detection of the virus. Despite the significance of the action, CDC stated that about 200 test kits will be distributed to select domestic laboratories initially, and only so long as the government deems that circumstances justify the continued emergency use of the diagnostic under Section 564(b)(1) of the federal Food Drug and Cosmetic Act[v] (“FDCA”).
More recently, on February 7, 2020, the World Health Organization (“WHO”) issued a warning that pharmaceutical and medical devices supplied by China could be rendered in short supply if the 2019-nCoV epidemic continues in effect, unabated. FDA claimed that there were no present shortages linked to the outbreak, acknowledging the situation as “fluid.”[vi] Clearly, there is a real risk that if the outbreak is not promptly contained, critical export products, such as Chinese-manufactured bulk active pharmaceutical ingredients[vii] (used to produce certain FDA-approved finished dosage form drugs), may fall into shortage as manufacturers weigh whether to suspend operations or limit production. Shortages are not the only concern for FDA as they must also consider the impact that its recent personnel withdrawal from China could have on its ability to adequately monitor manufacturer compliance with good manufacturing practice regulations.
FDA’s Emergency Use Authorization Authority
Following the implementation of the Pandemic and All-Hazards Preparedness Reauthorization Act of 2013[viii] (“PAHPRA”), Congress amended Sections 564, 564A and 564B of the FDCA, creating specific authorities to address, among other things, management of emerging infectious diseases, clarifying how the Agency can support emergency preparedness and response to same using medical countermeasures (such as drugs, devices or biological products).[ix] Specifically, Section 564 of the FDCA permits FDA, after declaration of emergency by the Secretary of Health and Human Services, to authorize emergency use of either an unapproved medical product or an unapproved use of an otherwise approved product when there is “no adequate, approved, [or] available alternative.”[x] Relatedly, Section 564A provides that for already approved products, FDA can deploy enhanced medical countermeasures such as extending the expiration date of a drug that has been stockpiled for use in a qualifying emergency, waiving the applicable good manufacturing practice requirements (such as those related to storage and handling), authorizing emergency dispensing of a qualifying countermeasure without an individual prescription for same and also by permitting CDC to create emergency usage instructions concerning the FDA-approved conditions of use for qualifying products.[xi] Lastly, Section 564B permits government emergency response or public health agencies to stockpile or deploy medical countermeasures in anticipation of EUA issuance, investigational use authorization or FDA-approval for preparedness and rapid deployment purposes.[xii]
FDA Process for Issuing an EUA – Does Your Product Qualify?
Prior to issuing an EAU, the HHS Secretary must declare that circumstances exist justifying the authorization. The Secretary’s declaration (referred to as an “EUA declaration”), must be based on one of the following actions:
The Secretary of Homeland Security determines that there is either a domestic emergency or a significant potential for a domestic emergency that involves increased risk of attack with a chemical, biological, radiological and nuclear (“CBRN”) agent(s);
The Secretary of Defense determines that there is either a military emergency or a significant potential for a military emergency that involves an increased risk to the United States military forces of attack with a CBRN agent(s);
The Secretary of HHS determines that a CBRN agent or agents, or a disease or condition related to such agents, creates a public health emergency, exists or creates a significant potential for a public health emergency, that affects or is likely to affect, national security or the health and security of United States citizens living abroad; or
The Secretary of Homeland Security identifies a material threat, pursuant to section 319F-2 of the Public Health Service Act, that is sufficient to affect national security or the health and security of United States citizens living abroad.[xiii]
Following the Secretary of HHS’s issuance of an EUA declaration based on one of the four criteria above, the Secretary must consult with the Assistant Secretary for Preparedness and Response to the extent feasible and necessary given the circumstances, as well as with the Director of the National Institutes of Health (“NIH”) and the Director of CDC. Provided that all required statutory criteria are met, the Commissioner of FDA may then authorize the emergency use of an unapproved product or an unapproved use of an approved product. Additionally, when circumstances require, an HHS EUA declaration may support issuance of more than one EUA, such as a situation where the FDA authorizes emergency use for multiple diagnostic tests in response to an EUA for emergency use of diagnostics for a specified biological agent.
Criteria for Issuance of an EUA
While an EUA declaration is in effect, FDA may authorize the introduction of a medical product into interstate commerce as long as the product is intended for use during an actual or potential emergency. Following issuance of an EUA declaration, FDA may issue an EUA only if it concludes that the four statutory criteria for issuance have been met. However, if the product does not meet the statutory criteria or FDA determines that the product is not otherwise appropriate for an EUA, alternative regulatory mechanisms, such as Investigational New Drug applications, which may allow for expanded access, could be an effective way to provide access to unapproved uses of a product in emergency situations.
The four statutory criteria for issuance of an EUA include the following:
Serious or Life-Threatening Disease or Condition: The CBRN agent(s) referenced in HHS Secretary’s EUA declaration must be capable of causing a serious or life-threatening disease or condition.
Evidence of Effectiveness: EUAs are provided only for medical products that “may be effective” to prevent, diagnose or treat serious or life-threatening diseases or conditions caused by a CBRN agent(s) identified in the HHS Secretary’s declaration of emergency or threat of emergency under section 564(b). EUA products may also include products aimed at mitigating a disease or condition caused by an FDA-regulated product that is used to diagnose, treat or prevent a disease or condition caused by a CBRN agent.
Risk-Benefit Analysis: The FDA Commissioner must determine that the known and potential benefits of a product, as used in the diagnosis, prevention or treatment of the identified disease or condition, outweigh the known and potential risks of the product before granting an EUA. This requires the Agency to thoroughly assess the threat posed by the CBRN agent(s) and to evaluate all available scientific evidence to make a complete risk-benefit determination.
No Alternatives for FDA: The FDA must determine that there is no adequate, approved and available alternative to the potential EUA product for diagnosing, preventing or treating the disease or condition. If there are insufficient supplies to adequately meet the emergency need, the FDA may determine that an otherwise viable alternative is “unavailable.” Alternatively, a potential alternative may be deemed “inadequate” for reasons of contraindications or dosage forms in specific populations, such as the elderly.[xiv]
How can an EUA facilitate efforts to combat global threats such as coronavirus?
As world health experts attempt to stem the rapidly increasing spread of the coronavirus, companies with existing FDA-approved or cleared products for other indications should consider the fact that EUAs can quickly and drastically reduce cycle time. However, product readiness, accuracy and scalability are equally important considerations. Take for example, the recent laboratory reports of inconclusive results associated with use of the CDC’s test kits as reported here. Clearly, there are a number of important variables that must be carefully weighed when developing therapies to counter emerging and imminent threats.
In summary, there may be other products for which companies could seek an EUA to aid in combating this growing public health crisis, and organizations with currently approved or cleared products, as well as those with other promising detection or treatment solutions, should be thinking dynamically about how to deploy the resources at their disposal. Hall Render attorneys are actively monitoring the novel coronavirus outbreak and related activities undertaken by the FDA, CDC and WHO. If you have any questions or would like additional information about this topic, please contact:
[i] Huang, C., et al., Clinical features of patients infected with 2019 novel coronavirus in Wuhan, China, The Lancet, January 24, 2020. DOI: https://doi.org/10.1016/S0140-6736(20)30183-5.
[ii] Refer to Zhou, P., et al., “Discovery of a novel coronavirus associated with the recent pneumonia outbreak in humans and its potential bat origin,” bioRxiv, Jan. 23, 2020; DOI: http://dx.doi.org/10.1101/2020.01.22.914952. Preliminary research findings from certain studies claim that 2019-nCoV is 96% similar at the whole genome level to a bat coronavirus and it uses the same cell entry receptor as the SARS virus.
[iv] Shipping of CDC 2019 Novel Coronavirus Diagnostic Test Kit Begins, Centers for Disease Control and Prevention, February 6, 2020, last accessed February 10, 2020, https://www.cdc.gov/media/releases/2020/p0206-coronavirus-diagnostic-test-kits.html. Test duration from initial sample processing to result is approximately four (4) hours.
[vi] Karlin-Smith, S., FDA: No drug shortages reported because of coronavirus but situation ‘fluid,’ Politico, February 7, 2020, last accessed February 10, 2020, https://www.politico.com/news/2020/02/07/chinese-drugs-shortage-coronavirus-112049.
[vii]Ibid. Chinese-based active pharmaceutical ingredient and raw material manufacturers presently account for 13% of the raw materials used in U.S. drugs.
[viii] Public Law 113-5. Section 3088 of the 21st Century Cures Act, signed into law December 13, 2016, amending sections 564, 564A, and 564B of the FD&C Act.
[ix] U.S. Food & Drug Administration, Emergency Use Authorization of Medical Products and Related Authorities, Guidance for Industry and Other Stakeholders, January 2017.
Pharmacogenetic Testing and the FDA’s 2018 Warning
The advent of direct-to-consumer genetic testing has yielded an explosion in the development of various types of genetic tests for clinical treatment and diagnostic purposes. These tests include pharmacogenetic tests, which are used to better understand the role genetics play in an individual patient’s reaction to certain drugs or therapies. Some types of pharmacogenetic tests have been approved by the FDA, such as those tests that assess a patient’s sensitivity to blood thinners or tests that assess a patient’s ability to readily metabolize certain medications.
However, just as each patient has unique attributes, so do pharmacogenetic tests; and not all tests are created equal. In late 2018, the FDA issued a stern warning (“2018 Warning”) that some pharmacogenetic tests marketed to consumers made unsubstantiated claims, including predicting how a patient would respond to certain medications. At the same time, the Agency clarified that many of those tests have not been evaluated by the FDA and may not be supported by adequate scientific evidence. Further, the FDA noted that use of these unsubstantiated tests could lead to potentially serious adverse health consequences for patients, particularly if the test result(s) led a consumer or prescriber to change medication dosages or to elect or forego additional therapies, tests, medications or procedures that could treat a given disease or condition.
Need for an Updated Approach to Pharmacogenetic Testing
The 2018 Warning was apparently insufficient to stem the tide of unsubstantiated pharmacogenetic tests. On February 20, 2020, the FDA published a statement (“2020 Statement”) noting its continued concern with unsubstantiated pharmacogenetic tests and new steps it will take to address those concerns consistent with its mission to protect and promote public health.[4] As noted by FDA, “[u]nfortunately, in the time since our safety communication was issued, some manufacturers of pharmacogenetic tests with claims not adequately supported by sound science have continued marketing their tests, including some for medications to treat seizures, mental illness and pain, including opioids.”
That begs the question: how did the use of unsubstantiated pharmacogenetic tests continue to proliferate without adequate scientific basis? According to the 2020 Statement, “[m]any pharmacogenetic tests are being offered as laboratory-developed tests (“LDTs”).” The 2020 Statement also clarifies that LDTs are technically subject to the same regulatory requirements as in vitro diagnostic products, including the requirements for premarket review, but the agency stated that it has “generally not enforced applicable regulatory requirements for LDTs.” This discretionary approach is at least partially due to the fact that the enforcement framework for LDTs was developed decades ago when the field of LDTs was, “much different, and often relied on simpler technologies in local settings.” With ever-evolving innovation regarding pharmacogenetic testing showing no signs of slowing down, the FDA has committed to a more robust approach for oversight of these products.
FDA’s Updated Approach to Pharmacogenetic Testing
Amidst this scene of unfettered pharmacogenetic testing evolution and growth, FDA has adopted new strategies that will accomplish three primary goals: (1) support the burgeoning field of pharmacogenetic tests; (2) enhance the scientific evidence surrounding pharmacogenetic testing; and (3) provide regulatory oversight over unsubstantiated pharmacogenetic tests. On balance, FDA has established a promising platform to support each goal:
Support for the Development of Scientifically Supported and Beneficial Pharmacogenetic Tests
To support beneficial uses of pharmacogenetic testing, FDA published a Table of Pharmacogenetic Associations (“Table”) simultaneously with the 2020 Statement as a tool for health care providers to use in evaluating whether pharmacogenetic tests may be appropriate for use in their prescribing practices. The Table is the product of a collaboration between the FDA’s Center for Devices and Radiological Health and Center for Drug Evaluation and Research and is “intended to provide the agency’s view of the state of the current science in pharmacogenetics.”
Currently, the Table lists three (3) categories of pharmacogenetic associations for which the data:
Support therapeutic management recommendations;
Indicate a potential impact on safety or response; or
Demonstrate a potential impact on pharmacokinetic properties only and the impact of these genetic variants or genetic variant inferred phenotypes on the safety or response of the corresponding drug has not been established.
Note that the Table is not merely a compendium of FDA-approved gene-drug interactions, but rather a reference that includes a broader array of gene-drug interactions that are “consistent with the current FDA labeling and for which there is sufficient scientific evidence based on published literature.” Additionally, the FDA recognizes that the Table is only one tool that health care providers will use when making prescribing decisions and is not intended to substitute other FDA-approved product labeling or regulations.
Development of Scientific Evidence Surrounding Pharmacogenetic Testing
To further develop the scientific evidence surrounding pharmacogenetic testing, FDA has opened a docket for public comment to solicit feedback on specific pharmacogenetic associations that should or should not be included in the Table and has proposed a community-based collaborative approach to evaluate the scientific evidence related to this field.
Regulatory Oversight of Unsubstantiated Pharmacogenetic Testing
The Agency’s approach to address scientifically unsubstantiated pharmacogenetic testing is less clear, though nonetheless mentioned in the 2020 Statement. Specifically, FDA notes that it is, “committed to continuing to work with Congress on a broader legislative solution . . . which would modernize our regulation of these tests.” It also notes that “while the landscape of LDTs has changed, the agency’s oversight framework has remained the same,” which signals that FDA may start to leverage its existing regulatory authority to provide comprehensive oversight of LDTs and pharmacogenetic tests directly, essentially reversing the Agency’s prior discretionary approach.
Practical Takeaways
The Agency has clearly indicated that unsubstantiated pharmacogenetic tests have been prioritized for enforcement efforts. Additionally, the FDA indicates that it is working to modernize its regulatory approach to pharmacogenetic tests and other LDTs in a way that may represent a paradigm shift from the prior enforcement regime. While FDA’s exact enforcement strategy is not outlined in its 2020 Statement, manufacturers of LDTs should be aware that a marked change may be on the horizon.
To prepare for potential regulatory or enforcement changes, manufacturers should closely review the Table published by the FDA for alignment on findings related to their specific tests, monitor ongoing FDA activity in this area and consult with counsel as to how best to ensure that their products are in compliance with all applicable requirements applicable to in vitro diagnostics.
Health care providers, industry stakeholders and researchers with insight into specific pharmacogenetic tests should consider commenting on FDA’s public docket or participating in a community-based collaboration effort in consultation with counsel.
Hall Render attorneys regularly monitor FDA activity related to medical devices, including pharmacogenetic testing and in vitro diagnostics. To receive updates on this topic, you can sign up for Hall Render articles related to this topic here. If you have any questions about this or other related topics you can contact:
On February 11, 2020, the U.S. Court of Appeals for the District of Columbia (D.C.) Circuit upheld the decision of a lower court granting summary judgment in favor of the Secretary of the Department of Health and Human Services (“HHS”) in a wage index calculation Medicare reimbursement case. The Court held that the Secretary’s refusal to accept a rural Massachusetts hospital’s (“Rural Hospital’s”) corrected wage data for calculation of the FFY 2017 Wage Index, seven months after the revision submission deadline, was lawful, was a permissible interpretation of the Medicare Statute and was not arbitrary or capricious.
Appellants, four other Massachusetts hospitals (“Appellants”), claimed that as a result of the Secretary’s decision, 39 Massachusetts hospitals lost $115 million in Medicare inpatient and outpatient reimbursement for FFY 2017. As Rural Hospital was the only hospital establishing the rural floor in Massachusetts, and the Massachusetts rural floor is used across multiple Core Based Statistical Areas (“CBSAs”) because it is higher than the original wage index in some CBSAs, the uncorrected data had a significant impact on Massachusetts hospital reimbursement. Notwithstanding, in its decision, the Court deferred to the Secretary’s judgment on balancing finality and administrative efficiency over accuracy. Under the current administration, stakeholders should expect little flexibility in the strict enforcement of submissions deadlines.
Background – Significance of Wage Data in Calculating Hospital Reimbursement
Under the current Medicare program, acute care hospitals are paid under a “prospective payment system” (“PPS”) which reimburses hospitals at a predetermined rate for each hospital discharge. The PPS payments are comprised of a labor-related component and a nonlabor-related component. The Medicare Statute requires the Secretary of HHS to adjust the labor-related component to reflect geographic variations in hospital wage expenses. The Secretary (through the Centers for Medicare & Medicaid Services (“CMS”)) calculates a factor comparing the hospital wage level in the hospital’s geographic area to the national average hospital wage level. This factor is known as the “wage index” and it is updated annually. The wage index for any hospital in a state cannot be lower than the wage index applicable to rural hospitals in that state. This is known as the “rural floor.”
In calculating the wage index, CMS relies on information in cost reports filed by hospitals with their Medicare Administrative Contractors (“MAC”). The MACs and hospitals review and revise the data in an iterative manner in accordance with a timetable published by CMS each year. For the FFY 2017 wage index, CMS released its preliminary wage data files on May 15, 2015, and hospitals were expected to notify their MACs of any revisions to the wage index data bySeptember 2, 2015. Using the hospital wage data, CMS was expected to publish a proposed rule setting forth the FFY 2017 wage index by May 2016 with a final rule expected on August 1, 2016.
Significantly, the wage index development process does not provide an opportunity for hospitals to review or contest any other hospital’s wage data. Further, if the data upon which the wage index is based is incorrect, this can lead to significant underpayment (or overpayment) to hospitals under the PPS. Thus, the calculation of an accurate wage index is very important for hospitals that depend heavily on reimbursement from the Medicare program. This is particularly true in Massachusetts where only one hospital typically sets the rural floor. Since the rural floor is established in Massachusetts only by one Rural Hospital, a hospital with high hospital wage expenses, if Rural Hospital were to submit incorrect (low) wage data, this would result in lower reimbursement to every PPS hospital in Massachusetts for a given fiscal year. This is what happened in the wage index calculation case discussed here.
Complaint and District Court Decision
Rural Hospital submitted to CMS incorrect data used to calculate the FFY 2017 wage index under the PPS. On April 4, 2016, seven months after the deadline for submitting revisions to preliminary wage data had passed, Rural Hospital notified CMS of the errors and requested to correct them. Rural Hospital estimated that the corrections would change its average hourly wage from $43.78 to $60.50.
Prior to responding to Rural Hospital’s letter, the Secretary published the proposed FFY 2017 wage index in the April 27, 2016, Federal Register. The Secretary commented that all revisions to wage data were due by September 2, 2015 and that hospitals were notified of this deadline. During the notice and comment period, many Massachusetts hospitals submitted comments urging the Secretary to accept Rural Hospital’s corrected wage data because of the deleterious effect not doing so would have on Massachusetts hospitals. Ultimately, the Secretary refused to accept Rural Hospital’s corrected data stating that the wage index must be “calculated from the best available data” consistent with wage index policies and deadlines.
After exhausting administrative remedies, Appellants filed suit in the U.S. District Court for D.C. claiming losses of roughly $20 million in Medicare reimbursement due to an improperly calculated wage index. Appellants alleged that CMS relied on flawed data to calculate the FFY 2017 wage index which violated the Medicare Statute. Further, Appellants argued that the final rule establishing the FFY 2017 wage index was arbitrary and capricious because the Secretary failed to consider that one hospital’s erroneous data affected the wage index for all other Massachusetts hospitals, which such hospitals had no opportunity to review or contest the faulty data prior to the data submission deadline.
The D.C. District Court granted summary judgment in favor of the Secretary stating that the Medicare Statute grants the Secretary broad discretion to administer the PPS program and that the Secretary’s enforcement of the data submission deadline was reasonable and based on a permissible reading of the Medicare Statute. Further, the Secretary’s action was not “arbitrary and capricious” because the most reliable evidence available to the Secretary was that data already reviewed by the MACs, not the revised data submitted late. Further, the Court determined that the Secretary considered the effect of his decision on Massachusetts hospitals. Appellants appealed.
U.S. Court of Appeals for the D.C. Circuit Affirmed the Lower Court’s Decision
The U.S. Court of Appeals affirmed the District Court’s decision holding the following:
The Secretary provided a reasonable explanation for his decision to reject Rural Hospital’s revised data:
The wage index was calculated from “the best available data” consistent with wage index policies and deadlines;
The data submission deadline was established well in advance of final rulemaking and deadlines are critical to maintaining the integrity and fairness of wage index calculation—a wage increase for hospitals in one area would necessitate a decrease in the wage index for hospitals in another due to the budget neutrality requirements of the wage index calculation;
Hospitals were on notice that if they failed to meet submission deadlines, they would not be afforded a later opportunity to submit wage data corrections; and
CMS would be required to return to the beginning of the wage index development process to vet Rural Hospital’s new data—accordingly, the new data would not have been the most reliable data available without the full review.
In summary, the Court of Appeals noted that the Secretary was aware of the effect on Massachusetts hospitals of his decision to enforce submission deadlines. The Court agreed with the lower court that the Secretary’s decision to reject the corrected data and enforce well-established deadlines was not arbitrary or capricious.
Under a Chevron analysis[1], the Secretary’s promulgation of a final rule establishing the FFY 2017 wage index without considering revised wage data submitted after the deadline for submission had passed, was a permissible construction of the Medicare Statute. And while the Medicare Statute required the Secretary to compute a wage index that reflected hospital wage levels in the geographic area of a hospital compared to the national average hospital wage level, the Court had previously rejected constructions of the Statute that required “scientific exactitude.” Further, the Court found that relevant caselaw emphasized that the Secretary may balance accuracy against finality and administrative efficiency. Accordingly, the Secretary’s decision to enforce a submission deadline was consistent with this principle. Finally, a decision otherwise would render deadlines a nullity because the Secretary would be required to waive compliance with a deadline any time a hospital submitted revised data even long after a deadline had passed.
Practical Takeaways
The biggest takeaway from this wage index case is that deadlines matter. Hospitals and other stakeholders should not expect CMS under the current administration to be flexible with deadlines. In similar situations past, CMS was willing to compromise and settle with hospitals. Hospitals should not count on this type of flexibility. Therefore, it is important to docket all important Medicare deadline dates whether for wage index data submission, Medicare appeals purposes or for Medicare repayment of overpayments.
The timing of the decision, in this case, was somewhat coincidental as the deadline for hospitals to submit requests for corrections to errors and revisions to wage data for the FFY 2021 wage index was February 14, 2020, three days after the wage index case decision was published. But, it does serve to remind hospitals to more closely review their FFY 2022 wage data.
FFY 2022 wage data should be released on CMS’s website in mid-May. Hospitals should submit revisions prior to September 1, 2020.
Hospitals should carefully review the wage data files to confirm the inclusion and accuracy of their wage index data. Hospitals should also review if there are any significant changes to specific categories of costs or hours from last year and investigate whether those changes are appropriate.
Wage data also is used to set the wage indices for other providers – e.g., hospices, skilled nursing facilities and IPPS-excluded hospitals. So, wage data not only impacts hospitals, but also other providers receiving Medicare payments.
If you have any questions or would like additional information, please contact:
[1]Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). Under Chevron, a court focuses on an agency’s interpretation of its authority to act under a particular statute, and applies a 2-pronged test: 1) is the agency’s construction of a statute faithful to the statute’s clear meaning, or, if the statute has no plain meaning, 2) is the agency’s interpretation based on a permissible construction of the statute.
Today, the Supreme Court agreed to hear a third major Affordable Care Act (“ACA”) case. The Court will consider whether a legislative change to the ACA’s individual mandate rendered the landmark law unconstitutional. Learn more from a recent Hall Render article here.
By granting petitions from democratic state officials and the House of Representatives to hear this case, the fate of the ACA will be examined right in the midst of the 2020 presidential election. It was not specified when the Court would hear the case but, likely, arguments would be held in the fall and a decision would come in spring or summer 2021.
Vaping Flavors Up in Smoke? House Passes Ban
On Friday, the House passed a bill (H.R. 2339) to ban popular flavored tobacco as well as vaping products. The measure would impose a tax on e-cigarettes similar to the current tax on traditional cigarettes and bar companies from selling e-cigarette or tobacco products with popular flavors such as mint and menthol. It would also require tobacco advertisements to include graphic warnings. Many public health groups applauded this as a major step in curbing youth tobacco and e-cigarette use. However, the measure has a very small chance of passing in the Senate.
FTC, Pennsylvania Challenge Hospital Merger
The Federal Trade Commission and the state of Pennsylvania are seeking to block a merger between two major Pennsylvania hospital systems, Jefferson Health and Albert Einstein Healthcare Network. As the two leading providers of inpatient general acute services and inpatient acute rehabilitation services in two Pennsylvania counties, the antitrust enforcers state the deal will stifle health care competition.
Hall Render’s Antitrust group will continue to monitor with this could mean for health care providers.
Health-Related Bills Introduced This Week
Rep. Tom Malinowski (D-NJ) introduced H.R. 6005 to amend Title XXVII of the Public Health Service Act to increase the transparency of group health plans and health insurance issuers offering group or individual health insurance coverage by removing gag clauses on price and quality information.
Rep. Daniel Lipinski (D-IL) introduced H.R. 6004 to amend Title XXVII of the Public Health Service Act to require the Secretary of Health and Human Services to establish a grant program for purposes of facilitating state efforts to establish or maintain all-payer claims databases.
Sen. Bill Cassidy (R-LA) introduced S. 3353 to amend Title XVIII of the Social Security Act to provide for extended months of Medicare coverage of immunosuppressive drugs for kidney transplant patients.
Sen. Josh Hawley (R-MO) introduced S. 3343 to amend the Federal Food, Drug, and Cosmetic Act to provide enhanced security for the medical supply chain.
The Week Ahead
Congress will be consumed with efforts to address the coronavirus this week. There are several hearings that will discuss the U.S. response to the disease. For example, the Senate Health, Education, Labor, and Pensions Committee will hold a hearing Tuesday on the coronavirus outbreak. The briefing will be an “opportunity to hear from officials” from HHS, the Centers for Disease Control and Prevention, National Institutes of Health and the FDA on steps being taken by local, state and federal health officials.
On Tuesday, the House Energy and Commerce Health Subcommittee will hold a hearing on “Combating an Epidemic: Legislation to Help Patients with Substance Use Disorders.”
Also on Tuesday, the House Committee on Veterans’ Affairs will hold a hearing, “The Silver Tsunami: Is VA Ready?”
On February 26, 2020, the National Labor Relations Board issued its final rule establishing the standard for determining whether two employers are joint employers under the Act (“New Rule”).
History of Joint Employer Standard
As explained by the NLRB, a joint employer finding has significant implications for rights and obligations under the NLRA relative to collective bargaining, strike activity and unfair labor practice liability:
If the employees are represented by a union, the joint employer must participate in collective bargaining over their terms and conditions of employment.
Picketing directed at a joint employer that would otherwise be secondary and unlawful is primary and lawful.
Each business comprising the joint employer may be found jointly and severally liable for the other’s unfair labor practices.
While “[t]he Board will find that two separate entities are joint employers of a single workforce if the evidence shows that they ‘share or codetermine those matters governing the essential terms and conditions of employment,’” for many years the “essential terms and conditions of employment” that were relevant to the joint-employer inquiry were not clearly defined.[1]
The New Rule restores the joint-employer standard that the Board applied for several decades prior to the 2015 decision in Browning-Ferris[2], after which, a company could be deemed a joint employer even if its control over the essential terms and conditions of another business’s employees was indirect, limited and routine, or contractually reserved but never exercised.
The Browning-Ferris standard deviated significantly from the pre-2015 standards under which evidence of indirect control was typically insufficient to prove that an entity was the joint employer of another employer’s workers. Even direct and immediate supervision of another employer’s employees was insufficient to establish joint-employer status where such supervision was “limited and routine.”[3]
The New Rule
Under the New Rule, an entity is a joint employer of a separate employer’s employees only if the two employers share or codetermine the employees’ essential terms or conditions of employment. The Board now defines “share or codetermine” as the possession and exercise of “such substantial direct and immediate control over one or more essential terms or conditions of their employment as would warrant finding that the entity meaningfully affects matters relating to the employment relationship with those employees.”
Under the New Rule, evidence of indirect control over essential terms or conditions of employment would only be considered “to the extent it supplements and reinforces evidence of the entity’s possession or exercise of direct and immediate control over a particular essential term and condition of employment.”
For example, an entity’s control over grievance adjustment or drug or alcohol testing might be probative of its direct and immediate control over discipline or supervision; but likely would not, standing alone, support a finding of joint-employer status.
Furthermore, the New Rule provides that an entity does not exercise direct and immediate control over supervision when its instructions are limited and routine and consist primarily of telling another employer’s employees what work to perform, or where and when to perform the work, but not how to perform it.
Practical Takeaways
The New Rule has significant economic implications for the health care industry and hospitals that frequently rely on subcontracted workers who may have previously claimed to be jointly employed by the hospital and the third party entity that employs them. Increasingly, hospitals have subcontracted both health and non-health functions within health systems as a part of their cost-saving and work-flow management strategies. According to one survey,[4] 90 percent of hospital leaders are continuing to evaluate whether to work with third-party vendors for cost efficiencies in both clinical and nonclinical functions.
The New Rule has set a stricter standard for when an employee or union can claim to be jointly employed by two employers under the Act and provides better guidance to health care employers contracting with third-party entities. However, such arrangements must still be structured and managed properly to avoid a finding of joint-employer status.
Hospitals and health systems are well-advised to consider the New Rule in structuring any new staffing or subcontracting arrangements.
If you have any questions or would like additional information, please contact:
[1]CNN America, Inc., 361 NLRB 439, 441 (2014) (quoting TLI, Inc., 271 NLRB 798 (1984), enfd. mem. sub nom. Gen. Teamsters Local Union No. 326 v. NLRB, 772 F.2d 894 (3d Cir. 1985)), enf. denied in part 865 F.3d 740 (D.C. Cir. 2017).
[2]Browning-Ferris Industries of California, Inc. d/b/a BFI Newby Island Recyclery, 362 NLRB 1599, 1600 (2015) (Browning-Ferris), affd. in part, reversed in part and remanded 911 F.3d 1195 (D.C. Cir. 2018).
[3] See, e.g., AM Property Holding Corp., 350 NLRB at 998; Airborne Express, 338 NLRB at 597; TLI, Inc., 271 NLRB at 798
In a matter of first impression, the Third Circuit yesterday held that conflicting medical opinions can create a genuine dispute of material fact as to the element of falsity in a False Claims Act action.[1]
Facts of the Case
In U.S. v. Care Alternatives, relators alleged that Care Alternatives, a hospice facility, “admitted patients who were ineligible for hospice care and directed its employees to improperly alter those patients’ Medicare certifications to reflect eligibility.”[2]
Generally, Medicare will pay hospice benefits for individuals who are certified as “terminally ill” by at least one physician. The certification must be accompanied by documentation supporting a medical prognosis that the individual’s life expectancy is six months or less if the illness runs its normal course.[3] The relators’ expert opined that in 35 percent of the sample cases he reviewed, a reasonable physician would not have certified the patients as terminally ill with a prognosis of six months or less based on the accompanying documentation. Reviewing the same sample set, Care Alternatives’ expert disagreed, finding that a reasonable physician could reasonably certify each case.[4]
Interplay of Falsity and Scienter
The district court found that relators “could not prove falsity because they had not produced evidence that any physician lied and ‘received a kickback to certify any patient as hospice eligible’ or ‘certified any patient whom that physician believed was not hospice eligible.’”[5] The Third Circuit held that the district court improperly “incorporated a scienter element into its analysis regarding falsity.”[6] In reversing the district court’s holding, the Third Circuit sought to “make clear that in our Court, findings of falsity and scienter must be independent from one another for purposes of FCA liability.”[7] It explained that “[s]cienter helps to limit the possibility that hospice providers would be exposed to liability under the FCA any time the Government could find an expert who disagreed with the certifying physician’s medical prognosis.”[8] It warned that by folding the scienter element into an “objective” falsity test, a court fails to fully consider evidence of scienter.[9]
The Third Circuit specifically disagreed with the Eleventh Circuit’s recently issued opinion in U.S. v. AseraCare Inc.,[10] which upheld an “objectively false” standard. In AseraCare, the court adopted a bright-line rule that “‘a reasonable difference of opinion among physicians reviewing medical documentation ex post is not sufficient on its own to suggest that [the original medical judgments, and therefore the claims based thereon] … are false under the FCA.’”[11] The AseraCare court opined that “[a] properly formed and sincerely held clinical judgment is not untrue even if a different physician later contends that the judgment is wrong.”[12] Despite disagreeing with this conflation of the falsity and scienter elements, the Third Circuit agreed with the general proposition. It preferred the Sixth Circuit’s distinction, however, that the sincerely held medical opinion is saved from FCA liability by the scienter element, and not by a conclusion that it cannot be false.[13] Nevertheless, the Third Circuit praised the Eleventh Circuit’s decision in the same case to vacate the district court’s order granting summary judgment and to remand the action for further development of the scienter element.[14]
Other circuits have also grappled with the issue of whether an honestly held opinion that a claim was not false goes to the falsity of the claim or the scienter of the claimant.
In U.S. ex rel. Harman v. Trinity Indus. Inc., the Fifth Circuit considered whether a statement of compliance with guardrail testing regulations was false.[15] The regulations required that design changes be submitted to the Federal Highway Administration for approval “unless an exercise of good engineering judgment finds they were not significant.”[16] The court reviewed evidence of whether the engineering judgment exercised was “good” under the falsity element and reviewed evidence of the honesty of that judgment—good or bad—under the scienter element. In the end, that case was dismissed on materiality alone.
The First Circuit made a similar distinction in U.S. ex rel. Jones v. Brigham & Women’s Hospital, finding that questions of fact on the falsity and scienter elements precluded summary judgment where allegedly false statements were submitted in a grant application for Alzheimer’s research studies.[17] The applicant stated that the preliminary research results were based on reliable testing methods. Whether the methods used were actually reliable was an issue on which reasonable minds could differ and went to the falsity of the statement, but whether the applicant knew them not to be reliable was a matter of scienter.[18]
Like the Eleventh Circuit in AseraCare, however, the Ninth Circuit appears to have conflated falsity and scienter in Hooper v. Lockheed Martin Corporation.[19] There, a relator alleged that Lockheed fraudulently underbid project costs to win a government contract. The initial bid was supposed to reflect the contractor’s good faith estimate of the cost of the project. The issue of falsity was barely discussed in Hooper, though the court reviewed allegations that the proposed costs were deliberately reduced from current market rates. Unlike the Eleventh Circuit, the Ninth Circuit found that whether the estimated costs were stated in good faith was a question of scienter, not falsity.[20] Whether based on falsity or scienter, the jury found no FCA liability when the case proceeded to trial on remand.[21]
Third Circuit Holding Limited to Falsity
Ultimately, the Third Circuit in Care Alternatives acknowledged that the district court’s holding “was based solely on its analysis of the falsity element,” and therefore its appellate “decision is limited to the same.”[22] It remains to be seen, therefore, whether on remand the district court will find a different basis to grant Care Alternatives summary judgment based on consideration of scienter, causation or materiality—the other elements of FCA liability that Care Alternatives challenged in its original motion.[23]
Practical Takeaways
The element of falsity in FCA cases is a question for a jury when reasonable medical professionals could opine differently.
A jury determination that a claim was, in fact, false, however, does not immediately trigger FCA liability. Relators must establish that the provider knew the claim was false when it was submitted. An honestly held belief that the claim was not false will defeat the scienter element but that credibility determination is typically reserved for the jury.
Basic tenants of summary judgment are undisturbed by this case. If the facts adduced only support an inference in favor of one party—for example, that even assuming falsity there was no knowledge on the part of the provider—then summary judgment remains appropriate.
A provider might not be able to rely on an after-the-fact “battle of the experts” to disprove the falsity element in an FCA case; rather, clear and well-supported contemporaneous documentation will provide the best defense that a provider did not knowingly submit a false claim.
[9]Id. at *8 (criticizing this result in U.S. v. AseraCare Inc., 176 F. Supp. 3d 1282 (N.D. Ala. 2016), vacated and remanded, 938 F.3d 1278 (11th Cir. 2019)).
[18]Id. at 96. See also U.S. ex rel. Loughren v. Unum Group, 613 F.3d 300, 310–12 (1st Cir.2010) (holding that, even if “the fact that an allegedly false statement constitutes the speaker’s opinion,” it still “may qualify as a false statement for purposes of the FCA where the speaker knows facts which would preclude such an opinion”).